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
Discussion/Direction: Amendment to Agreement for Acquisition of Chatfield Reservoir Reallocation Project Shares from the State of Colorado
Body
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Executive Summary
Renewable water storage is a key component of the long-term water plan puzzle. While we have secured much of what we need in terms of storage in Rueter-Hess Reservoir and Chatfield Reservoir, additional storage over time in Chatfield gives the Town unique access to additional renewable water sources. The purpose of this memorandum is to provide information to and elicit direction from Town Council to amend the option agreement that the Town currently has in place with the Colorado Water Conservation Board (CWCB) for additional storage capacity in the Chatfield Reallocation Project. The proposed amendment to the option agreement would increase the number of shares that the Town has the option to buy over the next nineteen years, from 1,213 acre-feet (AF) to 1,713 AF. This option agreement and the proposed amendment provides a creative way to leverage our financial resources in a way that mimics a long term loan at less than one percent interest with the option to invest in as little or as much as we want. Even if we don’t take down the option, it gives us a first right of refusal on the shares in the agreement if another party decides to purchase for ten years from the date the agreement was signed.
With the recent final decree in our Water Court case (Case No. 12CW296) that allows us to exchange water in Chatfield back up Plum Creek to Castle Rock, we are recommending that our option agreement be amended to reflect that we have the option to purchase enough storage to get us up to 2,000 acre-feet (total) of storage space within the reservoir. This would allow the Town to be able to take full advantage of our junior water storage right and to obtain new renewable supplies during wet years for a reasonable cost.
Based on the most recent 15% design cost estimate, the Town’s estimated pro-rata share of the investment to participate at 287 acre-feet is $2.6 million. If we take down the full proposed amended option, the estimated pro rata investment by the Town would be $17.9 million if the current cost estimate turns out to be correct. Taking into account the proposed amendment, we have budgeted $860,000 each year between 2016 through 2025 to purchase additional shares. The final costs of the Chatfield project will become much more understood in the next two years. The key benefit of the option is that we can stop investing in Chatfield in two years if prices have climbed to a point which is financially challenging. The purchase of additional shares will be evaluated each year to ensure that it aligns with our long-term water and financial goals. The Utilities Commission and staff recommend proceeding with the amendment to the option agreement, and a draft is provided as Attachment A.
History of Past Town Council, Boards & Commissions, or Other Discussions
In 2004, the Town Council approved a resolution consenting to the South Metro Water Authority (currently the South Metro Water Supply Authority) reserving 1,400 acre-feet of the storage capacity on behalf of its members. The Town’s current share of that capacity is 34.8 percent (34.8%) or 487.2 acre-feet.
In 2005, the Town signed a Letter of Commitment between the Town of Castle Rock and the Colorado Water Conservation Board (CWCB) to reserve permanent storage space in Chatfield Reservoir if the storage becomes available as a result of this project. The Town’s current reserved capacity is 1,013.2 acre-feet.
In September 2012, Town Council approved a resolution to submit a letter to the US Army Corps of Engineers in support of the Chatfield Reallocation Project.
Utilities Commission was updated on the status of the project on June 26 and July 24, and October 22, 2013.
Town Council was updated on the status of the project in October 2013.
The Water Resources Committee reviewed this project on May 6, 2014.
On May 28, 2014, Utilities Commission was updated on the status of the recommended reduced participation level of 200 acre-feet. Utilities Commission voted 5-1 approving the recommended reduced participation level with one Commission stating that participation at a higher level is preferred.
On June 17, 2014, Town Council approved a resolution to reduce participation in the Chatfield Reallocation Project from 1,500.3 acre-feet to 200 acre-feet.
On November 18, 2014, Town Council approved the execution of the articles and bylaws of the Chatfield Reservoir Mitigation Company, the Water Storage Agreement, the Escrow Agreement, and the Water Provider Agreement for the Chatfield Reallocation Project.
On April 21, 2015, the Town Council was provided with a discussion of the salient points of a draft option agreement with CWCB.
On May 27, 2015 the Utilities Commission unanimously supported the recommendation to Town Council to proceed with entering into an agreement with CWCB for the acquisition of additional project shares over a multi-year period.
On June 16, 2015, Town Council approved the option agreement for acquisition of additional Chatfield Reservoir project shares from the State of Colorado over time.
On October 5, 2015, the Mayor was presented with execution instructions and original forms for the:
• Articles of Incorporation and Bylaws of Chatfield Reservoir Mitigation Company, Inc.
• Water Provider Agreement
• Escrow Agreement
The Chatfield Storage Reallocation Project refined cost estimate was presented to Utilities Commission on April 27, 2016. The commissioners unanimously recommended that the Town continue its participation in the project.
On May 17, 2016, Town Council was provided with an update on the progress of the Chatfield Reallocation Project.
