ML17305B107

1989 Annual Rept,Salt River Project

ML17305B107
Person / Time
Site:	Palo Verde
Issue date:	12/31/1989
From:	Lassen J SALT RIVER PROJECT
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SALT RIVER PROJECT'S ENVIRONMENTAL POLICY:

We operate our business in a manner which minimizes negative impact on our natural resources through their wise use and development.

We have a stewardship role in regard to our land, water and air, and we are committed to preserving them for present and future generations.

This means we manage our operations, facilities and properties with the proper regard for the rights of others.

As a guiding principle, we hold to the rational use of natural resources to achieve the greatest good for the largest number of people for the longest period of time.

We are committed to providing energy and water services to our customers in an environmentally responsible manner.

We work to eliminate in our operations the release of any pollutants that may cause damage to our natural resources.

We dispose of wastes through safe and responsible methods.

We protect habitats in rivers and lakes, and in other areas where we operate.

We protect cultural resources, wherever possible, when our facilities and operations may impact their integrity.

We conserve resources.

We work to minimize the creation of waste and we recycle materials whenever possible.

We invest in improved energy efficiency and conservation in our operations.

SALT RIVER PROJECT'S CORPORATE MISSION:

To be the low-cost supplier among our competitors of high-value energy and water services.

THIS IS THE SALT RIVER PROJECT:

Named after the Salt River, which supplies water to the metropolitan Phoenix area, the Salt River Project is the oldest and most successful multi-purpose redamation development in the United States.

SRP began in 1903 when individual landowners pledged their property as collateral for a government loan to build the Theodore Roosevelt Dam.

Throughout the decades we have grown to become Arizona's largest water supplier and the nation's third largest public power utility.

The Project consists of two compatible organizations the Salt River Valley Water Users'ssociation and the Salt River Project Agricultural Improvement and Power District.

The Association is a private Arizona corporation. It administers water rights of SRP's 240,000-acre area, and operates and maintains the irrigation transmission and distribution system. This system carries water to municipal, industrial, agricultural and residential users.

The District is a public power utility and a political subdivision of Arizona. It provides electricity to approximately 520,000 residential, industrial and agricultural power users in a 2,900-square-mile service area in parts of Maricopa, Gila and Pinal counties.

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CONTENTS MESSAGE FROM MANAGEMENT 1989-90 HIGHLIGH'IS AIR QUALITY WATER QVAUTY LAND QUALITY 40 POWER WATER Our cover: This design represents the significance of the many environmental programs implemented, organized and supported by Salt River Project in fulfillingour stewardship role in regard to our land, water and air.

The photograph was taken at Lake Powell, near Page in Northern Arizona. SRP sponsors the annual Page Attacks Trash deanup program in which citizens clean up areas around Page and the lake. The program has been designated one of President George Bush's "Daily Points of Ught."

FINANCIALPERFORMANCE OFFICERS BOARD MEMBERS Our report: The paper stock used throughout this report meets the EPA requirements for recyded paper. The spiral binding is made entirely from recyded metal.

COUNCIL MEMBERS 30 WEsne g~

As a special service, SRP is maMng this Annual Report lrdormation avaihbl'e through the Arizona State Ubrary for the Blind and Physically ttan~,

l030 N. 32nd St. ~ Phoenix, Arizona 85008. (602) 255457K SALT IIIVEIZPIICVECT Publisher: SRP Communications &

Public Affairs Department P.O. Box 52025 Phoenix, Arizona 85072-2025 (602) 23&600 84.9010

TO OUR BONDHOLDERS AND SHAREHOLDERS:

/

I John R. Lassen President William P. Sehrader Vice President The year 1990 brought about the 20th anniversary of Earth Day. Therefore, we think it is appropriate to dedicate a signiTicant portion of our 1989-90 Annual Report to discussing our continuing environmental efforts. As you will read, we at Salt River Project believe environmental protection to be critically important. And, we have demonstrated our environmental commitment for many years.

As we enter the decade of the 1990s, we realize we are encountering an electric utility industry unlike any we have seen before.

SRP's Executive Management has long recognized that the electric utilityindustry would undergo profound changes.

We now believe that these changes will bring significant competitive forces upon SRP.

In response, we completed an extensive corporate reorganization during fiscal year 1988-89. It was a top-down reorganization, designed to provide us with the personnel and procedural efficiency necessary for continued success in the future.

We, in essence, designed and structured a new organization. With the theme of Maximum Effectiveness, we are working to instill in our employees a continuous quality improvement work ethic. We'e made signiTicant advances this past fiscal year, but we still have a ways to go.

Our vision of a more competitive future has become reality much quicker than we thought. This past fiscal year Included efforts by a Northwest electric utility company, PaciTiCorp, to purchase Arizona's largest electric utility, Arizona Public Service Co. (APS), and an aggressive, local marketing campaign by Southwest Gas Co. to promote dual+nergy homes.

APS, to date, has rebuffed PacifiCorp's overtures, and we in turn, offered to purchase APS assets within service areas located within our water service territory. However, our offer was refused by APS parent company Pinnacle West Capital Corp.

We believe that our reorganization and our Maximum Effectiveness efforts have positioned us to successfully address these new challenges for the utility industry.

Through our reorganization we realized savings of $29.4 million this past year which enhanced our financial position. And, because of those savings, we were able to better handle significant, unexpected expenses incurred this past year. These included paying our share for extensive outages and increased operating expenses at Palo Verde Nuclear Generating Station.

The reorganization savings also allowed us to postpone a planned rate increase from October 1989 to May 1990. This was our first rate increase since October 1987. The 7.5 percent overall increase in our electric rates falls within our goal of keeping rate increases at or below the national inflation rate.

Our mission is to be the low-cost supplier among our competitors of high-value energy and water services.

We are committed to providing those services in an environmentally responsible manner. We operate to minimize negative impacts on our natural resources through their wise use and development. This means we are committed to manage our operations, facilities and properties with the proper regard for the environment.

We are excited about the challenges and opportunities that this new decade offers. With the new foundation we have built, we look forward to prospering in the decade ahead.

A.J. Pfister Ceneral Manager

REVENUES/EXPENSES (See Page i8)

Total operating revenues

($000)

Total operating expenses

($000)

Net operating revenues

($000)

Other income ($000)

Net financing costs ($000)

Net revenues

($000)

Fiscal 1990 1,121,935 918 068 203,877 30,622 247 691 (13,192)

Fiscal 1989 1,063,306 832 316 230,990 4,571 223 798 11,763 1989-90 HIGHLIGHTS POWER OPERATIONS (See Page 19)

Energy customers at year-end Total kilowatt-hour sales (000)

Average annual kilowatt-hour use/residential customer Average annual residential revenues/kilowatt-hour (cents)

WATER OPERATIONS (See Page 18)

Assessed water accounts Water runoff (acre-feet)

Water in storage, Dec. 31 (acre-feet)

Water deliveries (acre-feet)

SELECTED OTHER DATA (See Page I8)

Gross plant investment ($000) long-term debt ($000)

Taxes 5 tax equivalents

($000)

Electric-revenue contributions to support water operations

($000)

Employees at year-end 526,333 17,009,214 518,889 17,789,940 13,171 13,184 8.27 8.03 181,873 454,471" 990,838 939,921 182,226 1,136,727 1,598,989 951,693 Fiscal 1990 Fiscal 1989 5,712,380 3,603,430 138,609 33,850 5,560,160 3,505,163 125,171 34;069 5,055 5,599 Calendar 1989 Calendar 1988 Electric Dollar 46 Reimusted~

Project Phnt

$0.14 r

Pa)'ment of interest

$0.19 Reps)ment g of Principat~~r on SRP Bonds 80.03

'., Taxes~~

60.12 urchased Fuel and Pnuur

$0.27 Operations.

and

hiaintenancd

$0.25

'ased on USGS. prooisional records and subject ro adjustmenb Electric Sales Revenues Other~I 10$X hfines~

5.74K L24X

Residential

.469X 6,226/22 7,462/01 Total Electric Sales I'fKilowatt-Hours (in thousands)

'),

Commercial~

2632X I

+9

(*

729,198'/90,193 I

'Does not include interdepartmental sales.

Residential Commercial/

Other Sales Resales Industrial

e uerh to.

~', ", eliminate in our operations the release ofany

, pollutants thatvnay cause damage to our natural', '

I%sources.

k As evidenced by this statement in our environmental policy, SRP management is committed to maintaining a quality environment in which to live and work.

As metropolitan Phoenix grows, air quality suffers from the influx of residents.

With efforts of concerned citizens and companies like SRP, we'e making strides to reduce automobile emissions.

Large cities are not the only areas with which we are concerned. We manage two coal-fired generating stations in remote locations of Arizona and we take painstaking measures to ensure they meet environmental requirements.

NGS: ATradition In AirQuality Navajo Generating Station (NGS) is a coal-fired, 2,250 megawatt station located on the Navajo Reservation, about four miles from Page We manage the plant, of which we own 21.7 percent.

NGS currently is the focus of a debate concerning its contribution to visibility impairment within the Grand Canyon National Park. The main area of the park is located about 70 miles southwest of NGS.

The U.S. Environmental Protection Agency (EPA) has published a proposed rule that visibilityimpairment reasonably can be attributed to NGS emissions of sulfur dioxide (SO2).

While we recognize the Grand Canyon's significance as a natural treasure, we are concerned that the EPA rule is based on a National Park Service draft report which, because of flawed methods and inappropriate analytical techniques, provided unvalidated condusions.

The Park Service report draws data from a six-week Winter Haze Intensive Tracer Experiment (WHITEX)study, in which we participated. The study AIR QUALITY evaluated the use of a gas tracer only as a means of tracking emission sources.

It never was intended to identify and quantify sources of visibilityimpairment.

Using independent resemhers, we are conducting a separate

$12 million study to quantify NGS'ontribution to Grand Canyon haze. The EPA was asked to participate in this study, but dedined. It has, however, agreed to consider the results in evaluating the need to install additional pollution control equipment.

