ML17306B048

Salt River Project 1991-92 Annual Rept

ML17306B048
Person / Time
Site:	Palo Verde
Issue date:	04/30/1992
From:	Lassen J, Perkins C, Schrader W SALT RIVER PROJECT
To:
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ML17306B046	List: ML17306B048 ML17306B049 ML17306B051
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NUDOCS 9210190159
Download: ML17306B048 (42)

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Salt River Project (SRP), the nation's third largest public power utility and Arizona's largest water supplier, is the oldest multiple-purpose reclamation enterprise in the United States. We are named for the major river which supplies water to metropolitan Phoenix the Salt River.

SRP was created in 1903 through provisions of the National Reclamation Act. Individual landowners in the Salt River Valley pledged their property as collateral for a government loan to build Theodore Roosevelt Dam, the cornerstone of SRP's water business.

SRP consists of two compatible organizations, the Salt River ValleyWater Users'ssociation, and the Salt River Project Agricultural Improvement and Power District.

The Association is a private Arizona corporation that administers water rights to SRP's 240,00&ere area. We operate and maintain a statmf-thwart water delivery system that combines gravity flow and pumping. This system carries water to municipal, industrial, agricultural and residential users.

In cooperation withthe U.S. Forest Service, the Association helps manage the 13,000-square. mile watersheds of the Salt and Verde rivers.

The District is a public power utilityand a political subdivision ofArizona. We provide electricity to about 550,000 residential, industrial, commercial and agricultural power users, chiefly in metropolitan Phoenix. Our 2,900 square-mile service area spans portions of Maricopa, Gila and Pinal counties in central Arizona.

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

We describe our business direction to support that mission in terms of the four Cs:

Customer Service, Competition, Commitment and Cost. Executive management builds on these fundamentals by focusing on the following strategic priorities to guide the company:

0 SRP will become more cost competitive by accepting a greater degree of risk and flexibilityin operations and planning. We willfocus on lowering the costs of internal operation to meet financial targets and to make strategic investments.

0 We will continue fulfillingour unique heritage of storage, transportation and delivery of water to customers at a reasonable price. We willconsider adding new water services, at fullcost, as markets for such services develop.

0 SRP will continue to support balanced solutions to environmental issues. We will contribute to the scientific understanding of environmental matters and will communicate results with customers, employees and the public.

0 Service quality willremain a high priority for SRP and will be crucial in dealing with the more competitive environment.

Customers and their needs will define service quality. This applies to both internal and external customers.

0 To compete effectively, SRP will need employees of the highest caliber with multiple skills. Rather than increase the work force, we willrecruit, retain, retrain and redeploy employees to meet these challenges.

We remain dedicated to providing a safe and healthful work place.

0 SRP will focus on activities that benefit and meet the expectations of our customers and shareholders, and the communities where we do business.

Sondholders and Shareholders VI+ 4 QO Ppijg To 0llI'4"i';

(From left) General hfanager CM Perkins, Vice President IVflliamP. Schrader and President John R. Lassen.

Increasing competition and an uncertain economy present a unique window of opportunity for those utilities in good financial condition.

We see that window as being wide open for Salt River Project.

Our confidence is high because decisions we made the past several years paid healthy dividends in fiscal year 1991-92. Our power facilities are reliable and our power operations set numerous performance records.

SRP reservoirs are functionally full.

We had the best year financially since the mid-1980s.

SRP had net revenues of 840.2 million, and healthy cash flows, with funds available for corporate purposes at 8182.9 million. Also, SRP sold a record $53 million in minibonds in response to local investor demand.

These results are encouraging, but our concern is that window of opportunity. Like any solid, long-term investment, SRP must be able to combine sound planning with occasional risk-taking.

The strategic priorities outlined at the beginning of this report are our road map for realizing our mission, to be the lowxost

supplier of high-value energy and water services. We think these strategic priorities will favorably position SRP in the Phoenix and regional markets.

Today's business environment confirms the validity of our mission and suggests the need to take steps to reconfirm our commit-ment to achieve it. To achieve our mission, we must rededicate our efforts and improve our organization.

In some

cases, these improvements represent significant changes from established practice.

We improved operations by reorganizing and reducing our work force, even though we were healthier financially at the time than other utilities in the region. Our six-year financial plan continues to be a key to our solid financial planning. These actions resulted in our present strong financial position.

We are pleased to report that SRP is enjoying very favorable public opinion. Most of our customers we surveyed say we are a well-managed company. The value of livingin an SRP area continues to increase largely because of the service quality we offer our customers.

Service quality starts at the top. Each member of executive management also is a customer service representative. We identified a number of our largest business and industrial customers, and assigned several to each executive. The partnerships we foster with these customers are important to us.

We continue to establish partnerships by channeling resources into activities consistent with SRP core businesses that clearly benefit customers and communities where we do business.

Through leadership in the public policy arena, corporate contributions and employee involvement, we are committed to making a difference in people's lives.

SRP is many things. It is a federal reclamation project, a modern public power utility and a special improvement district within our state. It facilitates the growth of homes, business and industry, and crops.

Fundamentally,

though, SRP remains committed to providing water and energy leadership. This leadership means providing a stable, economic base of resources for our customers and shareholders, and the willingness to shift gears and take advantage of improvement opportunities to benefit those we serve.

We invite you to read our annual report and learn more about SRP, our direction and our vision.

John R. Lassen President WilliamP. Schrader Vice President CM.

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4 IS4 l (Fmm left) General Nanagert Chf. Perhins; Associate General ilfanagerst Richard H. Siluemtan, Late &

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ski, SRP is making the most of opportunities to improve and take advantage of the regional economic situation. Although some utilities in the West are suffering financial hardships and the regional economy is sluggish, we have been able to strengthen our position.

SRP will continue to invest in strategic transmission facilities and to support wholesale transmission access.

Further, we will continue to pursue wholesale energy transactions that benefit our customers.

SRP also continues to develop expertise in analyzing and deploying alternative resource options, including fuel cells, cogeneration and solar.

Through research, we better understand specific areas and types of service that drive the level of customer satisfaction. In turn, we will use our research results to realign our resources and to maintain or improve customer satisfaction. To further improve our product, we will continue to refine our power quality program.

SRP uses energy<fficiency programs to provide customers with more options and to increase SRP's resource flexibility and reliability.We willimprove research, develop-ment and assimilation of technological advances that benefit the company and our fo~gkg Peoria Glendale

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Electric service area served exclusively by SRP.

Q SRP provides full power requirements of another utilityfor resale.

Q SRP provides lullpower requirements of another utilityfor resale. Project makes direct sales to customers lor all mining loads.

0 Electric service areas not served by SRP.

The Salt RiverProject Agncuftural improvement arrd Porver Districtprtovideselectricity toporver users in a 2,900square-mile service area in parts ofhfaricopa, Gila and Pinal counties.

customers.

ijjreratirrLrEfficiency Imjrroves, Itesoorce Oirtioos Targeted In fiscal year 1991-92, Navajo Generating Station (NGS) continued as one of the top-operating coal-fired plants in the nation.

NGS'et capacity factor for the year was 87.1 percent; this a measure of the actual amount of electricity generated as a percentage of the maximum potential. NGS'et capacity factor was greater than budgeted, and higher'thari last year's mark of 82.8 percent. SRP manages NGS and owns 21.7 percent of the plant.

Capacity factors for five plants in which SRP has part ownership also were greater than budgeted.

These facilities include Four Corners Generating Station in northwestern New Mexico, Mohave Generating Station in southern

Nevada, and Craig and Hayden generating stations in western Colorado.

The most impressive numbers were achieved by the fifthplant, Palo Verde Nuclear Generating Station, located west of Phoenix.

For the second straight year, Palo Verde produced more electricity than any other U.S. nuclear facility. SRP owns 17.49 percent of Palo Verde.

Even though our generating resources are performing well, we continue to improve our future resource options. For example, in fiscal year 1991-92 we contracted to buy 150 megawatts (MVf) of capacity and energy from the U.S. Bureau of Reclamation's share of NGS. This willbe available to us as early as 1993.

This purchase provides SRP with a reliable, economical source of power. Buying capacityand energy fromexistingsources helps defer the need to build expensive new generating facilities. This additional capacity enhances our abilityto meet our customers'needs during peak usage times.

Other resource options weare studying include canceling an older arrangement to sell electricity to another utility, and the recapture of a portion of SRP's original share of Palo Verde. These choices also like complex batteries. These modular units could be used to match load growth in specific customer areas.

SRP signed a letter of intent to purchase an early production fuel cell unit when it becomes available. Such a unit would be up to 50 percent more efficient, and environmentally superior to conventional coal-fired and gas-fired power plants.

Fileril)ilitya ilIuSI, Another component of our resource plan is transmission flexibility.The more access we have to other utilities'ystems and other parts of the region, the more options we have to buy and sell electricity.

.SRP's most significant transmission development is the 500 kilovolt (kV) Mead-Phoenix Project. Stretching from the Las Vegas area to Phoenix, this transmission link will provide SRP with direct access to many western utilities. The scheduled in-service date is December 1995.

