Technical and Cost Proposal

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2 Technical and Cost Proposal Alternative Source of Water Supply Provider Submitted to: Ms. Heather Beasley Water Resources Engineer The Town of Castle Rock 175 Kellogg Court Castle Rock, CO Submitted by: United Water & Sanitation District 8301 East Prentice Avenue, Suite 100 Greenwood Village, CO rtrt No United Water & Sanitation District September 7, 2011

3 Alternative Source of Water Supply Provider Table of Contents 1.0 Executive Summary Bringing Renewable Water to the Town of Castle Rock Why Lease When You Can Own? 2.2. United Will Bring a Diversified Portfolio of Renewable Water Rights to the Citizens of Castle Rock 2.3 United s Experience in Bringing Diversified Water Portfolios to Metropolitan Providers 2.4 United s Purchase of Renewable Water Rights for Castle Rock 3.0 Renewable Water Delivery Infrastructure to the Town of Castle Rock Existing United Infrastructure 3.2 Use of Peak Capacity in the ECCV Line Will Result in Significant Cost Savings Alternative #1: Peak (Firm) Capacity Alternative #2: Variable (Off-Peak) Capacity Analysis: Firm vs. Variable Capacity 3.3 Three Interconnect Delivery Options from ECCV s Smoky Road Hill Tanks to the Intersection of E-470 And Chambers Road Alternative #1: New Pipeline to Chambers Road Using E-470 Multiple Use Easement/Right-of- Way Alternative #2: New Pipeline to Chambers Road Using Existing ACWWA Pipelines and Four Additional Pipeline Segments Alternative #3: ECCV Western Line 3.4 Operations, Maintenance and Replacement Costs 3.5 The Rueter-Hess Reservoir Conundrum 4.0 Financing the Acquisition of Water Rights and Infrastructure United s Experience in Public/Private Financing for Water Rights and Water Infrastructure Projects United s Financial Statements 4.2 Castle Rock s Financial Foundation and Capacity to Fund the Project 4.3 Financing Options for the Town s Water Related Infrastructure Construction Financing Alternative #1: Infrastructure Construction with a Mill Levy Election Financing Alternative #2: Infrastructure Construction Without a Mill Levy Election with Revenue Bonds 4.4 Financing Options for the Town s Water Rights Acquisition 5.0 Integration with Other Suppliers to Bring Renewable Water to Castle Rock United s System Can be Integrated with the Denver/Aurora/ WISE System to Firm WISE s Interruptible Supply United s System Can Acquire Lost Creek Basin Water to Firm Supplies but at the Cost of Uncertainty of Using Designated Basin Water for Municipal Supplies 6.0 Conclusion..35 Page United Water and Sanitation District No

4 Alternative Source of Water Supply Provider List of Tables Table 1: Partial List of Ditch Systems Utilized by United Table 2: Castle Rock Firm Capacity Option - Capital Cash Flow and Assumptions Table 3: Castle Rock Variable Capacity Option - Cash Flow and Assumptions Table 4: Castle Rock Firm Capacity Option - Operations and Maintenance Costs Table 5: Castle Rock Variable Capacity Option - Operations and Maintenance Costs Table 6: Infrastructure Replacement Schedule Table 7: Water Tap Sales Table 8: Growth Projections List of Figures Figure 1: Colorado Historical Average Annual Stream Flow Figure 2: Strategic Location of United Facilities Figure 3: Geographic Distribution of United Target Ditch Systems Figure 4: Annual Northern System Yield Figure 5: The United System Figure 6: Delivery Options from ECCV s Smoky Hill Tanks to the Intersection of E-470 and Chambers Road List of Attachments Appendix 1: Comparison of United, Denver and Aurora Senior Renewable Water Acquisitions Appendix 2: Corps of Engineers Letter Regarding Parker-Rueter-Hess Appendix 3: Proposed Water Rights Acquisition Schedule Appendix 4: Confirmation Correspondence from ECCV and ACWWA Appendix 5: Annual Cost by Year for WISE and Standalone Appendix 6: Acknowledgement of Receipt of Addendums #1 and #2 United Water and Sanitation District No

5 Alternative Source of Water Supply Provider 1.0 Executive Summary A Generational Decision United Water and Sanitation District (United) is pleased to submit the following Response to the Town of Castle Rock s Request for Proposals in support of the Town s goal to bring renewable water to its citizens by We look forward to working with Castle Rock in the development of its renewable water solutions for the twenty-first century. The method by which the Town chooses to bring renewable water to its citizens will be one of the most important decisions made by the Town s elected body in this century. The decision will have a direct economic impact not only upon the grandchildren of today s citizens, but their great-grandchildren as well. It is a generational decision that must be made deliberately, openly, and with a full understanding of all challenges and costs. Upon completion of the Town s hearings, public comment, and analysis, United is confident that the Town will ultimately choose to control its own costs and economic destiny by owning, rather than leasing, its water rights and infrastructure. Certainty in water supply costs and availability will be the essential foundation for economic development over the next 50 years. A Proven Track Record of Working with Municipalities to Bring Renewable Water to their Citizens As a water and sanitation district possessing a statewide service plan, United has a proven track-record of working with municipalities and water districts to bring cost-effective renewable water and infrastructure to citizens and ratepayers. In the last eight years, United, through its several enterprises and with related districts, has completed transactions with the Denver Board of Water Commissioners, East Cherry Creek Valley Water and Sanitation District, Arapahoe County Water and Wastewater Authority, the Town of Lochbuie, South Adams Water & Sanitation District (serving Commerce City), Compark, and the Farmers Reservoir and Irrigation Company. As a district for water suppliers, United has acquired, financed, or constructed over $200,000,000 of renewable water rights and water infrastructure including diversion structures on Plum Creek and the South Platte River, alluvial well fields and recharge ponds, a pipeline connecting the South Platte near Brighton to Barr Lake, and reservoirs adjacent to Plum Creek, the South Platte, and adjacent to Chambers Road in Douglas County. United also has a proven track record of acquiring renewable water rights and adjudicating them for municipal uses. Over the past eight years, United has acquired more senior renewable water rights in the South Platte River basin than any other water provider. Over the past decade, United has acquired over 12,000 acre feet of fully consumable water rights for south metro water suppliers. United Water and Sanitation District No

6 Alternative Source of Water Supply Provider The Ability for the Town of Castle Rock to Own, Rather than Merely Lease, its Water Rights and Infrastructure The United proposal, in juxtaposition to other renewable water proposals that merely lease or license their water rights and water infrastructure, conveys firm, renewable water rights and infrastructure for the citizens of Castle Rock in perpetuity. Consequently, where other proposals may require the citizens of Castle Rock to pay tens of millions of dollars per year in lease payments for an interruptible water supply whose deliveries are controlled by other cities, the United proposal results in the citizens of the Town of Castle Rock owning their own water rights and infrastructure and controlling their own growth and economic destiny. Through the ownership of their own water rights and delivery infrastructure, the citizens of Castle Rock can By owning its own water rights, Castle Rock can manage this essential resource to meet its unique economic needs and is not dependent upon the decisions of others. manage their water resources as they deem best to meet their municipal, economic development, and water planning goals. The Ability of the Town to Have Immediate Access to 6,000 Acre-Feet of Renewable Water Starting in 2017 The market cost to purchase and deliver renewable water to municipal customers increases every year due to competition for water rights, adjudication costs, and regulatory pressures. In order to avoid rising prices and provide predictability for financing, United will purchase 6,000 acre feet of water (plus an additional 900 acre feet of water to serve as an internal insurance policy) for the benefit of the Town of Castle Rock beginning in 2012 and ending in Once acquired, the 6,000 acre feet of water rights will be made immediately available for the Town s use following approval of a substitute water supply plan. Consequently, if growth requires, the Town need not wait until 2025 to use the next segment of 2500 acre feet of renewable water identified in its RFP it can use the water immediately. This right of immediate use will allow Castle Rock to both immediately limit the stress on its nontributary wells and reduce the withdrawal of non-renewable water from the aquifers beneath Castle Rock. United Will Deliver Renewable Water Rights from the South Platte River to the Town of Castle Rock The United proposal to bring 6,000 acre feet of renewable water to the Town of Castle Rock includes a Peak (Firm) Capacity Alternative and a Non-Peak (Variable) Alternative. The Peak (Firm) Capacity Alternative maximizes the value of the Town s renewable water by not requiring storage of treated water in the Rueter-Hess Reservoir and consequent expensive retreatment. Although the addendum to the RFP asked applicants to assume that the Corps of Engineers would eventually permit their water Mitigation costs which may be imposed by the Corps for expanded use of Reuter Hess may be substantial and add economic uncertainty to the cost of Castle Rock s water supply. to be stored in Rueter-Hess, the fact remains that the Corps currently prohibits any such water to be stored in the reservoir and, assuming such storage is eventually permitted, the Town will directly or indirectly be required to pay the cost of any environmental mitigation imposed by the Corps of Engineers. Assuming the Corps eventually permits new water supplies to be stored in Rueter Hess, the United proposal allows the Town to avoid having to expend significant capital and O&M costs to store and re-treat large quantities of its valuable water supplies in the reservoir, allowing Castle Rock to utilize its allocated space within Rueter-Hess for the storage of those classes of water (e.g., effluent and untreated surface water rights) that are currently permitted by the Corps of Engineers and which do require re-treatment. United s proposal to bring renewable water to Castle Rock follows the successful template previously adopted United Water and Sanitation District No

