To: Honorable Mayor and Members of Town Council
Through: David L. Corliss, Town Manager
From: Mark Marlowe, P.E., Director of Castle Rock Water
Mark Henderson, Assistant Director
Lauren Moore, Water Resources Manager
Title
Update: Tall grass Infrastructure Development and Purchase Agreement and Water Lease Agreement between the Town of Castle Rock and Tallgrass Colorado Municipal Water, LLC (Tallgrass) [Lost creek area of Weld County, Colorado]
Body
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Executive Summary
The Box Elder renewable water delivery project remains one of the cornerstone projects within Castle Rock Water's long-term renewable water supply portfolio. The project combines water rights associated with the Town's Box Elder property, Lost Creek Designated Basin wells and water rights, and South Platte River recharge supplies to provide a significant renewable water source capable of meeting approximately 15 percent or more of the Town's long-term water demands.
In October 2024, Town Council approved an Infrastructure Development and Purchase Agreement and a Water Lease Agreement with Tallgrass Colorado Water (Tallgrass). The Infrastructure Development and Purchase Agreement included improvements to eleven (11) Town-owned wells and approximately nine miles of water transmission pipeline to connect the wells and deliver the water to Tallgrass’s transmission system located north of the well field. The Water Lease Agreement authorized Tallgrass to lease Castle Rock’s water rights at a rate of $1,550 per acre-foot through December 31, 2027, generating near-term revenue to help offset a portion of the capital costs associated with the Box Elder project. The Infrastructure Development and Purchase Agreement also contemplated future phases of infrastructure development and required the parties to negotiate a larger water delivery system, including a pipeline and pumping facilities extending from the Lost Creek well field to the Box Elder property and ultimately to East Cherry Creek Valley’s (ECCV) water treatment facilities. The agreement further provided that if the parties were unable to reach agreement on subsequent infrastructure phases, Castle Rock would purchase the completed Phase 1 infrastructure improvements from Tallgrass for $15 million. Tallgrass completed Phase 1 infrastructure improvements and commissioned the Lost Creek well collection system in March 2026. The completed infrastructure provides a fully integrated collection and transmission system that can serve as the foundation for future renewable water deliveries from the Lost Creek well field to the Box Elder property and beyond. Since completion of Phase 1, the Town and Tallgrass have continued evaluating future phases of the project and potential water delivery alternatives. To allow additional time for technical evaluation and negotiations, the parties have amended the agreement twice. The current amendment expires on July 1, 2026.
Tallgrass has proposed a Phase 2 infrastructure project that would create a complete transmission pathway from the Lost Creek well field to the Box Elder property and onward toward the Town of Lochbuie (Lochbuie) and East Cherry Creek Valley (ECCV) facilities. The proposal includes approximately 11.6 miles of new transmission pipeline connecting the Lost Creek well field to the Box Elder property, as well as acquisition by the Town of approximately 8.7 miles of existing Tallgrass Colorado Water transmission pipeline extending from the Box Elder property to a location northwest of Lochbuie. An optional component of the project includes construction of an additional 6.6-miles of transmission pipeline connecting the system to ECCV's Northern Treatment Plant. The proposed infrastructure would provide sufficient capacity to deliver approximately 1,500 acre-feet per year of Town-owned Lost Creek water while preserving flexibility for future integration of Box Elder alluvial groundwater production facilities and other renewable water supplies. The project would establish the backbone infrastructure necessary to support long-term development of the Box Elder Renewable Water Delivery Project and future regional water supply partnerships. Tallgrass anticipates that execution of a Phase 2 agreement in 2026 would allow permitting, easement acquisition, and final design activities to begin immediately, with the transmission system becoming operational by January 2029. Depending on the infrastructure option selected, the estimated cost of Phase 2 ranges from $41 million to $55 million, in addition to the Town’s $15 million purchase of the completed Phase 1 infrastructure.
Staff are evaluating the Phase 2 proposal, which includes an independent third-party cost evaluation. In addition, Town staff continue to assess how the proposed infrastructure could integrate with treatment facility planning at the Box Elder property, support potential partnerships in the Lochbuie area, and provide benefits to the WISE partnership’s future desalination needs. Discussions with stakeholders and coordination with WISE partners are expected to continue through the end of the year. Under the existing agreement, the Town will be required to close on the Phase 1 infrastructure for $15 million. Following the Phase 1 closing, Town staff will continue evaluating the Phase 2 proposal and work collaboratively with Tallgrass to plan future phases of the project and negotiate a subsequent infrastructure agreement. Any future agreement would be presented to Town Council for consideration and approval at a later date.
Budget Impact
The Town budgeted $15 million in 2025 for the purchase of the Phase 1 infrastructure. These funds were carried forward into the 2026 budget and will be used to complete the closing on the Infrastructure Development and Purchase Agreement.
The Water Lease Agreement extends through December 31, 2027, and includes a firm take-or-pay commitment of 257 acre-feet (AF), resulting in minimum annual lease revenue of $398,750. Accordingly, the Town expects to receive at least $398,750 in revenue from water leases, with the potential for additional revenue depending on the volume of water rights required by Tallgrass to support its oil and gas development activities.