On May 25, 2016, Utilities Commission was provided with a discussion of the key points for an amendment to the CWCB Option Agreement to buy 1,713 AF of storage shares over the next nineteen years. The commissioners unanimously recommended that staff work with CWCB to development an amendment to the existing CWCB Option Agreement.
Discussion
The Chatfield Reallocation Project is has recently been re-estimated at $184 million. This project reallocates flood storage space in the existing Chatfield Reservoir located in northwest Douglas County to space that can be used for storing renewable water supplies. The Town of Castle Rock is currently, and has been since 2004, a participant in the Chatfield Reallocation Project. On June 7, 2014, Town Council approved a resolution to reduce the current participation in the Chatfield Reallocation Project from 1,500.339 acre-feet to 200 acre-feet based on staff’s recommendations of the current need for storage in Chatfield by the Town. On June 16, 2015, Town Council approved the option agreement for acquisition of additional Chatfield Reservoir project shares from the State of Colorado over time and in December 2015, the Town closed on an additional 87 acre-feet of storage space, bringing total Town-owned space to 287 AF.
The key terms of the current option agreement are summarized below:
• 15-year amortization period with 5-years of individual deferments. The Town cannot defer two years in a row.
• Purchase price of $7,000 per acre-foot but payments will be reconciled when final project costs are known with most recent estimate at $8,932 per acre-foot.
• Castle Rock has first right of refusal to purchase the orphan shares that we relinquished.
• Castle Rock can purchase 87 acre-feet or more of additional storage each year at an approximate annual cost of $609,000.
• Castle Rock is required to pay operation, maintenance, rehabilitation, repair, and replacement costs to CWCB for the entire contract amount of 1,300 acre-feet. CWCB requires that the Town pays the same cost that CWCB pays the US Army Corps of Engineers for the storage shares which is approximately $50 per acre-foot, or $65,000 annually. If we think of this option agreement as a 20-year loan, $65,000 is less than 1% interest.
• If CWCB is able to lease any of the storage in any year, they will pay their prorated share of the operation and maintenance cost.
• Town has the ability to purchase wet water to store within the optioned space.
The benefits of this option agreement are:
• Reasonably priced storage capacity in the Plum Creek basin where most of our water rights reside as well as the South Platte River basin.
• Gives the Town flexibility when considering purchasing new senior water rights along Plum Creek.
• The Town has a 2,000 acre-foot conditional junior water storage right in Chatfield (Water Court Case No. 89CW169) with an appropriation date of November 6, 1989 that has a value of millions of dollars’ worth of renewable water supply if we have the ability to capture it.
• Regional project that has had statewide support and will increase cooperation amongst water providers in our area.
• The value of this storage will likely increase in the future.
• Based on a recent Water Court case (Case No. 09CW166) that settled, the Town has the right to store water in Chatfield.
• In-stream storage in the South Platte basin that will have potential value to many entities in the future, meaning Castle Rock might be able to lease excess water or sell or lease storage at attractive rates.
• Options to partner with other regional entities on treatment and transmission infrastructure.
• Gives us more future flexibility with WISE water (may be able to trade water with Centennial for example).
• May be able to use WISE infrastructure to access supplies in Chatfield directly.
• Allows us to purchase SPOT water from Denver and Aurora.
• Provides us a way to capture free river flows into Chatfield.
Budget Impact
Purchasing additional storage capacity (1,713 acre-feet) from CWCB in the Chatfield Reallocation Project over 19 years if we use the five deferments, will cost $15.3 million plus $85,650 annually for operation, maintenance, rehabilitation, repair, and replacement costs. The Town has already budgeted $9.3 million over a 10-year period (2016 through 2030) for purchasing additional storage capacity in the project. The Town will need to budget an additional $6 million to cover the purchase of additional storage shares at the cost negotiated in the option agreement. The final costs of the storage options will be adjusted based on the final capital costs for the project (up or down). Based on the most recent 15 percent design costs estimate, our total costs could be $17.9 million for the 2,000 AF option. If we take down the options each year, the Town will own 531 AF as final costs are identified or $4.7 million worth of shares at the most recent cost estimate. Once final costs become clear, the Town can make a final decision on how many option shares to buy.
Staff Recommendation
Staff recommends that Town Council direct staff to work with CWCB on an amendment to the Agreement for Acquisition of Chatfield Reservoir Reallocation Project Shares from the State of Colorado, and bring that amendment back to Council for consideration in the next several months.
Proposed Motion
“I move to direct staff to work with the CWCB on an amendment to the Agreement for Acquisition of Chatfield Reservoir Reallocation Project Shares from the State of Colorado similar to the draft amendment provided in the memo.”
Attachments
Attachment A: Draft Amendment Agreement