To: Honorable Mayor and Members of Town Council
Through: David L. Corliss, Town Manager
From: Mark Marlowe, P.E., Director of Castle Rock Water
Tim Friday, P.E. Assistant Director of Castle Rock Water
Title
Resolution Approving the Intergovernmental Agreement Between the Town of Castle Rock and the Consolidated Bell Mountain Ranch Metropolitan District for Water Service and Improvements [Unincorporated Douglas County subdivision located south of Town and adjacent to Crystal Valley Ranch and Lanterns subdivisions]
Body
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Executive Summary
This memorandum has been prepared to request Town Council approval of a Resolution Approving an Intergovernmental Agreement (IGA) with Bell Mountain Ranch for water service and improvements, see Attachment A. The proposed IGA between the Town and the Consolidated Bell Mountain Ranch Metropolitan District (CBMR) provides significant benefits to both parties. CBMR gets an award winning water utility to own and operate their system, access to sustainable renewable water, and resolution of a number of regulatory and infrastructure challenges currently facing the community. The Town gets additional economies of scale, revenues from extraterritorial surcharges, and land and infrastructure which can allow for upgrades and expansion of capacity for use Town wide.
Bell Mountain Ranch Metropolitan District (BMR) currently owns and operates the water system that serves the Bell Mountain Ranch community, a subdivision of 321 single family lots in unincorporated Douglas County located contiguous to the Town’s southern border. BMR has approached the Town to provide water service through an extraterritorial agreement. This has been an ongoing conversation between the Town and BMR for almost a decade and, in 2019, BMR representatives reviewed various options to solve ongoing issues with running a small community water system and decided that connecting to the Town’s system would be the best option. Draft terms of an extraterritorial service agreement with BMR were reviewed and endorsed by Council in October of 2020.
Currently, BMR operates two Denver Basin groundwater (non-renewable groundwater) supply wells and an ion exchange water treatment process to remove iron and manganese. In order to continue this process, BMR would have to make significant investments in the treatment process in order to comply with Colorado Department of Public Health and Environment (CDPHE) regulations regarding the byproduct of the treatment process. More specifically, ion exchange results in technologically enhanced naturally occurring radioactive material (TENORM) in the residual waste. CRW produces similar residual waste, but is capable of managing the material in accordance with CDPHE requirements. New regulations were promulgated in January 2021 which make it even more difficult for BMR to comply.
In addition to the regulatory challenges, BMR does not have access to a long term renewable water supply, only non-renewable groundwater. BMR recognizes the importance of a long term renewable water supply and connection to the Town will provide this renewable supply.
Extraterritorial agreements are common for water utilities and can provide additional economies of scale, which if done properly, can substantially benefit existing rate payers as well as the new customers being served. The Town currently has an extraterritorial agreement to provide water service to the Macanta development (f.k.a. Canyons South) and an extraterritorial agreement to provide fire flow water service to Castle Rock Cold and Storage, LLC, a proposed business in Castleton Center to be located at 3197 Castleton Court. A ten percent and twenty-five percent extraterritorial service charge is in place for water and sewer for Macanta, respectively. For the Castle Rock Cold and Storage, LLC a twenty-five percent extraterritorial service charge is in place. CRW proposes to serve BMR through a similar extraterritorial agreement described in more detail below.
Notification and Outreach Efforts
The Consolidated Bell Mountain Ranch Metro District has been doing outreach to their customer base for approximately 18 months with a monthly newsletter sent to each customer providing details of the proposed change in service providers. CRW attended an online community meeting with the BMRMD board and BMR citizens on September 2, 2021. The board presented an overview of the proposed connection to the Town’s water system and terms of the agreement, and CRW participated by answering questions and providing more information about the proposed water service. CRW will continue to be involved with further outreach to the BMR customer base.
History of Past Town Council, Boards & Commissions, or Other Discussions
CRW presented the concept of an extraterritorial agreement to the Water Resources Committee in November 2013. The Water Resources Committee was receptive to this idea and CRW continued to work with BMRMD on draft terms for a service agreement.
On October 6, 2020, CRW presented draft terms to the Water Resources Committee and received a favorable response.