Our study, designed with input from the country's top atmospheric scientists, indudes:

> 26 monitoring stations 4 four identifiable chemical tracers to track direction and age of emissions

< ground-level and upperair sampling and monitoring to characterize the atmosphere

> extensive local and regional-scale meteorological assessment.

Currently, the National Academy of Sciences is conducting a critical review of the Park Service report and other atmospheric research to determine if the methods used support the conclusions.

Should it be determined that NGS is a significant contributor to canyon visibilityimpairment, we are prepared to take the necessary remedial actions.

Our concern for air quality extends to the outset of NGS. We have burned coal with a very low average sulfur content, about one-half of one percent, since the first unit became operational in 1974. This allows NGS to be within state limits for SO2 emissions and meet federal new source performance standards established while the plant was under construction.

We'e demonstrated that our concern regarding S02 emissions goes beyond just burning dean coal. During the past 16 years we willinglyparticipated in nine different studies to determine NGS'egional environmental effects.

Conducted 1978-1980, the Visibility Impairment due to Sulfur Transport and lhnsformation in the Atmosphere study conduded that the majority of Grand Canyon haze originates to the west and southwest of the canyon.

Other studies in which we have or are participating indude:

'ero Emissions Regional Observation

'O2 Field Monitoring Project 4 Source Emission And Plume Characterization.

New Coal Technology Burns For A Cleaner Tomorrow We recognize that innovations in coal-fired electrical generation technology require work force and monetary commitments.

We participate in a technical advisory for a large-scale atmospheric fluidizedbed combustion (AFBC) project at Colorado-Ute Electric Association's Nuda, Colo.,

generating station. Our contnbutions have induded more than $50,000 and the loan of two engineers on a full-time basis.

AFBC technology offers a potentially economical alternative for reducing air pollution in that it reduces SO2 and nitrogen oxide emissions.

It also allows for using alternative fuels, induding refuse-derived waste products.

Fewer Vehicles Drive Cleaner Air Metropolitan Phoenix continues to experience significant air quality problems, exceeding federal carbon monoxide standards on numerous days during winter months.

Automobiles are major contributors to this problem. To address the problem, we are involved in a countywide plan to reduce miles traveled and commuter trips by single occupant vehides.

Our employees are encouraged to rideshare.

We offer access to two computer databases of individuals looking for rideshare partners. Other alternative transportation methods we subsidize or support are vanpooling, bicyding and mass transit use.

In the case of a personal emergency or approved emergency overtime, employees using these alternatives are guaranteed a ride home from work.

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e hold tp the rational ttse of natural resources to achieoe the

'greatest good for the largest number ofpeople for the

'ongest period of time."

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More than just rhetoric, this phrase from our environmental policy is part of our daily operations.

Key to the success of Arizona's Salt River Valley has been a dependable water supply. Originally used primarily for crop irrigation, today more than 60 percent of the water delivered by SRP is for domestic consumption.

However, we believe there's more to it than just delivering enough water to meet the needs of thirsty Arizonans. We strive to ensure that water delivered is of sufficient quality, and that we make best use of the water we have.

Laboratory Ensures Adequate Quality Water Supply Our Environmental Laboratory is licensed by Arizona's Department of Health Services. This certifies our capability to perform complex analytical tests of our water supplies. Data determined through the testing helps us identify potential water quality problems, and supports our goal of providing adequate quality water.

We have monitored our water storage and distribution system for more than 50 years. In the past, we focused more on assessing the water in regard to agricultural uses.

Today, we work to ensure an adequate water supply for all of our customers.

We monitor water on our watershed, in our canals and from our groundwater wells. Monitoring permits us to detect pollution sources, allowing for assessment and remediation of potential water quality problems.

Real-Time Water Quality Monitoring Provides Checks In cooperation with the cities of Chandler, Phoenix and Tempe, we constructed a real-time water quality WATER QUALITY monitoring station prototype on the Arizona Canal. On a 24-hour basis, this facility samples and tests water being delivered through the canal.

Physiochemical elements of the water induding pH, temperature and turbidity are measured by sensors.

A fullyautomated biological monitor, which measures breathing patterns of juvenile bluegill fish, provides early warning of potential contamination events. Should a contamination event occur, or the sensors exceed a preset range, this information willbe radioed to our water control center and to water treatment plants downstream.

Information gained from our first station will be used to develop stations throughout our water distnbution system.

Nature To Control Nature Uncontrolled, algae and weeds within our canals could consume up to 45 percent of the water we deliver annually.

In our quest for better ways to maintain the canals, we'e beginning to use triploid white amur fish instead of herbicides.

Bred specifically for weed control, white amur can eat their own weight daily in aquatic weeds.

In our test program, which we began in 1989, we placed 1,788 of the fish in nine miles of our Tempe and New Crosscut canals. The results have been outstanding, helping us realize a $152,152 savings in canal weed control costs, and all without adding chemicals to the water.

Nature's Water Storage Facility In years of low precipitation and runoff, groundwater can be an important factor in meeting the water needs of Valley residents. During periods of above-normal precipitation and runoff, water can be lost because of a lack of storage space.

Additionally, demand for water varies seasonally.

When we combined these simple facts, we determined that there had to be a way to resolve the dilemma use natural water storage areas beneath the ground. We are experimenting with two types of groundwater recharge, which means placing surface water into an underground aquifer.

Our Granite Reef Undetgtound Stomge and Recovery Project is a joint effort among SRP, the Salt River Pimaklaricopa Indian Community and the cities of Chandler, Gilbert, Mesa, Phoenix, Scot tsdale and Tempe.

Still in the testing and permitting stages, the project calls for recharging up to 200,000 acre-feet (af) of water through the normally dry Salt River bed below our Granite Reef Diversion Dam. Water would be directed through a network of berms to permit increased infiltration into the underground aquifer.

Our efforts also indude a well injection experiment in which we recharge groundwater supplies by pumping on-site treated surface water into the ground through one of our wells.

This artificial groundwater recharge allows storage of excess surface water, delivered by canal, in an environment which reduces evaporation loss.

We estimate that this technology will enable us to store up to 60,000 af of water in 150 of our wells, enough to meet the annual needs of 40,000 families.

Water Conservation Program For McDonnell Douglas We'e working with McDonnell Douglas Helicopter Co. to develop water conservation programs at its manufacturing plant in Mesa.

Our preliminary program entails using groundwater from an existing well at the plant site to cool the facility. Groundwater replaces more costly, treated drinking water from the city of Mesa.

Untreated well water is pumped into the plant's cooling towers and passed through heat exchangers to cool the plant. It is returned to the well where the temperature cools, lessening the potential for evaporation.

Our conservation program recharges the groundwater supply and negates the need to dispose of normally resulting waste water.

l1 e have a I

stervardship role in regard,to,bur land...and ive are committed to preserving it for.

present and future generations."

LAND QUALITY This phrase from our environmental policy exemplifies our company for SRP has played a major role in the development of the Salt River Valley.

We'e seen it grow from a predominantly agricultural community to a thriving metropolis. Farm fields have given way to homes, populations have increased, and city boundaries have edged further into the surrounding desert.

While this growth has been beneficial in many ways, we also realize the importance of preserving the integrity of open natural areas and their inhabitants.

Recycling Programs Save More Than Dollars To operate our company, we were producing 250 tons a month of solid waste, enough garbage to fill 825 cubic yards of landfill space. And, we were spending $16,000 per month to haul away what was considered merely trash.

Upon further review, we realized that an office paper recyding program could not only save money, but also reduce the amount of landfill space required. At the same time we could save thousands of trees per year. For every ton of paper we recyde, we could save 3.3 cubic yards of landfill space and 17 trees.

Early this fiscal year we instituted a pilot program to indude office paper with our existing computer paper recyding project and found it to be very successful.

During the year, we removed from the waste stream 432,430 pounds of paper products. This resulted in approximately

$25,600 in revenues alone.

Metal and wood products have been recyded at SRP for many years. In fiscal year 1989-90, we returned about 2,362 tons of metal products, and almost 160,000 feet of wood poles and 340 wooden reels for recyding. These figures represent additional income of approximately $976,000.

One Company's Ash Is Another Company's Treasure Fly ash, the powdery flue dust residue from coal burned in our steam geneiating units, continues to be disposed of in an environmentally sound way.

Left uncaptured, some 1,330 tons of fly ash per day could leave our coal-fired Navajo Generating Station stacks and enter uncontrolled into the environment.

But electrostatic precipitators at our Navajo and Coronado generating stations redaim 99.5 percent and 99.8 percent, respectively, of the ash for safe disposal.

We sell fly ash to concrete manufacturers.

Used in concrete, it improves workability and increases strength. More importantly, it provides for an environmentally safe use of the fly ash and reduces the amount of natural resources used in concrete production.

In 1984, the U.S. Environmental Protection Agency issued guidelines giving preference to federal construction job bids that induded the use of fly ash.

Cleanup Programs Capture Communities'ommitment Community involvement and deanup programs long have been the SRP way.

We recently joined more than 4,300 Page citizens in celebrating the 10th anniversary of the Page Attacks Trash deanup (PAT). This year's campaign bagged and properly disposed of more than 180 tons of trash.

As one of the originators of the deanup program, we took great pride when in 1989 President George Bush prodaimed PAT as his 85th "Daily Point of Light."

Points of Light are individuals or initiatives exemplifying Bush's commitment to making community service central to the life of every American.

We annually sponsor several deanups.

Many this year were held in conjunction with Earth Day. At the Fowler School Cleanup more than 400 participants collected approximately 300 tons of trash.

We also sponsor and participate in these community programs: Lower Salt River Cleanup, Phoenix North and South Mountain Preserve Cleanup, Take Pride In Scottsdale and Tolleson Community Pride Day.

E-One Exposition Promotes Environmental Concern This past fiscal year we joined the Valley Forward Association as partners in sponsoring E-One, the state's first environmental exposition. National in scope, the event was designed to promote environmental education and provide entertainment.

More than 5,000 people attended the two-day event. It featured 84 booths from 77 exhibitors ranging from recyding companies and waste management firms to the Arizona Humane Society and the Maricopa Audubon Society.

