To: Honorable Mayor and Members of Town Council
From: Mark Marlowe, Utilities Director
Matt Benak, Water Resources Manager
Sheri Scott, Water Resources Program Analyst
Title
Resolution: Approving a Surface Use Lease Agreement with Sublette Inc. for the ‘Rothe’ Property
Body
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Executive Summary
The Box Elder Project is part of the Town’s long term renewable water plan. A key component of this project is the purchase of water rights in the South Platte Basin. In 2014, Castle Rock purchased the Rothe Water Rights as part of the project. As part of the Town’s purchase of the Rothe Recharge water rights, the Town also acquired 640 acres of land in southeastern Weld County. Successful implementation of the Box Elder Project requires that the Town maintain this property properly until it is sold or otherwise disposed. Being a good neighbor will provide local support for the Town’s project. More importantly, proper management of the land will also maximize the availability of the Town’s water rights. While the value of leasing of these water rights will vary year to year based on many factors, this water could be worth hundreds of thousands of dollars in lease payments in the time before the Town needs to start using the water.
The purpose of this memorandum is to obtain Town Council approval for the Surface Use Lease Agreement we have been working on with an adjacent landowner to the Town’s Rothe Property located in Southern Weld County (Attachment B). To ‘pay down’ the pumping depletion credits related to the on-site well (i.e. maximize the potential benefit of the water rights), the Town will be converting the land to native vegetation. Of the 770 acre-feet (AF) of the Town’s water rights, 338 acre-feet are being used to cover the water that was used to irrigate the Town’s land from 1985 to 2014, thus, the Town has 432 AF of water that could be available for lease to other parties immediately. The quantity available will continue to increase over time with the following approximate quantities available:
Year Available Recharge Credits [AF]
2015 432
2016 570
2017 616
2018 639
2019 655
2020 670
2021 680
The adjacent landowner, Sublette, Inc., is interested in leasing our land for surface use. They intend to use a portion (~120 acres) of the land to grow a sorghum crop and also look after the land on the Town’s behalf. In return, they wish to use the land for recreational purposes (hunting). Additionally, Sublette will be using their excess water credits to irrigate our land to help establish a dry-land native seed mixture. This is beneficial in that it allows us to have more water available to potentially lease to other parties between present day and when we put our water rights to use to augment well pumping from the future Box Elder well field.
The Surface Use Lease Agreement (Attachment 1) states that the agreement is for an initial five year term with two, 1 year extensions available. Sublette, Inc. will be allowed to lease the property, rent free for the initial term, then pay the Town $5,000 per year for each annual extension. Sublette will be able to use the land for growing a cover crop (using their water credits from the Rothe Recharge Plan), and hunting and grazing opportunities within legal and best land management practice bounds.
The Town has contracted with Sublette to revegetate our land (under separate agreement). As part of the revegetation contract, the Town pays for weed control, sprinkler nozzle equipment and seed, but does not get charged for labor, fuel, and electrical costs associated with sprinkler operation, so long as the Town and Sublette can come to agreement on a Surface Use Lease, as presented herein.
The benefits of entering into a Surface Use Agreement with Sublette include:
• A potential savings of $20,000 or more related to the labor and expenses associated with sowing the native seed, electrical costs for the irrigation pump and maintaining the land.
• Savings of between $6,000 and $12,000 related to the cost of supplemental water to irrigate the native seed mixture for proper establishment.
• Having more of our water available for lease than we otherwise would have if we had to use our water credits to establish the native seed mixture. Approximately 240 AF of water will be used in 2015 to irrigate 360 acres of our property.
• Having a ‘caretaker’ to look after the land and report any issues that may arise.
• Formation of a good-neighbor relationship in the area.
• Assistance with establishment of a native grass stand on the land as livestock grazing is beneficial for this.
History of Past Town Council, Boards & Commissions, or Other Discussions
In 2011, staff was directed by Town Council to evaluate other potential water supply projects (Alternative Source of Water Supply Projects) to ensure that Castle Rock fully understood the options available in addition to WISE. The Town developed a Request for Proposals (RFP) process that could accomplish that in a public, transparent process.
Through various public meetings in 2012, Town Council considered the risks, benefits, and costs of all of the proposals submitted including a hybrid option that couples the WISE project with one of the other proposals. As a result of these meetings, Town Council directed staff to focus efforts on a scaled back (hybrid) renewable water project (2,000 - 4,000 acre-foot solution) and explore in more detail, the hybrid option. Staff has been providing Town Council regular updates to the progress of the hybrid water supply option.
On April 1, 2014, Town Council approved the 5-1/2 year option agreement for Box Elder Creek Well Field.
On April 8, 2014, the Rothe Recharge project was presented to Water Resources Committee. The committee was positive about the project and encouraged the Utilities staff to continue to research the feasibility of the project.
On July 30, 2014, Utilities Commission was updated on the Rothe Recharge water rights Purchase Agreement. The committee unanimously recommended that Council approve the proposed Purchase Agreement.
On August 19, 2014, Town Council approved the Purchase Agreement for the Rothe Recharge project. As part of this purchase, 640 acres of land were acquired by the Town.
June 24, 2015, Utilities Commission was updated on the key points regarding the Rothe Surface Use Lease Agreement. Utilities Commission supported entering into a surface use agreement with Sublette, Inc.
Budget Impact
Entering into this agreement will have no immediate budget impact for our Alternative Source of Supply Project (Account Number 211-4375-443.77-30); however, it will help offset costs we would have to pay to properly revegetate the land. The value of the lease in terms of water, labor and expenses savings alone is estimated to be between $26,000 and $32,000. This does not account for the additional water that the Town may be able to lease to other parties to help offset long term investments in the Box Elder project.
Staff Recommendation
Staff recommends that Town Council approve the Surface Use Lease Agreement with Sublette, Inc. for the Town’s Rothe Property in accordance with the resolution included as Attachment A.
Motion
I move to approve a Resolution Approving the Rothe Property Surface Use Lease Agreement.
Attachments
Attachment A: Resolution
Exhibit 1: Agreement
Attachment B: Location map