The Brazos River Authority Waco Texas

The Brazos River AuthorityWaco, TexasFiscal Year 2008Comprehensive Annual Financial Report

BrazosRiverAuthorityAn agency of the State of TexasComprehensive Annual Financial ReportFiscal Year Ended August 31, 2008Prepared by the Finance and Administration Department

BRAZOS RIVER AUTHORITYCOMPREHENSIVE ANNUAL FINANCIAL REPORTFOR THE FISCAL YEAR ENDED AUGUST 31, 2008TABLE OF CONTENTSPageINTRODUCTORY SECTION:Board of DirectorsManagement TeamOrganizational ChartLetter of TransmittalCertificate of Achievement for Excellence in Financial ReportingviviiiixxixxFINANCIAL SECTION:Independent Auditors’ Report 2Management’s Discussion & Analysis:Financial Highlights 6Overview of the Financial Statements 7Financial Analysis 8Capital Assets and Outstanding Debt 12Requests for Information 14Basic Financial Statements:Statements of Net Assets 16Statements of Revenues, Expenses, and Changes in Net Assets 18Statements of Cash Flows 19Combined Statements of Fiduciary Net Assets 20Notes to the Basic Financial Statements1. Summary of Significant Accounting Policies 212. Deposits and Investments 243. Restricted Assets 274. Capital Assets 295. Unearned Revenues 306. Long-Term Debt 317. Retirement Plan 368. Financing Arrangements 419. Segment Information 4310. Commitments & Contingencies 4611. Risk Management 4712. Board Designated Reserves 4713. Related Party Transactions 4814. Recently Issued GASB Statements 48ii

BRAZOS RIVER AUTHORITYCOMPREHENSIVE ANNUAL FINANCIAL REPORTFOR THE FISCAL YEAR ENDED AUGUST 31, 2008TABLE OF CONTENTSPageSupplemental Information:Combining Statements of Fiduciary Net Assets 50Schedule of Changes in Assets and Liabilities (Agency Funds) 51Comparison of Budgeted Revenues and Expenditures to Actual (Non-GAAP Basis) 52STATISTICAL SECTION (Unaudited):Contents 54Changes in Net Assets 55Net Assets by Component 56Budgeted Long-Term Water Supply Revenues by Contract Type 56Major Customers – All Operations 58Major Customers – Water Supply System (WSS) 59Water Supply Revenue Bond Debt Series 2001A, Series 2001B, Series 2002 AMT, Series 2005AAnd Series 2005B Amortization Schedule 60Water Supply Revenue Bonds Series 2001A, Series 2001B, Series 2002 AMT, Series 2005AAnd Series 2005B Coverage and Account Balances 61Condensed Summary of Operating Results (calculation based on bond resolution requirements) 62Possum Kingdom Electric Power Generation and Lake Elevations 64Miscellaneous Demographic and Economic Information 66Schedule of Insurance 74Full-Time Equivalent 76iii

Introductory Section2008 Comprehensive Annual Financial Reportv

Richard BallDirectorJohn SteinmetzDirectorLubbockUpperRegionZachary S.BradyDirectorAbileneTuscolaGradyBarrDirectorF. LeroyBellDirectorPatriciaBailonDirectorScott D.SmithDirector2008Board of DirectorsJon SloanDirectorSalvatore A.ZaccagninoDirectorvi

BrazosRiverAuthorityWade ComptonGearSecretaryMary WardDirectorChristopher S.Adams Jr.DirectorMineral WellsPeter BennisDirectorGranburyCleburneChristopher D.DeCluittPresiding OfficerCliftonRobert M.ChristianDirectorCentralRegionWacoBeltonJewettCedar ParkLowerRegionRound RockBryanCaldwellSomervilleMark J.CarrabbaDirectorWillisBilly WayneMooreDirectorBrenhamSugar LandNancy PorterDirectorJean KillgoreDirectorJohnBriedenDirectorCarolyn JohnsonAssistantPresiding OfficerFreeportvii

vManagement TeamPhillip J. FordGeneral Manager/CEOLauralee VallonGeneral CounselJohn HawesChief Financial OfficerJohn BakerTechnical ServicesMgr./AssistantGeneral ManagerJim FortePlanning &Development Mgr.Pat GillInformationTechnology Mgr.John HofmannCentral & LowerBasin ManagerTerry LopasSpecial ProjectsManagerMatt PhillipsGov. & CustomerRelations ManagerKent RindyUpper BasinManagerDavid WheelockWater ServicesManagerMonica WheelisHuman Resource Mgr.Don WoodsInternal Auditorviii

Brazos River AuthorityOrganizational ChartCONSTITUENCY/CUSTOMERS OF THE BRAAdvisory Boards, Water Customers, Elected Officials, Bond Rating Companies, Citizens of the Brazos River BasinGovernor ofTexasChief Financial OfficerInformation TechnologyPlanning and DevelopmentStrategic Planning/Special ProjectsBoard of DirectorsGeneral Manager& CEOInternal AuditorGov’t & Customer RelationsHuman ResourcesGeneral CounselTechnicalServicesMgr./Asst.General Mgr.Upper BasinManagerCentral/Lower Basin ManagerConstructionand PropertyServicesWater PlantSuperintendentRegionalSuperintendentRegional WaterPlantsSuperintendentWater Services,FederalReservoirs &Purchased WaterRegional LakeProject Mgr.Lake ProjectManagerEnvironmentalServicesRegionalEnvironmentalServicesRegionalEnvironmentalServicesRegionalEnvironmentalServicesEmergency,Safety &ComplianceProgramsRegionalBusinessDevelopmentRegionalBusinessDevelopmentRegionalBusinessDevelopmentEngineeringRegional Gov.& CustomerRelationsRegional Gov.& CustomerRelationsviix

PROFILE OF THE AUTHORITYThe Authority was created by the Texas Legislature in 1929 as the first state agency in the UnitedStates specifically created for the purpose of developing and managing the water resources of an entireriver basin. Although the Authority is an agency of the State of Texas, it does not levy or collect taxes.With the exception of a relatively small number of governmental grants, the Authority is entirely selfsupporting,maintaining and operating reservoirs, transmission facilities, and treatment systems throughrevenues from the customers it serves.The Authority’s Board of Directors consists of 21 members appointed by the Governor and subjectto confirmation by the Texas Senate. Directors serve a six-year, staggered term, with one-third beingeither replaced or reappointed each odd-numbered year.The Authority functions under the direction of a General Manager/CEO. The more than 42,000 squaremiles that make up the Brazos River Basin are divided into geographic regions – each with distinctiveclimate, topography and water needs. Each region falls under the direction of a Regional BasinManager.Water SupplyThe Authority built, owns, and operates three reservoirs for water supply – Possum Kingdom Lake,Lake Granbury, and Lake Limestone. The Authority also contracts with the U.S. Army Corps ofEngineers (USACE) for storage space in nine multi-purpose Federal reservoirs – Lakes Whitney,Belton, Proctor, Waco, Somerville, Stillhouse Hollow, Granger, Georgetown and Aquilla. These lakes,owned and operated by the USACE, provide flood control to the Brazos River basin as well as beingsources for water supply.Together, the twelve reservoirs have conservation storage of more than 800 billion gallons of water. TheAuthority contracts to supply water from these reservoirs on a wholesale basis to municipal, industrialand agricultural water customers from West Texas to the Gulf Coast.Water and Wastewater TreatmentThe Authority operates potable (drinking) water treatment systems for Lee County Fresh Water Districtand the City of Leander and two regional water treatment systems, one at Lake Granbury and one atLake Granger. The plants have won numerous awards for operations, maintenance and design fromState and Federal governmental agencies.Wastewater treated and released by the Authority at its eight sewerage systems in Temple-Belton, SugarLand, Brushy Creek (in Williamson County), Lee County Fresh Water District, Clute, Hutto, LibertyHill and Georgetown is returned to the Brazos River cleaner than the water in the river flowing bythe plants. At the wastewater plants, waste separated from liquids in the treatment process are usedfor beneficial purposes. Wastes at the Temple-Belton plant is composted with wood chips and sold asfertilizers and soil enhancers. Waste from the Sugar Land plant is applied to farmland.xi

Water QualityWater quality is a high priority with the Brazos River Authority. Staff charged with environmentalconcerns work to protect and improve the quality of water resources in the Brazos River basin throughsampling and analysis. Since 1991, the Authority has contracted with the Texas Commission onEnvironmental Quality (TCEQ) to conduct the Clean Rivers Program for the basin. The Authority,working with other agencies and basin residents, identifies and evaluates water quality and watershedmanagement issues, establishes priorities for corrective actions, and works to implement those solutions.As part of a Basin Monitoring Program, the staff collects water quality samples at strategic locationsthroughout the Brazos River basin.Regional Water PlanningThe Authority supports and participates in ongoing regional water planning processes, including waterconservation, to meet water supply needs in the basin. The Authority participates in development ofregional water plans authorized by the Texas Legislature in 1997 with the passage of Senate Bill 1including Regions O (High Plains) and H (Houston-area), and serves as the administrative agency forRegion G (Central Texas).Brazos-Colorado Water AllianceIn 1995, the Authority and the Lower Colorado River Authority (LCRA) formed an Alliance to cooperatein the conservation, planning and development of regional water resources. The Alliance brings theresources of both river authorities to address immediate and long-term water and wastewater needs ofcustomers in Williamson County. In 1996, the Alliance signed a contract to purchase the City of RoundRock’s wastewater treatment facilities, now called the Brushy Creek Regional Wastewater System. In2002, the Alliance launched its first water treatment plant in Williamson County. Built by the LCRA andoperated by the Authority, the plant provides potable water to more than 16,000 residents of Leander. In2007, the Alliance completed the start-up of the Liberty Hill Wastewater System. Owned by the LCRAand operated by the Authority, the treatment facility will have an ultimate permit capacity of 1.2 milliongallons per day (MGD).ECONOMIC CONDITION AND OUTLOOKThe information presented in the financial statements is perhaps best understood when it is consideredfrom the broader perspective of the specific environment within which the Authority operates.The economic events of the fiscal year ended August 31, 2008 set the stage for significant deteriorationin the financial markets. The sub-prime housing debacle began to heat up late in 2007 and has become adramatic financial crisis for the global economies. The U.S. Federal Open Markets Committee (FOMC)began adjusting to the threat of economic downturn in October 2007 as they lowered the Federal FundsRate by .25%, from 4.75% to 4.50%. Another move to lower rates by .25% was executed in December2007 as the FOMC continued to forecast economic distress, leaving the Funds rate at 4.25%.As the new year of 2008 began, the floor collapsed for many financial institutions that had participatedheavily in the sub-prime mortgage speculation. Over one weekend in January, the FOMC tookunprecedented action to call an emergency meeting to address the impending collapse of a majormarket player, Bear Stearns. The FOMC, working with the Federal Treasury Department, determinedxii

that the failure of Bear Stearns would cause severe economic damage and worked to orchestrate aFederally subsidized buyout of the firm by JPMorgan Chase. Immediately following this action, theFOMC announced that they were lowering the Federal Funds rate by an additional .75%, from 4.25%to 3.50%. The list of troubled institutions continued to grow and firms such as Lehman Brothers failed,while others such as AIG received Federal support. The U.S. Agencies, Federal National MortgageAssociation (Fannie Mae)and Federal Home Loan Mortgage Corporation (Freddie Mac), were takenunder the conservatorship of the U.S. Government to avoid their financial failure. The list of casualtiesfrom this downturn continues, includes name brand institutions, and has prompted the FOMC to slashrates four more times before making their latest cut on October 29, 2008. The current Federal FundsRate stands at 1.00%.Congress has done their part to keep the economy breathing. During September, Congress took emergencyaction to provide $700 billion in funding for the program entitled the “Troubled Asset Relief Program”.The Federal Reserve, the Treasury Department and Congress will use these funds as necessary to keepessential markets above water and avoid more widespread economic collapse. It is anticipated that thesefunds will be essential to bring the credit markets, which have grinded to a halt in recent months, backto life.While the national and global economies have experienced severe deterioration, the Texas economyhas been surprisingly expansive. During the past year, Texas gained almost 248,000 jobs, more thanthe next 14 top job-growth states combined. The Texas unemployment rate in September 2008 was5.1% compared with the 6.1% national rate. The housing market in Texas has experienced some recentvaluation decreases, but is far below the rate of decrease in other states. Texas foreclosure rates inAugust 2008 indicated only one in every 1,003 homes faced foreclosure. This compares very favorablyagainst Nevada’s one in 82, California’s one in 189 and Arizona’s one in 178. As gasoline prices havedecreased more recently, the Texas sales tax receipts have increased. During September 2008, sales taxreceipts increased 3.7% when compared to the same period last year. Whether Texas’ experience beginsto reflect the national trend depends upon the length and severity of the national/global recession.LONG-TERM FINANCIAL PLANNINGIn July 2008, the Authority’s Board of Directors reviewed the Fiscal Year 2009 Long Range FinancialPlan. This fifty year look into the future is both an inventory of projects anticipated to be undertakenby the Authority to satisfy its mission, as well as an analysis of the implications of those projects onthe Authority’s System Water Rate. The inventory of projects is a mixture of water development,transportation, and treatment initiatives and range from those that are anticipated to be fully supportedby the System Water Rate to those which will have a specific customer base (such as a regional treatmentplant), for which a cost of service-based fee will be calculated. Initial indications based on this analysisare that the Authority’s System Water Rate over the next several decades will continue to be among thelowest in the State of Texas; while maintaining a level of service sufficient to address the obligationsplaced upon it by both our enabling legislation, our strategic plan, and the vision of our Directors andmanagement. Future rate-making will be based upon a combination of both debt-funded initiatives,as well as those in which a cash infusion will be made, through the use of the Board-mandated seriesof Reserve Funds to balance and stabilize rates. Additional information on the Authority’s BoardDesignated Reserves can be found in Note 12, of the Notes to the Basic Financial Statements.xiii

RELEVANT FINANCIAL POLICIESCash ManagementDuring the year, funds were invested in demand deposits, obligations of the U.S. Treasury, obligationsof U.S. Government Agencies, and State investment pools as authorized by the Public Funds InvestmentAct. As of August 31, 2008 approximately 13.6% of the Authority’s funds were invested in collateralizeddemand accounts, 72.2% invested in U.S. Government Agencies, 9.7% invested in State InvestmentPool, and 4.5% invested in U.S. Treasury Obligations. The portfolio yield for the year averaged 4.0%.Additional information on the Authority’s cash management activity can be found in Note 2, of theNotes to the Basic Financial Statements.Risk ManagementThe Authority has continued its emphasis on a loss control program to minimize risk exposures.Employees are well trained in safety practices and maintain a constant vigil to correct safety hazards.Third-party insurance coverage is currently maintained to reduce risk exposures. Additional informationon the Authority’s risk management activity can be found in Note 11, of the Notes to the Basic FinancialStatements.Retirement PlanThe Authority makes an annual contribution to a non-traditional defined benefit plan in the Texas Countyand District Retirement System (TCDRS), and Authority employees make periodic contributions to theplan as well. TCDRS is a multiple-employer public employer retirement system governed by a Board ofTrustees appointed by the Governor of Texas.In addition, the Authority continues to administer the Retirement Plan for Employees of the Brazos RiverAuthority (Plan), which, effective September 2007, was closed to new entrants, and benefit accrual andcontributions were frozen. This Plan’s policies and performance are monitored closely by the RetirementCommittee which consists of four (4) Directors and three (3) Authority employee representativesappointed by the Authority’s Board of Directors. Additional information on the Authority’s retirementplans can be found in Note 7, of the Notes to the Basic Financial Statements.Internal Accounting ControlsInternal accounting controls are designed to provide reasonable assurance regarding safeguarding ofassets against loss from unauthorized use or disposition, and the reliability of financial records forpreparing financial statements and maintaining accountability for assets. We believe that the Authority’sinternal accounting controls adequately safeguard assets and provide reasonable assurance of properrecording of all financial transactions.As a recipient of Federal and State loans and grants, the Authority is also responsible for ensuring thatadequate internal controls are in place to document compliance with applicable laws and regulationsrelated to these programs. These internal controls are subject to periodic evaluation by management.As part of the Authority’s audit, tests were made of the internal controls and of its compliance withlaws and regulations that could have a material effect on the Authority’s financial statements. Althoughthis testing was not sufficient to support an opinion on the Authority’s internal control system or itscompliance with laws and regulations, no material instance of noncompliance related to the audit for theyear ended August 31, 2008 are disclosed.xiv

Budgetary ControlsThe annual budget serves as the basis for the Authority’s financial planning and control. Budgetarycontrols are maintained to ensure the proper management of resources, and are required pursuant tocertain contracts for service. Although there are no legal requirements to include comparative budget-toactualexpense statements in this report, such information is included in the Supplemental Informationsection. In addition, it is provided to the Board of Directors on a quarterly basis throughout the fiscalyear.Charges for services are based on budgeted operating expenses, including debt service requirements andcapital expenditures, but excluding depreciation and amortization. In the cost reimbursable operations,charges for services are adjusted accordingly at the end of each year to a break-even basis. These yearendadjustments are recorded as either accounts receivable or unearned revenue.MAJOR INITIATIVESDuring Fiscal Year 2008, the Authority managed many new and ongoing water quality and water supplyprojects. Water supply remains the priority for the Authority as we continue to work to obtain a majornew water right and to develop groundwater. The following is a synopsis of select programs and projectsmanaged by the Authority in Fiscal Year 2008:East Williamson County Regional Water SystemConstruction was completed in March 2008 on the expansion of the East Williamson County RegionalWater System. Retrofit of the older portions of the plant began immediately, and were completed inJune 2008. The expansion increases the plant’s capacity from 5.3 million gallons per day (mgd) to12.8 mgd, and is part of the development of a long-term regional treated water system for WilliamsonCounty.Fort Bend CountyThe Authority continued work with the cities of Richmond and Rosenberg, municipal utility districts andother entities in West Fort Bend County on a regional surface water treatment project. A preliminaryengineering report was completed and recommendations were made on implementing a “treatabilitymonitoring” program.Grant InitiativesDuring FY2008, the Authority submitted applications for seven grants primarily related to HomelandSecurity projects. Three grants have been approved for $183,651, three are pending for $149,250, andone was not awarded. In addition, there was one proposal submitted for inclusion in the StatewideInteroperability Communication Plan that the Authority participated, in order to be eligible for futureHomeland Security funding. In addition to the above grants, other funding programs are being researchedand will be applied for as the project qualifies.Possum Kingdom Lake – Hydroelectric GenerationOn November 1, 2007, the Authority and Brazos Electric Power Cooperative (BEPC) signed a FacilityUse Agreement for the lease of the Possum Kingdom Lake hydroelectric generation facility. Theterms of the agreement will take effect when all approvals are received from both the Federal EnergyRegulatory Commission (FERC) and the Rural Utility Services (RUS).xv

