To: Honorable Mayor and Members of Town Council
From: Mark Marlowe, P.E., Director of Castle Rock Water
Matt Benak, P.E., Water Resources Program Manager
Title
Resolution Approving the Second Amendment to the Contract for Purchase and Sale Agreement Between the Town of Castle Rock and the Arapahoe County Water and Wastewater Authority for the Authority’s Interest in the Cherry Creek Project Water Authority
Body
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Executive Summary
The purpose of this memorandum is to seek approval through resolution (Attachment A) by Town Council to amend the contract with Arapahoe County Water & Wastewater Authority (ACWWA) for the purchase of their shares in the Cherry Creek Project Water Authority (CCPWA). This amendment simply extends the due diligence date to December 15, 2020 for the Town and sets the closing date no later than March 3, 2021. This additional diligence time will allow the Town to conduct Phase 1 Environmental Site Assessments on the Walker and Franktown parcels that are owned by CCPWA. Council approved the original Contract on January 21, 2020 under Resolution 2020-011, and First Amendment was executed on May 5, 2020.
History of Past Town Council, Boards & Commissions, or Other Discussions
On June 17, 2019, CRW staff presented the opportunity to purchase ACWWA’s interest in the CCPWA to the Castle Rock Water Commission (CRWC), who recommended that the Town move forward with the purchase.
On June, 18, 2019, CRW staff presented the opportunity to purchase ACWWA’s interest in the CCPWA to the Water Resources Committee. The Committee recommended moving forward with an offer, the offer ultimately agreed to and outlined in this memo.
On October 2, 2019, the Director of CRW attended the CCPWA’s Board Meeting to discuss Castle Rock’s proposed purchase of ACWWA’s interest in the project and to confirm that the other members were open to reevaluating the proposed capital infrastructure for the project and the manner in which that infrastructure is funded by the CCPWA members.
On October 23, 2019, CRW staff presented the revised agreement to CRWC, and CRWC again recommended that Council approve the purchase and the agreement.
On December 11, 2019, CRWC was updated on the final agreement approach and CRWC offered their continued support by general consensus.
On January 21, 2020, Town Council approved the Purchase and Sale Agreement with ACWWA.
On March 5, 2020 the Town and ACWWA entered into the Contract for the Purchase and Sale Agreement.
On May 5, 2020, the Town and ACWWA entered into the First Amendment to the Contract for the Purchase and Sale Agreement which put into effect a 90-day stay due to the potential impacts of the COVID-19 pandemic.
Discussion
The CCPWA is a group of water providers that has formed an Authority to construct and operate a water project in the Cherry Creek Basin to provide relatively firm water yield of from 500 to 2,000 acre feet per year. Currently, CCPWA is comprised of four participants with shares in the project as follows:
Arapahoe County Water & Wastewater Authority 41.25%
Inverness Water & Sanitation District 31.118%
Denver Southeast Suburban (AKA “The Pinery”) 20.489%
Cottonwood Water & Sanitation District 7.143%
In late 2018, CRW approached ACWWA about purchasing their interest in CCPWA, which includes the following assets:
1. Senior absolute renewable water rights of approximately 80.69 acre feet annually;
2. Junior absolute renewable water rights of up to 240 acre feet annually;
3. Junior conditional renewable water rights of up to 201.5 acre feet annually;
4. Denver Basin groundwater rights of up to 3,175 acre feet annually;
5. 41.25% of two Denver Basin groundwater wells;
6. 41.25% of two property parcels (63 acres and 167 acres) including mineral rights;
7. Easements for tributary and Denver Basin wells;
8. An augmentation plan and various related water rights.
All of the water rights have been decreed for use in Castle Rock’s service area so there will not be a need to go back to Water Court. CRW’s water rights consultant has analyzed the renewable water rights in this portfolio and believes that the yield will vary from 75 to 533 acre feet per year with an average yield of about 247 acre feet of renewable water. This assumes that Castle Rock Water upgrades alluvial wells we own or CCPWA owns and builds a pipeline from those wells to Rueter Hess Reservoir (RHR). If we do not build these improvements, we could capture between 11 and 132 acre feet of renewable water with an average yield of 65 acre feet just by upgrading the diversion pump station at Parker’s RHR diversion on Cherry Creek.
The overall purchase includes all of the Denver Basin water rights listed above as well as two existing Denver Basin wells. As such, Castle Rock would have the option to utilize these resources to provide for a larger firm yield of water supply in collaboration with CCPWA. In total, yields with this approach could be 412 to 825 acre feet per year depending on the implementation of additional capital infrastructure. Still, CRW’s primary interest in the water rights is for renewable water.
There is also the potential that a revision to the 404 permit for RHR may be necessary to store some of the water rights in RHR. This is an issue that will be clarified during the due diligence period. Our legal review indicates that water to be stored out of priority through the CCPWA augmentation plan may require this revision to the 404 permit. The cost and time to complete this permit revision is unknown at this time and will need to be clarified prior to final purchase.
Based on the evaluations done to date, staff suggested and ACWWA has accepted the following basic offer:
1. Cash price of $4,500,000 from the Town.
2. Previous ACWWA proceeds of $3,084,066.66 for a sale of property (i.e. “Excluded Assets”) will be distributed to ACCWA upon completion of the sale.
3. All of the other members must provide confirmation that they have waived their first right of refusal (as outlined in the Formation Agreement).
4. All of the other members and the Authority must provide written consent to the purchase of the assets by Castle Rock.
5. All of the other members and the Authority must provide confirmation that they have not committed any capital expenditures prior to the Town becoming a member.
Budget Impact
The initial cost of ACWWA’s share in CCPWA would be $4,500,000, with additional capital costs expected at a later date as part of CCPWA’s master plan including infrastructure. The current CCPWA master plan estimates ACWWA’s share of these costs to be between $3.9 million and $23.9 million, though CRW staff believe this cost can be significantly reduced for the overall project, because of CRW’s existing infrastructure that could potentially be used as part of CCPWA.
The potential total financial commitment could go beyond what Castle Rock Water needs to operate renewable water rights if CCPWA wants to continue with their 2014 Master Plan. If this occurs, CRW’s costs would include the original capital infrastructure identified for the project which was $3.9 million to $20.3 million. This additional investment, however, would allow Castle Rock to utilize the Denver Basin groundwater rights in conjunction with the renewable water rights for a much larger reliable yield, 412 to 825 AF as noted above.
If CRW is able to take a different path with CCPWA, the preliminary estimated capital costs associated with improvements to CRW’s Cherry Creek alluvial wells and infrastructure to divert the renewable water rights only into RHR would range from $2.7 to $4.2 million.
Upon closing of the Agreement, CRW will purchase available CCPWA interest from ACWWA for $4,500,000. Funding for the Denver Basin Groundwater portion of this purchase ($250,000) will come from the Ground Water Rights Purchase account (210-4275-442.78-97, Project Code WR OWR) which has a balance of $250,000. Funding for the remaining portion of this purchase ($4,250,000) will come from the Water Rights Acquisition account (211-4375-443.75-47, Project Code WR OWR) which has a balance of $5.0 million for 2020.
Staff Recommendation
Staff recommends approval of the Second Amendment to the Contract for Purchase and Sale of ACWWA’s interest in the CCPWA.
Proposed Motion
“I move to approve the resolution as introduced by title.”
Attachments
Attachment A: Resolution
Exhibit 1: Second Amendment to Contract for Purchase and Sale Agreement between the Town of Castle Rock, CO and the Arapahoe County Water & Wastewater Authority Related to the Cherry Creek Project Water Authority