Utility Committee Agenda and Packet 2020 07 28

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have a determination before moving forward to approval. Then he asked what the significance of the two interest rates listed for scenarios 7 and 8. Mr. Peterson explained that the Firming Project has secured a subordinate loan from CWCB at a rate of 2.08% that Louisville will have access to if we participate in Group Financing. Councilmember Jeff Lipton then asked Mr. Manire if there is a default with the group financing and what impact it has on the City's credit rating and finances. Mr. Manire explained that the City has been participating in the WG Firming Project for some time and has made payments historically as a participant. This project will be documented with a new agreement that will be called the Water Allotment Agreement. They are talking about the allotment of storage rights. Packed into that will be the terms of the operational relationship between the WG Enterprise that the Northern District and the Municipal Sub District has formed and they will enter into individual contracts with each of the participants. So Louisville will enter into a specific agreement that addresses the payments over time that will be due for the operating cost of the facility. If it chooses to participate into the pool financing then payment arrangement would be documented in this agreement as well. He further explained if you are a participant in this pool finance and other participant default there are a lot mechanisms that kick in, yet to be agreed on. Based on our understanding the other participants would first have the opportunity to restore the payment stream then would ultimately get the right to use the storage right related to the default itself. If someone doesn't make a payment, the structure of the bond issue is first protected by the expectation that other participants will set up in their own interest and acquire the storage right. Ultimately the storage right could have been sold to other participant where at any default because there are some transfers and change in configuration of the different storage allocations that have happened year to year over the years. So the likelihood of a default by a participant is unlikely because we do expect the demand of those storage rights to be such that they have a willing purchaser from other participants in the project but if no one volunteered to advance the money there is a mechanism called, "A Step Up Provision" where all the participants would make some proportionate payment to make the cash flow whole. No effect he anticipates on any specific bond rating or access to the market on Louisville or any other participants unless you're the one that defaulted. Councilmember Deborah Fahey asked what happens at the end of the 20 years for maintenance, expansion, etc. Mr. Peterson said there will be an Operation & Maintenance (O&M) component that will be built into this and is similar to what we now have with CBT and SWSP. There is a prepay of our projected O&M costs where Northern District sends us a bill at the end of the year and we'd prepay that for the following year which would include O&M and some capital reserve. Mayor Pro Tern Dennis Maloney said this is all good information and asked what do we have built into our rate model. If we pick one of these scenarios, where are we at with our model and how does it affect the model? Mr. Peterson stated most of these we modeled separately as we go through the process. What's in the current model was the 2019 model. What that proposed was a $2.5M cash payment and an annual payment of $930,000. That was based on a lower bond amount of $17M because our bonding has been changing so much. The impacts to the model; the cash payment is the biggest impact we are seeing and that depends on where our tap X