Headwaters Summer 2016: Accounting for Water {The Economics Issue}

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Accounting for Water {THE ECONOMICS ISSUE}

CFWE

Mission in Motion

DEFINING VALUES

On Tour with CFWE This summer, CFWE led three diverse groups on interactive tours, visiting exclusive sites for fun-filled learning blended with valuable networking.

In early June, we biked along Bear Creek, southwest of Denver, with two groups totaling about 70 cyclists. We explored water quality improvement projects, recreation, watershed planning, education and stewardship. Later that month, we filled a bus with decision makers, dedicated professionals and interested citizens for a two-day Gunnison Basin Tour. The tour highlighted local agricultural production, water efficiency, soil health improvement, the Regional Conservation Partnership Program, and more. During all three tours, participants took an in-depth look at numerous water resources issues, hearing multiple perspectives, experiencing different parts of the state, and coming together to discuss and share—ultimately advancing the water conversation.

Urban Waters Bike Tour participants stopped for site visits along Bear Creek in June 2016.

GROWING CAPACITY

INCREASING AWARENESS

Water Educators Unite with Upcoming Offerings

Next Webinar: Water Economics

CFWE’s Water Educator Network (WEN) has taken off full steam ahead, thanks to a boost from financial supporter CoBank in 2016 to increase the network’s rural statewide reach. We’ve been growing, offering new workshops and trainings, and bringing experts from far and wide to inspire water educators across the state and to create greater collective impact. Offerings include Project WET facilitator workshops, stormwater education workshops, and the upcoming Water Festival Coordinator Workshop on September 19.

You can also join the WEN on October 11 for a ThinkWater Colorado workshop in Avon before the Sustaining Colorado’s Watershed Conference. The next big thing in water education ISN’T water… it’s thinking. Visit our website to learn more about this upcoming workshop which is part of

Do you know how much it is going to cost Colorado to both ensure a stable water supply and protect our water resources?

Do you wonder how we’re going to pay for it? Find out from the experts during our next webinar on the Economics of Water on August 16 at 12 p.m. Mountain Time.

Tune in from the comfort of your home or office as we explore and expand upon topics covered in this issue of Headwaters.

Part of CFWE’s commitment to providing varied opportunities for our audiences to learn about water and consider diverse perspectives, this webinar will be brought to you in partnership with the Colorado Water Congress and with financial support from the Colorado Water Conservation Board and CoBank.

Register starting in late July at www. yourwatercolorado.org.

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Speakers model place-based learning during a CFWE tour of the Colorado Basin.

a national project sponsored by the USDA and designed by educators, scientists and activists in partnership with the University of Wisconsin Extension to add thinking skills and awareness to existing water education, outreach, and lessons. Visit www.yourwatercolorado.org/water-educator-network.

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CREATING KNOWLEDGE

2016 Sustaining Colorado Watersheds Conference October 11–13, 2016 Avon, CO

“A River Runs Out of It: Building Strong Upstream Communities” CFWE's annual conference, brought to you in partnership with the Colorado Riparian Association and Colorado Watershed Assembly, expands cooperation and collaboration throughout Colorado in natural resource conservation, protection, and enhancement by informing participants about new issues and innovative projects and through invaluable networking.

In 2016, the conference will focus on what is needed to help ensure long-term sustainability for river health, public education, and organizational management.

Register at www.coloradowater.org/scw-conference-2016

New Updated Conservation Guide CFWE’s updated Citizen’s Guide to Colorado Water Conservation is now available and promises to be a valuable resource for any interested citizen, student, community or business leader, or water manager looking to understand the role of water conservation and efficiency in Colorado. This comprehensive guide: • Makes the case for conservation in the context of Colorado’s current and future water supply and demand imbalance

• Reviews conservation achievements to date • Covers current technologies and best management practices • Explores future opportunities and challenges in water conservation and efficiency for every sector

ORDER YOURS TODAY AT

www.yourwatercolorado.org.