7 Alternative Source of Water Supply Provider by ECCV and ACWWA for bringing renewable water to the South Metro Denver area. Using its experienced acquisition team, United will identify a diversified portfolio of 6,000 acre-feet of reliable agricultural rights (plus the additional 900 acre feet of water serving as the internal insurance policy) in the lower South Platte River basin for purchase over a four-year period. Once identified, United will work with Castle Rock s staff, consultants, and attorneys to incrementally confirm that each potential acquisition satisfies the Town s reliability requirements. If satisfactory, the water rights will then be purchased and adjudicated by a team comprised of United and Castle Rock attorneys and experts. United will acquire a diversified portfolio of water rights from an expansive geographic area along the South Platte River basin from Fort Lupton to Fort Morgan at the price of $23,850 per consumptive use acre foot. This price is not just for water but for the water system which includes the cost of the water right, its integration into the United system, and all infrastructure required to capture, retime, and deliver the water to the ECCV Treatment Plant located in Brighton, Colorado, including use of all pipelines, wells, recharge pits and other facilities owned by United. The water rights will be conveyed from the farms and ditches from which they were acquired by means of exchange, diversion, and pipeline conveyance. When the Platte River has exchange potential, the water rights will be exchanged up the Platte to United s existing Diversion Structure No. 3 near Brighton. The water will then transported through United s existing Beebe Pipeline to Barr Lake where it will be recharged through United recharge facilities in the Beebe Draw, and pumped from United s existing well field adjacent to the existing ECCV water treatment plant off of Bromley Lane in Brighton. The water will then be treated to a finished water quality not to exceed 330 mg/l of total dissolved solids, and then conveyed via the ECCV Northern pipeline to ECCV tanks located near E-470 and The Town will have immediate use of the entire 6,000 acre feet of renewable water rights beginning in 2017 following adoption of a substitute water supply plan. Smoky Hill Road. When the Platte River does not have exchange potential, it is contemplated that the water rights will be accreted and retimed in the alluvia on the 70 Ranch and elsewhere, then pumped from the 70 Ranch from augmented wells and conveyed via a pipeline to the ECCV treatment plant off of Bromley Lane in Brighton, treated at ECCV Northern WTP and then conveyed to ECCV s tanks at Smokey Hill and E-470, for delivery to Castle Rock. United proposes three alternatives to deliver the renewable water from the ECCV tanks at Smokey Hill and E-470 to the terminus point at E-470 and Chambers Road. United will either construct a pipeline in the E-470 Multiple Use Easement (MUE) from the ECCV tanks at Smoky Hill and E-470 to the terminus point at E-470 and Chambers Road, construct pipeline segments to connect existing pipelines owned by ACCWA to Chambers Road, or use the existing ECCV Western Line. The Ability for the Town of Castle Rock to Finance Ownership of its Own Water Rights and Infrastructure Using Existing Capital, Growth, and Bonding Capacity One of the most successful services United offers to its public partners is its ability to develop cost-effective financing mechanisms for the purchase of water rights and water infrastructure. United has the experience along with the financial and legal capability to serve as a conduit issuer of tax-exempt municipal bonds for water projects. Under the proven United financing template, project participants spread the cost of their projects over years by posting assets or pledging revenues sufficient to market bonds to institutional investors at commercially established rates. With specific reference to Castle Rock, the acquisition of owned water rights and infrastructure under the United system can be structured -- with or without a mill levy election -- so that costs can be paid over a period of thirty years using existing capital, growth, and bonding capacity United Water and Sanitation District No

8 Alternative Source of Water Supply Provider Section 4 provides a roadmap for the acquisition of water rights and water infrastructure by the Town of Castle Rock. The section discusses Castle Rock s financial foundation and capacity to cost-effectively fund the project, existing and future sources of funds, funding of on-going projects, interest rates, mill-levy elections, and financing options. In the final analysis, Castle Rock has the ability to purchase and own its water Castle Rock has the ability to purchase and own its water rights and water infrastructure without unduly burdening its citizens through the use of existing capital, growth, and financing. rights and water infrastructure without unduly burdening its citizens through the use of existing capital, growth, and financing. Integration with Other Water Systems Although United believes that a portfolio of water rights owned by Castle Rock will provide the greatest long-term security for Castle Rock, the United system can also be used to fill in holes of delivery that will be experienced if Castle Rock chooses to purchase interruptible lease water from the Denver/Aurora/South Metro/WISE system. Under all projections of the Denver/Aurora/WISE system, there will be years of significant interrupted or reduced water deliveries, as well as limited deliveries during summer months. The United facilities can be designed to provide firming water resources in both the summer months and during periods of limited deliveries from WISE (e.g., during droughts). If Castle Rock selects the Peak (Firm) Capacity option, it will have a certain amount of off-peak capacity that can be used to treat WISE water that would be of insufficient quality due to lack of mountain blending supplies. In addition, ECCV has noted that there may be several million gallons per day of additional peak (firm) capacity available. Castle Rock could potentially permanently avoid the inevitable and significant costs of constructing reverse osmosis facilities in the future when Denver and Aurora can no longer guarantee the blending sources. This stand by structure may require a more intensively managed storage plan, utilizing underground alluvial storage, in order to provide water resources to Castle Rock during the low delivery periods under the WISE proposal. United Water and Sanitation District No

9 Alternative Source of Water Supply Provider 2.0 Bringing Renewable Water to the Town of Castle Rock 2.1 Why Lease When You Can Own? In contrast to other renewable water proposals that merely lease their water rights and water infrastructure to the Town of Castle Rock, United proposes to convey firm, renewable water rights and infrastructure for the enjoyment of the citizens of Castle Rock in perpetuity. Under the United system, Castle Rock will have fee title ownership to all of the water rights, fee title ownership to all facilities constructed solely for the benefit of Castle Rock, and a recorded perpetual easement or license for all shared infrastructure used for the diversion, conveyance, treatment and pumping of Castle Rock s renewable water supply. United recognizes that Castle Rock has studied participation in Aurora/Denver/South Metro s WISE system for a number of years. Where the Aurora/Denver/ WISE proposal requires the citizens of Castle Rock to pay over $10 million each year in lease payments for the use of an interruptible water supply, the United proposal results in the citizens of the Town of Castle Rock owning their own water rights and infrastructure and controlling their own growth and economic-development destiny. Through the ownership of their own water rights and delivery infrastructure, the citizens of Castle Rock can thereby manage their water resources as they deem best to meet their municipal and water planning goals. The acquisition of owned water rights under the United system can be structured so that the water acquisition and infrastructure costs, using the Town s own growth projections, can be paid over a period of twenty years using existing capital and bonding An impartial evaluation of the annual lease and O&M costs for WISE shows that Castle Rock citizens will be perpetually bound to a lease arrangement with Aurora/Denver/WISE to pay millions of dollars annually above the cost of a own it yourself alternative. A 2011 report prepared by CDM for WISE shows that the projected costs of the WISE alternative for the participants is $50 million per year more than the own it yourself alternative. (See CDM Report, page 4-17, Annual Costs by Year for WISE and Standalone. ) capacity. The ownership of water by Castle Rock will result in substantial savings to the Town s citizens over the cost of leasing interruptible water. An impartial analysis, by a knowledgeable accounting or engineering firm, of the comparative costs of owning and managing the Town s own water rights portfolio versus a perpetual lease of interruptible supplies and infrastructure will show the long-term financial benefits associated with the United system that grants ownership rights and ultimately saves the citizens of Castle Rock and their next generations millions of dollars in operational costs money that can be better spent on additional water development or other quality of life projects for the benefit of the Town s citizens. 2.2 United Will Bring a Diversified Portfolio of Renewable Water Rights to the Citizens of Castle Rock. In the development of renewable water supplies, United and its team of advisors use diversification principles similar to those used by stock experts to develop a safe and secure investment portfolio. Just as a savvy investor will not place all his securities into one category of investments, so too should municipalities avoid purchasing water rights within a limited geographical area that may be constrained by the availability and competition for water supplies within that limited area. By carefully developing a diversified portfolio of quality water rights from various geographical agricultural areas in the South Platte River, United will provide Castle Rock with a diversified, robust and reliable water delivery system. United Water and Sanitation District No

10 WEST TOWARD PACIFIC OCEAN 8,666,000 AF EAST TOWARD ATLANTIC OCEAN 1,331,000 AF Alternative Source of Water Supply Provider Table 1 and Figure 3 show the expansive geographic area from which United obtains its renewable water rights. The need to diversify water rights for Castle Rock can be best understood by looking at the architecture of the flows in the South Platte River. Figure 1 Aurora s Prairie Waters Project is limited to a few ditch systems concentrated in a single geographic area on the South Platte River. below was updated in 2011 by the Office of the State Engineer to show the historical average stream flows in Colorado. The thickness of the lines graphically shows the relative quantities of water and average flows within the rivers of the State. 4,440,000 1,509, ,300 YAMPA COLORADO 407,700 25,200 WHITE 5 COLORADO HISTORICAL AVERAGE ANNUAL STREAM FLOWS 6 1,122, , , , , ,900 2,771, , ,100 ROARING FORK 278,000 45,320 53,550 1,498, ,300 EAGLE 107, ,600 BLUE 79,800 86,830 86,340 49,200 32, ,400 97, , ,800 63, , , , , ,800 1 NORTH FORK REPUBLICAN 383,500 At Benkelman, NE 30,580 26, ,000 36,880 1,839, , ,100 96, ,800 McELMO 31, , , , ,100 GUNNISON 122,500 TOMICHI 4 152, ,500 24, , , ,900 66, ,000 CONEJOS 320, , ,200 24,390 HUERFANO 18,070 50, ,180 84, , ,600 35,920 24, , , , ,700 Prepared by the Hydrographic Branch (2011 Revision) [all values in acre feet (AF)] 88, ,100 TOTAL LEAVING COLORADO 9,997,000 AF OFFICE OF THE STATE ENGINEER COLORADO DIVISION OF WATER RESOURCES Figure 1: Colorado historical average annual stream flow Although there are large amounts of water apparently available on the western slope of the State, the challenge for Castle Rock (and other municipalities on the east slope) is that the water on the western slope cannot be acquired and diverted in incremental, scalable, affordable, cost-effective, or politically-feasible amounts. In order to allow affordable development of water resources, more and more municipal entities on the East Slope are recognizing that the primary sources of water for their future growth will not come from the western slope, but will instead be a combination of (a) changes of senior agricultural water rights to municipal purposes, (b) recapture of reusable return flows from existing and future acquired water rights; and (c) development of storage facilities to capture new water rights that may be appropriated in periods of high river flow. United Water and Sanitation District No

