To: Honorable Mayor and Members of Town Council
From: Mark Marlowe, P.E., Director of Castle Rock Water
Matt Benak, P.E., Water Resources Manager
Angie Brown, Water Resources Program Analyst
Title
Resolution Approving the Third Amendment to the Intergovernmental Agreement for the Option to Purchase and Right of First Refusal Regarding Ground Water Rights, Easements and Related Improvements [Cherokee Groundwater Agreement]
Body
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Executive Summary
The purpose of this memorandum is to seek Town Council approval of a Resolution (Attachment A) for an extension of Dominion Water and Sanitation District’s (Dominion) option payment of $302,120 which is currently due on September 3, 2020 under the Second Amendment to the Intergovernmental Agreement (IGA) between the Town of Castle Rock and Dominion Water and Sanitation District for the Option to Purchase and the First Right of Refusal Regarding Groundwater Rights, Easements and Related Improvements (Agreement). The purpose of this extension is to give Dominion and the Town extra time to execute a mutually beneficial exchange of some of Dominion’s WISE infrastructure capacity for Cherokee groundwater rights and option payment sums addressed under the current agreement for which the terms have been developed but the amendment to the agreement still needs to be finalized. The new effective date for the option payment would be October 15, 2020. Subsequent option payments would still be due on June 3 of each year through 2022.
History of Past Town Council, Boards & Commissions, or Other Discussions
Staff discussed the proposed purchase option agreement with the Castle Rock Water Commission on May 23, 2018. Castle Rock Water Commission unanimously recommended that Council approve the agreement.
On Feb 5, 2019, Town Council approved Ordinance 2019-003 for the IGA for the Option to Purchase and First Right of Refusal Regarding Groundwater Rights, Easements and Related Improvements between the Town of Castle Rock and Dominion Water and Sanitation District, Acting in its Capacity as a Water Activity Enterprise.
On March 5, 2019, Town Council approved Resolution 2019-036 for the Tri-Party Agreement between the Town of Castle Rock, Dominion Water & Sanitation District, and Cherokee Ranch & Castle Foundation.
In a letter dated May 31, 2019, Dominion Water & Sanitation Districted requested a closing extension from the original agreement to August 2, 2019.
On June 18, 2019, Town Council approved the First Amendment to the IGA, extending the closing of the first block of water rights to August 2, 2019.
On August 2, 2019, Dominion closed on 300 acre feet of non-tributary Arapahoe Aquifer groundwater as part of the IGA.
On June 2, 2020, Town Council unanimously approved Resolution 2020-053 approving the Second Amendment to the IGA for the Option to Purchase and First Right of Refusal Regarding Groundwater Rights, Easements and Related Improvements between the Town of Castle Rock and Dominion Water and Sanitation District which provided the Town and Dominion until September 3, 2020, to develop an amendment to the agreement that would address a potential exchange of WISE infrastructure for groundwater and option payments addressed in the original agreement.
Discussion
On March 5, 2019, the Town and Dominion entered into an IGA whereby Dominion has the option to purchase the groundwater and easements that the Town owns under the Cherokee Ranch and Castle Foundation Property (Property). This groundwater and the associated easements were obtained as a part of the much broader purchase of water assets from United Water and Sanitation District, which the Town completed in 2017.
The Town is focused on using its scarce resources to develop renewable water, and as such, this non-tributary groundwater under the Property was available for sale to Dominion to allow Castle Rock to generate more revenue for renewable water investments. Dominion closed on the first 300 acre-foot (AF) tranche of this groundwater on August 2, 2019. To continue to maintain the IGA, Dominion is required to deliver an option payment to the Town on the remaining groundwater. This option payment is in the amount of $302,120 and per the Agreement was due on June 3, 2020.
However, in the spring of 2020, discussions with Dominion revealed that they have excess capacity in certain portions of the WISE project infrastructure and were interested in potentially exchanging their excess capacity in lieu of cash payments. Because the Town is seeking to obtain additional capacity in the WISE infrastructure, the Town entered into the Second Amendment to the Agreement on June 2, 2020 which extended the deadline of the Option payment to September 3, 2020 so that Staff could work with Dominion to negotiate the details of this exchange. In recent weeks the Town and Dominion have identified a mutually beneficial option that will exchange capacity in WISE Infrastructure for Cherokee Ranch groundwater, however, an agreement between the parties needs to be developed.
By extending the option payment with this amendment to the IGA, the Town and Dominion will have the time needed to develop an agreement to finalize and execute the transaction.
Budget Impact
Since Dominion and the Town are negotiating an exchange of WISE infrastructure for the non-tributary groundwater rights, the Water Resources Fund will need to make the Water Fund whole by transferring the equivalent dollar value of the groundwater into the Water Fund. The Water Resources Fund currently has a budget of $61,850,000 to purchase additional WISE infrastructure over the next 10 years. This potential deal could provide a non-cash approach to obtaining that WISE infrastructure, keeping the cash within Castle Rock Water for other critical needs.
Staff Recommendation
Staff recommend that Town Council approve the Third Amendment to the aforementioned IGA with Dominion Water and Sanitation District extending the option payment until October 15, 2020.
Proposed Motion
“I move to approve the Resolution as introduced by title.”
Attachments
Attachment A: Resolution
Exhibit 1: Third Amendment to the IGA