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April 4, 2011 Ms. Anna Mauss Colorado Water Conservation Board 1313 Sherman St, Room 721 Denver, CO 80203 RE: Thunderbird Water and Sanitation District ‐Loan Feasibility Study for Water Rights Purchase Dear Ms. Mauss, On behalf of our client, Thunderbird Water and Sanitation District (District), we are providing this Loan Feasibility Study to support their loan application for the Lambert Ranch Water Rights Purchase. The District loan application for this purchase was added to the Prequalification Project List on January 25, 2011. This Loan Feasibility Study is the next step in acquiring loan approval. Per our phone conversation earlier this month, we have also included an appraisal for the ground water rights in question to help facilitate the review and approval of the loan. Purpose Thunderbird Water and Sanitation District, a Colorado Title 32 Special District, is applying for a loan to purchase the Lambert Ranch Water Rights. The District will pay $315,000 to acquire 895.9 acre feet in 3 aquifers, two well site easements approximately 1 acre each, and access easements. Due to increased use of Denver Basin aquifer water and limited recharge potential, the yield of the District’s wells is expected to decrease with time. This acquisition will improve the District’s ability to provide a reliable water supply to its service area. Although the purchase of these water rights will increase the District’s legal water portfolio, the legal supply is not driving the purchase. The District would like to acquire these rights to protect and increase its physical water supply. The District is requesting a loan for $315,000 which is 90% of the Project. The cost of the project is $350,000 [$315,000 for the water rights purchase + $35,000 for Engineering and Legal services related to the transfer]. Sponsor Thunderbird Water and Sanitation District provides potable water service for 175 customers within the District boundary. The District boundary includes approximately 2,420 acres and serves a residential subdivision in Douglas County that is located two miles west of Sedalia, Colorado. The District’s current water system includes two operational ground water wells, one existing ground water well that isn’t used due to high Radon levels, and three storage tanks. Anna Mauss ‐CWCB April 4, 2011 Page 2 of 4 Thunderbird Water and Sanitation District point of contact is: President: Larry Morris 5780 West Sioux Drive Sedalia, CO 81035 Water Rights The District owns pre‐Senate Bill 213 water rights for Wells 1 and 2 that were adjudicated in case W‐6333 and changed in case 90CW200. The District decreed additional Denver Basin water rights in Case 97CW249. Denver Arapahoe Laramie‐Fox Hills W‐6333/Case 90CW200 256 64 Case 97CW249 217 451.4 305 Total 473 515.4 305 The District also has a pending water court application ‐Case 06CW208 to capture irrigation return flows using alluvial wells. Water Demand The District’s annual peak demand is approximately 75 AF per year (2002). The chart below shows the monthly demand pattern throughout the year. Assuming the empty lots and other remaining open area in the District service boundary will be developed, the District’s demand may increase an additional 20 percent. Therefore, we approximate a future demand of approximately 90 AF per year. 0 500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 3,500,000 Jan‐02 Mar‐02 May‐02 Jul‐02 Sep‐02 Nov‐02 Jan‐03 Mar‐03 May‐03 Jul‐03 Sep‐03 Nov‐03 Thunderbird Water Demand (gallons) Monthly Water Demand Anna Mauss ‐CWCB April 4, 2011 Page 3 of 4 Analysis of Alternatives The South Metro Water Supply Study (Study), dated December 2003, concluded that regional ground water levels are dropping. The lowering water table and dewatering of the Denver Basin, is expected to reduce the yield of existing and future wells. Additionally, the Study projects that well to well interference (when wells are too closely spaced and therefore compete for the same water) will further reduce well yields. Lambert Ranch borders the District service area to the north. Their ground water rights are for sale and the District would like to purchase them for the following reasons:  To prevent someone else from withdrawing the Lambert Ranch water rights and therefore negatively impacting existing and future District well yields.  To provide future well sites a further distance away from existing District wells to reduce or eliminate well to well interference.  To provide additional physical peaking and backup supply to the yield from their existing wells. Other alternatives will not satisfy the District’s objective for the following reasons.  