On October 20, 2020, CRW presented an update and draft terms of an extraterritorial water service agreement to Town Council. Council directed staff to proceed with developing an extraterritorial water service agreement with BMR.
On October 28, 2020, CRW presented an update to the CRW Commission regarding the potential for an extraterritorial service agreement with BMR. Commission members were very supportive of moving forward on an agreement.
On July 28, 2021, the proposed water service agreement was presented to the CRW Commission and the CRW Commission voted unanimously in support of the extraterritorial agreement.
CRW has met with Douglas County officials several times over the past few years and, most recently, on July 22, 2021 to discuss this plan. Douglas County supports this water service agreement.
Discussion
BMR is a platted subdivision zoned - Planned Development Nonurban (PDNU) - in unincorporated Douglas County and is contiguous to the Town on the Town’s southern boundary (see Attachment B - Facilities Plan). The subdivision originally was platted for 305 single family homes and currently includes 305 occupied homes within its boundaries. An additional 16 home sites have been added bringing the total to 321. BMR operates its own public water system, but has struggled with water supply and water quality issues over the years, and more recently is under the gun to solve a compliance matter related to water treatment residuals. Representatives of the District have met with CRW staff numerous times over the past eight years and requested that the Town consider options for connecting BMR to the Town’s water system. They have considered other alternatives to solving water quality issues, including upgrading their existing water treatment system, but that will not solve their long term renewable water supply issue.
The terms for this extraterritorial agreement are summarized as follows:
• Agreement will be exclusive to BMR (321 homes, 2 irrigation taps, with reservations for 6 additional taps one for a future community center and up to 5 additional residential parcels) and will be perpetual;
• BMR residents will become CRW customers subject to the same rates and fees plus a 10% extraterritorial surcharge;
• System development fees will be charged with a 10% extraterritorial surcharge and will be recovered over a 30-year period at an interest rate of 2.54% (CRW’s current average carrying cost of debt). BMR would be assessed system development fees at 2020 system development fees;
• System development fees will be partially offset by the depreciated value of contributed assets plus the value of excess groundwater rights at $2,500/acre foot (AF);
• Town will acquire additional property in BMR at fair market value for future expansion of the existing BMR water treatment plant (WTP) and for installation of raw water pipelines from additional wells already owned by the Town and to be constructed in the future by the Town to the WTP;
• BMR will pay for the infrastructure required to connect their system to the Town’s (see Attachment B) and the cost will be rolled into their debt to be paid back to the Town over a 30-year period. The Town will manage design and construction of connection;
• Based on approved 2021 rates and fees, estimated total monthly bills for BMR customers will range approximately from $136 to $271 and average $179. This includes an initial finance charge of $77 per month for system development fees and connection costs, minus credits for depreciated assets, water rights and property. Individual bills will depend on actual usage and final terms and will be adjusted annually based on CRW rates and fees as approved by Council;
• All groundwater rights and fixed assets comprising the water system will be deeded to the Town. BMR will relinquish all control over the BMR water system and will be dissolved once the transfer has occurred;
• Town will own, operate, maintain and replace (as necessary) the water distribution system in BMR as part of CRW’s service area. Customers in BMR will be customers of CRW and subject to the same rules and requirements for water service as other customers of CRW, including all water conservation requirements;
• CRW will administer customer accounts, read meters on a monthly basis, and send bills directly to customers on a monthly basis;
• BMR will be required to adopt CRW’s rules and regulations and rates and fees on an annual basis to ensure that enforcement of the rules and regulations and rates and fees can be implemented by CRW;
• Water supplied to BMR will not be returned via sanitary sewer; hence, there is a loss of use of the large majority of this water. However, the water rights to all irrigation and septic return flows will be retained by CRW; and
• Once the agreement is fully executed and the transfer of assets occurs at closing (closing to occur after Douglas County District Court enters an Order dissolving BMR but before the Order is recorded), CRW will own and operate the system. CRW will have the option to improve and expand the plant as deemed necessary to serve the Town’s needs or could take the plant offline indefinitely once the connection to the Town’s system is fully operational.