Simultaneously, the Authority and BEPC entered into a Facility Cost Agreement (FCA). The FCAestablishes BEPC’s responsibility to reimburse the Authority for all costs associated with the hydroelectricplant while we wait for the final approval from the regulatory agencies. These two agreements are theresult of more than two years of difficult negotiations.Joint Lake Somerville StudyAs part of the passage of Senate Bill 3, the State’s omnibus water bill, the LCRA and the Authoritylaunched a joint baseline study of the role of Lake Somerville in the economic development of thesurrounding area. The LCRA and the Authority hosted town hall meetings to inform Lake Somervillecitizens of the baseline analysis and the current tourism strategy for Lake Somerville. A final report wasdelivered to the Legislature in June.Lake Granbury Debris CleanupFollowing flooding events in July 2007, the Authority began an unprecedented debris cleanup ofthe lake. The large-scale project was completed in FY 2008 at a cost of $147,792. The Authorityreceived reimbursement of 75 percent of these funds from the Federal Emergency Management Agency(FEMA).Lake Granbury Watershed Protection PlanE.coli monitoring continued during the last twelve months and was integrated into the LakeGranbury Watershed Protection Plan. Water quality monitoring was added in FY 1007 whichincluded the addition of ten new sites in previously unmonitored areas and six tributary creeksites. Bacterial source tracking samples are now being analyzed and watershed modeling isunderway to help in identifying bacterial sources. Source identification activities are anticipatedto be completed in October 2008. The project is expected to be completed in August 2009.Lake Granbury Surface Water And Treatment System (SWATS)The Authority is currently upgrading the potable water treatment systems at the SWATS plant.Modifications and additions to both the Ultra-filtration (UF) and Reverse Osmosis (RO) systems areunderway. The UF system is nearing completion while the RO system is scheduled to be completed bythe summer of 2009, and will provide a finished water capacity of 13.0 mgd. In addition to the currentsystem modifications taking place at the plant, engineers are also evaluating expanding the plant (UF/RO system) by an additional 2.54 mgd. This work, if determined to be necessary, will be scheduled tobe completed by the end of 2011, and will provide a total finished water capacity of 15.54 mgd.Lawson Accounting Software 9.0 UpgradeThe Lawson Software upgrade was completed in March of 2008. The upgrade allows the Authority’sfinancial services and human resources departments to use enhanced functionalities, including bettersecurity.Possum Kingdom DivestitureA major topic of discussion for FY 2008 was the potential sale of Authority-owned land at PossumKingdom Lake. Continued research into the logistics of divestiture, including the potential for a 3 rdparty sale, is ongoing.xvi

Reallocation of Flood Storage – USACEPhase I of a feasibility study on the potential to increase water supply in USACE lakes was completed in FY2008 with three lakes identified as potential projects. The reallocation of existing flood storage space toconservation storage could potentially provide the Brazos basin with additional water supplies to meet the State WaterPlan.Salt Creek, Graham, Texas Floodplain ProjectThe Authority and the USACE continue the property acquisition phase of the Salt Creek, Graham,Texas, project. The objective of the project is to provide flood protection for residents of Graham thatlive within the 10-year floodplain near Salt Creek. To date, approximately 60 residential property tractshave been acquired by USACE and transferred to the Authority.San Gabriel Wastewater Master PlanThe San Gabriel Wastewater Master Plan is an effort to protect local water resources through thedevelopment of a regionalized sewerage system in the San Gabriel River watershed. In FY 2008, theAuthority worked closely with City of Georgetown to determine the cost for using existing infrastructureto provide regional benefits. The cost of developing a sewerage system over such a large watershed willbe in excess of $100 million over a 20-year time frame.Alternative Future Water Supply StrategiesThe development of a new water supply source can be a decades-long process. In October 2007, theAuthority initiated a study of the variety of future water supply strategies available, involving bothstewardship of current resources as well as infrastructure required to create new sources. The preliminaryreport completed in January 2008 found that conservation ranked highest among the projects identifiedin the report. As a result, the Authority has begun research into potential partnerships with our watersupply customers to encourage conservation.Strategic PlanAn update to the Authority’s Strategic Plan continued in FY 2008 to more closely align the practices andcore business of the Authority with the strategic direction set by the Board of Directors. The StrategicPlan is implemented through a project process and will assist in determining the direction the Authoritywill take in allocating its resources in order to meet the future needs of the basin.System Operations PermitIn the spring of 2003, the Authority initiated the System Operations Permit project with the goal ofmaximizing utilization of existing reservoir storage. If approved as submitted, the System OperationsPermit will add approximately 421,000 acre-feet to the Authority’s currently permitted available watersupply.During FY 2008, the Authority continued negotiations with interested parties including Texas Parks andWildlife Department, the Dow Chemical Company, Texas Municipal Power Agency (TMPA), TexasMunicipal Water District, the Cities of Lubbock, Bryan, and College Station, and Luminant (successorto TXU).xvii

Williamson County Regional Raw Water LineThe Authority continued work on Phase II pump upgrades for the Williamson County Regional RawWater Line including planning for design and installation of Phase II pumps. Water usage indicatesthat additional pumping capacity may be needed by 2011. The goal for the Phase II pump upgrade isto deliver up to 64,600 acre-feet of water annually to Lake Georgetown to meet the needs of the Citiesof Round Rock and Georgetown, as well as Brushy Creek Municipal Utility District, Chisholm TrailSpecial Utility District and Jonah Water Special Utility District.AWARDS AND ACKNOWLEDGEMENTSThe Government Finance Officers Association of the United States and Canada (GFOA) awarded aCertificate of Achievement for Excellence in Financial Reporting to the Authority for its CAFR for thefiscal year ended August 31, 2007. This was the twenty second consecutive year that the Authority hasreceived this prestigious award. In order to be awarded a Certificate of Achievement, the Authoritypublished an easily readable and efficiently organized CAFR. The 2007 report satisfied both GAAP andapplicable legal requirements.A Certificate of Achievement is valid for a period of one year only. We believe that our current CAFRcontinues to meet the Certificate of Achievement Program’s requirements and we are submitting it tothe GFOA to determine its eligibility for another certificate.In addition, the Authority also received its first GFOA’s Distinguished Budget Presentation Award forits annual budget document for Fiscal Year beginning September 1, 2007. In order to qualify for theDistinguished Budget Presentation Award, the Authority’s budget document had to be judged proficientas a policy document, a financial plan, an operations guide, and a communication device.The preparation of this report would not have been possible without the efficient and dedicated endeavorsof the entire staff of the Finance and Administration Department. I would like to express my sincereappreciation to Matt Wheelis, Melissa Anthony, Janie Crowder, Judy Wallace, Michele Giroir, PaulaThamez, Lupe Diaz, Sandy Dominguez, Cheryl Hoelscher, Kim Goolsby, Kim Tosh, Gina Romano, andall other employees who contributed to the preparation of this report.Our appreciation is also extended to the members of the Board of Directors for their support in planningand conducting the financial operations of the Authority in a responsible and professional manner, andfor providing us the tools and resources to ensure the integrity of the assets of the Authority.Respectfully submitted,Phillip J. FordGeneral Manager/CEOJohn Hawes, CPAChief Financial Officerxviii

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From the River......to the LabKeeping our environment safexx

Financial Section2008 Comprehensive Annual Financial Report1

Management’sDiscussion & Analysis2008 Comprehensive Annual Financial Report5

BRAZOS RIVER AUTHORITYMANAGEMENT’S DISCUSSION AND ANALYSISAUGUST 31, 2008, 2007 AND 2006 (in thousands)As management of the Brazos River Authority, we offer readers of the Authority’s financial statements thisnarrative overview and analysis of the financial activities of the Authority for the fiscal year ended August 31,2008 in comparison with the two prior year financial results. We encourage readers to consider theinformation presented here in conjunction with additional information that we have furnished in our letter oftransmittal, which can be found on Pages x to xviii of the Introductory Section of this report.Financial Highlights Total assets at the end of Fiscal Year 2008, 2007 and 2006 were $338,673, $336,249 and $312,030,respectively. Total assets exceeded liabilities at the end of Fiscal Year 2008, 2007 and 2006 by $141,754,$131,291 and $126,263, respectively.Total assets for Fiscal Year 2008 increased $2,424 over prior year primarily as a result of improvedoperations.Total assets for Fiscal Year 2007 increased $24,219 over prior year primarily as a result of unspent bondproceeds and additional construction activities attributable to the issuance of the series 2006 revenuebonds and the improved results of operations.The Authority ended Fiscal Year 2008 with an increase in net assets of $10,463, an increase in net assetsof $5,028 for Fiscal Year 2007 and a decrease in net assets of $5,855 in Fiscal Year 2006.The increases and decreases in capital assets for the past three years and the events causing these changesare noted below:2008 2007 2006Net additions to land and land rights $ - $ 41 $ 350Additions to construction-in-progress 13,943 23,673 8,408Transfers from construction-in-progress to capital assetsbeing depreciated (33,556) (3,269) (5,688)Additions and transfers to capital assets being depreciated 34,431 2,475 2,946Deletions and transfers (544) (84) (4,710)Normal annual depreciation (8,692) (8,384) (8,550)TOTAL $ 5,582 $ 14,452 $ (7,244)For Fiscal Year 2008, total outstanding debt decreased by $5,749. This decrease is a result of requiredannual principal payments on revenue bonds, contracts payable and accretion on capital appreciationbonds of $4,795, $1,061 and $107, respectively.6

BRAZOS RIVER AUTHORITYMANAGEMENT’S DISCUSSION AND ANALYSISAUGUST 31, 2008, 2007 AND 2006 (in thousands) For Fiscal Year 2007, total outstanding debt increased by $13,073. This net increase is a result of $17,805in new bonds being issued for the costs of the continued expansion of the East Williamson CountyRegional Water System and $550 of new contracts payable debt issued to acquire water rights from theBrazos Electric Power Cooperative, Inc. In addition, required annual principal payments on revenuebonds, contracts payable and accretion on capital appreciation bonds of $4,365, $1,019 and $102,respectively. For Fiscal Year 2006, total outstanding debt increased by $13,169. This net increase is a result of $23,210in new bonds being issued of which $10,335 was issued for the costs of acquisition and expansion of theEast Williamson County Regional Water System and $12,875 was issued for the costs of repairs at MorrisSheppard Dam on Possum Kingdom Lake. Excess construction funds were returned to the Texas WaterDevelopment Board to reduce the obligation on the Series 1999 bonds by $5,045. In addition, requiredannual principal payments on revenue bonds, contracts payable and accretion on capital appreciationbonds of $4,070, $1,022 and $96, respectively.Overview of the Financial StatementsThe Management’s Discussion and Analysis is intended to serve as an introduction to the Authority’s basicfinancial statements. The Authority’s basic financial statements are composed of Statements of Net Assets,Statements of Revenues, Expenses and Changes in Net Assets, Statements of Cash Flows, CombinedStatements of Fiduciary Net Assets, and Notes to the Basic Financial Statements. This report also containsother supplementary information and statistical information in addition to the basic financial statementsthemselves.Basic financial statements. The financial statements are designed to provide readers with an overview of theAuthority’s finances, in a manner similar to private-sector business.The Statement of Net Assets presents information on all of the Authority’s assets and liabilities, with thedifference between the two reported as net assets. Over time, increases or decreases in net assets may serveas a useful indicator of whether the financial position of the Authority is improving or deteriorating. TheStatement of Net Assets can be found on Page 16 of this report.The Statement of Revenues, Expenses and Changes in Net Assets presents information showing how theAuthority’s net assets changed during the most recent fiscal year. All changes in net assets are reported assoon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows.Thus revenues and expenses are reported in this statement for some items that will only result in cash flows infuture fiscal periods. The increase or decrease in net assets may serve as an indicator of the effect of theAuthority’s current year operations on its financial position. The Statement of Revenues, Expenses andChanges in Net Assets can be found on Page 18 of this report.The Statement of Cash Flows summarizes all of the Authority’s cash flows into three categories, asapplicable: 1) cash flows from operating activities, 2) cash flows from capital and related financing activities,and 3) cash flows from investing activities. The Statement of Cash Flows can be found on Page 19 of thisreport. The Statement of Cash Flows, along with the related notes and information in other financialstatements, can be useful in assessing the following:7

BRAZOS RIVER AUTHORITYMANAGEMENT’S DISCUSSION AND ANALYSISAUGUST 31, 2008, 2007 AND 2006 (in thousands)The Authority’s ability to generate future cash flowsThe Authority’s ability to pay its debt as the debt maturesReasons for the difference between the Authority’s operating cash flows and operating incomeThe effect on the Authority’s financial position of cash and non-cash transactions from investing,capital and financing activitiesThe Combined Statement of Fiduciary Net Assets summarizes all of the Authority’s agency fund transactions.Generally, an agency fund is created to act as a custodian for other funds, governmental entities, or privateentities. Assets are recorded by the agency fund, held for a period of time as determined by a legal contract orcircumstance and then returned to their owners. Generally, only assets and a liability representing the partiesthat are entitled to the assets are presented in the Combined Statement of Fiduciary Net Assets. TheCombined Statement of Fiduciary Net Assets can be found on Page 20.The Notes to the Basic Financial Statement provides additional information that is essential to a fullunderstanding of the data provided in the basic financial statements. The Notes to the Financial Statementscan be found starting on Page 21 of this report.Financial AnalysisStatement of Net Assets - As noted earlier, net assets may serve over time as a useful indicator of theAuthority’s financial position. In the case of the Authority, assets exceeded liabilities for Fiscal Year 2008,2007 and 2006 by $141,754, $131,291 and $126,263, respectively.The largest portion of the Authority’s net assets, 59%, in Fiscal Year 2008, reflects its investment in capitalassets (e.g., land, reservoirs, water treatment and sewerage facilities, and buildings and equipment) less anyrelated debt used to acquire those assets that is still outstanding. Although the Authority’s investment in itscapital assets is reported net of related debt, it should be noted that the resources needed to repay this debtmust be provided from other resources, since the capital assets themselves cannot be used to liquidate theseliabilities.8

BRAZOS RIVER AUTHORITYMANAGEMENT’S DISCUSSION AND ANALYSISAUGUST 31, 2008, 2007 AND 2006 (in thousands)Condensed Statement of Net AssetsAugust 31, 2008, 2007 and 20062008 2007 2006ASSETSCurrent assets - unrestricted $ 55,853 $ 47,930 $ 42,113Current assets - restricted 21,110 30,235 25,859Capital assets, net 227,850 222,268 207,816Noncurrent assets 33,860 35,816 36,242TOTAL ASSETS 338,673 336,249 312,030LIABILITIESCurrent liabilities (payable from current assets) 13,236 13,090 9,286Current liabilities (payable from restricted assets) 14,729 15,518 11,565Noncurrent liabilities 168,954 176,350 164,916TOTAL LIABILITIES 196,919 204,958 185,767NET ASSETSInvested in capital assets, net of related debt 83,408 71,750 72,514Restricted 13,774 22,634 18,678Unrestricted 44,572 36,907 35,071TOTAL NET ASSETS $ 141,754 $ 131,291 $ 126,263For Fiscal Year 2008, about 10% ($13,774) of the Authority’s net assets represent resources that arerestricted. The remaining balance of unrestricted net assets ($44,572) may be used to meet the Authority’songoing obligations.9

BRAZOS RIVER AUTHORITYMANAGEMENT’S DISCUSSION AND ANALYSISAUGUST 31, 2008, 2007 AND 2006 (in thousands)Condensed Statement of Revenues, Expenses and Changes in Net AssetsFiscal Years Ended August 31, 2008, 2007 and 20062008 2007 2006OPERATING REVENUESWater supply system $ 36,536 $ 32,698 $ 30,052Cost reimbursable operations 18,347 17,448 17,025TOTAL OPERATING REVENUES 54,883 50,146 47,077OPERATING EXPENSESOperating and maintenance 34,738 33,404 33,045Depreciation and amortization 10,124 9,819 9,965TOTAL OPERATING EXPENSES 44,862 43,223 43,010OPERATING INCOME 10,021 6,923 4,067Total net non-operating expenses 219 3,828 11,048GAIN/(LOSS) BEFORE CONTRIBUTIONS 9,802 3,095 (6,981)Capital contributions 661 1,933 1,126CHANGE IN NET ASSETS 10,463 5,028 (5,855)NET ASSETS, BEGINNING 131,291 126,263 132,118NET ASSETS, ENDING $ 141,754 $ 131,291 $ 126,26310

BRAZOS RIVER AUTHORITYMANAGEMENT’S DISCUSSION AND ANALYSISAUGUST 31, 2008, 2007 AND 2006 (in thousands)Operating IncomeOperating income increased by $3,098, or 44% after increasing in the prior year by 70%. These increases area result of an increase in the sale of raw water, a 3.81% and 5.74% increase in the price charged to customersfor an acre foot of water sold for 2008 and 2007 respectively and a control in spending representing a lessthan 5% increase in operating expenses over the past two years.Total operating revenues consist primarily of raw water sales, cost reimbursable operations, and lakeoperations. Other operating revenues include the sale of treated water, operation of a wastewater treatmentfacility, grants and hydroelectric operations. Total operating expenses consist primarily of personnel services,materials and supplies, utilities, depreciation and amortization and outside services.$60,000$50,000$40,000$30,000$20,000Operating RevenuesOperating Expenses$10,000$-2008 2007 200611

BRAZOS RIVER AUTHORITYMANAGEMENT’S DISCUSSION AND ANALYSISAUGUST 31, 2008, 2007 AND 2006 (in thousands)Capital Assets and Outstanding DebtCapital Assets - The Authority’s capital assets, as of August 31, 2008, 2007 and 2006, amounted to $227,850,$222,268 and $207,816, respectively (net of accumulated depreciation). The increase in capital assets for2008 is primarily due to the completion of the plant expansion at the Authority’s East Williamson CountyWater Treatment Facility. The following table summarizes capital assets, net of depreciation.Capital Assets(net of accumulated depreciation) August 31, 2008, 2007 and 20062008 2007 2006Land and land rights $ 28,587 $ 28,587 $ 28,546Reservoirs, water and sewerage facilities 98,864 95,192 99,343Buildings, structures and improvements 73,438 52,175 53,331Vehicles, furniture and equipment 4,788 4,528 5,214Construction in progress 22,173 41,786 21,382TOTAL $ 227,850 $ 222,268 $ 207,816Additional information on the Authority's capital assets can be found in Note 4, of this report.$100,000$90,000$80,000$70,000$60,000$50,000$40,000$30,000$20,000$10,000$-2008 2007 2006Land and land rightsReservoirs, water andsewerage facilitiesBuildings, structuresand improvementsVehicles, furniture andequipmentConstruction in progress12

BRAZOS RIVER AUTHORITYMANAGEMENT’S DISCUSSION AND ANALYSISAUGUST 31, 2008, 2007 AND 2006 (in thousands)Outstanding Debt – At the end of Fiscal Year 2008, 2007 and 2006, the Authority had total outstanding debtof $166,944, $172,693 and $159,619, respectively. Of the 2008 amount, 62% and 38% is reflected in WaterSupply System and Cost Reimbursable Operations, respectively.$70,000$60,000$50,000$40,000$30,000$20,000$10,000Cost ReimbursableBondsWater Supply BondsU.S. GovernmentContracts$02008 2007 2006The changes in the Authority’s debt for Fiscal Year 2008, 2007 and 2006 are shown in the following table:2008 2007 2006Accretion of interest on capital appreciation bonds $ 107 $ 102 $ 96Principal payments made in current year (5,856) (5,384) (5,092)New Series 2005A and 2005B Revenue Bonds - - 23,210New Series 2006 Revenue Bonds - 17,805 -New contracts payable debt - 550 -Excess construction funds returned to TWDB - - (5,045)INCREASE (DECREASE) IN DEBT $ (5,749) $ 13,073 $ 13,169Additional information on the Authority's long-term debt can be found in Note 6, of this report.13

BRAZOS RIVER AUTHORITYMANAGEMENT’S DISCUSSION AND ANALYSISAUGUST 31, 2008, 2007 AND 2006 (in thousands)Requests for InformationThis financial report is designed to provide a general overview of the Authority’s finances and to demonstratethe Authority’s accountability for the funds it receives. Questions concerning any of the information providedin this report or requests for additional financial information should be addressed to the office of the ChiefFinancial Officer, 4600 Cobbs Drive, P.O. Box 7555, Waco, TX 76714-7555.14

