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. . . Arkansas Valley Conduit November 13-15. 2006 Agenda Item10a * For Arkansas Valley Conduit Only, equates to $2.24 per 1,000 gallons. Collateral- Security for the loan will be a pledge of SECWCD Water Activity Enterprise revenues, including revenues received from the Arkansas Valley Conduit participants through Participant Funding Agreements. The Agreements with the SECWCD Water Activity Enterprise shall include: a pledge of participant water revenues, backed by a rate covenant, and include a "step-up" provision that would be enforced by the SECWCD in the event of a participant withdrawal or default. In addition, the Agreements will need to address Interest During Construction (IDC), the 10% reserve requirement, the CWCB 1 % Loan Service Fee, and the District and Enterprise commitment of Fry- Ark Project and Water Return Flows to the project. The State contract with the Water Activity Enterprise, shall also include a "step-up" provision whereby the Enterprise agrees to cover the loan repayment shortfall in the event that any of the project participants fail to make their loan repayment to the Enterprise. The collateral will be in compliance with CWCB Financial Policy #5 (Collateral). Economic Benefits The alternative cost of not building the conduit has been established to between $250 million and $350 million. The alternatives require upgrade of almost every treatment facility as well as building new treatment plants in the Arkansas Valley. Additionally, the two municipalities, La Junta and Las Animas, with reverse-osmosis plants are facing a brine disposal problem. The State has informed them that they will no longer be able to directly dispose of their brine to the river. The alternatives are very expensive and will continue to get even more expensive as regulations tighten. The economic benefit of this project goes to the very survival of many of the small towns. With the threat of shutdown looming for some water providers due to non-compliance with Health Department standards, there is the possibility of these small municipalities being forced out of existence. Future economic sustainability or development in the lower Arkansas Valley will be predicated on the ability to provide clean water to any business or industry looking at locating in the Arkansas Valley. Without this conduit, there is no guarantee that clean water will be available to entice the needed economic development to sustain the Arkansas Valley. Social and Phvsical Benefits The conduit will enhance many social aspects of the Arkansas Valley. Currently people use bottled water, under-sink reverse osmosis treatment, water softeners, and other methods of treatment just to have an acceptable source of water for drinking and cooking. In some places, even the odor of the water is enough to prevent people from drinking it. Clean drinking water is essential to the social fabric of the Arkansas Valley. Physically, the water delivered down the conduit will help in many ways. Currently pipes in houses and businesses deteriorate rapidly due to the quality problems of the water. Household appliances do not last nearly as long as they should due to the water quality problems. By providing this cleaner source of water, both the social and physical aspects of life in the valley will increase dramatically. Recommendation Staff recommends a conditional loan approval not to exceed $60,600,000 ($60,000,000 for project costs and $600,000 for the 1 % Loan Service Fee in accordance with the CWCB Loan Policy #16), to the Southeastern Colorado Water Conservancy District (SECWCD), acting by and through its Water Activity Enterprise, from the Severance Tax Trust Fund Perpetual Base Account, to provide the 20% local share for construction of the Arkansas Valley Conduit, a 138 mile water supply pipeline extending from Pueblo Reservoir to the City of Lamar. The recommended terms of the loan are 30 years at 3.25% per annum. Security for the loan will be a pledge of SECWCD Water Activity Enterprise Page 9 of 12