ALP 13

McWilliams, Vaughn
From: Feehan, Tim
Sent: Wednesday, January 18, 2012 2:34 PM
To: Kowalski, Ted; Schneider, Susan; McWilliams, Vaughn
Subject: FW: A -LP Project's IDC rate
Attachments: SJWC revised BOR repayment contract.pdf
You might already have this in your file, but here is Eve's IDC research.
Tim
From: Eve McDonald [ mailto :Eve.McDonald @state.co.us]
Sent: Monday, November 14, 20114:48 PM
To: Schneider, Susan; Feehan, Tim; Kowalski, Ted
Cc: Shpall, Casey
Subject: A -LP Project's IDC rate
Susan & Tim,
Thanks for sending this over. After getting that piece of the puzzle, I still wonder if BOR is really constrained from
negotiating IDC. If it comes from the Directives and Standards, not statute, then 1 think the Secretary of the Interior
(with whom the statute says you are to agree upon the repayment amount) has the power to vary from them when the
facts dictate, as here. Colo has maximum negotiating power if the Bureau wants an additional payor of construction
costs. Even those Participants who already entered repayment contracts have flexibility to not pay more, under
302(a)(3)(B), since the storage still must serve Project Purposes.
I found the online version of the Reclamation Manual Directives and Standards section you sent (FIN 07 -20) and
reviewed its 4 attachments. The following other sources may lead to various ways to argue for a lower IDC.
1) Within the same BOR Manual of Directives & Standards is a document called FIN 06 -30, "To clarify
administrative policy for establishing annual interest rates for calculation of interest during construction (IDC)
and interest on investment (101)." It says to start with the existing Repayment Contracts— so we need to see if
the ones already negotiated by other Project Participants set a rate and argue for the same rate. Next, it says
the Reclamation Project Act of 1939 requires 3.5% IDC, and if that does not apply (I don't know if it does), you
defer to the formula for negotiating IDC for Power projects, which is "average yield rate during preceding fiscal
year on interest - bearing marketable U.S. securities which have terms of 15 or more years remaining to
maturity...." That's good news. See para 5 below, this formula was used by the Bureau in the Preliminary
Project Allocation for the A -LP Project in 1998.
2) 1 re -read the 1988 and 2000 statutes authorizing the Animas La Plata Project; neither dictates an interest rate.
The 2000 Amendments (PL 106 -554) suggest that Colorado has negotiating power: "The amount of [repayment]
obligations... shall be determined by agreement between the Secretary of the Interior and the entity
responsible for such repayment...." P.L. 106 -554, Section 302(a)(3) (titled "Nontribal water capital
obligations "). Secretary Salazar would have ample justification to tinker with the Directives and Standards
under these facts.
As also relevant below, the next sentence of this portion of 2000 Amendments says that "Such repayment shall
be consistent with Federal reclamation law, including the Colorado River Storage Project Act of 1956 (43 USC
620 et seq)."
3) http• / /www nres usda eov /wps/ portal /nres/ detail / national / technical / alphabetical /econ / ? &cid= nresl43 009685