In conjunction with E One we held our 11th annual Energy Fair for children grades K through 12. This year's theme was "Energy and the Environment" and we presented

$4,135 in awards, induding a $1,000 grand prize. More than 200 students participated in this year's fair, making it the state's second-largest event of its kind.

SRP Supports Bald Eagles We are a member of the Southwestern Bald Eagle Management Committee, a consortium dedicated to the study and conservation of bald eagles in Arizona.

A symbol of freedom in the United States, the bald eagle, unfortunately, had nearly vanished from Arizona.

Arizona now serves as habitat for more than 20 breeding pairs of bald eagles.

With our help, the committee's nest watch program ensures that remaining desert bald eagles are free from harassment during the crucial nesting season.

Our efforts were recognized when we received the U.S. Fish &WildlifeService Director's Outstanding Contribution Award for our involvement with the committee.

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POWER The 1920s and 1930s saw continued transformation of the Salt River Valley, with modernization of its cities. During this time, Valley farmers sought the same electric service private utilitycompanies provided city residents.

Private utilities found it too expensive to build distribution lines to serve those rural customers.

To meet the farmers'emands for electric service, SRP began to build lines to supply those customers.

This was the beginnings of the Salt River Project Agricultural Improvement and Power District, which was formed in 1937 after passage of enabling legislation by the Arizona Legislature. By 1947, the District had only 12,400 electric customers. Today, we serve the electrical needs of more than 520,000 residential, commercial, industrial, mining and agricultuml customers.

AYear of Records, Outages and Changes At 6 p.m., July 19, 1989, our power customers set a new peak demand of 3,289,000 kilowatts. To meet this demand, we relied on our coal-fired, Valley and hydroelectric generating stations, and selected power purchases.

Optimal performance of our facilities was paramount to our meeting demand.

Electric Customers Other 1.?X Commerchl~/

?JIX Residential 905K service in July 1990. In addition to the refueling, a significant amount of backlogged work and other conective actions had to be completed during the outage before the NRC Throughout the year we experienced stellar performances by our generating facilities. The Navajo Generating Station achieved its highest annual output since 1982. Similarly, Coronado Generating Station (CGS) produced its highest level of annual output since 1986.

Our three Valley generating stations continued to improve their performance, posting nearly a I percent improvement in fuel efficiency.

During the early 1970s, we became a participant in the Palo Verde Nudear Generating Station (PVNGS), located 50 miles west of Phoenix, to provide power to our rapidly growing customer base. We now own 17.49 percent of the plant, which indudes three 1,270 megawatt (MW) electric generating units and is managed by Arizona Public Service Co.

In 1988, Unit III set an industry performance record for the longest continuous runthe greatest number of days on line-by an American manufactured nudear plant in the world during its first year of operation. However, the performance of PVNGS has not been as reliable since then.

Toward the end of 1988, operational problems started to become apparent.

The Nudear Regulatory Commission (NRC) expressed concerns regarding operations and indicated a need to strengthen the nudear management team.

1989 was a year of continued operating problems and a year for major changes at Palo Verde.

Unit I shut down on March 5, 1989, and subsequently entered a scheduled refueling outage in Aprilof that year. It returned to would approve restart of the unit.

Unit II was shut down in February 1990 for its second scheduled refueling and also returned to service in July. Unit III was in an extended refueling outage from March 1989 to January 1990. Like Unit I, a significant amount of additional work had to be done during the outage.

During 1989, APS strengthened the PVNGS management team through changing or adding approximately 20 management positions, induding the executive in charge of the facility. This new management team implemented numerous programs to address identified shortcomings at the plant.

While much remains to be accomplished, we believe that APS has turned the corner and is moving in the right direction to demonstrale that PVNGS is a safe plant, capable of achieving high production performance.

Expanding To Meet Demand While the explosive new customer growth we experienced in the mid-1980s has slowed, we still grew by more than 7,400 customers.

Many of our new customers located in outlying areas of our service territory, which requires us to continually expand our facilities.

During 1989-90 we installed approximately 289 miles of overhead and underground distribution lines. Our transmission system also expanded with 40 miles of new 69 kilovolt(kV)lines and 30 miles of 230 kV lines. Four new distribution stations were constructed to meet customer demand and seven existing substations were modified for added capacity.

DemandSide Marketing Targets Customers'eeds A rapidly changing and increasingly competitive utilityindustry requires us to look at new ways to meet our markets'eeds.

We now find it effective to influence how our customers use our product rather than just to build generating capacity to meet demand.

Fuel Sources This concept of demand-side management benefits our financial position and our operating economics.

Just as important, it produces increased customer satisfaction.

Our larger customers are looking at alternatives to our services such as cogeneration, other forms of self-generation and wheeling, that is, using one utility's transmission lines to deliver power purchased from another utility.

Many customers also have the choice of natural gas for certain functions.

In response to these competitive influences, we developed a long-term, demand-side marketing program designed to improve levels of customer service and produce cost savings for us and our customers. Our plan willreduce our peak demand and improve our system load factor by encouraging energy usage during off-peak periods.

Critical to the success of our plan is the implementation of services that provide customers with tangible benefits.

One such service is our Climate Crafted Home prograin.

Climate Cmfted homes are less expensive to heat and cool than conventional total-electric or dual-energy homes.

To qualify as Climate Crafted, subdivisions must meet only two criteria:

the homes must be total<ectric and they must meet our energy efficiency standard.

With support of the mortgage lending industry, our program also features the Home Stretch Mortgage. It allows buyers to qualify for loans as much as 7 percent larger than for nonZIimate Crafted homes because of the lower utility bills.

Other-services in our plan indude Electric Savings Time rates for both residential and commercial customers; the Cash Back Program for residential customers who install high efficiency heat pumps; the Commercial Bficient Lighting Progmm, which provides cash incentives for installation of energy-efficient lighting equipment; and the Thermal Energy Stomge Rebate Program, which offers

Coal

'6.2X plant's $700 million cost was spent for environmental protection equipment.

Devices installed indude scrubbers, electrostatic precipitators and emission monitors, each designed to reduce the plant's environmental impact.

Kyrene Generating Station, in Tempe, celebrated its 35th anniversary. With six dual-fuel generating units, the 300 MW facility today is used primarily as a back-up station during times when extra power is needed. Our crews ensure that Kyrene is ready to opemte at any time to meet customer demand.

Fence Lake Project Continues An affordable supply of dean coal is necessary for the continued operation of CGS. We are continuing efforts to secure a federal coal lease and mining permits for our Fence Lake, N.M., coal development project.

The Fence Lake site could yield more than 100 million tons of coal which burns well in CGS'wo 350 MWunits. The coa!

has a 0.66 percent sulfur content, which meets our strict environmental standards.

We currently hold lease rights for 11,000 acres at the site, 43 miles east of g3 CGS, and we are applying to lease an adjacent 6,840 acres of fedeml land. Our efforts also indude identifying the most economical and efficient means to mine and transport the coal.

Kyrene And CGS Celebrate Anniversaries Two of our generating stations celebrated significant anniversaries this past year. CGS, a coal-fired plant near St.

Johns, recognized its 10th anniversary.

The 700 MW facility is one of the most environmentally sound, coal-fired genemting stations in the United States.

Approximately 30 percent of the

Misc. Purchases

?3X financial incentives for installing load-H~,

shifting cool stomge syste~

?OX Continuing Our Customer Service Tradition 129K Quality customer service long has been our commitment. We work Oit-hard to develop and F

maintain quality Nuclear' relationships with our 6aX customers. To do so, we must understand and meet our customers'eeds in a competent

'Includes tOxlro purchases and caring manner.

Substantial improvements in cooperation among areas within the company were made in our corporate reorganization to provide enhanced customer service. We developed a Single Point of Contact program for our external customers through which they promptly can receive answers and resolve problems.

Other improvements to our Customer Services effort indude installation of a new telephone system at our Customer Telephone Center to better handle customer calls, and the implementation of an electronic, hand-held meter reading device system.

With the new hand-held device, we have increased our meter readers'ccumcy and productivity. It also allowed meter readers to reprogram the meters of our 25,000 Electric Savings Time customers, and we avoided a very costly program of changing out the meters.

WATER Domestic Water Deliveries Chsndler Gilbert Glendale mesa Peoria Phoenix~

Scottsdale Tempe 20 40 Acre Feet tin Thousands)

In 1903, the Salt River Valley Water Users'ssociation was incorporated to ensure that available water could be stored and distributed equitably to its members.

Eighty-seven years later, the Salt River Project still is working to meet the water needs of Valley residents, operating dams, maintaining the water distribution system and helping to ensure water quality.

Dry Conditions Return To Arizona After several years of abundant rainfall and runoff, dry conditions returned to the 13,000-square-mile Salt and Verde river watershed (a natural drainage area into the two rivers).

Runoff from the watershed during 1989 was 62 percent of normal, while watershed precipitation totaled 71 percent of normal.

1988 1989 I

t r

160 surface water and 60,989 af was groundwater.

After losses to evaporation, seepage and other factors, we delivered 939,921 af in 1989 to users, compared to 951,693 in 1988. Of the deliveries, 450,557 af went for non-agricultural uses including municipal and industrial contracts, parks, Through careful planning and use of our extensive system of groundwater wells, SRP has allowed metropolitan Phoenix area residents to avoid the immediate threats of drought recently experienced by residents of other states.

We manage the water from the Salt and Verde rivers, which is stored behind six dams and released as needed.

Water is distributed through 133 miles of main canals and 1,132 miles of laterals, which branch off the main canals to deliver water to users.

Eight cities receive much of the water, treat it and deliver it to Valley residents.

We also provide water for irrigation purposes to farmers and certain urban irrigators.

We began calendar year 1989 with 1,598,526 acre-feet (af) in our six reservoirs. (An acre-foot is enough water to cover one acre of land to a depth of one foot, or approximately 325,850 gallons.)

Inflows to SRP's six reservoirs during 1989 totaled 454,471 af, which was 682,256 af less than 1988. This was the least amount of runoff we have received since 1977.

