1. (a) The initial rate of interest on a loan the authority makes under the SETS program and fund will be set at the time the authority issues a loan commitment letter. The initial rate of interest will not be less than a rate equal to the sum of the "true interest cost rate" and the "authority cost amount." The authority may adjust the initial rate of interest above the minimum rate provided for in the preceding sentence based on the authority's evaluation of the risk of the transaction. In evaluating the risk of the transaction, the authority may consider the nature of the applicant and the qualified energy development; the size, length and other terms of the loan; the collateral for the loan; and any other factors the authority reasonably determines bear on its risk in the transaction.
2. (b) The authority may require prepayment fees on loans made under the SETS program and fund in amounts and for a period of time the authority determines appropriate, except that the authority will not charge a prepayment fee later than five years from the date of the closing on the loan.

3. (c) In this section,

   1. (1) "true interest cost rate" means

      1. (A) if the authority issues bonds to fund a loan, the rate on the bonds of the authority; or

      2. (B) if the authority uses assets of the SETS fund to fund a loan, the rate identified on the daily Federal Home Loan Bank of Seattle's Fixed-Rate Advances Index which most closely matches the term of the loan, and whether the type of loan has a fixed or variable ]interest rate, as determined by the authority, with the following adjustments:

         1. (i) for a fixed rate loan, the rate during any fiscal year may not be lower than the five-year return on the investment funds of the authority, expressed as an annual interest rate, as determined in the authority's review of its investments at the end of the third quarter of the prior fiscal year and for a variable rate loan, the rate during any fiscal year will not be lower than 475 basis points;
         2. (ii) for a variable rate loan, 200 basis points will be added to the rate;
   2. (2) "authority cost amount" means an amount, determined by the authority and expressed as an annual rate of interest, that is necessary to pay for the allocable expenses of operation, costs of issuance not recoverable by the authority under 3 AAC 101.140(d), and loan servicing for which interest rates are determined under this section.

(Eff. 4/25/2013, Register 207)