Memorandum Agenda Item 15‎(a)‎ 11/14/2003

• Description: Western Area Power Administration Loan - Interest Rate, Collateral and Term
• Date: 11/14/2003
• Water Supply Pro - Doc Type: Board Memo

• Assembly appropriated funds and a contract was signed. A copy of the unsigned contract is
attached.
On July 10, 2003 WESTERN submitted its second loan application for$5.88 million. A copy of
this application is attached.
Interest Rate
Because of the unusual situation of loaning money to a federal entity, the Board began discussing
the interest rate issues surrounding a loan to WESTERN in July 1999. The Board decided that
because federal power customers comprise municipalities and rural customers the most
appropriate interest rate would be a blend of the Board's Agricultural and Municipal Middle-
Income rate.
In 2001, when the loan was authorized,the Agricultural rate was 3.5 percent and the Municipal
Middle-Income rate was 5.5 percent. Simply blending these two rates resulted in an interest rate
of 4.5 percent that was applied to the loan.
If this same rationale is applied to this loan application, the interest rate will be 3.25 percent (a
blend of our 2.5 percent agricultural rate and our 4 percent Municipal Middle-Income rate).
Collateral and Other Terms
The loan to WESTERN will be secured by the full faith and credit of United States government
pursuant to 31 U.S.C.A. 3123, that pledges that the federal government will pay its obligations
on public debt.
111 The term of the loan will be 30-years. Interest will begin accruing from the date the funds are
disbursed,but no principal payment will be due until 2012. It was agreed that beginning
repayment in 2012 would minimize the impact of repayment on power customers. The accrued
interest would be added to the principal and the loan amortized over 30-years starting in 2012.
WESTERN may elect to repay the CWCB in one lump sum at any time or make periodic
payments. There would be no prepayment penalties.
The parties agreed during the process of drafting and passing the federal authorization that a
provision should be included in future contracts that would allow WESTERN to elect to not
remit a loan payment for the purpose of minimizing the impact of loan repayment on SLCA-IP
rates. This provision shall specify a date by which WESTERN must notify the CWCB of its
intent to not remit a loan payment and shall provide that interest shall continue to accrue. Late
charges would not apply.
The contract must also recognize that WESTERN's payments are contingent upon federal funds
being appropriated,budgeted, and otherwise made available. This is standard term in all federal
contracts. A non-payment would not reduce or eliminate WESTERN's obligations to repay
principal and interest.
Recommendation
We recommend approving a loan from the Colorado River Recovery Program Loan Fund in an
amount up to $5.9388 ($5.88 million for project costs and$58,800 for the one percent loan
origination fee in accordance with CWCB Loan Policy#16) to the Western Area Power
• Administration for the purpose of constructing capital projects under the Upper Colorado and
San Juan Endangered Fish Recovery Programs in accordance with PL 106-392.
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