Some of the advantages and disadvantages to providing extraterritorial services to BMR include:
Advantages
• Economies of scale (for both parties);
• Improved water age for the Town on a long, dead end line;
• Potential revenues above cost of service from water sales to extraterritorial customers (10% surcharge on system development fees and all rates and fees worth over $2.6M over 30 years);
• Regional economic and social benefits by connecting a non-renewable groundwater-reliant community in Douglas County to a renewable water supply;
• Preservation of the Town’s non-renewable groundwater supplies by controlling aquifer usage near Town borders by surrounding communities;
• Additional assets that could benefit existing Town customers including a water plant easily expandable to 1.3 million gallons per day (MGD) which is almost 1 MGD more than needed to serve BMR as well as additional non-renewable groundwater rights and well supplies (some already owned by CRW) in the area that can be connected to the plant; and
• Real property across from the existing water plant that could be used to build a larger future water plant for service to the broader Town.
Disadvantages
• Town loses benefit of return flows because BMR uses septic systems for wastewater disposal. However, the Town can work to get approval of these septic return flows as a water right similar to lawn irrigation return flows.
Budget Impact
By serving BMR, the Town would have increased operating expenses that would be offset by corresponding revenues. Rates and fees would be charged at 110% of the adopted rates and fees as established by municipal code (13.12.040 Extension of services outside municipal boundaries) unless approved otherwise by Town Council. The cost to serve BMR should be borne by BMR and should not be subsidized by any other ratepayers. Therefore, applicable system development fees need to be collected as part of the agreement so as not to place any financial burden on the existing customers. As part of our analysis, CRW retained Stantec to conduct an independent review of retail service to BMR, and they agreed with the approach proposed above to recover the costs of connecting BMR customers as retail customers (see Attachment C for a copy of Stantec’s technical memorandum). CRW also retained Burns and McDonnell Engineering (B&McD) to review BMR’s existing assets and evaluate the options for improving and expanding BMR’s existing water plant (see Attachment D).
Since October 2020, CRW and the Town Attorney have worked closely with BMR and their attorney to craft a water service agreement that will effect a smooth transfer of ownership, protect both the Town and BMR from existing and future liabilities, and ensure that BMR pays their fair share and no burden is placed upon Town residents. Attachment E contains the agreements necessary to dissolve the Bell Mountain Ranch Metropolitan District, transfer ownership of the water system to the Town of Castle Rock, and govern the long term provision of extraterritorial water service to BMR. Several steps need to take place by BMR and the Town before the Town can assume ownership and operation of the water system. These steps include:
1. BMR transfers its duties, functions and assets of BMR and its Enterprise to the Consolidated Bell Mountain Ranch Metropolitan District (CBMR);
2. CBMR enters into a permanent water service agreement with the Town;
3. CBMR and BMR enter into a Dissolution Agreement and BMR is dissolved;
4. Closing between Town and CBMR on the assets which are included in the Water Service Agreement, said closing to take place after an Order is issued by Douglas County District Court and prior to recording of that Order.
5. The Water eService Agreement shall become effective upon the entry and recordation in the Douglas County real estate records of an Order dissolving BMR;
6. CBMR conveys all assets to the Town. Concurrent with this, BMR pays all financial obligations. Town assumes operation of the water system and bills for services, system development fees, renewable water resource fee and total construction cost for water system improvements each month thereafter as detailed in the Intergovernmental Agreement for Water Service and Improvements (see Attachment E); and
7. Town designs and builds water improvements to connect Bell Mountain Ranch to the Town’s water system.
Staff Recommendation
Connecting BMR to the Town’s water system as retail customers through an extraterritorial agreement is recommended. Under the terms presented above, the Town will be made whole for extending water service to BMR and will benefit through economies of scale, extraterritorial surcharges, and acquisition of additional water supply and treatment assets that will benefit existing customers. CRW recommends executing an extraterritorial water service agreement based on the terms described in this memorandum.
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: IGA for Bell Mountain Ranch
Attachment B: Facilities Plan
Attachment C: Independent Review of Retail Service to Bell Mountain Ranch
Attachment D: Independent Review of Existing BMR Assets and Expandability
Attachment E: Dissolution Agreement and Intergovernmental Agreement for Water Service and Improvements