As a result, we ended 1989 with 990,838 af of'water in storage, which is 23 percent below normal and 49 percent of capacity. Total Project water supplied to the Valley in 1989 was 1,062,241 af. Of that total, 1,001,252 af was

churches, schools and residential irrigation. Agricultural accounts received 286,676 af while 58,106 af were used for decreed deliveries including Indian reservations.

Off-Project and non-member deliveries totaled 144,582 af.

Interestingly, SRP witnessed a net return of 114 acres to agricultural use from urban in 1989. This is a reverse from the trend set for the past few years. In 1988, 2,070 acres were transferred to urban use from agricultural uses, and in 1987, 3,501 acres were converted to urban use.

Groundwater: A Vital Resource To Be Managed Pumped groundwater played a role in SRP meeting customer demand in 1989, with a 16 percent increase in the number of acre-feet of water pumped compared to 1988. And it is expected to play a very significant role in 1990. We estimate that it will be necessary to pump more than 300,000 af of groundwater to meet demand in 1990.

A major concern for SRP and our customers is the Arizona Groundwater Management Act. SRP developed recommended revisions of the act that would allow for more accurate measurement of groundwater withdrawals, for development of a methodology that provides incentives for use of alternative supplies and to facilitate improved accounting requirements for all users.

In serving our customers, SRP developed and mailed information to all shareholders having certified groundwater rights. Our communications provided water-use information pertaining to each certificate, which shareholders could use to react to water allocations assigned by the Arizona Department of Water Resources for its Second Groundwater Management Plan.

FINANCIAL PERFORMANCE The past few years brought about many changes in the electric utility industry. Mergers and acquisitions have become commonplace and the industry as a whole is more competitive in nature.

We underwent a corpomte reorganization in 1988-89 to prepare our company for new financial and operational challenges.

Our mission is to be the lowest supplier among our competitors of high-value energy and water services.

New Labor Agreement Signed In November, we reached a new labor agreement with the International Brotherhood of Electrical Workers Local Union 266. The union represents clerical, shop and field workers at SRP. Effective through Nov. 15, 1992, the three-year contract indudes wage adjustments.

Rate Increase Approved Our first rate increase in two and one-half years was approved by SRP's Board of Directors and became effective May 15.

The overall 7.5 percent increase was within our financial plan parameters, which call for mte increases, when combined with adjustments to the fuel escalator, to not exceed the compound rate of inflation over time. This increase originally was scheduled for Oct. 15, 1989, but was delayed because of anticipated savings from our reorganization.

Revenues Pass $ 1 BillionMark We once again passed the billion dollar mark, with combined opemting revenues this fiscal year of $1.12 billion.

This is a 6 percent increase compared to 1988-89 revenues of $1.06 billion.

However, 1989-90 net revenues were $25 million less than those of 1988-89. This year we experienced a net loss of $13.2 million, while in 1988-89 we realized

$11.8 million in net revenues.

While many factors contributed to this loss, the largest single iniinence was the Palo Verde Nudear Genemting Station outages.

These outages resulted in operations and maintenance expenses

$16.8 million more than budgeted, and

$23.8 million more than in 198M9.

Our average customer count increased by 11,355 or 2.2 percent compared to 1988-89 figures. More customers, plus warmer temperatures during peak summer months resulted in an electric revenues increase of $58.1 million.

Internal Indicators Relatively Strong Despite Palo Verde Our six-year financial plan indudes several internal indicators to measure our financial viability. They indude Debt Service Coverage Ratio, Funds Available for Corporate Purposes (FACP) and our Debt Ratio. Despite the financial impact of Palo Verde's outages, these measures indicate that we are financially healthy.

For 1989-90, our Debt Service Coverage Ratio was 1.85, dose to the budgeted amount of 1.86 and better than our plan goal of not less than 1.80.

FACP, the cash basis bottom line from opemtions, was $122 million for 1989-90, a strong figure despite the accrual basis net operating loss. While 1989-90 FACP is lower than the 1988-89 amount, it was

$2 million better than we budgeted.

Our Debt Ratio, targeted in our financial plan to be 75 percent or less, was 71 4 percent at the end of the year.

Reorganization Savings Help Offset Unexpected Expenses Through our reorganization we have eliminated 603 positions to date, with 71 more reductions to occur through attrition or scheduled cutbacks.

While any reorganization involving personnel reductions is very painful, we believe that SRP is in better position now to address the future. In addition, savings from our reorganization, estimated to be

$29.4 millionthis year, improve our ability to cope with future financial challenges.

We experienced a challenge this year with the accrual of $8 million in unexpected expenses.

The expenses resulted from the proposed settlement of a lawsuit determining the validity of our method of compensating certain Association shareholders served electricity by Arizona Public Service Co.

(APS). Of that amount, $5.7 million relates to prior years, and is shown on our Combined Statements of Net Revenues as an Unusual Item. The remaining $2.3 million relates to this fiscal year.

We compensate for cost differentials between what shareholders'lectric bills would be ifserved by SRP and what they are paying to APS when its residential electric rates are 15 percent or more higher than ours.

This $8 million in unexpected expenses and the additional costs from Palo Verde's outages were not in our original budget. Our situation would have been more difficultifwe had not realized the savings from our reorganization.

Capital Expenditures Include NGS Contingency Our six-year financial plan projects direct capital expenditures of $2.1 billion through 1996. These indude contingencies to meet speciTic needs, if they arise. The most notable is a $116.2 million contingency for our portion of the costs of additional pollution control equipment at our Navajo Generating Station (NGS). A definitive study is underway to determine if NGS is a significant contributor to Grand Canyon haze and if installation of additional equipment is warranted.

The $2.1 billion also indudes a general contingency of $173.9 million.

Bond Sales Represent Source for Future Growth We issue tax-exempt electric system revenue bonds to finance the construction and equipment necessary to provide power to our service area. During this past year we had two bond sales,

$22 million in minibonds at 7.15 percent in December and $100 million in revenue bonds at 7.35 percent in February.

Both sales were rated AA and Aa by Standard & Poor's Corporation and Moody's Investors Service, respectively.

Surface Water vs Groundwater Supplies 1)646344 1,001,247 I,001,252 ~

Groundwater (acre feet)'

Surface N'ater (acre feet) 758,295 656596 1979 1984 1988 1989

'Groundwater supply pumped by SRP Regional Service Centers AllowFor Improved Customer Service To better serve our water customers, we reshaped portions of SRP's Water Group. The three new departments Southside, Central and Northside Water Service Centers resulted from the merger of Water Operations and Water Construction 5 Maintenance functions.

These new service centers locate employees near the areas they serve and increase work efficiency.

Plan 6 Work Continues on the Salt River System We continue to support the U.S.

Bureau, of Redamation's (USBR) efforts to complete Plan 6 construction activities at Theodore Roosevelt Dam and Stewart Mountain Dam on the Salt River.

Plan 6 is the flood control and water storage feature of the Central Arizona Project (CAP). Approved in 1984, Plan 6 is Arizona's alternative to the controversial Orme Dam, proposed to be built below the confluence of the Salt and Verde rivers.

Planning continues for modifications to Roosevelt Dam, which indude increasing the height by 77 feet, revamping the spillways and constructing a river outlet works in the dam's left abutment. The Arizona Department of Transportation (AD~

is constructing a suspended-arch bridge over the lake to replace I

Valley Growth Results In New Construction Projects We have been actively involved in numerous construction projects resulting from the Valley's rapid growth. From the planning and engineering functions, to completing actual construction, SRP employees have played key roles. We continue to successfully coordinate ADOT's aggressive Urban Highways construction program with its effects on our water transmission and distribution facilities.

Construction of the Price Road Freeway necessitates the relocation of part of the Tempe Canal into two, 10-foot diameter underground pipelines. This is SRP's largest underground canal project.

ADOT's Hohokam Freeway project requires the relocation and expansion of SRP's Old Crosscut Canal, from a 2,000 cubic feet per second (cfs) channel to a 4,100 cfs flood control facility.

Construction projects performed by our crews induded:

'ulti-structures for the inlet and outlet of Tempe Canal pipelines 670-by-110 foot sedimentation basin for Tempe Canal pipelines bypass of the Western Canal u relocation of the Grand Canal and 1,600 feet of new canal

'elocation of a well site.

the nanow roadway which now passes over the dam. The bridge is 80 percent complete and is expected to be finished in September 1990.

At Stewart Mountain Dam, two drawdowns were required during 1989 to facilitate repair work on the dam. Work is 80 percent complete, and the project is scheduled to conclude in August 1991. Modifications to the dam indude a new spillway, increased height of the dam, drainage of the foundation and grouting, power plant protection, penstock replacement and post-tensioned steel tendons.

CAP/SRP Interconnection Agreement Signed During the year, we signed an intergovernmental agreement with eight cities for joint participation in the construction, operation and maintenance of the CAP/SRP Interconnection Facility.

The facility allows CAP water to be diverted three ways: into the Arizona Canal, for distribution to water users north of the Salt River; into the South Canal, for distribution to water users south of the Salt River; and into the Salt River bed for groundwater recharge.

SRP Negotiates CAP Water Transportation Agreements Negotiations are under way with the Arizona Municipal Water Users'ssociation (AMWUA)for SRP to transport AMWUA-member city water. We propose using our transmission system to deliver the cities'AP water allotments and water from the new conservation storage space planned behind the enlarged Roosevelt Dam.

61%

58X~

38K 1979 1984 1988 1989

~ Agrfcutture gQ Urban Agricultural vs Urban Water Deliveries

Debt Service Coverage Ratio Target 180 185 192 IR 185 FINANCIAL CONTENTS STATISI'ICALREVIEW COMBINED BALANCE SHEETS COMBINED STATEMEYIS OF NET REVENUES 198546 1986.8?

Target 198?48 1988 89 1989 90

~ Debt Service Carnage Ratio COMBINED STATEMENTS OF CASH FLOWS Total Operating Expenses

$642/63

$790/?2

$?06/77

$832)lit

$918/58 NOTES TO COMBINED FINANCIALSTATEMENTS REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 1985 86 1986 87 198788 198849 1989.90 Total Operating Revenues

$848,618

$959/46

$ 1,063@06 /

1,121@35 lj..

