Connie Ware e President Marshall, Texas

Ms. Ware currently serves as the President and CEO of the Greater Marshall Chamber of Commerce. Ms. Ware was appointed to serve as Chairman of the Texas Commission on the Arts by Governor Bush in 1995. She served as chairman until 2000. Ms. Ware was a founding board member on the Texans for the Arts advocacy group and the Marshall Regional Arts Council. She received the "1988 Outstanding Citizen" award from the City of Marshall. Ms. Ware has chaired numerous political committees and has served as a delegate to the Texas Republican Convention since 1990 and as an alternate to the National Republican Convention in 1992 and 2000. She was Harrison County Republican Chairman from 1990-1996. Ms. Ware and her husband, James, reside in Marshall.

J. D. Jacobs, Jr. - Vice President Rockwall, Texas

Mr. Jacobs is the former President and CEO of Jacobs Transportation, Inc. He resides in Rockwall County where he farms 4000 acres of cotton, corn, milo and wheat and runs a 100-225 head cowlcalf operation. Mr. Jacobs is a current member of the Farm Service

Agency County Committee, the Rockwall County Extension Service Advisory Board and serves as VP for the Rockwall County Farm Bureau Insurance Board. He formerly served on the Rockwall Housing Development Corporation Board. He received the "2001 Agricultural Excellence Award" from the Texas Department of Agriculture. Mr. Jacobs and his wife, Ollie Marian, have three children and three grandchildren and are members of the Lake Pointe Baptist Church of Rockwall.

Connie Wade - Secretary/Treasurer Longview, Texas

Ms. Wade moved from the Texas panhandle to the piney woods of East Texas in the summer of 1978 and fell in love with i ts natural beauty, history and i t s people. Since moving to East Texas, Ms. Wade has volunteered on behalf of local, state-wide and national

candidates and served the Gregg County COP Party as i t s secretary, vice-chairman and as an election judge. At the 1992 State GOP Convention, she chaired the sub-committee on education for the platform committee and in 1996, was elected as an alternate to the COP National Convention in San Diego. She served on the Governor's Commission for Women from 1995-1996. She has also worked a t the Texas Department of Agriculture as a scheduler for Commissioner Susan Combs. Having won a contested primary race in March 2004 for Gregg County Clerk, Connie was sworn in to that elected post in January 2005. Ms. Wade resides in Longview with her husband, Jerry Gipson. Their son, Shannon, resides in Spring, Texas along with his wife and children.

Richard "Link" Linkenauger - Secretary Pro-Tem Greenville, Texas

International, Inc. and involved in private investments. He is active in his community serving on the Greenville Board of Development and Economic Development Corporation for over 10

Mr. Linkenauger is president of Link

years, including two terms as Chairman. He is a member of Rotary International, National Federation of Independent Business, and the Texas Association of Business and Chambers of Commerce. He enjoys hunting and fishing. Link and his wife, Carole, have two children, Jeff and Lindsey, and are active members of the Kavanaugh United Methodist Church in Greenville.

Sammy D. Dance Center, Texas

A graduate of Stephen F. Austin with a business degree, Mr. Dance has been retailing furniture, appliances, electronics and home accessories since 1967. He is one of the founders of Shelby Savings Bank where he serves as a director and loan committee member.

Mr. Dance is Past President of the Shelby County Chamber of Commerce and a recipient of the "Outstanding Young Man of

the Year" award. He also enjoys flying airplanes and sailplanes as well as golfing and numerous water sports. Mr. Dance and his wife, Barbara, have three sons and one grandchild. They are active members of the First United Methodist Church in Center.

Claudia Abney Marshall, Texas

Mrs. Abney is a partner in the CPA firm Abney, Simmons and Co. PLLC and Vice President of the firm Abney and Company, PC where she has practiced since 1976. She is an active member of both the American Institute of Certified Public Accountants and the Texas

Society of Certified Public Accountants. For several years she has served on the executive boards of many civic and cultural organizations including the Harrison County American Red Cross, Marshall Symphony Society, Forum Fifty, Cypress Junior Women's Club, Trinity Episcopal School and various school and student support organizations. She currently serves on the boards of the East Texas Council of Governments and the Marshall Symphony League. She is a graduate of the University of Arkansas where she was a Chi Omega. Claudia and her husband, Mac, have two children and three grandchildren and are active members of Trinity Episcopal Church in Marshall.

Earl Williams Orange, Texas

Mr. Williams is CEO of Tool Tech Machining in Beaumont, Texas, Partner of Cypress Bayou Industrial Painting and President of Cypress Bayou, Inc. in Orange, Texas. He received a Bachelor of Science degree from Howard Payne University, a Masters degree from

Stephen F. Austin State University and completed post graduate work at Texas A&M University. Mr. Williams was appointed to SRA's Board of Directors by Governor Rick Perry in 2001. He previously served on SRA's Board from 1994 to 1999. Mr. Williams and his wife, Suzanne, have two children and live in the Orange area.

Don 0. Covington Orange, Texas

Texan with deep roots in the Golden Triangle, is the former president of Friede Goldman Offshore Texas, L.P. He retired in June of 2000 and is currently involved in private investments. In his

Mr. Covington, a native Southeast

career, he founded Texas Drydock, Inc., which later became TD- Halter, L.P. He spent 30 years with Levingston Shipbuilding Co. Mr. Covington was honored as 1994 "Small Business Person of the Year" and 1997 "Maritime Person of the Year." He is a member of the Propeller Club-Port of Sabine, the Society of Naval Architects and Marine Engineers, a past board member of the Governing Board of Park Place Hospital and the Greater Port Arthur Chamber of Commerce. He and his wife, Claire, are members of the First Christian Church of Orange and have three sons.

Stanley N. "Stan" Mathews Pinehurst, Texas

Mr. Mathews owns and operates Mathews Jewelers, Inc., established in Orange, Texas in 1984 and expanded to Beaumont in 2002. Born and raised in Orange as the son of J. L. and Laverne Mathews, he is very active in his community. He has served as Board

Member, VP of Economic Development and Life Ambassador for the Greater Orange Area Chamber of Commerce. He was named 1997 Small Business Person of the Year. He previously served as a school board member of Little Cypress Mauriceville ISD and as an advisory board member for Memorial Hermann Baptist Orange Hospital. He is a member of the Texas Jewelers Association, a member 'of the Beaumont Chamber of Commerce, a member of the Lamar University Cardinal Club Board of Directors and a 22 year member of the Orange Rotary Club. In his leisure time, he enjoys golf, fishing and travel. Stan and his wife, Linda, have two children and two grandchildren and reside in Pinehurst, Texas.

The Sabine River Authority of Texas is governed by a nine-member Board of Directors.

Each board member serves a six-year term. The Governor of Texas appoints three

board members every two years. Directors are required to reside within

a county situated wholly or partially within the watershed of the Sabine River.

The members of the Sabine River Authority Board of

Directors are leaders in their communities. They are dedicated citizens

who are active participants in the water issues being addressed by the

Sabine River Authority of Texas.

Sabine River Authority Board Officers

2007

President Connie Ware

Vice President J. D. Jacobs

Secreta ry/Treasu rer Connie Wade

Secretary Pro-Tern " L i n k " Li n ken a ug e r

Standing left to right: "Link" Linkenauger, Connie Wade, J. D. Jacobs Seated: Connie Ware

2007 Board of Directors Board Meeting - Marsha//, Texas

Standing /eft to righe Don Covington, J. D. Jacobs, Stan Mathews, Earl Williams and Link Linkenauger

Seated/eft tu right.- Sammy Dance, Claudia Abney, Connie Ware and Connie Wade

Gerard Sala Donnie Henson Water Resources Operations

Coordinator Manager

Debra Stagner David Montagne Authority General Office Assistant General Manager and Controller Manager

Jack Tatum Danny "Butch" Choate Water Resources Upper Basin

Manager Regional Manager

Jerry Clark Ann Galassi Executive Vice President Economic Development and General Manager Public Relations Manager

10

T he Authority General Office {AGO) is located in the southeast corner of the state in Orange

County near the city of Orange, Texas, approximately eight miles north of Interstate 10 on State Highway 87.

All official activities of the Sabine River Authority (SRA) are arranged and coordinated through this office by the General Manager and his Executive Staff. Scheduling of meetings for the Board of Directors and management as well as posting public notices and agendas,disseminating publi information and preparation of press releases are handled through the AGO. The General Manager and Executive Staff also consult with attorneys representing SRA concerning contracts an( other legal issues and work with the financial advisors ar bond counsel concerning bor issues.

Division

Department is located in the

Accounting /Records

The Accounting

IC

i d i d

and expenses are then monitored on a monthly basis to ensure SRA is operating within the budget and to ensure that approvals for budget amendments are obtained from the Board as needed. Investment of SRA's funds is a very important function of the Accounting Department. The Controller ensures all investments are made in accordance with the Public Funds Investments Act, Chapter 2256 of the Government Code, and the Board adopted Flow of Funds Resolution. Investment reports detailing the investment

than adequate to protect the assets of SRA. SRA also contracts with another Certified Public Accounting firm as an independent auditor for the purpose of forming an opinion on whether the financial statements present fairly the results of the operations of SRA. The Accounting Department staff is instrumental in working with the internal and independent auditors to assist in their objectives.

All purchases of vehicles and heavy equipment are coordinated through the AGO. Bid proposals are obtained for major purchases

Authority General Office and is responsible for all vital accounting functions for the entire SRA. The Accounting Department staff processes accounts receivable, accounts payable and generates financial statements on a monthly basis. In addition, the Accounting Department staff is responsible for all payroll functions, including preparation of State and Federal reports, and maintains personnel files for all employees. Working closely with the Division Managers, a budget of revenues and expenses is prepared for each fiscal year and i s presented to the Board of Directors for approval. Revenues

- ~~

to ensure SRA is receiving the most competitive price on these purchases. The Accounting Department maintains inventory records for all SRA assets and, each year, a visual count is conducted to verify the existence and the condition of the assets.

issues and provides training to all of the divisions. The safety program includes training in areas such as safety in the workplace, a defensive driving

course, a boating safety course,

SRA is concerned with safety

SRA Board of Directors Semi-Annual Meeting - Marshall, Texas

transactions are prepared quarterly and submitted to the Board of Directors as required in the Public Funds Investment Act. In addition, accounts are monitored daily to ensure all funds are properly collateralized by the financial institutions. In accordance with Texas Commission on Environmental Quality (TCEQ) rules, SRA contracts with a Certified Public Accounting firm to employ an internal auditor who reports directly to the Board of Directors. The role of the internal auditor is to verify that the internal controls SRA has in place are more

and the Red Cross first aid and cardiopulmonary resuscitation (CPR) training.

Procurement of health, life, property, and liability insurance coverage for SRA is also managed through the AGO. SRA manages a medical self-insurance plan. The purpose of this plan is to pay the medical expenses of SRA's employees and their covered dependents, and to minimize the total cost of the medical insurance. SRA obtains property and liability insurance coverage from Texas Water Conservation Association (TWCA) Risk Management Fund and other carriers.

11

Economic Development & Public Relations Division

The Economic Development & Public Relations (ED/PR) Division was established in FY 2001 as part of an initiative to enhance the economic vitality of the Sabine River Basin (Basin) and to increase the awareness of the Sabine River and its tributaries. The Basin, made up of all or part of 21 counties, covers a large portion of east Texas and has approximately 550,000 in population according to US. 2000 Census figures.

A large portion of the Basin is “I ,“-.I ; m --+I I.-,-. rrrrmrrm;r iuiai I I I i i a L u i c . LLUIIUIIIIL

development programs vary throughout the Basin based on community needs and attributes. SRA is committed to work in tandem with organizations, counties and communities throughout the Basin to complement their existing economic development efforts. The ED/PR Division focuses on four areas to accomplish this task:

1) Public Outreach and Communication

Increase the awareness and appreciation of the Sabine River waterways

2) Community Assistance Program

Promote the improvement of the quality and quantity of services essential for the development of a viable com mu nity

3) Technical Services Assistance

Build resources and provide a catalyst for regional strategic planning

Market the basin to targeted business sectors and prospective tourists

4) Economic Growth

The Community Assistance Program continued to be a major emphasis of activity for the ED/PR Division. The Community Assistance Program was established in FY 2002 to provide funds through a

Grant Presentation - Talley Water Supply Corporation

Back Row from left: SRA Board Member Claudia Abney and Connie Ware, WSC General Manager James Moxley, WSC Board Members Boyd Smith and John Bunch

and SRA ED Manager Ann Galassi Front row from left: WSC Board Members Johnnie B. Taylor and David Burkham

competitive grant process for water resource projects which are consistent with the statutory mission of SRA. These projects must fall within one of four categories: 1) water supply, 2) wastewater management, 3) water conservation and 4) water quality. Grant packages are reviewed quarterly and are limited to $10,000 per project. The program assisted twelve (1 2) applicants within the Basin for FY 2007. To date, sixty-six grants for a total of $639,800 have been awarded as part of this program.

Other ED/PR Division activities included preparing information for the public (brochures, fact sheets, newsletters, press releases); researching information on water and economic development issues throughout the State

coordinating public involvement activities for SRA; facilitating s t ra t eg i c p I a n n i n g meet i n g s; working with local, regional and state organizations to formulate economic development strategies; disseminating ED prospect leads and promoting nature tourism in the Basin.

Grant Presentation - City of Pinehurst From left: SRA Board Member Stan Mathews and

I Pinehurst City Administrator Dan Robertson

SPECIAL CONSULTANTS The following are retained by the Authority to assist in their special capacities:

ATTORNEY S INTERNAL AUDITOR ENGINEERING

Jim I. Graves (Mehaffy & Weber) Charlie Goehringer (Germer-Gertz) Mike Booth (Booth, Ahrens & Werkenthin)

INDEPENDENT AUDITORS Axley & Rode, LLP

James P. Jansen (Jansen & Gregorczyk)

INSURANCE CONSULTANTS TWCA Risk Management Fund

BOND CONSULTANTS Financial Advisor - Mike Bryd (First Southwest Co., Inc.) Bond Counsel - McCall. Parkhurst & Horton

Kellogg, Brown & Root, Inc. Freese & Nichols, Inc. Turner, Collie & Braden, Inc. Schaumburg & Polk, Inc. Alan Plummer Associates, Inc.