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~o e o would enhance our ability to meet peak demand needs.

Some of our resource options are non-traditional. We are one of several utilities supporting the development of molten carbonate fuel cell technology. Fuel cells are SRP's Della 10 progratn, launched this year, millimproue the electric system's efficiency by 10 percent and should saue up to $50 millionduring the next five years.

600 550 500 450 400 By baying and selling electricity to otlrer utilities, SRP increases reaenue and lowers its costs.

Our reliability indicators for this past fiscal year demonstrated that our electrical system served our customers extremely well.

However, one of our biggest challenges is how to serve an estimated 80,000 new power customers in the next five years without increases in budget or personnel.

We believe one of the answers is our Delta 10 program. This is a team approach to designing, building and managing our transmission and distribution system.

We are integrating creative engineering, new technology and our field experience in a Electric Customer Growth (Thousands) y y 0

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'y 8748 8849 89-90 90-91 91-92 Fiscal Year unique effort. Delta 10 will help us find and upgrade the limiting parts of our system, and make changes in operating procedures.

For example, we found several operations and maintenance "choke points" on our system.

By eliminating these choke points, we improved system efficiency and eliminated the need for new substations and transformers.

Our goal is to increase the capacity of our existing electrical system by 10 percent. Delta 10 already is paying off; we project to save about 850 millionduring the next five years.

In another effort to minimize costs, SRP successfully bid in July 1991 for federal coal leases on 6,442 acres near Fence Lake in western New Mexico. With the new acquisition, SRP has leases on 18,000 acres near Fence Lake and coal reserves of more than 120 million tons.

The acquisition ensures dependable supplies of coal for Coronado Generating Station (CGS), which is about 45 miles from the Fence Lake area. The coal is low in sulfur, allowing CGS to continue operating as one of the cleanest coal-fired plants in the nation.

Fence Lake Mine could be operational by1995.

A detailed environmental assessment was conducted at the mine site. We determined we could mine coal with negligible impact on the environment and no significant impact on regional water levels.

Custome Nemls llrivcProy ants SRP's primary market strategy is to provide services and choices that respond to our customers'eeds and expectations.

Our demand-sidestrategyprovidesa wide variety of commercial and residential customer programs to improve load factor

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'nd encourage energy efficiency. Our goal is to achieve peak reductions of 238 MW by

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1997 and 611 MWby 2012.

We enjoy continued success with our Climate Crafted Home program. It promotes an all<lectric, energy<fficient designed and built house. About 60 percent of all new homes being built in our electric service territory are Climate Crafted Homes.

We have a number of new programs in response to customer requests.

Residential KiloWatch is a mail-in home energy audit program. Home owners check their houses for energy efficiency and return the survey to SRP for follow-up action. This program will be implemented in the coming year.

With our Direct Load Control program, we willprovide incentives to customers who allow us to control their peak usage. We are targeting heat pumps, air conditioners and pool motors. This may be the initial program in which we target market to specific, local areas to delay expensive transmission and distribution system construction.

We have several thousand customers who speak and read only Spanish.

We developed a template to help them under-stand their electric bills. When placed over an SRP electric bill, the template provides a Spanish translation of billing information.

The template is available free by request.

We also have a Spanishwnly telephone line in our customer telephone center. The line gives Spanish<peaking customers direct access to information about their bills, hook-ups, deposits and payment arrangements.

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Real Price of Hlecfvicity prompted installing solid state recorders and remote communication systems at more than half of our customerwwned substations. This technology substantially improved the accuracy of billings to our major customers.

We can query the recorders each day and check for metering problems, thus avoiding estimated bills and the associated labor costs.

The system also has allowed us to improve our cash flow by reducing the time between reading and billing by one to two days.

We now read and bill these major accounts on the same day. Customer response is excellent.

Some customers ask that we call them when the bill is prepared to expedite their budget allocations.

Remote communications will be established at the remaining substations during the coming fiscal year.

Another improvement in customer service 1992 Dollars (Cents/kWh) 8.0 7.5 91 92 R$

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$.14 0 Fuel &Purchased Power 00&M 0 Taxes CI Interest S Principal C3 Reinvested in Project Plant involves on-line availability of customers'illing and account records. It now takes only seconds for customer service agents to access these records, thanks to computer system enhancements.

This gives customers rapid response to their questions about their bills or past usage. The system willsave SRP about

$80,000 per year during the next five years in processing and labor costs.

Despite the economic difficulties in Maricopa County, SRP was able to reduce its uncollected electric revenues by $839,270 from the fiscal year 199INI total. Improved residential and commercial deposit procedures, combined with a strong focus on high risk receivables accounted for this reduction.

SRP's prudent credit and collection philosophy protects our financial viability and helps moderate the amount of future rate increases to our customers. As a percent of revenue, losses were 0.283 percent for fiscal year-end 1991-92 compared to 0.351 percent for last year.

Aroundahe~loch maintenance on SRP's electric system ensures a high degree ofauailability.

s Water leadership begins and ends with service excellence. For SRP, we have excelled in the water business for almost a century by providing a stable, economic supply of water, and ensuring the rights to that water.

SRP has provided leadership while maintaining high levels of service to our customers and shareholders.

We have gone to new lengths to monitor the quality of water we deliver. We continue to improve our coordination with the municipalities in our service area in handling water quality concerns.

Our leadership was evident in 1991 as we successfully managed above-average runoff into our reservoirs while dam construction was underway.

SRP delivered about 21.4 percent more water 932,427 acre. feet (af) compared to 767,855 afin 1991 than the previous year.

Yet, we used far less groundwater, 83,831 af compared to 318,052 af in 1990. Protecting groundwater supplies from overuse helps ensure that we willhave water during droughts and for future generations.

The high runoff did not prevent reservoir work progress.

In April, SRP marked the completion of a four-year, 850 million dam strengthening and modifications program for Stewart Mountain Dam. Stewart Mountain is the first of four SRP dams to be modified through federal Safety of Dams provisions.

About $210 million will be spent to strengthen and improve Theodore Roosevelt, Bartlett and Horseshoe dams. Modification work for Roosevelt Dam started in September 1991 and should be completed in 1995.

SRP's partnerships with state and local agencies and cities are critical during this period ofreservoir construction. We continuously update groups such as the Arizona Department of Transportation, the Maricopa County Sheriff's Office, and others about potential down-stream effects caused by Safety of Dams work.

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A netu spitttuay (lefi) tuas added to Stetuart htountain Dam as part ofa fouryear, $50 millionimprouement program completed in April.

Partnerships Important Through partnerships with municipal organizations SRP also allows various parties to transport their water supplies conveniently and without the cost of building new facilities.

Examples include our agreements with cities affiliated with the Arizona Municipal Water Users'Association,and withRioVerdeUtilities.

These partnerships are important in equitably settling water rights issues.

Throughout the century SRP has worked hard to clearly define our customers'nd shareholders'water rights in relation to those of other parties.

An example of this approach is the Salt River Pima-Maricopa Indian Community (SRPMIC) settlement that took effect this year. Included in the agreement are provisions to build water facilities for the SRPMC, and to help fund certain commercial and agricultural improvements.

The success of this settlement spurred progress in negotiations between SRP and five other Indian communities. Major issues in these negotiations centered on water requirements, water sources and funding options.

Two of the more notable efforts are the Gila RiverAdjudication and the LittleColorado River Adjudication. The former will quantify and set priorities for the rights of all water users in central Arizona's Gila River Basin.

Precedent established in the Little Colorado River Adjudication, which involves water resources in northern Arizona, willsignificantly affect the Gila River case.

Another way we demonstrate stewardship of water resources is developing our One~o-Fioe-Vear Groundtuater Action Plan. The Plan, completed in September, is a strategic evaluation of the 247 wells in SRP's ground-water system. Its objective is to ensure SRP's groundwater system can adequately and reliably meet the future needs of those we serve, in accordance with all applicable laws.

Wnict llnnlity: A Kcy Concern As concern about the environment continues to grow, SRP has pursued oppor-tunities to provide leadership in resolving water quality issues.

SRP work crews installed two probes in one of our canals to provide real-time monitoring of nitrate levels. Monitoring the nitrate level allows us to examine water quality and minimize impacts to city drinking water supplies. Because of the initial program's

success, probe installation is planned for three additional sites in 1992.

In November 1991, SRP presented a final research report to three Valley cities about our prototype, real-time water quality monitoring station. The facility,sponsored by Chandler, Phoenix and Tempe, was located on one of SRP's major canals. Special sensors at the station indicate general water quality and warn of possible toxic contamination.

Continuous, automated measurements of the canal water are transmitted directly to a central monitoring office. Anetwork of similar stations along SRP canals has been proposed.

Our unique weed control program involving the white amur fish continues to expand. In 1992 we plan to add 4,500 of the fish to SRP canals. Then, 74 miles of the 135-mile canal system will contain the white amur, a ravenous vegetarian carp. The white amur is a sound environmental alternative to chemicals to rid canal waters of aquatic weeds that consume water.