Basic Financial Statements2008 Comprehensive Annual Financial Report15

BRAZOS RIVER AUTHORITYSTATEMENTS OF NET ASSETSAUGUST 31, 2008AND 2007 (in thousands)ASSETSCURRENT ASSETS:2008 2007UNRESTRICTED:Cash and cash equivalents $ 4,008 $ 3,974Investments 46,297 36,543Receivables:Accounts 3,000 3,919Accrued interest 327 250Current portion of contracts receivables 158 152Other current assets 2,063 3,092TOTAL UNRESTRICTED 55,853 47,930RESTRICTED:Cash and cash equivalents 10,281 17,244Investments 10,792 12,931Interest 37 60TOTAL RESTRICTED 21,110 30,235TOTAL CURRENT ASSETS 76,963 78,165NONCURRENT ASSETS:CAPITAL ASSETS:Land and land rights 28,587 28,587Reservoirs, water treatment and sewerage facilities 167,349 159,514Building, structures and improvements 87,918 63,468Vehicles, furniture and equipment 16,926 15,859Construction in progress 22,173 41,786TOTAL CAPITAL ASSETS 322,953 309,214Less accumulated depreciation (95,103) (86,946)NET CAPITAL ASSETS 227,850 222,268OTHER NONCURRENT ASSETS:Storage rights, net 27,463 28,783Contract receivable, net of current portion 1,038 1,196Bond related costs 2,688 3,106Other assets, net 2,671 2,731TOTAL OTHER NONCURRENT ASSETS 33,860 35,816TOTAL NONCURRENT ASSETS 261,710 258,084TOTAL ASSETS $ 338,673 $ 336,249The accompanying notes are an integral part of these statements.16

BRAZOS RIVER AUTHORITYSTATEMENTS OF NET ASSETSAUGUST 31, 2008AND 2007(in thousands)LIABILITIES2008 2007CURRENT LIABILITIES:PAYABLE FROM CURRENT ASSETS:Accounts payable $ 5,793 $ 6,204Contracts payable 1,103 1,061Accrued interest 733 764Unearned revenues 5,607 5,061TOTAL PAYABLE FROM CURRENT ASSETS 13,236 13,090PAYABLE FROM RESTRICTED ASSETS:Accrued interest 1,875 1,803Revenue bonds payable 5,375 4,795Construction contracts payable 2,018 3,122Unearned revenues 2,923 3,644Other 2,538 2,154TOTAL PAYABLE FROM RESTRICTED ASSETS 14,729 15,518TOTAL CURRENT LIABILITIES 27,965 28,608NONCURRENT LIABILITIES:Revenue bonds payable, net of current portion 124,369 129,637Discount on revenue bonds payable (1,280) (1,412)Contracts payable, net of current portion 36,097 37,199Unearned revenues 9,052 10,262Other liabilities 716 664TOTAL NONCURRENT LIABILITIES 168,954 176,350TOTAL LIABILITIES $ 196,919 $ 204,958NET ASSETS:Invested in capital assets, net of related debt $ 83,408 $ 71,750Restricted for construction and debt service 13,774 22,634Unrestricted 44,572 36,907TOTAL NET ASSETS $ 141,754 $ 131,291The accompanying notes are an integral part of these statements.17

BRAZOS RIVER AUTHORITYSTATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETSFISCAL YEARS ENDED AUGUST 31, 2008AND 2007 (in thousands)2008 2007OPERATING REVENUES:Water Supply System:Raw water sales $ 26,093 $ 23,010Treated water 1,022 1,062Wastewater treatment 2,989 2,572Lake operations 3,181 3,121Hydroelectric 631 603Grants 1,264 1,101Other 1,356 1,229Cost Reimbursable Operations:Water conveyance/supply 2,346 2,247Water treatment 8,174 7,880Wastewater treatment 7,827 7,321TOTAL OPERATING REVENUES 54,883 50,146OPERATING EXPENSES:Personnel services 15,271 14,744Materials and supplies 2,613 2,501Utilities 4,836 4,545Depreciation and amortization 10,124 9,819Outside services 4,993 4,959Other 7,025 6,655TOTAL OPERATING EXPENSES 44,862 43,223OPERATING INCOME 10,021 6,923NON-OPERATING REVENUES (EXPENSES):Investment income 2,187 2,832Interest expense (5,848) (5,928)Other income 4,125 -Other expenses (292) (765)Gain/(Loss) on sale of capital assets (391) 33TOTAL NET NON-OPERATING EXPENSES (219) (3,828)GAIN BEFORE CONTRIBUTIONS 9,802 3,095Capital contributions 661 1,933CHANGE IN NET ASSETS 10,463 5,028NET ASSETS, BEGINNING 131,291 126,263NET ASSETS, ENDING $ 141,754 $ 131,291The accompanying notes are an integral part of these statements.18

BRAZOS RIVER AUTHORITYSTATEMENTS OF CASH FLOWSFISCAL YEARS ENDED AUGUST 31, 2008AND 2007(in thousands)2008 2007CASH FLOWS FROM OPERATING ACTIVITIES:Cash received from customers $ 55,989 $ 50,804Cash received from others 22 1,255Cash paid to suppliers for goods and services (23,759) (24,876)Cash paid to employees for services (11,878) (10,945)Net cash provided by operating activities 20,374 16,238CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES:Bond proceeds - 17,805Payment of debt issuance costs - (462)Cash paid for capital assets (15,370) (20,110)Interest paid (5,734) (5,663)Principal payments on long-term debt (5,796) (5,381)Proceeds from disposal of capital assets 142 15Capital contributions 661 1,933Proceeds from litigation settlement of capital assets 4,125 -Other 153 -Net cash used in capital and related financing activities (21,819) (11,863)CASH FLOWS FROM INVESTING ACTIVITIES:Sales of investments 91,235 69,336Purchases of investments (98,893) (65,098)Interest received 2,174 1,747Net cash provided by/(used in) investing activities (5,484) 5,985NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (6,929) 10,360CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR(including $17,244 and $7,841, respectively, reported in restricted accounts) 21,218 10,858CASH AND CASH EQUIVALENTS, END OF YEAR(including $10,281 and $17,244, respectively, reported in restricted accounts) $ 14,289 $ 21,218RECONCILIATION OF OPERATING INCOME TONET CASH PROVIDED BY OPERATING ACTIVITIES:Operating income $ 10,021 $ 6,923Adjustments to reconcile operating income to net cash provided by operating activities:Depreciation 8,684 8,384Amortization 1,440 1,435Change in current assets and liabilities:Decrease in accounts receivable 919 332(Increase) decrease in other current assets 1,029 (2,645)Increase (decrease) in accounts payable (411) 2,452Decrease in unearned revenue and other liabilities (1,308) (643)Total adjustments 10,353 9,315NET CASH PROVIDED BY OPERATING ACTIVITIES $ 20,374 $ 16,238NONCASH INVESTING ACTIVITY:Net increase/(decrease) in fair value of investments $ (53) $ 7Amounts recorded for accretion on WCRRWL Series 2000 Capital Appreciation Bonds $ 107 $ 102The accompanying notes are an integral part of these statements.19

BRAZOS RIVER AUTHORITYCOMBINED STATEMENTS OF FIDUCIARY NET ASSETSAUGUST 31, 2008AND 2007(in thousands)2008 2007ASSETSCash $ 3,855$ 3,738Investments 2,917 -Receivables - 8Accrued Interest 13 -TOTAL ASSETS $ 6,785$ 3,746LIABILITIESHeld for future debt service $ 3,268$ 3,226Held for future construction cost 3,517 520TOTAL LIABILITIES $ 6,785$ 3,746The accompanying notes are an integral part of these statements.20

BRAZOS RIVER AUTHORITYNOTES TO THE BASIC FINANCIAL STATEMENTSAUGUST 31, 2008AND 2007(in thousands)1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESReporting Entity - The Brazos River Authority (the “Authority”) was created by the Texas Legislaturein 1929, pursuant to constitutional Provision Section 59, Article 16, as a governmental agency of theState of Texas. The Authority is governed by a board of 21 directors appointed by the Governor for sixyearterms, subject to approval by the Texas Senate. The Authority is not financially accountable to theState of Texas. The Authority is responsible for conservation, control, and development of the surfacewater resources of the Brazos River Basin. The Authority cooperates with cities and other local agenciesin the construction and operation of water treatment and regional sewerage systems to improve andmaintain the quality of water in the Brazos River and its tributaries. The Authority also plans anddevelops water supply projects and commits the water it can supply under contracts to cities, towns,industries, and other water users throughout the Brazos River Basin and adjacent areas.Principles of Accounting - The accompanying basic financial statements have been prepared on the fullaccrual basis of accounting as prescribed by the Governmental Accounting Standards Board (“GASB”).The Authority consists of a single enterprise fund through which all financial activities are recorded, andfour agency funds that report assets and liabilities held by the Authority in a custodial capacity forothers. Under GASB Statement 20, the Authority has elected not to apply Financial AccountingStandards Board (“FASB”) Statements and Interpretations issued after November 30, 1989.Basis of Presentation - The Authority presents its financial statements in accordance with GASB 34guidance for governments engaged in business type activities. Accordingly, the basic financialstatements of the Authority consist of Statement of Net Assets, Statement of Revenues, Expenses andChanges in Net Assets, Statement of Cash Flows, Combined Statement of Fiduciary Net Assets andNotes to the Basic Financial Statements.Enterprise Funds – Enterprise Funds are required to be used to account for operations for which a fee ischarged to external users for goods or services and the activity (a) is financed with debt that is solelysecured by a pledge of the net revenues, (b) has third-party requirements that the cost of providingservices include capital cost, be recovered with fees and charges, or (c) has a pricing policy designed forthe fees and charges to record similar cost.Agency Funds - The Authority’s Agency Funds are created to act as a custodian for the City ofRobinson, the City of Temple, the City of Keene and Jonah Water Special Utility District for thefacilitating of bond proceeds in accordance with the Texas Water Development Board Rules and InterlocalAgreements relating to financial programs. The Agency Funds only report assets and liabilities in astatement of fiduciary net assets.Revenue Recognition - Revenues are recorded when earned. Unearned revenues are reflected in theaccompanying statement of net assets as unearned revenues. Nonrefundable charges to contractingparties relating to the acquisition of capital assets or project development costs are initially recorded asnoncurrent unearned revenues and are amortized to income over periods equal to the lives of the assetspurchased from such charges on a straight-line basis. Refundable charges to contracting parties relatingto the acquisition of capital assets or project development costs are recorded as other noncurrentliabilities.21

BRAZOS RIVER AUTHORITYNOTES TO THE BASIC FINANCIAL STATEMENTSAUGUST 31, 2008AND 2007(in thousands)The Authority has constructed reservoir, water treatment and sewerage system facilities which werefinanced primarily by the issuance of revenue bonds and/or federal grants. The recipients of the servicesprovided by these facilities generally contract to pay the Authority amounts equivalent to operating andmaintenance expenses and the debt service requirements of the related revenue bonds. Revenue bonddebt service is predominantly applicable to interest in the early years, with the portion applicable toprincipal retirements increasing in later years. Depreciation expense, provided on the straight-linemethod, usually exceeds the portion of revenues applicable to the principal portion of bond retirementswhich partially results in reporting operating losses in early years which will reverse in later years.Cash and Cash Equivalents - All highly liquid investments (including restricted assets) with originalmaturities of three months or less when purchased are considered to be cash equivalents.Deposits - The Authority’s collateral agreement requires that all deposits be fully collateralized bygovernment securities or Texas municipal bonds rated A or better that have a market value exceedingthe total amount of cash and investments held at all times.Accounts Receivable - Accounts receivable are considered to be fully collectible; accordingly, noallowance for doubtful accounts is required. If amounts become uncollectible, they will be charged tooperating expenses when that determination is made.Capital Assets - All purchased capital assets are stated at historical cost. Donated assets are stated attheir estimated fair values on the date donated. Newly acquired assets with a cost of five thousanddollars or more and a useful life greater than three years will be capitalized. Repairs and maintenanceare recorded as expenses; renewals and betterments are capitalized. Depreciation is calculated on eachclass of depreciable property using the straight-line method. Estimated useful lives are as follows:Reservoir facilitiesWater and sewerage system facilitiesBuildings, structures, and improvementsVehicles, furniture, and equipment30 to 85 years25 to 50 years20 to 70 years3 to 35 yearsThe Authority capitalizes net interest costs, as applicable, as a component cost of construction inprogress. The two projects that meet the capitalization rule are the Morris Sheppard Dam project atPossum Kingdom Lake and the East Williamson County Regional Water System expansion. For theyears ended August 31, 2008 and 2007, the Authority had $1,491 and $639 in net capitalized interest,respectively for these two projects.Compensated Absences – Prior to May 1, 2002 the Authority’s employees were granted vacation andsick leave in specified amounts. Effective May 1, 2002 vacation and sick leave were superseded byPersonal Time Off (PTO). The Authority’s current policy states that upon termination an employee willbe paid for 100% of unused vacation time and 50% of their PTO balance up to a maximum of 160 hours(20 days) combined. In addition, for employees eligible to retire only, unused sick leave is paid out at arate of 50% of their balance or 144 hours (18 days) whichever is less. The total recorded liability forcompensated absences, as of August 31, 2008 and 2007, was $690 and $681 respectively.22

BRAZOS RIVER AUTHORITYNOTES TO THE BASIC FINANCIAL STATEMENTSAUGUST 31, 2008 AND 2007 (in thousands)Budgets and Budgetary Accounting - The Authority is not required under its enabling act to adopt abudget; therefore, comparative statements of actual expenses compared to budgeted expenses are notpart of the basic financial statements.Use of Estimates - The preparation of financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to make estimates andassumptions that affect the amounts reported in the basic financial statements and accompanying notes.Actual results could differ from those estimates.Operating Revenues and Expenses – Operating revenues and expenses for Proprietary Funds are thosethat result from providing services and producing and delivering goods and/or services. It also includesall revenue and expenses not related to capital and related financing, non-capital financing or investingactivities. All revenues and expenses not meeting this definition are reported as non-operating revenuesand expenses.Other Assets – The Authority capitalizes bond and loan issuance costs and amortizes such costs over theterm of the related bonds and loan using the straight-line method. At August 31, 2008 and 2007, bondand loan issuance costs, net of accumulated amortization, of approximately $1,885 and $2,006,respectively, were included in bond related cost in the accompanying statement of net assets.By agreement in 1988, the Authority amended a water contract with a utility company which providedfor the sale of 162,000 acre feet of water per year through the year 2030. The amendment reduced theutility company’s right to purchase water to 83,000 acre feet per year beginning January 1, 1989. Asconsideration for the 79,000 acre-feet reduction, the Authority (1) paid the utility company $3,823 in1988 and (2) reduced charges to the utility company by approximately $350 per year beginning January1, 1989. The Authority has sold the 79,000 acre-feet to various third parties under long-term watercontracts. The balance of $2,437 and $2,522 at August 31, 2008 and 2007, respectively, is included inother assets and will be amortized against related revenues from such contracts over the contract lives.Storage Rights – Rights in the Federal Reservoirs are purchased through long-term contracts from theFederal government. They are recorded at cost and amortized using the straight-line method. Inaccordance with Accounting Principles Board Opinion No. 17, storage rights acquired prior toNovember 1, 1970, are amortized over the contract terms while storage rights acquired after October 31,1970, are amortized over a certain period, not to exceed 40 years.Storage rights at August 31, 2008 and 2007, consist of the following:2008 2007Storage rights purchased prior to November 1, 1970 - amortizedover the initial term of contract ranging from 50 to 65 years, net ofaccumulated amortization $ 4,840 $ 5,123Storage rights purchased after October 31, 1970 - amortized over 40-years (50-year contract terms), net of accumulated amortization 22,623 23,660TOTAL $ 27,463 $ 28,78323

BRAZOS RIVER AUTHORITYNOTES TO THE BASIC FINANCIAL STATEMENTSAUGUST 31, 2008 AND 2007 (in thousands)Reclassification - Storage rights and its related debt have been reclassified from unrestricted net assetsto invested in capital assets, net of related debt. The reclassified amount totaled $4,784.2. DEPOSITS AND INVESTMENTSAs of August 31, 2008, the Authority had the following investments:Investment TypeFair ValueWeighted AverageMaturity (Years)US Treasury Notes and Bills $ 3,6750.99US Agencies:FHLB 33,372 1.47FHLMC 14,094 0.85FNMA 5,924 1.21Total Value $ 57,065Portfolio weighted average maturity 1.27Credit RiskCertificates of Deposit - The Authority's adopted Investment Policy and State law restrict certificates ofdeposit to those which are fully collateralized or insured by the FDIC or its successor. The certificates ofdeposit must be from banks doing business within the State of Texas and must have a written depositoryagreement executed under the terms of FIRREA, i.e. approved by the bank board or loan committee. ByPolicy, the certificates of deposit must be collateralized to 102% of principal and interest byobligations of the US Government, its agencies and instrumentalities including mortgage backedsecurities which pass the bank test or obligations of municipal entities of any state rated as to investmentquality by a nationally recognized rating agency as "A" or its equivalent. The bank party is heldcontractually liable for maintaining the margin daily. All pledged collateral is held by an independentcustodian in the Authority's name. All certificates of deposit are restricted to a maximum of twelve (12)months to its stated maturity.Repurchase Agreements - State law and the Authority's adopted Policy require repurchase agreementsdefined as a buy-and-sell transaction. The transactions must have a defined termination date and beplaced through a primary government securities dealer, as defined by the Federal Reserve, or a bank doingbusiness in Texas. They must be secured by obligations of the US Government, its agencies orinstrumentalities, to include mortgage backed securities. Collateral is held with a third party selected orapproved by the Authority and held in the Authority's name. The custodian or counter-party is heldcontractually liable for maintaining a margin of 102% of principal and interest. Repurchase agreements24

BRAZOS RIVER AUTHORITYNOTES TO THE BASIC FINANCIAL STATEMENTSAUGUST 31, 2008 AND 2007 (in thousands)includes reverse repurchase agreements in which the reinvestment security shall not mature later than thereverse. All Authority repurchase agreement transactions are governed by an executed Master RepurchaseAgreement. The maximum stated maturity is 90 days except for flex repurchase agreements used only forbond funds which are matched to the expenditure plan of the bonds. A flex requires additional approval bythe General Manager/CEO and the Chief Financial Officer on an issue-by-issue basis.Money Market Mutual Funds - The Authority's adopted Policy does not require that SEC registeredmoney market mutual funds be rated as to investment quality. However, the Policy restricts Authorityparticipation in these funds to 10% of the fund assets and restricts use of funds for any bond proceeds,debt service, or reserves.The Authority's adopted Policy does not require that SEC registered mutual funds be rated as toinvestment quality. However, the Authority's Policy restricts Authority participation in these funds to5% of Authority assets. State law prohibits investment in mutual funds for any bond proceeds or debtservice funds. Participation in such funds is dependent upon specific Board review and approval.Local Government Investment Pools - The local government investment pools in Texas are required bystate statute to be rated no lower than AAA or AAA-m or an equivalent rating by at least one nationallyrecognized rating service. Pools must comply with the restrictions of state statute (Local GovernmentCode 2256.016).Portfolio disclosure as of August 31, 2008:- the portfolio contained no certificates of deposits,- investment in the State Comptroller's local government investment pool (Texpool) represented 9.7%of the total portfolio rated AAAM,- fully collateralized demand deposits represented 13.6 % of the total portfolio, and- the remainder of the portfolio ( 76.7 %) was in US Government securities rated AAA.Concentration of Credit RiskThe Authority's adopted Investment Policy requires diversification on all investments and diversificationis monitored on at least a monthly basis. Diversification by investment type is established by Policy withthe following maximum percentages of investment type to the total Authority investment portfolio:Maximum %a. U.S. Treasury Bills/Notes/Bonds…………………………………90%b. U. S. Agencies & Instrumentalities………………………………80%c. States, Agencies, Counties, Cities, & Other………………………20%d. Certificates of Deposit……………………………………………20%e. Money Market Mutual Funds………………………….…………75%f. Repurchase Agreements……………………………….…………50% (excluding bond proceeds)g. Authorized Local government Investments………………………75%Portfolio disclosure as of August 31, 2008:- all portfolio sectors were under the maximum percentages allowed by the Policy.25