1985 86 1986 8?

1987.88 198849 1989 90

STATISTICAL REVIEW (thousands of dollars)

Project General Operating revenues Electric Water and irrigation Operating expenses Other income Net financing costs Net revenues (toss)

Additions to plant, exduding allowances for funds used during construction Utilityplant, gross Contributions of electric revenues to support water operations lhxes and tax equivalents Employees at year end

'Does not indude temporary employees 1990

$1,121,935 1,113,184 8,751 918,058 30,622 247,691 (13,192) 238,014 5,712,380 33850 138,609 5,055'2 Months Ended April30 1989

$1,063,306 1,055,042 8,264 832,316 4/71 223,798 11,763 341,617 5$ 60,160 34,069 125,1?1 5,599 1984

$683,993 678,698 5,295 484,728 17,872 28,961 188,176 298669 3,777,893 12,094 67,745 5,434 12 Months Ended December 31 19?9

$417,789 413,066 4,723 291,610 (574) 25,170 100,435 394,728 2,355,783 6,183 42,859 4,197 1989 1988 1984 1979 Water'otal storage and pumping capacity (acre-feet)

Storage capacity (six reservoirs) installed pumping capacity Water in storage ian.

1 (acre-feet)

Project storage only Runoff (acre-feet)

Water in storage Dec. 31 (acre-feet)

Project storage Sources of water for deliveries (acre-feet)

Gravity supply Groundwater supply (pumping by SRP)

Groundwater supply (pumping by others)

Use of water (acre. feet)

Agricultural Urban City domestic Subdivision irrigation Other nonagricultural irrigation (schools, parks, churches, etc.)

Decreed deliveries

, Contract deliveries Seepage and evapotranspiration Canals, total (miles)

Lined Laterals, total (miles)

Lined and piped Drainage and waste ditches (miles)

Lined and piped Assessed area (acres)

Number of assessed accounts Number of times water dehvered to users 2886,832 2,019,102 867,730 1,598526 1,325,684 454,471" 990/98 768,728 1,062,241 1,001,252" 53,894 7,095 939,921 286,676 450557 330/54 66,386 53,317 58,106 144582 122,320 133 101 9]2 830 230 90 238,400 181,873 508068 2,880,369 2,019,102 861,267 1,624,272 1,391,376 1,136,727 15989 1,329,773 1,053,717 1,001,247 50,004 2,466 951,693 311,338 428,146 313997 62,669 51,480 54~7 157,673 102,024 133 96 907 817 232 88 238,266 182,226 486,307 2~,519 2,019,102 834,417 1,71?,407 1,455,375 1,100,100 1,781,671 1543571 999@?9 758,295 221,165 20,519 881/01 353,916 393,851 281,439 61,019 51,394 51,704 84942 126,842 132 72 890 777 240 75 238,171 181,083 478,325 2/58,261 2,063948 794,313 1,839,399 1548,741 2,402,641 1563,309 1,290,971 1,338,008 1,264,344 65596 8,068 1,100,467 535,046 334,309 222,098 55,063 57,148 64505 120/54 286,761 131 64 880 740 247 58 238,221 174,603 444,157

'tVoter statistics are computed on a calendar >ear basis.

"Based on USGS prouisional records and are subjed to adjustment.

12 hlonths Ended April 30 1990 1989 1984 12 hlonths Ended December 31 19?9 fbttter Energy sources (kWh)

Net nudear generation Net steam generation'et gas turbine generation Net combined cycle generation Net run of river generation Pumped storage generation Total net generation'urchased Interchange received Wheeling received Total energy sources'nergy disposition (kWh)"

Residential Commercial & Industrial Irrigation pumping Street & highway lighting Public authorities Interdepartmental Sales for resale Total sales Interchange delivered Wheeling delivered Energy losses Energy for pumped storage operation Total disposition of energy Peak overall pomr system (kW)

Date and time (M~

Peak Project customers (kW)

Date and time (MSf)

Generating capability (kW)"'ud ear Steam'as turbines Combined cycle Hydroelectric conventional Hydroelectric pumped storage Total operating capability'ontract purchase at peak Total resources'lectric customers year-end" Residential Commercial & Industrial Other Total Average annua! kWh use/residential customer" Average annual residential revenues/kWh (cents) 1,185,427,000 13,758,883,000 24,816,000 1,279,637,000 277/75,000 44,344,000 16,570,682,000 I$16,600,292 516,820,660 355,947960 18,960,050/12 6,226,922,136 7,462,901 5?8 181~0,135 110995,460 299,164,401 137/07,236 2590,193,220 17,009,214,166 548,209,000 338,359 JI67 995,887,045 68,382,000 18,960,050,912 3,784,000 July 19, 6 p.m.

3,289,000 July 19, 6 p.m.

642,000 2,428,000 397,000 292,000 94,000 148,000 4,001,000 459,000 4,460,000 476,309 41,061 8,963 526,333 13,171 8.27 3,864,274,000 12,691/34,000 28,239,000 875,447,000 348,404,000 168,280,000 I?976,478,000 1,064rt99,431 273,883/05 82/47/40 19,398,208JI?6 6,095,740,065 7,201,161 /75 276,195,168 106,249$ 27 314/81 N3 95,397$ ? I 3,700,213,776 I?,789,939535 231 546,000 243+9,088 1,059 JI65,370 234,685,000 19,398,208$ 76 3,476,000 July 25, 5 p.m.

3,060,000 July 25, 5 p.m.

641,190 2,411,115 393,000 288,000 96,400 137,000 3,966,705 237544 4,204,249 469,330 40/56 9,003 518,889 13,184 8.03 10,655,441,000 19,399,000 190,299,000 521,180,000 206,036,000 11592,355,000 2,262,454,908 69,424,000 18,970,092 13,943,204,000 4,290,081,354 4$80,684,473 260,180,664 85,698,006 232,660,889 73,212,740 2,789,722,423 12,612,240/49 54,666,000 15,450,467 966513,984 294,333,000 13,943,204,000 2,605,000 Sept. 2, 6 pm.

2,260,000 Aug. 31, 5 pm. 2,211,250 393,000 288,000 96,400 137,000 3,125,650 329547 3,455,197 353,115 29,924 8,103 391,142 12/35 7.06 8,335,201,000 65/67,000 165,285,000 581,793,000 79,674,000 9,22?$ 20,000 2,0?N26504 182,335,000 7,778,496 11,496,860,000 3~,579,831 4,319978,092 195,422,631 42,194,885 291,489,443 64,785,898 1923,770,250 10,421,221,030 224/07,000 7,101,769

?28,465,201 115565,000 11,496,860,000 2,437,000 Sept. 5, 6 p.m.

1911,000 June 27, 5 p.m. 1553,250 393,000 288,000 95,000 137,000 2,466,250 328,661 2,794/11

-287,293 20,766 1,643 309,702 13,038 5.07

'Includes SRP participation injointly otuned projeas.

"Energy disposition klVh through total sales, elearic customers year.end, aucrage kiVh use and average annual revenue are estimated Iigures.

"'Unit capabilities during summer peak.

COMBINED BALANCE SHEETS Salt River Project as of April30, 1990 and 1989 (thousands of dollars) 1990 1989 UTIUTY PLANT, at historical cost (NQKs t, 2,3 aiid 4):

Plant in service:

Electric Irrigation Common Total phnt in service

~-Accumuhted depreciation on plant in service Plant held for future use (wars s)

Construction cwork in progress Nudear fuel, net of amortization

$4,652,286 116523 338,634 5,107,443 1,266,656 3/40,787 298904 229,414 76,619 4,445,724

$4587,139 107,119 220123 I

4/14,381 1,135,244 3,779,137 29M34 267,027 79/18 4,424,916 ONER PROPERTy AND INVESTMEÃIS:

Non.utility property and other investments Segregated funds, net of current portion (t'otz 4) 36,273 11?$ 92 154,165 34,448 111,656 146,104 CURRENT ASSEIS:

Cash and temporary investments, at cost Current portion, segregated funds p,'orF. 4)

Ttade and other accounts receivable, net, induding unbilled revenue in 1990 (t'atm t)

Fuel st~ at hst-in, first~t cost Materials and supplies, at average cost Other current assets pxrK s) 227,317 85,268 105,033 51,492 86,476 31,352 586,938 261 $55 82,145 57860 86/54 80509 24/09 593@32 DEFERRED CHARGES AND ONER ASSEIS (tt(rm 4) 226,476

$5,413,303 212,791

$5,377,643 The accompanying notes are an integral part of these combined balance sheets.

Capitalization and Liabilities LONGTERM DEBT p:mE s):

Electric system revenue bonds, net of current portion Commercial paper and other 1990

$3,222,689 380,741 3,603,430 1989

$3,129,380 375,783 3,505,163 ACCUMULATEDNET REVENUES:

Balance, beginning of year Net revenues floss) for the year Balance, end of year 1,454,689 (I3,192) 1,441,497 1,442/26 11,763 1,454,689 lmTALCAPITALIZATION 5,044,927 4,959852 CURRENT UABILITIES:

Current portion, long-term debt q'ate 4)

Accounts payable Accrued taxes and tax equivalents Accmed interest Customers'eposits Other current liabilities Accrued reorganization costs q'os 9)

Accrued phnt deferral costs, current portion g'mE s) 35,162 68,664 57,662 76$23 26,945 34,278 5,235 I/23 305892 34,794 93,076 45,477 74,425 23,765 25,429 3],613 25,448 354,027 DEFERRED CREDOS AND OtfHER NONZURRENT LIABILITIES(Nom s ana r) 62,384 63,764 COMMITMENTS AND CONTINGENCIES pi'otEs s, 6 and r)

$5,413,303

$5,377,643 The accompanying notes are an integral part of these combined balance sheee.