Another source will not protect the District’s well yields from negative impacts due to the Lambert Ranch water rights withdrawal.  No other source is readily available that is as close to the District as Lambert Ranch is to the District.  The length of pipeline required to transport other water sources (surface or non‐tributary ground water) to serve the District is not as economically feasible. Selected Alternative Lambert Ranch has offered 895.6 AF of ground water in 3 aquifers for a purchase price of $315,000. The subject ground water was decreed in Case 87‐CW‐300 and is allocated amongst the aquifers per the following table. Aquifer AF per year Denver 333.6 Arapahoe 420.8 Laramie‐Fox Hills 141.5 The District has drafted a contract for the purchase and is waiting for funding to close the purchase. Proposed easement locations for wells are included in the purchase and possible locations are shown on the attached Figure 1. Anna Mauss ‐CWCB April 4, 2011 Page 4 of 4 Impacts The Lambert Ranch water rights were going to be part of a water supply for developing additional residences in Lambert Ranch. If CWCB approves the loan to allow this purchase, the water will be used to back up the water supply for existing development. Therefore, there are no new agricultural or environmental impacts expected from this project. Institutional Considerations 1. The water rights are decreed under Case 87‐CW‐300. 2. A contract has been negotiated between Lambert Ranch and the District for the purchase of 895.6 AF plus well site easements and access easements for $315,000. 3. The ground water appraisal indicates the ground water is valued between $315,000 and $506,000. This does not include the easement values which would likely increase the Opinion of Value. The ground water appraisal is attached. 4. Tax payers approved an increased property tax for purchase of ground water in the November 2010 elections. 5. Douglas County Zoning Resolution Section 18A does not limit the transfer and use of this water because both Lambert Ranch and the District are existing approved developments in Margin A Water Supply Zone. See Figure 1 of the Ground Water Appraisal. Financial Plan The District is a water provider that collects tap fees, a portion of real estate taxes, and usage fees from its constituents. In November 2010, the taxpayers voted 60/40 in favor of increasing District taxes up to $35,000 per year for the purchase of ground water and up to $45,000 per year for construction of water supply infrastructure. The CWCB loan will be repaid from the increased taxes collected. The District’s 2011 budget is also attached. Sincerely, LEONARD RICE ENGINEERS, INC. Daria Giron, P.E. Project Manager 1151TWD03 Enclosed ‐Ground Water Rights Appraisal for TWSD !( !( !( !( !( Rainbow Creek West Plum Creek Indian Creek Jarre Creek Willow Creek Lehigh Gulch Plum Creek East Plum Creek UV67 Arapahoe Well No. 2 UV105 Arapahoe Well No. 3 Denver/Arapahoe/Replaceme nt Well No. 1R T7S T7S T8S T8S R69W R68W R69W R68W ² 1151TWD03 March 2011 0 0.5 1Miles ¦§¨70 "§¨¦25 §¨¦76 This product is for reference purposes only and is not to be construed as a legal document or survey instrument. FIGURE 1 PROPOSED WELL Project SITE EASEMENTS Location U:\1151TWD03\GIS\MXD\3_2011_Figures\Figure_3.mxd ThunWd&erSb ird District D R A F T LRamanbcehrt Possible Well Site Easement Locations Lambert Ranch Thunderbird Water and Sanitation District Boundary Boundary !( Existing Thunderbird Wells !( Proposed 1 Acre Easement around Well Site June 15, 2011 Ms. Anna Mauss Colorado Water Conservation Board 1313 Sherman St, Room 721 Denver, CO 80203 RE: Addendum to: Thunderbird Water and Sanitation District -Loan Feasibility Study for Water Rights Purchase Dear Ms. Mauss, Thank you for the status meeting and site visit of May 31, it helped to clarify to us your needs for presentation before the CWCB Board. Per your request and on behalf of our client, Thunderbird Water and Sanitation District (District), we are providing this addendum to the District’s Loan Feasibility Study (April 4, 2011) related to the Lambert Ranch Water Rights Purchase to address the nine issues discussed at the meeting and subsequent emails and phone calls. Purpose Issue: Address the planned use of the CWCB loan money. Thunderbird Water and Sanitation District, a Colorado Title 32 Special District, is applying for a loan to purchase the Lambert Ranch Water Rights and easements for the construction of a well and pipeline by the District within Lambert Ranch. Funds from the requested loan will be used to purchase the Lambert Ranch Water Rights and for engineering and legal fees related to the purchase