BRAZOS RIVER AUTHORITYNOTES TO THE BASIC FINANCIAL STATEMENTSAUGUST 31, 2008 AND 2007 (in thousands)Interest Rate RiskIn order to limit interest and market rate risk from changes in interest rates, the Authority's adoptedInvestment Policy sets a maximum maturity on any investment of three (3) years in operating funds,repair and replacement funds and five (5) years in reserve funds. Bond proceeds are to be matched tothe planned expenditures of the funds. The Policy restricts the dollar weighted average maturity ofoperating funds to less than 365 days. The maximum dollar weighted average maturity for repair andreplacement bond reserve funds are restricted to two years. Operating reserve funds maximum weightedaverage maturity is restricted to three years.Portfolio disclosure as of August 31, 2008:- holdings maturing beyond two years totaled $8,033 or 21.52 % of the Operating Reserve Fundrepresented 10.28 % of the total portfolio- one mortgage backed security holdings had stated maturities of three years and an estimated life ofone year and represented 0.11 % of the Operating Reserves and 0.05 % of the total portfolio- the dollar weighted average maturity of the total portfolio was 351 daysAs of August 31, 2008, the portfolio contained fourteen structured securities and one mortgage backedsecurity as follows:SecurityNote Par Coupon Purchase DateMaturityDate Call Date Structure CusipFairValueStructured Securities Past the Call Date:FHLB $4,000 2.750% 05/07/08 05/07/09 08/07/08 one time call 3133XR2H2 $3,996FHLMC 915 3.000% 07/16/08 07/16/09 10/16/08 one time call 3128X7Q56 913FHLMC 3,000 3.000% 06/16/08 09/16/09 09/16/08 one time call 3128X7ZM9 2,995FHLB 5,000 3.400% 03/12/08 03/12/10 09/12/08 one time call 3133XQ3N0 5,002Discretely Callable Securities:FHLMC 2,000 2.500% 04/21/08 05/15/09 01/21/09 quarterly call 3128X7LD4 1,991FHLB 2,000 2.750% 06/24/08 06/24/09 12/24/08 one time call 3133XRH78 1,996FHLB 1,625 3.050% 08/28/08 08/28/09 11/28/08 quarterly call 3133XS2L1 1,618FHLB 4,550 3.050% 06/23/08 12/23/09 12/23/08 one time call 3133XRGA2 4,547FHLB 2,450 3.000% 05/05/08 02/05/10 02/05/09 one time call 3133XQZ54 2,447FHLB 5,000 3.150% 02/19/08 02/19/10 11/19/08 quarterly call 3133XPKT0 4,995FHLMC 3,000 3.050% 04/28/08 04/28/10 10/28/08 quarterly call 3128X7HZ0 3,002FHLB 5,000 3.000% 03/25/08 03/25/11 12/25/08 quarterly call 3133XQF72 4,988FHLB 3,000 3.000% 05/27/08 05/27/10 11/27/08 quarterly call 3136F9QK2 2,998FHLB 3,000 3.500% 02/14/08 02/14/11 11/14/08 quarterly call 3133XPHZ0 3,003Mortgage Backed Securities:FNMA 40 7.00% 9/1/2005 06/01/11 NA 31371FKA9 42$44,580 $44,53326

BRAZOS RIVER AUTHORITYNOTES TO THE BASIC FINANCIAL STATEMENTSAUGUST 31, 2008 AND 2007 (in thousands)Custodial Credit RiskTo control custody risk State law and the Authority's adopted Investment Policy require all Authorityowned securities and all collateral pledged for time and demand deposits as well as repurchase agreementcollateral be transferred delivery versus payment and held by an independent party approved by theAuthority in the Authority's name. The custodian is required to provide original safekeeping receipts.Repurchase agreements and deposits must be collateralized to 102% by Policy and contract.Portfolio disclosure as of August 31, 2008:- the portfolio contained no certificates of deposit- the portfolio contained no repurchase agreements- all bank demand deposits were fully insured and collateralized. All pledged bank collateral for demanddeposits was held by an independent institution outside the bank’s holding company.3. RESTRICTED ASSETSCertain proceeds of revenue bonds, as well as certain resources set aside for their repayment, areclassified as restricted assets because their use is limited by applicable bond covenants.Net assets have been restricted for the excess of restricted assets over related liabilities to the extent suchrestricted assets were accumulated from revenues (i.e., in some cases, restricted assets were obtained intotal or in part from the proceeds of bond sales or grants).Restricted assets represent:- Bond Proceeds funds - Construction of facilities, restricted by purpose of the debt issuance.- Debt Service funds - Current interest and principal of bonded indebtedness.- Bond Reserve funds - Payment of final serial maturity on bonded indebtedness or payment of interestand principal of bonded indebtedness when and to the extent the amount in the debt service funds isinsufficient.- Repair And Replacement funds – unexpected or extraordinary expenditures for which funds are nototherwise available or for debt service to the extent of debt service funds deficiencies as required bybond covenants.- Other funds – Future health benefit payments.27

BRAZOS RIVER AUTHORITYNOTES TO THE BASIC FINANCIAL STATEMENTSAUGUST 31, 2008 AND 2007 (in thousands)The cash and cash equivalents, investments, and accrued interest components of each fund represented byrestricted assets at August 31, 2008 and 2007 were as follows:2008 2007Lines of BusinessCash and CashEquivalentsAccruedInterestCash and CashEquivalentsInvestmentsInvestmentsAccruedInterestWater Supply System:Bond proceeds funds $ 2,950 $ 3,981 $ 13 $ 4,428 $ 11,747 $ 31Debt service funds 3 280 - 637 - -Bond reserve funds - - - 294 - -Repair and replacement funds 37 449 1 1 475 21Other funds 1,188 2,419 6 2,230 - -Water Supply System Total 4,178 7,129 20 7,590 12,222 52Cost Reimbursable Operations:Bond proceeds funds 1,449 - - 1,264 - -Debt service funds 4,252 439 - 4,886 - -Bond reserve funds 275 2,549 15 3,392 - -Repair and replacement funds 127 675 2 112 709 8Cost Reimbursable Operations Total 6,103 3,663 17 9,654 709 8TOTAL $ 10,281 $ 10,792 $ 37 $ 17,244 $ 12,931 $ 6028

BRAZOS RIVER AUTHORITYNOTES TO THE BASIC FINANCIAL STATEMENTSAUGUST 31, 2008 AND 2007 (in thousands)4. CAPITAL ASSETSA summary of changes in capital assets follows:Balance at Additions Deletions Balance atAugust 31, and and August 31,2007 Transfers Transfers 2008Capital assets, not being depreciated:Land and land rights $ 28,587 $ - $ - $ 28,587Construction in progress 41,786 13,943 (33,556) 22,173Total capital assets, not being depreciated 70,373 13,943 (33,556) 50,760Capital assets, being depreciated:Reservoirs, water treatment and sewerage facilities 159,514 7,835 - 167,349Buildings, structures and improvements 63,468 24,819 (369) 87,918Vehicles 2,830 262 (182) 2,910Furniture 779 - ( 9) 770Computers 3,279 1,124 (21) 4,382Tools and heavy equipment 8,971 391 (498) 8,864Total capital assets, being depreciated 238,841 34,431 (1,079) 272,193TOTAL $ 309,214 $ 48,374 $ (34,635) $ 322,953Less accumulated depreciation for:Reservoirs, water treatment and sewerage facilities $ 64,322 $ 4,163 $ - $ 68,485Buildings, structures and improvements 11,293 3,247 (60) 14,480Vehicles 2,060 328 (168) 2,220Furniture 659 32 ( 9) 682Computers 3,035 300 (21) 3,314Tools and heavy equipment 5,577 622 (277) 5,922Total accumulated depreciation $ 86,946 $ 8,692 $ (535) $ 95,103TOTAL CAPITAL ASSETS, NET $ 222,268 $ 39,682 $ (34,100) $ 227,85029

BRAZOS RIVER AUTHORITYNOTES TO THE BASIC FINANCIAL STATEMENTSAUGUST 31, 2008 AND 2007 (in thousands)5. UNEARNED REVENUESNonrefundable charges to contracting parties relating to the acquisition of capital assets or projectdevelopment costs are initially recorded as noncurrent unearned revenues and are amortized to incomeover periods equal to the lives of the assets purchased from such charges on a straight-line basis.Charges that do not yet meet the criteria for revenue recognition are recorded as current unearnedrevenues until they are available to liquidate liabilities of the current period. Unearned revenues atAugust 31, 2008 and 2007, were as follows:20082007Current Noncurrent Current NoncurrentUnrestrictedUnearnedRevenuesUnearnedRevenuesUnearnedRevenuesUnearnedRevenuesWater Supply System:Lake Granbury $ 361 $ - $ 377 $ -Lake Limestone 306 7,681 181 8,641Possum Kingdom Lake 472 - 573 -East Williamson Co RWS 84 - 84 -Federal Reservoirs 2,544 - 1,792 -Other Water Supply System 21 36 4 36Total Water Supply 3,788 7,717 3,011 8,677Cost Reimbursable Operations:Williamson County RRWL 261 767 400 812Lake Granbury SWATS 998 526 529 710Temple-Belton RSS 48 42 49 63Sandy Creek WTS 147 - 119 -Clute/Richwood WWS 307 - 329 -Hutto WWS - - 33 -Brushy Creek RWS - - 517 -Lee County FWD 58 - 74 -Total Cost Reimbursable Operations 1,819 1,335 2,050 1,585Total Unrestricted $ 5,607 $ 9,052 $ 5,061 $ 10,262RestrictedCost Reimbursable Operations:Williamson County RRWL $ 1,225 $ - $ 1,708 $ -Temple-Belton RSS 448 - 465 -Lake Granbury SWATS 1,250 - 1,471 -Total Restricted $ 2,923 $ - $ 3,644 $ -30

BRAZOS RIVER AUTHORITYNOTES TO THE BASIC FINANCIAL STATEMENTSAUGUST 31, 2008 AND 2007 (in thousands)6. LONG-TERM DEBTRevenue Bonds PayableRevenue bonds payable consists of the following at August 31, 2008:Water Supply System :Balanc e atAugust 31,2007 Additi ons Ret iredBalanc e atAugust 31,2008A mount sD ue WithinO ne Ye arSer ies 1972 Ref unding Seria l Bonds $ 4,505 $ - $ 805 $ 3,700 $ 845Ser ies 2001A Ser ial and T erm Bonds 6,650 - 450 6,200 470Ser ies 2001B Ser ial Bonds 670 - 75 595 80Ser ies 2002 Stat e Partic ipa tion Loan 6,000 - - 6,000 -Ser ies 2002 ( AMT) Ter m Bonds 8,275 - 370 7,905 380Ser ies 2005A ( AMT ) Reve nue Bonds 12,875 - - 12,875 405Ser ies 2005B (A MT) Re venue Bonds 10,335 - - 10,335 -Ser ies 2006 Revenue Bonds 17,805 - - 17,805 -Cost Reim bursable Operations:67,115 - 1,700 65,415 2,180Ser ies 1997 Ser ial and T erm Bonds 12,170 - 1,065 11,105 1,125Ser ies 1999 Stat e Partic ipa tion Loan 14,955 - - 14,955 -Ser ies 2000 Ser ial and Capital 15,917 107 660 15,364 645Ser ies 2001 Ser ial and T erm Bonds 9,160 - 390 8,770 405Ser ies 2002 Revenue Bonds 12,900 - 455 12,445 475Ser ies 2004 Revenue Bonds 2,215 - 525 1,690 54567,317 107 3,095 64,329 3,195Total Re venue Bonds P ay able $ 134,432 $ 107 $ 4,795 $ 129,744 $ 5,37531

BRAZOS RIVER AUTHORITYNOTES TO THE BASIC FINANCIAL STATEMENTSAUGUST 31, 2008 AND 2007 (in thousands)Revenue bonds payable at August 31, 2008, are further detailed as follows:Water Supply System:- Series 1972 ($16,885) Brazos River Authority Water Supply Refunding- serial bonds to financeDeCordova Bend Dam and Lake Granbury; due in annual installments of $555 to $1,015 through2011; interest at 5.5%- Series 2001A ($8,925) Brazos River Authority – serial and term bonds for repairs to MorrisSheppard Dam and Possum Kingdom facility and refunding the Series 1991 Water SupplyRevenue Bonds; due in annual installments of $340 to $1,700 through 2021; interest at 4.35% to5.65%- Series 2001B ($1,060) Brazos River Authority – serial bonds to refund Lake Whitney Corps ofEngineers contract; due in annual installments of $60 to $100 through 2015; interest at 3.3% to5.125%- Series 2002 ($6,000) Brazos River Authority State Participation Loan (Allens Creek Project) – forpurchase of land for Allens Creek Reservoir site; due in installments of $260 to $580 (2022-2036)interest at 5.776% to 5.876%- Series 2002 ($9,635) Brazos River Authority – term bonds for repairs and renovations atDeCordova Bend Dam on Lake Granbury due in annual installments of $325 to $715 through2023; interest at 3% to 4.85%.- Series 2005A ($12,875) Brazos River Authority – revenue bonds for repairs and renovations atMorris Sheppard Dam on Possum Kingdom Lake due in annual installments of $405 to $980through 2028; interest at 4.25% to 4.7%.- Series 2005B ($10,335) Brazos River Authority – revenue bonds for acquisition and expansion ofthe East Williamson County Regional Water System due in annual installments of $330 to $775through 2029; interest at 4% to 4.8%.- Series 2006 ($17,805) Brazos River Authority – revenue bonds for the expansion of the EastWilliamson County Regional Water System due in annual installments of $535 to $1,275 through2035; interest at 4% to 4.5%.Cost Reimbursable Operations:- Series 1997 ($19,935) Brazos River Authority – serial and term bonds to refund the Lake GranburySurface Water and Treatment System Series 1987 serial bonds; due in annual installments of $730to $1,335 through 2011; term bonds due from 2012 through 2016 in amounts of $1,415 to $1,690;interest at 5.2% to 6.05%32

BRAZOS RIVER AUTHORITYNOTES TO THE BASIC FINANCIAL STATEMENTSAUGUST 31, 2008 AND 2007 (in thousands)Cost Reimbursable Operation: (continued)- Series 1999 ($14,955) Brazos River Authority Texas Water Development Board State ParticipationLoan for Williamson County Regional Raw Water Line – due in annual installments of $860 to$1,630 (2021-2033) – Interest at 4.35% to 5.50%- Series 2000 ($17,262) Brazos River Authority – serial and capital appreciation bonds forWilliamson County Regional Raw Water Line; due in annual installments of $265 to $1,015through 2030; interest at 4.35% to 5.80%- Series 2001 ($10,530) Brazos River Authority – serial and term bonds for expansion of LakeGranbury Surface Water and Treatment System; due in annual installments of $320 to $2,345through 2022; interest at 4.375% to 5.55%- Series 2002 ($13,750) Brazos River Authority and Johnson County Rural WSC Contract RevenueBonds - to replace Series 2001 Brazos River Authority taxable serial bonds for Lake GranburySurface Water and Treatment System; due in annual payments of $425 to $1,090 (2006-2025);interest at 3.875% to 5.5%- Series 2004 ($3,705) Brazos River Authority and Temple-Belton Regional Sewerage SystemRevenue Refunding Bonds – to replace Series 1989 and 1989A Brazos River Authority serial bondsto construct the Temple-Belton Regional Sewerage System improvements; due in annual paymentsof $490 to $590 through 2011; interest at 2.0% to 3.75%Interest and redemption (sinking funds), reserve funds, and contingency funds have been established, asrequired, in accordance with bond resolutions. Funds may be placed in secured time deposits orinvested in direct obligations of, or obligations guaranteed by, the U.S. government. Interest earned isretained in the applicable funds or transferred to meet debt service requirements in accordance with bondresolutions.The Water Supply System bond covenants require that the Authority will fix, establish, maintain andcollect such rates, charges and fees for the use and availability of the System at all times as are necessaryto produce Net Revenues for each year, which are at least 1.10 times the maximum annual debt servicerequirements of all then outstanding bonds and additional parity obligations. For the years ended August31, 2008 and 2007, the Authority’s coverage rates were 3.56 and 2.94, respectively. The Authority wasin compliance with this and all other bond covenants and restrictions.The Authority has adopted the provisions of Governmental Accounting Standards Board StatementNo. 23, “Accounting and Financial Reporting for Refunding of Debt Reported by ProprietaryActivities.” The Statement requires that the difference between the reacquisition price and the netcarrying amount of the refunded old debt be deferred and amortized as a component of interest expensein a systematic and rational manner over the shorter of the life of the old debt or the life of the new debt.For the years ended August 31, 2008 and 2007 the cumulative unamortized deferred amount of $257 and$296 respectively are included as an element of discount on revenue bonds payable. The deferredamount resulted from refunding of debts in 1997, 2001, and 2004.33

BRAZOS RIVER AUTHORITYNOTES TO THE BASIC FINANCIAL STATEMENTSAUGUST 31, 2008 AND 2007 (in thousands)Annual requirements to retire revenue bonds outstanding, including interest, are:Water Supply SystemCost Reimbursable OperationsPrincipal Interest Principal Interest2009 $ 2,180 $ 2,927 $ 3,195 $ 3,0932010 2,620 2,863 3,335 3,0712011 2,740 2,790 3,550 3,2972012 2,725 2,712 3,240 3,0482013 1,785 2,605 3,032 2,8832014-2018 12,180 12,707 13,093 13,0782019-2023 15,055 9,184 13,758 8,9442024-2028 13,705 4,852 11,790 4,5362029-2033 8,290 2,081 9,336 1,3062034-2036 4,135 310 - -$ 65,415 $ 43,031 $ 64,329 $ 43,256Details of restricted net assets (Invested in capital assets, net of related debt)2008 2007Net capital assets $ 227,850 $ 222,268Revenue bonds payable - current & noncurrent (129,744) (134,432)Storage rights net & Contract Receivable net 28,501 29,979Bond related costs 2,688 3,106Construction contracts payable (2,018) (3,122)Noncurrent unearned revenues (9,052) (10,262)Discount on revenue bonds payable 1,280 1,412Contracts payable, net of current portion (36,097) (37,199)$ 83,408 $ 71,75034

