C150341 Increase 1 Approval letter

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Pisgah Reservoir and Ditch Company Agenda Item 28a November 19-20,2014 Board Meeting (Updated November 21, 2014) Page 2 of 3 Background The Company owns and operates Wrights Reservoir and Pisgah Dam (Pisgah), located in Teller County, for the benefit of its shareholders. The reservoir is an on-channel reservoir along Fourmile Creek and has a normal storage capacity of 2,192 acre-feet (AF). After release from the reservoir, Fourmile Creek conveys the Company's water to the Arkansas River, where it passes through Pueblo Reservoir before being diverted to shareholders through the Catlin Canal. Pisgah was originally constructed in 1911. It is classified as a significant hazard dam and stands 69 feet high, 610 feet long, and 12 feet wide at the crest. As the result of an upstream slope failure in 1928, a new outlet conduit was constructed through the right abutment, and the original outlet works were abandoned. The new outlet is the one currently in use today. In 1988, the spillway was enlarged in accordance with SEO guidelines. The State Engineer's Office (SEO) inspected Pisgah in June 2011. The Engineer's Inspection Report issued by the SEO identified multiple deficiencies and safety concerns and placed conditional requirements on the full storage capacity of the reservoir. To avoid a storage level restriction order by the SEO, the Company is required to modify the outlet works and replace the existing control valves. Project Update Final engineering has been completed and the SEO has recently approved the plans for construction. Based on the final design, the Project's engineer, RJH Consultants, Inc., is anticipating higher construction cost than the cost estimate used in the September 2012 loan request, specifically for the outlet's hydraulic system. Additionally in 2013, the SEO requested a video inspection of the original outlet works pipes that were abandoned in 1929. This inspection revealed broken pipe, debris, and seepage in the dual 16-in cast iron pipes, even at reduced reservoir stages. The SEO determined these conditions present a dam safety risk and is requiring remedial abandonment measures consisting of full- length grouting of the pipes and construction of a diaphragm filter to properly and safely abandon the original outlet. With the expected increase to construction cost and the change to the Scope of Work for the remedial abandonment measures, the Project cost has increased from $362,690 to $745,000 as shown on Table 1. Although the Company may seek additional grant funding, the approval of this loan increase will ensure sufficient Project funding to cover the Project costs in full so that the contractor procurement process can continue without further delay. TABLE 1: UPDATED PROJECT COST SUMMARY Task Original Updated Project Cost Project Cost Engineering $78,715 $80,000 Construction $158,500 $495,000 Construction Management $70,000 $70,000 Contingency $55,475 $100,000 (35%of construction) (20%of construction) Total $362,690 $745,000 Schedule: Final engineering is completed and the Project is expected to go out to bid in November with a construction start in January 2015. Construction is expected to be completed in July 2015. Financial Analysis Table 2 provides a summary of the Project's financial aspects. The Company's blended interest rate of 1.75% for a 30-year term (Ownership: 93% agricultural, 7% low-income municipal), will remain as per the terms of the original contract.