Annual report / Central Arizona Project

              i n l i e u o f r a i n
IN
LIEU
OF
RAIN
c a p – 0 0 3 – 2 3 . h 2 o — i n t e r . d o c
 
’03
CAenntnruaall ARerpiozrotna Project 2003
c a p
i n l i e u o f r a i n
i n l i e u o f r a i n
i n l i e u o f r a i n
i n l i e u o f r a i n
i n l i e u o f r a i n i n l i e u o f r a i n
i n l i e u o f r a i n
i n l i e u o f r a i n
i n l i e u o f r a i n
i n l i e u o f r a i n
i n l i e u o f r a i n
i n l i e u o f r a i n
i n l i e u o f r a i n
i n l i e u o f r a i n
i n l i e u o f r a i n
i n l i e u o f r a i n
i n l i e u o f r a i n
i n l i e u o f r a i n
i n l i e u o f r a i n
i n l i e u o f r a i n
i n l i e u o f r a i n
i n l i e u o f r a i n
i n l i e u o f r a i n
i n l i e u o f r a i n
i n l i e u o f r a i n
i n l i e u o f r a i n
i n l i e u o f r a i n
2 00 3
ANNUAL REPORT-01-CAP-03
C A P ✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
 
i n l i e u o f r a i n
c a p – 0 0 3 – 2 3 . h 2 o — i n t e r . d o c
 
’03
CAenntnruaall ARerpiozrotna Project 2003
c a p
letter
introduction
in lieu of rain
maintenance excellence
charitable contributions
financials
the board
02
04
06
12
17
19
76
C O N T E N T S
 
Central Arizona
Project will
provide water even if it
doesn’t rain. ✺ ✺ ✺ ✺
✺ ✺ ✺ ✺
✺ ✺ ✺ ✺
✺ ✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
 
David S. WilsonJr.
P 02
D A V I D S . “ S I D ” W I L S O N J R . GENERAL MANAGER
i n l i e u o f r a i n
c a p – 0 0 3 – 2 3 . h 2 o — i n t e r . d o c ’03
CAenntnruaall ARerpiozrotna Project 2003
g m
✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺
✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺
✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺
✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺
✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺
✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺
✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺
✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺
✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺
✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺
✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺
✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺
✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺
LET-TER
✺ ✺ ✺ ✺
✺ ✺ ✺ ✺
✺ ✺ ✺ ✺
✺ ✺ ✺ ✺
 T O O U R C U S T O M E R S A N D C O N S T I T U E N T S:
03 P
In 2003, Central Arizona Project delivered 1.55 million acre-feet of water.Keep in mind that one acre-foot of water
is about 326,000 gallons. Each acre-foot of water meets the needs of two families for a year.
That water delivery is why residents living in Maricopa, Pinal and Pima counties—those served by CAP—don’t
really feel the effects of the on-going drought that affects water supplies inside Arizona and on the Colorado River.
You also should know that those deliveries were made despite one serious maintenance problem along our 336-
mile-long aqueduct. Ironically, at one point during the year, a monsoon storm damaged the canal.We had to stop
deliveries for two days while crews worked around the clock to replace 75 of the concrete panels that line the canal wall
to prevent seepage of water. But we got it done and no customer missed any portion of their water deliveries.
Some of that is due to a renewed commitment to maintenance at CAP. In 2003, CAP and its employees made a
commitment to maintenance excellence, or ME. ME means that we are dedicated to ensuring that the flow of precious
Colorado River water is never interrupted due to maintenance problems. Our motto is: Maintenance Excellence, failure
is not an option.
I’m proud to say that CAP and its employees have accepted the
challenge and began making the necessary changes to ensure
that the motto remains fact. I am confident that both
now, and in the future, we will sustain our unblemished
record for reliable water deliveries.
In addition to meeting the physical challenges of
delivering the record volume of water, CAP also continued
to actively work to safeguard Arizona’s share of Colorado River
water. Throughout the year, CAP managers and board members constantly
worked with the federal government, state legislature and other water users
to develop rules, laws and agreements governing the Colorado River stor-age
system that includes Lake Mead and Lake Powell. Our goal is to do
everything possible to guarantee the continued flow of Colorado River
water to central Arizona.
In 2003, while the drought continued, CAP met and overcame many
challenges while delivering a record volume of water.We are proud of the role
we played in keeping the state supplied with such a life-sustaining and vital
resource.We are dedicated to continuing that effort.
✺ ✺ ✺ ✺
✺ ✺ ✺ ✺
✺ ✺ ✺ ✺
✺ ✺ ✺ ✺
David S. WilsonJr.
D A V I D S . “ S I D ” W I L S O N J R . GENERAL MANAGER
05 P
n many ways, 2003 was almost an
“instant replay" of 2002.
It was hot in 2002. June was the sec-ond
warmest on record. April, July and
August all were the third warmest on record.
In 2003, it started out as more of
the same. Phoenix had the warmest
January on record. The days were an
average of 7.8 degrees above normal. July
was the warmest month ever on record, averaging 97.7 degrees and September was the third warmest
September on record with an average of 90.7 degrees. In addition, July 15 saw the highest minimum
temperature ever with 96 degrees. That means that at night, it did not get any cooler than 96.
It wasn’t any better in Southern Arizona. In Tucson, the average yearly temperature for 2003 of
70.7 degrees was 2.3 degrees above normal and ranks as the third-warmest year on record. And the
average yearly low temperature for 2003 was 57 degrees, making it the highest low Tucson has ever
had. The average yearly high temperature for 2003 of 84.4 degrees was 2.2 degrees above normal and
falls as the 12th-warmest on record for Tucson.
In 2002, Arizona experienced the “Rodeo-Chediski" fire. That fire burned about 469,000
acres—an area larger than Los Angeles—destroyed 491 homes and forced about 32,000 people in
eastern Arizona to flee.
In 2003, Tucson’s skies mimicked the seemingly permanent gray of Los Angeles as the “Aspen"
fire on Mount Lemmon destroyed 340 structures and burned nearly 85,000 acres.
The Rodeo-Chediski fire resulted in losses totaling about $125 million. The Aspen fire’s losses
were about $80 million.
Along with the heat and fires, Arizona also experienced a continuation of the drought.
It was not as dry in 2003 as it was in 2002. Phoenix received only 2.82 inches of rain in
2002. In 2003, Phoenix received 6.82 inches.Both totals are short of the normal 8.29 inches
of rainfall for Phoenix.
Tucson did not fare much better. In 2002 it received 7.84 inches, in 2003 it received
10.05 inches. As with Phoenix, both were under the normal or average of 12.17 inches of
rainfall for Tucson.
In response, the Salt River Project extended its one-third reduction in deliveries to all
customers. SRP made the announcement in January, 2003, because its storage reservoirs
were at about 26 percent capacity, barely half the water SRP needed to meet the demands
in the coming 12 months.
That announcement was not the stunner it had been in 2002. Throughout the year
SRP officials had let it be known that, in lieu of rain, the shortage in deliveries would carry
over to 2003. Knowing that, the water managers in the Valley of the Sun continued to use
groundwater or excess Central Arizona Project water.
Just as it had in 2002, the public essentially remained blissfully unaware of the
drought during 2003. They continued to water lawns, wash cars in their driveways, run
fountains and use water without regard to the shortage.
Water continued to be available because of the efforts of the Central Arizona Project.
CAP is a 336-mile-long aqueduct that annually brings about 1.5 million acre-feet of water
to cities, agricultural users and Indian communities in Maricopa, Pinal and Pima counties.
One acre-foot is about 326,000 gallons or enough water for a family for a year.
Without fanfare, the CAP aqueduct that wends its way from Lake Havasu through Phoenix
and on to Tucson brings the life sustaining Colorado River water to the middle of the state.
That water allows people to continue living normally in the midst of what has become
a long-term drought, allows agricultural users to continue to plant and harvest, allows
Indian communities the water it needs to survive and also allows additional water for the
Arizona Water Banking Authority to store in aquifers as protection against future drought.
CAP provides the necessary water to allow the people of central Arizona to continue
to live their lives normally, in lieu of rain.
 
P 04
 
i n l i e u o f r a i n
c a p – 0 0 3 – 2 3 . h 2 o — i n t e r . d o c ’03
CAenntnruaall ARerpiozrotna Project 2003
C A P
INTRO-DUC-TION
I
❉
❉
❉
❉I t ’ s h o t !
The “Aspen” fire
on Mount Lemmon
Destroyed 340
structures and
burned nearly
85,000 acres.
P 046
 
c a p – 0 0 3 – 2 3 . h 2 o — i n t e r . d o c ’03
C A P
07 P
he reduction in water deliveries by Salt River Project
(SRP) and the lack of rain coupled with the hottest
January on record all would seem to combine to bring
the drought sharply into public focus.
And, for a time, it did.
The Arizona Republic, the state’s largest daily newspaper, ran a series of stories about the drought
in January.
CAN WE WEATHER THE DROUGHT?
was a page one story on January 19.
WATER DISPARITY: CITIES THRIVE AS RURAL AREAS WILT
was the headline on the second day story.
COLORADO RIVER’S HEALTH IS VITAL TO WEST
was the concluding story to the series.
Television followed the Republic’s lead on water and water issues with reports on the 5, 6 and 10
o’clock news, but other events soon displaced the drought as the lead issue in Arizona.
On March 19, the United States launched Operation Iraqi Freedom and military forces stormed
into Iraq. The public and media were captivated by the rapidly moving ground forces and the stories
and film footage filed by print and television reporters.
Then, on March 23, the war became more personal for Arizona. Portions of the 507th
Maintenance Company missed a turn and was ambushed outside Nasiriyah. Among the 11 soldiers
who died was Army Specialist Lori Piestewa. Piestewa, 23, a Hopi from Tuba City, is believed to be
the first Native American woman killed in combat in a foreign war. Her death raised questions about
women serving in combat areas. The debate raged later over whether Squaw Peak should have been
renamed Piestewa Peak in her honor.
Although most Arizona residents could focus on Iraq and ignore the drought, Central Arizona
Project (CAP) could not.
SRP announced in January that, in lieu of rain, it was again reducing the amount of water it
delivers to its customers by one-third. That reduction placed higher demands on Colorado River
water delivered to the Valley by CAP.
CAP had projected deliveries of 1.56 million acre-feet of water in 2003. An acre-foot of water is
IN
LIEU
OF
RAIN
 
W E A T H E R F A C T . 0 1 # 0 0 3 . 0 1 . w f
D u s t D e v i l - A s m a l l a t m o s p h e r i c v o r t e x n o t
a s s o c i a t e d w i t h a t h u n d e r s t o r m , w h i c h i s m a d e
v i s i b l e b y a r o t a t i n g c l o u d o f d u s t o r d e b r i s .
D u s t d e v i l s f o r m i n r e s p o n s e t o s u r f a c e h e a t i n g
d u r i n g f a i r , h o t w e a t h e r . T h e y a r e m o s t f r e q u e n t
i n a r i d o r s e m i - a r i d r e g i o n s .
T
W e a r e i n a d r o u g h t .
BELOW: Forest fires
swept through
the state in 2003
as the prolonged
drought dried up
many water
sources...
keeping
journalists
very busy.
✺ ✺ ✺ ✺
✺ ✺ ✺ ✺
✺ ✺ ✺ ✺
✺ ✺ ✺ ✺
✺ ✺ ✺ ✺
✺ ✺ ✺ ✺
✺ ✺ ✺ ✺
✺ ✺ ✺ ✺
✺ ✺ ✺ ✺
✺ ✺ ✺ ✺
✺ ✺ ✺ ✺
✺ ✺ ✺ ✺
✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺
✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺
✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺
✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺
✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺
✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺
✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺
✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺
✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺
✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺
✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺
✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺
✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺
✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺
✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺
✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺
✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ P 08
 
c a p – 0 0 3 – 2 3 . h 2 o — i n t e r . d o c ’03
C A P
W e s t e p p e d o n t h e
G a s .
09 P
about 326,000 gallons, enough to fill 20 backyard swimming pools. In a normal year, Arizona’s allocation
of Colorado River water is 2.8 million acre-feet.Of that 2.8 million, CAP gets about 1.5 million acre-feet
of water which it delivers to its three-county service area, Maricopa, Pinal and Pima counties. The remain-ing
1.3 million acre-feet of Arizona’s Colorado River allocation are used by entities along the river, such as
Yuma, the Welton-Mohawk Irrigation District,Colorado River Indian Tribes (CRIT), etc.
Late in 2003, when it became clear that not all of the 1.3 million acre-foot allocation would be
used, CAP “stepped on the gas," according to Water Operations Manager Tim Kacerek. During the
months of November and December, CAP pulled an additional 100,000 acre-feet of water off the
river so Arizona took its full allocation.
One of the reasons CAP was able to draw more water out of the Colorado River is because it
completed the impeller replacement at Mark Wilmer Pumping Plant. The pumping plant, located
south of Lake Havasu, is where CAP draws the water out of the river. The pumping plant lifts the
water 824 feet up the side of a mountain where it enters a 7-mile-long tunnel through the Buckskin
Mountains. The water emerges from the tunnel into an aqueduct that is 336 miles long that stretches
across the state, passes through the Valley and goes on to Tucson.
The water is lifted out of the river and pushed up the mountainside by six, 60,000 horsepower
pumps that spin impellers. The impellers “scoop" the water, much like a water wheel on the side of a
windmill.
The six original impellers were prone to excessive noise and vibrations and had to be replaced.
CAP changed out the first impeller in the summer of 1998. The project has been ongoing since then
with one or two impellers being replaced every summer. At the same time, CAP installed new
mechanical shaft seals in an effort to increase reliability. The goal was not only to reduce pressure
pulsations and noise level, but also to increase the efficiency of the unit so that the impellers would
pay for themselves in a short period of time.
The new computer designed impellers lower the intensity of the pulsations, which in turn low-ers
the noise and vibration levels at the pumping plant. The first impeller tested at Mark Wilmer did
not meet the requirements, but it provided valuable information that eventually led to the design of
an impeller that met CAP’s needs. The noise decreased by half, vibration was reduced significantly,
pump efficiency increased by 3 percent and output increased by more than 120 cubic feet per second
in each unit. A cubic foot of water is about 7.5 gallons.
The resulting increase in pumping plant capacity is the equivalent of adding a seventh pump. As a
result, if one of the six pumps is down for maintenance, the remaining five still can pump a full load.
The additional water taken by CAP in 2003 was sorely needed. In addition to satisfying the
water needs of CAP’s three major customer classes (M&I or municipal and industrial, agriculture,
Indian communities) the additional water allowed CAP to move more water into CAP’s recharge
projects where it is stored underground for future use.
2003 CAP H2O DELIVERIES TO CUSTOMERS
1,551,062
555,372
856,323
Acre FT-p-CAP-03
CAP
DELI-VERS
BELOW: The project to
replace the impellers
at Mark Wilmer Pumping
Plant started in 1998
and now is complete,
making the pumping
plant more efficient.
“
”
139,367
W E A T H E R F A C T . 0 2 # 0 0 3 . 0 2 . w f
S t r a t o c u m u l u s - L o w - l e v e l c l o u d s , e x i s t i n g
i n a r e l a t i v e l y f l a t l a y e r b u t h a v i n g i n d i v i d u a l
e l e m e n t s . E l e m e n t s o f t e n a r e a r r a n g e d i n r o w s ,
b a n d s , o r w a v e s . S t r a t o c u m u l u s o f t e n r e v e a l s
t h e d e p t h o f t h e m o i s t a i r a t l o w l e v e l s , w h i l e
t h e s p e e d o f t h e c l o u d e l e m e n t s c a n r e v e a l
t h e s t r e n g t h o f t h e l o w - l e v e l j e t s t r e a m .
mark wilmer runner - runaway
seal radial deflection, mils
crown
Band
4
4
s c a l e – . 5 5 1 m a g n i f i c a t i o n x 1 5 0
= 12.5 ksi omax
TOTAL M & I AGRICULTURAL INDIAN
1,551,062acre ft
d e l i v e r s
❉
 
