Electrical Power for Valdez and the Copper River Basin-1981

5. Marketing vagarities (loads, Railbelt intertie, local or stateconstruction) make present comparisons uncertain.Interest rates for repayment of Federal investment in power projects arekeyed to long-term borrowing costs, with an annual determination by theSecretary of Treasury. The formula is based on average costs of governmentsecurities with 15 or more years to maturity at the beginning ofeach fiscal year. Changes in the rate to be applied to new investmentsare limited to one-half percent per year.Studies for this re.port used an 8 percent interest rate, which was therate to be applied for new Federal investment in FY 1980.A larger increase in borrowing costs was experienced in FY 1980, asreflected in Tn~asury' s determination that the average rates for thelong-term securities as of October 1, 1980 was in excess of 10 percent(10.25). Thus, if Allison Creek Project is constructed in the mid tolate 1980's, it is likely that the project interest rate will be 10percent or higher.Under the 8 percent assumption and October 1980 price levels, annualreserves $3,229,000 are needed to cover operations, maintenance, andamortization costs for Allison Creek. Under a 10 percent assumption,annual reserve requirements would be $3,937,000, an increase of 22percent. Average rates for repayment would reflect similar increases.These figures do not reflect future inflation.Changes in interest rate and future inflation would have similar impactson costs for alternative power sources.APA concludes that the outlook for financial feasibility is sufficientlyfavorable to warrant steps towards project authorization, but recommendsreevaluation of the power markets and alternative costs prior to construction.6