To: Honorable Mayor and Members of Town Council
Through: David L. Corliss, Town Manager
From: Mark Marlowe, P.E., Director of Castle Rock Water
Matt Benak, P.E., Water Resources Manager
Title
Resolution Approving the Infrastructure Development and Purchase Ageement and Water Lease Agreement between the Town of Castle Rock, acting by and through the Castle Rock Water Enterprise, and Tallgrass Colorado Municipal Water, LLC [Lost Creek area of Weld County, Colorado]
Body
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Executive Summary
Castle Rock Water (CRW) staff request Town Council approval of a Resolution (see Attachment A) for the Infrastructure Development and Purchase Agreement and Water Lease Agreement between the Town of Castle Rock and Tallgrass Colorado Municipal Water, LLC (Tallgrass).
CRW owns the Box Elder property and recently adjudicated water rights on the property of 557 acre feet (AF) in Weld County along with eleven wells and associated water rights with a decreed volume of 1,492 AF in the Lost Creek Designated Basin. Furthermore, CRW owns 770 AF of water rights along the South Platte River as part of the Rothe Recharge project. Collectively, the property and water rights are the backbone of what will be the Town’s Box Elder renewable water delivery project. The Box Elder project has been identified as a key piece of the Town’s renewable water supply portfolio accounting for around 15% or more of our future water demands. The Town obtained the final Water Court decree for the Box Elder augmentation plan and water rights on April 18, 2024.
The overall concept is to gather raw water from the Lost Creek wells, deliver that water to the Box Elder property for augmentation of Box Elder alluvial well pumping and direct delivery to East Cherry Creek Valley’s (ECCV) Water Treatment Plant. The Town plans to enter into subsequent agreements with ECCV for treatment and pumping of our water and delivery within existing pipeline infrastructure back to the Town.
The Town has identified an opportunity to work with a private entity (Tallgrass) to construct some of the key pieces of pipeline and pumping infrastructure to be able to spread out the large capital costs over time and to have the opportunity to purchase additional water rights (1,000 AF) that Tallgrass currently owns. This additional water will help the Town achieve its goal of 100% renewable water (in an average water year) by 2065. Furthermore, leasing of our Lost Creek water to Tallgrass in the near term will allow the Town to realize some additional revenue helping to offset the overall cost of the Box Elder project with a positive benefit to our ratepayers.
The Infrastructure Development and Purchase Agreement will involve improvements to all eleven (11) wells that Castle Rock owns in the Lost Creek designated basin. These improvements will allow Tallgrass to pump, control and meter the wells as needed for their industrial (oil and gas development) operations in the near term. Tallgrass will construct approximately 9 miles of water transmission pipeline to tie the wells together and transmit the water to their water delivery system located north of our well field.
Within the 1-year term of this agreement, Castle Rock and Tallgrass will continue to negotiate on a larger infrastructure development project for a pipeline and pumping system from the Castle Rock wells back to the Box Elder property and further on to ECCV’s treatment plant. If the two parties cannot come to agreement on the subsequent infrastructure phases, Castle Rock will purchase the improved wells and pipeline system from Tallgrass for $15,000,000. If Tallgrass were to fail in constructing a complete water delivery system as part of Phase 1A, the Agreement has a ‘Parental Guaranty’ term where Tallgrass’ parent company would need to provide adequate funding for Castle Rock to complete the water delivery system.
The Water Lease Agreement allows Tallgrass to lease Castle Rock’s water rights at $1,550 per acre-foot through December 31, 2027. This agreement would provide additional revenue to Castle Rock in the short term and help to offset some of the capital costs associated with the Box Elder project. There is a 257 AF take-or-pay provision over the three-year term of the Water Lease Agreement, so Castle Rock would receive a minimum of $398,500 as part of this lease and could receive upwards of $6,000,000 if Tallgrass elects to lease the majority of the water rights over this three-year period.
Budget Impact
If the Town and Tallgrass cannot come to agreement to continue to negotiate a deal, the Town will owe $15 million by October 2025 (one year following the execution of the Infrastructure Development and Purchase Agreement). Per the Water Lease Agreement, the Town expects a minimum of $398,750 of revenue from water leases to Tallgrass over the three-year lease term and potentially up to $6 million if Tallgrass takes full advantage of our water right volumes for their oil and gas development operations. While Tallgrass owns the gathering system, Castle Rock will be responsible for operations and maintenance costs which primarily include Ad Valorem taxes and insurance at a cost of approximately $100,000 per year. Once Castle Rock owns the system the tax component of approximately $90,000 per year could potentially go away based on our tax-exempt status.
Staff Recommendation
Staff and Castle Rock Water Commission recommend that Town Council approve the Infrastructure Development and Purchase Option Agreement between the Town of Castle Rock and Tallgrass Colorado Water, LLC.
Proposed Motion
“I move to approve the Resolution as introduced by title.”
Alternative Motions
“I move to approve the resolution as introduced by title, with the following conditions: (list conditions).
“I move to continue this item to the Town Council meeting on _____ date to allow additional time to (list information needed).”
Attachments
Attachment A: Resolution
Exhibit 1: Agreement
Attachment B: Location Map