William T. and Nicole L. Gladden - Page 12




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               At the time of the 1992 Master Agreement, the local water               
          distribution system that was connected to CAP and that was                   
          maintained by HID was complete.  HID agreed to continue to                   
          maintain and operate this water distribution system in subsequent            
          years, by purchasing water on the open market and distributing               
          and selling water to the Harquahala Valley landowners and to                 
          others as the landowners and others decided to purchase water                
          from HID at market rates.  The CAP Water District was one of the             
          sources from which HID might purchase water in subsequent years,             
          depending on the price of water available through CAP in                     
          comparison to the price of water available from other sources.               
               After relinquishment to the Interior Department of the water            
          rights by the Harquahala Valley landowners, the water rights were            
          reallocated to other users of Colorado River water.                          
               On March 21, 1994, the Inspector General of the Interior                
          Department issued an audit report regarding the Master Agreement             
          and relinquishment by HID of its Colorado River water rights.                
          This report faulted the Interior Department in the negotiations              
          relating to relinquishment of HID’s water rights and for                     
          discounting the value of HID's debt obligation to the Federal                
          Government to a present value (as of the end of 1992) of $5.8                
          million, which was factored into the computation of the payment              
          to HID of $28.7 million.  This report also stated that the                   
          Harquahala Valley landowners “unduly benefited” by receipt of                
          $24.6 million in connection with relinquishment of the water                 
          rights.                                                                      


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