SABINE RIVER BASIN PLANNING ISSUES

Legend

* ’ State Line

.pur, Hydrology

$2~ Reservoirs &Lakes

Cities

15 Counties a Sabine Boundary

<x~ Adams and Cow Bayou Subwatershedr

National Forest Lands a Refuges, Preserves

@ Entities requestmg Wbterfrom SRA

MRPRA (Breaiix Act)

l\> Not Constructed

-= Dallas Water Utdities

a North Texas Municipal Water District

E Tarrant Regional Water District

Region I Water Planning Group

Region D Water Flanning Group

Region C W t e r Planning Group

Constructed

-Miles 0 5 10 20 30 40

13

ver the past year, Engineering Services (ES) provided technical support services for each

operating division and participated in water planning strategies and environmental issues affecting the Sabine basin. ES has also been actively involved with the Orange County Local Emergency Planning Committee and hurricane preparations have been made to plan for responding to future

a t all of SRA’s reservoirs.

treatment throughout the Sabine Basin has continued to require the services of ES to assist with both day to day water quality issues and future planning for growth and developments around our reservoirs. SRA’s wastewater project at White Deer Landing mobile home park on Lake Tawakoni is progressing with the completion of the wastewater

Water and Wastewater

collection system installation this year and amendments to the TCEQ permit for the wastewater Dlant

I

Tawakoni State Park Wustewater Treatment Plant \

a t Tawakoni State Park forthcoming. ES assisted with the acquisition of the Tawakoni State Park wastewater treatment plant from TPWD and the permit amendment to allow flows from White Deer Landing.

SRA has partnered Nith Newton County,

disasters. This year ES completed the

preparation of engineering plans and specifications for several large projects. Additionally, the ”in-

on a Hazard Mitigation Grant from FEMA for the purchase of flood way properties in Texas on River Road below Toledo Bend dam. Newton County received the qrant

house” engineeringdesign work led to further assistance with the construction of the new Mechanic Shop Building a t GCD, Renovations to the GCD Pumping Plant Building, Replacement of the GCD Pumping Plant Intake Pipes, Willow Oaks Recreation Site Bridge Repairs, and the LFD Spillway Piping Replacement. ES continues to play an active role in assisting all divisions with their commercial On- Site Sewer Facilities programs and proposed commercial developments

and SRA assisted with ” i n- ki nd ” services for the demolition of the structures and restoration of the property. This Hazard Mitigation Grant Program project has allowed the Toledo Bend Project Joint Operations to

successfully mitigate the impacts of flooding below the dam.

Engineering Services has coordinated and interfaced with cities and state governmental agencies (TWDB) for two regional wastewater studies. The first study was conducted in the Lake Tawakoni / Greenville region to study a plan for bringing wastewater services to the rural regions of Hunt County currently experiencing growth from the metroplex. The second study is just getting underway in Orange County and includes a regional wastewater plan to consolidate the wastewater flows for several entities and bring them to existing City of Orange wastewater plant which outfalls into the Sabine River. Other activities included assistance with various engineering and environmental studies in the Sabine Basin, Orange County TMDL Implementation Plan, FERC re- licensing planning, annual inspections at SRA dam facilities, overall risk assessment, liability management, dam safety and dam security.

Bridge Repair ut Willow Oak Recreation Area

14

the Sabine River requires SRA's involvement in a wide range of water and related issues at the local, county, basin-wide, state, and national levels. Depending upon the nature of any given activity, SRA may have a leadership, cooperative, or advisory role. Major issues include nuisance aquatic plant management, water quality, water conservation and drought management, environmental flows, water supply, and hydropower. The Resource Management and Project Development Division (RMPD) supports SRA's activities associated with these issues by providing technical and other services including geographic information systems (GIS) mapping and analysis, data analysis and reporting, field biology expertise, project management, report writing and review, water s u p p I y contract review, and content maintenance of the SRA Web site (www.sratx.org).

efforts to control nuisance aquatic plants on SRA's water supply reservoirs. In FY-2007 SRA funded aerial treatment of water hyacinths and giant salvinia in the upper portion of Toledo Bend Reservoir by the Texas Parks and Wildlife Department (TPWD). RMPD provided GIS mapping and aquatic biology expertise to the planning of this project. RMPD also represents SRA a t the Texas Aquatic Plant Management Society, a group

Texas. SRA is committed to providing

adequate supplies of high quality water to municipal, industrial, agricultural, and recreational users. Water conservation is an integral element of that effort. Texas Basin. Administrative Code Title 30, Chapter 288, requires SRA to prepare and implement a Water Conservation and Drought

to Plan drought triggers and the drought conditions in Texas. Toledo Bend Reservoir filled in January 2007, and Lake Tawakoni filled in June 2007, thus breaking the drought in the Sabine River

SRA has contracted for the entire permitted amounts of water available in i t s Upper Sabine Basin reservoirs, Lake Tawakoni and Lake

SRA participated in several Contingency Plan and update it Investigation and the Lake' every five years. RMPD assists in Tawakoni Recycled Water Study. the preparation and RMPD assisted with the planning of implementation of this plan. Due these preliminary investigations to drought, al l three of SRA's water and utilized high definition digital supply projects, Lake Tawakoni, imagery purchased cooperatively Lake Fork and Toledo Bend through the North Texas Council of Reservoir, reached record low lake Governments (NTCOG) in GIS levels in FY-2007. RMPD provided analyses for both. Ongoing studies affected customers weekly drought of instream flows and bays and notifications and updates as estuaries are being performed to required by the SRA Drought establish data to verify SRA's Contingency Plan by evaluating management of ecological current reservoir levels with respect requirements in the Basin.

Weekly Drought Notification Report PI

Fork, and has several efforts underway to meet current and future water needs in the Upper Basin. In addition to promoting water conservation, SRA is conducting preliminary investigations for projects that could increase the amount of water ava i la ble to Upper Basin customers, including the Enhancement of Yield for Lake Ta wa ko n i re1 iminarv

15

nformation Resources (IR) provides information technology and information I management services in the

form of computer systems technology support, computer network and communications infrastructure support, electronic information management and tracking, and assistance with legal and licensed use of software. IR also serves as a resource to divisions and staff for information technology planning, specification, and purchasing.

In FY-2007, IR planned and implemented the relocation of SRA's primary website and email services from the Authority General Off ice (AGO) to an external website and email hosting service. One of the lessons of 2005's Hurricane Rita was the vulnerability of SRA's email communication infrastructure and its website to the extended loss of electrical power in the local area. SRA's website and email services were unavailable until electrical power was restored to Lamar University. Now, with the website and email hosted a t a secure and redundant data center in a non- coastal area of the state, these services will no longer be a t the mercy of a Southeast Texas disaster and will be available to SRA staff and the public regardless of the conditions in Orange.

Internet domain name - sratx.org. Although SRA's website name is now www.sratx.org, web requests to the previous site name, www.sra.dst.tx.us, are automatically redirected to the new domain name. Email messages sent to older email addresses are also forwarded to the new email addresses.

SRA also adopted a new, shorter

IR provided support to the Toledo Bend hydropower relicensing project in several areas including developing the project's e I e c t r o n i c doc u men t rep os i t o ry, organizing SRA's library and categorizing files, documents and reports for the relicensing pre- application document.

communication and document sharing between AGO and Toledo Bend Division, IR installed a wireless local area network a t the Toledo Bend office and worked with local telecommunication providers to implement a new, high-speed data link between AGO and Toledo Bend.

IR installed and implemented a new contact management database. The database maintains a history of pertinent email messages, phone calls and meetings and stores the names, addresses, and phone numbers of individuals to facilitate communication with defined groups of these contacts. IR converted an older contact database to be compatible with

To expedite electronic

the new software and provided the computer systems and training databases for a contact database training class for SRA and Sabine River Authority, State of Louisiana staff.

Another major project in FY- 2007 was the testing and installation of the database and software for the Environmental Services Division's (ESD) new la bo rat0 ry i n f or mat i on management system (LIMS). The new LlMS -- a significant upgrade from the prior 1999 system -wil l allow ESD staff to log samples and enter data more efficiently. IR continues to work with ESD to integrate the new LlMS into i t s operations.

Throughout FY-2007, IR worked with SRA divisions and staff on the specific projects mentioned above as well as computer purchases and installations, software licensing maintenance, and ongoing help- desk support.

SRA Wide Area Network

16

T he Environmental Services Division (ESD) provides water quality monitoring and analysis for the SRA as

well as for various municipal, industrial, other government entities, and individual customers. The Field Services subdivision is composed of Upper and Lower Basin Field Offices that conduct water quality monitoring and investigate water quality complaints. Laboratory services include the bacteriological, chemistry, and instrument laboratories.

In late FY-2007, the ESD applied for accreditation under the N a t iona I E nvi ron menta I La bo rat0 ry Accreditation Conference (NELAC) - a national program established in 1995 by the United States Environmental Protection Agency (USEPA) to establish mutually acceptable national standards for accrediting environmental testing laboratories. Texas law now requires NELAC accreditation of

data used in decisions regarding any matter under the Texas Commission on Environmental Quality's (TCEQ) jurisdiction relating to permits or other authorizations, com pl ia nce matters, enforcement actions, or corrective actions.

total of 68,499 water quality tests. In addition to the 29,341 tests performed for Sabine River watershed monitoring programs, 8,412 tests were performed for 37 industrial clients and 7,490 tests for 57 municipal clients with 110 of the municipal tests being for 97 private individuals. A significant number of tests are performed for quality control purposes to support the data generated by the laboratories and field offices. Quality assurance is critical for documenting that test results are producing sound scientific data. A total of 22,935 tests were performed for quality assurance requirements in FY-2007.

In FY-2007, the ESD performed a

Through the Texas Clean Rivers Program (TCRP), a cooperative partnership with TCEQ, the ESD continues to monitor water quality in the Sabine Basin. The TCRP promotes involvement by State and local entities along with the general public and since 1991 has grown to become a major component in the State's water quality planning. Through the TCRP, Sabine Basin stakeholders have the opportunity to provide valuable input to regulatory authorities on water quality issues. The Sabine River Basin Highlights 2006, available on the SRA Web site a t htt p://www.sratx.org/srwmp/tcrp/st ate-of-the-basidbasin-highlights/ default.asp was produced by SRA through the TCRP and provides an overview of water quality conditions in the Basin.

Fish Sampling to establish instream Bow needs for the lower Sabine River

17

Testing for bacteria in drinking water

The TCRP special study of the tidal Sabine River was completed in February 2007. The study area included the area from Hwy 12 in Newton County to the mouth of the river a t the north end of Sabine Lake and included eight stations in Texas and two in Louisiana. The purpose of this bi-monthly study was to gather flow and nutrient data from the tidal Sabine and i t s major tributaries to determine freshwater inflow and nutrient inputs from the Sabine River to Sabine Lake. A draft study report was provided to TCEQ in August 2007.

responsibilities require ESD staff to be on call 24-hrs a day to investigate any activities that may threaten surface waters in the Basin. In FY-2007, ESD staf f investigated 16 spills, kills, or complaints including five oil spills, three fish kills, and eight miscellaneous investigations with most of these performed

Water quality protection

cooperatively with state, federal, or local agencies including the Texas Parks and Wildlife Department (TPWD), the TCEQ, the Railroad Commission, and the USEPA.

The ESD continued to lead the Stakeholder Advisory Group for the Orange County Total Maximum Daily Load project (OCTMDL) - a project initiated by the TCEQ to determine the measures necessary to restore water quality in Adams and Cow Bayou. The goal of the OCTMDL is to determine the amount (load) of a pollutant that these water bodies can receive and still support their designated uses. Presently the designated uses of these water bodies and

the surrounding tributaries are not supported due to low dissolved oxygen levels and high concentrations of fecal

coliform bacteria. Additionally Cow Bayou is impaired due to low pH. The OCTMDL study report was submitted to the USEPA and was approved on August 28, 2007. The next phase of the project will consist of an implementation plan to reduce the loads and return the water quality to support the designated uses.

In FY-2007, the ESD continued participating with the TPWD, the Texas Water Development Board (TWDB), and the TCEQ in biological collections on the lower Sabine River as part of the Lower Sabine River Priority lnstream Flow Study (ISF). These collections are intended to fill data gaps identified by the reconnaissance phase of the ISF prior to initiation of the study design phase of the program.

the collection of preliminary water quality data to support the application process for the Federal Energy Regulatory Commission (FERC) relicense of the Toledo Bend project. Additional water quality data will be collected as this project proceeds.

I

In late FY-2007, ESD assisted with

Deploying probes for measuring water quality

18

I

Sabine River Basin I

I I I

I ARKANSAS

~~ - - - - - - >

T

19

Lake Fork Reservoir was the site of the 1st Annual Toyota Texas Bass Classic (TTBC) in April of 2007. The tournament was a one of a kind event that offered a competition featuring the top tournament anglers in the world along with a festival to include exceptional entertainment and a variety of family and industry activities. The Sabine River Authority was a partner with Toyota, Texas Parks & Wildlife (TPWD) and many other sponsors for the fishing tournament. Over 27,000 people attended the four-day event which included live music from country music stars, Clay Walker and Tracy Lawrence, a kids’ area with outdoor activities and fishing

clinics with opportunities to talk with professional anglers. The fishing tournament featured 100 professional anglers grouped in

teams of four. The four-man team led by Terry Scroggins took home the $250,000 team purse by reeling in 54 fish totaling 244 pounds 12 ounces.

Through the funds raised from TTBC, the TPWD received a $250,000 donation that will be used to benefit their first-class youth fishing and outreach program. The focus of the program is to expose kids and non- traditional users to great fishing opportunities.

The event was a huge success and TTBC officials have already announced the event will return for a 2nd year. The Tournament will again be held on Lake Fork Reservoir on April 18-20, 2008 and will adhere to the strict slot limits of the lake. The Sabine River Authority stands ready to partner with TTBC supporters for another successful event in 2008.