of the water rights, including the loan feasibility study. None of the requested loan funds will be used for engineering or legal fees associated with Water Court related work efforts. Issue: What is the projected well yield of Lambert Ranch Well? We anticipate that the projected well yield from the proposed Lambert Ranch Well will range between 50 to 90 gpm. Issue: Clarification of need for loan. And does the existing system meet the required fire demand if Well No. 3 goes offline? The District currently has two wells providing water to their constituents, Well No. 1 and No. 3. Well No. 1 historically produced 55 gpm, and the redrill currently produces approximately 25 gpm. Well No. 3 produces approximately 115 gpm and provides most of the water for the district. A third well, Well No. 2 is not used at the request of CDPHE due to high radon levels in the water. At this time, the District does not have sufficient backup supply contingencies to meet demands in case of Anna Mauss -CWCB June 6, 2011 Page 2 of 4 an emergency. Such emergencies may include but are not limited to a well or pump failure, and unforeseen calamities. Should Well No. 3 fail, Well No. 1 can marginally provide water for indoor use only with the use of storage to meet peaks for a limited time and would likely require watering restrictions to be imposed on all customers. If Well No. 1 were operating alone, it would not be capable of providing water for outdoor use, or to make up water used out of storage for irrigation or fire flow use in sufficient time. Should Well No. 1 fail, the system would still be operational; however, some restrictions may need to be imposed during peak use and summer months. The existing storage tank was sized to satisfy peak summer and fire flow demands. The summer time storage volume is filled by the production capability of Well No. 3. There are plausible situations in which the system could not meet peak demand and fire flow protection. One such situation is if Well No. 3 were offline for an extended period of time during the summer (due to failure or lengthy maintenance), the storage tank’s volume could be depleted after approximately one day. Well No. 1 would not be able to refill the tank and meet peak demands and puts at risk fire protection reserves. In the case of a fire, the fire storage reserve would be depleted and Well No. 1 would not be sufficient to provide replacement storage for the following day without other restrictions. The proposed Lambert Well would help mitigate the shortage in this situation. There is additional concern that because the wells are located near the margin of the aquifer, they may begin to see well yield declines due to dropping water levels and boundary conditions. The District has not been able to complete the regular maintenance on Well No. 3 over the last few years due to the lack of a backup contingency to meet the demand. Well No. 3’s current pump is 6 years old and is reaching the average expected life. By adding the Lambert Ranch Well, it would potentially take the stress off Well No. 3 so that regular maintenance can be performed on all wells. The acquisition of the Lambert Ranch water rights will allow the District to drill an additional well which will provide: 1) supplemental and backup water supply for the two existing wells in use by the District; and 2) additional contingency for fire protection for the service area. History of Well 1 Issue: What prompted Well No. 1 redrill? TWSD Well 1 (Permit Number 5984FR) was originally drilled in May 1964 to a total depth of 1257 feet below ground surface and screened in the Arapahoe Aquifer. The average life of a well is approximately fifty years; however, some well casing may deteriorate at a faster rate. In 2002, TWSD was advised by their consultant to replace Well 1 due to deterioration in the casing. Well 1 was replaced in 2003. Existing TWSD Water Rights Issue: Expand original water rights table to include more information. The following table is an expanded summary of the existing TWSD ground water rights. Anna Mauss -CWCB June 6, 2011 Page 3 of 4 Table 1: Summary of TWSD Existing Denver Basin Ground Water Rights Designation Denver (af/yr) Arapahoe (af/yr) Laramie-Fox Hills (af/yr) W-6333/Case 90CW200 Non tributary 256 64 Case 97CW249 Not nontributary 217 449 ---Case 97CW249 Nontributary ---24 305 Total 473 537 305 A copy of the decrees is attached. In the case of TWSD, the legal ability to pump the ground water is not the limiting factor in their supply. However it is the pumping capacity that is the limit. For example, to obtain the original capacity of Well No. 1 more than one well is needed and the required well