h 2 o 2 u
P
10 11 P
CAP stores the water on behalf of some of its customers and the Arizona Water Banking Authority.
In 2003, CAP stored a total of 155,236 acre-feet of water in direct recharge projects. About 106,000
of the 155,235 acre-feet were stored in CAP’s five recharge projects.
In Pima County, CAP stores water at the Pima Mine Road Recharge Project, Avra Valley Recharge
Project and the Lower Santa Cruz Recharge Project. In Maricopa County, CAP opened the Agua Fria
Recharge Project in Peoria and, in 2003, moved west and added the Hieroglyphic Mountains
Recharge Project. Hieroglyphic Mountains was completed in December 2002 and began operations
in January 2003. It recharges about 2,000 acre-feet of water a month into 40 acres of spreading
basins. The project adds more than 35,000 acre-feet to CAP’s water storage capacity. In addition,
CAP began work on creating another recharge project near Tonopah. The land has been acquired and
plans have been drafted for the new facility.
The longevity and severity of the drought have brought home to CAP and its managers how critical
it is for CAP to continue to bring the Colorado River water into the center of Arizona. CAP’s employees
have a history of being able to react immediately to crisis and find a way to continue delivering water to
its customers. This was proven again in 2003 when monsoon storms damaged the canal.
On August 27, a monsoon storm rolled through the Northwest Valley and dumped about 4 inches
of rain on the ground in one hour. It was followed on September 6 by another storm that dropped
another 1.5 inches of rain.
“Water was everywhere," said Jeff Teskey, Supervisor of Aqueduct Maintenance West, describing
the scene after the storms.
The surge of water undermined the CAP's spillways, seeped underneath the concrete lining of
the canal and pushed against the concrete panels that line the side of the canals causing about 75 of
them to crack and “pop off like dominoes," Teskey said.
CAP had to make repairs to the damaged area which was located about Grand Avenue and
Patton Road, but it also had to continue water deliveries in this time of drought. It was estimated
that the work could be completed with only a two-day outage.
“It was a schedule that left no room for error," said Aqueduct Maintenance Manager Russ Howard.
Crews worked 10- and 12-hour days over several weeks repairing the 75 panels. First, the flow of
water was halted so the canal dried up. Crews went into the canal to remove concrete debris, boul-ders,
sediment and other trash, including a discarded bike and a fake body made from a stuffed pair
of blue jeans and shirt. After two days, pass-through pumping resumed, which meant that water
began to flow again, although not at the depth and volume as it had.
Before the needed 245 yards of concrete could be poured, fresh dirt was compacted into the
exposed areas beneath the damaged panels. Those areas then were tested to be sure the compacted
dirt, or subgrade, was restored to its original density. Then the concrete was poured and the panels
were fitted. The last step was to treat the panel joints with a material that expands and contracts to
accommodate movement and prevent leaks.
Customers did not encounter any problems during this time because CAP released additional
water from Lake Pleasant to compensate for the stopped, and then reduced, flows.
CAP’s leadership realizes the importance of continuing deliveries of Arizona’s much needed life
sustaining Colorado River water under any and all circumstances. As a result, CAP adopted a
“Maintenance Excellence" program.
 
c a p – 0 0 3 – 2 3 . h 2 o — i n t e r . d o c ’03
C A P
W e s t e p p e d O n t h e
G a s .
above: Crews worked
10- and 12-hour days
over several weeks
to repair 75 panels
damaged by monsoon
storms...and “there was
no room for error.”
“ ”
CAP’s employees have a history
of being able to react immediately
to crisis and find a way
to continue delivering water
to it customers.
W E A T H E R F A C T . 0 3 # 0 0 3 . 0 3 . w f
D o w n b u r s t - A s t r o n g d o w n d r a f t r e s u l t i n g i n a n
o u t w a r d b u r s t o f d a m a g i n g w i n d s o n o r n e a r t h e
g r o u n d . D o w n b u r s t w i n d s c a n p r o d u c e d a m a g e s i m i -
l a r t o a s t r o n g t o r n a d o . A l t h o u g h u s u a l l y a s s o c i a t -
e d w i t h t h u n d e r s t o r m s , d o w n b u r s t s c a n o c c u r w i t h
s h o w e r s t o o w e a k t o p r o d u c e t h u n d e r .
✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺
✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺
✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺
✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺
✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺
✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺
✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺
✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺
✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺
❉ ❉ ❉
✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺
✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺
✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺
✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺
✺ ✺ ✺ ✺ ✺
✺ ✺ ✺ ✺ ✺
✺ ✺
✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺ ✺
The mission of CAP is built around mainte-nance—
we deliver and manage a river of water
that goes uphill. To fail in maintaining this intri-cate
system of pumps, checks and turnouts is an
unacceptable option for all of us. If our customers and constituents—cities,
industries, farmers, water agencies, elected officials, the media, the general public—
ever lose faith in our ability to manage the CAP system, our entire organization
could completely be altered with respect to the way it is led and managed.
Of course, we’re not headed in that direction. Our deliveries are reliable and
our customers are satisfied. Our goal is to preserve and protect that reputation
we’re worked so hard to earn.
A new program upon which we’re about to embark, Maintenance Excellence,
will help us develop, organize and manage our maintenance programs even more efficiently, effective-ly
and enable us to use our operations and maintenance systems to their full capacities. As impor-tantly,
Maintenance Excellence will help us reduce our total operating costs below current levels.
The Enterprise Resource Planning System, ERP as we all know it, was a huge cog in CAP’s
wheel of progress. Maintenance Excellence builds upon the momentum of ERP and moves the
organization beyond the technology and further into the daily processes of work. Maintenance
Excellence will help us evaluate our work environments, work ethics, workforce distributions, job
planning and scheduling, and workforce, supervisor and management skills. In time, we will be
able to connect the numbers from ERP from the actions derived by Maintenance Excellence.
Best Maintenance Practices suggest the following:
  100% of every maintenance person’s time is covered by a work order.
  90% of work orders are generated by preventive maintenance (PM) inspections.
  30% of all labor hours are PMs.
  90% of work is planned/scheduled.
  100% of capacity is reached 100% of the time.
  Spare parts stock outs are rare (less than one per month).
  Overtime is less than 2% of total maintenance time.
  Maintenance budget is within +/-2%.
  Proactive Maintenance is the mission.
P 12 13 P
 
c a p – 0 0 3 – 2 3 . h 2 o — i n t e r . d o c ’03
C A P
O u r g o a l i s t o
p r e s e r v e a n d
p r o t e c t t h a t
r e p u t a t i o n w e ’ r e
w o r k e d s o h a r d
t o e a r n .
“
”
To underscore the importance of the maintenance excellence effort,
this column was written by the general manager for CAP employees:
B y S i d W i l s o n , g e n e r a l m a n a g e r
MAINTEN
EXCELLE
FAILURE
NOT AN
OPTION
ERP
Those are hefty goals, but the
benefits will be enjoyed by all
Groups within CAP.
I’m convinced the internal
efforts will be well worth
the effort, because failure as a
company is simply not an option.
{
ANCE
NCE
IS
 
c a p – 0 0 3 – 2 3 . h 2 o — i n t e r . d o c ’03
C A P
T h e d r o u g h t ’ s i m p a c t
i n 2 0 0 3 r e m a i n e d
v i s i b l e a l o n g t h e
C o l o r a d o R i v e r —
t h e “ b a t h t u b r i n g s "
c l e a r l y a r e v i s i b l e
a t b o t h L a k e M e a d
a n d L a k e P o w e l l .
2003 CAP LOWER BASIN ALLOCATIONS
7.5
2.8
4.4
the effects
of the drought
are clear.
0.3
o initiate the program, the first course of action was for the General
Manager to reorganize senior management and shift leadership into new
roles. John D. Newman, a civil engineer formerly responsible for Strategic
Planning, was appointed to the newly created position of Assistant General
Manager of Maintenance. This shift in responsibility brought all of the
maintenance organizations under the leadership of one senior manager.
Several significant changes have come about as a result of the
Maintenance Excellence effort. First, the planners are being utilized more
efficiently so that they can, in turn, relieve supervisors of many administra-tive
duties, allowing them to spend more time in the field.
Secondly, scheduling has become more integrated. Inspections are
scheduled on a regular basis to identify potential problems, then corrective
maintenance is set up on a separate schedule.
A new Maintenance Engineering function has also been integrated.
This department reviews the preventative maintenance program on a con-tinual
basis, looking for opportunities to improve maintenance practices.
The second stage of Maintenance Excellence, targeted for 2004 and
beyond, will offer even greater challenges. It involves taking a harder look at
upcoming retirements and encouraging employees to plan their futures as
opportunities arise. It involves creating a focus team of experts from
Engineering, Operations, Finance, and the Warehouse to define the
specifics of what else is needed and expected from others around the com-pany
to ensure success.
In addition to moving forward with the physical challenges of delivering Colorado River water,
CAP and its senior managers also constantly work to protect Arizona’s water allocation.
In 2002 a plan to reduce California’s overdraft of its allocation of Colorado River water fell
apart at the last minute when the four California water agencies that had to implement the plan
failed to reach agreement on the details. Secretary of the Interior Gail Norton then followed through
on her threat and ordered California be restricted to only take its 4.4 million acre-foot allocation of
Colorado River water.
In 1921 Congress authorized the seven basin states to enter into a Colorado River Compact.
The Compact divided the seven member states—Arizona, California, Nevada, Colorado, Utah, New
Mexico and Wyoming—into the Upper Basin and Lower Basin with each Basin getting half of the
estimated 15 million acre-feet of water per year. Arizona, California and Nevada were designated as
the Lower Basin states.
In 1928, the Boulder Canyon Project Act authorized construction of Boulder (now Hoover) Dam
and divided the Lower Basin’s annual 7.5 million acre-feet of water. California was allocated 4.4 mil-lion
acre-feet per year, Arizona received 2.8 million acre-feet and Nevada received 300,000 acre-feet.
P 14 15 P
M I L L I O N A C R E - F E E T
W E A T H E R F A C T . 0 4 # 0 0 3 . 0 4 . w f
S t r a t u s - A l o w , g e n e r a l l y g r a y c l o u d l a y e r
w i t h a f a i r l y u n i f o r m b a s e . S t r a t u s m a y a p p e a r
i n t h e f o r m o f r a g g e d p a t c h e s , b u t o t h e r w i s e
d o e s n o t e x h i b i t i n d i v i d u a l c l o u d e l e m e n t s .
F o g u s u a l l y i s a s u r f a c e - b a s e d f o r m o f s t r a t u s .
TOTAL CALIFORNIA ARIZONA NEVADA
✺ ✺ ✺ ✺
✺ ✺ ✺ ✺
✺ ✺ ✺ ✺
✺ ✺ ✺ ✺
✺ ✺ ✺ ✺
✺ ✺ ✺ ✺
✺ ✺ ✺ ✺
✺ ✺ ✺ ✺ T
annual 7.5 million acre-feet of water
 