Toyota Bass Classic Fishing Tournament held at Lake Fork in April of 2007

T

20

Authority operates and maintains the John W.

Simmons Gulf Coast Canal System which consists of a pumping plant and approximately seventy-five (75) miles of canals and laterals which extend throughout Orange County. The Division office, pumping plant, and maintenance

day and lifts water approximately twenty-two (22) feet from the intake canal, which is fed by the Sabine River, to the main canal. From there it runs by gravity flow throughout the system. The maintenance and operation of the GCD requires the full attention of the nineteen (19) employees who also operate a wastewater treatment plant located in Orange,

Installmg Canal Gates on Main Canal

facility are located eight (8) miles north of Orange, Texas near the Sabine River which forms the boundary between Texas and Louisiana.

The pumping plant has a total capacity of 360 million gallons per

Texas. A total of 48,298

acre feet or 15,737,970,917 gallons of water were pumped in F f f 2007. This provided fresh water to six (6) petrochemical dants, two (2) electric 3ower plants, a pulp m d paper mill, and a ;tee1 mill, as well as the :ity of Rose City, Texas.

In FA' 2007 several mprovements to the 3umping plant and canal system were

implemented. A major renovation project occurred a t the pumping plant with the replacement of all four (4) steel intake pipes with new ones. The intake pipes that were replaced were over 60 years old. The new pipes were fabricated offsite and

built to SRA specifications. The new intake pipes are 48" diameter steel pipes and 40' long and bell out to a 72" diameter oval shape a t the ends. This design reduces cavitation during low water levels in the intake canal. A 125 ton crane and drivers were utilized to remove the old intake pipes and to install the new ones. Additional work done with this project was the replacement of the exterior metal of the pumping plant, the roof, the wall siding, the doors and the windows.

aluminum canal gates were installed on the main canal near FM-1130 in the Mauriceville area. This new gate structure replaced an old structure that was no longer operational. Also installed on the canal system a t Lateral No. 5 was a 60" x 150' inverted siphon pipe that crossed under a major drainage ditch located in the Orange area. The new siphon pipe replaced an old, leaking siphon pipe.

Other projects completed were the installation of covered parking for AGO & ESD. These repairs were necessary due to destruction

In the canal system, two (2) 48"

Installation of Steel Intake Pipes at Pumping Plant

21

Legend (v SRA Canal System

db- Hydrology

Interstate

- State Highways

FM Roads

Local Roads

-I ? L-J Orange Co Boundary

-

Cities

John W. Simmons Gulf Coast Canal System ~ Orange County

from Hurricane Rita. Also completed was the installation of base material for the parking lot and two (2) concrete slabs with picnic tables a t the Sabine River Hwy 12 boat ramp in Deweyville. A new 60’ x 40’ metal mechanic shop building was constructed replacing a building that was built in the early 70’s. A dry fire hydrant was installed in the main canal with help from the Mauriceville Volunteer Fire Department.

During the month of October in 2006, 24.16 inches of rain was recorded. The Deweyville gauge on Hwy 12 a t the Sabine River bridge recorded a reading of 27.9’ which is 4.9’ above flood stage, with a flow of 173,950 cfs a t the highest point for the year. F N 2006.

Cumulative flows in the Sabine River a t the USGS gauge a t Deweyville amounted to 6,134,420 acre feet this fiscal year compared to 2,452,128 acre feet last year. Total rainfall was 89.25 inches in F N 2007 compared to 49.26 inches in

Construction of mechanic shop building

22

surface acres and 1200 miles.of shoreline. The reservoir sprawls into parts of Panola, Shelby, Sabine and Newton Counties in Texas as well as De Soto and Sabine Parishes in Louisiana. Water supply, hydroelectric generation and recreation are the primary purposes for the reservoir's construction.

the following weeks raised the lake level to full pool in about 3 1/2 months.

significant progress was made by improving boat ramps and by shoreline erosion control projects on the Texas side of Toledo Bend. The boat ramp a t the Sam Forse

During the low lake elevations,

The Toledo Bend Division (TBD) has been responsible for management and operation for the Texas side of the reservoir for over 39 years. TBD has ten employees caring for 762 miles of shoreline, 3800 Private Limited Use Permits, 29 Commercial Permits, 2785 Private Sewage Facility Licenses, 1400 On- Site Sewage Facility Registrations, more than 500 buoys, 2 recreation areas, 10 boat ramps and many maintenance facilities.

During FN2007 drought conditions throughout the basin impacted the reservoir with a new historic low set on October 16th 2006. The record low of 161.25' mean sea level (msl) is 10.75 feet below the 172' msl full pool. In contrast during October we had record setting rains totaling 22.38

usable down to a 160' rnsl elevation. Numerous boat ramps were dredged or otherwise received maintenance during the low lake situation. Marina boat ramps received assistance where possible also by SRA crews and equipment. The City of Hemphill and the City of Huxley both received assistance from

the Texas Parks & Wildlife Department in efforts to fight these invasive aquatic weeds. SRA funded helicopter spraying of 800 acres of lake surface infested with salvinia and hyacinth just below the North Toledo Bend Wildlife Management Area. Effective tactics for fighting these floating species include weevils, herbicide spraying and fluctuating lake levels. There is an ongoing assessment of most successful tactics for fighting invasive species as well as an assessment of the impact of natural variables on the growth cycle of these invasive plants.

significant projects were accomplished during F N 2007. TBD crews assisted the City of Hemphill with cleaning out the "backwash ponds" at the C.C. Rice Water Treatment facility and then drying/mixing the sludge over time. The buoy program continues to require significant maintenance and attention with greater than 500 buoys on the water. Erosion Control on the shoreline is also a continuing maintenance investment.

Many other routine but

SRA crews in extending water intake structures.

have killed back invasive water plants such as salvi nia and hyacinth. However, these species have proven to continue to be a significant problem on the north end of the reservoir. SRA has continued to work cooperatively this year with

The low lake elevations

Inwasiwe Plants on Northern End of Toledo Bend

23

he Toledo Bend Project is jointly owned by the Sabine River Authority of T Texas (SRA-TX) and the

Sabine River Authority, State of Louisiana (SRA-LA). The Toledo Bend Reservoir, a t 185,000 acres, is the largest man-made reservoir in the South. Toledo Bend has over 1,200 miles of shoreline; 503 miles in Louisiana and 762 miles in Texas. The storage capacity of the reservoir is over 4,477,000 acre feet; and it stretches more than 65 miles in length reaching from the dam to the north end of the reservoir near Logansport, Louisiana.

management and operation of the Project are directed by the Operating Board which is comprised of two board members from SRA-LA Board of Commissioners and two board members from SRA-TX Board of Directors. The General Manager of SRA-TX and the Executive Director of SRA-LA serve on the Operating Board as ex officio members. The initial costs for the construction of the Project were shared equally by the two Authorities, and they continue to share in the operating cost; therefore, each state is entitled to fifty percent of the income from the sale of power generated a t the facility. Management of matters relating to the reservoir, dam, spillway and power plant are handled jointly with each state managing i t s own shoreline and recreation activities.

The reservoir reached a top elevation of 172.51' mean sea level (rnsl) on July 22, 2007. At that time the power house had both generating units running twenty- four hours per day and five spillway gates were open one foot each with a total combined release of approximately 20,000 cfs. This

Rules, regulations, financial

nineteen days until ad dropped to an 2.03' msl; and then es were closed and

the Toledo Bend Project (TBPJO) and the

anies agreed to an to the Power Sales

r elevation. In the past

with the Federal Energy ory Commission (FERC) to

2013. In January 2007, oboda was hired as the

g project and Devine Associates will serve as ss consultant for g. In August an initial meeting with the Texas

isiana management and held to outline the major that will occur in the

grated Licensing Process ilized with the

Intent to relicense d and submitted in

ect is furnishing in-kind in the form of demolition mes and structures. These

being purchased by unty with money from a

y and a new 50 KW

stand-by generator was installed at the Louisiana Engineering office for back-up power.

numbers 16, 17 and 19 were all reworked. These pumps remove ground water from under the powerhouse to stabilize the facility.

During the fal l when the powerhouse routinely schedules any needed major maintenance, another of the six upstream intake gates were checked and refurbished. The large chain that raises and lowers the gate was replaced. This was the third of six gates to be redone.

FERC made their annual safety inspection of the Project in May. This inspection of the dam, powerhouse, spillway and related facilities is to ascertain that all the facilities are functioning and being maintained in compliance with FERC standards and that the security and integrity of the Project are being enforced. A representative from our consulting engineers, Kellogg Brown & Root was also present for the inspection.

On September 1, 2006, the reservoir elevation was 162.53' msl. The highest elevation reached this fiscal year was 172.51' msl on July 18, 2007, and the lowest was 161.25' msl recorded on October 16, 2006. Total rainfall for F N 2007 was 69.82 inches compared to 41.10 inches recorded for F N 2006. Total water released during F N 2007 was 2,936.39 million acre feet compared to 1,182.03 million acre feet in F f f 2006. Total power generated in F N 2007 was 172,956,000 kilowatt hours (KWH) compared to the 70,370,000 KWH generated during the previous fiscal year.

Powerhouse relief wells

24

he Parks & Recreation Division (P&RD) began operation in September of T 1999 with the primary

vision to preserve and expand recreation opportunities throughout the Sabine River Basin. The P&RD has worked to take the lead on major recreation projects as well as work cooperatively in supporting other divisions on other recreation projects. Since fiscal year 2000, significant progress has been made on numerous projects throughout the basin.

For the past eight years this division has been operating and ma i n t a i n in g Ha I e y 's Ferry, Rag t o w n, East Hamilton, Indian Mounds, Lakeview and Willow Oak Recreation Areas which are located in Shelby and Sabine Counties. Four employees maintain about 200 acres which includes five boat ramps, 90 campsites, six restroom buildings, many miles of roads, two hiking trails, two water systems and two dispersed camping areas.

Fiscal year 2007 has brought the endeavor to repair the Willow Oak Bridge and that renovation is nearly completed. The SRA, United States Forest Service (USFS) and Sabine County have shared equally in the cost of the main renovation

required the bridge to be closed. The situation required the bridge be either repaired or face indefinite closure of the park. SRA, USFS and Sabine County joined together to fund the bridge repair and therefore allow the public to continue the use of the recreation area. Primary renovation was completed this fiscal year and it is expected that the bridge and park will be open in fall 2007.

Willow Oak Camping Area has been cleaned and prepared for opening. The bridge was closed due to structural problems prior to Hurricane Rita and the damage from the storm could not be reached until the bridge was repaired. Once the bridge was passable, P&RD crews cleaned multiple downed trees from the entrance road, camping area and boat ramp area at the park. Significant work had to be done to clear the entire area because of the hurricane damage and natural growth of grass and brush.

Haley's Ferry Boat Ramp received significant work during the low lake elevations of early fall 2007. The USFS constructed the ramp approximately 12 years ago, but the lower end of the ramp required significant work because of "prop-wash" erosion that often occurs a t the end of ramps. Ten yards of concrete were added a t the end of the ramp and this significantly improved

conditions for low lake elevation boat launching. S i l t at various other ramps was removed during the low lake elevations of the fall. P&RD employees spent much time during the low lake elevations working cooperatively with Toledo Bend Division Crews on Site 1 and Site 7 boat ramp renovations.

Other notable improvements were accomplished during this year.

Bridge Repair at Willow Oak Recreation Area

One such item included work to upgrade the Ragtown sewer system. Also, underground power supply lines were significantly upgraded a t Indian Mounds and Ragtown this year. The USFS provided asphalt for Indian Mounds road damage caused by Hurricane Rita. P&RD crews hauled the asphalt and laid it on the roads. There was enough asphalt to cover most of the road damage from the hurricane.

The annual Walk in the Forest 2007 was a success again this year. The fifth grade students, teachers and some parents seem to love to get out of the classroom for a walk

Bridge Repair at Willow Oak Recreation Area

down the Ragtown nature trail. Education stations are set up along the trail. Some stations are nestled along the waters edge, some perched on high bluffs overlooking the lake, some near deep ravines and large hills, but all stations are among the towering trees of the Sabine National Forest. Education stations are presented by the Texas Forest Service, the United States Forest Service, Texas Parks & Wildlife and others. The Texas Forest Service and the SRA are cosponsors of the event. All Shelby County Schools are invited and most attend each year. Education topics include forest reptiles, forest wildlife, trees, insects, and archeology. All stations are interesting, but archaeology and reptiles are the biggest hits. The USFS has four to five live snakes each vear a t

~

25

~

“Walk in the Forest 2007” Presentation in Ragtown

Morrison, in archeology is known for g area Or near the lakes edge returning to class. About 400 attend each year.

over the past eight renovated boat

constructed Students enjoy a sack lunch in the

the reptile station. Tem

his arrowhead making, pottery making, and arrowhpear demonstrations and has plenty of artifacts to show.

boat ramp a t Indian Mounds in the camping area. Second and third camping loops have been opened at Indian Mounds. All parks have been opened year around instead of closing during the winter. Water systems have received significant improvements. Road conditions have been drastically improved by rebuilding the surfaces of some gravel roads, resurfacing some asphalt roads and trimming overhanging limbs. Buildings, grounds, amenities and trails have been improved by routine maintenance such as painting, mowing, trimming, cleaning and repairing. We have received many compliments on the improved conditions.

“Walk in the Forest 2007’1

26

fter nearly two years of drought, Lake Fork Reservoir reached i t s lowest level (397.6 ft. half hours of national communities.

picked up and broadcast by two national television networks, Versus and CBS, with two and a

featuring Lake Fork Reservoir and programming. These broadcasts,

i t s Largemouth Bass fishery, are hoped to be a long term benefit by bringing in additional tourism dollars to local businesses and

LFD hosted another event of local importance in June of 2007. The 11 th annual ”Hooked on Fishing, Not on Drugs” youth fishing tournament was held in cooperation with TPWD and the

msl.) in December of 2006 since it first filled in December of 1985. On June 23rd, 2007, to the relief of i t s residents, the reservoir once again reached full pool.

