Annual Report of Operations

2005

Presented to the Board of Directors by

Melvin L. Matthews, General Manager

February 21, 2006

Letter from the General Manager

February 21, 2006

On behalf of the staff of the Kinneloa Irrigation District, I am pleased to present the 2005Annual Report of Operations.

After several years of drought we had a record-breaking year of rainfall. This providedincreased tunnel production and minimized the need to use our well pumps until June.The winter storms caused some damage to District facilities, but public disasterassistance was received from FEMA/OES to reimburse nearly the total cost ofemergency work and additional funds will be received for two projects that are inprogress.

Highlights of the year are as follows:

The District ended the year in sound financial condition with favorable financialresults with respect to the budget.

An agreement was signed for long term maintenance of our five steel tanks at anegotiated monthly charge thereby transferring the risk of unexpected costs to thetank maintenance company.

A computerized inventory system was put in place to improve the tracking ofmaintenance supplies and spare parts.

The Water System Master Plan was updated and revised.

The office computer network was updated with new software and a new server.

The billing system software was upgraded to the current release.

The District’s Internet web site was improved.

A rebuilding of the K-3 Well pump was completed.

The staff at the Kinneloa Irrigation District is committed to meeting the future challengesof providing high quality water service to our customers at a reasonable cost.

Sincerely,

Melvin L. MatthewsGeneral Manager

Production Summary for 2004-2005

Production in Acre-Feet 2004-2005SourceWilcox Well 60.2K-3 Well 319.3

Total Well 379.5

Holly High/Low Tunnel 125.6Eucalyptus Tunnel 50.0Far Mesa Tunnel 68.2House Tunnel 12.6Delores Tunnel 126.5

Total Tunnel 382.9

Total Production 762.5

Deliveries from Pasadena 0.0Deliveries to Pasadena 0.0

Net Import/Export 0.0

Total Production for Customers 762.5

Spreading in Acre-Feet 2004-2005SourceHolly High/Low Tunnel 0.0House Tunnel 25.6Kinneloa Canyon 31.2Eucalyptus Tunnel 0.0Brown Reservoir 24.9Delores Tunnel 44.5Long Tunnel 46.8Far Mesa Tunnel 0.0Glen Wash 933.9Tent Tunnel 3.2Sierra Madre Villa DB Outflow -459.7

Total Diverted 650.5

Other Data 2004-2005Rainfall (inches) 58.0Water Sales to Customers (acre-feet) 672.6Water Loss (acre-feet) 89.8Water Loss 11.8%Power Cost $87,537.00Power Cost per acre-foot of total production $114.81

Data for 1994-2005

Total Production for Customers

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

900.0

1000.0

1994-1995 1995-1996 1996-1997 1997-1998 1998-1999 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005

Acr

e-Fe

et

Rainfall

0

10

20

30

40

50

60

70

1994-1995 1995-1996 1996-1997 1997-1998 1998-1999 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005

inc

hes

Monthly Water Sales (CCF)

0

10,000

20,000

30,000

40,000

50,000

60,000

July

Augu

st

Septe

mber

Octobe

r

Nove

mbe

r

Decem

ber

Janu

ary

Febr

uary

Mar

chAp

rilMay

June

1994-1995

1995-1996

1996-1997

1997-1998

1998-1999

1999-2000

2000-2001

2001-2002

2002-2003

2003-2004

2004-2005

Total Production 1994-1995 to 2004-2005

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

900.0

1994-1995

1995-1996

1996-1997

1997-1998

1998-1999

1999-2000

2000-2001

2001-2002

2002-2003

2003-2004

2004-2005

Total Well

Total Tunnel

2004-2005 Production Sources

8%

41%

16%

2%

7%

17%

9%

Wilcox WellK-3 WellHolly High/Low TunnelHouse TunnelEucalyptus TunnelDelores TunnelFar Mesa Tunnel

Financial Summary for Year Ended December 31, 2005

2005 Budget 2005 Actual Variance Amount Variance %

IncomeMetered Water Sales 838,000.00 837,046.71 (953.39) -9.2%

Invoice Sales 2,500.00 16,181.29 13,681.29 547.3%

Interest-General Fund Checking 25.00 48.72 23.72 94.9%

Interest-General Fund Savings 7,500.00 9,455.04 1,955.04 26.1%

Interest-Special Fund Checking 0.00 19.84 19.84 0.0%

Capacity Charge 3,000.00 0.00 (3,000.00) 0.0%

Disaster Assistance 0.00 85,278.00 85,278.00 0.0%Total Income 851,025.00 948,029.60 94,004.60 11.4%