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~'I%KB SRPreseruoirs feed the 135 milecanal system that, along tuilh other smaller tuaterways, carries later to eight cities, as Nell as agricultural and urban irrigators.

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F A series oflate minter storms changed a potentially dry urinter season into an abooe aoerage one for precipitation and runofffrom SRP's umtershed.

Leadetshiys illeans L<'fficiency aml Service Iiaalily Service quality and efficiency were key reasons why in 1991 SRP combined the Water Group with marketing and areas responsible for power customer services and accounting.

The restructuring prompted a number of changes which streamlined operations and improved customer and shareholder service.

Changes included centralizing customer calls and most subdivision functions at our A significant improvement in water operations involved moving the Association Dispatch Center (ADC) to SRP's main administrative facility in early 1991 from its old home in north Tempe. The new location provides more space and utilityfor the ADC, which consists of two areas jointlyresponsible for operating the SRP canal system.

The new ADC location also contains SRP's new Supervisory Control and Data Acquisition

system, used to monitor and control canal operation. The new system has expansion capabilities which allow for real4me monitoring of water quality, canal and lateral flow rates, and allow for monitoring of more facilities.

The system is being expanded to incorporate hydrology and deepwell monitor locations.

ADC acquired a new neighbor in May 1991 when the National Weather Service Forecasting Office began leasing space down the hall at SRP's main building. The Weather Service office formerly was at Sky Harbor International Airport. Benefits of the new arrangement are coordinated weather forecasting, reduced operating expenses and shared data.

SRP's Watetshed Aven Hagstaff main administrative office, and combining water accounting and customer services in a single department.

We also implemented permanent water scheduling for agricultural areas in our service territory.

Another service enhancement was Phoenix

~ Tucson installing a voice-messaging line for water customers with mobile phones.

This gives callers an alternative to waiting to speak to an agent during busy hours.

SRP's umter supply begins on a l3,000square-mile natural drainage area, in the tnountains north and east ofmetropolitan Phoenix This "utatershed "feeds the Salt and Verde riuers, which, in turn, flolinto a series ofsix reserooirs.

Focus for the Finture In the coming years, SRP will continue providing water leadership, and working to solve crucial water issues. Areas of strategic priority include:

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Establishing partnerships with municipal-ities for water quality responsibility and associated costs. Although SRP has a

number of partnerships, we must ensure that all those that need help have the option to obtain services from SRP.

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Assisting in resolving the problem of short-term use of water from the Central Arizona Project (CAP). Groundwater conservation is the CAP's primary purpose, which it achieves by importing Colorado River water for municipal, agricultural and industrial use.

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Considering other water resource options such as groundwater recharge and associated soil aquiferr treatment, transportation of reclaimed water, and water exchanges.

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Supporting canal multiple use. By the turn of the century SRP canal banks could be dotted with cafes, shops, parks and other aesthetic features.

1987 1988 1989 1990 1991 Calendar Year Total 1991 runoff from the Salt and Verde riuer tuatersheds tuas 1,71 1,752 acre4eet (aQ tuhich Las 80 percent more than median. Tlte year began tuith 840845 af of stored tuater in the raseruofrs.

1991 ended tuith 1,540,477 afin storage 104 percent of median and 76 percent of capacity.?7te Projects uratersupply included 926, 757afofsurface tuater and 83,831 afofgroundtuater fora total of 1,010,588 af.

(An acre4oot is enough tooter to couer one acre of land to a depth ofone footabout 325,850 gallons.)

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1903, SRP has been making a difference in the Salt River Valley. We do that by investing in the communities where we do business, and by looking for opportunities to best use our resources to benefit others.

SRP's community responsibility is evident in a variety of ways. We participate in community programs, encourage employee volunteerism, fund charitable causes and promote educational programs.

One of our most important investments is in local education programs. For example, as part of our commitment to encourage teaching excellence, SRP annually recognizes Arizona teachers through the Teachers Recognition &Awards Program (TRAP). The program spotlights teaching excellence in areas related to energy, water, Arizona history and Native American culture.

Inaddition to important basic educational skills, students need to be able to think creatively about critical issues society now faces. The TRAP honorees nurture such creativity in their students.

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The book, printed in English and Spanish, mas distributed to school teachers and Head Start principals.

SRP was recognized by the Scottsdale Chamber of Commerce as one of the best sponsors of a businesseducation partnership with Scot tsdale schools. Our work in this regard includes funding a high school career and college center, summer teacher workshop and tour, and water and electrical safety programs.

During the fiscal year, several hundred junior high school, high school and college students "job shadowed" SRP employees in various departments. Employees performed and explained their jobs alongside students, providing students insight into careers in the job market. Job

shadowing is the result of busin~ucation partnerships between SRP and schools in the communities where we do business.

As part of our ongoing effort to prevent water-related tragedies, we illustrated and published "Can Al Be Safe?," a book designed to educate children about canal and water safety. The books, printed in English and Spanish, are distributed free to Valleyschools and Head Start agencies.

Education at SRP is truly a global effort.

International visitors to SRP receive training in various areas including water management, conservation, environmental issues and supervisory control. In calendar 1991, we hosted almost 700 visitors from 63 different countries a 24.6 percent increase from 1990. Visitors come to us from other nations through the V.S. State Department, the state ofArizona, engineering firms and universities.

While thinking globally, we act locally, too. We continue to support a variety of arts and cultural organizations that promote Arizona's unique cultural heritage and diversity.

One example is our assistance to the state's oldest cultural institution, the Arizona Historical Society Museum. A new building to house the museum is scheduled to open in the spring of 1993. Our contribution supports an exhibit detailing the Salt River Valley's growth between the Civil War and the 1920s.

control. The Phoenix Futures Forum is a non-profit, citizens'rogram that focuses on the city's quality of life issues.

Health care is a critical quality of life issue.

We supported the remodeling and expansion of Phoenix Memorial Hospital's emergency services department. The hospital provides emergency services for more than a quarter of a million people within SRP's water service territory. Phoenix Memorial is a non-profit hospital serving the south Phoenix community since 1934.

Another key concern in metropolitan Phoenix is economic development.

SRP's business and industrial development group seeks out and provides information to potential new commercial and industrial customers looking to move to metropolitan Phoenix. The group also assists existing SRP commercial and industrial customers considering expansion.

In another example of our economic development efforts, SRP helped sponsor and Pi~.

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SitP Turgets Civic Issues Our efforts to enrich the community were recognized in April 1992 when we were named one of the Top 10 Vision Weavers by the Phoenix Futures Forum. In addition to our continued, demonstrated community commitment, we were acknowledged for our contribution to recycling, resource conservation and waste r,p N j,,

.P'RP supports education through its educational seruices representatiues, who make presentations on water, energy and safety to hundreds of Valley classrooms annually.

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We also provided S81A million in lieu of tax payments to school districts, cities, counties, community colleges and special districts in nine Arizona counties for 1992.

As a political subdivision of the state, SRP makes voluntary contributions instead of paying property taxes.

The contribution makes SRP effectively the state's second-largest taxpayer. Payments are based on the value of SRP electric facilities in each county. SRP's 1991 payments were S76.2 million.

h'o one has a monopoly on atisdomt SRP officials exchange information Nfthinternational oisitors.

produce a newspaper supplement examining Arizona's economic future. The supplement's goal was to stimulate efforts by groups guiding Arizona's economic future.

Investing in SRP communities also means aesthetic improvements. We willprovide the cities with about SIO million in fiscal year 1992-93 to improve the appearance of SRP facilities. Our research shows that customers want aesthetically designed SRP water and power facilities at reasonable cost.

SRP has experienced unqualified success in siting, designing and.building its facilities in concert with the concerns of the customers.

We use a unique, interactive public involvement process to get new and needed projects built in a timely, costwffective manner.

Of the 300 projects SRP has undertaken since 1983, 292 were completed without major opposition. It's a success rate that has been Volunteer Efforts Bncourogeti We established an Employee Volunteer Committee to further increase our community involvement. The new program offers employees the chance to participate, and allows them to include family members.

A seven-member employee steering committee directs the program, selecting volunteer projects and recruiting employees.

The Central Arizona Shelter Services (CASS) was an early recipient of our employees'fforts.

Thirty4ive SRP volunteers painted the homeless shelter inside and out in late spring.

"Adopts-family" programs are a popular means of community involvement.

SRP employees and members of the International Brotherhood of Electrical Workers Local Union 266 adopted 13 families last year.

Local Union 266, which represents our hourly employees, worked with SRP volunteers, the Salvation Armyand St. Vincent DePaul Society to identify single parents and needy individuals.

More than 400 SRP employees and family members gathered cash, food, clothing and furniture donations.

During the holiday season, another group

of SRP employees donated and delivered food, clothing, toys and household supplies to needy families in Phoenix. Others at SRP gathered toys and clothing during the holiday season to benefit children of residents of a stat~perated drug rehabilitation center.

"Share and share alike" has added meaning at SRP. Since 1982, more than 83.8 million in energy aid has been provided to 27,000 needy Arizona families through Project S.H.A.R.E., Service to Help Arizonans with Relief on Energy.

SRP helped found S.HARE with the Salvation Armyand others.