For years California took more than its 4.4 million acre-foot allotment because, prior to construction
of CAP, Arizona never used its full entitlement. When CAP was declared “substantially complete" in 1993
and began delivering a large volume of water, it quickly became apparent that California had come to rely
on an annual amount of about 5.2 million acre-feet.
After Norton’s order limiting California to 4.4 million acre-feet in 2003, negotiations resumed in
California and the terms of a QSA, or Quantification Settlement Agreement, were reached after months
of negotiation. In simple terms, the QSA would provide a “soft landing" for California because it would
allow the Golden State and Nevada to draw extra water for a period of 15 years while it “weans" itself
back to 4.4 million acre-feet. By the end of 2003, California still had not signed the final agreement.
The drought’s impact in 2003 remained visible along the Colorado River—the “bathtub rings" clearly
are visible at both Lake Mead and Lake Powell. However, the approximately 25 million people in the
Southwest who depend on the Colorado River for water were not impacted because those two reservoirs
had enough water in storage to offset the low flows.
The reduction in storage levels, in lieu of rain, led CAP and its managers to begin pushing the U.S.
Bureau of Reclamation (BOR) to bring the Yuma Desalting Plant (YDP) into service. Operation of the
plant will allow BOR to leave 80,000 to 100,000 acre-feet of water in storage each year.
A treaty with Mexico calls for the U.S. to deliver at least 1.5 million acre-feet of water to our neighbors
south of the border. However, it also calls for a maximum salinity level. To meet that requirement, BOR has
been releasing about 100,000 additional acre-feet of water each year to reduce the river’s salt level and
meet the treaty terms. Operation of the YDP, which was designed and built to reduce the salt levels, would
mean the additional water released each year could remain in storage to help protect supplies against the
ongoing drought. Several other states, and a variety of water users within the states, have also begun to
support making YDP operational.
CAP officials also have been active within the state. In 2003 CAP’s legislative team reviewed 35 bills
introduced in the Arizona Legislature and closely followed the progress of 25 bills.
The most significant legislative achievement for CAP was the passage the CAP Omnibus Bill, HB2477.
Among other things, the Omnibus Bill authorized the Central Arizona Groundwater Replenishment
District (CAGRD) to create a replenishment reserve sufficient to cover its replenishment obligation at
full build-out, provided for de-enrollment of member service areas and expanded the planning horizon
for CAGRD from 20 to 100 years.
CAGRD provides a mechanism for developers and water providers to demonstrate a 100-year
assured water supply using renewable water supplies rather than relying on mined groundwater. CAGRD
enrolls members who do not have the resources to locate and secure enough renewable water supplies on
their own. CAGRD replenishes groundwater on behalf of its members by recharging water in the Active
Management Area where the excess pumping occurs. Members are classified as member service areas
such as cities, towns and private water utilities, and member lands, which primarily include subdivisions
located outside city water service area boundaries. By the end of 2003, CAGRD member land enrollment
exceeded 100,000 homes.
W E A T H E R F A C T . 0 5 # 0 0 3 . 0 5 . w f
D r y M i c r o b u r s t - A m i c r o b u r s t ( s m a l l , c o n c e n t r a t e d
d o w n b u r s t a f f e c t i n g a n a r e a l e s s t h a n 4 k i l o m e t e r s
o r a b o u t 2 . 5 m i l e s a c r o s s ) w i t h l i t t l e o r n o p r e c i p i t a t i o n
r e a c h i n g t h e g r o u n d . M o s t c o m m o n i n s e m i - a r i d r e g i o n s .
T h e y m a y o r m a y n o t p r o d u c e l i g h t n i n g . D r y m i c r o b u r s t s
m a y d e v e l o p i n a n o t h e r w i s e f a i r - w e a t h e r p a t t e r n .
At t h e g r o u n d , t h e o n l y v i s i b l e s i g n m i g h t b e a d u s t
p l u m e o r a r i n g o f b l o w i n g d u s t .
c a p – 0 0 3 – 2 3 . h 2 o — i n t e r . d o c ’03
C A P
D u e t o t h e o n g o i n g
d r o u g h t , i n 2 0 0 3
C A P p a r t n e r e d w i t h
V a l l e y c i t i e s a n d
o t h e r a g e n c i e s t o
p r o m o t e t h e W a t e r
U s e i t W i s e l y
C a m p a i g n .
P 16
June 2003
Arizona State Envirothon $3,000
Arizona-Sonora Desert Museum $5,000
Arizona State University Foundation $2,000
Hohokam RC&D Area $4,950
Natural Resource Education Center $5,000
Tucson Pima Arts Council $2,500
Water Resources Research Center $2,560
December 2003
Arizona 4-H Youth Foundation $1,000
Arizona State Envirothon $3,000
Friends of the Desert Outdoor Center $2,283
Gateway Community College $3,000
Gavilan Peak School $2,346
Hohokam RC&D Area $2,750
League of Women Voters of NW Maricopa County $1,175
Lowell Elementary School $2,200
Phoenix Zoo $2,250
Pima County Cooperative Extension $2,500
SRI Foundation $2,500
5.0m
5.0m
3.5m
3.2m
3.0m
3.0m
3.0m
3.0m
2.0m
1.0m
1.0m
CHARITABLE
CONTRIBU-TIONS
✺ ✺ ✺ ✺
✺ ✺ ✺ ✺
✺ ✺ ✺ ✺
✺ ✺ ✺ ✺
17 P
P 18
c a p – 0 0 3 – 2 3 . h 2 o — i n t e r . d o c ’03
C A P
T h r o u g h o u t 2 0 0 3 C A P
c o n s i s t e n t l y d e m o n s t r a t e d
i t s a b i l i t i e s a n d w i l l i n g n e s s
t o m e e t a l l c h a l l e n g e s .
W E A T H E R F A C T . 0 4 # 0 0 3 . 0 4 . w f
C i r r u s - H i g h - l e v e l c l o u d s ( 1 6 , 0 0 0 f e e t o r m o r e ) ,
c o m p o s e d o f i c e c r y s t a l s a n d a p p e a r i n g i n t h e
f o r m o f w h i t e , d e l i c a t e f i l a m e n t s o r w h i t e o r
m o s t l y w h i t e p a t c h e s o r n a r r o w b a n d s . C i r r u s
c l o u d s t y p i c a l l y h a v e a f i b r o u s o r h a i r l i k e
a p p e a r a n c e , a n d o f t e n a r e s e m i - t r a n s p a r e n t .
M o s t c i r r u s c l o u d s a r e n o t a s s o c i a t e d w i t h
t h u n d e r s t o r m s .
✺ ✺ ✺ ✺
✺ ✺ ✺ ✺
✺ ✺ ✺ ✺
✺ ✺ ✺ ✺ Despite the continued drought, CAP continued to clearly demonstrate its capa-bilities
and leadership that makes it Arizona’s premiere water agency.
In 2003, many state and national funding sources for education and communi-ty
outreach efforts were as over taxed as the water resource supplies. CAP’s
Community Investment Program helped fill some of those shortfalls. The program
was developed in 1998 to provide up to $5,000 to nonprofits and school groups
involved in programs or projects relating to water or environmental resources.
To date, more than $215,000 has been distributed and more than 235,000 stu-dents,
teachers and members of the general public will have learned more about the
importance of water resources as a result of CAP’s Community Investment Program
funding. Some of the 2003 funds were used to help develop a rainwater harvesting
system at the Arizona-Sonora Desert Museum, to purchase national Project WET
materials for teachers throughout central and southern Arizona, to provide college
scholarships to students pursuing the Water Resources Program at Gateway
Community College and to fund hands-on demonstrations relating to water
resources at the Maricopa Agricultural Center.
Due to the ongoing drought, in 2003 CAP partnered with Valley cities and other
agencies to promote the Water Use it Wisely Campaign. CAP also funded radio
advertising promoting water conscious living.
Public education about the importance of water resources and CAP is a priority.
Two education programs, H2O for Kids, for grades K-3, and Arizona Water Story, for
grades 4-8 are more popular than ever. Requested by agencies and cities throughout
CAP’s service territory, these programs are distributed to teachers upon request and
include information specific to Arizona’s water supplies, history and conservation.
CAP also partnered again with the Tribune Newspapers and Salt River Project
to produce another tabloid newspaper as part of the Tribune in Education program.
Titled, Arizona Dams & Lakes, this tabloid was one of the most popular in the
Tribune’s history, with an initial request of more than 25,000 copies.
Throughout 2003 CAP consistently demonstrated its abilities and willingness
to meet all challenges. CAP managers worked to retain Arizona’s allocation of
Colorado River water by taking an additional 100,000 acre-feet off the river at the
last minute, reacted to storm damage, and completed the replacement of impellers
at the Mark Wilmer plant to improve efficiency.
CAP personnel also monitored and participated in regional water issues aimed
at safeguarding Arizona’s water supply by working to implement the QSA and
organizing the effort to get BOR to bring the Yuma Desalting Plant into operation.
Finally, CAP showed it has its eye on the future when it implemented the
Maintenance Excellence program. That program is designed to ensure the continued
operation of the 336-mile-long system that Arizona depends upon to bring, and con-tinue
to bring, the life sustaining Colorado River water to the middle of the state, the
water that is so important when drought conditions dominate. . .in lieu of rain.
i n l i e u o f r a i n
c a p – 0 0 3 – 2 3 . h 2 o — i n t e r . d o c ’03
Central Arizona Project 2003 Annoal Report
c a p
20
30
31
33
34
35
61
63
64
65
67
69
69
69
70
C O N T E N T S
F I N A N C I A L S T A T E M E N T S A N D
O T H E R F I N A N C I A L I N F O R M A T I O N
C e n t r a l A r i z o n a Wa t e r
C o n s e r v a t i o n D i s t r i c t
D e c e m b e r 3 1 , 2 0 0 3
1 2 - 3 1 - 0 3
19 P
Management’s Discussion and Analysis
Report of Independent Auditors
audited basic financial statements
Statements of Net Assets
Statements of Revenues, Expenses and Changes in Net Assets
Statements of Cash Flows
Notes to Financial Statements
other financial information
Statement of Net Assets – By Fund and account
Statement of Revenues, Expenses and Changes in Net Assets – By Fund and account
Schedule of Series A 1990, Series A 1993 and Series A 2001 Bond account Activity
Schedule of Series B 1991, Series B 1994 and Series B 2001 Bond account Activity
required supplemental schedule
Schedule of funding progress – central arizona conservation retirement plan
statistical section
management
Schedule of Ad Valorem Property Tax – Full Cash Value and Assessed Value
Schedule of Ad Valorem Property Tax – Tax Levy and Collections
Schedule of Customer Activity—Water O&M Charges and Capital Charges
1 2 - 3 1 - 0 3
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
✺ ✺ ✺
 
 
c a p – 0 0 3 – 2 3 . h 2 o — i n t e r . d o c ’03
I t s h o t !
The following is management’s discussion and analysis of the 2003 financial per-formance
of the Central Arizona Water Conservation District (District). It provides an
overview of the District’s financial activities and changes in financial position for the
current year, resulting changes and currently known facts and should be read in con-junction
with the District’s financial statements, including accompanying notes, to
enhance the understanding of the District’s financial performance.
P 20 21 P
FINANCIAL HIGHLIGHTS
• The District’s assets exceeded its
liabilities at the end of 2003 by $155
million (net assets).
• The District’s total net assets
increased by $4 million in 2003.
• The District’s total revenues for 2003
were $204 million, a decrease
of $3 million from 2002.
• The District’s total expenses for 2003
were $200 million, an increase
of $1 million from 2002.
MANAGEMENT S DISCUS SION AND ANALY S I S C O N T I N U E D
D I S C U S S I O N O F B A S I C F I N A N C I A L S T A T E M E N T S
The District’s annual financial reporting includes three basic financial statements and accompanying notes for an enter-prise
fund. The District reports on a calendar year basis and all financial statements are presented on a comparative basis for
2003 and 2002. The three basic financial statements include:
Consolidating schedules of net assets and statements of revenues, expenses and changes in net assets, which provide more
detailed information on the District’s designated financial activities, are included after the notes to the financial statements.
Central Arizona Project 2003
Annoal Report
 
M A N A G E M E N T ’ S
D I S C U S S I O N A N D
A N A L Y S I S
for year ended
december 31, 2003
     
STATEMENTS OF NET ASSETS
STATEMENTS OF REVENUES, EXPENSES,
AND CHANGES IN NET ASSETS
STATEMENTS OF CASH FLOWS
Summarize the District’s current and long-term obligations (liabilities) and
the assets available to meet those obligations. The difference between total
assets and total liabilities represents the District’s net assets.
Summarize the District’s operating and non-operating expenses for the
year and the revenues that were available to cover those expenses, as well as
changes in net assets.
Summarize the District’s uses of cash during the year and the sources of
cash available to finance those uses. The statements of cash flows, as cash-based
statements, include reconciliations to the statements of revenues,
expenses, and changes in net assets, which are prepared on an accrual basis.
STATEMENTS DESCRIPTION
MANAGEMENT S DISCUS SION AND ANALY S I S C O N T I N U E D
The District’s activities are accounted for using the accrual method and incorporating the requirements of GASB
Statement No. 34, Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local
Governments. Under enterprise fund accounting, the District is a single accounting entity for financial reporting purposes.
However, within this single accounting entity the District has identified a number of financial activities that it wishes to
track separately, referred to as “funds, accounts, and subaccounts.” The District is not required to and does not publish sepa-rate
financial statements for any of the individual funds, accounts, and subaccounts except for the consolidating statements
referenced above.
C O N D E N S E D F I N A N C I A L I N F O R M A T I O N
The following condensed financial information provides an overview of the District’s financial activities for the years
ended December 31, 2003 and December 31, 2002.
Total Assets
Capital Assets: The largest component of the District’s capital assets is the permanent service right (PSR), net of accumu-lated
amortization. For 2003, the PSR (net) decreased from $1.52 billion to $1.49 billion. The PSR represents the District’s right
to operate the Central Arizona Project (CAP) system and collect revenues from operations, for which the District has incurred a
repayment obligation to the United States. While capital assets grow annually as a result of ongoing capital projects, such addi-tions
are presently more than offset by amortization of the PSR, which is approximately $30 million per year. As a result, net cap-ital
assets tend to decrease each year.
C E N T R A L A R I Z O N A W A T E R C O N S E R V A T I O N
D ISTRICT
M A N A G E M E N T ’S D I S C U S S I O N A N D A N A L Y S I S
Other Assets: Other asset categories include cash, receivables and other current assets, restricted and unrestricted reserves
and investments, and funds held by or advanced to the federal government. Cash and investments increased $5 million in 2003
as a result of the city of Peoria’s purchase of capacity in the Agua Fria recharge project, the District’s decision to retain the water
storage tax, and the sale of SO2 credits. These increases are offset by a reduction in both the capital charge and general ad val-orem
tax rates. Funds held by or advanced to the federal government decreased $9 million primarily as a result of timing associ-ated
with Navajo Generating Station (NGS) revenues and expenses. For the remainder of other assets, the decrease of $2 mil-lion
was due to a change in accounting methodology for the Central Arizona Groundwater Replenishment District (CAGRD)
and an increase in water inventory to reflect the increased water stored in Lake Pleasant.
Total Liabilities
Long-Term Liabilities: The two largest components of the District’s long-term liabilities are the federal repayment obligation
and the contract revenue bonds. The long-term federal repayment obligation decreased from $1.48 billion in 2002 to $1.46 bil-lion
in 2003. This decline of $21 million was due to the scheduled payment for 2003. In addition, contract revenue bonds
decreased $19 million.Generally, long-term liabilities will decrease each year as the repayment obligation and revenue bonds are
paid off. All other long-term liabilities increased $7 million primarily to reflect the District’s decision to record the liability asso-ciated
with the future decommissioning of the NGS, as discussed in Note 14 to the Financial Statements.
2003 2002 Change
Capital Assets:
Permanent service right, net $ 1,491 $ 1,521 $ 30
Property and equipment, net 48 39 9
Other Assets:
Cash and Investments 268 263 5
Funds held by/advanced to federal gov’t 28 37 9
Other 32 34 2
Total Assets: $ 1,867 $ 1,894 $ 27
( D o l l a r s i n M i l l i o n s )
P 22 23 P
Central Arizona Project 2003
Annoal Report
Please refer to the notes to the financial statements for additional information on these funds, accounts, and subaccounts.
GENERAL FUND
AK-CHIN ACCOUNT
STATE DEMONSTRATION
PROJECTS ACCOUNT
CENTRAL ARIZONA GROUNDWATER
REPLENISHMENT DISTRICT ACCOUNT
REVENUE BOND SUBACCOUNTS
CAPTIVE INSURANCE FUND
Represents CAWCD’s core business, the delivery of Colorado River water to
central Arizona through the Central Arizona Project and repayment of
reimbursable construction costs and is, by an order of magnitude, the
largest fund within the District. For management reporting, the General
Fund is separated into two segments:Water Deliveries and Other.
Represents the activities related to a trust fund established by Section 7 of
Public Law 98-530 and ARS § 45-3715.01 to acquire or conserve water to
supplement Colorado River supplies.
Represents the activities related to the construction of State Demonstration
underground storage projects as authorized by ARS § 48-3713.
Represents the activities of the Central Arizona Groundwater
Replenishment District as authorized by ARS §§ 48-3771, et seq.
Represents the activities related to the District’s six revenue bond series to
finance CAWCD’s share of the construction of New Waddell Dam.
Represents the activities related to the CAWCD Captive Insurance
Company to provide a self-insurance mechanism for property and casualty
insurance to fund claims.
DESCRIPTION
   
