Pasadena Seeks $103.6 Million Federal Loan For Critical Water Infrastructure Improvements

Pasadena Water and Power (PWP) is pursuing a federal loan of up to $103.6 million to finance three major water infrastructure projects aimed at modernizing the city’s aging water system. The loan application, to be submitted to the U.S. Environmental Protection Agency’s Water Infrastructure Finance and Innovation Act (WIFIA) program, would fund nearly half of the city’s $211 million Water Infrastructure Program.

In a memorandum for the Municipal Services Committee, which meets on Tuesday, PWP Interim General Manager David M. Reyes said the loan would support the replacement of 130-year-old reservoirs at the Sunset Complex, installation of advanced water meters across the city, and replacement of approximately 11 miles of aging water mains.

PWP officials estimate the financing arrangement will save ratepayers more than $10 million compared to traditional municipal bonds.

“The loan program has numerous benefits, including a low cost of capital, reduced interest rate risk, flexible draw and repayment terms, and no prepayment penalty,” Reyes wrote.

Reyes will discuss the proposal in full at the Municipal Services Committee meeting.

The WIFIA program allows Pasadena to finance up to 49 percent of eligible project costs with interest rates roughly equivalent to U.S. Treasury rates plus one basis point. One significant advantage is that repayment can be deferred until five years following substantial completion of the projects.

Reyes said PWP began exploring the WIFIA option during its 2023 cost-of-service study, identifying that accelerated infrastructure investment would create rate pressure if managed through traditional financing methods. After completing a cost-benefit analysis, the utility determined the WIFIA program would provide substantial savings for ratepayers.

The Sunset Complex project, budgeted at $75.7 million, will replace reservoirs that have exceeded their useful life with new prestressed concrete structures and include construction of a new groundwater treatment plant. The Advanced Metering Infrastructure project allocates $26.7 million to replace about 18,000 water meters and retrofit approximately 20,000 water meters for AMI.

An additional $59.7 million will fund the Water Distribution Mains project, replacing aging pipes throughout the system. The total program also includes $48.6 million in contingency funds and $400,000 in processing fees.

The city submitted a letter of intent to the Environmental Protection Agency and last December received an invitation to proceed with a full application. PWP is currently in the application process, which will be followed by negotiation of the terms and conditions prior to closing of the loan.

Projects receiving WIFIA funding must comply with federal requirements including the National Environmental Policy Act, American Iron and Steel Requirement, Davis-Bacon Wage Requirement, and Build America, Buy America Act. These compliance costs are included in the program budget.

Annual loan servicing is estimated at approximately $26,000 per year during construction and $7,800 annually after project completion. The principal and interest payments of the loan will be determined upon loan closing.

“The WIFIA program will enable the water system to have a more agile and resilient plan of finance for its critical and accelerated capital reinvestment program,” Reyes wrote. “The water system has many infrastructure projects that have reached the point of urgency.”

Reye added that by having a balanced plan with capital funding debt, elongating the terms of repayment, and the benefit of more time to consider increased revenue requirements, PWP customers will continue to be provided safe and reliable water at a competitive rate.