BRAZOS RIVER AUTHORITYNOTES TO THE BASIC FINANCIAL STATEMENTSAUGUST 31, 2008 AND 2007 (in thousands)Contracts Payable consists of the following at August 31, 2008:Balance atAugust 31,2007Retired/(Additions)Balance atAugust 31,2008Amts DueWithin OneYear$5,124 to acquire water conservation storage space in the BeltonReservoir; due in annual installments of principal and interest of$170 through 2006 and $126 from 2007 through 2024; interest at2.5% to 2.544% $ 1,728 $ 83 $ 1,645 $ 85$1,314 to acquire water conservation storage space in the ProctorReservoir; due in annual installments of principal and interest of$43 through 2015 and $35 from 2016 through 2024; interest at2.699% 531 28 503 29$7,127 to acquire water conservation storage space in theStillhouse Hollow Reservoir; due in annual installments ofprincipal and interest of $284 through 2018; interest at 2.72% 2,663 211 2,452 217$7,383 to acquire water conservation storage space in theSomerville Reservoir; due in annual installments of principal andinterest of $266 through 2023 and $253 from 2024 through 2027;interest at 2.742% 4,018 156 3,862 160$5,532 to acquire water conservation storage space in the WacoReservoir; due in annual installments of principal and interest of$188 through 2015; interest at 2.5% 1,350 155 1,195 158$15,178 to acquire water conservation storage space in theGranger Reservoir; due in annual installments of principal andinterest of $599 through 2041 and $598 in 2042; interest at3.256% 12,410 195 12,215 202$7,130 to acquire water conservation storage space in theGeorgetown (formerly Northfork) Reservoir; due in annualinstallments of principal and interest ranging from $285 through2032 to $135 in 2042; the interest at 3.253% 5,586 103 5,483 106$11,194 to acquire water conservation storage space in AquillaReservoir; due in annual installments of principal and interest of$593 through 2032 and $531 from 2033 through 2042; interest onthe remaining principal portion is compounded annually at 5.116% 9,435 110 9,325 116$550 to acquire water rights from Brazos Electric PowerCooperative, Inc., due in annual installments of principal only of$10 to $45 through 2020. 540 20 520 30TOTAL $ 38,261 $ 1,061 $ 37,200 $ 1,10335

BRAZOS RIVER AUTHORITYNOTES TO THE BASIC FINANCIAL STATEMENTSAUGUST 31, 2008 AND 2007 (in thousands)Annual requirements to retire contracts payable outstanding, including interest, are:Contracts PayablePrincipal Interest Total2009 $ 1,103 $ 1,311 $ 2,4142010 1,146 1,278 2,4242011 1,185 1,244 2,4292012 1,221 1,209 2,4302013 1,257 1,172 2,4292014-2018 6,277 5,283 11,5602019-2023 5,251 4,363 9,6142024-2028 5,120 3,439 8,5592029-2033 4,800 2,523 7,3232034-2038 5,177 1,553 6,7302039-2042 4,663 474 5,137$ 37,200 $ 23,849 $ 61,0497. RETIREMENT PLANSRetirement Plan for Employees of Brazos River Authority (Plan)GeneralThe Plan was established in 1959 by the Brazos River Authority (Authority), a governmental agency ofthe state of Texas, and was amended and restated effective September 1, 1997. Prior to the revision, thePlan was an exclusive defined benefit structure. Effective September 1, 1997, the Plan was changed to acombination defined benefit and defined contribution structure (Internal Revenue Code Section 457eligible deferred compensation plan) for all eligible employees who first become participants (or whoreenter plan participation) on or after September 1, 1997. Employees who were active plan participantson August 31, 1997 made a one-time irrevocable election to choose to either remain under the benefitprovisions of the prior plan as it existed August 31, 1997 or to have benefits determined under the newbenefit provisions effective September 1, 1997. On July 16, 2007 the Board of Directors of theAuthority approved a resolution to freeze the Plan as of September 30, 2007. The resolution amendedthe Plan by closing the Plan to new entrants, freezing benefit accrual service, limiting compensation andservice contributions to the defined contribution component of the Plan. The Plan is administered by aretirement committee appointed by the Authority’s Board of Directors and has a fiscal year-end of thelast day in February.Copies of the Plan’s audited annual financial report may be obtained from the Authority’s office: P.O.Box 7555, Waco, TX 76714-7555.36

BRAZOS RIVER AUTHORITYNOTES TO THE BASIC FINANCIAL STATEMENTSAUGUST 31, 2008 AND 2007 (in thousands)As of February 29, 2008, and February 28, 2007, total participation in the defined contributioncomponent of the Plan was 210 and 185. Participation in the defined benefit component of the Plan, asof the beginning of the year evaluation date, March 1, 2007, and March 1, 2006, is composed of thefollowing:Group 2007 2006Retirees and beneficiaries currently receiving benefits 88 83Terminated plan members entitled to but not yet receiving benefits 72 64Transferred Canal Division employees* 8 9Active plan members 203 210TOTAL 371 366*These participants were transferred to the Galveston County Water Authority on July 21, 1988. Theywill continue to accrue vesting as long as they remain employed by the Galveston County WaterAuthority.Payment of BenefitsDefined Benefit ComponentThe Plan provides pension and death benefits. The Plan’s normal retirement age is 65. A participantmay retire after reaching both the age of 55 and completing fifteen years of service or after attainingboth age 62 and completing ten years of service. Benefits vest after fifteen years of service or after boththe attainment of age 45 and the completion of five years of service.Pension benefits are based on the participant’s final average monthly compensation and credited service.Final average monthly compensation is defined as the participant’s average monthly rate of basiccompensation during whichever five successive calendar years out of the last ten calendar yearsimmediately preceding the participant’s termination date provides the highest average monthly rate ofcompensation for the participant. Provided, however, compensation for calendar years beginning on orafter January 1, 2008 shall not be included in the determination of average monthly compensation.Defined Contribution ComponentWhenever a participant or beneficiary is to receive a distribution of a payment account balance, the formof such distribution shall be in accordance with one of the following options selected by the recipient:(a)(b)(c)A single, lump-sum payment in cashSubstantially equal periodic annual, monthly, or quarterly cash installmentsIrregular, non-periodic distributions paid once a year37

BRAZOS RIVER AUTHORITYNOTES TO THE BASIC FINANCIAL STATEMENTSAUGUST 31, 2008 AND 2007 (in thousands)Death and Disability BenefitsDefined Benefit ComponentAt normal retirement date, a disabled participant will receive the monthly income to which he or shewould have been entitled if he or she had continued in employment with the Authority at his or her lastregular rate of compensation until his or her normal retirement date; however, income payable at thenormal retirement date cannot exceed the amount that he or she was receiving under disability retirementimmediately preceding the normal retirement date.Upon the death of a participant while employed or disabled prior to normal retirement, the participant’sbeneficiary normally receives monthly benefits payable for ten years certain and life thereafter. Suchbenefits are based on final average monthly compensation and credited service. If the participant diesafter normal retirement but prior to actual retirement, the beneficiary normally receives monthly benefitspayable for ten years certain and life thereafter. Such benefits equal the benefits the participant wouldhave been entitled to receive if he or she had retired on his or her date of death.Defined Contribution ComponentIn the event of disability or death, the participant or beneficiary shall also be entitled to receive adistribution of the participant’s account.ContributionsDefined Benefit ComponentThe Authority’s employees were not required or allowed to contribute to the defined benefit componentof the Plan. The Authority intends, but does not guarantee, to make annual contributions in amounts atleast equal to the amounts that would be required to meet the minimum funding requirements of Section412 of the Internal Revenue Code (Code).Defined Contribution ComponentPrior to the resolution to freeze entry into the plan, each plan year, all participants, other than prior planelectingparticipants, were required to contribute an amount each pay period equal to 3.0% of theircompensation earned during such pay period. Participant contributions to the Plan for the Plan yearended February 29, 2008 and February 28, 2007, totaled $138 and $211 respectively.Prior to the resolution to freeze entry into the plan, each plan year, the employer contributed a totalamount which equals 3.0% of each participant’s compensation earned during the plan year, lessapplicable forfeitures from non-vested employer contribution accounts. Employer contributions for thePlan year ended February 29, 2008 and February 28, 2007, totaled $162 and $268 respectively.In addition to the above employer contribution, the employer contributed, prior to the amendment tofreeze the Plan, a total amount of matching employer contributions which equaled 50% of the amount ofcompensation amounts deferred by active participants to the eligible deferred compensation plan (457Plan) sponsored by the employer pursuant to Code Section 457(b), less applicable forfeitures from nonvestedmatching employer contribution accounts. The matching employer contribution amountcontributed on behalf of a particular active participant was based on actual deferrals made to the 457Plan38

BRAZOS RIVER AUTHORITYNOTES TO THE BASIC FINANCIAL STATEMENTSAUGUST 31, 2008 AND 2007 (in thousands)but not to exceed 3% of compensation earned during the Plan year. Employee contributions for the Planyear ended February 29, 2008 and February 28, 2007 totaled $237 and $364, respectively. Employermatching contributions for the Plan year ended February 29, 2008 and February 28, 2007 totaled $52and $114, respectively. Prior plan participant contributions for the Plan year ended February 29, 2008and February 28, 2007 totaled $71 and $133, respectively.Funding RequirementsThe following table presents funding progress of the defined benefit portion of the Plan based onactuarial data.A ctuarialValuationV alue o fA ssetsAccru edL iability(A A L )U n derfu ndedA A L (U A A L )Fu nd edRatioC overedPayrollU A A L as %of C overedP ayr ollD ate (a) ( b) ( b) - (a) (a)/(b) (c) (b- a)/(c)M arch 1 , 2 003 2 2,9 90 2 8, 957 5 ,9 67 79 % 9, 147 6 5%M arch 1 , 2 004 2 3,1 11 3 0, 016 6 ,9 05 77 % 1 0, 128 6 8%M arch 1 , 2 005 2 2,6 61 3 0, 469 7 ,8 08 74 % 1 0, 009 7 8%M arch 1 , 2 006 2 2,6 21 3 1, 170 8 ,5 49 73 % 1 0, 074 8 5%M arch 1 , 2 007 * 2 3,9 30 2 1, 881 (2 ,0 49) 109 % 9, 942 -2 1%M arch 1 , 2 008 2 2,9 75 2 3, 115 1 40 99 % 9, 357 1 %*On July 16, 2007 the Board of Directors of the Brazos River Authority approved adoption of threeresolutions to accomplish a retirement system transition. The first resolution amended the Plan byclosing the Plan to new entrants, freezing benefit accrual service, limiting compensation and servicecontributions to the defined contribution component of the Plan. The second resolution authorizedentrance into the Texas County and District Retirement System effective on October 1, 2007. The finalresolution authorized the transfer of administration for future employer contributions from Wells FargoBank, NA to International City Manager’s Association Retirement Corporation (ICMA RC) for theDeferred Compensation PlanThe actuarial assumptions used for the current fiscal year are as follows:Investment rate of return** 7.50%Projected salary increaseN/ACost-of-living adjustmentsNone**Includes inflation at 3.50%Additionally, the aggregate actuarial cost method was used which does not separately identify orseparately amortize unfunded liabilities. The method used to determine the actuarial valuation of assetsis the five-year smoothed market. During the year ended February 29, 2008, the Authority contributed$-0- to the Plan, which was the Annual Required Contribution. Pension cost for the years endedFebruary 28, 2007 and February 28, 2006 was $871 and $780, respectively. These amounts represent100% of pension cost contributed.39

BRAZOS RIVER AUTHORITYNOTES TO THE BASIC FINANCIAL STATEMENTSAUGUST 31, 2008 AND 2007 (in thousands)Texas County and District Retirement SystemPlan DescriptionThe Authority provides retirement, disability, and death benefits for all of its employees through anontraditional defined benefit pension plan in the statewide Texas County and District RetirementSystem (TCDRS). The Board of Trustees of TCDRS is responsible for the administration of thestatewide agent multiple-employer public employee retirement system consisting of 580 nontraditionaldefined benefit pension plans. TCDRS, in the aggregate, issues a comprehensive CAFR on a calendaryear basis. The CAFR is available upon written request from the TCDRS Board of Trustees at P.O. Box2034, Austin, Texas 78768-2034.The plan provisions are adopted by the Board of Directors, within the options available in the Texasstate statutes governing TCDRS (TCDRS Act). Members can retire at ages 60 and above with 8 ormore years of service, with 30 years of service regardless of age, or when the sum of their age and yearsof service equals 80 or more. Members are vested after 8 years of service but must leave theiraccumulated contributions in the plan to receive any employer financed benefit. Members whowithdraw their personal contribution in a lump sum are not entitled to any amounts contributed by theAuthority.Funding PolicyThe Authority has elected the annually determined contribution rate plan provisions of the TCDRS Act.The plan is funded by monthly contributions from both employee members and the employer based onthe covered payroll of employee members. Under the TCDRS Act, the annual employer contributionrate for calendar years 2007 and 2008 was 8.09%. The required contribution rate payable by theemployee members is the rate of 6.0% as adopted by the Board of Directors. the employee and employercontribution rates may be changed by the Authority’s Board of Directors within the options available inthe TCDRS Act.Annual Pension CostFor the year ended August 31, 2008, the first year with TCDRS, the actual contributions made by theemployees were $710 and those made by the Authority were $957.The annual required contributions were actuarially determined as a percent of the covered payroll of theemployees and were in compliance with GASB Statement No. 27 parameters based on the actuarialvaluation as of October 1, 2007.40

BRAZOS RIVER AUTHORITYNOTES TO THE BASIC FINANCIAL STATEMENTSAUGUST 31, 2008 AND 2007 (in thousands)Actuarial Valuation Information2007 2008Actuarial valuation date October 1, 2007 October 1, 2007Actuarial cost method Entry age Entry ageAmortization method Level percentage of payroll, open Level percentage of payroll, openAmortization period of years 15 15Long-term appreciation withadjustmentSAF**: 10-yr smoothed valueESF***: Fund valueAsset Valuation methodActuarial assumptions:Investment return 8.0% 8.0%Projected salary increases* 5.3% 5.3%Inflation 3.5% 3.5%*Includes inflation at the stated rate**Subdivision Accumulated Fund***Employee Savings Fund8. FINANCING ARRANGEMENTSThe Authority has entered into agreements with cities (contracting parties) to issue tax-exempt debt forthe benefit of the contracting parties. The Authority issues the debt in amounts sufficient to provide forconstruction of sewage treatment and water supply systems. The contracting parties then makepayments to the Authority in amounts sufficient to service the debt.The Authority has no liabilities for repayment of the bonds. The contracting parties pledge revenuesfrom the project as security for the bondholders. Upon redemption of the bonds and completion of theprojects, title and interest in the projects transfer to the contracting parties. Accordingly, the constructedassets and the related debt are not reflected in the basic financial statements of the Authority. However,bond proceeds, monies received from the contracting parties, and the related disbursements are includedin the Authority’s agency funds.The following is a schedule of the debt issued and outstanding for the contracting parties:Contracting Date Original Date of Interest Balance atParty of Issue Amount Maturity Rate August 31, 2008City of Robinson 1996 $ 1,615 1998-2017 2.9% to 4.5% $ 920Jonah Water SUD 2007 $ 3,170 2009-2028 4.0% to 4.5% 3,170Jonah Water SUD 2008 $ 2,630 2010-2029 3.0% to 5.0% 2,630TOTAL $ 6,72041

BRAZOS RIVER AUTHORITYNOTES TO THE BASIC FINANCIAL STATEMENTSAUGUST 31, 2008 AND 2007 (in thousands)The Authority regularly enters into agreements with various companies to issue tax-exempt and taxabledebt for the benefit of the companies. The Authority issues the debt in amounts sufficient to provide forthe construction of the specified capital improvements (usually pollution control and waste disposalfacilities) and charges the companies an issuance fee based on the size of the bond issue. The companiesthen make payments (in the form of installment purchase agreements) to the Authority’s trustee inamounts sufficient to service the debt.The Authority has no liability for repayment of these bonds. The payments from the companies and theconstructed facilities represent the only security for the bondholders. Upon completion of construction,title to the facility transfers to the companies. Accordingly, the assets and debt related to these financingagreements are not reflected in the accompanying basic financial statements.1) Texas Utilities Energy Company LLC - Air and/or WaterPollution Control and Waste Disposal facilities:Year IssuedOriginalAmountYear ofMaturityInterest Rate%Balance atAugust 31, 20081994A 39,170 2029 5.00 $ 39,1701994B 39,170 2029 Variable 39,1701995A 50,670 2030 Variable 49,7701995B 118,355 2030 Variable 113,8951999A 110,545 2033 7.700 110,5451999B 15,955 2034 Variable 15,9551999C 50,000 2032 7.700 50,0002001A 120,750 2030 Variable 70,7502001B 19,180 2029 Variable 19,1802001C 273,985 2036 Variable 217,1802001D 271,390 2033 Variable 268,3052001I 62,920 2036 Variable 61,7902002A 60,650 2037 Variable 44,6302003A 43,685 2038 6.75 43,6852003B 39,025 2038 6.15 39,0252003C 72,335 2038 6.75 51,8252003D 30,820 2029 5.40 30,8202006 100,000 2041 5.00 100,000Subtotal for Texas Utilities Energy Company LLC $ 1,365,69542

BRAZOS RIVER AUTHORITYNOTES TO THE BASIC FINANCIAL STATEMENTSAUGUST 31, 2008 AND 2007 (in thousands)2) Center Point (formerly Houston Industries and Reliant Energy) -Air and/or Water Pollution Control & Waste Disposal facilities:Year Original Year of Interest Balance atIssued Amount Maturity Rate % August 31, 20081995 $ 91,945 2015 5.800 $ 91,9451997 50,000 2018 5.050 50,0001998A 100,000 2019 5.125 100,0001998B 90,000 2020 5.125 90,0001998C 100,000 2019 5.125 100,0001998D 68,700 2015 4.900 68,7001999A 100,000 2019 5.375 100,0001999B 100,000 2018 7.750 100,0002004 43,820 2017 4.250 43,8202004B 83,565 2017 4.250 83,5652004A 33,470 2012 3.625 33,470Sub Total for Center Point $ 861,500TOTAL POLLUTION CONTROL FINANCING ARRANGEMENTS $ 2,227,1959. SEGMENT INFORMATIONThe Authority issues separate revenue bonds to finance operations. Within the Water Supply System andthe Cost Reimbursable Operations are separate identifiable activities. Each of these activities have aseparate agreement with the Authority that requires the revenue stream from that activity be pledged insupport of the debt issued. Additionally, each of these activities requires that related revenues, expenses,gains and losses, assets and liabilities be accounted for separately. Within the Condensed Statements aresix operations: Brushy Creek RWWS, Hutto WWS, Sandy Creek WTS, Clute Richwood WWS, LeeCounty FWD and Liberty Hill WWS. These six operations do not meet the aforementioned requirementsbut are listed for purpose of other contractual obligations. Those activities that meet these tworequirements are as follows:43