( )
( )
( )
( )
 
 
 
 
   
MANAGEMENT S DI SCUS S ION AND ANA LY S I S C O N T I N U E D MANAGEMENT S DI SCUS S ION AND ANA LY S I S C O N T I N U E D
2003 2002 Change
Assets
Capital assets, net $ 1,540 $ 1,559 $ 19 1%
Other assets 327 335 8 2%
Total assets 1,867 1,894 27 1%
Liabilities
Long-term liabilities 1,606 1,639 33 2%
Other liabilities 106 104 2.0 2%
Total liabilities 1,712 1,743 31 2%
Net Assets
Invested in capital assets, net of related debt 80 99 19 19%
Restricted 55 57 2 4%
Unrestricted 180 193 13 7%
Total net assets 155 151 4 3%
Total liabilities and net assets $ 1,867 $ 1,894 $ 27 1%
Other Liabilities: Other liabilities include payables, accrued interest, and current principal obligations. Overall, the net
increase in other liabilities was $2 million for 2003 primarily due to the annual water customer reconciliation. The amounts
payable to water customers increased and represents the amount owed to water customers based on the annual water delivery
reconciliation.
2003 2002 Change
Long-Term Liabilities:
Repayment obligation $ 1,461 $ 1,482 $ 21
Contract revenue bonds 116 135 19
Other 29 22 7
Other Liabilities 106 104 2
Total liabilities $ 1,712 $ 1,743 $ 31
( D o l l a r s i n M i l l i o n s )
Total Net Assets
Net assets, the difference between assets and liabilities, increased 3 percent or $4 million from 2002. In comparison, net
assets for 2002 increased 6 percent or $8 million from 2001.
( D o l l a r s i n M i l l i o n s )
decrease in the net investment in the PSR. Currently, amounts associated with the amortization of the PSR (asset) exceed the
District’s annual principal payment to the federal government for the repayment obligation (liability). The annual repayment
obligation is based on paying a percentage (which increases over time) of the remaining outstanding balance, plus interest, over
a 50- year period, while amortization remains relatively flat over time.Consequently, the asset is presently being amortized more
quickly than the debt is being paid. As the payment percentage increases, the annual principal payment will exceed amortization.
Restricted net assets decreased 4 percent or $2 million. The majority of the decrease is related to additional spending to con-struct
State demonstration projects. Offsetting this decrease is an increase for several other items, the largest of which is revenue
bonds rebate payable.
Unrestricted net assets decreased 7 percent or $13 million primarily due to implementation of the District’s modified reserve
policy to trend reserves downward. To accomplish this, the District reduced both the capital charge for the last half of 2003 and
the general ad valorem tax rate. The cash payment on the District’s annual repayment obligation increased for 2003. In addition,
pumping power costs increased in 2003 due to higher maintenance activity on the NGS.
The change in restricted and unrestricted net assets will fluctuate depending on operational needs and any actions that
may result from the District’s reserve study.
Total Revenues
The District’s principal sources of revenues are water delivery O&M charges, water service capital charges, power and Basin
Development Fund (BDF) revenues, property taxes, interest earnings and other revenue. Total revenues for 2003 decreased $3 mil-lion
or 1.5 percent from 2002 to $204 million. Although water deliveries slightly increased from 2002, water O&M charges
decreased due to the category of water delivered. To implement the modified reserve policy, the District lowered both the capital
charge and general ad valorem tax rates. Power and BDF revenues declined between 2003 and 2002 primarily associated with tim-ing
of BDF activity.In addition,interest earnings were lower due to a decline in interest rates.Offsetting these decreases were increas-es
for the sale of SO2 credits and additional tax revenue as a result of the District’s decision to retain the Water Storage Tax.
2003 2002 Change
Operating revenues
Water O&M charges $ 71 $ 74 $ 3
Water service capital charges 26 29 3
Power & other BDF revenues 53 61 8
Reimbursements & other 13 $ 4 9
Total operating revenues $ 163 $ 168 $ 5
Nonoperating revenues
Property taxes $ 34 $ 27 $ 7
Interest income & other 7 12 5
Total nonoperating revenues 41 39 2
Total revenues $ 204 $ 207 $ 3
( D o l l a r s i n M i l l i o n s )
( )
( )
( )
P 24 25 P
Central Arizona Project 2003
Annoal Report
Invested in capital assets, net of related debt, increased 19 percent or $19 million in 2003. This increase reflects that the
District is paying off the debt faster than the associated amortization and depreciation on these assets. Over time, investments
in capital assets (net) will become less negative and become positive. The decrease in the debt associated with the contract rev-enue
bonds accounts for $17 million of the increase. As discussed in Note 10 of the Financial Statements, the contract revenue
bonds will be paid off in 2011. Also, capital assets (net) increased about $9 million in 2003. Offsetting these increases is a
( )
( )
( )
( )
( )
( )
( )
( )
( )
( )
( )
( )
( )
( )
( )
( )
( )
( )
( )
( )
( )
( )
( )
( )
 
 
Change In Net Assets and Ending Net Assets
As shown below, net assets increased $7 million in 2003 primarily because operating revenues were greater than operating
expenses. As discussed in Note 14 of the Financial Statements, the District began recording an expense associated with decom-missioning
the NGS. As a result, the cumulative effect of this change in accounting principle resulted in an expense of $3 mil-lion
incurred prior to 2003, but recorded in 2003, for decommissioning of the NGS. Consequently, ending net assets were $4
million greater in 2003 compared to 2002.
MANAGEMENT S DI SCUS S ION AND ANA LY S I S C O N T I N U E D MANAGEMENT S DI SCUS S ION AND ANA LY S I S C O N T I N U E D
Total Expenses
Total expenses for 2003 were higher than 2002 by $1 million as shown below. The increase is a result of higher pumping
power costs resulting from higher NGS and over-threshold rates in 2003. This increase is due to significantly higher mainte-nance
activity at the NGS and correspondingly higher downtime at the NGS. Offsetting this increase are several decreases. There
was less spending on state demonstration projects in 2003 due to the substantial completion of the Hieroglyphic Mountains
recharge project. Transmission charges decreased in 2003 due to the new connections established with Arizona Public Service
and Salt River Project. Depreciation expense was lower in 2003 to record an adjustment to the asset life used to calculate depre-ciation
of work-in-progress (WIP) fixed assets transferred to depreciable status from 2001 to 2003. In addition, interest expense
was lower in 2003 reflecting that the District is paying down its existing debt for the revenue bonds and the PSR. Finally, the
District recorded a change in accounting principle to recognize the cumulative effect of decommissioning of the NGS, as dis-cussed
in Note 14 to the Financial Statements.
The District sets rates annually each June for the following year. Rates are set in a manner that will recover an appropriate
share of the District’s expected operating expenses from customers while maintaining adequate reserve levels. Since rates are set
in advance, actual expenses may differ from the estimates used to calculate rates, and reserves may consequently fluctuate. In
2003, the District implemented a modified reserve policy that will trend General Fund reserves downward to $160 to 165 mil-lion
over the next several years.
TOTAL REVENUES
$80 
$60 
$40 
$20 
$ 0
WATER 
O&M
CAPITAL 
CHARGES
POWER 
& BDF
TAXES INTEREST 
& Other
M I L L I O N S
71 74
26 29
2003
2002
34
27
20
16
53
61
ANALYSIS OF OVERALL FINANCIAL POSITION AND RESULTS OF OPERATIONS—CURRENTLY KNOWN
FACTS, DECISIONS OR CONDITIONS THAT ARE EXPECTED TO HAVE A SIGNIFICANT EFFECT ON
FINANCIAL POSITION
The overall financial position of the District continues to be strong. The District has General Fund cash reserves of over
$200 million, which represents in excess of one year’s cash expenditures including operating expenses, capital projects and fed-eral
debt service. The Bond Funds have their own restricted reserves as required by the applicable Indentures.
2003 2002 Change
Total operating revenues $ 163 $ 168 $ 5
Total operating expenses 151 150 1
Operating income (loss) 12 18 6
Nonoperating revenues (expenses) 5 10 5
Change in net assets 7 8 1
Cumulative effect of change in accounting principle 3 – 3
Beginning net assets 151 143 8
Ending net assets $ 155 $ 151 $ 4
( D o l l a r s i n M i l l i o n s )
TOTAL EXPENSES
$80 
$60 
$40 
$20 
$ 0
SALARIES POWER PSR AMORT INTEREST OTHER
M I L L I O N S
46 49
30
2003
2002
34 32 30 29 31
61
57
P 26 27 P
Central Arizona Project 2003
Annoal Report
 
 
2003 2002 Change
Operating expenses
Salaries & related costs $ 34 $ 32 $ 2
Pumping power 61 57 4
Amortization of PSR 30 30 –
Other 26 31 5
Total operating expenses $ 151 $ 150 $ 1
Nonoperating expenses 46 49 3
197 199 2
Cumulative effect of change in accounting principle 3 – 3
Total expenses $ 200 $ 199 $ 1
( D o l l a r s i n M i l l i o n s )
Total Expenses cont.
( )
( )
( )
( ) ( )
( )
( )
( )
( )
( )
( )
( )
( )
 
 
 
 
 
 
MANAGEMENT S DI SCUS S ION AND ANA LY S I S C O N T I N U E D MANAGEMENT S DI SCUS S ION AND ANA LY S I S C O N T I N U E D
CONTACTING THE DISTRICT’S FINANCIAL MANAGEMENT
The information contained in the Management’s Discussion and Analysis is intended to give our customers, taxpayers,
and bond holders a general overview of the District’s finances, issues that impact the District’s financial position, and account-ability
for the money it receives. If you have questions about the report or need additional financial information, contact
Theodore C. Cooke, Assistant General Manager of Finance at:
P 28 29 P
Central Arizona Project 2003 Annoal Report
As discussed in Note 3, the District and the United States have agreed to extend the settlement Stipulation and this exten-sion
is expected to be in place until 2012. This extension will provide the certainty needed to implement rate strategies that will
enable the District to meet new reserve targets. The new targets were developed to trend reserves down to between $160 to $165
million by the end of the decade, which will continue to ensure sufficient reserves exist to provide working capital, maintain mas-ter
contract reserves, and provide for at least two years of capital spending.
CAPITAL ASSET AND LONG-TERM DEBT ACTIVITY
Capital Assets: At December 31, 2003, the District had a net investment of $1.54 billion in capital assets. This amount represents
a net decrease (including additions and deductions) of $20 million, or 1 percent from the prior year as follows.
SCHEDULE OF CAPITAL ASSETS (Net of Depreciation and Amortization)
More information about the District’s capital assets is provided in Note 2 of the Financial Statements.
Long-Term Debt: As of December 31, 2003, the District’s long-term debt decreased $40 million from the prior year as follows.
2003 2002 Change
Permanent service right $ 1,491 $ 1,521 $ 30
Other capital assets
Land 1 1 –
Construction in progress 23 17 6
Capital equipment 22 18 4
Structures and improvements 3 3 –
Total other capital assets 49 39 10
Total capital assets $ 1,540 $ 1,560 $ 20
( D o l l a r s i n M i l l i o n s )
2003 2002 Change
Repayment obligation $ 1,461 $ 1,482 $ 21
Revenue bonds 116 135 19
Total long-term debt $ 1,577 $ 1,617 $ 40
( D o l l a r s i n M i l l i o n s )
More information about the District’s repayment obligation is provided in Note 3 of the Financial Statements. Note 10 of
the Financial Statements contains additional information on the District’s revenue bonds.
SCHEDULE OF LONG-TERM DEBT
Post Office Box 43020
Phoenix, Arizona 85080-3020
623-869-2167
tcooke@cap-az.com ’03 ( )
( )
( )
( )
( )
 