11 Alternative Source of Water Supply Provider The principles underlying United s diversification strategy are straight-forward. From the beginning, United recognized that many of the most senior and reliable water rights in the South Platte basin are located on the South Platte River from Greeley to Fort Morgan, or upstream of Greeley on the Cache la Poudre River. This renewable water is brought to market through decreed exchanges on the river using storage and diversion structures. The ability to exchange water from the historic farm location to upstream locations can be subject to significant limitations if the exchange reaches have limited flow and are subject to senior exchanges. Figure 2: Strategic Location of United Facilities This limitation can be overcome through the use of well-located reservoirs, pipelines, and diversion facilities. To maximize the number of classes of water rights that can be effectively captured on a reliable basis, United has located withdrawal and storage facilities at three strategic locations. (see points A, B and C in Figure 2 above). These facilities allow United to manage water resources from points as far downstream as Fort Morgan to points upstream along the South Platte and its major tributaries. As a consequence, the portfolio of water rights that can be utilized by United to bring renewable water to Castle Rock is not confined to a limited geographic area or a limited number of ditch systems and is broader and more diversified -- than any alternative system that relies solely on facilities upstream or a limited number of ditch systems. Castle Rock will also have allocated capacity in the pipeline that will be constructed from the 70 Ranch and United well field in the Beebe Draw to provide additional reliability for those instances when exchange potential may be limited. See Figure 5 for a map of the United system. United will provide Castle Rock with senior 100% renewable surface water tributary to the South Platte River. The water rights will be a diversified portfolio of senior agricultural water rights adjudicated and conveyed to Castle Rock for full renewable use within the Castle Rock water supply system. United Water and Sanitation District No

12 Alternative Source of Water Supply Provider The water provided to Castle Rock will be decreed fully consumable, based on the quantified historical consumptive use as determined through the water court transfer process. United s existing decreed points of diversion are canal river headgates on the South Plate and tributaries including the Cache la Poudre River, Saint Vrain Creek, and Big Thompson River. The ditch systems upon which United may obtain water rights are identified in Table 1. The geographic distribution of these ditch systems and ditch service areas is identified in Figure 3. Other ditch systems may be added with the concurrence of United and Castle Rock advisors. Table 1: Partial List of Ditch Systems Utilized by United Beaver Creek Ditch Company Bijou Irrigation Company Box Elder Lateral Ditch Company Cache La Poudre Reservoir Company Farmers Independent Company Fort Morgan Reservoir and Irrigation Company Fulton Irrigation Company Greeley Irrigation Company Jackson Lake Reservoir Company Lake Canal Company Larimer & Weld Irrigation Company Larimer & Weld Reservoir Company New Cache La Poudre Irrigation Company Ogilvy Irrigation and Land Company Owl Creek Supply & Irrigation Company Plumb Irrigation Company Riverside Reservoir Company Smith Lateral Company Upper Platte and Beaver Canal Company Weldon Valley Ditch Company Western Mutual Ditch Company Whitney Irrigation Company Windsor Reservoir and Canal Shares United Water and Sanitation District No

13 Alternative Source of Water Supply Provider Figure 3: Geographic Distribution of United Target Ditch Systems United Water and Sanitation District No

14 Alternative Source of Water Supply Provider Because United can effectively manage water resources from broad areas of the South Platte River and its tributaries, United is not limited to a small geographic area for its water rights. This is important for several reasons. First, by being able to take advantage of multiple watersheds throughout the South Platte basin, United has been able to develop diversified portfolios of water which are more stable than if it had to rely on a narrow geographic area. Second, in effecting a change of water rights from agricultural to municipal use, the historic farm use of the water must be changed from high water consumption agriculture to a lower consumption use of the farm. This change in use can have a material effect on the local agricultural economy. If numerous farms in a limited area or on a limited number of ditches are converted to a low consumption use, the impact on the local economy or other farmers on the ditch can be significant. This generally can result in growing opposition to municipal conversion of water, an opposition that can have an effect on Castle Rock. By spreading the impact over Aurora s purchase and subsequent dry-up of the Rocky Ford ditch system in the Arkansas basin serves as a good historical lesson on the local opposition that can be generated by drying-up agriculture in a limited geographic area. numerous irrigation areas, a geographically diverse portfolio generates far less impact on the local economy and other farmers on the ditch. As importantly, the scattered farms converted by United can be more effectively restored to irrigation by augmentation plans, maintaining the bulk of the agricultural value of the land. 2.3 United s Experience in Bringing Diversified Water Portfolios to Metropolitan Water Providers. The execution of United s strategy of diversified water development has proven itself over the past decade. The first major district to utilize the United facilities was East Cherry Creek Valley Water and Sanitation District ( ECCV ). In 2003 ECCV contracted with United to acquire all of the water rights associated with the 70 Ranch in Weld County, Colorado, seeking an average of 3,000 acre feet of water from that facility. United and ECCV jointly adjudicated the change of those water rights, and the resultant final decree yielded an average annual consumptive use of water that fully met the Phase I contractual requirements of the parties. In Phase II of the ECCV agreement, United agreed to acquire 3,200 acre feet of consumptive use water. A fractional portion of the Phase II portfolio was represented by water within the Barr Lake system. Although the results of that single water court case were Contrary to unsubstantiated rumors, United not only has significant water rights in its portfolio, it has exceeded Denver and Aurora s combined purchases of renewable water on the South Platte River over the past decade (see Appendix 1). below expectations (which is one of the reasons why United always buys additional water rights to serve as insurance ), the decision did not have a material effect on the diversified ECCV portfolio purchased by United. The balance of the Phase II ECCV portfolio was represented by water rights from a broadly diversified range of systems on the Platte River and the Poudre River with anticipated final decree yields in amounts that will fully satisfy the parties water acquisition goals. The second major south metro client to utilize the United water portfolio strategy was the Arapahoe County Water and In a report to the Arapahoe County Commissioners, ACWWA attorney Brian Nazarenus, Ryley Carlock & Applewhite, stated: It s some of the best due diligence I ve seen in my career. Wastewater Authority ( ACWWA ). ACWWA contracted with United in December of 2009 to develop a portfolio of 4,400 acre feet of renewable water. United Water and Sanitation District No

15 Acre-Feet Alternative Source of Water Supply Provider The ACWWA contract further provided that the dry year yield (in years like 1954 and 2002) had to be at least 60% of the average yield which is a more stable water supply than most municipalities enjoy. Acquisitions on the ACWWA portfolio commenced in December of 2009, and by the end of August, 2011 (less than 21 months), a broadly diversified portfolio of 4400 acre feet of renewable water rights meeting the parties contract requirements was purchased. It deserves note, however, that -- based on the engineering estimates of both United s and ACWWA s engineering teams -- the estimated dry year yield for the portfolio will in-fact be over 70% (not just 60%) of average year yield. As shown in Figure 4, the total water portfolio accumulated by United for ACWWA has a minimum dry year yield of 70% + of the long-term average based on the 1950 to present historical use analysis. The final average yield of the water rights owned by Castle Rock will be 6,000 Acre- Feet per Year (AFY) as determined by the final water court transfer decrees. In addition to purchasing a diversified portfolio of water with good dry year yields for ACWWA, United also agreed to acquire an additional 880 acre feet of water to serve as an internal insurance policy to fill any shortfall that may be experienced in the adjudication of either the ECCV or the ACWWA water rights. United s proposal contemplates the same strategy for the Town of Castle Rock. 5,000 4,000 3,000 2,000 1,000 - Annual Northern System Yield Annual Available CU Average Figure 4: Annual Northern System Yield is an example of the variations in a 4,400 AFY water rights portfolio comprised of multiple ditch systems and farms, similar to the diversified package that will be assembled for Castle Rock 2.4 United s Purchase of Renewable Water Rights for Castle Rock Water rights for Castle Rock will be initially identified by United s acquisition team from diversified locations and then submitted to Castle Rock s Utilities Director and staff, Town Attorney, and water attorney and consultants for their consideration and approval before acquisition. As is cost-effectively being done with ACWWA, the water court transfer process will be a joint process with all costs shared equally between United and Castle Rock using their respective staffs, consultants, and attorneys. The water court transfer process will determine the actual final average annual consumptive use. The portfolio will be designed to have a minimum yield of 60% of the average annual yield. For the benefit of Castle Rock, the historical use period by which the water rights will be measured will include both 1954 and the two driest years on record. With the inclusion of these years and a 60% minimum dry-year yield, the Castle Rock water portfolio will have a certainty of availability lacking in many municipal water supply systems. In addition to obtaining a diversified portfolio, Castle Rock needs to time both the acquisition of renewable water rights and the construction of infrastructure in order to avoid having too much or too little capacity at any given point. This is also known as the scalability of a system. United Water and Sanitation District No

16 Alternative Source of Water Supply Provider The United system is designed to allow both the scalable acquisition of water rights and the scalable construction of infrastructure to meet the Town s current needs. Under the United system, the Town can defer construction and acquisition costs over the life of the project, so that facilities in excess of current needs do not need to be constructed and financed earlier than necessary, resulting in significant saving in capital financing costs. Castle Rock s defined target water supplies are 2,500 acre feet by 2017, an additional 2,500 acre feet by 2025, and a final 1,000 acre feet by 2040 for a total of 6,000 acre-feet per year. This schedule is not optimal for the purchase of renewable water rights because the passage of time historically results in higher purchase costs for water and infrastructure. Under United s proposal, the Town can finance and have the infrastructure built to use the entire 6000 acre feet identified in its target water supply as early as This, of course, not only satisfies Castle Rock s calendared goals for a renewable water system, it eliminates the uncertainties associated with runaway inflation, increases in construction costs, or increased regulatory pressures imposed by the local, state, and federal authorities. The most effective method for financing and acquiring the Town s water rights and infrastructure is through an Agreement that establishes a fixed time-table for the purchase of rights. With a set purchase schedule and a combination of capital and financing from United, United can acquire Castle Rock s entire 6,000 acre foot portfolio beginning in 2012 and ending in 2016 (if not earlier) at then-current market prices. As important, once the portfolio of water rights is acquired, Castle Rock can begin using the 6,000 acre feet of water immediately upon the filing of applications in Water Court, and the approval of a substitute water supply plan. United Water and Sanitation District No