spacing makes the Lambert Ranch ideal. Meadows Ditch Surface Water Rights Issue: What is the rough distance to the nearest surface water alternative? The Meadows Ditch on Indian Creek is the closest surface water rights to TWSD. The ditch is approximate 0.4 miles downstream from the northern boundary of TWSD. The surface water rights are intermittent and seasonal water rights that would require storage to create a dependable year round supply. TWSD does not currently have the storage facilities or water treatment facilities to treat raw surface water. Historic and Current Water Uses of Lambert Ranch Issue: Current and Past use of Lambert Ranch. To the best of our knowledge Lambert ranch was operated historically as a ranch with irrigated pasture. The pasture was originally irrigated with surface water from Meadows Ditch. The pasture land was not irrigated with Denver Basin ground water which is what TWSD is proposing to purchase. Therefore, this project does not include any dry up of historically irrigated lands. Schedule Issue: What is the timing for the proposed Lambert Ranch well to be constructed? The District has $500,000 in the 2011 budget to drill Well No. 4, a new well to be located on the easements included in the pending Lambert Ranch Water Rights purchase. The new well would put the Lambert Ranch Water Rights to beneficial use, would increase the dependability of the District’s physical supply, and would be located to reduce interference with the yield from the District’s two operational wells. The District’s adopted 2011 budget which shows the anticipated well construction budget was attached to the Loan Feasibility Study (April 4, 2011). The District plans to purchase the water rights, design a new well and associated infrastructure, and construct the well and infrastructure within the next two years. Anna Mauss -CWCB June 6, 2011 Page 4 of 4 Preliminary Design Issue: What is the anticipated design of the proposed infrastructure? The proposed well, pump, controls, and chlorination equipment will be similar to the equipment in used at Well No. 3. Proposed Well Site A, shown on Figure 1, would tie into the upper pressure zone of the existing distribution system, and Proposed Well Site B would tie into the lower pressure zone. Based on the current system operation, it would be preferable to tie into the upper pressure zone, however, either would work. Funds for the construction of the well infrastructure will be provided by a District approved tax. The final easement for the new well and infrastructure will be determined upon completion of the final purchase agreement for the water rights. A one acre easement is anticipated for the new well site, as well as an easement to allow for the installation and maintenance of the pipeline required from the well to the existing distribution system. Sincerely, LEONARD RICE ENGINEERS, INC. Heather L. Justus, C.P.G. Project Manager 1151TWD03 Encl.: Copy of Decrees W-6333, 90CW0200, & 97CW0249 cc: Larry Morris and Tim Flynn Ground Water Rights Appraisal Prepared for: Thunderbird Water and Sanitation District Date: March 28, 2011 Project Number: 1151TWD03 The technical material in this report was prepared by or under the supervision and direction of the undersigned, whose seal as a Certified Professional Geologist is affixed below. ____________________________________________________________ Heather L. Justus, CPG Project Manager/Hydrogeologist The following members of the Leonard Rice Engineers, Inc. staff contributed to the preparation of this report. Principal in Charge Jon R. Ford, PE Principal Geologist Heather L. Justus, CPG Staff Engineer William Mihelich GIS Technician Shane Michael Data Processor Anita Rodlin March – 2011 – Project #1151TWD03 © Leonard Rice Engineers, Inc. Table of Contents 1.0 INDENTIFICATION OF SUBJECT GROUND WATER RIGHTS ................................................................. .. 1 2.0 PURPOSE OF THE APPRAISAL ............................................................................................................................. 2 3.0 EXPORSURE TIME .................. .................................................................................................................................. 2 4.0 INTENDED USERS AND INTENDED USE OF THE REPORT................. ..................................................... 2 5.0 SCOPE OF VALUATION ........................................................................................................................ .................. 3 6.0 WATER NEIGHBORHOOD ..................................................................................................................................... 