Fiscal year 2007 a t Lake Fork Reservoir was punctuated not only by the return of a full reservoir, but also by the First Annual Toyota Texas Bass Classic charity fishing tournament. This major event was hosted on the grounds of the SRA Lake Fork Division office in April. The top professional bass anglers of the Professional Anglers Association (PAA) competed in a team format for $1,000,000 in prizes to the winning teams. The event hosted several concerts, with country music stars Clay Walker and Tracy Lawrence headlining. Nearly 30,000 fans attended the three day event on Lake Fork. At the conclusion of the tournament lead sponsor Gulf States Toyota presented Texas Parks and Wildlife Department’s Director of Inland Fisheries, Phil Durocher, with a check for $250,000. The event was

2007 Annual “Hooked on Fishing, Not on Drugs” Youth Fishing Tournament

Wood County Sheriffs Department. This was the largest ”Kid Fish” to date, with 425 registered participants. Prizes were awarded t o children of all age groups. Many participants attend the festivities annually. This year groups from as far away as Jacksonville traveled to take part in the event. Many fish were caught and released, and many more smiles were enjoyed by all.

The maintenance of the dam and spillway a t Lake Fork is a large undertaking. One of the larger projects completed this year a t Lake Fork Division was the lining

Pro-Angler John Sappington, winner of the Toyota Texas Bass Classic “Big Fish Award” holds up his Lake Fork Bass weighing in at 11 pounds 2 ounces

~ 27

and refitting of the 36 inch discharge pipes and valves located in the gallery of the spillway. These pipes and valves are used to divert water from the reservoir to downstream customers. After thirty years of use and corrosion, contractors disconnected and removed the pipes and valves from the gallery in order to access the corroded pipes encased in the cement of the spillway. These pipes were then lined and welded with stainless steel in order to prevent further corrosion from occurring. While contractors were welding the liners in place, representatives from the Pratt Valve Company replaced all seals and fittings in the 36 inch ball valves, and evaluated their condition. Pratt Valve Company representatives found the valves in good condition, but recommended replacing the actuators, controls, and gears in the near future to prevent control ~

Retrofitting Lake Fork Spillway Ball Values

problems. At the conclusion of the project, corhractors refitted the pipes and valves and ensured al l filtings

The Dallas Water Utilities (DWU) Pump station and pipeline project near completion in 2007. Only the

I final 2000 feet of pipeline and the final inter were secure and dry. I connections remain to complete phase 5. Contractors continue construction on the pump / intake structure. Back filling of the pump station walls was completed in July. Wood County Electric Coop is in the process of bringing transmission lines to the pump station. The pump station and pipeline are projected to be

li

. . completed and operational in June of 2008.

Dallas Pump Station Constructibn, Lake Fork Reservozoir

28

widespread drought covering much of the southwestern United A States began at Lake

Tawakoni in March of 2005 and continued into 2007. By December 29, 2006 the reservoir had fallen to an all-time record low of 12.58 feet below the conservation pool elevation of 437.5 feet msl. Rain once again began to fall in the early part of 2007, but it wasn‘t until June 29, 2007 that the reservoir level reached conservation pool elevation. This drought underscored the importance of Lake Tawakoni as a major water supply reservoir and the increasing need for dependable water resources for the growing northeast Texas area.

In addition to on-going routine responsibilities Authority personnel have worked on a number of

maintenance to boat ramps and other areas typically inaccessible at higher elevations. Authority personnel designed and constructed two docks, which were placed a t public boat ramps at the east and west ends of the two-mile bridge to aid boaters in launching and loading their boats. In order to better serve the public, these docks are designed to be raised and lowered during fluctuations in reservoir levels.

Installation of the White Deer Landing sewage collection system continued through much of 2007. The system which was installed by Authority personnel provides first time sewage service to numerous residents and consists of several

miles of collection lines as well as i nd ivid ua I collection basins and grinder pumps at each residence. The system is connected to a wastewater treatment plant originally built for the Tawakoni State Park. The plant is currently owned and operated by the Sabine River Authority and continues to treat wastewater generated by the state park.

Construction of the Dallas Water Utilities (DWU) pipeline from Lake Fork to DWU’s Eastside Treatment Facility continued through 2007. The final segment of the pipeline stretches approximately seven miles around the south side of Lake Tawakoni from near the Iron Bridge Dam to DWU’s Iron Bridge Pump

Water Going Over the Spillway at Lake Tawakoni - July 2007

29

Station. When completed the 108 inch pipeline will connect to an existing pipeline from the Iron Bridge Pump Station to the Eastside Treatment Facility.

In 2006 the North Texas Municipa Water District (NTMWD) acquired water previously contracted by the City of Terrell from the Authority. Early in 2006 NTMWD began construction on a new pumping plant a t the old Terrell intake site. Construction also began on a forty- eight inch pipeline to move raw water from Lake Tawakoni to NTMWD’s treatment facility a t Lake Lavon. Construction of the pump plant and pipeline continued through 2007 and is expected to be completed in early 2008. NTMWD currently provides treated water to the City of Terrell and Cash SUD. Water purchased from NTMWD by Cash SUD is in addition to water currently being purchased from the Authority for treatment and

II

distribution to its customers. The Tawakoni State Park caught

the attention of news media organizations from around the world when an extremely large spider web was discovered a t the park in August 2007. The large web was said to have covered the length of two football fields. It was reported by park officials that several thousand visitors came to the park in a few weeks following the discovery. Entomologist determined that the giant web was the result of a t least twelve different families of spiders that uncharacteristically worked together to create the web.

for Lake Tawakoni in F N 2007 were 440.23 feet msl on July 7, 2007 and 424.92 feet msl on December 29, 2006. Rainfall for the fiscal year totaled 51.61 inches compared to 25.95 inches in FN 2006 and 26.63 inches in F N 2005.

The highest and lowest elevations

New Boat Dock East End of Two Mile Bridge

Spider Webs in Tawakoni State Park

EXAS

For the Years Ended

FINANCIAL SECTION

Independent Auditors' Report .................... 31

Management's Discussion and Analysis ...... 32

Basic Financial Statements: Statements of Net Assets ............................ 38 Statements of Revenues. Expenses

and Changes in Net Assets ........................ 39 Statements of Cash Flows ............................ 40 Notes to Financial Statements .................... 41 Supplementary Information

Schedule 1 .................................................. 49 Schedule 2 .................................................. 49 Schedule 3 .................................................. 50 Schedule 4 .................................................. 51

Exhi bit 1 ...................................................... 52 Exhi bit 2 ...................................................... 53 Exhibit 3 ...................................................... 53 Exhibit 4 ...................................................... 54 Exhibit 5 ...................................................... 54 Exhibit 6 ...................................................... 55 Exhi bit 7 ...................................................... 55 Exhibit 8 ............................................... .5 6.57 Exhi bit 9 ...................................................... 58 Exhibit 10 .................................................. 58 Exhibit 11 .................................................. 59 Exhibit 12 .................................................. 60 Exhibit 13 .................................................. 61 Exhibit 14 .................................................. 62

August 31. 2007 and 2006

Statistical Section:

31

AXLEY t? RODE, LLP C f R 7 I f l P D P U B L I C ACCOUh'Tz4HlS *SINCE 1 9 4 9

CROCKETT - JASPER - LIVINGSTON - LUFKIN - NACOGDOCHES

INDEPENDENT AUDITORS' REPORT

The Board of Directors Sabine River Authority of Texas Orange, Texas

We have audited the accompanying basic financial statements of Sabine River Authority of Texas ("Authority") as of and for the years ended August 31, 2007 and 2006. These financial statements are the responsibility of the Authority's management. Our responsibility is to express an opinion on these financial statements based on our audit. We did not audit the Toledo Bend- Joint Operation, which represents approximately 17% and 1%, respectively, for the year ended August 31, 2007 and 17% and 1.4%, respectively, for the year ended August 31, 2006, of the assets and revenue of the Authority. Those statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for Toledo Bend-Joint Operation, is based solely on the reports of the other auditors.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit and the reports of other auditors provide a reasonable basis for our opinion.

In our opinion, the basic financial statements referred to above present fairly, in all material respects, the financial position of the Authority as of August 31, 2007 and 2006 and the changes in its net assets and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

The management's discussion and analysis on pages 32 through 37 is not a required part of the basic financial statements, but is supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the supplementary information. However, we did not audit the information and express no opinion on it.

Our audit was performed for the purpose of forming an opinion on the financial statements that collectively comprise the Authority's basic financial statements. The supplementary schedules listed in the table of contents are presented for purposes for additional analysis and are not a required part of the basic financial statements of the Authority. Such information, unless marked unaudited, has been subjected to the auditing procedures applied in the audit of the basic financial statements, and, in our opinion, is fairly stated in all material respects, in relation to the financial statements taken as a whole.

Lufkin, Texas September 28, 2007

32 Management's Discussion and Analysis

The following discussion and analysis of the Sabine River Authority of Texas' financial performance provides an overview of the Authority's financial activities for the year ended August 31, 2007, in comparison with the prior year financial results. Please read it in conjunction with the financial statements, which follow this section.

Statements of Net Assets, Statements of Revenues, Expenses, and Changes in Net Assets, and Statements of Cash Flows

The financial report consists of three parts: Management's Discussion and Analysis (this section), the basic financial statements, and the notes to the financial statements.

The basic financial statements include the Statements of Net Assets, the Statements of Revenue, Expenses and Changes in Net Assets, and the Statements of Cash Flows that present information for the Authority as a whole and provide an indication of the Authority's financial health. The financial statements are presented as a single Enterprise Fund using the accrual basis of accounting.

The Statements of Net Assets report the current and noncurrent assets and liabilities for the Authority as well as delineating the restricted assets from assets to be used for general purposes. The Statements of Revenue, Expenses and Changes in Net Assets report all of the revenues and expenses during the time periods indicated. The Statements of Cash Flows report the cash provided and used by operating activities, as well as other cash sources such as investment income and cash payments for repayment of bonds and capital additions.

Net Assets

The Net Assets of the Authority increased during 2007 by $.9 million or 0.6% while the Net Assets during 2006 decreased by $1.2 million or 0.8%. Total Assets decreased during 2007 by $1.3 million largely due to the recognition of depreciation expense. Total Liabilities decreased during 2007 and increased during 2006 by $2.29 million and $1 million, or 7% and 3.3%, respectively. The decrease in Total Liabilities for 2007 is due to principal payments on revenue bonds and income recognition from the deferred credit which is a prepayment of the reservation fee received from North Texas Municipal Water District (NTMWD) for an interim water contract. The deferred credit will decrease annually as revenue is recognized based on the availability of the interim water. The increase in Total Liabilities for 2006 is attributable to the prepayment received from NTMWD and the recording of the deferred credit.

Total Noncurrent Assets decreased by $1.6 million or 0.88% after a decrease of 1% for 2006. Restricted investments increased by $0.2 million. The recognition of depreciation expense is the largest single reason for the decrease in Total Noncurrent Assets.

Current Assets increased by $0.2 million following an increase of $1.6 million for 2006. The increase in 2007 is attributable to an increase of $1.5 million in accounts receivable resulting from the power sales receivable.

33 FINANCIAL HIGHLIGHTS

2007 2006 2005 Assets:

Current assets Noncurrent assets Capital assets, net

TOTALASSETS

$ 4 4 7 9 166 $ 4 2 1 7 7 5 8 $ 2 596 165 30 013 225 29 964 636 30 056 572

151 084 828 152 739 526 154 465 777 185 577 219 186 921 920 187 118 514

Liabilities: Current liabilities Noncurrent liabilities

TOTAL LIABILITIES

2 551 456 2 410 601 2 395 948 28 007 372 30 435 587 29 392 400 30 558 828 32 846 188 31 788 348

Net Assets: Invested in capital assets Restricted for debt service Unrestricted

TOTAL NET ASSETS

122 749 783 123 150 281 123 837 332 1 772 417 1 539 861 1 569 997

30 496 191 29 385 590 29 922 837 155 018 391 154 075 732 155 330 166

Change in Net Assets: Operating Revenues:

Water sales Power sales Wastewater treatment Permits Water quality activity Miscellaneous Bond issue fees Reservation fee

TOTAL OPERATING REVENUES

11 495 394 2 528 598

52 994 750 935 725 362 625 468 513 400 6.51 702

17 611 681 2 890 944

72 301 614 855 779 081 344 427

10 488 136 721 340

81 273 760 795 741 983 364 190 408 500 651 702

14 217 919 22 313 289 17 343 853

Operating Expenses: Operation and maintenance Depreciation

TOTAL OPERATING EXPENSES

14 474 378 13 268 668 13 058 829 2 871 094

15 929 923 2 858 887

16 127 555 2 880 297

17 354 675

(1 712 0041 OPERATING INCOME 6 185 734 (10 822)

Nonoperating Revenues (Expenses) : Gain (loss) on sale of capital assets Impairment loss Investment income Interest expense

(EXPENSES) TOTAL NONOPERATING REVENUES

18 364

751 812 (476 274)

293 902

38 622 (40 397)

1 141 571 (682 868)

456 928

(1 1 424) (20 146)

1 596 600 (620 925)

944 105

Contributions in aid of construction 9 376 642

(LOSS) INCOME BEFORE EXTRAORDINARY ITEM

Early extinguishment of long-term debt Extraordinary Item:

6 479 636 942 659 (1 254 434)

1 530 825

942 659 154 075 732

(1 254 434) 155 330 166

CHANGE IN NET ASSETS TOTAL NET ASSETS, BEGINNING

Prior period adjustment

8 010 461 139 006 451

8 313 254

TOTAL NET ASSETS, ENDING $ 155018391 $ 154075732 $ 155330166

Operations for 2007 resulted in a loss however the loss was $1.7 million, or 99%, less than the loss in 2006. Operating Income for 2006 had decreased 127.7% from the prior year. The decreased loss is the result of the end of drought conditions which had affected the lake level at Toledo Bend and the ability to generate hydropower. Operating Expenses increased $1.4 million while Operating Revenues increased $3.1 million.