 
 
 
c a p – 0 0 3 – 2 3 . h 2 o — i n t e r . d o c ’03
Central Arizona Project 2003 Annoal Report
I t s g o o d !
S T A T E M E N T S O F N E T A S S E T S
D E C E M B E R 3 1
2003 2002
A S S E T S
Current assets:
Cash $ 1,330 $ 571
Investment in Arizona Local Government Investment Pools 59,732 57,610
Total cash and cash equivalents 61,062 57,039
Receivables:
Accrued interest receivable on unrestricted investments 1,122 1,487
Due from water customers, less allowance for doubtful accounts
of $2,758 and $2,324 at December 31, 2003 and 2002, respectively 6,410 7,195
Other 690 2,551
Repayment credit 1,308 1,005
Materials and supplies inventory 4,143 3,891
Water inventory 17,350 13,744
Other 731 3,352
Total current assets 92,816 90,264
Noncurrent assets:
Funds held by federal government 25,441 36,633
Investment in State Treasurer CAP investment pool 114,465 111,446
Restricted assets 91,968 94,776
Advances to federal government 2,382 708
Capital assets, less accumulated depreciation of $27,157
and $23,712 at December 31, 2003 and 2002, respectively 48,178 38,735
Permanent service right, less accumulated amortization of $300,109
and $268,991 at December 31, 2003 and 2002, respectively 1,491,344 1,520,636
Bond issuance costs, net of accumulated amortization of $2,580
and $2,339 at December 31, 2003 and 2002, respectively 521 772
Total noncurrent assets 1,774,299 1,803,706
Total assets $ 1,867,115 $ 1,893,970
See accompanying notes.
( I n t h o u s a n d s )
R E P O R T O F
I N D E P E N D E N T
A U D I T O R S
The Board
of Directors
Central Arizona
Water Conservation
District
We have audited the accompanying basic financial statements of the Central Arizona Water Conservation
District as of December 31, 2003 and 2002, as listed in the table of contents. These financial statements are
the responsibility of the District's management. Our responsibility is to express an opinion on these finan-cial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States.
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 Central Arizona Water Conservation District at December 31, 2003 and 2002,
and the changes in its financial position and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States.
Our audits were conducted for the purpose of forming an opinion on the basic financial statements of the
Central Arizona Water Conservation District as of and for the years ended December 31, 2003 and 2002,
taken as a whole. The other financial information on pages 60-65 is presented for purposes of additional
analysis and is not a required part of the basic financial statements. Such information has been subjected
to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, is
fairly stated in all material respects in relation to the basic financial statements taken as a whole.
Management’s discussion and analysis and required supplemental schedule of funding progress for the
Arizona Statement Retirement System Pension Plan on pages 20 through 29 and 66 through 67 are not
a required part of the basic financial statements but is supplementary information required by the
Governmental Accounting Standards Board.We have applied certain limited procedures, which consisted
principally of inquiries of management regarding the methods of measurement and presentation of the
supplementary information. However, we did not audit the information and express no opinion on it.
The statistical section on pages 68 to 75 has not been subjected to the procedures applied in the audit
of the financial statements and, accordingly, we express no opinion on it.
As discussed in Note 14 to the basic financial statements, the Central Arizona Water Conservation District
adopted Statement of Financial Accounting Standards No. 143, Asset Retirement Obligations, in 2003.
M a r c h 1 2 , 2 0 0 3
P 30 31 P
( )
 
 
 
 
Y E A R E N D E D D E C E M B E R 3 1
2003 2002
O P E R A T I N G R E V E N U E S
Water operations and maintenance charges $ 71,115 $ 73,964
Water service capital charges 25,765 28,585
Power and Basin Fund revenues 53,068 61,333
Reimbursements and other operating revenues 12,991 3,914
Total operating revenues 162,939 167,796
O P E R A T I N G E X P E N S E S
Salaries and related costs 34,498 32,257
Pumping power 61,050 56,926
Power transmission 1,843 2,701
Hoover capacity charges 2,075 1,618
Amortization of permanent service right 30,403 30,437
Depreciation 5,413 6,266
Provision for OM&R reconciliation – 28
Provision for doubtful accounts 544 318
Other operating expenses 14,991 19,426
Total operating expenses 150,817 149,977
Operating income 12,122 17,819
N O N O P E R A T I N G R E V E N U E S ( E X P E N S E S )
Property taxes, less assignment to Arizona Water Banking Authority
of $6,531 and $12,051 in 2003 and 2002, respectively 33,619 27,113
Interest income and other nonoperating revenues 7,171 11,920
Interest expense and other nonoperating expenses 45,984 48,736
Total nonoperating expenses 5,194 9,703
Change in net assets, before cumulative effect of change in accounting principal 6,928 8,116
Cumulative effect of change in accounting principal 3,066 –
Change in net assets 3,862 8,116
Net assets at beginning of year 151,131 143,015
Net assets at end of year $ 154,993 $ 151,131
See accompanying notes.
( I n t h o u s a n d s )
S T A T E M E N T S O F R E V E N U E S , E X P E N S E S A N D C H A N G E S
I N N E T A S S E T S
D E C E M B E R 3 1
2003 2002
L I A B I L I T I E S
Current liabilities:
Accounts payable $ 21,427 $ 19,089
Accrued payroll, payroll taxes and other accrued expenses 5,814 5,020
Current liabilities payable from restricted assets, advances to federal
government, and other noncurrent assets:
Accrued interest payable 35,978 36,772
Repayment obligation, due within one year 21,404 22,310
Contract revenue bonds, due within one year 21,375 20,235
Total current liabilities 105,998 103,426
Noncurrent liabilities:
Repayment obligation, due after one year 1,460,881 1,482,285
Contract revenue bonds, due after one year, net of unamortized discounts
of $8,295 and $10,966 at December 31, 2003 and 2002, respectively 116,107 134,810
Other noncurrent liabilities 4,533 166
Water operations and capital charges deferred revenue 24,603 22,152
Total noncurrent liabilities 1,606,124 1,639,413
Total liabilities 1,712,122 1,742,839
N E T A S S E T S
Invested in capital assets, less related debt (79,725) (99,497)
Restricted bond trust accounts 36,071 35,817
Restricted State Demonstration project 3,692 7,255
Restricted Master Repayment Agreement 9,214 8,505
Restricted Ak-Chin account 5,651 5,750
Unrestricted 180,090 193,301
Total net assets 154,993 151,131
Total liabilities and net assets $ 1,867,115 $ 1,893,970
See accompanying notes.
S T A T E M E N T S O F N E T A S S E T S C O N T I N U E D
( I n t h o u s a n d s )
( )
( )
( )
P 32 33 P
Central Arizona Project 2003
Annoal Report
( )
( )
01 No
 
 
 