3 7.0 HIGHEST AND BEST USE ...................................................................................................................................... 3 8.0 APPROACHES TO VALUE ...................................................................................................................................... 4 9.0 RECONCILITATION .......................................... ....................................................................................................... 6 10.0 CONTINGENT AND LIMITING CONDITIONS ..................................................... ............................................. 6 11.0 CERTIFICATE OF VALUE ............................................................................................................................. .......... 7 12.0 REFERENCES ............................................................................................................................................................. 8 Table of Figures Figure1: Thunderbird Water and Sanitation District and Lambert Ranch Location Map Figure 2: Denver Basin Wells Within One Township Radius of Thunderbird Water & Sanitation District and Lambert Ranch with Reported Well Yield Table of Tables Table 1: Summary of Appropriated Ground Water Rights Decree 87CW300 ............................................... 1 Table 2: Summary of Proposed Purchase Agreements of the Ranch Ground Water Rights ................... 1 Table 3: Summary of Comparable Historical Sales ............................................. ...................................................... 5 Table 4: Summary of Initial Estimate Based on Historical Sales Evaluation ................................................. 5 Appendix Appendix A – Water Decree Case No. 87CW300, Water Division 1 Ground Water Rights Appraisal Page 1 of 8 March – 2011 – Project #1151TWD03 © Leonard Rice Engineers, Inc. 1.0 INDENTIFICATION OF SUBJECT GROUND WATER RIGHTS Thunderbird Water and Sanitation District (TWSD) is interested in purchasing Denver Basin decreed ground water rights from Valley Development Group, LLC (VDG) that underlie the property known as Lambert Ranch (Ranch). The Ranch is divided into two parcels located in Sections 16; South ½ of the SW ¼ of 20; and a portion NE ½ of 21, Township 7 South, and Range 68 West in Douglas County, Colorado as shown on Figure 1. The Ranch ground water rights were decreed in Case No. 87CW300 in Water Division 1. A copy of the decree is included as Appendix A. The amount of ground water decreed on an annual basis is: Table 1: Summary of Appropriated Ground Water Rights Decree 87CW300 Aquifer Parcel Designation Acres Annual Amount available for Withdrawal (af/yr) Denver Parcel A Not nontributary 920.02 430.10 Denver Parcel B Not nontributary 14.18 1.35 TOTAL 431.45 Arapahoe Parcel A Nontributary 920.02 531.80 Arapahoe Parcel B Nontributary 34.18 5.25 TOTAL 537.05 Laramie‐Fox Hills Parcel A Nontributary 920.02 248.40 Laramie‐Fox Hills Parcel B Nontributary 67.18 12.60 TOTAL 261.00 The amount of decreed ground water TWSD proposes to purchase is as follows: Table 2: Summary of Proposed Purchase Agreements of the Ranch Ground Water Rights Aquifer Designation Average Annual Amount (af/yr) Denver Not nontributary 333.6 Arapahoe Nontributary 420.8 Laramie‐Fox Hills Nontributary 141.5 Two well sites and easements are included in the purchase agreement. The well sites are approximately one acre each and the pipeline easements extend from each well site to a central collection point and then to the southern boundary of the Ranch. Ground Water Rights Appraisal Page 2 of 8 March – 2011 – Project #1151TWD03 © Leonard Rice Engineers, Inc. 2.0 PURPOSE OF THE APPRAISAL The purpose of the appraisal is to estimate the market value, as of March 14, 2011, of decreed Denver Basin ground water rights. The associated well sites and easements are not included in this appraisal. Market value, as used herein, is defined as follows: Market value means the most probable price which a property should bring to a competitive open market under conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition are the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: Buyer and seller are typically motivated; Both parties are well informed or well advised and acting in what they consider their own best interest; A reasonable time is allowed for exposure to open market; Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sales. (Title XI of the Financial Institutions Reform Recovery, and Enforcement Act (FIRREA) of 1989) 3.0 EXPOSURE TIME Exposure time is defined as: The estimated length of time the property interest being appraised would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal; a retrospective opinion based on an analysis of past events assuming a competitive and open market. Based on our experience with ground water rights, it is our opinion the estimated exposure time is 24 months for the subject ground water rights. 