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I "I don’t think there is a good substitute for seeing things on the ground and having key players discuss the issues.”

—Tour participant

​"​For me being new to the industry​,​the entire course was a great introduction to both policy and infrastructure​."

—Water Fluency participant​

"The training and relationships will help us come together to tackle these problems in the future."

—Water Leaders participant

n the last two months, I’ve had the pleasure of meeting with CFWE supporters and attending our programs from the San Luis Valley to Grand County, Bear Creek west of Denver, and the Gunnison Basin. In the next two months I’ll be visiting Vail, the Roaring Fork Valley, and Steamboat Springs. I know, it’s a tough job.

As Colorado’s premiere water education organization, our mission is to gather diverse perspectives to advance the conversation about water. CFWE’s publications are, in my opinion, among the best water resource information sources in the western United States. They are an important way we educate residents of Colorado (and beyond) and tell the stories of water. But it’s our inperson events where we create passion for the topic, challenge conventional wisdom with diverse viewpoints, and strengthen Colorado’s water management networks.

On our Gunnison Basin tour in June, less than 20 percent of attendees were locals. Professionals from Colorado Springs, Pueblo, Denver and Durango learned how the area is working to increase the efficiency and sustainability of its water resources for agricultural, environmental and recreational uses. Our multi-day and one-day tours expose water professionals and policy makers to challenges and creative solutions that are finding success across the state.

The Water Fluency course, a water boot camp consisting of lectures, tours and reading assignments, gives non-water professionals insight into the language, culture and institutions of water. It helps define the clear intersections between the work of city and county government and water management. It empowers local leaders to more comfortably ask questions and talk to their constituents about water.

Our Water Leaders program develops the next generation of leadership through expanding professional networks and by coaching class members on techniques to collaboratively solve management challenges. We believe in the importance of good leadership to the future of our state’s water management profession, and with more than 100 alumni—many of whom are in positions of influence and leadership—the program is a strong network of our state’s best and brightest.

The above programs are the backbone of how CFWE engages water professionals, decision makers and educators in Colorado and builds a constituency of supporters.

None of this would be possible without the sound guidance of our Board, the financial support of our members, and the hard-working commitment of our staff.

I truly believe that together we have built one of the best water education organizations in the country, and I look forward to seeing what the future brings.

CFWE Executive Director Nicole Seltzer (red dress) celebrates with guests at the 2016 President's Award reception.

Wishing you all a wonderful summer full of exploration and long, fun-filled days.

Executive Director

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ECONOMICS OF WATER SUMMER 2016 WATER IS… BUSINESS • 14

Bottom lines are just one reason Colorado companies are paying close attention to water in the marketplace.

TECHNOLOGY • 16

Innovating the way to sustainable water solutions, one idea at a time.

COLUMNS CURRENTS • 4

Notes from the Director WATERMARKS • 7

FEATURES

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18 20

Notes from the Editor

27 35

2016 President’s and Emerging Leader Awards CFWE's biggest night yet in celebration of water and in tribute to its stewards.

BY JUSTICE GREG HOBBS

Special Feature: Colorado’s Water Plan It’s go time for the new state plan. Part two in a three-part series dedicated to its measurable outcomes looks at what’s ahead.

BY NELSON HARVEY

A Price for the Priceless Estimating water’s true cost—and the value it brings—through rate setting, markets and valuation methods that attach numbers to an indispensable good.

BY NELSON HARVEY

Paying for What’s Ahead Colorado gets an eye-opening and wallet-busting look at what’s coming due for water in the next decades.

BY CAITLIN COLEMAN

Linking Up Rethinking disparate systems and building bridges to overcome water supply and treatment barriers, financial and otherwise.

BY JERD SMITH

ABOVE: Guests mingle at CFWE's 2016 President's Award Reception. Photograph by Theo Stroomer.

