C150342 Increase Approval Letter

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Sanchez Ditch and Reservoir Company Agenda Item 25a July 16-17, 2014 Board Meeting(Updated July 18, 2014) Page 2 of 4 Background The Company provides irrigation water for users in Costilla County, southwest of the town of San Luis. The Company's primary storage reservoir is Sanchez Reservoir. The 103,155 acre-foot reservoir was built in 1910 and is impounded by two separate earthfill dams known as the Main Dam and East Dike. The Main Dam is 135 feet tall and 1,170 feet long and is classified as a large, high hazard structure. The reservoir's outlet includes a 135-foot concrete gate tower. Within the tower, there are eight sets of 30-inch diameter valves located at varying elevations. Water exits the gate tower through a 10 '/z foot concrete outlet conduit that is approximately 600 feet long. In order to access the gates to operate the dam, a tramway/gondola runs along a cable and is powered by a portable gasoline generator. Because daily access to the tower is required during irrigation season, the reliability and safety of the gondola system has been a concern of the Company. In July of 2011, the Company was awarded $95,000 in WSRA grants ($10,000 from the Rio Grande Basin Account and $85,000 from the Statewide Account) to assess the deteriorating infrastructure and safety concerns of the reservoir. That study, titled "Phase I Assessment £t Upgrade," concluded that abandoning the gondola and replacing the outlet works with remotely operated valves would provide for the most efficient management of the water and would improve safety for Company employees. Project Update In May of 2014, the Company bid the Project with a construction budget of$1.8M. The contractor's bids ranged from $2.5M to $3.7M. At the same time, the Company and its engineer had conversations with the State Engineer's Office Dam Safety Branch regarding seepage issues at the Reservoir. Working with the low bidder (Moltz Constructors, Inc.) and its engineer, Duane Smith, P.E., of Smith Geotechnical, Inc., the Company plans to scale back some of the outlet tunnel repairs and is adding additional seepage control work to the Project. It anticipates an additional $250,000 will be required to complete the Project. Schedule: Construction is expected to begin in the summer of 2014. Financial Analysis At the time of the original loan approval, the Company qualified for the agricultural interest rate of 1.75% for a 30-year term. Due to the increased Project costs, the Company requested a hardship exemption and has asked for a 40-year loan term in order to keep the shareholder assessments close to the originally budgeted amount. Per CWCB Financial Policy#7, we typcially reduce the interest rate by 0.25%when borrowers reduce the term by 10 years. In this case, staff is recommending increasing the interest rate by 0.25% to adjust for the longer loan term. Table 1 provides a financial summary of the loan request.