COMBINED STATEMENTS OF NET REVENUES Salt River Project for the years ended April30, 1990 and 1989 (thousands of dollars)

OPERATING REVENUES txma t):

Hectric Water and irrigation Total operating revenues OPERATING EXPENSES:

Power purchased Fuel used in electric generation Other operating expenses Maintenance Depreciation and amortization lhxes and tax equivalents Ibtal operating expenses Net operating revenues mHER INCOME:

Allowance for equity funds used during construction Interest income Other deductions, net Total other income Net revenues before financing costs FINANCING COSIS:

Interest on bonds Amortization of bond discount, issue and refinancing expenses Interest on other obligations Less-Allowance for bommed funds used during construction Net financing costs NET REVENUES (LOSS) BEFORE UNUSUAL AND EXTRAORDINARYITEMS AND CUMULATIVEEFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE UNUSUAI. ITEMS:

Expenses of corporate reorganization program {xoK9)

Settlement of litigation q'olE r)

NEI'EVENUES (LOSS) BEFORE EXTRAORDINARYITEM AND CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE EXTRAORDINARYITEM-Gain on extinguishment of debt ftox 4)

NET REVENUES (LOSS) BEFORE CUMULA'11VE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE CUMULATIVEEFFECT ON PRIOR YEARS {10 APRIL 30, 1989)

OF ACCRUING UNBILLED REVENUE faorE i)

NEl'EVENUES (LOSS) 1990

$ 1,113,184 8,751 1,121935 30,681 273589 214,527 108,608 152,044 1381609 918,058 203877 578 37,403 (14,054) 23927 227,804 220,490 7,254 24,395 (4,448) 247,691 (19$87)

(6927)

(5,700)

(32514)

(32$ I4) 19,322 5 (13,192) 1989

$),055,042 8,264 1,063,306 15,327 254807 193,925 92,334 150,652 125,171 832,316 230990 4,694 29585 (45) 34,234 265,224 204,378 7,005 22668 (10,253) 223,798 41,426 (32,687) 3,024 11,763 S 11,763 The accompanying notes are an integral part of these combined statements.

COMBINED STATEMENTS OF CASH FLOWS Salt River Project for the years ended April 30, 1990 and 1989 (thousands of dollars) 1990 1989 NET CASH FLOWS FROM OPERATING ACllVITIES:

Net revenues (loss) before cumulative effect of accounting diange Noncash items induded in net revenues (loss)

Depreciation and amortization Amortization of bond-related expenses Gain on sale of plant and debt extinguishment Decrease (increase) inFuel stocks and materials and supplies Other assets, net increase (decrease) inAccounts payable Accrued taxes and tax equivalents Accrued interest Accrued reorganization costs Other liabilities, net Termination of coal contract Cumulative effect of accounting change txota t)

Net cash provided by operating activities NET CASH FLOWS FROM INVESI1NG ACIlVITIES:

Additions to utility plant, net of AFUDC Allowance for funds used during construction Additions to non-utility property Contnbutions in aid of construction Proceeds from sale of plant Net cash used by investing activities NET CASH FLOWS FROM FINANCING ACl1VITIES:

Proceeds of bond issues Proceeds of other long-term debt, net of repayments Repayment of principal on bonds Repayment of principal on U.S. debt q'orE s)

Increase in segregated funds Net cash provided by financing activities NET INCREASE (DECREASE) IN CASH AND TEMPORARY INVFSIMENTS BALANCE AT BEGINNING OF YEAR IN CASH AND TEMPORARY INVESfMEKIS BALANCEAT END OF YEAR IN CASH AND TEMPORARY INVFSIMENTS

$ (32514) 152,044 7,254 (959) 29,095 (67,367)

(24,412) 12,184 2,098 (26,378) 22/86 19,322 93,253 (238,014)

(5,026)

(1/25) 28,486 6/00 (209,879) 120/47 4,340 (33,440)

(9,359) 82,088 (34438) 26IN5

$ 227,317

$ 11,763 150,652 7,005 (4,390) 3,616 (19,694) 13,750 1,172 4,044 31,613 2,189 (59,410) 142,310 (341,617)

(14,947)

(4,226) 40527 2,342 (317,921) 264,614 22,333 (27,229)

(3,859)

(16512) 239,347 63,736 198,119

$ 261$ 55 The accompanying notes are an integral part of these combined statements

NOTES TO COMBINED FINANCIAL STATEMENTS Salt River Project As of April 30, 1990 and 1989 (I)

SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES:

Principles of Combination The combined financial statements indude the consolidated accounts of the Salt River Project Agricultural improvement and Power District and its subsidiaries (the District) and the accounts of its agent, the Salt River Valley Water Users'ssociation (the Association), together referred to as Salt River Project (SRP). The District's subsidiaries are Papago Park Center, Inc. (PPCI), a real estate management company, and Salt River Generating Company which is currently inactive. All significant intercompany transactions have been eliminated.

Regulation and Accounting Principles Under Arizona law, the District's Board of Directors (the Board) serves as its regulatory and rate setting agency. The accompanying combined financial statements reflect the rate making policies of the Board and are in accordance with generally accepted accounting principles promulgated by the Financial Accounting Standards Board.

UtilityPlant, Depreciation and Maintenance Utility plant is stated at the historical cost of construction.

Construction costs indude labor, materials, services purchased under contract, and allocations of indirect charges for engineering, supervision, transportation and administrative expenses.

An allowance for funds used to finance construction work in progress (AFUDC) is capitalized as a part of the electric and general plant. This allowance is deducted from net financing costs in the combined statements of net revenues and added to utility plant. Capitalization rates of 5.83 percent and 6.70 percent were used in 1990 and 1989.

Depreciation expense is computed on the straight-line basis over the estimated useful lives of the various dasses of plant.

Rates in effect resulted in provisions approximating 2.95 percent and 3.10 percent for 1990 and 1989, respectively, on the average cost of depreciable electric plant, and 2.49 percent and 146 percent for 1990 and 1989, respectively, for depreciable irrigation plant.

As of May I, 1989, SRP prospectively revised its estimate of the useful life of various assets to more dosely approximate industry standards.

This change did not significantly impact combined depreciation expense.

The cost of property that is replaced, removed or abandoned, together with removal costs less salvage, is charged to accumulated depreciation.

SRP charges to maintenance expense the cost of labor, materials, and other expenses incurred in the repair and replacement of minor items of property.

Bond Expense Bond discount, issue and refinancing expenses are being amortized over the terms of the related bond issues.

Electric Rates Under Arizona law, the Board has the exdusive authority to establish electric rates. SRP is required to follow certain procedures, including public notice requirements and holding a special Board meeting, before implementing changes in standard electric rate schedules.

In April 1990 the Board authorized a 7.5 percent standard rate increase to be effective May 15, 1990. The previous rates had been in eiieci since Ociober 1987.

Nuclear Fuel Under the provisions of the Nudear Waste Act of 1982, the District is charged one mill per kilowatt-hour (kWh) on its share of electricity produced by Palo Verde Nudear Generating Station (PVNGS) for the cost to dispose of the fuel.

The District amortizes the cost of nudear fuel, induding its disposal, to fuel expense on a unit of production method.

Decommissioning The District reserves for the cost of decommissioning PVNGS based on an outside engineer's study. The total estimate to decommission the District's share of PVNGS is $133 million in 1989 dollars. This estimate will be reviewed and adjusted periodically. Decommissioning funds of approximately $9,500,000 at April 30, 1990, are maintained as a segregated fund. The corresponding liability is classiTied in other noncurrent liabilities.

Beginning in 1991, the decommissioning funds will be maintained in an external trust in accordance with new Nudear Regulatory Commission regulations.

Fuel Costs The District maintains a fuel adjustment dause balancing account to adjust operating results for variations between the recorded cost of fuel and purchased power and revenue designated for recovery of such costs. At April 30, 1990, and 1989, unrecovered (overrecovered) fuel costs totalled $18,503,000 and $(1,328,000), respectively, and are recorded as accounts receivable and accounts payable, respectively.

Income Taxes The District is exempt from federal and state income taxes.

Statement of Cash Flows The District considers short-term temporary cash investments to be cash equivalents.

Cash payments for interest were

$239,500,000 in 1990 and $221,600,000 in 1989.

Reclassifications Certain 1989 amounts have been redassified to conform to the current year presentation.

Change in Accounting Principle Prior to fiscal 1990, electric operating revenues were recognized when billed. In fiscal 1990, SRP began accruing estimated revenue for electricity that had been delivered to customers but had not yet been billed. This accounting change results in a better matching of revenues with expenses.

Had this accounting method been in effect during fiscal 1989, operating revenues and net revenues would have increased in 1989 by approximately $1,500,000.

(2) POSSESSION AND USE OF UTILITY PLANT:

The United States of America retains a paramount right or daim in SRP which arises from the original construction and operation of certain SRP facilities as a federal redamation project. SRP's right to the possession and use of, and to all revenues produced by, these facilities is evidenced by contractual arrangements with the United States.

(3) INTERESTS IN JOINTLY OWNED ELECTRIC UTILITYPLANTS:

The District has entered into various agreements with other electric utilities for the joint ownership of electric generating and transmission facilities. Each participating owner in these facilities must provide for the cost of its ownership share. The District's share of expenses of the jointly owned plants is induded in operating expenses in the combined statements of net revenues.

The following table reflects the District's ownership interest in jointly owned electric utility plants at April 30, 1990:

Ownership Plant Name Share Plant In Accumulated Service Depreciation CWIP (thousandth of dollars)

$85,943

$25,702 47,313 19,989 221,705 97,242 67,892 30,200 225,688 69,831

$7,801 2,612 6,508 250 536 10.00%

10.00 21.70 50.00 29.00 Four Corners (NM)

Mohave (NV)

Navajo (AZ)

Hayden (CO)

Craig (CO)

Palo Verde Nuclear Generatin Station (AZ) 17.49 1,583,652 174,759 18,482

$2,232,193

$417,723

$36,189 The District acts as the operating agent for the participants in the Navajo Project.

SRP retains an option to recapture up to an additional 5.7 percent interest in PVNGS which was previously sold to another participant. The recapture, which can occur no sooner than 2001, would be based on reproduction cost new less depreciation.