1 . O R G A N I Z A T I O N A N D R E P O R T I N G E N T I T Y
The Central Arizona Water Conservation District (District) is a multi-county water conservation district organized within
the state of Arizona encompassing Maricopa, Pima, and Pinal counties. The District's popularly elected Board of Directors serves
as its governing body. Under the requirements of Governmental Accounting Standards Board (GASB) Statement No. 14, The
Financial Reporting Entity and GASB Statement No. 39, Determining Whether Certain Organizations Are Component Units,
the District is a primary government with a single blended component unit, the CAWCD Insurance Company, Inc. The District
was authorized in 1971 by the Arizona State Legislature for the primary purpose of creating a single entity to enter into an agree-ment
with the United States Department of the Interior, Bureau of Reclamation (Reclamation), for repayment of the reim-bursable
cost of the Central Arizona Project (CAP). The District is further empowered to serve as the operating agent of the CAP.
The CAP is a multi-purpose water resource project authorized by the Congress of the United States in 1968 by the
Colorado River Basin Project Act and was constructed by Reclamation. The CAP is intended to deliver an average of approxi-mately
1.5 million acre-feet of Arizona's annual share of Colorado River water to central and southern Arizona, which will par-tially
replace existing groundwater uses and supplement surface water supplies. It also provides flood control, power, recre-ation,
and fish and wildlife benefits.
The District has the authority to levy ad valorem taxes against all taxable property within its boundaries. The first ad val-orem
tax, which may not exceed 10 cents per $100 of assessed valuation, is for the District’s operations and repayment of the
construction cost repayment obligation of the CAP (Note 3). The second ad valorem tax, which may not exceed 4 cents per $100
of assessed valuation, is for water storage to the extent that it is not required for the District’s operations or repayment of the
construction cost repayment obligation of the project. Through December 1995, this tax was used to fund water recharge activ-ities
under State Demonstration Projects and was levied only in Maricopa and Pima Counties. In April 1996, the Arizona State
Legislature amended the law relating to this second ad valorem tax. The ad valorem tax for operations and repayment was levied
at 9 cents per $100 of assessed valuation for the tax years ending June 30, 2002 and June 30, 2003 and 8 cents per $100 of
assessed valuation for the tax year ending June 30, 2004. The ad valorem tax for water storage was levied at 4 cents per $100 of
assessed valuation in the tax years ending June 30, 2002 and June 30, 2003, and proceeds have been transferred to the Arizona
Water Banking Authority. The respective counties collect property taxes on behalf of the District.
In 1993, the State legislature gave the District additional authority to provide replenishment services within the District’s
three-county service area. This authority is commonly referred to as the Central Arizona Groundwater Replenishment District
(CAGRD). The CAGRD began enrolling members in 1995, and as of December 31, 2003, there were 550 member lands (indi-vidual
subdivisions) and 19 member service areas. The CAGRD is responsible for using renewable water supplies to replenish
(or recharge) excess groundwater used by its members. All costs of the CAGRD are to be paid by its members through assess-ments
based on replenishment services provided. Through 2003, the CAGRD’s total net replenishment obligation was
approximately 31,000 acre-feet.
N O T E S T O F I N A N C I A L S T A T E M E N T S
D E C E M B E R 3 1 , 2 0 0 3
Y E A R E N D E D D E C E M B E R 3 1
2003 2002
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers $ 114,424 57,259
Cash received from power sales 64,259 57,259
Cash paid to employees (33,704) (32,281)
Cash paid to suppliers (78,667) (81,922)
Net cash provided by operating activities 66,312 44,207
CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES
Cash received from property taxes 33,619 27,113
Net cash provided by noncapital financing activities 33,619 27,113
CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES
Payments on contract revenue bonds, including interest and other expenses (28,216) (27,423)
Payments on repayment obligation, including interest (57,957) (57,783)
Additions to capital assets (14,856) (12,990)
(Increase)/decrease in repayment credit (303) 11,860
Increase in advances to federal government (1,674) (330)
Decrease in permanent service right – 4,235
Net cash used in capital and related financing activities (103,006) (82,431)
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in restricted assets 2,808 5,817
(Increase)/decrease in investment in state pool (3,019) 49,156
Interest on investments 7,309 10,439
Net cash provided by investing activities 7,098 65,412
Net increase in cash and cash equivalents 4,023 54,301
Cash and cash equivalents at beginning of year 57,039 2,738
Cash and cash equivalents at end of year $ 61,062 $ 57,039
RECONCILIATION OF NET OPERATING INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Operating income $ 12,122 17,819
Adjustments to reconcile operating income to net cash provided by operating activities:
Amortization of permanent service right 30,403 30,437
Depreciation 5,413 6,266
Provision for doubtful accounts 544 318
Changes in operating assets and liabilities:
Due from water customers 241 (4,689)
Due from other receivables 1,861 (1,823)
Materials and supplies Inventory (252) (394)
Water Inventory (3,606) 1,124
Other 2,621 813
Funds held by federal government, net 11,192 (4,074)
Accounts payable 2,338 (2,659)
Increase in deferred revenue 2,451 4,846
OM&R reconciliation obligation – (3,618)
Accrued payroll, payroll taxes and other accrued expenses 794 (24)
Other noncurrent liabilities 190 (135)
Net cash provided by operating activities $ 66,312 $ 44,207
See accompanying notes.
S T A T E M E N T S O F C A S H F L O W S
( I n t h o u s a n d s )
P 34 35 P
Central Arizona Project 2003
Annoal Report
02 No
  S U M M A R Y O F S I G N I F I C A N T A C C O U N T I N G P O L I C I E S C O N T I N U E D
Permanent Service Right
The District's interest in the CAP represents a permanent service right pursuant to the Master Repayment Agreement and
the settlement Stipulation. The permanent service right represents the District's right to use the CAP water delivery system for
the purpose of fulfilling its responsibility of delivering water as provided in the Master Repayment Agreement and to collect
revenues produced by the CAP. The District has used the repayment obligation specified in the settlement Stipulation, plus
certain advances to the federal government and other adjustments, in recording the permanent service right. The cost of the
permanent service right may be adjusted in the future as a result of determinations to be made as a consequence of the settle-ment
Stipulation.
Although the District's interest in the CAP is reflected in the accompanying balance sheets, the United States retains a
paramount right or claim in the CAP arising from the original construction and operation of the CAP as a Federal Reclamation
Project. The District's right to the possession and use of, and to all revenues produced by, the CAP is evidenced by the Master
Repayment Agreement, various laws, and other agreements with the United States. Legal title to the CAP will remain with the
United States until otherwise provided by Congress.
The District amortizes the permanent service right on the straight-line method over the estimated useful lives of the major
components of the CAP, generally 100 years for the aqueduct, 30 years for the Navajo power plant and related transmission
facilities, 50 years for buildings and structures, and 20 years for the pumping plant equipment.
The cost of periodic maintenance is charged to operations expense and the cost of major replacements is capitalized.
Bond Issuance Costs, Discounts and Premiums
Bond issuance costs, discounts and premiums are deferred and amortized over the term of the related bonds on the inter-est
method. Bond discounts and premiums are presented as a reduction or increase of the face amount of bonds payable
whereas issuance costs are recorded as deferred charges.
Revenue Recognition
The District records revenue from the sale of water, the sale of power, the sale of emissions credits, the collection of prop-erty
taxes and the provision of certain contract services to other outside entities.Water rates consist of a water service capital
charge and an operations, maintenance and replacement (OM&R) charge. Generally, OM&R charges are determined by the
Board of Directors after giving consideration to the amount of OM&R costs to be paid by the various subcontractors and
N O T E S T O F I N A N C I A L S T A T E M E N T S C O N T I N U E D
2 . S U M M A R Y O F S I G N I F I C A N T A C C O U N T I N G P O L I C I E S
Basis of Accounting
The accounting policies of the District conform to generally accepted accounting principles as applicable to an enterprise
fund of a governmental unit. Accordingly, the accrual basis of accounting is utilized, whereby revenues are recorded when they
are earned, and expenses are recorded when the liability is incurred. The District's books and records include separate accounts
and projects that are described as “accounts”: a general fund, Ak-Chin account, State Demonstration Project account,CAGRD
account, debt service account and captive insurance fund. These “funds” and “accounts” have been combined in the accompa-nying
financial statements. All material inter-fund transactions have been eliminated.
Use of Estimates
The preparation of financial statements that conform to generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Cash and Unrestricted Investments
All funds are to be invested in obligations issued or guaranteed by the United States or any of its agencies, collateralized
repurchase agreements, obligations of the state and local governments, prime quality commercial paper, and other instruments
as set forth in the District's enabling legislation. Investments are managed by the State Treasurer and maintained in invest-ment
pools (the state of Arizona Local Government Investment Pool and the CAWCD Pools 12 and 13). The Local
Government Investment Pool (LGIP) consists of participating interest earning investment contracts with maturities of less
than one year and, therefore, are recorded at cost. The Pools are recorded at fair value in accordance with GASB Statement No.
31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools.
Inventory
Inventory is comprised of maintenance, auto, and safety supplies and is carried at average cost.
Property and Equipment
Property and equipment are stated at cost. Assets are depreciated on the straight-line method over the estimated useful
lives of the assets ranging from five to forty years.
N O T E S T O F I N A N C I A L S T A T E M E N T S C O N T I N U E D
P 36 37 P
Central Arizona Project 2003
Annoal Report
Land $ 788 $ 37 $ – $ 825
Capital Assets being depreciated:
Structures and improvements 4,775 533 – 5,308
Equipment 37,933 10,077 1,968 46,042
Work in progress 18,951 4,209 – 23,160
Total capital assets being depreciated 62,447 14,856 1,968 75,335
Less accumulated depreciation for:
Structures and improvements 1,793 465 – 2,258
Equipment 19,965 6,339 1,968 24,336
Work-in-progress 1,954 1,391 – 563
Total accumulated depreciation 23,712 5,413 1,968 27,157
Capital assets, net $ 38,735 $ 9,443 $ – $ 48,178
DECEMBER 31 2002 DECEMBER 31 2003
Capital Asset BALANCES INCREASES DECREASES BALANCES
( I n t h o u s a n d s )
( )
( )
( )
( )
( )
Permanent Service Right $1,789,627 $ – $ – $ 1,789,627
Navajo Generating Station assets – 1,826 – 1,826
Total being Amortized/Depreciated 1,789,627 1,826 – 1,791,453
Less accumulated amortization/depreciation
Permanent Service Right 268,991 30,377 – 299,368
Navajo Generating Station assets – 741 – 741
Total accumulated amortization/depreciation 268,991 31,118 – 300,109
Permanent Service Right captal asset net $1,520,636 29,292 $ – $ 1,491,344
DECEMBER 31 2002 DECEMBER 31 2003
Capital Asset BALANCES INCREASES DECREASES BALANCE
( I n t h o u s a n d s )
( )
03 No
3 . M A S T E R R E P A Y M E N T A G R E E M E N T  
The Agreement
Reclamation and the District have a contract for delivery of water and repayment of costs of the CAP. This contract (the
Master Repayment Agreement) was originally entered into in 1972, and amended in 1988. In the Master Repayment
Agreement, Reclamation agreed to construct the CAP and the District agreed to repay various reimbursable construction costs
of the CAP, various OM&R costs during construction and interest during construction on various costs.
Commencement of Repayment
Reclamation notified the District that the water supply system, the first CAP construction stage, was substantially com-plete
on October 1, 1993. This notification initiated repayment by the District for the water supply system. Reclamation noti-fied
the District that the regulatory storage facilities stage, consisting of New Waddell and Modified Roosevelt Dams, was sub-stantially
complete on September 30, 1996. This notification initiated repayment by the District for the regulatory storage
facilities stage.
The Master Repayment Agreement requires the District to make annual payments to the United States on the repayment
obligation related to the completed construction stages. These payments are required to be made over a 50-year period and are
based on paying a percentage of the remaining outstanding repayment obligation, plus interest, with each construction stage
having a separate 50-year repayment period as follows: contract years 1-7: 1 percent; 8-14: 1.3 percent; 15-21: 1.6 percent; 22-28:
2 percent; 29-35: 2.6 percent; and 36-50: 2.7 percent.
Repayment Litigation and Stipulation
In July 1995, the District filed a lawsuit against the United States seeking a judicial determination of the District’s repay-ment
obligation. The United States also filed a lawsuit against the District. The two lawsuits were consolidated into a single
action in the Federal District Court (the Court) in Phoenix, Arizona (the Repayment Litigation). In May 2000, the District
and the United States entered into a Stipulation Regarding a Stay of Litigation, Resolution of Issues During the Stay and for
Ultimate Judgment upon the Satisfaction of Conditions (the Stipulation) to resolve all the issues in the Repayment Litigation.
The Court approved the Stipulation on May 9, 2000.
The ultimate effectiveness of the Stipulation is subject to a number of conditions, including settlement of certain Indian
water rights claims, and will require certain State of Arizona and federal legislation. As originally filed in 2000, the Stipulation
provided that if the conditions were not met by May 9,2003, and the parties did not amend the Stipulation or extend the dead-line,
the Stipulation would terminate and litigation would resume. Recognizing that the conditions would not be met by the
original deadline, the District and the United States have agreed to amend the Stipulation (the “Amended Stipulation”) to
extend the deadline for satisfying the conditions in the original Stipulation for nine additional years, so that the conditions
must be satisfied by May 9, 2012. The Amended Stipulation was approved by the Court on April 28, 2003, and supercedes and
replaces the original Stipulation. Except as noted below, all terms and conditions of the original Stipulation will remain in
effect under the Amended Stipulation. Thus, the ultimate effectiveness of the Amended Stipulation, and the entry of final judg-ment
in the Repayment Litigation in accordance with the terms of the Amended Stipulation, remain subject to the satisfaction
of the conditions contained in the original Stipulation, including the settlement of certain Indian water rights claims and the
passage of state and federal legislation necessary to implement those conditions. However, the Amended Stipulation affords
N O T E S T O F I N A N C I A L S T A T E M E N T S C O N T I N U E D N O T E S T O F I N A N C I A L S T A T E M E N T S C O N T I N U E D
S U M M A R Y O F S I G N I F I C A N T A C C O U N T I N G P O L I C I E S C O N T I N U E D
through property taxes.Water is delivered to subcontractors and other customers based on delivery requests. Revenue from
OM&R charges is recognized as it is earned and revenue from water service capital charges is recognized ratably over the peri-od
of the billing.Generally, OM&R charges for scheduled water deliveries are due in advance.
Revenues from contract services, the sale of power and emissions credits are recorded when earned.
Property taxes are recorded as revenue when received. Tax equivalency charges are recorded when received if there is no
obligation to deliver any services or provision for refund.
Statement of Cash Flows
For the purpose of the statement of cash flows, investments in the State of Arizona Local Government Investment Pools
are treated as cash and cash equivalents due to their liquidity.
Water Inventory Adjustment
In 1998, the District adopted a new accounting policy for recording changes in the water inventory stored in Lake
Pleasant. The water inventory adjustment is a means to adjust the pumping energy component of water service charges to rec-ognize
that the cost of power used to pump water into Lake Pleasant should be recovered, through OM&R charges, in the year
the water is delivered to customers, not the year in which it is pumped into Lake Pleasant. The water inventory adjustment is
valued at the threshold rate.
The District’s share of Lake Pleasant storage as of December 31, 2003 and 2002 was 382,000 acre feet and 317,000 acre
feet, respectively.
In 2002, the District entered into a water exchange agreement with Salt River Project that allowed for an exchange of up
to 150,000 acre-feet. In 2002, the District stored about 150,000 acre-feet with Salt River Project. The water inventory adjust-ment
represented the weighted average energy cost associated with the increase in storage level over the calendar year.
Investments
Investments held by governmental entities are reported at fair value. At December 31, 2002, cost exceeded fair value by
$2,417,000. At December 31, 2003, cost exceeded fair value by $1,158,000. Fair value adjustments are included in interest
income.
P 38 39 P
Central Arizona Project 2003
Annoal Report
N O T E S T O F I N A N C I A L S T A T E M E N T S C O N T I N U E D
M A S T E R R E P A Y M E N T A G R E E M E N T C O N T I N U E D
the District and the United States an additional nine years to satisfy the conditions. Either party may petition the Court to ter-minate
the Amended Stipulation and resume litigation prior to May 9, 2012, if it believes that the conditions cannot be satis-fied
by that date. The major issues addressed in the Amended Stipulation are described below.
The Arizona Water Settlement Agreement
The Amended Stipulation requires as a condition of its ultimate effectiveness that there be a reallocation of CAP water
supplies such that the total amount of CAP water allocated for federal uses shall be increased to 667,724 acre feet, or approx-imately
47 percent of average annual CAP supplies. The remaining CAP supplies, or 747,276 acre-feet, are required to be made
available for non-Indian agricultural, municipal and industrial use under the Amended Stipulation.
This increased allocation is to be accomplished through the acquisition of the CAP water supplies of non-Indian agricul-tural
CAP subcontractors and the eventual reallocation of those supplies to Indian and municipal and industrial water users,
although some of the non-federal share may remain in non-Indian agricultural hands. A total of 293,795 acre-feet of non-
Indian agricultural CAP water is being sought from existing agricultural subcontractors for this purpose – essentially the
entire remaining CAP non-Indian agricultural water supply. As part of this effort, the District negotiated and approved the
Arizona Water Settlement Agreement in December 2002 among the United States, the District and the Arizona Department
ofWater Resources (the “Water Settlement”). The District and the Arizona Department ofWater Resources have executed the
Water Settlement. The United States has not yet executed the Water Settlement, but has begun the environmental reviews that
are necessary as a prerequisite to its doing so.
The Water Settlement provides a framework under which CAP non-Indian agricultural subcontractors may permanently
relinquish their long-term rights to CAP water. The relinquished CAP water would then be available for reallocation to Indian
and municipal and industrial water users, thus satisfying several of the conditions to the Amended Stipulation. Relinquishing
subcontractors would receive certain debt and regulatory relief and will be allowed to purchase excess CAP water at reduced
rates through 2030.
In 2003, six agricultural districts executed relinquishment agreements pursuant to the Water Settlement. As a result of
this and other actions, a total of 278,486 acre-feet of non-Indian agricultural CAP water will be available for reallocation in
accordance with the Water Settlement. Two agricultural subcontractors elected to retain a portion of their CAP subcontract
entitlement, for a total of 15,309 acre-feet, and executed amended subcontracts for the amount retained. Under the amended
subcontracts, if the subcontractor fails to make payments due the District, then the subcontract will terminate and the associ-ated
CAP entitlement will immediately be reallocated in accordance with the Water Settlement. Certain landowners have chal-lenged
the authority of these subcontractors to relinquish their CAP entitlements. The outcome of that litigation cannot be
predicted at this time.
Repayment Obligation
The original Stipulation established the District’s repayment obligation for the CAP water supply system and the regula-tory
storage facilities at $1.65 billion, premised on a total allocation of 665,224 acre-feet of CAP water for federal use.
Currently, 453,224 acre-feet of CAP water is allocated for federal use. One condition of the Stipulation is that additional CAP
N O T E S T O F I N A N C I A L S T A T E M E N T S C O N T I N U E D
M A S T E R R E P A Y M E N T A G R E E M E N T C O N T I N U E D
water be made available for federal use. The Amended Stipulation reduces the principal amount of the District’s repayment
obligation for the water supply system and regulatory storage facilities stages of the CAP from $1.65 billion to $1,646,462,500
in light of the agreement to increase the amount of CAP water allocated for federal use to 667,724 acre-feet, which is 2,500
acre-feet more than was assumed when the Stipulation was originally executed. The Amended Stipulation provides that the
repayment obligation is subject to further adjustment if the total amount of CAP water ultimately made available for federal
use is not 667,724 acre-feet.
In the Repayment Litigation, Reclamation had taken the position that the repayment ceiling in the Master Repayment
Agreement on the District's repayment obligation for the water supply system and the regulatory storage facilities (Repayment
Ceiling) was $2.0 billion. The District had argued that the Repayment Ceiling on these facilities was not more than $1.781 bil-lion.
Notwithstanding the Repayment Ceiling, Reclamation contended that the District's repayment obligation for these facil-ities
was $2.183 billion, premised on a total allocation of 453,224 acre-feet of CAP water for federal use.
In November 1998, the Court issued an interlocutory order to the effect that the District’s repayment obligation for the
water supply system and regulatory storage facilities is limited to $1.781 billion. However, the United States appealed the Court
order. After the Stipulation was entered, the appeal was voluntarily dismissed without prejudice. The Amended Stipulation
preserves the United States’ appeal rights if the Repayment Litigation resumes.
The Stipulation provides that 73 percent of the District’s repayment obligation will bear interest at the rate established in
the Master Repayment Agreement of 3.342 percent per annum, and 27 percent of the repayment obligation will be non-inter-est
bearing. The Stipulation fixes these percentages for the duration of the repayment period.
Before the Stipulation, the Master Repayment Agreement provided that Reclamation would determine both the amount
of the District’s repayment obligation and the portion of that obligation that would bear interest. Costs allocated to the non-
Indian agricultural water supply function were to be repaid by the District without interest, while costs allocated to the M&I
water supply and the commercial power functions were to be repaid with interest at 3.342 percent per annum. The Master
Repayment Agreement also provided that Reclamation would periodically revise its cost allocation to reflect actual water deliv-eries,
which could have the effect of altering the percentage of the District’s repayment obligation that bears interest.
In the Repayment Litigation, the District disputed Reclamation’s cost allocation. If the litigation resumes, the portion of
the District’s repayment obligation that bears interest would be subject to periodic revision by Reclamation based on its cost
allocations. However, the Amended Stipulation provides that the District’s repayment obligation for the period from October
1, 1993, until the Amended Stipulation is terminated or expires, will always be deemed to be 73 percent interest-bearing and 27
percent non-interest-bearing regardless of any interest-bearing split that may be applicable after the Amended Stipulation is
terminated or expires.
Construction Deficiencies
When Reclamation issued notices of completion for the water supply system and regulatory storage facilities stages of the
CAP, a number of construction deficiencies remained. The Stipulation provides that the construction deficiencies will be cor-rected
without increasing the District’s repayment obligation. The Stipulation identifies those deficiencies that will be cor-rected
by the United States, at no additional cost to the District, and those that the District will correct itself and for which it
P 40 41 P
Central Arizona Project 2003
Annoal Report
M A S T E R R E P A Y M E N T A G R E E M E N T C O N T I N U E D
Payments to Maturity
The required payments under the Amended Stipulation on the repayment obligation are as follows:
Changes in repayment Obligation Balance
Amounts Recorded in Financial Statements
The repayment obligation and amounts due on that obligation reported in these financial statements reflect the terms of
the Amended Stipulation. The District’s repayment obligation and the amounts due could be adjusted in the future if the
Repayment Litigation resumes.
It is not possible to predict whether the Amended Stipulation will become finally effective and result in the entry of final
judgment in the Repayment Litigation in accordance with the terms of the Amended Stipulation, be amended again, or termi-nate,
or whether litigation will resume. If litigation resumes, and results in an adverse determination on any of the major issues
in dispute, it could have a material adverse effect on the financial operations of the District.
N O T E S T O F I N A N C I A L S T A T E M E N T S C O N T I N U E D N O T E S T O F I N A N C I A L S T A T E M E N T S C O N T I N U E D
Years Principal Interest Total
2004 $ 21,404 $ 35,009 $ 56,413
2005 21,404 34,330 55,734
2006 21,404 33,642 55,046
2007 21,404 32,953 54,357
2008 25,167 32,265 57,432
2009-2013 129,365 148,989 278,354
2014-2018 153,357 126,759 280,116
2019-2023 179,700 100,255 279,955
2024-2028 211,688 67,963 279,651
2029-2033 221,097 32,224 253,321
2034-2038 222,273 3,108 225,381
2039-2043 222,272 - 222,272
2044-2046 31,750 - 31,750
Total $ 1,482,285 $ 647,497 $ 2,129,782
M A S T E R R E P A Y M E N T A G R E E M E N T C O N T I N U E D
will receive a corresponding credit against its annual repayment obligation. The Stipulation also provides a repayment credit
for the District’s past expenditures to correct construction deficiencies.
In the Repayment Litigation, the District had sought to hold the United States responsible for costs incurred by the
District in correcting CAP construction deficiencies. The United States had argued that it had no obligation to fund the cor-rection
of CAP construction deficiencies because of the dispute regarding the Repayment Ceiling and the fact that Reclamation
had determined that the ceiling had been exceeded. The United States had also disclaimed any responsibility for costs incurred
by the District in correcting the deficiencies.
Application of Development Fund Revenues
The Stipulation provides that all miscellaneous revenues and net power revenues accumulating in the Lower Colorado
River Basin Development Fund (Development Fund) of the United States Treasury in each year will be credited annually
against the amount due from the District on its repayment obligation.
In the Repayment Litigation, the United States had asserted that it was not obligated to apply Development Fund rev-enues
toward the District’s repayment obligation, but could use those revenues to pay Reclamation’s operating costs.
Payments Due on the District’s Repayment Obligation
The Stipulation established a new repayment schedule based on the revised $1.65 billion repayment obligation and
reconciled the District’s past payments, Development Fund credits and construction deficiency credits against that revised
payment schedule. The Amended Stipulation further revises the District’s repayment schedule to reflect the adjusted
repayment obligation of $1,646,462,500, retroactive to October 1, 1993. The District received a credit of $1,308,195 that
was applied against its January 2004 payment, for the amounts paid through 2003 that are in excess of those due under
the revised schedule, including interest at the Arizona State Treasury investment rate. If litigation ultimately resumes, the
Amended Stipulation provides that no penalties will be assessed against the District for any underpayment that might be
determined to relate to the period from October 1,1993, until the Amended Stipulation is terminated or expires, and that
any over- or underpayment that is determined to exist for the period from October 1, 1993, until the Amended Stipulation
is terminated or expires, including interest on the over- or underpayment, will be capitalized and amortized over the
remainder of the District’s repayment period.
( I n t h o u s a n d s )
P 42 43 P
Central Arizona Project 2003
Annoal Report
$ 1,502,513 $ – $ 20,228 $ 1,482,285 $ 21,404
DECEMBER 31 2002 DECEMBER 31 2003 AMOUNT DUE
BALANCE ADDITIONS REDUCTIONS BALANCE WITHIN ONE YEAR
( I n t h o u s a n d s )
$ 1,526,013 $ – $ 23,500 $ 1,502,513 $ 22,310
DECEMBER 31 2001 DECEMBER 31 2002 AMOUNT DUE
BALANCE ADDITIONS REDUCTIONS BALANCE WITHIN ONE YEAR
( I n t h o u s a n d s )
04 No
 