4.0 INTENDED USERS AND INTENDED USE OF THE REPORT The intended user is TWSD. The intended use of the report is to assist TWSD in determining a fair market price of the ground water rights for use in loan applications. Ground Water Rights Appraisal Page 3 of 8 March – 2011 – Project #1151TWD03 © Leonard Rice Engineers, Inc. 5.0 SCOPE OF VALUATION The appraisal included the following tasks:  Review of Decree 87CW300.  Analysis to confirm the decreed annual appropriation.  Review of the State Engineers Office (SEO) Master Well List to determine general hydrogeologic conditions.  Review of Curt Wells’ letter report of ground water availability associated with the Lambert Property dated January of 1984.  Research recent sales of Denver Basin Ground Water.  Review of the Douglas County Zoning Resolution Section 18A: Water Supply‐Overlay District (Amended 8/22/07).  Define the neighborhood market.  Consider the highest and best use for the ground water rights.  Develop an opinion of value. 6.0 WATER NEIGHBORHOOD The water neighborhood is defined as the regional setting of the subject water right. The subject water rights are located within the defined Denver Ground Water Basin. They are designated as nontributary and not‐nontributary ground water and are referred to as the ground water rights. In addition, Douglas County (Zoning Resolution Section 18 A) has classified the Ranch area as mostly Margin A Water Supply Zone with a small portion as Margin B Water Supply Zone (Figure1), which can only be used in Margin A and B Water Supply Zones. 7.0 HIGHEST AND BEST USE The highest and best use of the water rights is defined as follows: The reasonable probable and legal use of the water, which is physically possible, legally permissible, finically feasible, and that results in the highest value. The not nontributary Denver Aquifer ground water rights are required through the decree to obtain a court approved plan of augmentation to replace 4 percent of the amount of water withdrawn annually in accordance with Colo. Rev. Stat. §37‐90‐137(9) (c) (1991 Supp.). The ground water rights classified as nontributary are required to relinquish 2 percent of the annual amount of ground water withdrawn. The water rights are decreed to be used, reused, successively used and otherwise disposed of for all purposes including: municipal, domestic, industrial, commercial, fire protection, irrigation, stock watering, recreation, fish and wildlife purposes, sanitary purposes, storage, augmentation and Ground Water Rights Appraisal Page 4 of 8 March – 2011 – Project #1151TWD03 © Leonard Rice Engineers, Inc. exchange (Decree 87CW300). Therefore, the ground water rights are legally available for any use the TWSD would like after filing for a Change of Ownership with the Water Court. The Ranch is physically adjacent to the north boundary of TWSD (Figure 1). With the inclusion of easements in the purchase agreement it makes the use of the ground water rights physically possible for TWSD. Figure 2 shows the Denver Basin Aquifer wells with reported yield, from the SEO Master Well List, that are located within a one township radius of TWSD and the Ranch. A review of the State Engineer’s Office (SEO) Master Well List shows that there are approximately 100 wells with reported well yields. The Denver Aquifer reported well yields range from 15 to 300 gpm. We estimate that the well yields at the Ranch will be approximately 30 to 60 gpm. The Arapahoe Aquifer reported well yields range from 10 to 750 gpm. Due to the proximity of the TWSD Arapahoe Aquifer wells, we estimate that the well yield will be similar between 50 to 90 gpm. In a 1984 letter report concerning the Ranch, Curt Wells estimated the well yield to be 100 gpm for the Arapahoe Aquifer wells. The Laramie‐Fox Hills Aquifer reported well yields range from 10 to 450 gpm. We estimate that the well yield for the Laramie‐Fox Hills Aquifer at the Ranch will be between 20 to 80 gpm. At this point in time, alternatives for a renewable water supply are not available to TWSD or are too expensive to develop compared to expanding ground water development into the Ranch. TWSD does not have the treatment plants or infrastructure for a renewable source. Therefore, developing new ground water rights are the most economic way to expand the TWSD water supply. The highest and best use of the ground