To encourageparticipation, wecommitted to match our customers'ew pledges dollar-for4ollar. Customer response was strong; new pledges of $62,000 were received in two months.

These are just a sampling ofSRP efforts in the community to make a difference. We will continue to channel our resources into activities that are clearly beneficial to our customers and shareholders.

We also will continue to support employee volunteerism and corporate participation in areas most beneficial to SRP customers and shareholders.

about work force and family issues to implement changes in benefits and schedules to adapt to employees'aregiving needs. For example, many work groups at SRP are testing various flexible work-hour schedules.

Flexibility and responsiveness also are important in providing competitive benefits in the face of rising health care costs. The goal is to provide health care benefits employees, their dependents and SRP retirees need at costs all can afford. We continue to evaluate our benefits package to address this challenge.

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HEM rse~L A.P IK~~g KH ICES

>. MS SHELTER 9 VlfMADISON RiIpl0yi',cs: Aii Essciitinl C0Iiiiaiiity In order to make a difference in the community, we have to continue to craft an environment that nurtures employee creativity, development and well-being.

We are removing work practices that impair efficiency. We need to continue to establish challenging employee safety objectives. We must design recognition systems to reward high performance and teamwork. We also must be responsive to a diverse work force.

One way to be responsive is to evaluate employees'hanging needs.

SRP management is using results from an employee survey

'5$

~,

SRP uolunteers painted and refurbished a homeless center this yearone ofmany community seruice proj ects employees complete euery year.

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Everybody wants a healthy environment.

SRP's charge is to balance environmental rules and public concerns against pressures rising from customers'eeds and from economic realities.

We must guarantee that the investments we make in the environment reap solid, long-term benefits.

Our negotiated settlement to reduce sulfur dioxide emissions at Navajo Generating Station (NGS) is one such Investment. The coal-fired power plant, managed by SRP, is about 80 miles from the Grand Canyon National Park's South Rim main visitor area in northern Arizona.

NGS successfully passed numerous federal and state emissions tests since the plant's first unit came online in 1974. We demonstrate our continued commitment to preserving the environment by our support of the new NGS emission control facility.

<<C SRP selected Stone &Webster Engineering Corp. in April 1992 as the architect/engineer for NGS'ew emission control system. Stone

&Webster and SRP willdesign and engineer a system to reduce annual sulfur dioxide emissions by 90 percent from NGS'hree 750-megawatt generating units. Installation of the system is planned for a three-year period; the system's first phase should be in service by 1997.

The initial construction is expected to cost about $430 million.Yearly operation and maintenance costs willresult in a total cost of more than

$2.9 billion for 22 years the anticipated!ife of the emission system. This is less than the U.S. Environmental Protection Agency's (EPA) earlier plan, estimated to cost

$4 billion.

'>)- 't,g~w Recyclingis one Nay toe can do more With less tuhge leauing precious resources forfuture generations.

I 20

itocycling Makes a Difference Recycling also preserves the environment.

In October, our corporate recycling program won the Governor's Pride in Arizona award.

SRP's recycling program for fiscal year 1991-92 involved the recovery of more than 8 million pounds of material, saving untold amounts of raw natural resources and landfill space.

SRP even found a way to recycle contam-inated soil. We needed to pave a new work area, and we had about 3,000 cubic yards of petroleum contaminated soils (PCS) to dispose.

We solved both problems by mixing PCS and asphalt for paving materials for a fouracre storage area in a maintenance yard. To augment this safe practice, SRP conducts tests to ensure there is no groundwater contamination.

SRP is one of the few pioneers in Arizona of this asphalt recycling technology.

In addition to being an environmentally sound way to use PCS, we saved about 30 percent to 40 percent on disposal costs.

SRP is a major sponsor of Phoenix Clean and Beautiful. In December, Phoenix Clean and Beautiful won three first-place awards in Keep America Beautiful Inc.'s national awards program. Phoenix Clean and Beautiful was chosen for its display of public/private partnerships, and for its public education about proper solid waste management.

The biggest of SRP-sponsored clean-ups is Page Attacks Trash. At the 11th annual event last May, 3,500 people collected 8 tons of trash from Page and the surrounding area, including around Lake Powell.

From reduced litter to reduced lighting:

SRP has had an aggressive lighting efficiency incentive program for commercial customers for three years. More than 230 of our business customers have switched to energy<fficient lighting. Roughly 30 percent to 50 percent of SRP employees help clean the Valley s air by riding their bicycles to uorh.

energy used in a commercial building is for lighting.

To augment our effort, last fall we joined the EPA's national Green Lights program to increase lighting efficiency and reduce pollution. As a partner in the program, we survey

.4 and improve lighting efficiency in our facilities as well as provide incentives for our electric customers.

Another way to clean the air is reduced automobile use.

SRP employees continued their leadership in this regard by taking top honors the second consecutive year in the Valleywide Clean Air Business Challenge.

Competing against other major local busi-nesses last winter, almost 34 percent of SRP's employees participated by using alternative means of transportation to get to work.

SIIP Participates in Itosenrch as<1 Dovolopateat Research and development projects are critical to solving environmental challenges we face. SRP long has been a participant in environmental research.

Construction began earlier this year for the Desert House, a prototype home designed to conserve water and energy. The house will show it is possible to live in harmony in the desert and still enjoy modern amenities. The single-family, three-bedroom dwelling is designed to be of median cost and size for a Phoenix home.

SRP is sponsoring construction of the home in partnership with a number of organizations.

Each participant provided

design ideas, including the most efficient energy and water features. The project's goal is to reduce water and energy consumption by 40 percent from a conventional three-bedroom home.

Last fiscal year we supported construction of a water harvesting project. This water conservation activity will collect about 1.5 million gallons from on-site rain and waste runoff annually, and reuse it five times. The recycled water willirrigate and provide other services within a project called the Arizona Solar Oasis.

The Arizona Solar Oasis at the Phoenix Civic Plaza in downtown Phoenix will show-case energy conservation and environmental activities applicable to public buildings and areas.

The water harvesting project helps SRP promote environmental and water conservation programs.

Environmental programs are the focus of SRP grants given to four Arizona schools. The grants also cultivate one of the state's most precious resources: school children, and the quality of their education.

One grant willbe used to turn a classroom into a planetarium. Another grant willfund a pond, stream and greenhouse to grow and study indigenous Arizona flora and fauna.

A third grant will be spent on a water conservation and trash recycling program. A final SRP grant will help establish science experiences in the outdoors in a "living laboratory" in order to promote a respect and responsibility for the local environment.

SRP participated in an event that promoted student research and development, and environmentally sound vehicles. The Solar 5. Electric 500, last April, was a three-day extravaganza featuring solar-and electric-powered vehicles. We sponsored and provided advisory support for entries from two local high schools.

The two cars, which were built by students, finished second and third in a 150-mile race for dual-power cars. Both vehicles ran on power supplied by electric batteries and an auxiliary, gas-powered generator.

Public Information, Bilucatiuu Crucial In the future, we willcontinue to promote and support balanced solutions to environ-mental issues through rigorous education and communication efforts. SRP will identify environmental areas of interest and share information with customers, shareholders, employees and the public. We also willdevelop and communicate action plans consistent with the spirit of environmental laws and regulations.

For example, SRP is working with other utilities to determine the specific obligations required by the federal Clean Air Act Amendments of 1990. This includes studying long-range compliance implications of acid rain provisions, participating in federal and state regulatory activities, and reviewing other issues such as global warming.

It willtake the EPA a number of years to write the regulations that flesh out the restrictions set forth in the 1990 amendments.

SRP's short-term strategy is to influence that process by talking to regulators and helping them understand the impact regulation will have on electric generation.

Solid, strategic financial planning continued to pay off in fiscal year 1991-92.

SRP experienced its best year financially since 198687, in spite of continuing softness in the regional economy. Combined net revenues, funds available for corporate purposes and the debt service coverage ratio were at their highest levels since the mid-1980s.

The past fiscal year's pleasant summer and mild winter in central Arizona reduced heating and cooling needs, thus moderating electricity demand.

Yet, electric revenues increased

$32.9 million compared to last year, driven in large part by healthy excess sales. Revenues from sales for resale to other utilities grew 15.2 percent in 1991-92.

Judicious cost control helped SRP post net revenues of $40.2 million. While few economists predicted the length or scope of the economic downturn, SRP positioned itself to withstand such pressures through budget cutbacks and reorganizations. During the last three years we reduced our work force about 19 percent, and cut planned capital and operating costs about $200 millionper year.

Cost control also improved our funds available for corporate purposes (FACP). This item represents cash remaining after payment of cash operating expenses and debt service.

FACP at the end of 1991-92 was $ 182.9 million, respectively.

These ratings are among the highest in the utilityindustry.

IIII,,,

SRP took advantage offavorable market conditions to refinance previously issued bonds this year. The savings willhelp keep electric rates down.

/

C greater than any of the five previous fiscal years.

Prudent financial planning builds investor confidence.

Arizona residents invested a

record $53 million in minibonds more than double any previous sale in February 1992.

