Gift that Keeps on Giving

Gibson Ruddock Patterson LLC
600 Sunland Park, 6-300
El Paso, Tx 79912

Gentlemen,

On July 22, 2009, The El Paso Water Utilities Public Service Board (PSB) gave their President/CEO the authority to sign an easement contract with Fort Bliss. The easement is tied to a water supply contract with Fort Bliss but such contract was not available at the meeting and the PSB chairman prohibited any discussion of such contract.

However, the President/CEO confirmed that the Water Supply Contract provides for the sale of water from the desalination plant to Fort Bliss at a price of $0.71 per CCF. He also confirmed that it will cost $1.22 per CCF ($534 per AF)¹ to produce water from the plant. Therefore, the contract will result in a loss of $.51 per CCF. This transaction has all the markings of an outright gift.

The cost of the plant is around $87 Million. Congress appropriated $26 Million, leaving $61 Million to be jointly funded by Fort Bliss and El Paso Water Customers. Fort Bliss paid $3.3 Million and Water Customers paid $57.7 Million. The Water Supply Contract provides that Fort Bliss will be reimbursed for their $3.3 investment plus they will receive $409,500 a year for the easement for fifty years ($20.5 Million). If Fort Bliss takes all of the water, bond holders and water customers will suffer a loss of $342,187,500² over the life of the contract.

This transaction may require disclosure as a material event under SEC Rule 15c2-12. It will most certainly require disclosure in the Financial Statements. The desalination plant is no longer an asset. It is a liability.

Sincerely,

Jimmy W Janacek

1)http://www.ibwc.state.gov/Files/ibwc080907.pdf
2).51(27.5 MGD capacity/748gal. per CCF) = $18,750 per day
   $18,750 per day x 365 = $6,843,750 per year
   $6,843,750 per year X 50 years = $342,187,500