17 Alternative Source of Water Supply Provider 3.0 Renewable Water Delivery Infrastructure to the Town of Castle Rock 3.1 Existing United Infrastructure United will use its existing reservoirs, pipelines, diversion facilities and partnerships to bring renewable water from the South Platte River to the United well field and the ECCV water treatment plant located in Brighton, Colorado. Castle Rock will have the right to divert its renewable water supplies at United Diversion Facility No. 3 on the South Platte near Brighton and the United Diversion Facility No. 5 at the Gilcrest Reservoir located at the junction of the Platte and St. Vrain when exchange potential exists (subject to Castle Rock acquiring storage at this location), and at additional exchange locations at the Town s discretion on the Plum Creek and at Chatfield Reservoir. When exchange potential is not available, Castle Rock will have the right to divert supplies at United Diversion Facility Nos. 1 and 2 located at the 70 Ranch using a perpetual easement between United and the 70 Ranch L.L.C. The pipeline from the 70 Ranch to the United well field will provide additional reliability to ensure that Castle Rock can deliver its 6,000 acre-feet per year of supplies during those times when exchange potential is limited or not available. Historic return flow obligations, including delayed returns, will be made via recharge ponds located on historically irrigated farms, United easements and holdings, and recharge facilities at the 70 Ranch and other locations. Following treatment at ECCV s reverse-osmosis plant, the water will be transported south in the ECCV northern pipeline to ECCV s storage tanks located near the intersection of E-470 and Smoky Hill Road. The water will then be transported to the intersection of E-470 and Smoky Hill Road through one of three possible pipeline alternatives: (1) a new pipeline following the E-470 right of way to Chambers Road; (2) an interconnect pipeline using ACWWA existing lines and new lines constructed by Castle Rock through an IGA with ACWWA, or (3) through ECCV s existing western line. The elegance of the United proposal is that, with the exception of the 70 Ranch pipeline that is under design, expanding the existing ECCV water treatment plant, and construction of the pipeline between the ECCV tanks and the terminus point at E-470 and Chambers Road, the diversion, Figure 5: The United System United Water and Sanitation District No

18 Alternative Source of Water Supply Provider treatment, and transmission system is already in place to handle the 6,000 acre feet of renewable water that will be available for Castle Rock s use in The process for the design of the 70 Ranch pipeline has begun, and it is anticipated that construction of the line will commence in United has both substantial cash reserves and other assets, which will allow the funding of the pipeline. 3.2 Use of Peak Capacity in the ECCV Line Will Result in Significant Cost Savings Renewable water can be delivered to Castle Rock using either peak, or non-peak, capacities in the ECCV water treatment plant and ECCV northern line. Although each strategy has its advantages, United believes the final analysis will show that the purchase and use of peak capacity will result in the highest cost-savings over all other proposals for the citizens of Castle Rock Alternative #1: Peak (Firm) Capacity. The Peak (Firm) Capacity delivery option uses Castle Rock s existing 1.4 MGD of firm capacity in the ECCV Northern Line and provides for the acquisition of up to an additional 6.6 MGD of firm capacity in the Northern Line and up to 8.0 MGD of firm capacity in the ECCV Northern water treatment plant (Northern WTP). It should be noted that Castle Rock can deliver its entire 6,000 AFY of yield with a total of 5.5 MGD of firm capacity. The option of increasing the firm capacity up to 8 MGD is presented as a cost-effective means for Castle Rock to eliminate the immediate need for south end storage in the Rueter Hess Reservoir and expensive retreatment of its already-treated high quality water supplies. ECCV has confirmed to United that it has up to 8 MGD of additional available firm capacity in the Northern Line. In addition, ECCV has confirmed that the Northern Water Treatment Plant can be expanded in phases and coordinated with ECCV and ACWWA expansions, to better match Castle Rock s delivery schedule up to the 8 MGD of firm capacity. ECCV has further confirmed its willingness to make its infrastructure available for the United proposal (see Appendix 4. Acquisition of peak capacity minimizes the retreatment, maintenance, and operations costs associated with a second water treatment facility at Reuter Hess Reservoir needed for retreatment. In addition to alluvial recharge and surface storage solutions that United can make available, treated water deliveries to Castle Rock can be optimized by delivering water under a municipal demand schedule that synchronizes summer irrigation demands with the yields of transferable agricultural rights. The acquisition of 8 MGD of firm capacity provides summer capacity that meets Castle Rock s peak demands and matches with the diversions of the irrigation water rights to be acquired. Such coordination minimizes the need for northern storage and minimizes and can eliminate the need for southern storage and retreatment. In summary, the Peak (Firm) Capacity option includes: Phased development of 8 MGD of capacity in the ECCV Northern WTP Phased development of 8 MGD of capacity in the ECCV North and South Booster Pump Stations Use of Castle Rock s existing 1.4 MGD of ECCV Northern Line Capacity Acquisition of up to an additional 6.6 MGD of firm capacity in the ECCV Northern Line Delivery from the terminus of the ECCV Northern Line via the ECCV and ACWWA water transmission systems, ECCV Western Line or a parallel line in the E-470 MUE. United Water and Sanitation District No

19 Alternative Source of Water Supply Provider The Peak Capacity Option further achieves the following results: Maximizes the direct use of the transferred water rights to the Castle Rock water system, minimizing the need for raw water storage and the associated evaporation and seepage losses; Provides firm peaking capacity to Castle Rock and reduces the need for water treatment and/or non-tributary well pumping to meet peak demands; Directly delivers high quality water satisfying and exceeding Castle Rock s water quality goals; Eliminates the need for terminal storage and critically minimizes the need for retreatment and the capital and operation and maintenance costs and the associated evaporation and seepage losses associated with a second water treatment facility at Rueter Hess Reservoir. The capital costs, parameters and payments under the Peak Delivery Option are shown in the following Table 2. This alternative allows Castle Rock s capacity in Rueter-Hess to be used to store wastewater treatment system return flows, and other untreated water rights, for which the Rueter-Hess Reservoir was constructed and permitted by the Corps of Engineers, and does not require a change in the existing approvals for the Rueter-Hess Reservoir. United Water and Sanitation District No

20 Castle Rock Peak (Firm) Capacity Option Capital Cash Flow and Assumptions Castle Rock acquires 8 MGD of Firm Capacity in ECCV Northern System and No Need for South Storage or Retreatment Castle Rock Projected Cash Expenditures All Costs in 2011 Dollars, $M Capacity Unit Cost (if Cost (in Acquired Units applicable) Millions) Total Parameters Water Rights 6,000 Acre feet $ 23,850 $ $ 27.4 $ 3.6 $ 3.6 $ 4.8 $ 6.0 $ 6.0 $ 91.8 $ Castle Rock makes down payment so that water rights can be secured. The entire 6,000 AF is available for use by Casle Rock in 2017 Firm Capacity in ECCV Water Treatment Plant including Brine Minimization and Deep Well Disposal 8 MGD $ 4.00 $ 32.0 $ $ 6.7 $ 6.7 $ 13.3 $ 5.3 $ 32.0 Castle Rock purchases 8 MGD of firm capacity starting in 2016 and phases expansions with water deliveries and timing of expansions of the ECCV WTP. Cost includes an additional deep disposal well. Firm Capacity in ECCV Northern Pipeline (additional capacity) MGD $ $ 11.9 $ 11.9 $ $ 11.9 Castle Rock already owns 1.4 MGD of firm capacity in the ECCV line. Castle Rock purchases additional 6.6 MGD of firm capacity from ECCV to match its firm water treatment plant capacity. Firm Capacity in ECCV North and South Booster Pump Stations 8 MGD $ 1.8 $ 14.4 $ $ 3.0 $ 3.0 $ 6.0 $ 2.4 $ 14.4 Castle Rock purchases capacity in ECCV north and south booster pump stations starting in 2016 and increases capacity in 2025 and in 2040 up to a total of 8 MGD on same timing as treated water deliveries. Firm Capcity in Pipeline from ECCV Smoky Hill tanks to E MGD $ 8.9 $ $ 4.5 $ $ $ $ and Chambers Castle Rock can participate with ECCV and ACWWA to acquire capacity in existing pipelines and to construct additional pipeline segments to deliver to E 470 and Smoky Hill. In the alternative, Castle Rock may be able to acquire capacity in the Western line from ECCV or construct a parallel line along E 470 Total $ $ 39.3 $ 3.6 $ 3.6 $ 18.9 $ 20.1 $ 6.0 $ $ 7.7 $ Note: Costs for ECCV infrastructure are estimated based on existing agreements and must be finalized with ECCV Option 1 Castle Rock Monthly Deliveries on Firm Monthly Basis MGD Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec AF MGD AF 9/7/2011

21 Alternative Source of Water Supply Provider Alternative #2: Variable (Off-Peak) Capacity. The Variable (Off-Peak) Capacity option includes the acquisition of capacity in the ECCV Water Treatment Plant and ECCV Northern Pipeline that varies in timing and rate of flow. This option is provided in part to be responsive to the second addendum to the RFP that asked applicants to assume that the Town would eventually be permitted by the Corps of Engineers to store currently non-permitted sources of water in Rueter Hess Reservoir. Rather than acquire additional peak capacity in the Northern Line, under the Variable (Off-Peak) Capacity option Castle Rock would acquire the use of ECCV off-peak capacity in the ECCV Northern Line and Northern Water Treatment Plant at times when ECCV is not using that capacity for delivery to its other customers. Generally, the variable capacity is available on a reliable basis during the non-irrigation season and is occasionally available during the peak irrigation season. While off-peak capacity is The Corps of Engineer s existing prohibition against storing Denver, Aurora, and other non-permitted water in Rueter Hess Reservoir and the economic and environmental implications of using Rueter Hess for such storage are addressed in this report in Section 3.5, The Reuter Hess Conundrum. generally less-expensive than peak capacity, those savings are offset by the evaporative losses and the construction of a water treatment plant at Rueter Hess Reservoir required for the Town to hold, re-treat, and deliver the water to its customers when they need it most during the peak summer months. (These are the same difficult problems faced by use of Aurora and Denver s intermittent leased water under the WISE system which also requires storage and re-treatment of already-treated water in Rueter Hess Reservoir). In addition to these capital costs, there will be significant O&M costs for retreating this already-treated water. Further, under this option, additional raw water surface storage or recharge facilities would be required to retime agricultural irrigation season deliveries for treatment and delivery during the non-irrigation season when variable capacity is available in the ECCV Northern WTP and Line. The Variable Capacity delivery option uses Castle Rock s existing 1.4 MGD of firm capacity in the ECCV Northern Line and provides for the acquisition of an additional 6.6 MGD of variable capacity in the Northern Line. Additional variable capacity is available in the ECCV system should Castle Rock determine it needs more variable capacity to deliver its 6,000 acre feet per year. Castle Rock would acquire 1.4 MGD of firm capacity in the ECCV Northern WTP and north and south booster pump stations and 6.6 MGD of variable capacity in the ECCV Northern WTP. The cost allocations for the acquisition of variable capacity in most of the treated water infrastructure system such as water treatment, brine minimization, pumping and transmission are generally flow based and expected to be in the range of 50% of the capital cost for firm capacity. The cost for brine disposal is both flow and volume based and this cost will be a function of the Castle Rock flow rate and annual volume, and would be less than the capital cost under the firm delivery option. In summary, the Variable (Off-Peak) option includes: Acquisition of 1.4 MGD of firm capacity in the ECCV Northern WTP Acquisition of 6.6 MGD of variable capacity in the ECCV Northern WTP Use of Castle Rock s existing 1.4 MGD of firm capacity in the ECCV Northern Line Acquisition of 6.6 MGD of variable capacity in the ECCV Northern Line Acquisition of 1.4 MGD of firm capacity in the ECCV North and South Booster Pump Stations Acquisition of 6.6 MGD of variable capacity in the ECCV North and South Booster Pump Stations United Water and Sanitation District No

