BOARD01693

• Board Meeting Date: 7/26/1999
• Description: Colorado River Basin Issues - Long-Term Funding Legislation
• Board Meetings - Doc Type: Memo

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Interest Rate Policy Implications for the CWCB
Resulting from Section 3 of the
Upper Colorado River and San Juan River Endangered Fish Recovery Program
Long-term Funding Legislation

Interest Rate Issue

The CWCB and representatives from the Salt Lake City Area Integrated Power
Contractors (SLCA-IP) have been negotiating the terms of a proposed Memorandum of
Understanding (MOU) among the CWCB, the Western Area Power Administration
(Western) and the Bureau of Reclamation (Reclamation).

The MOU was prepared in accordance with Section 3 of the federal long-term
funding legislation (S._ and H.R. --> that provides authorization for Reclamation to
construct capital projects under the Upper Colorado and San Juan River Endangered Fish
Recover Programs. The capital projects are designed to enhance the recovery of
endangered fish, allow water development to continue and reduce the need for recovery
activities that would impact the exercise of water rights.

The legislation allows Western to pay for capital projects using a loan or loans
from the CWCB.

The latest negotiations have focused on the interest rate the CWCB would charge
for loaning funds to build capital projects. CWCB staff and SLCA-IP have been
discussing whether the CWCB should collect interest consistent with CWCB policy and
precedent for municipal loans, agricultural loans, or loans with a blended
agricultural/municipal interest rate. They have also discussed whether a new rate should be
created because the capital projects are environmental mitigation projects and thus, really
neither agricultural nor municipal in nature.

Legislative Background

The long term funding legislation authorizes expenditures of $82 million for Upper
Colorado River Recovery Program capital projects through the year 2005; and the
expenditure of $18 million for San Juan River Recovery Implementation Program capital
projects through the year 2007. Reclamation would pay $46 million toward the cost of
completing these projects. The four participating states and power contractors who use
hydroelectric power from the Colorado River Storage Project will pay the remaining $54
million. The dates in the legislation correspond with the anticipated completion date of the
projects, based on annual appropriations and the ability of the states and other non-federal
program participants to provide cost-sharing funds, and are not tied directly to the
termination dates in the underlying program agreements.

Although not specifically authorized to do so, Reclamation has been funding most of
the capital costs associated with the Upper Colorado River program, like building fish
ladders, hatcheries, and acquiring habitat where the fish thrive.

Section 3 of the Bill

If the legislation is enacted, non-federal participants like the states and power
customers will pay a larger portion ofthe cost of these capital projects. This cost sharing