BRAZOS RIVER AUTHORITYNOTES TO THE BASIC FINANCIAL STATEMENTSAUGUST 31, 2008 (in thousands)CONDENSED STATEMENTSAS OF AND FOR THE YEAR ENDED AUGUST 31, 2008Water Supply SystemLakeGranburyAll Other WaterSupply SystemsWCRRWLCost Reimbursable OperationsLakeGranburySWATSTemple-Belton RSSLibertyHillWWSCondensed Statement of Net AssetsAssets:Current assets - unrestricted $ 68 $ 52,687 $ 329 $ 1,722 $ 178 $ 96Current assets - restricted 269 11,059 3,892 5,255 635 -Capital assets 11,479 152,510 31,340 30,193 2,105 -Other assets - 32,383 959 471 47 -TOTAL ASSETS 11,816 248,639 36,520 37,641 2,965 96Liabilities:Current liabilities - unrestricted 68 10,293 328 1,500 178 96Current liabilities - restricted 845 5,802 2,854 4,226 1,002 -Non-current liabilities 2,855 103,888 30,524 30,338 1,349 -TOTAL LIABILITIES 3,768 119,983 33,706 36,064 2,529 96Net Assets:Investment in capital assets,net of related debt 269 83,408 1,130 (1,880) 258 -Restricted 7,779 896 1,684 3,236 179 -Unrestricted - 44,351 - 221 - -TOTAL NET ASSETS $ 8,048 $ 128,655 $ 2,814 $ 1,577 $ 437 $ -Condensed Statement of Revenues,Expenses and Changes In Net AssetsOperating revenues:Pledged against identifiable bonds/storage contracts $ 1,045 $ 35,190 $ 2,346 $ 7,302 $ 2,722 $ -Pledge against operations - - - - - 196Depreciation and amortization expense (137) (4,924) (1,837) (2,590) (584) -Other operating expenses - (22,817) (211) (3,356) (2,097) (196)OPERATING INCOME (LOSS) 908 7,449 298 1,356 41 -Non-operating revenues (expenses):Investment income 10 2,067 67 18 3 -Interest expense (240) (2,240) (1,464) (1,840) (64) -Other Income/(Expense) - 3,817 19 2 (5) -Loss on Sale of Capital Assets - (391) - - - -Capital contributions - 163 - 494 4 -CHANGE IN NET ASSETS 678 10,865 (1,080) 30 (21) -Beginning net assets 7,370 118,917 3,888 426 458 -Adjustments - (1,127) 6 1,121 - -ENDING NET ASSETS $ 8,048 $ 128,655 $ 2,814 $ 1,577 $ 437 $ -Condensed Statement of Cash FlowsNet cash provided by (used in):Operating activities $ 1,016 $ 13,142 $ 1,907 $ 5,163 $ 275 $ -Capital and related financing activities (1,016) (13,036) (2,003) (5,114) (608) -Investing activities - (3,109) 96 (2,059) (433) -Net Increase (Decrease) - - (3,003) - (2,010) (766) -Beginning Cash and Cash Equivalents - 9,191 3,717 5,728 788 -Ending Cash and Cash Equivalents $ - $ 6,188 $ 3,717 $ 3,718 $ 22 $ -44

BRAZOS RIVER AUTHORITYNOTES TO THE BASIC FINANCIAL STATEMENTSAUGUST 31, 2008 (in thousands)CONDENSED STATEMENTSAS OF AND FOR THE YEAR ENDED AUGUST 31, 2008Cost Reimbursable OperationsClute/Brushy CreekRWWS Hutto WWSSandy CreekWTSRichwoodWWSLee CountyFWDGRANDTOTAL$ 117 $ 33 $ 234 $ 329 $ 60 $ 55,853- - - - - 21,110160 8 2 53 - 227,850- - - - - 33,860277 41 236 382 60 338,673117 33 234 329 60 13,236- - - - - 14,729- - - - - 168,954117 33 234 329 60 196,919160 8 2 53 - 83,408- - - - - 13,774- - - - - 44,572$ 160 $ 8 $ 2 $ 53 $ - $ 141,754$ - $ - $ - $ - $ - $ 48,6054,318 437 802 437 88 6,278(38) (1) (1) (12) - (10,124)(4,294) (438) (810) (430) (89) (34,738)(14) (2) (9) (5) (1) 10,0212 1 8 10 1 2,187- - - - - (5,848)- - - - - 3,833- - - - - (391)- - - - - 661(12) (1) (1) 5 - 10,463172 9 3 48 - 131,291- - - - -$ 160 $ 8 $ 2 $ 53 $ - $ 141,754$ (1,149) $ (42) $ 71 $ 5 $ (14) $ 20,374(25) - - (17) - (21,819)2 1 9 9 - (5,484)(1,172) (41) 80 (3) (14) (6,929)1,195 41 153 331 74 21,218$ 23- $ 233 $ 328 $ 60 $ 14,28945

BRAZOS RIVER AUTHORITYNOTES TO THE BASIC FINANCIAL STATEMENTSAUGUST 31, 2008 AND 2007 (in thousands)10. COMMITMENTS & CONTINGENCIESDeferred Compensation PlansThe Authority offers its employees a Deferred Compensation Plan created in accordance with InternalRevenue Code Section 457 and 401(a). The plans, are available to all regular full-time and part-timeAuthority employees, the plans permit employees to defer a portion of their salary until future years.Participation in the plan is optional.All regular full-time and part-time employees who contribute to the 457 Deferred Compensation Planare eligible for employer contributions to the 401 (a) plan. The employer contribution is based on 50%of the employee’s 457 semi-monthly deferral (maximum employer contribution is 3% of the employee’ssemi-monthly gross compensation). Employees are vested in the employer contribution and relatedinvestment earnings (losses) after completing 5 or more years of continuous BRA service. Non-vestedemployer contributions are deposited into the ICMA Traditional Growth Fund until vesting occurs.Total deposits into the non-vested account for the twelve months ended August 31, 2008 was $35.Investments are managed by the plan’s administrator under various participant-directed investmentoptions. The choice of the investment option(s) is made by the participant. In accordance withStatement 32 of the Governmental Accounting Standards Board, this plan is not reported because theassets are not held by the Authority in a trustee capacity or as an agent for the participant.Construction ProjectsDuring Fiscal Year 2008, the Authority made progress on the following projects:NameConstruction InProgress atAugust 31, 2008Total ProjectBudgeted CostEstimatedProjectComp. DateSystem Permits Application $ 5,5816,240 2010SWATS UF-RO Remediation 3,778 6,440 2009Graham Flood Control 3,679 4,285 2009Possum Kingdom ESP Phase 2 - Dam 2,761 4,094 2010Possum Kingdom Gate Replacement: Gates 9 2,280 2,617 2009Possum Kingdom ESP Phase 2 - Hydro 1,189 4,178 2010Decordova Bend Dam Improvements 691 5,010 2010Lower Basin Ground Water Acquisition 506 1,446 2009West Fort Bend Co Regional WTS 483 51,354 2013Lake Granger Intake Structure 390 17,219 2011Allens Creek Reservoir 237 59,836 2025Temple Belton Expansion 226 23,185 2013Other 372 variousTOTAL $ 22,17346

BRAZOS RIVER AUTHORITYNOTES TO THE BASIC FINANCIAL STATEMENTSAUGUST 31, 2008 AND 2007 (in thousands)OtherThe Authority has participated in a number of state and federally assisted grant programs. Theseprograms are subject to financial and compliance audits by the grantors or their representatives, thepurpose of which is to ensure compliance with conditions precedent to the granting of funds. Anyliability for reimbursement that may arise as the result of these audits is not believed to be material.The Authority is subject to various other claims and lawsuits which may arise in the ordinary course ofbusiness. After consulting with counsel representing the Authority in connection with such claims andlawsuits, it is the opinion of management and counsel that the disposition or ultimate determination ofsuch claims and lawsuits will not have a material effect on the financial position of the Authority.11. RISK MANAGEMENTThe Authority is exposed to various risks of loss related to torts, theft of, damage to and destruction ofassets; errors and omissions, natural disasters, and job-related injuries or illnesses to employees forwhich the Authority carries commercial insurance or participates in the Texas Municipal LeagueIntergovernmental Risk Pool (Pool). The Authority’s relationship with the Pool parallels that with acommercial insurance company. The Pool has the responsibility to defend any suit seeking damages onaccount of any liability up to the applicable limits of the agreement. The Authority has the responsibilityto notify the Pool of all potential claims and pay for any amounts up to the agreement’s deductible.Liabilities are reported when a contingency risk exists that may exceed reasonable cost projections. Inthe past three years, the Authority has had no settlements which exceeded insurance coverage. TheSchedule of Insurance can be found on Page 73 of this report.12. BOARD DESIGNATED RESERVESOn April 25, 2005, the Board of Directors of the Authority approved and adopted a contingency reservespolicy and incorporated such policy into Section 4.02, “Investment and Fiscal Management” of theBrazos River Authority Operations Policies Manual.The balances of those reserves at August 31, 2008 are represented as follows:Working Capital Reserve $ 5,704Repair and Replacement Fund 4,274Contingency Reserve Fund 5,000Self Insurance Fund 500Rate Stabilization Reserve Fund 27,139TOTAL $ 42,61747

BRAZOS RIVER AUTHORITYNOTES TO THE BASIC FINANCIAL STATEMENTSAUGUST 31, 2008 AND 2007 (in thousands)13 RELATED PARTY TRANSACTIONSThe Authority has a contract with a financial advisory service company. A member of the financialservice company‘s Board of Directors is a related party to one of the Authority’s Management Teammembers. For the years ended August 31, 2008 and 2007, payments made to the consultants totaled $30and $209 respectively for services rendered.14 RECENTLY ISSUED GASB STATEMENTSIn June 2007, the Government Accounting Standards Board issued Statement No. 51. Accounting andFinancial Reporting for Intangible Assets. The Statement is effective for the Authority beginning inFiscal Year 2010. Management has not yet determined the impact of this statement on the basicfinancial statements.In November 2007, the Government Accounting Standards Board issued Statement No. 52. Land andOther Real Estate Held as Investments by Endowments. However, this Statement has no impact on theAuthority’s basic financial statements.In June 2008, the Government Accounting Standards Board issued Statement No. 53. Accounting andFinancial Reporting for Derivative Instruments. However, due to the current investment policyrestricting these types of transactions, this Statement has no impact on the Authority’s basic financialstatements.48

Supplemental Information2008 Comprehensive Annual Financial Report49

BRAZOS RIVER AUTHORITYSUPPLEMENTAL INFORMATIONCOMBINING STATEMENTS OF FIDUCIARY NET ASSETSAUGUST 31, 2008AND 2007(in thousands)City of Temple Agency Fund 2008 2007ASSETSCash $ -$ 3Investments - -Accrued interest - -TOTAL ASSETS $ -$ 3LIABILITIESHeld for future debt service $ -$ 3TOTAL LIABILITIES $ -$ 3City of Robinson Agency FundASSETSCash $ 185$ 177Investments - -TOTAL ASSETS $ 185$ 177LIABILITIESHeld for future debt service $ 76$ 71Held for future construction cost 109 106TOTAL LIABILITIES $ 185$ 177City of Keene Agency FundASSETSCash $ 204$ 2,866Investments 2,472 -Accrued interest 12 -TOTAL ASSETS $ 2,688$ 2,866LIABILITIESHeld for future debt service $ 2,688$ 2,866TOTAL LIABILITIES $ 2,688$ 2,866Jonah Water SUD Agency FundASSETSCash $ 3,466$ 692Investments 445 -Receivables - 8Accrued interest 1 -TOTAL ASSETS $ 3,912$ 700LIABILITIESHeld for future debt service $ 504$ 286Held for future construction cost 3,408 414TOTAL LIABILITIES $ 3,912$ 700Grand TotalASSETSCash $ 3,855$ 3,738Investments 2,917 -Receivables - 8Accrued interest 13 -TOTAL ASSETS $ 6,785$ 3,746LIABILITIESHeld for future debt service $ 3,268$ 3,226Held for future construction cost 3,517 520TOTAL LIABILITIES $ 6,785$ 3,74650

BRAZOS RIVER AUTHORITYSUPPLEMENTAL INFORMATIONSCHEDULE OF CHANGES IN ASSETS AND LIABILITIES (AGENCY FUNDS)YEAR ENDED AUGUST 31, 2008(in thousands)City of Temple Agency FundBalanceAugust 31,2007 Additions DeletionsBalanceAugust 31,2008ASSETSCash $ 3 $ - $ (3) $ -TOTAL ASSETS $ 3 $ - $ (3) $ -LIABILITIESHeld for future debt service $ 3 $ - $ (3) $ -TOTAL LIABILITIES $ 3 $ - $ (3) $ -City of Robinson Agency FundASSETSCash $ 177 $ 229 $ (221) $ 185TOTAL ASSETS $ 177 $ 229 $ (221) $ 185LIABILITIESHeld for future debt service $ 71 $ 150$ (145) $ 76Held for future construction cost 106 3 - 109TOTAL LIABILITIES $ 177 $ 153 $ (145) $ 185City of Keene Agency FundASSETSCash $ 2,866 $ 82 $ (2,744) $ 204Investments - 2,474 (2) 2,472Accrued interest - 12 - 12TOTAL ASSETS $ 2,866 $ 2,568 $ (2,746) $ 2,688LIABILITIESHeld for future debt service $ 2,866 $ 96 $ (274) $ 2,688TOTAL LIABILITIES $ 2,866 $ 96 $ (274) $ 2,688Jonah Water SUD Agency FundASSETSCash $ 692 $ 3,586$ (812) $ 3,466Investments - 445 - 445Receivables 8 3 (11) -Accrued interest - 1 - 1TOTAL ASSETS $ 700 $ 4,035 $ (823) $ 3,912LIABILITIESHeld for future debt service $ 286 $ 382 $ (164) $ 504Held for future construction cost 414 3,197 (203) 3,408TOTAL LIABILITIES $ 700 $ 3,579 $ (367) $ 3,91251

BRAZOS RIVER AUTHORITYSUPPLEMENTAL INFORMATIONCOMPARISON OF BUDGETED REVENUES AND EXPENSES TO ACTUAL (NON-GAAP BASIS)YEAR ENDED AUGUST 31, 2008 (in thousands)2008Budget2008ActualVarianceOPERATING REVENUES:Water Supply System:Raw water sales $ 22,938 $ 26,093 $ 3,155 1Treated water 1,087 1,022 (65)Wastewater treatment 2,650 2,989 339Lake operations 2,850 3,181 331Hydroelectric 625 631 6Grants 850 1,264 414Other 698 1,356 658 2Cost Reimbursable Operations:Water Conveyance 2,471 2,346 (125) 3Water Treatment 8,557 8,174 (383) 3Wastewater Treatment 7,939 7,827 (112) 3TOTAL OPERATING REVENUES 50,665 54,883 4,218OPERATING EXPENSES:Personnel services 16,146 15,271 875 4Materials and supplies 2,761 2,613 148Utilities 4,529 4,836 (307)Depreciation and amortization - 10,124 (10,124) 5Outside services 5,221 4,993 228Other 8,930 7,025 1,905 6TOTAL OPERATING EXPENSES 37,587 44,862 (7,275)NON-OPERATING REVENUES (EXPENSES):Investment income 1,730 2,187 457 7Interest expense (7,114) (5,848) 1,266 8Other income - 4,125 4,125 9Other expenses (305) (292) 13Loss on sale of capital assets - (391) (391)Capital contributions - 661 661 10Debt service - principal (5,916) - 5,916 11TOTAL NET NON-OPERATING EXPENSES (11,605) 442 12,047CHANGE IN NET ASSETS $ 1,473 $ 10,463 $ 8,9901 Actual column reflects increases in short-term and long-term water sales not budgetedand adjustments to noncurrent unearned revenues2 Other revenues received not budgeted3 Lower than expected flow, resulting in lower revenues and expenses4 Normal attrition in the replacement of personnel and positions5 Depreciation and amortization are not budgeted expenditures6 Budget column includes capital outlay items that were capitalized at year-end7 Higher than expected rate of return on reserve balances8 Actual column excludes capitalization of interest reclassed to CIP9 Actual column result of litigation settlement not budgeted10 Actual column includes reimbursement from customers for various projects11 Debt service principal payments are not GAAP expenditures52

Statistical Section2008 Comprehensive Annual Financial Report53

BRAZOS RIVER AUTHORITYSTATISTICAL SECTIONThis part of the Authority's comprehensive annual financial report presents detailed information as a contextfor understanding what the information in the management's discussion & analysis, financial statements, andnote disclosures, says about the Authority's overall financial health.ContentsFinancial TrendsThese schedules contain information to assist the reader in obtaining a better understanding of how theAuthority's financial performance and well-being have changed over time.Revenue CapacityThese schedules contain information to assist the reader in obtaining a better understanding of theAuthority's significant revenue source, water sales and cost reimbursable operations.Debt CapacityThese schedules present information to help the reader assess the affordability of the Authority's currentlevels of outstanding debt, the Authority's ability to issue additional debt in the future, and to provideinformation to comply with the continuing disclosure requirements of SEC Rule 15c2-12.Pages55 - 5656 - 5960 - 62Demographic and Economic informationThis schedule offers demographic and economic indicators to help the reader understand theenvironment within which the Authority operates and the geographic regions the Authority manages,each with distinctive climate, topography and water needs.Operating InformationThese schedules contain service and infrastructure data to help the reader understand how theinformation in the Authority's financial report relates to the services the Authority provides and theactivities it performs.64 - 7373 - 75Sources: Unless otherwise noted, the information in these schedules are derived from the comprehensiveannual financial reports for the relevant year. The Authority implemented GASB Statement 34 in 2003;schedules presenting basic financial information include information beginning in that year.Statement No. 44 of the Governmental Accounting Standards Board Economic Condition Reporting: TheStatistical Section was implemented by the Authority during fiscal year 2005. The Statement allowsgovernments to begin the schedules prospectively and are not required to retroactively report years prior tothe implementation date of the Statement. However, governments are encouraged to report retroactively backto the year they implemented Statement 34.54

BRAZOS RIVER AUTHORITYCHANGES IN NET ASSETS (in thousands)LAST SIX FISCAL YEARS (unaudited)(accrual basis of accounting)OPERATING REVENUES:Fiscal Year2008 2007 2006 2005 2004 2003Water Supply System:Raw water $ 26,093 $ 23,010 $ 19,460 $ 18,653 $ 18,044 $ 17,462Treated water 1,022 1,062 1,115 b 886 247 -Wastewater treatment 2,989 2,572 2,301 b 1,021 836 -Lake operations 3,181 3,121 2,875 2,508 2,396 2,258Hydroelectric 631 603 677 750 625 603Grants 1,264 1,101 1,615 2,863 2,805 2,357Pollution control financing fees - - 750 - 933 267Other 1,356 1,229 1,259 1,251 981 962Cost Reimbursable Operations:Water conveyance 2,346 2,247 1,801 5,954 6,058 5,617Water treatment 8,174 7,880 8,038 6,877 6,632 5,437Wastewater treatment 7,827 7,321 7,186 c 7,520 9,914 a 13,761TOTAL OPERATING REVENUES 54,883 50,146 47,077 48,283 49,471 48,724OPERATING EXPENSES:Personnel services 15,271 14,744 14,670 14,195 15,009 13,588Materials and supplies 2,613 2,501 2,792 2,389 2,183 2,518Utilities 4,836 4,545 4,355 3,087 3,800 3,704Depreciation and amortization 10,124 9,819 9,965 11,478 10,434 10,412Outside services 4,993 4,959 4,551 7,358 6,715 5,695Other 7,025 6,655 6,677 4,985 5,281 5,070TOTAL OPERATING EXPENSES 44,862 43,223 43,010 43,492 43,422 40,987OPERATING INCOME 10,021 6,923 4,067 4,791 6,049 7,737NON-OPERATING REVENUES (EXPENSES):Investment income 2,187 2,832 1,941 1,253 1,376 1,718Interest expense (5,848) (5,928) (5,963) c (8,797) (9,134) (11,577)Other income 4,125 d - - - - -Other expenses (292) (765) (1,352) (197) (361) (305)Gain/(Loss) on sale of capital assets (391) 33 (5,674) c (9,418) c 1,875 a -TOTAL NET NON-OPERATINGREVENUES (EXPENSES) (219) (3,828) (11,048) (17,159) (6,244) (10,164)INCOME (LOSS) BEFORE CONTRIBUTIONS: 9,802 3,095 (6,981) (12,368) (195) (2,427)CAPITAL CONTRIBUTIONS 661 1,933 1,126 4,177 2,871 -CHANGE IN NET ASSETS $ 10,463 $ 5,028 $ (5,855) $ (8,191) $ 2,676 $ (2,427)aDuring Fiscal Year 2004, the customer cities of WMARSS and the Authority entered into negotiations for early termination of theircontract, which had approximately eight years remaining. Negotiations were completed and the ownership/operation was transferred tothe City of Waco on February 24, 2004 and all existing contracts, assets, and related debt were transferred to the City of Waco.b These increases are due to a full year of operations of a new operating unit.c These reflect a full year of the effects of a disposal of an operating unit.d Proceeds from litigation settelement of capital assets55