These revenue bonds carry a maturity of about 15 years and were issued at a yield of 6.30 percent.

Minibonds are available in

$200 and $500 denominations.

We also issued

$300 million of electric system revenue bonds in January 1992. These bonds had an average rate of 6.39 percent.

Proceeds of this issue refunded existing highereost debt. The present value of the debt-service savings which will accrue is more than $25 million.

Both bonds are rated "AA" and "Aa" by Standard

&. Poor's Corp. and Moody's Investor Services Inc.,

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SRP values the confidence which our investors place in us and believes good communications are vital to maintaining that confidence.

We continued our tradition of hosting bondholder information meetings in March 1992, when more than 1,900 investors attended four meetings held in metropolitan Phoenix and in Tucson.

SRP is committed to keep electric rates as low as practicable. Since 1982, our rates have increased far slower than the rate of inflation. In January 1992, SRP implemented an overall 2.9 percent rate increase, one of the lowest increases in years, to offset rising costs of resources and increased taxes. Despite this rate increase, the real price of electricity the price after adjusting for inflationhas decreased about 14 percent since 1982.

The fuel cost adjustment factor is a means of passing fuel increases and decreases to our customers.

This factor was lowered twice during the past fiscal year, reducing customer bills nearly 3 percent, based on current electric rates. Currently, customers'ills are reduced by the factor because fuel costs have been falling. The high availability and reliability of our base-load generation facilities caused fuel and purchased power expenses to be $30.7 million less than budget this year.

SRP's economic course continues to be charted by the company's sixyear financial plan. The plan enumerates our financial goals, which call for reduced reliance on debt, increased solvency or cash flow, and improved profitability.

The plan accommodates the slower economic growth occurring in our service territory in recent years.

Revised forecasts show electric customer growth at an average annual rate of 2.7 percent, similar to last fiscal year. Average growth during the 1980s was 5.6 percent.

Growth in customer load is forecast to be even lower, 2.0 percent, down from the 2.5 percent forecast in the last fiscal year. We also forecast slower revenue growth, about 1.4 percent per year. A major influence will be SRP's energy<fficiency programs, which are designed to modify patterns of energy use in ways benefiting both the customer and SRP.

Our financial goals include:

~ Adebt ratio not to exceed 75 percent near-term and 60 percent to 65 'percent long.

term. The debt ratio at the end of 1991-92 was 74.4 percent.

~

A debt service coverage ratio of at least 1.80. This ratio was 2.11 for 1991-92, up from 1.98 for 1990-91.

~

Electric rate increases'(including changes to recoverable fuel costs) limited to the rate of inflation over time, not to exceed 4 percent biennially through fiscal year 1994-95. We project the real price of electricity to decrease 7.1 percent during the next six years. As a result, electricity should consume an increasingly smaller share of our customers'ncomes.

~

Growth in operating expenses per kilowatt-hour limited to less than the rate of inflation over time. Operating budgets, capital budgets and staffing were reduced twice during the past three years, saving about $200 million a year. No work force growth is expected through fiscal year 1997-98.

Adherence to these goals willleave SRP well-positioned to meet the economic, competitive and environmental pressures, while meeting the expectations of our customers and investo'rs.

24

Revenues RSales Combined Nef, Revenues (Millions)

KeyFinanciallndicators Debt Ratio (Percent) 60 45 30 15

-15 218

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f Salt River Project Board members establish specific policies and, through SRP's management, conduct SRP's business affairs in accordance with the articles of incorporation of the Association, bylaws and statutes.

The 10 members of the Board of Governors of the Salt River ValleyWater Users'ssociation are elected every two years. One representa-tive is selected for each of 10 voting divisions within SRP's 240,00&acre water territory.

The Board of Directors of the Salt River Project Agricultural Improvement and Power District comprises 14 members who serve staggered four-year terms. One District Board member is elected from each of the 10 SRP voting divisions; four members are elected at-large.

Often members of the Association Board seek and are elected to similar positions with

the District Board.

The respective Boards have rate-making authority for SRP's power and water businesses.

To qualify as a voter, individuals must own land within one of 10 SRP voting divisions.

Additionally, District voters must be qualified electors of the state of Arizona. Candidates must reside within SRP boundaries, own property in the particular area they wish to represent, and be qualified Arizona electors.

(Seated, from left)

Thomas P. Hurley Division 6, District Howard W. Lydic District/Division l, Association &District Etdon Rudd At-large, District John M. Williams Jr.

District/Division 5, Association & District President

..John R. Lassen Vice President

.... William P. Schrader Salt River Project Ilorljorate Officers Gilbert R. Rodgers District/Division 4, Association &District James L Diller District 6, Association Clarence C. Pendergast Jr.

District/Division 2, Association &District Secretary....

Treasurer

......William K. O'Neal

.......Michael W. Lowe Ann M. Burton District/Division 7, Association &District Cowultants (Standing, from left)

Fred J. Ash At-large, District James R. Mmshall At-large, District Dwayne E Dobson District/Division 10, Association &District Joe Bob Nccly District/Division 8, Association &District Robert E. Hurley District/Division 9, Association &District Bruce B. Brooks District/Division 3, Association &District IVilliamW. Arnett At-large, District Legal Adviser Jennings, Strouss &Salmon Independent Public Accountants Arthur Andersen &Co.

Bond Counsel Mudge Rose Guthrie Alexander and Ferdon Financial Consultant Lazard Frkres and Co.

SP Council Members I

/

Kl t i5 Salt River Project Council members set broad policy by enacting and amending bylaws relating to the management and conduct of SRP's business affairs.

Three Association Council members are elected to two-year terms in each of the 10 SRP voting divisions.

Three District Council members are publicly elected to staggered four-year terms in each of the 10 voting divisions.

Often members of the Association Council seek and are elected to similar positions with the District Council.

To qualify as a voter, individuals must own land withinone of 10SRP voting divisions.

Additionally, District voters must be qualified electors of the state of Arizona. Candidates must reside within SRP boundaries, own property in the particular area they wish to represent, and be qualified Arizona electors.

(Seated, from left)

Mark V. Pace District/Division 8, Association &District Emll M. Rovey District/Division 1, Association &District Council Chairman Martin Kempton District/Division 8, Association &District Carl E. Weiler District/Division 5, Association &District Roy W. Cheatham District/Division 5, Association &District Clarence J. Duncan District 6, Association Lester Mowty District/Division 7, Association &District Lawrence P. Schrader District/Division 10, Association &.District Council Vice Chairman James M. Accomazzo District/Division 3, Association &District.

(Standing, from left)

Wayne A. Marietta District/Division 7, Association &.District Kevin J. Johnson District/Division 1, Association &.District Byron G. Williams District/Division 4, Association &District John E Anderson District/Division 3, Association &.District Lee L Tregaskes District/Division 9, Association &District Robert W. Warren District/Division 6, Association &District John A. Vanderwey (foreground), District/Division 2, Association &District C. Dale Wims District/Division 10, Association &District Orland lLHatch District/Division 10, Association &District Ben A. Butler Division 6, District Elvin E Heming District/Division 3, Association &District Lany D. Rovey District/Division 2, Association &.District Charles D. Copplnger District/Division 4, Association &District Robert L Cook District/Division 1, Association &.District Uoyd Lee Banning District/Division 4, Association &District David Rousseau District/Division 6, Association &District Dan C. McKinney Jr.

District/Division 7, Association &District Wayne A. Hart District/Division 2, Association &District Michael K. Gantzel District/Division 8, Association &District Dale C Rlggins Jr.

District/Division 9, Association &District.

(h'ot pictured)

W. Curtis Dana District/Division 9, Association &District Edmund Navarro District/Division 5, Association &District.

Statistical Review (Unaudited'992 12 Months Ended April 30 1991'986 1981 Project General Operating revenues Electric Water and irrigation Operating expenses Other income (deductions)'et financing costs'et revenues (loss)

Additions to plant, exduding alliances for funds used during construction Utility plant, gross Contnlxnions of electric revenues to support water operations Taxes and tax equivalents Employees at year end"

'items tvithin these categories have been reclassified for "Does not indude temporary employees.

$1,183,349 1,175,379 7,970 933,616 36,457 245,962 40,228 173,061 5,820,751 31,005 163,745 4,681 1981 and 1986 lor consistent 1991

$1,151,997 1,142,494 9,503 924,787 (196,026) 249,526 (218,342) 238844 5,705,685 41,529 163,118 4,953 presentation 1990

$848,618 841936 6,682 642,963 44,335 91,674 158,316 355,316 4,481,667 12,384 83,864 5,468 tvith the current >ears.

1986

$539,669 534,357 5,312 400,323 47,756 93/72 93/30 302,702 2@43,247 4/70 58,134 4,580 1981 "J4<'I')Q~ gpss Number o Number o 1Vater'btal stomge and pumping capacity (acre-feet)

Stomge capacity (six reservoirs)

Installed pumping capacity Water in storage Jan.

I (acre-feet)

Project stomge 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 nomgriculturaI irrigation (schools, parks, churches, etc.)