22 Alternative Source of Water Supply Provider Delivery from the terminus of the ECCV Northern Line via the ECCV and ACWWA water transmission systems, the ECCV Western Line or a parallel line in the E-470 MUE Construction of a water treatment plant at the Rueter Hess Reservoir to treat already-treated water. The capital costs, parameters and payments under the Variable (Off-Peak) Delivery Option are shown in the following Table 3. United Water and Sanitation District No

23 Capacity Acquired Units Castle Rock Variable (Off Peak) Capacity Option Cash Flow Assumptions Castle Rock acquires Firm and Variable Capacity in ECCV Northern System and provides treatment for WISE supplies Unit Cost (if applicable) Castle Rock Projected Cash Expenditures All Costs in 2011 Dollars, $M Cost (in Millions) Total Parameters Water Rights 6,000 Acre feet $ 23,850 $ $ 27.4 $ 3.6 $ 3.6 $ 4.8 $ 6.0 $ 6.0 $ 91.8 $ Castle Rock makes down payment so that water rights can be secured. The entire 6,000 AF is available for use by Casle Rock in 2017 Firm and Variable Capacity in ECCV Water Treatment Plant including Brine Minimization and Disposal 14Firm 1.4 and 6.6 Variable (Off Peak) MGD $4 M for firm and $2.5 M for variable $ 19.0 $ $ 4.0 $ 4.0 $ 7.9 $ 3.2 $ 19.0 Castle Rock pays the amount owed on its 1.4 MGD of capacity and purchases 6.7 MGD of variable capacity ECCV Northern Pipeline Variable capacity 6.7 MGD $ 0.9 $ 6.0 $ 6.0 $ $ 6.0 Castle Rock purchases variable capacity from ECCV to match its variable water treatment plant capacity. ECCV North and South Booster Pump Station Capacity 1.4 Firm and 6.7 Variable (Off Peak) MGD $1.8M for firm and $0.9M for variable $ 8.6 $ $ 1.8 $ 1.8 $ 3.6 $ 1.4 $ 8.6 Castle Rock purchases variable capacity from ECCV to match its variable water treatment plant capacity. Pipeline from ECCV Smoky Hill tanks to E 470 and Chambers $ 8.9 $ $ 4.5 $ 4.5 $ $ $ 8.9 Road Castle Rock can participate with ECCV and ACWWA to acquire capacity in existing pipelines and to construct additional pipeline segments to deliver to E 470 and Smoky Hill. In the alternative, Castle Rock may be able to acquire capacity in the Western line from ECCV or construct a parallel line along E 470 Rueter Hess Treatment Plant 6.7 MGD $ 4.0 $ 26.8 $ 22.3 $ 4.5 $ 26.8 Total $ $ 33.5 $ $ 9.1 $ Note: Costs for ECCV infrastructure are estimated and must be negotiated with ECCV Option 2 Castle Rock Monthly Deliveries Based on Variable Capacity (Requires South End Storage) Treatment Plant will be needed to retreat water stored during non peak times. Advanced plant may be required due to high TDS in WISE deliveries and need for AOP due to organics and to treat excessive algae blooms due to nutrients from other sources. MGD Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec AF MGD AF 9/7/2011

24 Alternative Source of Water Supply Provider Analysis: Firm vs. Variable Capacity. In the final analysis, United believes that the use of Peak Capacity brings the best value to the citizens of Castle Rock. United has developed an operations model to assist Castle Rock in analyzing the proposed water rights, timing of deliveries, the relationship between additional northern storage and yield, use of peak and off-peak capacities in the ECCV Water Treatment Plant and ECCV Northern Line, and costs associated with the use of Rueter-Hess Reservoir storage and retreatment. 3.3 The Three Interconnect Delivery Options from ECCV s Smoky Hill Road Tanks to the Intersection of E-470 and Chambers Road With the exception of expanding the ECCV water treatment plant to meet the Town s peak or off-peak renewable water needs, the only remaining piece of infrastructure needing to be constructed to connect the United system to the Town of Castle Rock s terminus is the pipeline between ECCV s Smoky Hill Road tanks and the intersection of E- 470 and Chambers Road. As shown on the following Figure 6, this interconnection can be achieved in three ways: (1) Through an interconnect pipeline using ECCV and ACWWA existing lines and new lines constructed by Castle Rock through an IGA with ACWWA; (2) construction of a new pipeline following the E-470 right of way to Chambers Road, or (3) through ECCV s existing Western Line in the event Aurora and Denver do not acquire the Western Line or Castle Rock negotiates for the right to carry other water in unused capacity in the Western Line. Figure 6: Delivery Alternatives from ECCV s Smoky Hill Road Tanks to the Intersection of E-470 and Chambers Road United Water and Sanitation District No

25 Alternative Source of Water Supply Provider Alternative #1: New Pipeline to Chambers Road Using E-470 Multiple Use Easement/Right-of-Way The first recommended pipeline alternative provides for the construction of a new pipeline using the E-470 Multiple Use Easement (MUE) along the E-470 right-of-way from ECCV s tank field at Smokey Hill to the terminus point at Chambers Road. While this alternative requires the construction of 6700 feet of additional pipe and two additional major road crossings over the ACWWA Alternative #2, the additional physical pipeline costs would be offset by the less-complex permitting process, fewer traffic and neighborhood disturbances, fewer un-anticipated issues associated with pipeline construction in urban areas, and simplified construction. Parameters: Potential alignment along north side of E-470: Total Length: 40,700 LF Major Road/Drainage Crossings: 10 total East Smokey Hill Road East Arapahoe Road South Gartell Road East Cottonwood Drive South Parker Road North Jordan Road Chambers Road Drainage between South Gartell Road and East Arapahoe Road (Piney Creek Trail) Drainage between East Cottonwood Drive and Gartell Road Drainage between North Jordan Road and South Parker Road (Cherry Creek Trail) Minor Road/Drainage Crossings: 4 total Ireland Road Three (3) off-ramp/on-ramp at South Parker Road Pipe 24" or 30 diameter ductile iron or PVC pipe 6 feet per second (fps) maximum velocity 25 cubic feet per second (cfs) maximum flow Easements Use of E-470 MUE for entire length of pipeline Physical Infrastructure A pump station will be required at the upstream end of the pipeline near the ECCV existing water tanks. This pump station will provide 420 feet of total dynamic head (TDH) to produce a maximum flowrate of 25 cfs in the 24-inch pipeline. United Water and Sanitation District No

26 Alternative Source of Water Supply Provider Permitting The E-470 MUE proposed alignment crosses through Arapahoe County, City of Aurora, City of Parker and Douglas County. Below is a list of possible permits that could be required by each City or County that the pipeline is constructed in: o Right-of-Way or Utility Permit - required to cross or to work in the Right-of-Way; o Grading, Erosion and Sediment Control Permit - required to demonstrate how erosion and water quality will be maintained throughout the project o State Stormwater Quality Permit - required to demonstrate how water quality will be maintained throughout the project; o Private Utility Permit o Wet Utilities (oil, gas, water, sewer, etc.) - typically require this permit since they are typically located in a dedicated easement; o Dry Utilities (electric, telephone, phone, etc.) - typically require only a notification at a minimum; o Site Development Permit - required if any above grade structures are required (i.e.-pumphouse); o Threatened or Endangered Species Permit - Issued by the United States Division of Wildlife determines if there are threatened or endangered species in the vicinity of the proposed project; o 404 Permit - Issued by the United States Army Corps of Engineers is required when crossing drainage ways that are waters of the United States, typically named drainage ways. If boring under the drainage way a consultation may be sufficient but either way written permission or permit is required; Cost Evaluation United estimates $9.23 million to obtain the ROW and construct the connecting infrastructure through the E-470 MUE to the intersection at E-470 and Chambers. The estimate includes construction, Engineering/Administration/ Construction Observation and a 15% contingency Alternative #2: New Pipeline to Chambers Road Using Existing ACWWA Pipelines and Four Additional Pipeline Segments This alternative provides for the construction of four segments of pipeline starting at ECCV s existing water tanks located on the northwest corner of East Smokey Hill Road and South Gun Club Road and terminating at Chambers Road near E-470. To minimize upfront costs United will partner with ACWWA to utilize their existing pipeline capacity in conjunction with construction of the new pipeline segments that will create a unitary pipeline from the ECCV tanks to E-470 and Chambers Road. ACWWA has confirmed its willingness to cooperate with United and make its infrastructure available for the proposed project (see Appendix 4). Parameters: Pipeline Profile The upstream end (beginning) of the pipeline is approximately 250 feet higher than the downstream end with two low points located near Arapahoe Road and South Parker Road. Pipe 24" or 30 diameter ductile iron or PVC pipe 6 feet per second (fps) maximum velocity 25 cubic feet per second (cfs) maximum flow Two (2) Vacuum Relief and two (2) Pressure Relief valves required per mile of pipeline Open cut to cross minor roadways; Bored under major roadway crossing; United Water and Sanitation District No