(4) LONG-TERM DEBT:

Long-term debt consists of the following:

Interest Rate 1990 1989 Revenue Bonds (mature through 2030)

Unamortized Bond Discount (thousands of dollars) 4.9-11.5%

$3,348,752

$3,257,583 (92,718)

(95,843 Total Revenue Bonds Outstanding 3,256,034 3,161,740 Commercial Paper 5.5.6.4X 375,000 375,000 Other 7,558 3,217 Total Lon -Term Debt

$3,638,592

$3,539,957 The annual maturities of long-term debt (exduding commercial paper) as of April 30, 1990, due in the fiscal years ending April 30, are as follows:

1991 1992 1993 1994 1995 Thereafter (thousands of dollars) 35,162 41,800 50,767 53,425 57,940 3,117,216

$3,356,310 Revenue Bonds Revenue bonds are secured by a pledge of, and a lien on, the revenues of the electric system after deducting operating

expenses, as defined in the bond resolution. Under the terms of the bond resolution, the District is required to maintain a debt service fund for the payment of future principal and interest.

Induded in segregated funds is approximately $186,249,000 and

$181,795,000 of debt service related funds as of April 30, 1990, and 1989, respectively.

The District has $169,567,322 of Mini-Revenue Bonds outstanding which can be redeemed at the option of the bondholder under certain circumstances.

These bonds have been dassified as long-term in connection with refinancing terms under an available line of credit with a commercial bank.

The debt service coverage ratio, as defined in the bond resolution, is used by bond rating agencies to help evaluate the financial stability of the District. For the years ended April 30, 1990 1989 Service cost Interest cost Actual return on assets Net amortization and deferral Net periodic pension income (thousands ot dollars)

S 8,955 S 9,061 18,350 15,735 (18,399)

(47,941) 13,762 18,911

$ 4,856 S (4,234) 1990, and 1989, debt service coverage was 1.85 and 1.92, respectively.

Interest and amortization of discount on the various issues results in an effective rate of approximately 7.32 percent over the remaining terms of the bonds.

At April 30, 1990, the Project has authority to issue additional electric system revenue bonds totalling $367,435,893 principal amount and electric system refunding revenue bonds totalling

$1,943,405,000 principal amount.

The District has defeased several issues of revenue bonds, sometimes resulting in a loss. In accordance with the Board's resolution, the losses have been deferred and are being amortized on a monthly basis over the remaining life of the refunded bonds. Induded in deferred charges and other assets is

$93,660,000 and $96,399,000 of unamortized defeasance

losses, at April 30, 1990, and 1989, respectively.

Commercial Paper The District has issued

$375,000,000 of tax~empt commercial paper at an average interest rate to the District of 5.94 percent. The commercial paper matures no more than 270 days from the date of issuance and in no event after July 12, 1991. The commercial paper has been dassified as long.term in connection with refinancing terms under a revolving credit agreement with a consortium of banks which supports the commercial paper. Under the terms of the Agreement, the District may borrow up to $375,000,000 through Oct. 29, 1993.

The commercial paper is an unsecured obligation of the District.

General Obligation Bonds In 1984, the District refunded its then outstanding general obligation bonds. Although the refunding constituted an in-substance defeasance of the prior lien on revenues which secured said bonds, the general obligation bonds continue to be general obligations of the District, secured by a lien upon the real property of the District, a guarantee by the Association, and the District's taxing authority. As of April 30, 1990, the amount of defeased general obligation bonds outstanding was $93,595,000.

Government Debt In fiscal year 1989, SRP extinguished approximately $6.9 million in outstanding debt with the U. S. Bureau of Redamation with a payment of approximately $3.9 million. This transaction resulted in a $3 million gain which has been reflected as an extraordinary item in the combined statements of net revenues for 1989.

(5) EMPLOYEE BENEFIT PLANS:

Defined Benefit Plan SRP has a defined benefit plan (the Plan) covering substantially all employees. The Plan is funded entirely from SRP contributions and the income earned on invested assets.

No contributions were required to be made to the Plan in fiscal years 1990 and 1989. Plan assets consist primarily of stocks, U.S.

obligations, corporate bonds, real estate funds and a guaranteed investment contract.

Net periodic pension cost (income) as of the dates of the latest actuarial report (April 30) is made up of the components listed below and was determined using the projected unit credit actuarial cost method:

The discount rate used in determining the actuarial present value of the projected benefit obligation was 9.0 percent for both 1990 and 1989. The rate of increase used to determine future compensation levels was 55 percent for fiscal years 1990 and 1989.

The expected long-term rate of return on assets is 9.75 percent for both 1990 and 1989.

The following schedule reconciles the funded status of the Plan with amounts reported in SRP's combined financial statements as of April 30:

1990 1989 Plan assets at fair value (thousands ot dollars)

$301,655

$293,451 Actuarial present value of projected benefit obligation:

Vested benefit obligation Nonvested benefit obligation Accumulated benefit obligation Excess of projected benefit obligation over accumulated benefit obligation Projected benefit obli ation Plan assets in excess of projected benefit obligation Unrecognized net assets Unrecognized net gain Prior service cost not yet recognized in net periodic pension cost (16?,548)

(6,9?0)

(174,518) 49,555) 224,073) 77,582 (52,030)

(7,958) 1,999 (145,579)

(6,519)

(152,098)

(51,615 (203,713 89,738 (56,366)

(21,983) 2,175 1991 1992 1993 1994 1995 (rnilllons of dollars)

$283 316 315 364 429 Prepaid Pension Cost

$ 19,593

$ 13,564 As a result of SRP's Organizational Assessment and Renewal (SOAR) Program, a curtailment gain of approximately $1,172,000 was recognized as income in the current year in accordance with Statement of Financial Accounting Standards No. 88. This income was recorded as a reduction of SOAR costs incurred in the current year (Note 9).

Defined Contribution Plans SRP also has two defined contribution plans, the Salaried Employees'hrift Plan and the Hourly 401(k) Plan. Both plans receive employee contributions and partial employer matching contributions.

Employees are eligible for employer matching contributions upon completion of one year of service. SRP contributions to these plans were $2,615,000 and $2,700,000 in the fiscal years ended April 30, 1990, and 1989.

Other PostempIoyment Benefits SRP provides certain health care and life insurance benefits for retired persons. Substantially all of SRP's employees may become eligible for those benefits if they reach normal retirement age while working for SRP, retire and have completed a minimum of 5 years regular employment. The cost of retiree health care and life insurance benefits is recognized as expense as the premiums and/or deposits to the trustee are paid. For 1990 and 1989, those costs totaled $2,867,000 and $2,100,000, respectively.

(6) COMMITMENTS:

District Construction Program Construction expenditures, induding contingency allowances, planned for fiscal years 1991 through 1995 are shown below:

These expenditures will be financed primarily by funds currently on hand, future net revenues and the sale of revenue bonds.

Coronado Unit III In 1988, the Board approved deferring the in-service date of Coronado Generating Station Unit Ill. This action was taken as a result of a study which concluded that the deferral would allow SRP to realize savings in future revenue requirements.

In accordance with the Board's resolution, Coronado Unit III costs of $280.5 million were transferred to plant held for future use.

Commercial operation is currently anticipated in 2005.

Long.Term Power Contracts The District has entered into two long-term power purchase agreements to supply a portion of its projected load requirements.

Each contract is for 50 megawatts (MW) of firm power starting June 1990, increasing to 100 MW beginning in June 1991 and expiring in the year 2011.

In fiscal 1990, the District entered into a long-term contract with a participant in the Navajo Generating Station to acquire an additional percentage of the output of the Station. Minimum payments under this contract willbe based on 200,000 kilowatts (5V)of capacity and 760 kWh per kW per year of associated energy. This contract will commence May I, 1993, and expire Sept. 30, 2011.

Minimum payments under these purchased power contracts are as follows for the fiscal years ending April 30:

1991 1992 1993 1994 1995 Thereafter (thousands of dollars)

$ 15,895 29,539 28,685 42,904 42,904 740,916

$900,843 Fuel Supply At April 30, 1990, minimum long-term commitments of approximately $2.4 billion exist under fuel supply contracts. During 1989, the District paid approximately $59 million to terminate a contract with Kaiser Coal Company. The remaining termination cost of S54,15?,000 and $58,120,000 at April 30, 1990, and

1989, respectively, is induded in deferred charges and other assets and is being amortized to fuel expense over the remaining lifeof the original contract. This termination cost is being recovered through the rate increase effective May 15, 1990.

AssocIation Construction Program SRP is committed to spend approximately S42 million over the next six years for its share of a project to build or modify dams on the Salt and Verde rivers for flood control, to ensure dam safety and provide water storage associated with the Central Arizona Project.

Papago Park Center SRP is currently developing a 470-acre, mixed-use commercial park called Papago Park Center in Tempe, Arizona. In connection with the infrastructure development, the District and the city of Tempe have entered into an agreement whereby the District will pay a special annual assessment of approximately S1.75 million per year for 19 years to the city of Tempe to pay for its share of street and Infmstructure improvements and right of way acquisition. The obligation of the District to make assessment payments is an unsecured obligation payable from District general funds.

The District's wholly owned subsidiary, PPCI, will serve as the real estate management company in accordance with the terms of a 99-year lease on the property.

(?) CONTINGENCIES:

Environmental At any given time, litigation or administrative proceedings or studies involving environmental matters could affect SRP and its present and proposed generating and operating facilities. Many normal activities in connection with SRP's operations generate hazardous wastes, which in the last 10 years, have been the subject of substantial fedetal, state and local legislation imposing strict liabilityon generators, transporters, storers and disposers of hazardous waste for dean-up costs and damages which result from substance release or contamination, regardless of time or location. Increased operating expenses due to adverse environmental decisions would be passed on to customers through electric rates.

The District's principal generating stations, due to their proximity to large national parks, monuments and wilderness

areas, may be subject to provisions relating to visibility protection.