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

Lined Latemls, total (miles)

Uned and piped Drainage and waste ditches (miles)

Lined and piped Assessed area (acres)

I assessed accounts f times water delivered to users 2,827,393 2,019,102 808,291 840845 631,910 1,711,752" 1/40,477 1,288596 1,010588 926,757" 74,330 9501 932,427 280,103 445,157 329,016 66,127 50,014 52,038 155,130 78,161 135 107 922 841 230 92 238,400 180991 498,440 2,851,171 2,019,102 832,069 990,011 766,778 471,282"

'33,936 619,696 861,537 541,347" 313,516 6,674 767/55 240,906 397,653 291,149 60,406 46,099 50,949 78,347 93,682 135 104 916 834 229 91 238,400 182,053 470,840 2/89,725 2,019,102 870,623 1,671435 1,445,710 1,070,214" 1,691,741 1,464,978 993591 928,053" 50,482 15,056 870,658 290,572 395,158 284,192 60,877 50,089 47,963 136,965 122,933 133 91 892 792 240 82 238,170 181,894 471i845 2,891,177 2,063,948 815,229 1,480,332 1,227,055 548N3" 1,116,338 895,118 1,222,376 994,294" 337,424 14,690 896802 440,047 381,457 265,002 62,908 53547 64,431 108,358 228,082 131 70 884 758 243 63 238,221 178,796 456,129

'l'uter statistics are computed on a calendar year basis.

" Based on USGA provisional records are subject to adjustment.

1992 12 Months Ended April 30 1991 1986 Portter Energy sources (ktVh)

Net nuclear generation Net steam generation'et combustion 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 Energy disposition (kWh)

Residential Commercial & Industrial Irrigation pumping Street & highway lighting Public authorities Interdepartmental Sales for resale Total sales interchange delivered

'tVheeling delivered Energy losses Energy for pumped storage operation Total disposition of energy Peak overall power system (ktV)

Date and time (MFQ Peak Project customers (kW)

Date and time (MST)

Generating capability (kW)*'uclear Steam'ombustion turbines Combined cycle Hydroelectric conventional Hydroelectric pumped storage Total operating capability'ontract purchase at peak Total resources'lectric customers year<nd***

Residential Commercial & Industrial Other Total 4,231,935,000 12,993,864,000 4,657,000 85,965,000 643,390,000 137,635,000 18,097,446,0DO 1,417,919,068 83,103,204 229,197,108 19,827,665,380 6,216,045,662 7,799,730,361 113,013,697 117,619,607 336,570,420 95,669,413 3,593,342,026

]8,271,991,186 126,066,380 221,971,185 1,0] 1,017,629 196,619,000 19,82?,665,380 3,570,000 Aug. 26, 4 p.m.

3,176,000 Aug. 8, 6 p.m.

641,000 2,386,000 397,000 292,000 94,000 148,000 3,958,000 514,000 4,472,000 498,06?

42,143 8,883 549,093 4,319,603,00D 11,920,255,000 26,160,000 444,673,000 216,841,000 177,622,000 17,105,154,000 1,538,829,970 140,058,289 226,753,768 19,010,796,027 6,210,629,730 7,621,306,068 143,902,088 111,496,635 316,957,058 188,805,110 2,834,223,162 17,427,319,851 173,794,225 219,492,091 949,024,860 241,165,000 19,010,796,027 3,729,000 July 19, 4 p.m.

3,373,000 June 26, 5 p.m.

641,000 2,386,000 397,000 292,000 94,000 148,000 3,958,000 512,000 4,470,000 487,841 41,535 8,938 538,314 149,186,614 10,957,903,000 45,396,000 813,684,000 451,783,000 236,545,000 12,654,497,614 3,207,390,046 106,666,000 11,912,340 15,980,466,200 4,889,987,668 5,931,148,985 248,577,084 88,327,881 257,127,813 72,022,538 3,016,789,686 14,503,981,655 93,772,000 10,891,950 1,033,899,395 33?,921,000 15,980,466,000 2,971,000 July 9, 5 p.m.

2,658,000 Aug.,29, 5 p.m.

2,201,115 393,000 288,0DO 96,400 137,000 3,329,245 410,547 3,739,792 414,410 34,973 8,376 457,489 10,385,225,000 62,336,000 4,110,000 468,174,000 118,324,000 11,038,169,000 2,098,800,868 145,837,000 9,793,314 12,292,600,000 3,674,758,035 4,430,656,608 243,257,760 43,203,039 351,055,276 80,008,412 3,205,534,954 12,028,474,084 245,224,000 9,024,579 840,845,337 169,032,000 13,292,600,000 2,386,000 Aug, ll, 6 p.m.

2,057,000 July 28, 5 p.m.

1,919,250 393,000 288,000 95,000 137,000 2,832,000 329,547 3,161,797 305,870 22,771 1,610 330,251

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~>-~Wgv (l+gWg0I Average annual kWh use/residential customer" Average annual residential revenues/kWh (cents) 12,628 8.54 12,954 847 12,175 7.56 12,310 5.78

'Includes SRP panicipation injointlyotvned projects.

"Unit capabilities during summer peak.

'*'Energy disposition klVhthrough total sales, electn'c customers yearwnd, average klVh use and average annual revenue are estimated ligures

Comhineil Balance Sheets 8+'b$~k~ 4t)j)gtf I+tt

.y rgggag~ljig4 Salt River Project as of April 30, 1992 and 1991 (thousands of dollars)

Assets UTILITYPLANT, at historical cost (Notes 2, 5 and 6):

Plant in service:

Electric Irrigation Common Total plant in service Less-Accumulated depreciation on plant in service Plant held for future use (Note d)

Construction work in progress Nuclear fuel, net OTHER PROPERTY AND INVESTitIENTS:

Non.utility property and other investments Segregated funds, net of current portion (Notes 2 attd 6)

CURRENT ASSETS:

Cash and cash equivalents, at cost (Note 2)

Investments Current portion segregated funds (vote 6)

Receivables, including unbilled revenue, net (sate 2)

Fuel stocks, at last-in, firstwut cost Materials and supplies, at average cost Other current assets DEFERRED CHARGES AND OTHER ASSETS (Notes 2. r and 6) 1992

$4,915,800 135,036 382,530 5,433,366 (1,525,512) 3,907,854 92,824 244,760 49,801 4,295,239 69,878 123,939 193,817 130,676 170,838 90,264 89,485 68,142 92,858 16,002 658,265 241,632

$5,388,953 1991

$4,797,885 131,398 359,779 5,289,062 (1,398,894) 3,890,168 90,727 267,459 58,437 4,306,791 55,168 123,232 178,400 168,448 132,631 88,055 84,658 63,076 89,850 11,099 637,817 222,036

$5,345,044 77te accompanying notes are an integral part of these combined balance sheets.

1992 1991 Capitalization and Liabilities LONG-TERM DEBT (Note 6):

Electric system revenue bonds, net of current portion Commercial paper and other ACCUMULATEDNET REVENUES:

Balance, beginning of year Net revenues (loss) for the year Balance, end of year TOTAL CAPITALIZATION CURRENT LIABILITIES:

Current portion, long.term debt (Note 6)

ACCOuntS payable (Note 2)

Accrued taxes and tax equivalents Accrued interest Customers'eposits Other current liabilities Accrued reorganization costs (Note to)

DEFERRED CREDITS AND OTHER NON.CURRENT LIABILITIES(Notes 2, 8 and 9)

COMMITMENTSAND CONTINGENCIES (Notes 6, 8 and 9)

$3,292,056 3?5,000 3,667,056 1,223,154 40,228 1,263,382 4,930,438 55,565 102,885 72,528 74,107 37,113 33,549 1,329 377,076 81,439

$5,388,953

$3,278,324 380,580 3,658,904 1,441,497 (218,342) 1,223,155 4,882,059 41,815 97,776 70,912 75,598 32,596 37,714 23,000 379,411 83,574

$5,345,044 The accompanying notes are an integral part of these combined balance sheets.

Combined Statements of Net Rwennes egAf '>g4'i

~+-"o@4~PI Salt River Project for the years ended April 30, 1992 and 1991 (thousands of dollars)

OPERATING REVENUES (Notes t aod 2):

Electric Water and irrigation Total operating revenues OPERATING EXPENSES:

Power purchased Fuel used in electric generation Other operating expenses Maintenance Depreciation and amortization Taxes and tax equivalents Total operating expenses Net operating revenues OTHER INCOME:

Interest income Other income (deductions), net Total other income Net revenues before financing costs FINANCING COSTS:

Interest on bonds Amortization of bond discount

~ issue and refinancing expenses Interest on other obligations Less-Allowance for funds used during construction Net financing costs NET REVENUES BEFORE UNUSUAL ITEMS UNUSUAL ITEMS:

Writedown of Coronado Unit 3 (Note 4)

Expenses of corporate reorganization program tNote to)

NET REVENUES (LOSS) 1992

$ 1,175,379 7,970 1,183,349 55,445 227,625 217,566 98,746 170,489 163,745 933,616 249,733 30,426 31 30,457 280,190 226,235 8,357 17,592 (6,222) 245,962 34,228 6,000

$40,228 1991

$ 1,142,494 9,503 1,151,997 38,428 226,072 235,869 102,262 159,038 163,118 924,787 227,210 37,612 (1,954) 35,658 262,868 225,044 7,459 22,563 (5,540) 249,526 13,342 (203,684)

(28,000)

$(218,342)

~ <~>~q)44 ~

The accompanying notes are an integral part oi these combined statements.