27 Alternative Source of Water Supply Provider Easements 30-foot wide permanent easements in all drainageways or open space 30-foot wide temporary construction easements along the pipline length Permanent easements will not be required when pipeline is along major roadways (located in Right-of-Ways) Physical Infrastructure A pump station will be required at the upstream end of the pipeline near the ECCV existing water tanks. This pump station will provide 420 feet of total dynamic head (TDH) to produce a maximum flowrate of 25 cfs in the 24-inch pipeline. Permitting The proposed alignment crosses through Arapahoe County, City of Centennial, Town of Foxfield, City of Parker and Douglas County. Each city or county has its own permitting process for installing pipelines within their jurisdiction. Below is a list of permits that could be required by each City or County that the pipeline is constructed in: o Right-of-Way or Utility Permit - required to cross or work in the Right-of-Way o Grading, Erosion and Sediment Control Permit - required to demonstrate how erosion and water quality will be maintained throughout the project o State Stormwater Quality Permit - required to demonstrate how water quality will be maintained throughout the project o Private Utility Permit o Wet Utilities (oil, gas, water, sewer, etc.) - require this permit since they are typically located in a dedicated easement o Dry Utilities (electric, telephone, phone, etc.) - typically require only a notification at a minimum o Site Development Permit - required if any above grade structures are required (i.e.-pumphouse) o Threatened or Endangered Species Permit - Issued by the United States Division of Wildlife determines if there are threatened or endangered species in the vicinity of the proposed project o 404 Permit - Issued by the United States Army Corps of Engineers is required when crossing drainage ways that are waters of the United States, typically named drainage ways. If boring under the drainage way a consultation may be sufficient but either way written permission or permit is required Cost Evaluation United estimates $8.92 million to obtain the ROW and construct the connecting infrastructure from ECCV s tanks at Smoky Hill to the intersection at E-470 and Chambers. The estimate includes construction, Engineering/Administration/Construction Observation and a 15% contingency. Following discussions with Castle Rock, United will agree to construct the pipeline segments as a turnkey fixed fee project Alternative #3: ECCV Western Line The final pipeline alternative provides for the use of ECCV s existing Western Line in the event that the line is not conveyed to a third party (such as Aurora) that requires water to flow in the pipeline from west to east. If the pipeline is either not conveyed to a third party, or is conveyed in part to a third party (such as Sterling Ranch) that only requires east to west flows, then Castle Rock could purchase sufficient capacity in the ECCV Western line to carry the water to the terminus point at E-470 and Chambers Road. United anticipates that the cost of obtaining the capacity in the Western Line under these circumstances would not exceed and would likely be less than the cost of constructing a new pipeline. United Water and Sanitation District No

28 Alternative Source of Water Supply Provider It is, however, difficult to determine the potential available capacity in the Western Line due to on-going negotiations between ECCV and Aurora over the purchase of the line for transporting Aurora s mountain water for purposes of blending with its high TDS Prairie Waters Project water. 3.4 Operations, Maintenance and Replacement Costs United anticipates that operations, maintenance and replacement costs for both raw and treated water infrastructure will be patterned on Agreements similar to those adopted by ECCV and ACWWA with United. Under those Operations Agreements, operations and maintenance costs and upgrade, relocation or repair of all facilities are apportioned between the parties based on the available capacity in acre feet per year ( Available Capacity ) of each party in the facilities to be constructed, upgraded, relocated or repaired. The intent is that the operational cost for all facilities will be based on actual cost, with a surcharge of an estimated 4 to 6% apportioned by either (a) available capacity for some cost items, or (b) for other cost items the amount of water delivered as determined by the parties based on reasonable standards (e.g., chemicals and utilities would be based on percentage of water usage). In addition, a reasonable reserve will be established for maintenance and replacement which reserve will be used for those purposes only. Annual O&M costs for Castle Rock for the Firm and Variable Options, based on the respective 2017, 2025 and 2040 deliveries of 2,500, 5,000 and 6,000 AFY have been developed. Raw water O&M costs were estimated by United staff based on its experience with actual operational and existing infrastructure. Treated water O&M costs were developed and recently updated by CDM on behalf of ECCV based on 5 years of experience with the existing Northern system operations, the 15+ year history of Brighton RO WTP costs and extensive pilot testing of the brine minimization process. Deep well disposal costs were developed by Hydrokinetics based on testing of the existing deep disposal well. O&M costs for delivery from the ECCV Smoky Hill tanks to the Castle Rock connection at E-470 and Chambers were estimated by Civil Resources based on the pressure criteria provided by Castle Rock. The estimated total annual O&M cost are for both raw and treated water operations, including planned and preventative maintenance, for delivery to the Castle Rock connection at E-470 and Chambers Road. Table 4 shows the projected annual O&M costs ($ Million) for the Peak Delivery Option. Based on the volume delivered, the unit cost is estimated at $2.68 per 1,000 gallons ($874/AF). These costs would be adjusted if Castle Rock decided to advance the use of its renewable water under an accelerated schedule. United Water and Sanitation District No

29 Alternative Source of Water Supply Provider Table 4: Castle Rock Firm Capacity Option Operation and Maintenance Costs Annual Water Deliveries Year Annual Delivery, AF 2,500 5,000 6,000 Annual O&M Costs, $ Million Year Raw Water Delivery $ 0.57 $ 1.14 $ 1.37 Treated Water Delivery $ 1.59 $ 3.18 $ 3.82 Total $ 2.16 $ 4.32 $ 5.19 Unit Total O&M Costs Year $/K gallons $ 2.68 $ 2.68 $ 2.68 $/AF $ 874 $ 874 $ 874 Table 5 shows the projected annual O&M costs for the Variable Delivery Option. The annual operations costs for the United-ECCV system are similar, but there will be additional O&M costs for the retreatment of variable water stored in Rueter-Hess Reservoir. Based on the volume delivered, the unit cost is estimated at $3.47 per 1,000 gallons ($1,130/AF). Table 5: Castle Rock Variable Capacity Option Operation and Maintenance Costs Annual Water Deliveries Year Annual Delivery, AF 2,500 5,000 6,000 Annual O&M Costs, $ Million Raw Water Delivery $ 0.24 $ 0.48 $ 0.58 Treated Water Delivery $ 1.59 $ 3.18 $ 3.82 Retreatment $ 0.99 $ 1.98 $ 2.38 Total $ 2.82 $ 5.65 $ 6.78 Unit Total O&M Costs Year $/K gallons $ 3.47 $ 3.47 $ 3.47 $/AF $ 1,130 $ 1,130 $ 1,130 25

30 Alternative Source of Water Supply Provider Similar to the budgeting practice for most water providers, long-term replacement costs will be developed as part of a mutually-acceptable annual 5 year Capital Improvement Program (CIP). The development of the CIP will provide participating parties with the projected Capital Improvement replacement needs so that these costs can be identified and included as part of the 5 year budgeting process. An estimate of the length of time before major renovation and infrastructure replacement is shown in the following table. Importantly, Table 6 shows, with the appropriate planned and preventative maintenance, that major renovation and replacement will not be needed for many years. Table 6: Infrastructure Replacement Schedule Capital Infrastructure Component # of Years Major Renovation Replacement Notes Pipelines Pump Stations Alluvial Wells River surface diversions, augmentation and return flow structures Renovation includes replacement of select segments Renovation includes major maintenance of pumps, motors and control systems Renovation includes replacement of pumps and screens Renovation includes concrete repair and replacement of measuring flumes, etc. Recharge basins Renovation includes slope liner repair (if lined) Water Treatment Plant RO Membranes Renovation includes major structural repairs and control systems Membrane replacement is included in normal annual O&M. Note that Brighton's RO membranes have lasted > 15 years and are still in use. Replacement at 30 years includes new membrane racks Deep disposal well Renovation includes major cleaning and screen and casing repair, if needed United Water and Sanitation District No

31 Alternative Source of Water Supply Provider 3.5 The Rueter-Hess Reservoir Conundrum The United proposal includes a peak capacity option where maximization of the Town s valuable renewable water will not require storage in Rueter-Hess Reservoir and subsequent expensive re-treatment in order to get water to the Town s ratepayers. This is significant since the current permit limitations of Rueter-Hess Reservoir do not allow the use of the reservoir to store water derived from sources not identified in the permit including leased water from Denver and Aurora s systems. There is no indication when the reservoir will be permitted to store other water, and there are no estimates of the costs of mitigation that will be imposed by the Corps of Engineers as a condition to storage of other water sources in Rueter-Hess. United believes that Castle Rock is better served by utilizing its storage in Rueter-Hess for the storage of those classes of water (e.g. effluent and untreated surface water rights) which do not require treatment, and for which Rueter-Hess is already approved, and for which it was originally acquired by Castle Rock. Unknown mitigation costs that will be imposed by the Corps of Engineers in the change of the use of Reuter Hess Reservoir may be significant. These unknown costs increase the risk to the rate payers of Castle Rock, may result in significant delays in finalizing any water project relying on Reuter-Hess, and may increase financing burdens due to delay and uncertainty. Although the second addendum to the Castle Rock RFP asked the applicants to assume that the Town would eventually be allowed to store 8,000 acre feet of water in Rueter Hess Reservoir, it would appear that the Town could expose itself to unnecessary election risks (and potentially higher finance costs) if an election was conducted, or financing was undertaken, until the Corps of Engineers has held its public comment period and approved modifications to the existing permit that might allow currently non-permitted water to be stored in Rueter Hess. The process could take years if it is pursued at all given the potentially high cost of environmental mitigation associated with storing other water in the reservoir. In a letter dated March 21, 2011, the Omaha District Counsel for the Corps of Engineers specifically stated that the Town of Parker (and by extension, the Town of Castle Rock) were prohibited from storing Denver, Aurora, Lost Creek, or other foreign water in Rueter Hess Reservoir until possible mitigation for environmental impacts have been subjected to public comment and potential public hearings. (A copy of the Corps of Engineers letter is attached as Appendix 2). Given the potential expense associated with having their water systems open to public scrutiny and possible mitigation costs, it is open to question whether any foreign water providers will want to pursue their proposals to provide water to Castle Rock. Further, it is open to question (and the RFP does not confirm) whether the cost of mitigation (e.g., purchase and release of water to streams to satisfy fish or wildlife, etc.) will be borne by the applicants or by the citizens of Castle Rock. Based on the uncertainties associated with the Rueter-Hess Reservoir, United has provided the Town an alternative by which it can provide renewable water to its citizens without having to rely on storage in the reservoir for previously treated water. Assuming the Corps eventually permits new water supplies to be stored in Rueter Hess, the United proposal allows the Town to avoid having to expend significant capital and O&M costs to store and retreat large quantities of its valuable water supplies in the reservoir, allowing Castle Rock to utilize its allocated space within Rueter-Hess for the storage of those classes of water (e.g., effluent and untreated surface water rights) which are currently permitted and do require treatment. United Water and Sanitation District No