N O T E S T O F I N A N C I A L S T A T E M E N T S C O N T I N U E D
O P E R A T I O N S C O N T I N U E D
The District anticipates that Indian entities, or the United States on behalf of the Indian entities, will pay Indian fixed
OM&R charges. Payment by the United States of Indian fixed OM&R charges would require annual appropriations by
Congress, specific net billing arrangements, or other special arrangements that do not currently exist. The United States has
paid OM&R charges on water delivered to the Ak-Chin Indian Community.Disputes that existed with respect to the amounts
of those charges and the proper method of calculating OM&R charges were conditionally resolved as part of the settlement
Stipulation.
District Repayment Plan
An important assumption in the development of the CAP was that non-Indian agricultural water users would take and
pay for significant quantities of CAP water, particularly during the early years of project operation when M&I and Indian uses
of CAP water were expected to be relatively low. The allocation of CAP water, the physical configuration of the water delivery
system, and the financial structure of the CAP were predicated upon such participation by non-Indian agricultural water users.
Long-term subcontracts for approximately 70 percent of the total non-Indian agricultural CAP water supply were signed.
Two irrigation districts represented approximately 38.5 percent of that total. The non-Indian agricultural CAP subcontracts
have been understood to require those subcontractors to pay fixed OM&R charges based on the full amount of CAP water
available for delivery to the subcontractor, not just the amount scheduled for delivery (the take-or-pay OM&R charges), plus
energy charges and a $2 per acre-foot water service capital charge for water scheduled for delivery. Many of the District's non-
Indian agricultural subcontractors indicated that the take-or-pay requirement and the cost of CAP water would result in sub-stantial
reductions in CAP water use by the agricultural subcontractors and potential default by the subcontractors on their
obligations under the subcontracts. Under the Master Repayment Agreement, prior to its modification by the Stipulation,
diminished use of CAP water by non-Indian agricultural water users would also have increased the interest bearing portion of
the District’s repayment obligation and would have reduced the number of revenue sources available to meet the District's
repayment obligation and to pay the OM&R costs of the CAP. Furthermore, OM&R costs would be allocated among fewer
users, which would result in significantly higher per acre-foot charges to the remaining users.
As a result of these circumstances, the District's Board of Directors adopted a repayment adjustment plan in October 1993
(Plan). Under the Plan, each non-Indian agricultural subcontractor was provided the opportunity to waive its right to receive
delivery of CAP agricultural water under its CAP subcontract and avoid its corresponding obligation for take-or-pay OM&R
charges. All of the remaining non-Indian agricultural subcontractors waived some or all of their rights to receive delivery of
CAP agricultural water under their CAP subcontracts. The District in turn waived its right to collect take-or-pay OM&R
charges from such subcontractors.
Existing and former subcontractors of non-Indian agricultural CAP water were also given the opportunity by the District
to enter into alternative contracts for the delivery of CAP water on a short-term basis. Under the Plan, the pool of CAP water
available for delivery to non-Indian agricultural water users was divided into various categories for purposes of determining
water delivery priority and water service charges.Water service charges are assessed only on the amount of CAP water sched-uled
for delivery.
N O T E S T O F I N A N C I A L S T A T E M E N T S C O N T I N U E D
P 44 45 P
Central Arizona Project 2003
Annoal Report
4 . O P E R A T I O N S
Operations and Maintenance Agreement
Reclamation has transferred responsibility for operation and maintenance of completed CAP features to the District. The
District performs these responsibilities under the Master Repayment Agreement, an agreement with Reclamation for the oper-ation
and maintenance of the facilities (the OM&R Transfer Contract), and an Operating Agreement between Reclamation and
the District that took effect as part of the settlement Stipulation.
Water Delivery Contracts and Subcontracts
Long-term CAP water service began pursuant to contracts and subcontracts on October 1, 1993, upon notice of comple-tion
of the water supply system. The term of the contracts and subcontracts is generally 50 years beginning January 1, 1994,
and the contracts and subcontracts are renewable.Water deliveries for 2003 were 1,551,062 acre-feet.
Long-term subcontracts have been signed by municipal and industrial (M&I) entities for approximately 87 percent of the
total CAP M&I water allocation of 638,823 acre-feet.Of the CAP water currently under M&I subcontracts the cities of Tucson,
Phoenix, Mesa, Scottsdale, Peoria and Glendale account for approximately 67 percent. All ten Indian entities originally allo-cated
CAP water by the Secretary have signed long-term CAP contracts for the CAP Indian water allocation of 309,828 acre-feet.
An additional 357,896 acre-feet of CAP water has been or is expected to be allocated to Indian entities or treated as Indian
water supplies as a result of completed, pending or future Indian water rights settlements. The remaining available CAP water
was allocated to non-Indian agricultural entities.
The non-Indian subcontracts require the payment of a water service capital charge and an OM&R charge. For the M&I
subcontractors, the water service capital charge is applicable to each subcontractor's maximum annual entitlement to CAP
water. Under the current M&I water service subcontracts and current District pricing structure, the M&I water service capital
charge is an escalating charge, which began at an annual rate of $10.50 per acre-foot of entitlement in 1994, increasing to $48
per acre-foot of entitlement by 1999. The M&I water service capital charge remained at $48 per acre-foot for 2000 and was
reduced to $43 per acre-foot for 2001, 2002 and the first half of 2003 and was further reduced to $37 for the second half of
2003. The amount of this M&I water service capital charge may be adjusted periodically by the District as a result of repay-ment
determinations provided for in the Master Repayment Agreement and to reflect all sources of revenue, but the water serv-ice
capital charge will not be greater than necessary to amortize project capital costs allocated to the M&I function with inter-est.
Indian contractors of CAP water pay no water service capital charge, since the capital costs associated with the delivery of
CAP water to Indian entities are not reimbursable by the District pursuant to the Master Repayment Agreement.
The OM&R costs of the CAP are of two types: energy costs and fixed costs. Energy costs are incurred to pump water from
the Colorado River through the CAP aqueduct system and fixed costs are the nonenergy costs associated with operation, main-tenance
and replacement. The District has completed a cost of service study to better define what components properly con-stitute
fixed OM&R costs and how to allocate those costs among classes of CAP water users.
M&I subcontractors and Indian contractors must pay OM&R charges on water scheduled for delivery.
05 No
 