BRAZOS RIVER AUTHORITYNET ASSETS BY COMPONENT (in thousands)LAST SIX FISCAL YEARS (unaudited)(accrual basis of accounting)Fiscal Year2008 2007 2006 2005 2004 2003Invested in capital assetsnet of related debt $ 83,408 c $ 71,750 $ 72,514 b $ 90,598 $ 83,648 a $ 66,152Restricted 13,774 c 22,634 18,678 b 12,116 19,596 a 30,805Unrestricted 44,572 36,907 35,071 29,404 38,014 41,625TOTAL NET ASSETS $ 141,754 $ 131,291 $ 126,263 $ 132,118 $ 141,258 $ 138,582abcDuring Fiscal Year 2004, the customer cities of WMARSS and the Authority entered into negotiations for early termination of their contract,which had approximately eight years remaining. Negotiations were completed and the ownership/operation was transferred to the City ofWaco on February 24, 2004 and all existing contracts, assets, and related debt were transferred to the City of Waco.During Fiscal Year 2006, the customer city of Sugar Land and the Authority entered into negotiations for early termination of their contract.Negotiations were completed and the ownership/operation was transferred to the City of Sugar Land on October 25, 2005 and all existingcontracts, assets, and related debt were transferred to the City of Sugar Land.During Fiscal Year 2008, the Authority spent the majority of the bond proceeds and completed the expansion project at its East WilliamsonCounty Regional Water System.BRAZOS RIVER AUTHORITYBUDGETED LONG-TERM WATER SUPPLY REVENUES BY CONTRACT TYPELAST NINE FISCAL YEARS (unaudited)System Rate Agriculture Two-Tier Other Fixed Colorado Basin WaterUtilitiesTotalAcre Avg Acre Avg Acre Avg Acre Avg Acre Avg Acre Avg AcreYear Feet Price Feet Price Feet Price Feet Price Feet Price Feet Price Feet2000 142,718 23.50 - - 108,796 14.66 80,734 17.50 - - 277,047 28.01 609,2952001 161,241 26.00 - - 128,796 15.87 60,634 20.84 - - 277,047 28.04 627,7182002 189,325 29.90 - - 98,170 16.35 60,599 20.36 17,360 49.22 227,047 33.77 592,5012003 191,039 34.50 - - 98,170 16.48 60,402 20.40 21,860 49.22 227,047 33.69 598,5182004 195,382 39.75 - - 105,503 15.75 56,976 21.23 21,860 49.22 227,047 45.75 606,7682005 206,184 45.75 11,344 39.75 105,503 15.94 56,916 20.86 22,460 53.91 205,447 a 16.57 607,8542006 205,817 49.65 11,344 39.75 105,503 16.30 56,300 21.10 22,460 54.08 205,447 16.24 606,8712007 224,537 52.50 9,940 39.75 105,503 16.36 56,916 20.00 20,984 62.07 205,447 16.85 623,3272008 243,481 54.50 9,990 39.75 103,838 16.59 b 33,583 17.52 21,528 67.73 205,447 18.18 617,867Source: Brazos River Authority Annual Operating Plan.a - Twenty one thousand acre feet, consisting of four Utility Contracts, expired and were reclassified under System Rate as required by contract.b - Twenty three thousand three hundred acre feet, consisting of an Other Fixed Price Contract, expired and was contracted under a System Rate contract.Information provided to comply with continuing disclosure requirements of SEC Rule 15c2-1256

Fiscal Year 2008 Fiscal Year 2007CustomerRevenues% of TotalOperatingRevenues Customer Revenues% of TotalOperatingRevenuesJohnson County S.U.D.* $ 6,845 13.77% Johnson County S.U.D.* $ 6,580 13.24%Lower Colorado River Authority 5,791 11.65% Lower Colorado River Authority 5,335 10.73%City of Georgetown 4,100 8.25% City of Round Rock 3,884 7.81%City of Round Rock 3,750 7.54% City of Georgetown 3,597 7.24%NRG Texas Power, L.L.C.** 2,466 4.96% City of Temple 2,550 5.13%Acton Municipal Utility District 2,049 4.12% NRG Texas Power, L.L.C.** 2,148 4.32%City of Temple 2,013 4.05% Bell County W.C.I.D. #1 1,646 3.31%Gulf Coast Water Authority 1,806 3.63% City of Sugar Land 1,579 3.18%Bell County W.C.I.D. #1 1,692 3.40% City of Granbury 1,397 2.81%City of Sugar Land 1,622 3.26% Gulf Coast Water Authority 1,077 2.17%$ 32,134 64.63% $ 29,793 59.94%Fiscal Year 2006 Fiscal Year 2005CustomerRevenues% of TotalOperatingRevenues Customer Revenues% of TotalOperatingRevenuesLower Colorado River Authority $ 5,080 10.79% City of Lubbock $ 4,637 9.60%Johnson County S.U.D.* 4,824 10.25% Johnson County S.U.D.* 4,345 9.00%City of Round Rock 3,285 6.98% City of Sugar Land 3,912 8.10%City of Georgetown 2,998 6.37% Lower Colorado River Authority 3,727 7.72%City of Temple 2,413 5.13% City of Georgetown 2,959 6.13%City of Sugar Land 2,155 4.58% City of Round Rock 2,656 5.50%NRG Texas, LP (Texas Genco)** 1,919 4.08% Texas Genco, LP ** 2,429 5.03%TXU Electric Company 1,863 3.96% City of Temple 2,410 4.99%City of Taylor 1,160 2.46% TXU Electric Company 2,361 4.88%Bell County WCID #1 1,121 2.38%TOTAL $ 26,818 56.98% $ 29,436 60.95%Fiscal Year 2004Fiscal Year 2003CustomerRevenues% of TotalOperatingRevenues Customer Revenues% of TotalOperatingRevenuesTXU Electric Company $ 8,230 16.64% City of Waco $ 6,186 12.70%City of Sugar Land 5,077 10.26% TXU Electric Company 5,671 11.64%City of Lubbock 4,534 9.16% City of Lubbock 4,172 8.56%Johnson County S.U.D.* 3,751 7.58% Johnson County R.W.S.C.* 3,476 7.13%City of Waco 3,230 6.53% Lower Colorado River Authority 2,948 6.05%Lower Colorado River Authority 3,044 6.15% City of Temple 2,482 5.09%Texas Genco, LP ** 2,942 5.95% City of Round Rock 2,452 5.03%City of Temple 2,586 5.23% Texas Genco, LP ** 1,988 4.08%City of Georgetown 2,552 5.16% City of Georgetown 1,333 2.74%City of Round Rock 2,339 4.73% City of Sugar Land 1,307 2.68%$ 38,285 77.39% $ 32,015 65.70%*Johnson County Special Utility District was formerly Johnson County Rural Water Supply Corporation**NRG Texas, LP was formerly Texas Genco, LP; formerly Reliant Energy; and formerly Houston Lighting & Power Co.Source :Brazos River Authority billing systemBRAZOS RIVER AUTHORITYALL OPERATIONSMAJOR CUSTOMERS (in thousands)LAST SIX FISCAL YEARS (unaudited)Information provided to comply with continuing disclosure requirements of SEC Rule 15c2-1258

BRAZOS RIVER AUTHORITYWATER SUPPLY SYSTEMMAJOR CUSTOMERS (in thousands)LAST SIX FISCAL YEARS (unaudited)Fiscal Year 2008 Fiscal Year 2007CustomerRevenues% of TotalWSSRevenues Customer Revenues% of TotalWSSRevenuesCity of Round Rock $ 2,777 8.50% City of Round Rock $ 2,841 8.69%NRG Texas Power, LLC* 2,187 6.69% City of Georgetown 2,817 8.62%Gulf Coast Water Authority 1,789 5.47% Bell County W.C.I.D. #1 1,648 5.04%City of Georgetown 1,753 5.36% City of Sugar Land\ 1,579 4.83%Bell County W.C.I.D. #1 1,692 5.18% NRG Texas Power, LLC* 1,367 4.18%City of Sugar Land 1,623 4.96% Gulf Coast Water Authority 1,067 3.27%City of Taylor 1,094 3.35% City of Taylor 1,062 3.25%TXU Electric Company 788 2.41% TXU Electric Company 1,027 3.14%Johnson County S.U.D. 734 2.25% North Texas Living Water Resource 934 2.86%City of Cleburne 681 2.08% Johnson County S.U.D. 707 2.16%$ 15,118 46.25% $ 15,049 46.04%Fiscal Year 2006 Fiscal Year 2005CustomerRevenues% of TotalWSSRevenues Customer Revenues% of TotalWSSRevenuesCity of Georgetown $ 2,426 8.07% City of Georgetown $ 2,438 8.73%NRG Texas, LP (Texas Genco)* 1,919 6.39% City of Round Rock 2,382 8.53%City of Round Rock 1,851 6.16% Texas Genco, L.P.* 2,265 8.11%TXU Electric Company 1,831 6.09% TXU Electric Company 1,754 6.28%City of Taylor 1,160 3.86% Gulf Coast Water Authority 1,057 3.78%Bell County W.C.I.D. #1 1,121 3.73% City of Taylor 952 3.41%Gulf Coast Water Authority 1,093 3.64% Bell County W.C.I.D. #1 947 3.39%City of Sugar Land 1,085 3.61% Brazos Electric Power Cooperative 776 2.78%Brazos Electric Power Cooperative 686 2.28% Johnson County S.U.D. 616 2.21%Johnson County S.U.D. 669 2.23% Wellborn Special Utility District 500 1.79%TOTAL $ 13,841 46.06% $ 13,687 49.01%Fiscal Year 2004Fiscal Year 2003CustomerRevenues% of TotalWSSRevenues Customer Revenues% of TotalWSSRevenuesTXU Electric Company $ 8,059 30.00% TXU Electric Company $ 5,670 23.72%Texas Genco, LP * 2,137 7.95% Texas Genco, LP * 1,982 8.29%City of Georgetown 2,031 7.56% City of Round Rock 1,495 6.25%City of Round Rock 1,551 5.77% City of Georgetown 1,107 4.63%Gulf Coast Water Authority 1,001 3.73% Bell County W.C.I.D. #1 969 4.05%Bell County W.C.I.D. #1 924 3.44% Gulf Coast Water Authority 952 3.98%Brazos Electric Power Cooperative 650 2.42% City of Taylor 517 2.16%Johnson County S.U.D. 536 1.99% Brazos Electric Power Cooperative 484 2.02%City of Granbury 514 1.91% City of Granbury 481 2.01%City of Taylor 494 1.84% Johnson County S.U.D. 465 1.94%$ 17,897 66.61% $ 14,122 59.05%*NRG Texas, LP was formerly Texas Genco, LP; formerly Reliant Energy; and formerly Houston Lighting & Power Co.Information provided to comply with continuing disclosure requirements of SEC Rule 15c2-12Source: Brazos River Authority Billing System59

Fiscal Year Prior LienSubordinate LienTotal % OfEnded Utilities Contract Debt (1)Outstanding Bonds (2) Outstanding Bonds (3)Debt Service PrincipalAugust 31 PRINCIPAL INTEREST PRINCIPAL INTEREST PRINCIPAL INTEREST Requirements Retired2009 845,000.00 180,262.50 930,000.00 712,531.26 405,000.00 1,840,942.51 4,913,736.272010 895,000.00 132,412.50 970,000.00 668,670.01 755,000.00 1,816,705.01 5,237,787.522011 945,000.00 81,812.50 1,010,000.00 624,876.26 785,000.00 1,784,823.76 5,231,512.522012 1,015,000.00 27,912.50 890,000.00 582,331.26 820,000.00 1,751,023.76 5,086,267.522013 930,000.00 538,255.63 855,000.00 1,715,893.76 4,039,149.39 3.00%2014 980,000.00 493,730.00 895,000.00 1,679,656.26 4,048,386.262015 980,000.00 447,075.00 1,465,000.00 1,629,767.51 4,521,842.512016 970,000.00 399,807.50 1,535,000.00 1,565,823.76 4,470,631.262017 1,015,000.00 350,752.50 1,600,000.00 1,498,273.76 4,464,026.262018 1,070,000.00 298,640.00 1,670,000.00 1,426,998.76 4,465,638.76 40.78%2019 1,125,000.00 242,801.25 1,745,000.00 1,352,243.76 4,465,045.012020 1,185,000.00 183,111.25 1,820,000.00 1,273,297.51 4,461,408.762021 1,250,000.00 119,200.00 1,910,000.00 1,189,548.76 4,468,748.762022 680,000.00 69,750.00 1,995,000.00 1,100,710.01 3,845,460.012023 715,000.00 35,750.00 2,090,000.00 1,007,010.01 3,847,760.01 65.21%2024 2,190,000.00 908,328.76 3,098,328.762025 2,295,000.00 803,600.63 3,098,600.632026 2,405,000.00 692,941.25 3,097,941.252027 2,525,000.00 576,115.00 3,101,115.002028 2,650,000.00 452,735.00 3,102,735.00 81.85%2029 1,750,000.00 349,012.50 2,099,012.502030 1,015,000.00 285,637.50 1,300,637.502031 1,065,000.00 238,837.50 1,303,837.502032 1,115,000.00 189,787.50 1,304,787.502033 1,165,000.00 138,487.50 1,303,487.50 92.13%2034 1,220,000.00 84,825.00 1,304,825.002035 1,275,000.00 28,687.50 1,303,687.50 100.00%TOTAL 3,700,000.00 422,400.00 14,700,000.00 5,767,281.92 41,015,000.00 27,381,714.54 92,986,396.46(1) Prior Lien Utilities Contract Debt includes Brazos River Authority Water Supply Refunding Revenue Bonds, Series 1972, and bonds issued hereafter on aparity therewith.(2) Subordinate Lien Outstanding Bonds includes the Authority's Water Supply System Revenue Refunding and Improvements Bonds, Series 2001A (AMT)and the Authority's Water Supply System Revenue Refunding Bonds, Series 2001B and the Authority's Water Supply System Revenue Bonds, Series2002 (AMT).(3) Subordinate Lien Outstanding Bonds includes the Authority's Water Supply System Revenue Series 2005A (AMT), the Authority's Water Supply SystemRevenue Bonds, Series 2005 A&B and the Autority's Water Supply System Revenue Bonds, Series 2006.Source: Combined Bond ResolutionsBRAZOS RIVER AUTHORITYWATER SUPPLY REVENUE BOND DEBTSERIES 2001A, SERIES 2001B, SERIES 2002 AMTSERIES 2005A & B AND SERIES 2006AMORTIZATION SCHEDULE (unaudited)Information provided to comply with continuing disclosure requirements of SEC Rule 15c2-1260

BRAZOS RIVER AUTHORITYWATER SUPPLY REVENUE BONDSSERIES 2001A, SERIES 2001B, SERIES 2002 AMT,SERIES 2005A, SERIES 2005B AND SERIES 2006COVERAGE AND ACCOUNT BALANCES (in thousands)AUGUST 31, 2008 (unaudited)Average Annual Principal and Interest Requirements, 2009 - 2035 $ 3,291Coverage of Average Requirements by August 31, 2008 Net Revenues* 3.38Maximum Principal and Interest Requirements, 2015 4,522Coverage of Maximum Requirements by August 31, 2008 Net Revenues* 2.46System Revenue Bonds Outstanding, August 31, 2008 55,715Interest and Sinking Account Balance, August 31, 2008 - ¹Reserve Account Balance, August 31, 2008 N/A ²*Coverage is based on Net Revenues after payment of the Prior Lien Debt¹ - Funds are transferred to the Interest and Sinking Fund on interest payment date.² - Upon delivery of the bonds, the Reserve Fund was fully funded by the purchase of a surety bond.Information provided to comply with continuing disclosure requirements of SEC Rule 15c2-1261

BRAZOS RIVER AUTHORITYWATER SUPPLY SYSTEMCONDENSED SUMMARY OF OPERATING RESULTS (in thousands)(CALCULATION BASED ON BOND RESOLUTION REQUIREMENTS)AUGUST 31, 2008 (unaudited)Fiscal Year Ended August 31,2008 2007 2006 2005 2004Gross Revenues:Raw water $ 25,133 $ 22,050 $ 18,500 $ 17,693 $ 22,658Treated water 1,022 1,062 1,115 886 236Wastewater treatment 2,989 2,572 1,062 1,021 -Power sales 631 603 677 750 -Lease income 3,181 3,084 2,869 2,498 2,379Other 1,159 929 1,581 791 118Interest 2,093 2,434 1,831 1,312 1,046Grants 1,264 1,101 1,615 2,933 2,800Other non-operating 36 3 8 60 -Less: Existing debt service (1) (1,016) (1,020) (1,016) (1,021) (7,030)TOTAL GROSS REVENUES $ 36,492 $ 32,818 $ 28,242 $ 26,923 $ 22,207Operation & Maintenance Expenses:Personnel services 11,834 11,699 $ 10,882 $ 10,305 $ 7,610Materials, supplies & services 1,329 1,162 977 977 703Utilities 1,001 972 838 729 388Administrative & general - - - - 872Outside services 4,150 2,727 2,864 5,070 4,398Other 4,298 4,087 3,560 3,615 2,905Other non-operating 343 684 679 155 431Other debt service (2) 2,426 2,503 2,341 2,341 2,384TOTAL OPERATION &MAINTENANCE $ 25,381 $ 23,834 $ 22,141 $ 23,192 $ 19,691NET REVENUES AVAILABLE TOPAY DEBT SERVICE $ 11,111 $ 8,984 $ 6,101 $ 3,731 $ 2,516DEBT SERVICE WATER SUPPLYSYSTEM BONDS $ 3,123 $ 3,053 $ 2,043 $ 1,636 $ 1,646COVERAGE PERCENTAGE 3.56 2.94 2.99 2.28 1.53(1) Debt service related to Brazos River Authority Water Supply Revenue Refunding Bonds, Series 1972;Brazos River Authority Water Supply Revenue Bonds (Upper Navasota Project), Series 1975 and 1976.(2) Debt service related to the purchase of water storage rights in the Federal Reservoirs.Information provided to comply with continuing disclosure requirements of SEC Rule 15c2-1262

