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. . . Arkansas Valley Conduit November 13-15, 2006 Agenda Item10a design, NEPA compliance and construction. The participating entities will be responsible for actual payment of the loan. The operating structure of the conduit has not been resolved, but there are three possible scenarios for operation. The first is for the Enterprise to retain ownership of the conduit and operate it. The second scenario is for an independent Authority to operate the conduit as a subcontract from the District. A third scenario is for the conduit to be operated like'a mutual ditch. It is anticipated that some type of Federal Memorandum of Understanding (MOU) will be required, to address who will design, own and operate the conduit. Conservation Plans - Project participants that deliver over 2,000 AF of water annually, are required to have an approved Water Conservation Plan. This will likely involve three of the larger entities - Lamar, La Junta, and St. Charles Mesa Water District. Prior to execution of a State loan contract, all"covered entities" participating in the project will be required to have a CWCS-approved Water Conservation Plan in place. Affected entities are working with Veva McCaig, of the CWCS Office of Water Conservation and Drought Planning, on the plan requirements and possible funding assistance. Financial Analvsis The total estimated cost of the project is $300,000,000 and the project participants qualify for the Municipal Low Income Interest Rate. Staff is recommending a maximum loan amount of $60,000,000 (20% of the estimated project cost) for 30 years at an interest rate of 3.25%. The remaining 80% will be from future Federal appropriations. Table 1 is a summary of the financial aspects of the project. A CWCS Loan of $60,000,000 would have an annual payment of $3,476,993 (including the 10% reserve requirement) at an interest rate of 3.25% for 30 years. Repayment of the CWCS loan will be by a pledge of revenues issued by each of the 41 participating water providers, through Participant Funding Agreements with the Enterprise. The Participant Funding Agreements will need to address the 10% reserve costs as well as Interest During Construction (IDC). Operations & Maintenance costs (0 & M) for the selected alternative is projected to run $1,300,000 annually, for a total obligation to project participants of $4,776,993 annually. The Enterprise has requested a Joan term of 40-years due to the size of the loan, indicating that the longer term is more typical of a project of this size (the Fryingpan-Arkansas Project is a 50-year payoff with USSR), and the longer term is needed to make the project affordable to the smaller communities in an economically disadvantaged area (evidenced by the fact that all entities qualify for ewcs low-income rate.) The 30-year term would result in about a $500,000 per year difference in the total loan payment, and a 19% increase overall translated to water bills. The 40- year loan payment (including the 10% reserve requirement) would be $2,971,844. Including annual o & M costs of $1,300,000, the total obligation to project participants would be $4,271,844. Staff finds the 40-year request to be inconsistent with current CWCS Policy No. 7 (Lending Rate Determination), which provides the policy for establishing 30-year lending rates, and lending rate reductions for 20-year and 10-year loans. Further, staff does not support this request for the following reasons: 1. The July 2005 Slack & Veatch study acknowledged the maximum 30-year loan term offered by CWCS, and took this into account in their analysis of possible funding scenarios. 2. The annual costs and water rates with a 30-year loan are still within the maximum range presented in the study. (Annual payback cost from $2.5 to $4.8 million and $1.50 to $2.20 per 1000 gallons.) Page 7 of 12