Total Operating Revenues consist primarily of water sales and power sales. Other Operating Revenues include waste water treatment, permits, water quality activity and miscellaneous income as well as bond issuance fees and reservation fees. The increase in Operating Revenues during 2007 follows a decrease of 36.3% during 2006. Water sales for 2007 increase when compared to 2006. Power sales for 2007 returned to average generation as the drought conditions were alleviated in the Sabine River Basin which provided water in Toledo Bend reservoir to produce hydropower. Bond issuance fees on Texas Utilities pollution control bonds and the income recognition of the reservation fee on the NTMWD interim water contributed $1.1 million to Total Operating Revenues in 2007.

Operating Expenses increased $1.4 million, an 8.9% increase following a $0.2 million, or 1.2%, decrease in 2006. While the operating expenses increased in 2007 and decreased in 2006, no single category of expenses accounted for the differences.

25,000,000

20,000,000

e 15,000,000 [3 Operating Revenues

Operating Expenses d 8 10,000,000

5,000,000

0

2007 2006 2005

For the year ended August 31

verall F i ~ a n c ~ a l Position

The Authority has sufficient revenues and reserves to pay the expenses and debt service of the Authority.

~ i g n i ~ ~ a n t Capital Assets

Net capital assets decreased from $152,739,526 to $151,084,828, a decrease of $1,654,698. The decrease is the result of the current year recognition of depreciation expense. The Authority's projects and a description of each are as follows:

Gulf Coast Division

The Sabine River Authority, having been created by the legislature in 1949, purchased the Orange County Water Company in 1954. The newly acquired canal system, now known as the Gulf Coast Division, provided the initial catalyst for the operations of SRA. The Gulf Coast Division supplies fresh water from the Sabine River to industries, farmers and a municipality in Orange County by way of a canal system. The pumping plant consists of four horizontal centrifugal pumps with 400 horsepower electric motors capable of pumping 60,000 gallons per minute (gpm) each and one vertical auxiliary pump with a 125 horsepower motor capable of pumping 12,000 gpm. The water is lifted approximately 22 feet from an intake channel to a gravity flow canal system through approximately 75 miles of main canal and laterals to supply fresh water from the east side of Orange County to the west side.

35 The canal system provides fresh water to six petrochemical plants, two electric power plants, a pulp and paper mill and a steel mill, as well as rice farmers and the city of Rose City, Texas. Water sales for Gulf Coast Division were 39.64 million gallons daily (mgd) for 2007 as compared to the 2006 water sales which were 39.75 mgd.

Lake Tawakoni

This water supply project of the Sabine River Authority of Texas is located on the Sabine River immediately above the old Iron Bridge Crossing on FM 47, about 10 miles northeast of Wills Point, Texas. The reservoir inundates land in Hunt, Rains, and Van Zandt Counties. The State Board of Water Engineers issued a permit for project construction on December 20, 1955. Land acquisition was initiated in 1956 and completed in October 1960. Construction on the dam began in January 1958 and was completed in October 1960.

Construction of the Iron Bridge Dam and Reservoir Project was funded through a water supply agreement with the City of Dallas to provide water for municipal and industrial purposes. The reservoir storage capacity at 437.5 feet mean sea level conservation pool level is 926,000 acre-feet (302 billion gallons). The dependable annual yield of the reservoir is approximately 238,100 acre-feet per year (2 13 million gallons per day).

In 2007, 127.89 mgd of water was delivered to 15 customers including municipalities and water supply corporations compared to 165.92 mgd delivered in 2006.

Toledo Bend Reservoir

The Sabine River Authority of Texas, and the Sabine River Authority, State of Louisiana constructed Toledo Bend Reservoir, primarily for the purposes of water supply, hydroelectric power generation, and recreation. Revenues and expenses are shared equally between Texas and Louisiana.

This project is located in Texas and Louisiana on the Sabine River, which forms a portion of the boundary between the two states. From the dam site the reservoir extends up the river for about 65 miles to Logansport, Louisiana, and inundates land in Sabine, Shelby, Panola, and Newton Counties, Texas, and Sabine and DeSoto Parishes, Louisiana.

Toledo Bend Reservoir is one of the largest man-made bodies of water in the South and one of the largest in surface acres in the United States, with water normally covering an area of 185,000 acres and having a controlled storage capacity of 4,477,000 acre-feet (1,448,934,927,000 gallons). Toledo Bend Reservoir is distinctive in that it is a public water conservation and hydroelectric power project that was undertaken without federal participation in its permanent financing.

The operation of the project for hydroelectric power generation and water supply provides a dependable yield of 1,868 million gallons per day. Most of this water is passed through the turbines for the generation of electric power and is available for municipal, industrial, and agricultural purposes. An indoor type hydroelectric power plant is located in the south abutment of the dam. It consists of two vertical units of equal size utilizing Kaplan turbines, rated at 55,750 hp each at a minimum net head of 60.8 feet, and water-cooled generators of the umbrella type rated at 42,500 KVA at a 0.95 power factor. I t is estimated that the power plant will generate a n average of 207,000,000-kilowatt hours annually. Entergy Gulf States and the Central Louisiana Electric Company, Inc. have contracted with the Sabine River Authorities for the purchase of the hydroelectric power. The revenue from the sale of hydroelectric power is used to retire the Authorities revenue bonds and constitutes the principal source of income for operation of the project.

36 The yield of Toledo Bend Reservoir is 2,086,600 acre-feet (ac-ft), of which half is allocated to Texas and half to Louisiana. Of the 1,043,300 ac-ft allocated to Texas, the Authority has a permit for 750,000 ac-ft. In 2003, the Authority made application to Texas Commission on Environmental Quality for the unpermitted 293,300 ac-ft of water in Toledo Bend. Studies are now under way to examine the feasibility of a pipeline from Toledo Bend Reservoir to the upper basin which would supply water to our customers in the basin as well as other customers in the north Texas region. In 2003, SRA entered into an interlocal agreement with Dallas Water Utilities, Tarrant Regional Water District and North Texas Municipal Water District to examine the prospect of piping water from Toledo Bend Reservoir to help supply the water needs of these customers. If this project is found to be viable, it will be the first substantial water sale from Toledo Bend Reservoir.

In 2007, water sales from Toledo Bend totaled 3.77 mgd compared to 4.62 mgd in 2006. Water is delivered to two municipalities and one industrial customer.

Lake Fork

This project is located on Lake Fork Creek, a major tributary of the Sabine River, about 5 miles west of Quitman, Texas. The reservoir, owned and operated by the Sabine River Authority of Texas, inundates land in Wood, Rains, and Hopkins Counties. Preliminary engineering studies for the Lake Fork Reservoir Project were initiated in November 1972. Construction work on the project began in the fall of 1975. Final closure of the dam was made in February 1980, and conservation pool level was reached in December 1985. A total of 41,100 acres of land were acquired for the project. Lake Fork Reservoir has an estimated surface area of 27,690 acres at conservation pool elevation 403.0 feet above mean m.s.1. (mean sea level) and extends up Lake Fork Creek about 15 miles.

Construction of the Lake Fork Reservoir was funded through a water supply agreement with Texas Utilities, Inc. (TXU) to provide water for municipal and industrial uses. TXU and the Cities of Dallas, Longview, Kilgore, Henderson and Quitman have contracted for purchase of water from the reservoir. The reservoir's storage capacity at the 403 feet m.s.1. conservation pool level is 675,819 acre-feet with a minimum firm yield of 188,660 acre-feet per year.

Lake Fork is a world-class fishery and has been identified by many outdoor writers as the best "big bass" reservoir in the state and perhaps the nation. This reputation is due in large part to fishery management efforts of the Texas Parks and Wildlife Department who began stocking the reservoir with Florida largemouth bass in 1978. The current state record largemouth bass was caught in Lake Fork.

Lake Fork customers consist of four municipalities. In 2007, 12.59 mgd of water was delivered to these customers as compared to 11.52 mgd delivered in 2006.

Environmental Services

The Environmental Services Division is responsible for the Authority's water quality monitoring activities in the Sabine River Basin of Texas. These activities are coordinated with State regulatory agencies and also include the review and evaluation of water quality data collected by other agencies in the Sabine Basin. Further, Environmental Services Division staff conducts the assessment of water quality within the Sabine River Basin, Texas, for the Texas Clean Rivers Program.

Tracking water quality conditions in the reservoirs and the streams in the Basin becomes more important to the Authority each year as the number and size of water users and wastewater dischargers increase. Additionally, the Environmental Services Division assists governmental entities, industries, and municipalities by providing them with water quality information to meet their various needs.

The Authority receives funds from the State of Texas to offset costs for administering the Clean Rivers Program in addition to the fees collected for the water testing performed for industrial and municipal customers. In 2007, Environmental Services Division performed 68,499 tests which is a decrease from the 83,066 tests performed in 2006.

37 For more detailed information on capital asset activities, please refer to the capital asset section in Note 3 of the Notes to Financial Statements.

Long-Term Debt

The majority of the assets previously discussed were financed by revenue bonds. Principal payments made during 2007 were $1,495,000 and $1,280,000 in 2006. Under the terms of a Power Sales Contract, the power sales from the Toledo Bend power plant are pledged to pay the hydroelectric revenue bonds. There are no outstanding bonds on Lake Tawakoni or Lake Fork and only two remaining bonds, $5,000 each which matured in June 2002, have not been presented for payment on the Gulf Coast canal project.

The Authority finances capital additions from revenues and reserve funds. 'The Authority has not issued any new revenue bonds.

For more detailed information on long-term debt activities, please refer to the Long-Term Liabilities section in Note 3 of the Notes to Financial Statements as well as the Supplementary Information which follows the Notes to Financial Statements.

Restricted Assets

The Authority maintains bond reserve funds as required by bond covenants. In addition to the bond reserve funds, restricted funds are set aside by the Board of Directors for specific purposes such as emergency repair and replacement, reservoir improvement, special repair and replacement, health insurance reserve, economic development, parks and recreation and upper basin water supply project. The Authority receives no state appropriations and has no powers to levy taxes. As such, all expenses associated with the maintenance and operations of existing projects as well as planning for future water needs are the responsibility of the Authority. In order to be a self-sufficient entity, the Authority must maintain adequate reserves to ensure funds are available for ongoing activities as well as meeting the financial needs arising from major repairs on the existing projects and planning for future water needs.

Change in Financial Position

Income increased in 2007 as a result of the pollution control bond issuance fees and the alleviation of the drought conditions in the Sabine River Basin which refilled all of the Authority's reservoirs. With Toledo Bend at full pool, hydropower generation returned to average production after 2006 which was the fourth lowest generation since the project became operational. Net assets decreased from 2005 to 2006, and increased from 2006 to 2007 as a result of the return to average power generation.

This report is intended to provide our legislators, state officials, customers, bondholders, citizens of the State of Texas and other interested parties with a general overview of the Authority's financial position and to indicate accountability for the revenues the Authority receives.

Questions about this report or requests for additional financial information should be directed to Debra Stagner, Controller, at P. 0. Box 579, Orange, Texas 77631, or call (409)746-2192.

3a SABINE RIVER AUTHORITY OF TEXAS

STATEMENTS OF NET ASSETS August 3 1, 2007 and 2006

ASSETS Current Assets:

Cash and cash equivalents Investments Accounts receivable Current portion of notes receivable Accrued interest receivable Other current assets

TOTAL CURRENT ASSETS

Noncurrent Assets: Restricted cash and cash equivalents Investments Capital Assets:

Land Dams and electric plant Water and pumping plant Buildings Equipment Work in progress Less accumulated depreciation

NET CAPITAL ASSETS

Notes receivable

TOTAL NONCURRENT ASSETS

TOTAL ASSETS

LIABILITIES

Accounts payable Current portion of long-term liabilities Accrued liabilities Other payables

Current Liabilities:

TOTAL CURRENT LIABILITIES

Noncurrent Liabilities: Revenue bonds Texas Water Development Board loan Deferred income

TOTAL NONCURRENT LIABILITIES

TOTAL LIABILITIES

Net Assets: Invested in capital assets, net of related debt Restricted for debt service Unrestricted

TOTAL NET ASSETS

2007 2006

$ 1193010 $ 1260803 141 076 1 255 830

2 489 991 991 340 5 505 5 134

416 052 455 036 249 615

4 217 758 233 532

4 479 166

1 649 626 1 422 026 28 121 175 28 294 682

33 305 606 146 534 669

7 727 092 7 415 907 7 863 385 5 588 212

33 305 606 146 534 669

7 727 092 6 857 133 8 053 445 5 273 028

(57 350 043) (55 011 447) 151 084 828 152 739 526

242 424 247 928

181 098 053 182 704 162

$ 185577219 $ 186921920

$ 337988 $ 227 671 1 505 000

673 540 644 952 33 928 32 978

2 410 601

1 506 000

2 551 456

1 162 000 2 658 000 25 667 045 25 426 245

1178327 2 351 342 28 007 372 30 435 587

30 558 828 32 846 188

122 749 783 123 150281 1772 417 1 539 861

30496 191 29 385 590 $ 155018391 $ 154075732

The accompanying notes are an integral part of these financial statements.

39 SABINE RIVER AUTHORITY OF TEXAS

STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS

August 31, 2007 and 2006

Operating Revenues: Water sales Power sales Wastewater treatment Permits Water quality activity Miscellaneous Bond issue fees Reservation fee

TOTAL OPERATING REVENUES

Operating Expenses: Operation and maintenance Depreciation

TOTAL OPERATING EXPENSES

OPERATING (LOSS) INCOME

Nonoperating Revenues (Expenses) : Gain (loss) on sale of capital assets Impairment loss Investment income Interest expense

TOTAL NONOPERATING REVENUES (EXPENSES)

(LOSS) INCOME BEFORE CONTRIBUTIONS

Contributions in aid of construction

CHANGE IN NET ASSETS

Total net assets, beginning

TOTAL NET ASSETS, ENDING

2007 2006

$ 11495394 $ 10488136 2 528 598 721 340

52 994 81 273 750 935 760 795 725 362 741 983 625 468 364 190 513 400 408 500 651 702 651 702

14 217 919 17 343 853

14 474 378 2 880 297

17 354 675

13 058 829 2 871 094

15 929 923

(10 822) (1 712 004)

(1 1 424) 38 622 (20 146) (40 397)

1 596 600 1 141 571 (682 868) (620 925)

944 105 456 928

(1 255 076) 933 283

9 376 642

942 659 (1 254 434)

154 075 732 155 330 166

$ 155018391 $ 154075732

The accompanying notes are an integral part of these financial statements.