34

Combined Statements of Cash Flows Salt River Project for thc years cndcd April 30, 1992 and 1991 (thousands of dollars)

NET CASH FLOWS FROM OPERATING ACTIVITIES:

Net revenues (loss)

Non<ash items included in income:

Depreciation and amortization Amortization of bond related expenses Gain on sale of property Write down of Coronado Unit 3 Decrease (increase) in Fuel stocks and materials and supplies Other assets Increase (decrease) in-Accounts payable Accrued taxes and tax equivalents Accrued interest Accrued reorganization costs Other liabilities, net Net cash flow provided from operating activities CASH FLOtVS FROM iNVESTING ACTIVITIES:

Additions to utility plant, net of AFUDC Allowance for funds used during construction Additions to non-utility plant Increase in long-term investments Proceeds from sale of plant Net cash used by investing activities CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds of bond issues, net of offering costs Repayments of other long-term debt, net Repayment of principal on bonds Increase in segregated funds Deposits into escrow for bond defeasance Contributions in aid of construction Net cash provided by financing activities NET DECREASE IN CASH AND CASH EQUIVALENTS BALANCEAT BEGINNING OF YEAR IN CASH AND CASH EQUIVALENTS BALANCEAT END OF YEAR IN CASH AND CASH EQUIVALENTS SUPPLEMENTAL INFORMATION:

CASH PAID FOR INTEREST 1992

$ 40,228 170,489 8,357 (421)

(8,074)

(49,738) 5,109 1,616 (1,491)

(21,671)

(605) 143,799 (173,061)

(6,222)

(14,710)

(13,000) 1,323 (205,6?0) 333,528 (1,238)

(41,?84)

(2,916)

(281,757) 18,266 24,099 (3?,772) 168,448

$ 130,676

$242,336 1991

$(218,342) 159,038 7,459 (683) 203,684 (14,958)

(82,528) 29,112 13,250 (925) 17,765 31,190 144,062 (238,844)

(5,'540)

(18,895) 779 (262,500) 209,556 (1,959)

(25,445)

(8,127)

(132,519) 18,063 59,569 (58,869) 227,317

$ 168,448

$246,682 The accompanying notes are an integral parr o/ these combined statements.

As of April 30, 1992 1 Basis of Presentation:

The Company The Salt River Project Agricultural Improvement and Power District (the District) is an agricultural improvement district, organized under the laws of the State of Arizona, which provides electric service in a 2,900 square-mile service territory in parts of Maricopa, Gila and Pinal Counties in Arizona. The District provides electric service to mining customers and wholesale power in an additional area of 2,400 square miles in Pinal and Gila Counties.

The Salt River Valley Water Users'ssociation (the Association), predecessor of the District, was incorporated in Arizona in Februaty 1903 as a result of the passage of the National Reclamation Act. In 1937, the Association transferred all of its rights, title and interest in the Salt River Project to the District.

In 1949, the original agreement was amended so that the District would assume construction, operation and maintenance responsibilities for both the electric and irrigation systems. The District then delegated to the Association operation and maintenance of the irrigation and water supply system of the project.

Principles of Combination The combined financial statements indude the consolidated accounts of the District and its subsidiaries, and 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. Allsignificant intercompany transactions Iiave been eliminated.

Regulation Under Arizona law, the District's Board of Directors (the Board) serves as its regulatory and rate setting agency.

EIectric 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 January 1992, a 2.9 percent standard rate increase became effective.

2 Si nificant Accountin Policies:

Basis of Accounting The accompanying combined financial statements are presented in accordance with generally accepted accounting principles promulgated by the Financial Accounting Standards Board and reflect the rate-making policies of the 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. AFUDC rates of 5.28 percent and 5.2'4 percent were used in 1992 and 1991, respectively.

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

The depreciation rate in effect for fiscal year 1991-1992 resulted in provisions approximating an average rate of 3.01 percent on the average cost of depreciable electric plant, an average rate of 2 42 percent on the average cost of depreciable irrigation plant and an average rate of 9.49 percent on the average cost of depreciable common plant.

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.

Losses associated with bond defeasance transactions are deferred and amortized over the lives of the defeased debt in accordance with the rate-making policies of the Board. Induded in deferred charges and other assets are unamortized losses associated with bond defeasances of $126,304,000 and S103,753,000 as of April 30, 1992 and 1991, respectively.

Nuclear Fuel Under the provisions of the Nudear Waste Act of 1982, the District is charged one mill per kwh on its share of net energy

~ generation at the Palo Verde Nudear Generating Station (PVNGS) for the cost to dispose of the fuel.

The District amortizes the cost of nuclear fuel, including its disposal, to fuel expense using the unit of production method.

Decommissioning The total estimated cost to decommission the District's share of PVNGS is $133 million in 1989 dollars. Decommissioning funds of approximately $16,829,000, stated at cost, as of April 30, 1992 are maintained in an external trust. This amount is dassified as segregated funds in the accompanying combined balance sheet.

The corresponding liability is classified. in other noncurrent liabilities.

Fuel Costs The District maintains a fuel adjustment clause balancing account to adjust operating revenues for variations between the recorded cost of fuel and purchased power and revenue designated for recovery of such costs. AtApril30, 1992 and 1991, over-recovered fuel costs totalled S35,783,000 and $36,326,000, respectively, and are recorded as accounts payable.

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

Cash Equivalents The District treats short-term temporary cash investments with maturities of three months or less as cash equivalents.

Recognition of Unbilled Revenues SRP estimates and accrues revenue for electricity delivered to customers that have not yet been billed.

Four Corners (NM)

(Units 4&5)

Mohave (NV)

Navajo (AZ)

Hayden (CO)

(Unit 2)

Craig (CO)

(Units 182)

Palo Verde Nuclear Generating Station AZ) 10.00%

$88,248 10.00 48,034 21.70 225,894 50.00 68,342 29.00 226,403 17.49 1,594,783 S (31,455)

S 8,068 (23,031) 3,186 (108,109) 2,961 (33,838) 478 (82,166) 2,017 246,628) 43,562

'2,251,704

$ 525,227)

$60,272 The District acts as the operating agent for the participants in the Navajo Genemting Station.

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

Reclassifications Certain 1991 amounts have been reclassified to conform to the current year presentation.

3 Possession and Use of UtilityPlant:

The United States of America retains a paramount right or claim in SRP which arises from the original construction and opemtion of certain of SRP's facilities as a federal reclamation 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.

4 Coronado Unit 3:

In 1991, management re-examined its long-mnge resource plans as a result of the increased availability of PVNGS, continued excess capacity in the Southwest and the reduced load growth in its service territory. As a result, management determined that additional constructed baseload capacity should not be required until fiscal year 2010. Due to technological, environmental and economic concerns regarding the future construction of Unit 3, SRP wrote down its investment to its estimated net realizable value in fiscal year 1990-91. SRP currently is attempting to find a buyer for the assets.

Management continues to review the value of the assets on hand and is confident that they are recorded at a realizable value at April 30, 1992.

(5) 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 included 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 as of April 30, 1992:

Plant Ownership In Accumulated Plant Name Share Service Depreciation CWIP (thousands ot dolhrs)

Revenue Bonds (mature through 2031)

Unamortized Bond Discount Total Revenue Bonds Outstanding Commercial Paper Other Total Long-term Debt 4.8-9.3%

$3,451,296

$3,419,677 (108,036 99,557 3,343,260 3,320,120 2.6-3.5%

375,000 375,000 6.9%

4,361 5,599

$3,722,621

$3,700,719 The annual maturities of long-term debt (excluding commercial paper and unamortized bond discount) as of April30, 1992, due in the fiscal years ending April 30, are as follows:

1993 1994 1995 1996 1997 Thereafter (thousands ot dollars)

S 55,565 53,716 58,339 59,899 68,297 3,159,841

$3,455,657 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.

Included in segregated funds is approximately $189,541,000 and

$188,186,000 of debt service related funds as of April 30, 1992 and 1991, respectively.

The District has

$246,313,000 of mini-revenue bonds outstanding which can be redeemed at the option of the bondholder under certain circumstances.

SRP has a $50,000,000

'evolving credit agreement available to refinance these bonds in the event significant redemption requests occur.

Based on historical redemptions made on these bonds, management is confident that this credit agreement is sufficient.

The debt service coverage ratio, as defined in the bond resolution, is used by bond mting agencies to help evaluate the financial viability of the District.'For the years ended April 30, 1992 and

1991, debt service coverage was 2.11 and

198, respectively.

Interest and amortization of discount on the various issues results in an effective rate of approximately 708 percent over the remaining terms of the bonds.

