To: Members of the Castle Rock Water Commission
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 Option Agreement 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 [Box Elder Property in Weld County, Colorado]
Town Council Agenda Date: September 3, 2024
Body
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Executive Summary
Castle Rock Water (CRW) staff request Town Council approval of a Resolution for the Infrastructure Development and Purchase Option Agreement and Water Lease agreement between the Town of Castle Rock and Tallgrass Colorado Municipal Water, LLC (Tallgrass).
CRW owns the Box Elder property in Weld County along with eleven wells and associated water rights with a decreed volume of 1,492 acre-feet (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.
Discussion
As part of the Town’s hybrid renewable water solution, the Town purchased the xx-acre Box Elder Farm and closed on the property on December 30, 2016. This farm is located approximately six miles east of Lochbuie, CO in southern Weld County as shown in Attachment B. The water rights associated with this property will serve as a source of supply, along with the Lost Creek Basin wells and Rothe Recharge water rights, for the increased water demands that the Town will face as population growth continues.
The Box Elder project has been envisioned as an approximately 2,500 AF yield water delivery project. The overall concept is to gather raw water from the Town’s 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.
Because the infrastructure is not yet in place to transport this water to ECCV, the Town has been leasing the Lost Creek water to other entities for agricultural purposes, which has helped to generate approximately $192,000 in revenue for Castle Rock Water since 2018.
The Town now has an opportunity to lease our Lost Creek water to Tallgrass at a much higher lease rate than what the Town has been leasing for agricultural purposes. Additionally, Tallgrass is agreeable to constructing what we refer to as Phase 1A of the Box Elder infrastructure project. This will consist of approximately xx linear feet of high-density polyethylene (HDPE) pipeline gathering system that ties all eleven (11) of Castle Rock’s Lost Creek Wells together to give the ability to tie that water into Tallgrass’ adjacent water gathering system located just to the north of Castle Rock’s wells (see Attachment C). Importantly, this well gathering system is infrastructure that will be needed by Castle Rock in the future when water must be delivered to the Box Elder property and subsequently to ECCV for treatment and delivery to the Town to meet its customer’s demands.
The Town and Tallgrass would like to enter into an agreement where Tallgrass constructs the pipeline gathering system; improves all eleven wells; develops a telemetry system and ties the wells into Tallgrass’ system for lease of the water. The agreement states that the two parties will continue to negotiate towards a larger deal where Tallgrass will construct the other necessary infrastructure in phases and the Town pays down the construction and financing costs over time. Other infrastructure that is needed includes a booster pump station out of Lost Creek, a raw water pipeline to Box Elder, new wells on the Box Elder property; a pipeline manifold system on the Box Elder property; infiltration/percolation beds on Box Elder; a pump station at Box Elder to pump water to ECCV and treatment and pumping capacity additions to ECCVs system. This entire infrastructure is anticipated to cost $80 to $100 million to implement over the next ten years.
If a larger deal can be struck with Tallgrass, they have an additional 1,000 AF of water they are willing to sell to Castle Rock. This water would represent approximately 5% of the Town’s future water demands and would bolster our goal of being 100% renewable by 2065. This water would also tie readily into the overall Box Elder project since Tallgrass’ and Castle Rock’s Lost Creek supplies would be tied together.
If Tallgrass and the Town cannot come to an agreement on the large project, the Town agrees to buy the newly constructed Lost Creek gathering system for $15 million.
Budget Impact
If the Town and Tallgrass cannot come to agreement to continue to negotiate a deal beyond this agreement, the Town will owe $15 million by September 1, 2025. The Town expects up to $775,000 of revenue from water leases to Tallgrass in 2024 and up to $2.38 million in 2025 and beyond for water leases to Tallgrass for their oil and gas development operations.
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 recommend to Town Council approval of the Resolution as presented”
Attachments
Attachment A: Resolution (Not Attached)
Exhibit 1: Agreement
Attachment B: Location Map (Not Attached)