32 Alternative Source of Water Supply Provider 4.0 Financing the Acquisition of Water Rights and Infrastructure 4.1 United s Experience in Public/Private Financing for Water Rights and Water Infrastructure Projects United Water and Sanitation District (United) is a quasi-municipal corporation and a political subdivision of the State of Colorado. United was created pursuant to Article 1 of Title 32 C.R.S. with a Service Plan that authorizes a statewide service area. The purpose of United is to acquire, construct, finance and maintain public water, sewer and storm drainage improvements for the use and benefit of the District s systems. United provides water resources and water infrastructure to cities, counties, special districts, water distribution companies, and agricultural users. United does not sell water to retail consumers. As a wholesale district for other water suppliers, United facilitates the acquisition, diversion, storage, carriage delivery, treatment, transmission, distribution and provision of water to public and private entities who voluntarily petition to join the system. Upon project completion, the end-user entities own not merely lease their water rights and water infrastructure. United has the authority to create separate governmental enterprises to finance public infrastructure for any capital costs within its Service Plan description on a project basis through the issuance of tax-exempt municipal bonds. To date United has financed over $100 million of infrastructure improvements and water through the issuance of bonds to be repaid from intergovernmental agreements with East Cherry Creek Valley Water and Sanitation District (ECCV), South Adams Water and Sanitation District, and Ravenna Metro District. United financings are conducted on a project basis with pledged revenues or other assets securing the bonds as the recourse for the bondholders. Additionally, United has sold water rights/supplies and constructed related water infrastructure improvements on a turn-key contractual basis with other major governmental enterprises, such as Arapahoe County Water and Wastewater Authority (ACWWA) and ECCV. United has the experience along with the financial and legal capability to serve as a conduit issuer of tax-exempt municipal bonds for water and sanitation projects. Project participants post assets or pledge revenues to repay the proposed bonded debt sufficiently to market the bonds to institutional investors at commercially established interest rates and underwriting costs. United has a successful eight year track record of issuing and selling bonds into the institutional credit markets for high-yield non-rated issuers United s Financial Statements The December 31, 2010 audited financial statement of UW&SD reports $179.4 million in assets with $107.0 million in liabilities to net $68.6 million in net assets. The year end 2009 financial statement reports net assets of $27.5 million. This growth in net assets results from a combination of enterprise debt being amortized and an increase in operating activities to include the sale of water rights/leases. UW&SD has entered into an Intergovernmental Agreement with Arapahoe County Water and Wastewater Authority as of December 15, 2009 to sell 4,400 acre feet of water (additionally the IGA provides for 880 acre feet of Excess Water Rights). The ACWWA engagement with United has contributed significantly to the Net Revenues of United by an estimated $40 million during The relative independent financial strength of United can be measured by the amount and rate of growth in their Net Assets. With current contracts the United net assets are expected to grow another $20 million during the 2011 calendar year. Further, United has entered into other Intergovernmental Agreements with ECCV, Ravenna and South Adams to supply water and infrastructure improvements. As debt is paid down from current revenues over the next decade, net assets of United will continue to grow, providing an independent source of financial strength for existing participants and any new users of the United utility system. United s audited financial statements can be found at United Water and Sanitation District No

33 Alternative Source of Water Supply Provider 4.2 Castle Rock s Financial Foundation and Capacity to Fund the Project The Town has the financing and financial capacity to fund this Project. Generally, United proposes that Castle Rock use its existing cash reserves and existing financing capacity to build the required infrastructure, and to use a portion of tap fees generated by future growth to acquire the bulk of the water resources sought by the Town. As of December 2010 the Town of Castle Rock Funds Available line within the Water Resource Fund exceeded $70 million, and had added $7.9 million to the reserves in 2010 alone. Castle Rock s current financing ability can construct all required infrastructure. Castle Rock s future water tap sales can fund all required water purchases. We understand that the Town may seek voter approval for financing of the project either in April 2012 or November While an April 2012 election is possible (albeit understandably difficult in a presidential election year), if the Town Council determines that deferral of the vote in the hope for an improved economy seems more likely for success, the Town may want to consider Water Enterprise Revenue Bonds that do not require a vote. Under any circumstance, with United as the Town s water supplier of choice, the Town enjoys the benefit of dealing with another Colorado local government that has experience in the use of Intergovernmental Agreements and methods for the acquisition of renewable water rights, cost-effective design, and timely construction and contracting services plus the ability to provide financing for the water acquisition component of the project. By our estimates, the Town has sufficient cash sources from Funds Available and debt capacity to fund all of the related infrastructure costs for this project plus the estimated $23.85 million in cash as a deposit toward the water acquisitions. The following Source and Use of Funds details our assumptions for infrastructure costs: Related Infrastructure Costs and Cash Deposit Toward Water Acquisition Source and Use of Funds (in millions) Assumed Source of Funds: Current Available Funds as of $70.00 Assumed Additions to Available funds Bonding Capacity without mill levy election Total Source of Funds $ Assumed Uses of Funds: Plum Creek Project (by Castle Rock) $30.00 ECCV Treatment Plant (8mgd) ECCV Northern Pipeline Capacity (additional, to 8 mgd) ECCV Pump Station Capacity (8 mgd) Smoky Hill to Chambers pipeline 9.25 Chambers to Castle Rock (Castle Rock estimate) Initial Water Deposit Total Uses of Funds $

34 Alternative Source of Water Supply Provider For the purposes of this Sources and Uses of Funds analysis, it is assumed that all of the 8 MGD capacity is built immediately. This capacity can be phased, to allow for matching of available resources. Since the reverse-osmosis treatment plant capacity will not be needed until after 2017, it may be bonded separately, or may be paid from cash reserves. It is also assumed that no northern area storage is being acquired at this time. Some storage may be acquired at a later date, or by scaling back the immediately constructed capacity of the water treatment infrastructure. 4.3 Financing Options for the Town s Water Related Infrastructure Construction The Town will want to first consider the utilization of cash Available Funds followed by the lowest cost borrowing tools available to finance the related Infrastructure costs for the project. The Town s water portfolio will generally be financed by future tap fees, allowing growth to pay its own way by funding the purchase of the Town s renewable water. The following is a summary of our estimate from the lowest cost to highest cost options available to the Town for the financing of related Infrastructure costs Financing Alternative #1: Infrastructure Construction With a Mill Levy Election The Town of Castle Rock has an underlying AA- rating from Moody s Investor Service and should be able to minimize its borrowing costs by issuing its own debt. The Town would achieve the lowest borrowing costs and maintain its AArating through the use of General Obligation Bonds where bond payments are made through the use of revenues and the mill levy merely serves as a contingency backstop. Our analysis of the Town s finances indicates that the water enterprises of the Town likely have sufficient annual surplus revenues (even without rate and growth assumptions) to avoid any call on the mill levy backstop. General obligation bonds with an AA rated issuer in today s market are be as low as 3.75% for a 30 year amortized bond. There are many financing alternatives that can be developed to meet the existing and future cash flow capacity of Castle Rock The goal of the financing alternatives was to allow the construction of all required infrastructure without a rate increase being required other than for operating cost inflation. Water rights can be funded by a percentage of future water tap collections (See Section 4.4). If the Town could successfully pass a voter authorized General Obligation Bond to finance the project, the advantages would be two-fold: (1) lower interest rates since the bonds would be AA rated, and (2) no interest rate penalty for assuming a slightly escalating debt service over the 30 year amortization. When assuming an annual increase in the debt amortization of 1% per year over the 30 years, the debt service grows from $4 million in the first year to $6 million by the final year, but this approach significantly increases the amount of debt that can be financed from the same beginning debt service. With these combined advantages the General Obligation Bond could raise $77 million in the capital markets today which is 11% greater than the traditional A rated utility revenue bond. (see Alternative #2 below) Another advantage of General Obligation Bonds is that the Town Council can give the electorate a choice in paying tax deductible higher mill levies offset with lower non-tax deductible water service fees. Even if all of the General Obligation Bonds were paid with mill levies, assuming a 1% annual escalation in the Town s Assessed valuation, the mill levy increase is only about 7.4 mills. United Water and Sanitation District No

35 Alternative Source of Water Supply Provider Financing Alternative #2: Infrastructure Construction Without a Mill Levy Election With Revenue Bonds. The Town of Castle Rock Water Enterprises, including both the Water Fund and the Water Resource Fund, generated operating surpluses of $7.9 million during the 2010 calendar year. United recognizes that there are likely needs for additional pay-as-you-go capital costs and expected operating increases as well as the necessary restructure of the $70 million COP Rueter Hess Reservoir financing by Using 2010 results, but assuming the long-term cost to amortize the COP financing rises to 4.75% annually, the estimated additional interest costs over current short-term borrowing rates is $2.3 million per year. After further deducts for additional capital and operations the Town s Water Enterprise Funds currently generate a minimum of an estimated $4 million per year available for debt service. If $4 million per year was utilized for debt service, the coverage after operations but before capital outlay is still an estimated two-time coverage which is ample to maintain at least an A+ rating for Utility Revenue Bonds secured only by the Water Enterprise Funds. In current markets A+ rated Utility Revenue Bonds can be financed at about 4.25% when amortized level over 30 years. This would raise about $69 million in the capital markets to fund the Town s Water Related Infrastructure Costs of the Project. In short, the Town could pay for a significant portion of its renewable water project without a mill levy election or utility rate increases through the use of its existing revenue streams. 4.4 Financing Options for the Town s Water Rights Acquisition By our estimates above the Town has sufficient resources to fund all the related infrastructure requirements and an estimated $23.85 million cash deposit for water acquisitions from existing cash and $69 million in Utility Revenue Bonds that do not require a vote. The Town of Castle Rock has experienced stable growth over the last ten years (see Table 7) and, as a major ex-urban center, is projected to experience an increase in population of about 36,000 over the next 12 years. Castle Rock has projected its growth over the next 12 years, as illustrated in Table 8 below. This projected growth approximates 833 households per year. Table 7: Water Tap Sales Water Taps Per Year Year Residential Commercial Total Table 8: Growth Projections , , , , , , , , United Water and Sanitation District No