AtApril30, 1992, the District has authority to issue additional electric system revenue bonds totalling $124,218,000 principal amount and electric system refunding revenue bonds totalling

$1,184,735,000 principal amount.

In fiscal 1992 and 1991, the District defeased

$281,757,000 and $123,080,000, respectively, of electric system revenue bonds resulting in lower future debt service requirements as well as a 6 Lon -Term Debt:

Long-term debt consists of the following:

Interest Rate 1992 1991 (thousands of dollars)

1992 1991 Service cost Interest cost Actual return on assets Net amortization and deferral (thousands ot dolhrs)

$ 8,691

$ 8,944 21,890 19,686 (45,493)

(28,654) 10,691 (5,193 Net periodic pension income

$ 4,221

$ 5,217 The discount rate used in determining the actuarial present value of the projected benefit obligation was 8.75 percent for 1992 and 9.0 percent for 1991. The rate of increase used to determine future compensation levels was 5.5 percent for fiscal years 1992 and 1991. The expected long-term rate of return on assets is 9.75 percent for both 1992 and 1991.

1 loss of $26,647000 and $12,901,000, respectively. Consistent with the rate-making policies of the

Board, the losses have been deferred and are being amortized over the life of the defeased debt.

Commercial Paper The District has issued $375 millionof tax~empt commercial paper at an average interest rate to the District of 3.00 percent.

The commercial paper matures no more than 270 days from the date of issuance and in no event after July 12, 1993. The commercial paper has been dassified as long term in connection with refinancing terms under a revolving credit agreement (the Agreement) with a consortium of banks which supports the commercial paper. Under the terms of the Agreement, the District may borrow up to $375 million through October 29, 1993.

While the revolving credit agreement contains covenants which could prohibit borrowing under certain conditions, management is confident that financing will be available. The District has never borrowed under this Agreement and does not expect to do so in the future. Alternative sources of funds to support the commercial paper program indude existing funds on hand or the issuance of alternative debt, such as revenue bonds.

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 insubstance defeasance of the prior lien on revenues which secured the bonds, the geneml 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, 1992 the amount of defeased general obligation bonds outstanding was $68,070,000.

? Em loyee Benefit Plans:

Defined Benefit Plan SRP has a defined benefit phn (the Plan) covering substantially all employees. The Phn 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 1992 and 1991.

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

1992 1991 Plan assets at fair value (ihousands of dollars)

$349,063

$318,045 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 obligation Plan assets in excess of projected benelit obligation Unrecognized net assets Unrecognized net gain Prior service cost not yet recognized in net periodic pension cost Prepaid Pension Cost (213,520)

( 7,703)

(221,223)

( 59,396)

(280,619) 68,444 (43,359)

(1,845) 5,707

$ 28,947 (193,501)

( 6,706)

(200,207)

(50,146)

(250,353) 67,692 (47,695)

(1,442) 6,170

$ 24,725 Defined Contribution Plans SRP maintains 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 $2,977,000 and $2,831,000 in the fiscal years ended April30, 1992 and 1991, respectively.

Other Postretirement Benefits SRP provides certain health care and life insurance benefits for retired employees. Employees are eligible for coverage if they retire at age 65 or older with at least five years of vesting service, or any time after age 55 with a minimum of ten years of vested service. These benefits are subject to deductibles, copayment provisions and other limitations. SRP may amend or change the plan periodically. Currently, the cost of these benefits is recognized as expense as the premiums and/or deposits to the trustee are paid. The total cost of postretirement benefits expensed was $3,560,000 and $3,860,000 for 1992 and 1991, respectively.

A new standard on accounting for postretirement benefits requires that the expected cost of these benefits must be charged to expense during the years that the employees render service. The new standard must be implemented no later than fiscal year 1993-94, and may be adopted ratably over future periods or through a cumulative catch-up adjustment.

Management has engaged an actuary who has made a preliminary review using 1991 data. Their estimates are subject to significant change based on a number of factors, including possible changes in the assumed health care cost trend rate used in the calculations. Based on their preliminary review, the postretirement benefit obligation at April 30,

1992, measured in accordance with the new standard, is estimated to range from $ 100 million to $ 145 million.

1993 1994 1995 1996 1997 1998 District

$211 240 287 306 310 372 (millions ol dollars)

Assoc.

$ 18 18 19 18 17 16 Total

$229 258 306 324 327 388 These expenditures will be financed primarily by funds currently on hand, future net revenues and the sale of revenue bonds.

In October

1991, the United States Environmental Protection Agency published a regulation consistent with a memorandum of understanding that had been reached between the District and several environmental organizations concerning impairment of visibility in the Grand Canyon National Park. The regulation requires the installation of certain environmental equipment at the Navajo Generating Station.

Installation willrequire significant additional expenditures, which will be passed on to customers through increased electric rates. The District's six-year construction program includes the cost of environmental controls at Navajo.

Long-Term Power Contracts The District has entered into four long-term power purchase agreements to supply a

portion of its projected load requirements. The first two contracts each provide the District with 100 megawatts (MW) of firm power through 2011.

The remaining two contracts, both with a participant in the Navajo Generating Station (NGS), give the District an additional percentage of the output of the station. The minimum payments shown below assume that the contract willcommence May I, 1993 and expire September 30, 2011.

Deliveries from May I, 1993 through September 30, 1993 will be 50 MW. Commencing with October I, 1993 minimum payments under these contracts, which have a maximum annual capacity factor of 8.7 percent, are based on 350 MW of capacity. Minimum payments under these contracts, of approximately

$25.2 million per year, are unconditionally payable regardless of the ability of the District to obtain the power.

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

SRP has not decided when it willadopt the new standard, or if it will adopt the new accounting method ratably or by recording a cumulative catch-up adjustment in the year of adoption. However, management expects that the annual postretirement benefit expense computed in accordance with the new standard willbe significantly greater than the annual cash payments.

8 Commitments:

Construction Program Construction expenditures, including contingency allowances, planned for fiscal years 1993 through 1998 are shown below:

1993 1994 1995 1996 1997 Thereafter (thousands ol dollars) 31,660 47,916 57,148 57,524 57,736 898,887

$ 1,150,871 Fuel Supply At April 30, 1992, minimum long-term commitments of approximately

$2.2 billion exist under fuel supply contracts.

During 1989, the District paid approximately

$59 million to terminate a contract with Kaiser Coal Company. In,accordance with the rate-making policies of the Board, the remaining termination costs of $46,232,000 and $50,195,000 at April 30, 1992 and 1991, respectively, are induded in deferred charges and other assets, and are being amortized to fuel expense over the remaining life of the original contract.

Papago Park Center SRP is currently developing a 350 acre (net), mixed-use commercial park called Papago Park Center in Tempe and

Phoenix, Arizona.

In connection with the infrastructure development, the District and the City of Tempe have entered into an agreement whereby the District will pay an annual assessment of approximately $1.75 million per year for 19 years to the City of Tempe to pay for its share of street and infrastructure improvements and right of way acquisitions. The obligation of the District to make assessment payments is an unsecured obligation payable from District general funds. The present value of this obligation has been recorded as a noncurrent liability.

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

9 Contin encies:

Nuclear Insurance Under existing law, public liabilitydaims that could arise from a single nuclear incident are limited to $7.8 billion. PVNGS participants currently insure for this potential liability through commercial insurance carriers to the maximum amount available

($200 million) with the balance covered by an industrywide retrospective assessment program which is required by the Nudear Regulatory Commission. The maximum assessment per reactor per nudear incident under the retrospective program is

$63 million subject to a 5 percent surcharge which could be applicable in certain circumstances, but not more than $10 million per reactor may be charged in any one year for each incident.

Based on the District's ownership share in PVNGS, the maximuln potential assessment would be $34.7 million induding the 5 percent surcharge, but would be limited to $5.2 million per incident in any one year.

Environmental SRP is subject to numerous legislative, administrative and regulatory requirements relative to air quality, water quality, hazardous waste disposal, and other environmental matters. Such requirements have and willcontinue to result in increased costs associated with the operating of existing facilities, construction of new facilities, and dean up of existing facilities. The potential costs to SRP cannot reasonably be determined at this time,

however, management does not anticipate that they willhave a materially adverse impact on SRP's financial condition. In addition, management expects to recover such costs from the ratepayers.

Indian Matters From time to time, SRP is involved in litigation and disputes with various Indian tnbes 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.

10 SRP's Reduction in Force:

In fiscal year 1991, the Board approved a cost reduction program that included elimination of approximately 450 positions.

The related estimated severance benefit expense was recorded as an unusual item in the accompanying 1991 combined statement of net revenues. In 1992, the estimated sevemnce benefit accrual was reevaluated and the excess accrual was reversed as an unusual item in the accompanying 1992 combined statement of net revenues.

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

We have audited the accompanying combined balance sheets of SALT RIVER PRCUECI's of April 30, 1992, and 1991, and the rehted combined statements of net revenues and cash flows for the years then ended. These financial statements are the responsibility of the Project'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 includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.

An audit also includes 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, 1992, and 1991, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles.

Phoenix, Arizona, June 10, 1992.

Arthur Andersen & Co.

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