40 SABINE RIVER AUTHORITY OF TEXAS

STATEMENTS OF CASH FLOWS For the Years Ended August 3 1,2007 and 2006

2007 2006 Cash Flows from Operating Activities:

Receipts from customers Payments to suppliers Payments to employees Payment to City of Terrell on behalf of North Texas

Other receipts Municipal Water District

NET CASH PROVIDED BY OPERATING ACTIVITIES

Cash Flows from Capital and Related Financing Activities: Purchases of capital assets Principal paid on capital debt Interest paid on capital debt Contributions

NET CASH USED BY CAPITAL AND RELATED FINANCING ACTIVITIES

Cash Flows from Investing Activities: Proceeds from (purchases of) investments Interest received Payments received on notes receivable

NET CASH PROVIDED BY INVESTING ACTIVITIES

NET INCREASE IN CASH AND CASH EQUIVALENTS

Cash and cash equivalents, beginning

CASH AND CASH EQUIVALENTS, ENDING

Reconciliation of Operating Income to Net Cash Provided by Operating Activities:

Operating (loss) income Noncash Items Included in Operating Income:

Depreciation Changes in Assets and Liabilities:

(Increase) decrease in accounts receivable (Increase) decrease in other assets Increase (decrease) in deferred revenue Increase (decrease) in accounts payable Increase (decrease) in accrued and other liabilities

NET CASH PROVIDED BY OPERATING ACTIVITIES

$ 14054632 $ 12349310 (4 255 138) (5 592 223)

(8 394 283) (5 573 140)

(328 800) 625 468 364 190 383 877 2 866 139

-

(1 257 168) (1 495 000)

(1 146 620) (1 280 000)

(410 256) (466 450) 9 376 644

(3 153 048) (2 892 426)

1 288 261 (768 921) 1 635 584 1 097 335

5 133 62 968 2 928 978 391 382

159 807 365 095

2 682 829 2 317 734

$ 2842636 $ 2 682 829

(10822) $ (1 712004) $

2 880 297 2 871 094

(1 498 651) (478 261) 16 083 63 888

(1 173 015) 2 297 387 110 317 (143 621) 59 668 (32 344)

383 877 $ 2 866 139 $

The accompanying notes are an integral part of these financial statements.

SABINE RIVER AUTHORITY OF TEXAS NOTES TO FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

41

The financial statements of the Sabine River Authority of Texas ("Authority") have been prepared in conformity with generally accepted accounting principles ("GAAP") as applied to governmental units. The Governmental Accounting Standards Board ("GASB") is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The Authority applies all GASB pronouncements as well as the Financial Accounting Standards Board pronouncements issued on or before November 30, 1989, unless those pronouncements conflict with or contradict GASB pronouncements. The more significant of the Authority's accounting policies are described below.

Reporting Entity:

The Sabine River Authority of Texas was created in 1949, pursuant to Vernon's Annotated Civil Statutes Article 8280- 133, as a conservation and reclamation district. The Authority was determined to be necessary in accomplishing the provisions of Article XVI, Section 59 of the Texas Constitution and for the conservation, protection and development of the waters of the Sabine River. Responsibilities of the Authority include municipal, industrial and agricultural raw water supply; hydroelectric generation; water and wastewater treatment; water quality and pollution control activities; and recreation facilities.

Management has determined that there are no other entities that meet the criteria for inclusion in the Authority's reporting entity. The Authority is a separate self-supporting governmental unit with no taxing powers covering all or a portion of 21 counties in the Sabine Basin and is administered by a nine-member Board of Directors appointed by the Governor to six-year staggered terms. The Authority is not included in any other governmental reporting entity. The Authority is in compliance with the requirements of Texas Water Codes 49.191, Duty to Audit, and 49.199, Policies and Audits of Districts.

Fund Financial Statements:

GASB 34 requires special purpose governments engaged only in business-type activities to present only the financial statements required for Enterprise Funds. For these governments, basic financial statements and required supplementary information consist of a Management Discussion and Analysis ("MDtkA"), Enterprise Fund financial statements, notes to financial statements and required supplementary information other than MD&A, if applicable.

The Authority's basic financial statements are presented as a single Enterprise Fund. This Enterprise Fund accounts for the acquisition, operation and maintenance of Authority facilities and services and is accounted for on a flow of economic resources measurement focus. With this measurement focus, all assets and all liabilities associated with the operation of this fund are included on the balance sheet. The Enterprise Fund is accounted for using the accrual basis of accounting. Its revenue is recognized when it is earned, and its expenses are recognized when they are incurred.

The Authority distinguishes between operating and non-operating revenues and expenses consistently with the criteria used to identify cash flows from operating activities in the Statement of Cash Flows. Generally, the Authority classifies revenues generated from water sales, power sales, and related activities and services as operating revenues. Operation and maintenance and depreciation are classified as operating expenses. All other income and expenses, including investment income, interest expense, gain/loss on the sale of capital assets and impairment loss are considered non- operating activity.

Required fund financial statements include a Statement of Net Assets, a Statement of Revenues, Expenses and Changes in Fund Net Assets, and a Statement of Cash Flows.

Assets, Liabilities and Net Assets:

Cash and Cash Equivalents

Cash and cash equivalents are short-term highly liquid investments that are readily convertible to known amounts of cash and so near maturity that there is no significant risk of changes in value due to changes in interest rates. Cash equivalents include investments with original maturities of three months or less. Cash equivalents are stated at cost which approximates fair value.

Investments

Investments with quoted fair values are carried at the reported sales price on the last day of the Authority's year and are recorded at fair value in the balance sheet. Certificates of deposit are stated at cost due to their short-term maturities. Investments in TexPool are stated at cost which approximates fair value. The change in the difference between fair value and cost of investments is reported as a component of investment income. All investments are in accordance with Texas Government Code, Title 10, Chapter 2256 (the l b l i c Funds Investment Act).

42 SABINE RIVER AUTHORITY OF TEXAS

NOTES TO FINANCIAL STATEMENTS - CONTINUED

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

Accounts Receivable

The Authority uses the direct charge off method to account for bad debts, directly expensing receivables which management deems uncollectible, or realizable at less than full value. This method provides results similar to the reserve method in all material respects. The Authority considers accounts receivable to be fully collectible; accordingly, no allowance for doubtful accounts is recorded.

Capital Assets

Capital assets are defined by the Authority as assets with an initial, individual cost of more than $5,000 and an estimated useful life in excess of two years. Such assets are recorded at historical cost. Depreciation is provided using the straight-line method at annual rates as follows:

Dams and electric plants Water and pumping plant Buildings Equipment

1.50% 1.50 - 5.00% 2.00 - 5.00% 4.00 - 20.00%

The Authority capitalizes interest on major construction projects.

Restricted Assets

The restricted assets consist of bond reserve funds and sinking funds on various revenue bonds and funds designated by the Board of Directors. The bond reserve and sinking funds are segregated as required by certain bond indentures.

Sick Leave and Vacation

The Authority allows employees to accumulate sick leave. Pursuant to Governmental Accounting Standards Board pronouncements, the Authority does not accrue sick leave rights since these rights are nonvesting. The Authority does accrue vacation benefits in its financial statements in accordance with generally accepted accounting principles.

NOTE 2 - STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY

Budgets and Budgetaw Accounting:

The Authority prepares a budget in accordance with The Water Code, Chapter 49, Subchapter G, Section 49.199 for use in planning and controlling costs. The budget and any changes are approved by the Board of Directors. Appropriate sections of the budget are reviewed by the City of Dallas and the Toledo Bend Project Joint Operations Board.

Rates and Remlations:

The Public Utility Commission of Texas (PUC) has original jurisdiction over the electric rates charged by the Authority. From April 4, 1996 to June 1, 2007 the rate was 2.14 per KWH. As of June 1, 2007, the rate is 3.81& per KWH. Water rates are established by the Authority's Board of Directors. These contracted rates can be appealed to the Texas Commission on Environmental Quality.

Post-Retirement Benefits:

The Authority provides certain healthcare and insurance benefits to its employees after retirement and accounts for the benefits in accordance with Government Accounting Standards Board Statement No. 12, Disclosure of Information on Post-employment Benefits Other than Pension Benefits by State and Local Government Employees (see Note 3).

Use of Estimates:

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Accordingly, actual results could differ from those estimates.

NOTE 3 - DETAILED NOTES ON ALL FUNDS

Deposits and Investments:

As of Augus t 31, 2007 and 2006, the Authority had $12,515 and $11,873, respectively, invested in TexPool. The weighted average maturity of TexPool as of August 31, 2007 and 2006, was 31 and 27 days, respectively.

SABINE RIVER AUTHORITY OF TEXAS NOTES TO FINANCIAL STATEMENTS - CONTINUED

NOTE 3 - DETAILED NOTES ON ALL FUNDS - CONTINUED

43

The Authority had $669,131 and $858,405 invested in U.S. Treasuries as of August 31, 2007 and 2006, respectively. The weighted average maturity of the U.S. Treasuries was 502 and 693 days as of August 3 1. 2007 and 2006, respectively. These investments are specifically to retire debt.

Interest Rate Risk. In accordance with its investment policy, the Authority manages its exposure to declines in fair values by limiting the weighted average maturity of its investment portfolio to less than five years. Maximum allowable maturity shall be 10 years with the exception of investments made specifically to retire debt.

Credit Risk. The Texas Local Government Investment Pool (TexPool) is a public funds investment pool created pursuant to the Interlocal Cooperation Act of the State of Texas. The State Comptroller of Public Accounts exercises oversight responsibility over TexPool. Oversight includes the ability to significantly influence operations, designation of management and accountability for fiscal matters. An Advisory Board reviews the investment policy and management fee structure. TexPool is rated AAA by Standard & Poors. As a requirement to maintain the rating, weekly portfolio information must be submitted to Standard & Poors, as well a s the Office of the Comptroller of the Public Accounts for review.

TexPool operates in a manner consistent with the SEC's Rule 2a7 of the Investment Company Act of 1940. TexPool uses amortized cost rather than market value to report net assets to compute share prices. Accordingly, the fair value of the position in TexPool is the same as the value of TexPool shares.

The Board of Directors has authorized the Authority to invest in compliance with V.A.T.C.S. Government Code, Title 10, Chapter 2256 (Public Funds Investment Act of 1993). Money in any fund may be placed in obligations of the United States or its instrumentalities; direct obligations of this state or its agencies; collateralized mortgage obligations directly issued by a federal agency or instrumentality of the United States, the underlying security for which is guaranteed by a n agency or instrumentality of the United States; other obligations, the principal and interest of which are unconditionally guaranteed or insured by this state or the United States or its instrumentalities; and obligations of states, agencies, counties, cities, and other political subdivisions of any state rated as to investment quality by a nationally recognized investment rating firm not less than A or its equivalent, Certificates of Deposit and any other investment authorized in Chapter 2256. Accordingly, cash is invested in money market funds or interest-bearing demand deposits and is stated at fair value.

Custodial Credit Risk. In the case of deposits, this is the risk that in the event of a bank failure, the Authority's deposits may not be returned to it. As of August 31, 2007, $29,161,984 of the Authority's $30,676,476 deposit balance was collateralized with securities held by the pledging financial institution. As of August 3 1, 2006, $30,2 10,273 of the Authority's $3 1,500,456 deposit balance was collateralized with securities held by the pledging financial institution. A portion of the Authority's deposits are placed in obligations of the United States or its instrumentalities for which pledged collateral is not necessary as the principal and interest are unconditionally guaranteed or insured by the United States.

Capital Assets:

Capital asset activity for the year ended August 3 1, 2007,

Capital Assets, Not Being Depreciated: Land Construction work in progress

TOTAL CAPITAL ASSETS NOT BEING DEPRECIATED Capital Assets, Being Depreciated:

Dams and electric plant Water and pumping plant Buildings Equipment

TOTAL CAPITAL ASSETS BEING DEPRECIATED Less Accumulated Depreciation for:

Dams and electric plant Water and pumping plant Buildings Equipment

TOTAL CAPITAL ASSETS BEING DEPRECIATED, NET TOTAL CAPITAL ASSETS

BALANCE 08/31 106

$ 33 305606 5 273 028

38 578 634

146 534 669 7 727 092 6 857 133 8 053 445

169 172 339

43 593 787 2 561 749 3 653 664 5 202 247

5s 01 1 447 _ _ ._. .

114 160 892 $ 152 739 526

was as follows:

INCREASES DECREASES

$ - $

BALANCE 08/31/07

$ 33305606 961 347 (646 163) 5 588 212 961 347 (646 163) 38 893 818

563 912 15 138) 438 527 (628 587)

1002 439 (633 725)

1 923 875 128 693 267 604 (3 667)

146 534 669 7 727 092 7 415 907 7 863 385

169 541 053

45 517 662 2 690 442

44 SABINE RIVER AUTHORITY OF TEXAS

NOTES TO FINANCIAL STATEMENTS - CONTINUED

NOTE 3 - DETAILED NOTES ON ALL FUNDS - CONTINUED

Under the terms of a Power Sales Contract, the power sales are pledged to pay the hydroelectric revenue bonds.

The various bond indentures, resolutions and agreements provide for the establishment of separate restricted accounts for debt service. The required accounts have been established on the books of the Authority and are reported as restricted assets in the financial statements.