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BRAZOS RIVER AUTHORITYPOSSUM KINGDOM ELECTRIC POWER GENERATION AND LAKE ELEVATIONSCALENDAR YEARS 1942 - 2007 (unaudited)Elevation During YearCalendar Water Used Annual KWH Elevation High LowYear Acre-Feet Generation 1st of Yr. Date Elevation Date Elevation1942 - 4,242,700 996.00 10/17 1,000.30 01/24 995.001943 446,000 42,091,500 998.29 01/01 998.29 12/24 997.901944 144,000 12,043,900 977.99 10/11 988.77 02/25 977.291945 299,000 25,111,500 985.70 07/23 997.08 03/03 983.111946 489,000 45,558,700 995.06 09/10 997.79 08/28 987.251947 408,910 37,564,600 994.60 05/20 998.80 10/25 984.901948 309,070 26,822,200 987.20 07/13 994.02 05/25 981.051949 547,280 52,225,100 984.96 06/17 998.55 03/21 983.531950 574,552 57,744,900 988.02 09/11 999.20 04/12 985.431951 357,360 36,602,000 991.56 06/20 997.40 12/31 983.231952 157,480 13,498,300 983.22 01/01 983.22 11/23 967.271953 238,915 23,801,300 967.50 10/30 999.41 03/08 966.831954 434,830 45,944,900 996.63 05/28 1,000.00 11/08 987.231955 412,610 43,699,600 987.93 09/27 999.00 02/02 987.181956 327,740 32,517,800 997.05 01/01 997.05 12/18 975.151957 663,595 69,229,400 976.34 04/30 1,000.90 02/05 974.521958 407,445 43,014,400 994.39 07/07 997.60 12/28 989.291959 296,210 31,430,400 989.31 10/08 997.89 05/05 986.831960 424,715 44,984,500 995.61 10/27 999.16 10/14 992.541961 561,185 59,939,400 994.32 06/22 999.07 04/28 991.641962 513,245 54,644,500 992.85 09/14 999.24 06/01 988.461963 383,380 40,729,700 995.97 06/13 999.71 10/23 990.361964 137,285 12,554,000 993.01 02/18 994.59 09/19 987.081965 250,580 26,329,200 990.71 05/22 999.25 04/14 989.021966 420,120 44,491,100 996.52 09/27 999.85 04/22 994.191967 260,910 27,278,600 996.10 07/23 999.72 04/13 995.021968 536,665 57,762,100 995.58 07/10 999.51 11/26 993.291969 609,120 62,014,000 993.53 05/20 999.80 11/13 984.681970 253,265 25,195,000 987.22 06/11 997.78 12/31 983.121971 208,405 21,510,000 983.20 10/03 999.60 05/28 981.201972 416,931 43,941,100 998.70 11/02 999.70 08/16 996.701973 382,765 39,997,400 996.80 03/16 998.20 07/26 992.671974 263,249 27,186,300 993.10 10/19 999.70 08/24 990.40Source: Brazos River Authority Water Services Department64

BRAZOS RIVER AUTHORITYPOSSUM KINGDOM ELECTRIC POWER GENERATION AND LAKE ELEVATIONSCALENDAR YEARS 1942 - 2007 (unaudited)Elevation During YearCalendar Water Used Annual KWH Elevation High LowYear Acre-Feet Generation 1st of Yr. Date Elevation Date Elevation1975 427,328 44,363,000 998.60 05/30 999.30 03/31 995.801976 264,984 26,507,000 997.50 11/03 999.50 04/11 996.101977 239,709 23,135,000 997.07 04/24 999.31 12/26 993.471978 183,016 17,387,000 993.55 09/12 999.73 03/16 992.921979 245,685 24,852,000 997.60 05/10 999.40 12/17 995.401980 366,493 36,673,000 995.60 10/05 999.70 08/24 991.401981 432,796 44,012,000 997.80 10/15 1,002.20 02/13 995.401982 460,319 48,729,000 997.20 05/16 999.30 05/05 995.501983 267,661 26,848,000 995.80 06/13 999.00 10/21 990.001984 78,522 7,963,000 994.80 12/31 997.40 10/25 987.801985 573,162 59,762,000 998.30 02/26 999.60 10/06 993.001986 560,397 57,469,000 998.60 06/22 999.60 04/10 995.101987 581,560 56,849,000 998.65 02/28 999.42 12/18 985.091988 44,036 3,932,000 980.64 10/09 990.30 05/19 985.601989 297,614 30,244,000 988.53 06/15 999.98 04/13 987.101990 586,568 58,759,000 995.14 06/06 999.74 01/14 994.941991 529,061 52,527,000 996.94 12/20 999.49 05/02 994.781992 181,582 74,255,000 998.60 03/03 999.33 11/18 994.961993 233,236 22,526,000 996.10 04/01 998.30 09/10 991.851994 154,896 14,786,000 993.71 05/15 997.74 05/06 993.251995 263,974 25,699,000 996.42 06/18 999.40 05/23 995.711996 161,485 15,575,000 996.40 11/30 999.49 08/27 993.191997 484,984 47,076,000 998.54 03/04 999.41 12/19 993.451998 152,293 13,961,000 993.79 03/31 999.15 12/30 988.251999 99,971 9,119,000 988.29 07/05 999.30 01/25 988.002000 39,999 3,769,100 991.82 07/11 996.58 03/23 991.192001 154,073 15,184,000 995.37 03/03 999.24 10/11 993.512002 121,324 11,636,000 994.53 07/11 999.18 03/16 993.162003 102,617 8,952,000 995.67 07/10 997.20 12/29 991.072004 281,064 26,468,000 991.07 12/05 999.55 02/10 990.522005 309,127 30,008,000 999.23 08/26 999.44 08/04 994.212006 128,821 10,028,000 996.55 05/16 999.11 10/13 993.182007 299,150 29,994,500 997.49 6/27 999.34 4/30 997.3765

BRAZOS RIVER AUTHORITYMISCELLANEOUS DEMOGRAPHIC AND ECONOMIC INFORMATIONAUGUST 31, 2008 (unaudited)Authority created under Acts 1929, 41 st Legislature, 2 nd C.S., Spec. Leg. Page 22, Ch. 13. as amended.Year created: 1929Domicile:Waco, TexasLast revision of Enabling Act: 2001Last revision of Bylaws: 2004Population of District:Area of District:Brazos RiverTotal river miles:Average discharge:Average annual rainfall of District:1,753,000 (TWDB)42,800 square miles840 miles6,000,000 acre feetRanges from 16 inches West to 47 inches SoutheastNumber of employees: 271Offices: Central office - Waco, TexasOperations office - Acton, TexasRegional office - Austin, TexasOperations office - Belton, TexasOperations office - Clute, TexasOperations office - Georgetown, TexasRegional office - Georgetown, TexasOperations office - Lake Granbury, TexasOperations office - Lake Limestone, TexasOperations office - Leander, TexasOperations office - Possum Kingdom Lake, TexasOperations office - Round Rock, TexasOperations office - Sugar Land, TexasRegional office - Sugar Land, TexasOperations office - Taylor, TexasRegional office - Waco, TexasContinued66

BRAZOS RIVER AUTHORITYMISCELLANEOUS DEMOGRAPHIC AND ECONOMIC INFORMATIONAUGUST 31, 2008 (unaudited)Years Ended August 31Operating Statistics: 2008 2007(water/wastewater treated in thousands of gallons)Temple-Belton Regional Sewerage System Total 1,858,732 2,691,950Sugar Land Regional Sewerage System 3,115,590 3,126,060Lake Granbury Surface Water and Treatment System 1,523,851 1,115,418Brushy Creek Regional Wastewater System 5,238,110 5,917,300Hutto Wastewater System 325,400 348,919Clute/Richwood Regional Wastewater System 935,940 1,267,373Sandy Creek Regional Water Treatment System 906,996 602,400Lee County Fresh Water District #1 16,361 24,735City of Georgetown 1,358,460 1,600,657East Williamson County Water Treatment System 785,112 778,925Liberty Hill 16,920 8,344Brazos River Authority Dams and Reservoirs:Possum Kingdom (January 2005 TWDB Survey)Capacity – 540,340 acre feetSurface area – 16,716 acresElevation – 1,000.0 ft-mslGranbury (July 2003 TWDB Survey)Capacity – 129,011 acre feetSurface area – 7,945 acresElevation – 693.0 ft-mslLimestone (April 2002 TWDB Survey)Capacity – 208,017 acre feetSurface area – 12,553 acresElevation – 363.0 ft-mslU.S. Corps of Engineers Dams and Reservoirs:Aquilla (April 2002 TWDB Survey)Conservation PoolCapacity – 45,319 acre-feetSurface area – 3,020 acresElevation – 537.5 ft-mslBelton (May 2003 TWDB Survey)Conservation PoolCapacity – 435,225 acre-feetSurface area – 12,135 acresElevation – 594.0 ft-mslFlood Control PoolCapacity – 86,700 acre-feetSurface area – 7,000 acresElevation – 556.0 ft-mslFlood Control PoolCapacity – 640,000 acre-feetSurface area – 23,620 acresElevation – 631.0 ft-msl68

BRAZOS RIVER AUTHORITYMISCELLANEOUS DEMOGRAPHIC AND ECONOMIC INFORMATIONAUGUST 31, 2008 (unaudited)Granger (April 2002 TWDB Survey)Conservation PoolCapacity – 52,525 acre-feetSurface area – 4,064 acresElevation – 504.0 ft-mslGeorgetown (May 2005 TWDB Survey)Conservation PoolCapacity – 36,904 acre-feetSurface area – 1,287 acresElevation – 791.0 ft-mslProctor (July 2005 TWDB Survey)Conservation PoolCapacity – 55,457 acre-feetSurface area – 4,537 acresElevation – 1,162.0 ft-mslSomerville (July 2003 TWDB Survey)Conservation PoolCapacity – 147,104 acre-feetSurface area – 11,555 acresElevation – 238.0 ft-mslStillhouse Hollow (May 2005 TWDB Survey)Conservation PoolCapacity – 227,825 acre-feetSurface area – 6,484 acresElevation – 622.0 ft-mslWaco (March 1995 TWDB Survey)Conservation PoolCapacity – 199,227 acre-feetSurface area – 8,437 acresElevation – 462.0 ft-mslWhitney (June 2005 TWDB Survey)Conservation PoolCapacity – 554,203 acre-feetSurface area – 23,220 acresElevation – 533.0 ft-mslFlood Control PoolCapacity – 162,200 acre-feetSurface area – 11,040 acresElevation – 528.0 ft-mslFlood Control PoolCapacity – 87,600 acre-feetSurface area – 3,220 acresElevation – 834.0 ft-mslFlood Control PoolCapacity – 341,500 acre-feetSurface area – 14,010 acresElevation – 1,197.0 ft-mslFlood Control PoolCapacity – 337,700 acre-feetSurface area – 24,400 acresElevation – 258.0 ft-mslFlood Control PoolCapacity – 390,600 acre-feetSurface area – 11,830 acresElevation – 666.0 ft-mslFlood Control PoolCapacity – 553,300 acre-feetSurface area – 19,440 acresElevation – 500.0 ft-mslFlood Control PoolCapacity – 1,372,400 acre-feetSurface area – 49,820 acresElevation – 571.0 ft-mslSource: Brazos River Authority Water Services Department69

BRAZOS RIVER AUTHORITYMISCELLANEOUS DEMOGRAPHIC AND ECONOMIC INFORMATIONAUGUST 31, 2008 (unaudited)Ten Largest IndustriesIndustryNumber of entities in categoryEducational, health and social services 295,213Retail trade 157,418Manufacturing 155,870Construction 106,839Professional and scientific 96,618Arts and entertainment 85,741Finance and real estate 78,729Public administration 70,805Transportation and warehousing 69,483Other services (except public administration) 67,953Source: U.S. Census Bureau, Census 2000Ten Largest Industries350,000300,000250,000200,000150,000100,00050,0000Educational, health and social servicesRetail tradeManufacturingConstructionProfessional and scientificArts and entertainmentFinance and real estatePublic administrationTransportation and warehousingOther services (except publicadministration)70

BRAZOS RIVER AUTHORITYMISCELLANEOUS DEMOGRAPHIC AND ECONOMIC INFORMATIONAUGUST 31, 2008 (unaudited)BASIN POPULATION BY COUNTYPOPULATION.Fort Bend 509,822.Williamson 373,363.Brazoria 294,233.Bell 276,975.Lubbock 260,901.McLennan 228,123.Brazos 170,954.Johnson 149,797.Taylor 126,540.Parker 108,687Source: Population Division, U.S. Census BureauRelease Date: March 20, 2008BASIN POPULATION BY COUNTY.Johnson6%.Taylor5%.Parker4%.Fort Bend21%.Brazos7%.McLennan9%.Williamson15%.Lubbock10%.Bell11%.Brazoria12%71

BRAZOS RIVER AUTHORITYMISCELLANEOUS DEMOGRAPHIC AND ECONOMIC INFORMATIONAUGUST 31, 2008 (unaudited)TotalPersonal IncomeCOUNTY( in millions)Fort Bend 19,141Williamson 11,821Brazoria 9,241Bell 8,827Lubbock 7,454McLennan 6,411Brazos 4,218Johnson 4,089Taylor 3,962Parker 3,485Source: Bureau of Economic Analysis; Updated July 08, 2008TOTAL PERSONAL INCOME (in millions)25,00020,00015,00010,0005,0000Fort BendWilliamsonBrazoriaBellLubbockMcLennanBrazosJohnsonTaylorParker72

BRAZOS RIVER AUTHORITYMISCELLANEOUS DEMOGRAPHIC AND ECONOMIC INFORMATIONAUGUST 31, 2008 (unaudited)TotalCOUNTYPer Capita IncomeFort Bend 39,427Young 35,007Washington 34,929Stonewall 34,066Hood 33,923Castro 33,866Williamson 33,691Lampasas 33,381Parker 33,282Bell 33,222Source: Bureau of Economic Analysis; Updated July 08, 2008TOTAL PER CAPITA INCOME ($)40,00039,00038,00037,00036,00035,00034,00033,00032,00031,00030,000Fort BendYoungWashingtonStonewallHoodCastroWilliamsonLampasasParkerBell73

BRAZOS RIVER AUTHORITYSCHEDULE OF INSURANCEAS OF AUGUST 31, 2008 (unaudited)Name of Policy Summary Limits of CoveragePolicy Company Number of Coverage Liability PeriodAircraft Liability Falcon Insurance AgencyGA00159647-00 Non-owned Aircraft $1,000,000 October 1, 2007U S Specialty Inc. Co Liability each occurrence October 1, 2008Deductible - NoneAirport Liability Texas Municipal League 1970-07 Airport Liability Premises (BI&PD) $10,000,000 October 1, 2007Airport Liability Premises (PI&AI) $10,000,000 October 1, 2008Products & Completed Operations $10,000,000Max. of all Coverages Combined $10,000,000Deductible - NoneAutomobile Liability Texas Municipal League 1970-07 Automobile Liability $10,000,000 October 1, 2007& Physical Damage Uninsured Motorist $1,000,000 October 1, 2008CollisionActual Cash ValueComprehensiveActual Cash ValueDeductible - NoneHired Auto Comp/Coll $25,000Deductible: $ 250/Scheduled VehiclesCommercial Crime Texas Municipal League 1970-07 Public Employee Dishonesty $1,000,000 October 1, 2007Forgery or Alteration $1,000,000 October 1, 2008Computer Fraud $1,000,000Deductible: $10,000Theft, Disappearance & Destruction $10,000Deductible - NoneExcess Liability Wachovia Ins. Services/ 8766963 Excess Liability $10,000,000 November 1, 2007Ins. Co. of the State of (Applies in excess of primary October 1, 2008Pennsylvania Auto, GL, Airport Premises,and Law Enforcement)Includes Terrorism CoverageDeductible: $10,000,000Fiduciary and Employee Wachovia Ins. Services/ 82095688 Annual Aggregate $5,000,000 January 1, 2008Benefits Federal Insurance Co. Per Occurrence $5,000,000 October 1, 2008Deductible: $10,000General Liability Texas Municipal League 1970-07 General Aggregate $10,000,000 October 1, 2007Products/Completed Operation $10,000,000 October 1, 2008Each Occurrence (BI, PI, AI) $10,000,000Fire Damage $10,000,000Deductible - NoneMarine and Hull/ Texas Municipal League 1970-07 Coverage for Boats, Motors $4,904,771 October 1, 2007Mobile Equipment and Mobile Equipment October 1, 2008Deductible: $10,000Law Enforcement Texas Municipal League 1970-07 Each Wrongful Act $10,000,000 October 1, 2007Liability Annual Aggregate $10,000,000 October 1, 2008Deductible: $2,500(Continued)74

BRAZOS RIVER AUTHORITYSCHEDULE OF INSURANCEAS OF AUGUST 31, 2008 (unaudited)Name of Policy Summary Limits of CoveragePolicy Company Number of Coverage Liability PeriodProperty/Boiler & Texas Municipal League 1970-07 Blanket Real & Personal Property, $149,254,149 October 1, 2007Machinery EDP, & Boiler & Machinery October 1, 2008Terrorism $10,000,000Valuable Papers & Records $25,000,000Accounts Receivable $1,000,000Fine Arts $1,000,000Transportation $1,000,000Business Income $1,000,000DemolitionBlanket LimitIncreased cost of ConstructionBlanket LimitExpediting CostsBlanket LimitMobile Homes per LocationBlanket LimitPollution Cleanup in the Aggregate $10,000per premisesFlood in the Aggregate $10,000,000(no flood coverage in 100 year floodzone or in Tier 1 and 2 counties)Deductible: $50,000Public Officials and Texas Municipal League 1970-07 Each Wrongful Act & Aggregate $10,000,000 October 1, 2007Employees Practices Limit October 1, 2008Liability Deductible: $25,000Public Officials Bond Insurors of Texas CMB-07-0005836 Treasurer's Bond $100,000 April 18, 2008Deductible - None April 18, 2009Public Officials Bond Insurors of Texas CMB-06-005836 Board of Director's Bond $105,000 May 10, 2008Deductible - None May 10, 2009Peace Officer Bond Insurors of Texas 46BSBAE6365 Peace Officer Bond $15,000 February 1, 2008Deductible - None February 1, 2009Travel Accident Insurors of Texas/ ETB-4333 Aggregrate for Hazard $5,000,000 November 1, 2007Hartford Life Excludes Personal Aircraft November 1, 2008Deductible - NoneWorkers’ Compensation Texas Water Conservation 00099 Self-insured for first Aggregate Deduct November 1, 2007Association 50,000 per occurrence $150,000 July 1, 2008Workers’ Compensation Texas Water Conservation 00099 Self-insured for first Aggregate Deduct July 1, 2008Association 50,000 per occurrence $150,000 July 1, 2009Health Insurance Texas Municipal League LEIX7055 Medical expense claims Aggregate Limit November 1, 2007self-insured for first $1,000,000 November 1, 200835,000 per employee75

Full-Time Equivalent EmployeesPer Annual Operating Plan2008 2007 2006 2005 2004 2003Upper BasinManagement 4 4 5 5 5 5Lake Alan Henry 0 0 2 2 1 2Possum Kingdom 57 60 58 55 56 54SWATS 15 15 15 15 15 15Lake Granbury 12 10 10 9 9 10Central BasinManagement & Lab 20 19 14 12 5 5WMARSS (a) 0 0 0 0 25 26TBRSS 10 10 10 10 15 15BCRSS 13 13 13 11 12 15Georgetown 7 7 7 7 0 0SCRWTP 6 4 4 3 3 3Hutto 1 1 1 0 0 0East Williamson County RWS 4 3 3 3 0 0Lower BasinManagement 4 4 4 5 5 5Lake Limestone 9 9 9 9 8 8SLRSS 11 11 12 11 12 12Clute 4 4 4 4 4 4Liberty Hill 1 0 0 0 0 0Central OfficeGeneral Administration 4 4 4 3 3 2Legal Services 4 4 3 3 4 3Financial Services 17 17 17 16 15 16Human Resources 4 4 4 4 4 4Government & Customer Relations 6 6 5 6 6 6Information Technology 12 11 10 10 10 9Planning & Development 1 2 2 2 3 0Strategic Planning 2 1 4 4 5 5Technical Analysis 0 0 1 2 0 0Technical Services 37 35 33 35 35 36265 258 254 246 260 260(a) During Fiscal Year 2004, the customer cities of WMARSS and the Authority entered into negotiations forearly termination of their contract, which had approximately eight years remaining. Negotiations were completedand the ownership/operation was transferred to the City of Waco on February 24, 2004 and all existing contracts,assets, and related debt were transferred to the City of Waco.Source: Brazos River Authority Annual Operating PlanBRAZOS RIVER AUTHORITYFULL -TIME EQUIVALENTLAST SIX FISCAL YEARS (unaudited)76

Cover Photo: Possum Kingdom Lake Ranger in air boat below Morris Sheppard DamPhoto by David CarlyleBrazos River Authority4600 Cobbs Drive - Waco, TX 76710254-761-3100 www.brazos.org