Currently, the U.S. Environmental Protection Agency is evaluating whether the Navajo Generating Station is a source of visibility impairment requiring installation of environmental controls.

Installation would require significant additional expenditures, which would be passed on to customers through increased electric rates. The District has induded a contingency allowance in the 5-year construction program (Note 6) for the costs of new environmental controls should they be required.

Payments to Certain Property Owners in the Association's Service Areas Now Provided Electric Power by Others:

The Artides of Incorporation of the Association provide for the indemnification of certain property owners in the Association's service areas which are now provided electric power by others if they are required to pay substantially more for power than they would if they were furnished electric power by the Association. A reserve for these payments has been established which, in the opinion of management, adequately covers SRP's liability as of April 30, 1990.

The District has recently reached a tentative settlement of litigation related to the interpretation of the Artides of Incorporation. As a result of this settlement, an additional liability for previous periods of approximately $5.7 million was established and has been presented as an unusual item in the combined statements of net revenues.

Indian Matters From time to time, SRP is involved in litigation and disputes with various Indian tribes on issues concerning royalty payments, taxes and water rights, among others. Resolution of these matters may result in increased operating expenses which would be passed on to customers.

Other Litigation In the normal course of business, SRP is a defendant in various litigation matters.

In management's

opinion, the ultimate resolution of these matters will not have a significant adverse effect on SRP's financial position or results of operations.

Nuclear Insurance Under existing law, public liabilitydaims that could arise from a single nudear incident are limited to $7JI billion. PVNGS participants currently insure for this potentiial liabilitythrough commercial insurance carriers to the maximum amount available ($200 million) with the bahnce covered by an industrywide retrospective assessment program which is required by the Nudear Regulatory Commission.

The maximum assessment per reactor per nuclear incident under the retrospective program is $63 million but not more than $10 million per reactor may be charged in any one year for each incident subject to a 5 percent surcharge which could be applicable in certain circumstances.

Based on SRP's ownership share in PVNGS, the maximum potential assessment would be $33.1 million but would be limited to $69 million per incident in any one year, induding the 5 percent surcharge.

(8) ASSOCIATION OPERATIONS:

Association expenses exceeded revenues by approximately

$33,850,000 for 1990 and $34,069,000 for 1989.

(9) SRP'S ORGANIZATIONALASSESSMENT AND RENEWAL:

In 1989, the Board approved a program to review SRP's organizational structure in conjunction with revised growth estimates for the Phoenix metropolitan area. This program resulted in the elimination of approximately 700 salaried and hourly positions. The related estimated severance benefits have been expensed in the combined statements of net revenues as an unusual item.

Report of Independent Public Accountants To the Board of Directors, Salt River Project Agricultural Improvement and Power District, and Board of Governors, Salt River VaHey Water Users'ssociation:

We have audited the accompanying combined balance sheets of SALT RIVER PROJECT as of April 30, 1990 and 1989, and the related combined statements of net revenues and cash flows for the years then ended. These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.

An audit indudes examining, on a test basis, evidence supporting the amounts and disdosures in the financial statements.

An audit also indudes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Salt River Project as of April 30, 1990 and 1989, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles.

As explained in Note I to the financial statements, effective May I, 1989, the Company changed its method of accounting for unbilled revenue.

Phoenix, Arizona, June 15, 1990.

Arthur Andersen & Co.

OFFICERS ELECTED OFFICERS John R. Lassen President William P. Schrader Vice President PRINCIPAL OFFICERS AND OTHER EXECUTIVES A.J. Pfister General Manager John R. McNamara Associate General Manager Corporate Engineering Ei Potuer Group David Areghini Assistant General Manager Potuer Operations Robert J. Conlon Assistant General Manager Corporate Engineering John H. Steffen Assistant General Manager Potuer Construction 8 Mainlenance James L. Swartz Assistant General Manager Operations Services Carroll M. Perkins Associate General Manager Financial 8 Information Services Group Mark B. Bonsall Corporate Treasurer and Assistant General Manager Financial Seruices John D. Jacobs Assistant General Manager Information Systems Oren D. Thompson Associate General Manager Water Group Don G.

Parlett'ssociateGeneral Manager Corporate Services Group Paul G. Abler Assistant General Manager Human Resources D.S. Wilson Jr.

Associate General Manager Planning Ec Resources C.A. Howlett Associate General Manager Customer Services Ck Marketing Group Gary W. Harper Assistant General Manager Customer Services Helen W. Knopp Assistant General Manager Communications 8 Public Affairs D. Michael Rappoport Assistant General Manager Government Affairs Richard H. Silverman Assistant General Manager Latu 8 Land Paul D. Rice Corporate Secretary CONSULTANTS Legal Advisers

Jennings, Strouss d'c Salmon Independent Public Accountants Arthur Andersen and Ca Bond Counsel Mudge Rose Gulhrie Alexander and Ferdon Financial Consultant Lazard Frhres and Co.

'Effectioe August I, 1990 LJ. Utten replaced Don 0 Parlett, toho retired from the company.

j!,/i,'

'S rr

', lg Rudolph Johnson Distrid/Diaision I Association & Distrid Oarence C Pendergast Jr.

Ntrid/Diction2 Associction &Ntrict Bruce B. Broohs Distrid/Diadion 3 Aexiation &Dieid Gilbert R. Rogers Ddtrid/Dimion 4 Association & District BOARD MEMBERS h/

John hf. Williams Jr.

Ntrid/Diseon 6 Aeeation & Ddtrid James L DiBer Distrid 6 ksociation Thomas P. Hurly Dice'on 6 Ntrid Ann Burton Ddtrict/Dicision 7 Assoaation & District Joe Bob Neely Ddtrict/Dri4sgsn 8 Association &District William W. Arnett At4arge District Robert E Hurley Dhtrict 9 Association s

Fred J. Ash At.large Ntnd Olen Sharp Dicisln 9 Dieid 9:L James R. htarshall At-large Ntrict Duuyne E Dobson District/Dicin'on 10 Assolrtion & Ntrict Hdon Rudd At4arge Ntrid oard members',

establish specific pblicies, 'artd through SRP's'anagement, conduct the

.'business affairs ofthe Salt'River Project in accordance with the

,, l articles ofincorporation; bylaws and statutes.'jte 10 members ofthe Board r

of Gover'aors of the Salt River, Valley Water Users'ssociation are elected every two yea'rs by the shareholders(property owners) of the Association.,

'The Board ofDirectors of the Salt RiverProject Agricultural

, Improvement and Pbtver District consists of14 members who serve staggered four-year terms. One

, District Board member is elected from each of the 10 SRP voting

'ivisions, a'nd four members are elected at-large.

I

COUNCIL MEMBERS is James hb Aexsano Dktrkt/jvktskn3 Assockrie & Ddtrict Ccorot rice Oaskmcn Robert L Cook

/i /

k'hrward W. LpVie DistriMNMsmI Ssockk6km & Ddtrict if s

I i'mll hb Rowsy Distrit/DixieI Assockriae & Ddtrkt Wayne A. Itart DistriadNkn 2 Heavies &Ddtrkt

~lb~

DktiktDkisicn2 Association &Dktikt John A. Vandcswcy Dktikuvkiskn2 Stocctrt tin & Ddtrkt John E Andmson Dktrktrvkkjion3 Asscckrioe & Ijtstrkt Astockrkn &Ddtrkt Roy W. Cbcatham Drsekt4i&in5 Oarcnce J Densen'Xeia6 kssockrkn

'he Councils set

~

broad policy through enacting and amending bj lauts relating to the management and con1uct of SRP's business affat'rs.

Three Council members are I

'lected by SRP shareholders.to

'tvo-year ter'ms in each of the 10 districts oftPe Salt River Valley 1Vater Users'ssociation.

Three Council members are Beefed to staggered four-pear

'eimsin each ofthe 10 divisions of ghe Salt River Project Agricultural Improvement and Pomr District.

Dmn W. lewis Ddtiktrvkiskn6 Asscckrkrr & Distn'ct Gcorttc KNinth krtkktDkkknI Dane Mc~

Ddtnct I Mark V. yacc Wayerc A. Marietta Dkiskn I W. Certts Dana Dtstrktrvkiskn 9 laster ILltowey Dktiktvte'skn I 30 lee L Trcttaskcs DktsiM&siw9 C, Me Nilbs

~

~

'As ol publication, the ttbtver Distric Council seat /or Division 6 had not been filled.

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No Postage Stamp Necessary If Maiied in the United States BUSINESS REPLY MAIL FIRST CLASS PERMIT NO. 1758 PHOENIX, AZ POSTAGE WILL BE PAID BY ADDRESSEE Salt River Project Corporate Communications P.O. Box 52025 Phoenix, AZ 85072-9512 I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I No Postage Stamp Necessary If Mailed in the United States BUSINESS REPLY MAIL FIRST CLASS PERMIT NO. 1758 PHOENIX, AZ POSTAGE WILLBE PAID BY ADDRESSEE Salt River Project Corporate Communications P.O. Box 52025 Phoenix, AZ 85072-9512 Ilrrlrrlrlrllrrrlrrrlrrlllrl Irl<< rrllrrlrlrrrlll No Postage Stamp Necessary If Mailed in the United States BUSINESS REPLY MAIL FIRST CLASS PERMIT NO. 1758 PHOENIX, AZ POSTAGE WILL BE PAID BY ADDRESSEE Salt River Project Corporate Communications P.O. Box 52025 Phoenix, AZ 85072-9512

Our mission is.clear:

To be the low-cost supplier C

among our competitors of high-value energy and water

.services; And, we do so in an

- environmentally responsible

'anner, which minimizes negative impact on'our.natural resources.

We serve a stewardship role in regard to our land, water and air: We are committed to preserving them for present arid future generations.

At SRP, we'e working hard to accomplish our mission and to find ways to safeguard our

~

environment. We believe these two jobs go hand in glove.

From providing high-value energy services.and ensuring an adequate supply of quality w'ater for our,customers, to preserving the integrity of Arizona's archaeological treasures, our

'ission is clear. +O~l>+

~8M SALTRIVER PRCVECT