Texas Water Development Board Loan

On December 2, 1994, the Authority entered into a revised agreement with the Texas Water Development Board (TWDB) regarding the state's ownership rights at the Toledo Bend Reservoir. The Authority made a principal payment of $6,430,186 on December 28, 1994, and received a revised interest rate of 3.6% from April 16, 1964 through December 28, 1994. This reduction in the interest rate resulted in a reduction of $11,683,809 of interest payable to TWDB. The reduction of accrued interest was a noncash transaction. The interest rate is 6.54% on the remaining $7,000,000 in principal.

The Authority owes $7,000,000 of principal and $18,667,045 of interest at August 31, 2007, related to the state's 21.6075% ownership of the water storage rights at the Toledo Bend Reservoir. The following recaps the payments made on the debt:

DATE November 8, 1974 November 21, 1975 August 20, 1987 March 17, 1988 December 28, 1994 July 11, 1996 July 11, 1997 July 1, 1998 June 7, 1999 June 29, 2000 June 18, 2001 June 26, 2002 June 25, 2003 June 24, 2004 June 27, 2005 June 27, 2006 June 25, 2007

PRINCIPAL

94 815 500 000 500 000

6 430 186

$ 475 000 INTEREST

152 587 34 489

$

217 000 217 000 217 000 217 000 217 000 217 000 217 000 217 000 217 000 217 000 217 000 217 000

Commitments and Contingencies:

Public law 98-581 directed the Federal Energy Regulatory Commission (FERC) to waive annual administration charges for the use of United States lands during the remaining terms of the license to operate the Toledo Bend Joint Project (Project). The license expires 50 years from October 1, 1963. The waiver is contingent upon FERC determining that the power from the Project is sold to the public without profit. All exemptions applied for through December 31, 2006, have been approved.

The Authority is subject to various other claims and lawsuits which may arise in the ordinary course of business. After consulting with counsel representing the Authority in connection with such claims and lawsuits, it is the opinion of management and counsel that the disposition or ultimate determination of such claims and lawsuits will not have a material effect on the financial position of the Authority.

45 SABINE RIVER AUTHORITY OF TEXAS

NOTES TO FINANCIAL STATEMENTS - CONTINUED

NOTE 3 - DETAILED NOTES ON ALL FUNDS - CONTINUED

Pollution Control Bonds:

In conformity with the State of Texas Auditors' Report dated October 6, 1986, Pollution Control Bonds have been removed from the Statement of Net Assets and are disclosed instead in the Notes to Financial Statements. The Attorney General has ruled that the Authority is not liable for any of the following bonds:

Amount Date Date Authorized Cumulative Balance

Issue Maturity Rate Issued Retired 2007 of of Interest And Amount Augus t 31,

Texas Utilities Electric Company:

waste disposal facility a t the Martin Lake Station in Rusk County.

improvement of a solid waste disposal facility and air and water pollution control at the Martin Lake and Monticello Stations in Rusk and Titus Counties, Texas.

Series 2001B - Construction and improvement of a solid waste disposal facility and air and water pollution control at the Martin Lake and Monticello Stations in Rusk and Titus Counties, Texas.

Series 2001C - Construction and improvement of a solid waste disposal facility and air and water pollution control at the Martin Lake and Monticello Stations in Rusk and Titus Counties, Texas.

Series 2003A - Construction and improvement of a solid waste disposal facility and air and water pollution control at the Martin Lake and Monticello Stations in Rusk and Titus Counties, Texas.

Series 2003B - Construction and improvement of a solid waste disposal facility and air and water pollution control at the Martin Lake and Monticello Stations in Rusk and Titus Counties, Texas.

Series 2000A - Construction of solid

Series 2001A - Construction and

American Electric Power: Series 2006 - Construction and

improvements of air and water pollution control including solid waste disposal facilities at the generating plant in Harrison County, Texas.

TOTAL

6.45% $ 51 000000 $ - $ 51 000 000 2000 202 1

200 1

2001

2001

2003

2003

2022

2030

2028

2022

2022

5.50% 91 460 000

5.75% 106 900 000

5.20% 70 000 000

5.80% 12 390 000

6.15% 44 615 000

91 460 000

106 900 000

70 000 000

12 390 000

44 615 000

2006 2018 3.83% (Variable) 81 700 000 81 700 000

$ 458065000 $ - $ 458065000

Industrial Revenue Bonds:

The Sabine Industrial Development Authority is a separate entity created and governed by the Sabine River Authority of Texas. A separate audit is performed and is available upon request. The Sabine River Authority of Texas is not liable for any of this debt.

Amount Date Date Authonzed Cumulative Balance

Issue Maturity Rate Issued Retired 2007 August 31, of of Interest and Amount

Northeast Texas Electric Cooperative, Inc Series 1984 0 - ImDrovement of the pollution control facilities at the 1984 2014 3.72% plant in Harrison County, Texas. (Variable) $ 6650000 $ 3070000 $ 3 580000

TOTAL $ 6650000 $ 3 070000 $ 3 580000

46 SABINE RIVER AUTHORITY OF TEXAS

NOTES TO FINANCIAL STATEMENTS - CONTINUED

NOTE 3 - DETAILED NOTES ON ALL FUNDS - CONTINUED

Capital asset activity for the year ended August 31, 2006, was as follows:

BALANCE BALANCE

Capital Assets, Not Being Depreciated: Land

08/31/05 INCREASES DECREASES 08/31/06

$ 33 305 606 $ - $ - $ 33305606 Construction work in progress 4 765 425 559 784 (52 181) 5 273 028

TOTAL CAPITAL ASSETS NOT BEING DEPRECIATED 38 071 031 559 784 (52 181) 38 578 634 Capital Assets, Beina Depreciated:

Dams and elecGic piant Water and pumping plant Buildinas

146 534 669 7 727 092 6 744 118 113 015

146 534 669 7 727 092 6 857 133 -

Equipment 7 904 665 618 805 (470 025) 8 053 445 TOTAL CAPITAL ASSETS BEING DEPRECIATED 168 910 544 731 820 (470 025) 169 172 339

Less Accumulated Depreciation for Dams and electric plant 41 669 913 1 9 2 3 874 43 593 787 Water and pumping plant 2 433 056 128 693 2 561 749 Buildings 3 407 778 245 886 3 653 664 Equipment 5 005 051 572 640 (375 444) 5 202 247

(2 139 273) (94 581) 114 160 892 TOTAL CAPITAL ASSETS BEING DEPRECIATED, NET 116 394 746 TOTAL CAPITAL ASSETS $ 154 465 777 $ (1 579 489) $ (146 762) $ 152 739 526

52 515 798 2 871 093 (375 444) 55 011 447

Self-Insurance :

The Authority has established a medical self-insurance plan. The purpose of this plan is to pay the medical expenses of the Authority's employees and their covered dependents, and to minimize the total cost of medical insurance. Cost incurred to provide this plan was $1,423,605 and $1,366,824 for the years ended August 31, 2007 and 2006, respectively. Medical claims exceeding $1,490,744 and $1,755,689 for 2007 and 2006, respectively, for the group, or $60,000 per covered individual, were covered through a commercial insurance carrier. The maximum amount of coverage offered through the commercial insurance carrier is $1,000,000 for a specific incident or $1,000,000 in the aggregate. The Authority has not exceeded its insurance coverage in the last three years.

Governmental Accounting Standards Board, Statement No. 10 requires that a liability for claims be reported if information prior to the issuance of the financial statements indicates that it is probable that a liability has been incurred at the date of the financial statements and the amount of loss can be reasonably estimated. Management has estimated this liability to be $125,000. A s required by this statement, a reconciliation of claims liabilities is shown below:

Reconciliations of Claims Liabilities

Claims on liabilities a t September 1 $ 125000 $ 125 000 1 366 824 Incurred claims

2007 2006

1 423 605 Payments on claims

CLAIMS ON LIABILITIES AT AUGUST 3 1 (1 423 605) (1 366 824)

$ 125000 $ 125 000

Emplovee Benefits:

Pension Plan

The Authority has created the Sabine River Authority of Texas Employee Retirement Plan (Plan) by conforming to the requirements of Section 40 1 (a) of the Internal Revenue Code for the exclusive use and benefit of the permanent employees of the Authority and their beneficiaries. The Plan is a qualified plan subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA), Tax Equity and Fiscal Responsibility Act of 1982, Tax Reform Act of 1984, and the Retirement Equity Act of 1984; and a letter of favorable determination has been received from the Internal Revenue Service relating to its qualification. The Plan is authorized by Article 8280-133 of Vernon's Texas Civil Statutes as amended. It is a defined contribution pension plan, whereby the Authority contributes an amount equal to 15% of the employees' compensation which is within the limitations as set out in Section 415(c) of the Internal Revenue Code. Full-time employees, after one year of service, are enrolled in the retirement plan, and the employees are fully vested after seven years. Benefits are based on the amounts accumulated from such contributions. A t August 31, 2007, there were 134 plan members consisting of 103 active employees, 19 retirees and 12 inactive. At August 31, 2006, there were 131 plan members consisting of 100 active employees, 19 retirees and 12 inactive. Retirement contribution costs for the current year and two preceding years are as follows:

47 SABINE RIVER AUTHORITY OF TEXAS

NOTES TO FINANCIAL STATEMENTS - CONTINUED

NOTE 3 - DETAILED NOTES ON ALL FUNDS - CONTINUED

EMPLOYER EMPLOYER PERCENTAGE OF CONTRIBUTIONS CONTRIBUTIONS CONTRIBUTIONS

REQUIRED MADE MADE 2007 $ 895 294 $ 895 294 100% 2006 $ 845 469 $ 845 469 100% 2005 $ 840 423 $ 840 423 100%

Voluntary employee contributions totaled $47,609 and $48,453 for the years ended August 31, 2007 and 2006, respectively.

Retirement contributions are deposited into each employee's individual account at ICMA-RC (International City/ County Management Association-Retirement Corporation). ICMA-RC is a not-for- profit corporation that assists in the establishment and maintenance of retirement plans exclusively for State and Local government employees. Through ICMA-RC, each employee manages and invests the funds in their individual accounts.

Post-Retirement Healthcare Benefits

In addition to providing pension benefits, the Authority provides post-retirement healthcare benefits, in accordance with federal and state statutes and Board resolution, to employees who attain retirement status. The Authority pays the healthcare costs under its medical self-insurance plan described in Note 3. Such post-retirement healthcare costs are recognized as expenses when paid. At Augus t 31, 2007 and 2006, there were 56 and 57 people, respectively, eligible for post-retirement healthcare benefits. Post-retirement healthcare costs were $324,327 and $25 1,364 for the years ended August 3 1, 2007 and 2006, respectively. Future post-retirement healthcare benefits are not accrued because the costs cannot be reasonably estimated.

Long-Term Liabilities:

Outstanding long-term liabilities consist of the following (in thousands):

Out- Out- Date Date standing standing

Issue Maturity Rates Amount 2006 Added Retired 2007 of of Interest Original August 3 1, August 31,

Hydroelectric Revenue Bonds: Series 1967 1967 2008 4.60% $ 4000 $ 2000 $ - $ 1250 $ 750 Series 1969 1969 2008 5.80% 500 500 500 Series 1969A 1969 2009 6.88% 500 500 500

Series 1974 1974 2010 4.13% 1000 400 100 300 Series 1975 1975 2010 4.13% 815 545 135 410

Series 1962 1962 2002 3.50- 4.00% 1500 10 10

Series 1980 1980 2020 5.00% 350 208 10 198

Series 1964 1964 2034 6.54% 15 000 25 427 458 217 25 668 SUBTOTAL LONG-TERM LIABILITIES 29590 $ 458 $ 1712 28 336 Less current portion ~ 1505 1506 NET LONG-TERM LIABILITIES $ 28085 $ 26 830

TWDB Revenue Bonds:

Facilities Construction Revenue Bonds:

TWDB Loans:

_______

The Texas Water Development Board Series 1964 total amount outstanding a t August 31, 2007, of $25,667,045 includes $7,000,000 of principal and $18,667,045 of deferred interest.

Future debt service requirements are as follows:

OUTSTANDING LONG-TERM DEBT YEAR ENDED AUGUST 31, PRINCIPAL INTEREST TOTAL

2008 $ 1 5 0 6 0 0 0 $ 336812 $ 1 8 4 2 8 1 2 2009 2010 201 1 2012

2013 - 2017 2018 - 2022 2023 - 2027 2028 - 2032 2033 - 2034

TOTAL

746 000 372 000 138 000 148 000 894 000

1 179 000 1 530 000 2 105000

263 131 1 245 040 1 226 692 1 2 1 7 867 5 934 855 5 609 872 5 186 997 4 616 055

1 0 0 9 131 1 6 1 7 040 1 364 692 1 365 867 6 828 855 6 788 872 6 716 997 6 721 055

1 050 000 1 607 058 2 657 058 $ 9 6 6 8 0 0 0 $ 27244379 $ 36912379

48 SABINE RIVER AUTHORITY OF TEXAS

NOTES TO FINANCIAL STATEMENTS - CONTINUED

NOTE 3 - DETAILED NOTES ON ALL FUNDS - CONTINUED

Under the terms of a Power Sales Contract, the power sales are pledged to pay the hydroelectric revenue bonds.

The various bond indentures, resolutions and agreements provide for the establishment of separate restricted accounts for debt service. The required accounts have been established on the books of the Authority and are reported as restricted assets in the financial statements.

Texas Water Development Board Loan

On December 2, 1994, the Authority entered into a revised agreement with the Texas Water Development Board (TWDB) regarding the state's ownership rights at the Toledo Bend Reservoir. The Authority made a principal payment of $6,430,186 on December 28, 1994, and received a revised interest rate of 3.6% from April 16, 1964 through December 28, 1994. This reduction in the interest rate resulted in a reduction of $11,683,809 of interest payable to TWDB. The reduction of accrued interest was a noncash transaction. The interest rate is 6.54% on the remaining $7,000,000 in principal.