36 Alternative Source of Water Supply Provider Recognizing that the Town may be hesitant to add a Town wide mill levy to finance the entire purchase of 6,000 acre feet of renewable water now, United is offering financing terms for the purchase of the water over time with access to the water at the outset as needed United is willing to enter into a phased purchase sale of 6,000 acre-feet of water on the following terms: Cash deposit of $23,850,000 which is calculated at $23,850 per acre foot of water (base price) for 1,000 acre feet. 55% of future tap sales are to be applied to the acquisition of water rights from year to year, subject to minimum annual purchases. It is anticipated that total water tap costs will escalate at approximately 4% per year. Minimum annual purchases of 150 acre feet up to 275 acre feet annually over the next 20 years to total an additional 5,000 acre feet at the base price per acre foot Accrued interest on water rights of 5.5% annually. Ownership interest of each acre foot purchased in years one through 20 transfers to the Town upon payment. Ownership interest in the initial 1,000 acre deposit transfers to the Town upon final payment All water acquired for the benefit of the Town of Castle Rock would be held in a separate enterprise, to be established by United, which would hold the water rights solely for the benefit of Castle Rock. The Town may purchase the balance of the option payments at any time and title to all remaining water will transfer to the Town, The Town may use the entire 6,000 acre feet of water rights immediately, upon approval of a substitute water supply plan. The attached Proposed Acquisition Schedule shows the annual payments and the remaining option balance that the Town may exercise at any time (see Appendix 3). The annual payments are structured to have minimal impact on the Water Enterprise cash flows in earlier years and increase by 2017 to give adequate time for the Town to consider and arrange other means of financing. The interest charge on un-purchased water, of 5.5% per annum, is included in the chart by means of the water price appreciation. These increases merely reflect the accrual of interest over the years, and does not reflect an increase in the price of the underlying water (for purposes of the model, tap sales were assumed to be only 450 taps in 2013, 550 taps in 2014, 700 taps in 2015, and 833 taps per year thereafter). It is anticipated that the Water Enterprise Fund should generate surpluses from water tap sales with new growth to fund the majority of the annual lease/purchase This phased purchase financing structure allows Castle Rock to payments. With the Town s purchase water in scalable amounts as development occurs. own projections that there will be a population growth of Although the purchases are phased, the use of the water is not phased. 36,000 people over the next All of it may be used at such time that Castle Rock deems appropriate. 12 years, significant additional By tying-up the water rights by United s advance purchase, Castle tap fee revenues (system Rock better insolates itself from unpredictable regulatory changes and development fees) will be price increases. generated over the same time period. This equates to 10,000 taps or an average of 833 new taps per year. At an average price of $25,000 per equivalent tap, there are gross revenues of $20 million per year going to the enterprise funds for System Development Fees, which is significantly more than the $6 million, reflected in the 2010 audit. The phased purchase agreement will provide an option to have the Town purchase the balance of the water assets at any time the Town can arrange financing at lower costs than the proposed escalating rate of 5.5% annually. United Water and Sanitation District No

37 Alternative Source of Water Supply Provider 5.0 Integration with Other Suppliers to Bring Renewable Water to Castle Rock 5.1 United s System Can be Integrated with the Denver/Aurora/ WISE System to Firm WISE s Interruptible Water Supply Although United believes that a portfolio of water rights owned by Castle Rock will provide the greatest long-term security for Castle Rock, the United delivery system can also be used to fill in holes of delivery that will be experienced if Castle Rock chooses to purchase interruptible water from the South Metro/WISE system. Under all projections of the WISE system, there will be years of significant interrupted or reduced water deliveries, as well as limited deliveries during summer months. The United facilities can be designed to provide firming water resources in both the summer months and during periods of limited deliveries from WISE (e.g., during droughts). If Castle Rock selects the Peak (Firm) Capacity option, it will have a certain amount of off-peak capacity that can be used to treat WISE water that would be of insufficient quality due to lack of mountain blending supplies. In addition, ECCV has noted that there may be several million gallons per day of additional peak (firm) capacity available. Castle Rock could potentially permanently avoid the inevitable and significant costs of constructing reverse osmosis facilities in the future when Denver and Aurora can no longer guarantee the blending sources. This stand by structure may require a more intensively managed storage plan, utilizing underground alluvial storage, in order to provide water resources to Castle Rock during the low delivery periods under the WISE proposal United s System Can Acquire Lost Creek Basin Water to Firm Supplies but at the Cost of Uncertainty of Using Designated Basin Water for Municipal Supplies. Although the use of designated basin groundwater may at first blush appear appealing, it deserves note that only one major municipal system has purchased or continued reliance on designated groundwater for its citizens because of uncertainties and risks associated with curtailment of such water by senior water appropriators. United is aware of only one major municipal provider that has acquired designated groundwater for a municipal system SACWSD in South Adams has subsequently expressed significant concerns about the curtailment issue, and has indicated it has no interest in acquiring further water from the Lost Creek Basin. The bonds issued by the PV Metro District to support the transaction are now in default. Designated groundwater In 2010, changes were made to the designated groundwater statute that basins were defined by the limited the right of senior appropriators to seek de-designation of the basin. legislature in mid-century to The 2010 legislation did not limit the right of a senior appropriator to seek allow the pumping of wells curtailment of pumping within a designated basin to protect vested water in remote areas that had rights. apparently limited connection to the rivers of the state. These basins were defined by legislative declaration for sometimes political purposes, and are not part of Colorado s adjudicated water rights system. Since decreed senior water rights are a real property interest in Colorado, the legislature had to take care that the creation of this legislatively-declared type of water did not harm senior water rights. To that end, the legislation provided that senior water appropriators under the state s prior appropriation system could petition the water court to have pumping curtailed (reduced) from designated water basins in order to prevent harm to their adjudicated water rights. In other words, any senior appropriator (or series of senior appropriators) can take the holders of designated groundwater basin water to court at any time in an effort to show that pumping from the designated basin has adversely affected his appropriated water rights. United Water and Sanitation District No

38 Alternative Source of Water Supply Provider Over the last 50 years the science of hydrology has become far more sophisticated, and mass balance models of water have been developed using modern computing power that can clearly model the effect of pumping on a connected hydrologic system. Additionally, the value of water rights has risen from a few hundred dollars per acre foot, to current values. These two factors better science and higher values have resulted in municipal water systems concluding that water from designated groundwater basins represents an unacceptable risk to a municipal water supply. If the court finds that pumping from the basin has, in fact, reduced the senior appropriators rights, then the court must curtail pumping from the pumping. Since any senior appropriator s rights are unique, the process can be repeated over and over again, incrementally reducing the amount of water available for pumping from the basin and increasing litigation costs. If, notwithstanding the uncertainties associated with acquiring designated groundwater for a municipal system, Castle Rock decides that part of its portfolio should be comprised of Lost Creek designated basin groundwater, United has The Lost Creek basin derives a material amount of the water within the basin from the leakage out of the Henrylyn canal system. Should the Henrylyn system line its canals, or otherwise modify its operations to reduce leakage, the total quantity of water within the designated basin will be reduced. This reduction will have the greatest affect on those wells which have historically relied on the Henrylyn leakage as part of their supply. been advised by its acquisition team that a supplemental portion of the water supply can be incorporated into the United portfolio. Based on contract proposals from owners of farms in the Lost Creek basin, it is estimated that Lost Creek designated basin groundwater can be added to the United portfolio for the benefit of Castle Rock at a cost of approximately $15,000 per acre foot. United Water and Sanitation District No

39 Alternative Source of Water Supply Provider 6.0 Conclusion United and the Town of Castle Rock can bring cost-effective renewable water to the Town s citizens by the following actions: Acquiring, rather than leasing, 6,000 acre feet of renewable water rights. Acquiring a diversified portfolio of renewable water rights that is resistant to fluctuations in water availability due to drought or competition in a specific geographic area. Providing certainty of cost and financing by acquiring 6,000 acre feet of renewable water within the next four years. Providing financing mechanisms by which Castle Rock can purchase and own its own renewable water rights and infrastructure without unduly burdening its citizens. Providing cost-effective solutions to the construction of infrastructure to bring renewable water to Castle Rock at a fixed competitive cost. Using existing templates successfully utilized by other United team-members for the acquisition, adjudication, and operation of the Castle Rock system. United looks forward to working with Castle Rock in the development of its renewable water solutions for the twenty-first century. Please do not hesitate to contact us should you have any questions or if we can be of any assistance. Bob Lembke President United Water and Sanitation District Ron vonlembke Chief of Staff United Water and Sanitation District Drew Damiano Project Manager United Water and Sanitation District Josh Shipman Asset Manager United Water and Sanitation District United Water and Sanitation District No

40 Appendix 1

41 Acquisitions of Senior Water Rights on South Platte River $100,000, $90,000, $87,777, (3) $80,000, $70,000, $60,000, $50,000, $43,811, (2) $40,000, $30,000, $20,000, $10,000, $0.00 $0.00 (1) City of Denver City of Aurora United Water & Sanitation District (1) Denver Water Legal Division, Nov 30, 2010 (2) Aurora City Council Regular Meeting Minutes (January 1, 2004 November 1, 2010) (3) United Water Purchases and Sale Contracts (January 1, 2004 November 1, 2010)

42 Appendix 2

43

44

45

46

47

48

49

50

51

52

53

54

55

56

57 Appendix 3

58 TOWN of CASTLE ROCK, COLORADO Renewable Water Acquisition from United Proposed Acquisition Schedule including Interest Acre Feet Price/Ac Ft Accrued Price with Annual Remaining Remaining Year Purchased 5.5% 5.5% Interest Payment Acre Feet Option Balance ,000 $ 23,850 $ $ 23,850 $ 23,850,000 5,000 $ 119,250, ,850 1,312 25,162 3,774,263 4, ,034, ,850 2,696 26,546 3,981,847 4, ,764, ,850 4,156 28,006 4,200,849 4, ,425, ,850 5,696 29,546 5,909,194 4, ,524, ,850 7,321 31,171 7,792,749 4, ,801, ,850 9,035 32,885 8,221,350 3, ,608, ,850 10,844 34,694 9,540,877 3, ,031, ,850 12,752 36,602 10,065,625 3, ,787, ,850 14,765 38,615 10,619,235 3, ,811, ,850 16,889 40,739 11,203,292 2, ,032, ,850 19,130 42,980 11,819,474 2, ,375, ,850 21,494 45,344 12,469,545 2,200 99,756, ,850 23,988 47,838 13,155,370 1,925 92,087, ,850 26,619 50,469 13,878,915 1,650 83,273, ,850 29,395 53,245 14,642,255 1,375 73,211, ,850 32,323 56,173 15,447,579 1,100 61,790, ,850 35,413 59,263 16,297, ,891, ,850 38,672 62,522 17,193, ,387, ,850 42,111 65,961 18,139, ,139, ,850 45,739 69,589 19,136,842

59 Appendix 4

60

61

62

63 Appendix 5

64 Annual Costs by Year for WISE and Standalone

65 Appendix 6

66

67

68