Operating ExpensePurchased Water 30,000.00 30,000.00 0.00 0.0%

Power 125,000.00 56,498.64 (68,501.36) -54.8%

Maintenance Supplies 24,000.00 14,891.08 (9,108.92) -38.0%

Safety Equipment 2,500.00 780.50 (1,719.50) -68.8%

Maintenance Labor 150,000.00 152,357.74 2,357.74 1.6%

Stand-by 11,000.00 10,950.00 (50.00) -0.5%

Training/Certification 5,000.00 1,249.00 (3,751.00) -75.0%

Water Treat/Analysis 17,000.00 16,813.87 (186.13) -1.1%

Outside Contractors 50,686.00 54,780.87 4,094.87 8.1%

Truck Maintenance 10,000.00 10,810.88 810.88 8.1%

Fuel - All Equipment - Gas & Diesel 6,500.00 4,891.61 (1,608.39) -24.7%

Equipment Rental 1,000.00 0.00 (1,000.00) -100.0%

Insurance-Workers Compensation 13,000.00 11,747.00 (1,253.00) -9.6%

Insurance-Liability and Vehicle 13,000.00 14,089.00 1,089.00 8.4%

Insurance-Property 2,500.00 2,210.00 (290.00) -11.6%

Insurance-Medical/Dental 35,000.00 32,041.50 (2,958.50) -8.5%Sub Total Operating Exp. 496,186.00 414,111.69 (82,074.31) -16.5%

Administrative ExpenseBond Administration 0.00 1,249.00 1,249.00 0%

Engineering 6,000.00 10,215.35 4,215.35 70.3%

Watermaster 7,000.00 6,936.35 (63.65) -0.9%

Telemetry 850.00 718.04 (131.96) -15.5%

Administrative Salary 84,000.00 77,718.00 (6,282.00) -7.5%

Administrative Travel 2,400.00 1,856.94 (543.06) -22.6%

Administrative PERS 6,000.00 4,878.88 (1,121.12) -18.7%

Board of Directors Compensation 7,000.00 6,000.00 (1,000.00) -14.3%

Administrative Expenses 2,500.00 1,862.95 (637.05) -22.6%

Board of Directors-Meeting Expenses 300.00 0.00 (300.00) -100.0%

Customer/Public Information Program 2,500.00 3,436.01 936.01 37.4%

PERS – KID Contribution 4,800.00 6,188.06 1,388.06 28.9%

2005 Budget 2005 Actual Variance Amount Variance %

Social Security-KID 22,500.00 22,051.77 (448.23) -2.0%

Office Supplies 8,000.00 7,014.49 (985.51) -12.3%

Postage 5,000.00 3,732.17 (1,267.83) -25.4%

Professional Dues 5,000.00 4,032.00 (968.00) -19.4%

Legal 10,000.00 5,493.35 (4,506.65) -45.1%

Telephone 7,500.00 6,491.77 (1,008.23) -13.4%

Cellular Telephone 3,000.00 2,580.91 (419.09) -14.0%

Pagers 1,800.00 1,510.90 (289.10) -16.1%

Internet Service 1,000.00 900.04 (99.96) -10.0%

Computer/Software Maintenance 10,000.00 8,199.80 (1,800.20) -18.0%

Office Equipment 1,000.00 1,887.49 887.49 88.7%

Office Equipment Maintenance 2,000.00 296.09 (1,703.91) -85.2%

Accounting 7,000.00 5,900.00 (1,100.00) -15.7%

Office Labor 42,000.00 41,232.75 (767.25) -1.8%

Outside Services 17,000.00 10,885.34 (6114.66) -36.0%

Permits/Fees 2,000.00 1,906.29 (93.71) -4.7%

Taxes-Sales 0.00 648.60 648.60 0.0%

Interest/Late Charge Expense 0.00 108.27 108.27 0.0%Bank Service Charges 1,200.00 997.34 (202.66) -16.9%

Sub Total Admin. 269,350.00 246,928.95 (22,421.05) -8.3%Total Operating and Admin.