P 46 47 P
O P E R A T I O N S C O N T I N U E D
Ultimately, nine existing and former subcontractors of agricultural CAP water entered into contracts with the District for
the delivery of CAP water for agricultural purposes on these conditions. These contracts expired December 31, 2003, and were
replaced by a single agricultural pool with allocations within the pool for each agricultural customer. Twelve agricultural cus-tomers
have executed contracts for delivery of water from the new agricultural pool.Delivery of water is subject to: (1) the avail-ability
of CAP water in each year after first providing for the delivery of water to contractors and subcontractors of long-term
water service, including existing M&I subcontractors, Indian contractors and agricultural subcontractors who have retained a
percentage entitlement of CAP agricultural water under their CAP subcontracts, and (2) payment of water service charges
determined by the District in each year. In the Repayment Litigation, the United States disputed the validity of these contracts.
The Stipulation required certain revisions to the form of those contracts, but confirmed the District’s right to sell CAP water
under such alternative contracts. The new contracts took effect on January 1, 2004, and will remain in effect through December
31, 2030, subject to the satisfaction of the conditions contained in the Stipulation. If the Stipulation is terminated or expires
and if litigation resumes, the validity of these contracts will again be an issue.
The District’s Board of Directors reviews charges annually and sets a rate schedule for the succeeding five years. The water
service charges to be charged M&I subcontractors and the United States on behalf of Indian contractors of CAP water service for
2003 were confirmed by the Board of Directors in June 2002. In order to facilitate water planning, the Board of Directors also
established advisory rates for the period 2004 through 2007. Since approving the Amended Stipulation, the use of the 1993 Plan
for rate setting purposes has been replaced by an annual update of the District’s Long-Range Financial Forecast (LRFF).
If the assumptions reflected in the LRFF prove to be materially incorrect or the objectives of the LRFF are not achieved, and
the Amended Stipulation is terminated or expires, the capital repayment and OM&R costs allocated to M&I subcontractors, and
the OM&R costs allocated to the United States on behalf of Indian contractors, could be significantly higher than anticipated.
M&I subcontractors use CAP water in their total water supply in various percentages and fund their payment of the District's
charges in a variety of ways. Therefore, it is difficult to estimate the effect of possible increases in the water service charges on M&I
subcontractors and on retail ratepayers, if applicable, including households in the service areas of CAP M&I subcontractors.
5 . P O W E R
Navajo Power Plant
Reclamation is one of six participants in the Navajo Generating Station (NGS). NGS consists of three 750,000 kilowatt
coal-fired, steam-electric generating units which commenced operations in 1974 through 1976, a railroad to deliver fuel and
500 kilovolt transmission lines and switching stations to deliver the power and energy to the various participants. An agree-ment
among the participants governs the construction, operation, and maintenance of NGS. Reclamation entered into this
agreement in order to acquire a portion of the capacity of NGS for supplying the power requirements of the CAP. Reclamation
has a 24.3 percent entitlement in the generating station, resulting in a power entitlement of 546,750 kilowatts of nominal
capacity. The District is charged for the costs associated with the energy used to operate the CAP.
N O T E S T O F I N A N C I A L S T A T E M E N T S C O N T I N U E D N O T E S T O F I N A N C I A L S T A T E M E N T S C O N T I N U E D
P O W E R C O N T I N U E D
Hoover B Power Purchases
The 1984 Hoover Power Plant Act (Hoover Act) authorized upgrading the Hoover power plant, located at Hoover Dam,
to increase generating capacity at the plant by 503 megawatts (MW). This additional capacity and its associated energy is
known as Hoover B Power. The Hoover Act allocated 188 MW and 212,000 megawatt hours (MWh) of associated firm annu-al
energy of the Hoover B Power to purchasers in Arizona. The Arizona Power Authority (Authority) distributes Arizona's share
of the Hoover B Power. The District has contracted with Arizona Power Authority for all but 26.5 MW of Hoover B Power.
Power Revenues
Power revenues are derived from the sale of surplus power from NGS (power associated with Reclamation's NGS entitle-ment
that is in excess of the pumping requirements of the CAP) and from a surcharge on energy sold in Arizona from the
Hoover power plant.
Additional Rate Component
The Hoover Act authorized the establishment and collection of additional rate components on sales and exchanges of the
capacity and energy associated with Reclamation's NGS entitlement in excess of the pumping requirements of the CAP and
any needs for desalting and protective pumping facilities as may be required under the Colorado River Basin Salinity Control
Act (Navajo surplus). The Hoover Act further authorized the payment of revenues from such additional rate components to
entities that have advanced funds for the construction and repayment of construction costs of the CAP.
The Secretary determined that the excess capacity and energy, which constitutes Navajo surplus to be marketed pursuant
to long-term contracts, is 400,000 kilowatts of capacity and 760 kilowatt hours of energy per year per kilowatt of such capac-ity.
The District and Reclamation have entered into power sales contracts with Salt River Project Agricultural Improvement and
Power District (Salt River Project) for the sale of an aggregate of 350,000 kilowatts of such capacity and the associated ener-gy
from May 1993 through September 2011.
The additional rate component on the sale of such capacity has been established by the District at $6 per kilowatt of allo-cated
capacity per month. Revenues from the additional rate component are paid directly to the District's bond trustee to repay
the contract revenue bonds sold by the District.
Sale of Remaining Navajo Surplus
The District has entered into a contract with Salt River Project, Reclamation and the Department of Energy for the sale of
the remaining Navajo surplus. The contract, which is for the period June 1994 through September 2011, grants Salt River
Project the use of the remaining United States entitlement to output of the Navajo Generating Station, the right to schedule
and integrate with the Salt River Project system the District's contractual rights to Hoover capacity and energy and energy pro-duced
at New Waddell Dam, and certain transmission rights, and requires Salt River Project to sell energy at cost to the District
to meet CAP pumping requirements up to a defined threshold level for each contract year. If CAP energy requirements exceed
the threshold, the District must purchase additional energy either from Salt River Project or through other energy sources.
Under the contract, Salt River Project pays a monthly charge of $1,812,500 to the Development Fund. The District records
these revenues as funds held by the federal government as of December 31 of each year and then applies them against the annual
Central Arizona Project 2003
Annoal Report
 
 
07 No
 
 
 06 No
 
P O W E R C O N T I N U E D
payment due from the District under the Master Repayment Agreement the following January 15. The extent to which such rev-enues
must be applied against the annual payments due from the District under the Master Repayment Agreement is among
the issues that were in dispute in the Repayment Litigation and were conditionally resolved in the Stipulation.
Hoover Surcharge
The Hoover Act also provided for the addition of a surcharge to the rates for energy sold from the Hoover and Parker-Davis
power plants of 4.5 mills per kilowatt-hour for energy sold in Arizona. Revenues from the surcharge on Hoover power sales
began in 1987 and revenues from Parker-Davis power sales will begin in 2005. Revenues from this surcharge are credited to
the Development Fund.
The District records these revenues as funds held by the federal government as of December 31 of each year and then
applies them against the annual payment due from the District the following January 15. The extent to which such revenues
must be applied against the annual payments due from the District under the Master Repayment Agreement is among the
issues that were in dispute in the Repayment Litigation and were conditionally resolved in the Stipulation.
6 . I N V E S T M E N T S
As a multi-county water conservation district, the Arizona State Treasurer as prescribed by the District’s enabling act
holds the District’s investments. In 2002, the District became ineligible to participate in Pool 3, a shared investment account,
and a portion of investments was transferred to separate CAWCD pools (Pools 12 & 13) established to provide the District
with investments in medium-term and long-term securities. The remaining balance of the Pool 3 investments was transferred
to LGIP-5 (Local Government Investment Pool). Only AAA-rated corporate securities and U.S. Government fixed-income
securities are permitted in the CAWCD pools. The investment policy objectives of the Arizona State Treasurer, in order of pri-ority,
are safety of principal, liquidity, and return on investments.
The District’s portion of investments held by Pools 12 and 13 as of December 31, 2003 and as of December 31,2002, which
are uncategorized, consist of the following (stated at fair value):
( I n t h o u s a n d s )
N O T E S T O F I N A N C I A L S T A T E M E N T S C O N T I N U E D N O T E S T O F I N A N C I A L S T A T E M E N T S C O N T I N U E D
D E C E M B E R 3 1
2003 2002
Federal Agency Securities $ 118,594 $ 138,081
Corporate Securities 5,077 15,955
Money market 34,986 1,530
158,657 155,566
Less restricted funds (repayment and operating reserves; not including
accrued interest) (44,192) (44,120)
Investment of District $ 114,465 $ 111,446
The Board of Directors has designated $70,000,000 of the Pools 12 and 1 3 investments as capital projects and operat-ing
reserve funds, and $5,000,000 as insurance reserves at December 31, 2003.
P 48 49 P
7 . R E S T R I C T E D A S S E T S
The District's investments are categorized to give an indication of the level of risk assumed by the District at year-end.
Category 2 includes investments that are uninsured and unregistered investments for which the securities are held by the count-er-
party’s trust department or agent in the District’s name. Investments held in pools are considered to be uncategorized. The
bond trust accounts noted below are Category 2 investments. The State Demonstration project account, Master Repayment
Agreement and Operating Reserves, and the Ak-Chin account, all held in pools, are considered to be uncategorized investments.
Restricted assets, including accrued interest receivable, consist of the following:
( I n t h o u s a n d s )
D E C E M B E R 3 1
2003 2002
Bond trust accounts, primarily debt service accounts $ 38,401 $ 37,617
State Demonstration Project account 3,692 7,255
Master Repayment Agreement repayment and operating reserves 44,224 44,154
Ak-Chin account 5,651 5,750
$ 91,968 $ 94,776
Bond Trust Funds
Bond trust accounts held by the trustee may be invested in direct obligations of, or obligations guaranteed by the U.S. gov-ernment,
FNMA or FHLMC securities, certificates of deposit, obligations of any state or political subdivision, or a guaranteed
investment contract, all subject to meeting certain ratings by national agencies, and maximum maturity limits. The trustee
holds the investments in trust for the District and the bondholders pursuant to the trust agreements.
State Demonstration Projects
The restricted asset of $3,692,000 is to be used for planning and developing State Demonstration Recharge projects. A
1996 amendment to State law expanded the District’s 4-cent ad valorem taxing authority to include Pinal County in addition to
Maricopa and Pima counties and created the Arizona Water Banking Authority (AWBA). The amended statute permits the
District to transfer revenues derived from this tax to the Arizona Water Banking Fund to fund AWBA activities if the District’s
Board of Directors approves the levy and concludes that the revenues are not needed for CAP operations or CAP repayment.
Pursuant to this authority, the District levied an ad valorem tax of 4 cents per $100 assessed valuation in Maricopa, Pinal, and
Pima counties in 2002 and 2003 and approved the transfer of these revenues to the Arizona Water Banking Fund in 2002. For
the 2003-2004 tax year, the District’s Board of Directors concluded that the revenues would be deposited with the District and
used by the District to defray the annual operation, maintenance and replacement costs associated with the purchase of CAP
water by the AWBA. During 2003 and 2002, the District sold 213,095 and 345,889 acre-feet of excess CAP water to the AWBA
at $54 and $55 per acre-foot, respectively, for underground storage.
Central Arizona Project 2003
Annoal Report
09 No
 
08 No
 
R E S T R I C T E D A S S E T S C O N T I N U E D
Master Repayment and Operating Reserves
The District is required under the terms of the Master Repayment Agreement to establish and fund over a ten-year period (1)
an operations and maintenance reserve fund of $4,000,000 for extraordinary costs of operations, maintenance and replacement
of project works, and (2) a repayment reserve fund of $40,000,000 for the purpose of assuring payments of future obligations.
At December 31, 2003, the fair value of the reserves totaled $4,223,000, and $40,000,000, respectively, including interest.
Ak-Chin Fund
In August 1985, the District's Board of Directors approved participation in an account established pursuant to legislation
enacted by the Congress of the United States for the acquisition or conservation of water to supplement CAP water supplies
(Ak-Chin account). The District and the United States Government each have contributed $1,000,000 to this account, which
is administered by the District. The District, acting as administrator of the account, is empowered to direct the expenditure of
the trust funds in accordance with the provisions of a trust agreement between the District and the Arizona State Treasurer.
The Ak-Chin account investment is in the LGIP, which invests primarily in certificates of deposit, commercial paper, fed-eral
government and federal agency securities. Investments in the LGIP are recorded at cost as they consist of participating
interest investment contracts with maturities of less than one year.
8 . A D V A N C E S T O F E D E R A L G O V E R N M E N T
At December 31, 2003 and 2002, the District has incurred $2,382,000 and $708,000, respectively, in costs related to
repairs of CAP construction and siphon deficiencies which have been recorded in the accompanying financial statements as
advances to the federal government. Because of timing differences, for 2002, the District was given credit for $892,000 for
the billing and the $183,000 difference was included in repayment credit asset. The District applied these amounts against its
annual payments due under the Master Repayment Agreement on January 15, 2003 and 2002, respectively. On a cumulative
basis, the District has incurred costs of $45,536,000 for the correction of CAP construction and siphon deficiencies and
applied this amount against its annual payments under the Master Repayment Agreement. Under the Stipulation, credits
available for application against the amounts due from the District are subject to audit by the United States.
N O T E S T O F I N A N C I A L S T A T E M E N T S C O N T I N U E D N O T E S T O F I N A N C I A L S T A T E M E N T S C O N T I N U E D
P 50 51 P
Central Arizona Project 2003
Annoal Report
9 . U N D E R G R O U N D W A T E R S T O R A G E A N D R E C O V E R Y
In 1992, the District entered into an agreement with the Metropolitan Water District of Southern California (MWD) and
subsequently with Southern Nevada Water Authority (SNWA), whereby up to an aggregate of 100,000 acre-feet of interstate
underground water storage credits would be set aside for potential assignment to MWD and SNWA in years which there is a
surplus on the Colorado River. Once assigned, MWD and SNWA can request recovery of these credits in years in which there
is a normal supply on the Colorado River. If assigned credits are recovered, the District must forbear diversion of Colorado
River water in an amount diverted by MWD and SNWA, and recover the stored credits in an amount equal to the CAWCD’s
reduced diversion. In 1995, the agreement with MWD was amended, increasing the amount of water that can be stored from
100,000 acre-feet to 300,000 acre-feet.
As of December 31, 2003, 139,000 acre-feet of underground storage credits have been assigned to MWD (89,000 acre-feet)
or SNWA (50,000 acre-feet).
In 1999, the Secretary adopted regulations that allow the AWBA to engage in interstate banking of Colorado River water
in cooperation with other lower basin states. The rules require agreements between the AWBA, the Secretary, and the author-ized
entity in the other lower basin state.
The AWBA has completed the agreements necessary to conduct interstate water banking with SNWA. Under the terms of
the agreement, the AWBA will attempt to store approximately 1,200,000 acre-feet of credits in Arizona for SNWA. The
District has transferred credits previously stored by the District on behalf of SNWA (50,000 acre-feet) to the AWBA to hold
in its SNWA storage account. At present, MWD has not entered into interstate storage agreements with AWBA required for
MWD to participate in interstate water banking.
As of December 31, 2003, the AWBA holds about 116,000 acre-feet of storage credits in its SNW account. As of December
31, 2003, the District holds 89,000 acre-feet of credits in its storage credit account on behalf of MWD. There are no incre-mental
costs associated with the credits and revenues are recorded as incurred.
10 No
 
 
 
1 0 . B O N D S P A Y A B L E
Bonds payable consist of the following:
D E C E M B E R 3 1
2003 2002
Central Arizona Water Conservation District (Central Arizona Project) Contract
Revenue Bonds, Series A 1990 (1990 Bonds) (original maturity amount of
$19,470,000, excluding 1990 Bonds which have been refunded), due in
varying annual amounts through 2011; interest rate for Capital appreciation
is a yield of 7.25 percent
Capital appreciation (maturity value of $11,760,000) $ 8,952 $ 8,336
8,952 8,336
Central Arizona Water Conservation District (Central Arizona Project) Contract
Revenue Bonds, Series B 1991 (1991 Bonds) (original maturity amount of
$29,685,000, excluding 1991 Bonds which have been refunded), due in
varying amounts through 2011; interest rates vary among individual
maturities ranging from 5.80 percent to 6.80 percent
Term 100 100
Capital appreciation (maturity value of $23,095,000) 20,820 19,486
20,920 19,586
Central Arizona Water Conservation District (Central Arizona Project) Contract
Revenue Refunding Bonds, Series A 1993 (1993 Bonds) (original maturity
amount of $106,535,000), due in varying annual amounts through 2010; interest
rates vary among individual maturities ranging from 5.0 percent to 5.50 percent 78,188 88,891
Central Arizona Water Conservation District (Central Arizona Project) Contract
Revenue Refunding Bonds, Series B 1994 (1994 Bonds) (original maturity
amount of $53,43