The Authority owes $7,000,000 of principal and $18,667,045 of interest at August 31, 2007, related to the state's 21.6075% ownership of the water storage rights at the Toledo Bend Reservoir. The following recaps the payments made on the debt:

DATE November 8, 1974 November 21, 1975 August 20, 1987 March 17, 1988 December 28, 1994 July 11, 1996 July 11, 1997 July 1, 1998 June 7, 1999 June 29, 2000 June 18, 2001 June 26, 2002 June 25, 2003 June 24, 2004 June 27, 2005 June 27, 2006 June 25, 2007

PRINCIPAL $ 475 000

94 815 500 000 500 000

6 430 186

INTEREST $

152 587 34 489

217 000 217 000 217 000 217 000 217 000 217 000 217 000 217 000 217 000 217 000 217 000 217 000

Commitments and Contingencies:

Public law 98-581 directed the Federal Energy Regulatory Commission (FERC) to waive annual administration charges for the use of United States lands during the remaining terms of the license to operate the Toledo Bend Joint Project (Project). The license expires 50 years from October 1, 1963. The waiver is contingent upon FERC determining that the power from the Project is sold to the public without profit. All exemptions applied for through December 3 1, 2006, have been approved.

The Authority is subject to various other claims and lawsuits which may arise in the ordinary course of business. After consulting with counsel representing the Authority in connection with such claims and lawsuits, it is the opinion of management and counsel that the disposition or ultimate determination of such claims and lawsuits will not have a material effect on the financial position of the Authority.

49

SABINE RIVER AUTHORITY OF TEXAS NOTES TO FINANCIAL STATEMENTS - CONTINUED

NOTE 3 - DETAILED NOTES ON ALL FUNDS - CONTINUED

Pollution Control Bonds:

In conformity with the State of Texas Auditors' Report dated October 6, 1986, Pollution Control Bonds have been removed from the Statement of Net Assets and are disclosed instead in the Notes to Financial Statements. The Attorney General has ruled that the Authority is not liable for any of the following bonds:

Amount Date Date Authorized Cumulative Balance

Issue Maturity Rate Issued Retired 2007 of of Interest And Amount August 31,

Texas Utilities Electric Company:

waste disposal facility at the Martin Lake Station in Rusk County.

improvement of a solid waste disposal facility and air and water pollution control at the Martin Lake and Monticello Stations in Rusk and Titus Counties, Texas.

Series 2001B - Construction and improvement of a solid waste disposal facility and air and water pollution control a t the Martin Lake and Monticello Stations in Rusk and Titus Counties, Texas.

Series 2001C - Construction and improvement of a solid waste disposal facility and air and water pollution control at the Martin Lake and Monticello Stations in Rusk and Titus Counties, Texas.

Series 2003A - Construction and improvement of a solid waste disposal facility and air and water pollution control a t the Martin Lake and Monticello Stations in Rusk and Titus Counties, Texas.

Series 2003B - Construction and improvement of a solid waste disposal facility and air and water pollution control a t the Martin Lake and Monticello Stations in Rusk and Titus Counties, Texas.

Series 2000A - Construction of solid

Series 2001A - Construction and

American Electric Power: Series 2006 - Construction and

improvements of air and water pollution control including solid waste disposal facilities at the generating plant in Harrison County, Texas.

TOTAL

6.45% $ 51 000000 $ - $ 51 000 000 2000 202 1

2001 5.50%

5.75%

91 460 000

106 900 000

91 460 000

106 900 000

2022

2001 2030

2028 5.20% 70 000 000 70 000 000 2001

2003 2022 5.80% 12 390 000 12 390 000

2003 2022 6.15% 44 615 000 44 615 000

2006 2018 3.83% (Variable) 81 700 000 81 700 000

$ 458065000 $ - $ 458065000

Industrial Revenue Bonds:

The Sabine Industrial Development Authority is a separate entity created and governed by the Sabine River Authority of Texas. A separate audit is performed and is available upon request. The Sabine River Authority of Texas is not liable for any of this debt.

Amount Date Date Authorized Cumulative Balance

Issue Maturity Rate Issued Retired 2007 of of Interest and Amount August 3 1,

Northeast Texas Electric Cooperative, Inc. : Series 1984 0 - Imurovement of the

pollution control facilities at the 1984 2014 3.72% plant in Harrison County, Texas. (Variable) $ 6650000 $ 3070000 $ 3 580000

TOTAL $ 6650000 $ 3 070 000 $ 3 580000

SABINE RIVER AUTHORITY OF TEXAS NOTES TO FINANCIAL STATEMENTS - CONTINUED

NOTE 3 - DETAILED NOTES ON ALL FUNDS - CONTINUED

Deferred Credit:

During the year ended August 31, 2006, the Authority entered into a water supply contract with North Texas Municipal Water District ("NTMWD") titled "Upper Sabine River Basin Interim Water Supply Contract Lake Tawakoni/Lake Fork System". With this agreement, NTMWD made a n initial payment of $3,000,000 of which $651,702 is recognized as income annually based on the water availability specified in the contract. Additionally, beginning in February of 2007, $41,063 is recognized as income monthly for actual water usage. The remaining balance is recorded as a deferred credit due to the discretionary provision in the contract. In accordance with the contractual arrangement, NTMWD may elect to amortize a portion of the prepaid credit for other financial obligations owed to the Authority. NTMWD will make annual payments to secure water availability once the initial payment has been fully recognized,

NOTE 4 - SUBSEQUENT EVENTS

Land Sale:

On March 1, 2007, the Board of Directors declared two tracts of property at Lake Tawakoni as surplus to the Authority's needs and authorized the advertising of bids for the sale of the property. The bids were received and opened on June 26, 2007. On July 12, 2007 at the Board of Directors meeting, the Board approved the sale to the highest bidder on each tract. On September 28, 2007, the sales were completed and the proceeds from the sales were received. The total amount received for the sale of the surplus property was $949,017.

SABINE RIVER AUTHORITY OF TEXAS HYDROELECTRIC REVENUE BONDS AND AMORTIZATION SCHEDULES

August 3 1, 2007 Schedule 1

$4,000,000 $500,000 $500,000 SERIES 1967 - SERIES 1969 - SERIES 1969A -

FISCAL 4.600% 5.800% 6.8 7 5% PRINCIPAL INTEREST PRINCIPAL INTEREST YEAR PRINCIPAL INTEREST

2009 500 000 17 187 $ 750000 $ 17250 $ 500000 $ 29000 $ 500000 $ 51 562

2008 $ 750000 $ 17250 $ 500000 $ 29000 $ 34 375

SABINE RIVER AUTHORITY OF TEXAS GENERAL REVENUE BONDS AND AMORTIZATION SCHEDULES

August 31, 2 0 0 7 Schedule 2

FISCAL YEAR 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

TWDB NORTH STAR STEEL $1,000,000 - 4.125%

PRINCIPAL INTEREST $ 100000 $ 12 375

100 000 8 250 100 000 4 125

$ 300000 $ 24750

TWDB CITY OF HEMPHILL $815,000 - 4.125%

PRINCIPAL INTEREST $ 135000 $ 16912

135 000 11 344 140 000 5 775

$ 410000 $ 34031

5 1

SERIES 1962 $1,500,000 -

CITY OF HEMPHILL

3.500 TO 4.000% $350,000 - 5.00%

PRINCIPAL INTEREST PRINCIPAL INTEREST $ 10000 $ - $ 11000 $ 9 900

11 000 9 350 12 000 8 800 13 000 8 200 13 000 7 550 14 000 6 900 14 000 6 200 16 000 5 500 17 000 4 700 18 000 3 850 19 000 2 950 20 000 2 000 20 000 1000

$ 10000 $ - $ 198000 $ 76900

52 SABINE RIVER AUTHORITY OF TEXAS

SCHEDULE OF AMORTIZATION OF TEXAS WATER DEVELOPMENT BOARD LOAN August 3 1,2007

Schedule 3

Principal Balance Financed $7,000,000

Fiscal Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 202 1 2022 2023 2024 2025 2026 2027 2028 2029 2030 203 1 2032 2033 2034

TOTAL

Total Interest Principal Interest Total Debt Adjusted

Receivable Payment Payment Payment Service Deferred Payment $ - $ - $ 457800 $ 457800 $ 457800 $ (240800) $ 217 000

631 690 631 690 631 690 631 690 631 690 631 690 631 690 631 690 631 690 631 690

120 000 125 000 135 000 145 000 150 000 160 000 175 000 185 000 195 000 210 000

631 690 225 000 631 690 235 000 631 690 255 000 631 690 270 000 631 690 285 000 631 690 305 000 631 690 325 000 631 690 345 000 631 690 370 000 631 690 395 000 631 690 420 000 631 690 445 000 631 690 475 000 631 690 505 000 631 690 545 000

$ 15792 250 $ 7000000

457 800 457 800 449 952 441 777 432 948 423 465 413 655 403 191 391 746 379 647 366 894 353 160 338 445 323 076 306 399 288 741 270 102 250 155 228 900 206 337 182 139 156 306 128 838 99 735 68 670 35 643

$ 8 3 1 3 3 2 1

457 800 577 800 574 952 576 777 577 948 573 465 573 655 578 191 576 746 574 647 576 894 578 160 573 445 578 076 576 399 573 741 575 102 575 155 573 900 576 337 577 139 576 306 573 838 574 735 573 670 580 643

$ 15313321

457 800 209 490 206 642 208 467 209 638 205 155 205 345 209 881 208 436 206 337 208 584

1 209 850 1 2 0 5 135 1 209 766 1 2 0 8 089 1 205 431 1 206 792 1 2 0 6 845 1 2 0 5 590 1 208 027 1 208 829 1 207 996 1 2 0 5 528 1 206 425 1 205 360 1212 333

$ 31 105571

(240 800) 136 850 136 850 136 850 136 850 136 850 136 850 136 850 136 850 136 850 136 850 136 850 136 850 136 850 136 850 136 850 136 850 136 850 136 850 136 850 136 850 136 850 136 850 136 850 136 850 102 515

$ 2905315

21.7 000 1 346 340 1 343 492 1 345 317 1 346 488 1 342 005 1342 195 1 346 731 1 3 4 5 286 1 3 4 3 187 1 345 434 1 346 700 1 3 4 1 985 1346 616 1 344 939 1342 281 1 3 4 3 642 1 3 4 3 695 1 342 440 1 344 877 1 3 4 5 679 1344 846 1342 378 1 3 4 3 275 1 342 210 1314 848

$ 34010886

SABINE RIVER AUTHORITY OF TEXAS SCHEDULE O F INSURANCE IN FORCE

August 3 1, 2007

Name of Policy

Company Number Texas Water Conservation

Association Risk Management Fund 022

Texas Water Conservation Association Risk Management Fund 022

Texas Water Conservation Association Risk Management Fund 022

Texas Water Conservation Association Risk Management Fund 022

Texas Water Conservation Association Risk Management Fund 022

Texas Water Conservation Association Risk Management Fund 022

Cigna Group Insurance ABL67023 1

Hartford Casualty Insurance Company 61BPECF9901

Travelers Casualty & Surety Co. 06 1 S 1033 1 1523BCM

AIG Global Energy/ Liberty

Travelers Lloyd's Insurance Company

Essex Insurance Company

42209 lo / 3D 106680006

QT-660-272D7866

ESP5396

Policy Period

07/01/07 - 0710 1/08

07/01/07 - 07 / o 1/08

07/01/07 - 07/01/08

07/01/07 - 07/01/08

07/01/07 - 07/01/08

07/01/07 -

07/01/07.

07/01/08

07/01/08

07/01/07 - 07/01/08

07/01/07 - 0710 1/08

07/01/07 - 07/01/08

07/01/07 - 07/01/08

07/01/07 - 07 101 108

53

Schedule 4

Details of Liability Annual

Coverage Limits Premium

General liability $ 1000000 $ 28 389

Automobile liability 1 000 000 24 171

Auto physical damage Scheduled 11 836

Property 10 733 686 27 518

Errors and omissions 1 000 000 16 862

Excess liability

Travel accident

4 000 000 29 033

250 000 1 9 5 3

Crime/employee 1 000 000 1619 dishonesty

Blanket public official bond 1000 100

Commercial Property Scheduled 7 370 TRIA Terrorism 73% Domestic Terrorism 319

Lake Fork Dam, watercraft & trailers, 108 561 radio tower & base station

Scheduled

Excess earthquake 10 000 000 21 769

$ 280238

54

i

x d

2

2

s 2

u

e, e, & e,

3

k

vi Y k 0

&

cd

cd d i;:

2

B

5 3 $ z 2 E

3

.3

3

C

.4

8 0 0 e, s E

z 0

Lt:

> 4 e, a v)

v) e,

1 3

.3

3

5 B 4

s 2

E

v)

e, v) e,

d .3

.3 u cd

2

e d .3

e,

O c o b e d - m 0 1 W *

W b W

m 01 m c-4

0 0 0

4

3

€9

3

m * W 0 0 m 2

€9

UY W

0 m m m m

4

4

€9

c.l m b m b 0 d- m 3

€9

3

m M

2 0 m 10 3

€9

w m 2 2; z

m 0 0 01

d- 0 0 01

Ln 3 3 N

0 3 2 N

. 3 2 u

2

€9 =I b, m 4

e, s 5 B 0

0 U

4 e,

3 d .3

v) e, 0

@? W

a 9

3 4

v)

5

s s 4 x 3

.3 & 0

5 c e,

d .3

R 6 S / MOO3

.3 u

E 4 G d .3

k

E" 3 0 Y

u M C

5 B 3

2

5

.3

v) Q, 3

> e, k

* m u

2 e, Y cd 5; E3 d k 0

.3 u u cd

$ e,

.3 8

i!

8 C .3 v)

v) &

3

9 2

s -$

2

B 6 2

e, > i;l e,

v)

5 - .3

cd cd a u

Y

v)

a .. e, u

n"

5 s

5

e,

M C .3 Y

v) e, k a

v) 4 0 Y

cd u

d

2

;ii .e

I €e k

$

3

0 a a

4 e, Y

0 Y

€9

u : v) u e, v) rn

& 5 0 rn

55

Q W * 2 3 w

0 0 I I I I I I , ' 0 0

md- com 0 4 e m

cr) L

* m

c, cd ;i

93 I

Y r;l

a e, a I 3

2 -3

(d

cd a a

c,