Expense 765,536.00 661,040.64 (104,495.36) -13.6%

Net Revenues 85,489.00 286,988.96 201,499.96 235.7%

Other ExpendituresInventory 0.00 6,231.45 6,231.45 0.0%Mains 0.00 12,932.59 12,932.59 0.0%K-3 Well Rebuilding 0.00 58,594.78 58,594.78 0.0%Replacement Meters 5,000.00 510.00 (4,490.00) -89.8%Computer/Office Equipment 3,000.00 2,707.78 (292.22) -9.7%Telemetry 0.00 709.95 709.95 0.0%Tanks and Reservoirs 28,000.00 29,456.30 1,456.30 5.2%

Total Other Expenditures 36,000.00 111,142.85 75,142.85 208.7%

Net Increase 49,489.00 175,846.11 126,357.11 255.3%

Balance Sheet as of December 31, 2005 (Unaudited)

ASSETSCurrent Assets1000 Checking-Bank of the West 92,503.491002 Checking-B of A FEMA/OES 73,785.001012 Savings Account-LAIF 194,672.661013 Savings-LAIF Reserve Fund 250,000.001100 Accts. Receivable-Water Sales 88,789.281101 Accts. Receivable-Invoices 4,810.371111 Interest Receivable 2,114.101112 Assessments Receivable 626.471190 Allowance for Bad Debts (5,273.11)1200 Inventory 26,231.451350 Prepaid Insurance 14,178.911360 Prepaid Expenses 7,096.00

Total Current Assets 749,534.62Property and Equipment1501 Water Rights 52,060.411503 Land Sites 96,700.081504 Mains 1,020,321.711505 Water Tunnels 442,009.161506 K-3 Well 82,802.861507 Improvement District #1 602,778.121508 Mountain Property 6,620.001509 Wilcox Well 71,312.701510 Fairpoint St. Interconnect 14,203.271511 Water Treatment Plant 60,630.111512 Trans. & Dist. Plant Meters 55,242.591513 Electrical/Electronic Equip. 161,129.201514 Computer\Office Equipment 42,455.781515 Truck Equipment 92,485.951516 Water Company Facilities 36,590.261517 Hidden Valley Office 51,362.921518 Shaw Ranch 280,789.921519 Dove Creek Project 487,383.871521 Kinneloa Ridge Project 690,492.581522 Eucalyptus Booster Station 471,817.811527 Telemetry 114,680.781528 Tanks and Reservoirs 36,906.001529 Holly Tanks 181,113.761600 Accumulated Depreciation (1,437,976.70)

Total Property and Equipment 3,713,913.14Total Assets 4,463,447.76

LIABILITIES AND CAPITALCurrent Liabilities2000 Accounts Payable 581.972250 PERS Withholding-Employee 676.462260 Med./Dental-Withhold-Employee 419.242271 Deposits-Construction Meters 850.002273 Job Deposits-Doyne Rd. 5,497.682290 Accrued Vacation/Sick 29,104.70

Total Current Liabilities 37,130.05

Long-Term Liabilities2630 Improvement District #1 Fund 19,318.77

Total Long-Term Liabilities 19,318.77

Total Liabilities 56,448.82

Capital3040 Fund Bal. 2,808,507.103900 Prior Year Adjustments 1,311,502.88

Net Income 286,988.96

Total Capital 4,406,998.94

Total Liabilities & Capital 4,463,447.76

The Year in Pictures

Eucalyptus Tunnel Repair Wilcox Reservoir Diversion Wall

High/Low Tunnel Storm Damage High/Low Tunnel Storm Damage

High/Low Tunnel Storm Damage House Tunnel Storm Damage

Remove Pump Damaged Lower Section

Wire Brush Well Casing Reinstall Rebuilt Pump

Lower Discharge Pipe Sections Reinstall Motor Frame

K-3 Well Rebuilding

Prepare for Motor Installation Rebuilt 125 hp Motor

Lower Motor onto Frame Completed Motor Installation

A video record of the well was made after removing the pump and K-3 Job Completed!discharge line to determine the condition of the casing. Anothervideo was made after wire brushing to document the currentcondition and location of the perforations before installing therebuilt pump and motor.