COVER IMAGE: Adobe Stock

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O U R CO N T R I B U T O R S

Nelson Harvey is a freelance reporter and editor based in Denver. He has written for Modern Farmer, High Country News and many other publications. He also works as a private investigator for the Kass Research Group. Nelson has always been fascinated with valuing the environment in economic terms, and so was thrilled to write about the economics of water for this issue (“A Price for the Priceless,” page 20). He came away with a keener understanding of those values that water's price fails to reflect, but also in awe of how flexible and effective Colorado water markets—and water laws—have been. See more of his work at nelsonharvey.com.

Jerd Smith is a Colorado-based writer and editor with a special interest in water and conservation issues, which she’s been covering for 14 years. In writing about communities connecting through regional water projects (“Linking Up,” page 35), she quickly realized that geography, politics and cash play a major role in whether regionalization can work. “For some communities, partnering with one another to share pipelines, reservoirs and water makes financial sense,” says Smith. “But for others, great distances and political conflicts make it a tough sell."

Colorado Foundation for Water Education Nicole Seltzer Executive Director Kristin Maharg Director of Programs Jennie Geurts Director of Operations Jayla Poppleton Headwaters Senior Editor and Content Program Manager Caitlin Coleman Headwaters Associate Editor and Communications Specialist

Josh Chetwynd is a Denver-based journalist and author. He has worked as a staff reporter for USA Today and U.S. News & World Report, and has written for other publications including The Wall Street Journal. His most recent effort, "The Field Guide to Sports Metaphors," was released May 2016. In writing on the intersection of Colorado business interests and water (“Taking Care of Business,” page 14), he says: "The economic imperative is always at the forefront of any CEO's mind, but my reporting made clear that there's a broad understanding among industry leaders that a sensitive approach to water must be a part of any winning business equation.”

Charles Chamberlin Headwaters Graphic Designer

Andrew Kenney is a journalist with Denverite, a new Colorado publication, and formerly for The (Raleigh) News & Observer. He likes water because it’s a necessity, and from necessity springs everything else—including invention. For this issue, he wrote about Emily Morris (“Pioneering Water Tech,” page 16) and the rest of the Emrgy Hydro team’s bet that the water pressure in our pipes is a renewable energy source waiting to be tapped. He hopes they’re right. Find him at andykenney.com.

Gregory J. Hobbs, Jr. Vice President

Greg Hobbs is the author of six books centering on water law, history, culture and poetry. Since the founding of CFWE in October 2002, he has served as chair of its publications committee.

He particularly enjoys writing the yearly Headwaters articles featuring outstanding Colorado water education leaders, such as Governor John Hickenlooper and San Luis water manager Heather Dutton (“2016 President’s and Emerging Leader Awards,” page 9).

Theo Stroomer is an editorial and commercial photographer based in Denver. His work explores the nature of community and regional identity, particularly in the American West. His photographs appear throughout this issue (“2016 President’s Award,” page 9, and “Paying for What’s Ahead,” page 27). More of his work can be found at www.theostroomer.com.

BOARD OF DIRECTORS

Eric Hecox President

Scott Lorenz Secretary Alan Matlosz Treasurer Gregg Ten Eyck Past President Nick Colglazier Lisa Darling James Eklund Steve Fearn Greg Johnson Dan Luecke Kevin McBride

1750 Humboldt Suite 200 Denver, CO 80218 303-377-4433 • yourwatercolorado.org THE MISSION of the Colorado Foundation for Water Education is to promote increased understanding of water resource issues so Coloradans can make informed decisions. CFWE is a non-advocacy organization committed to providing educational opportunities that consider diverse perspectives and facilitate dialogue in order to advance the conversation.

HEADWATERS magazine is published three times each year by the Colorado

Trina McGuire-Collier Reed Morris Lauren Ris Sen. Jerry Sonnenberg Andrew Todd

Foundation for Water Education. Its goals are to raise awareness of current water

Chris Treese

issues, and to provide opportunities for engagement and further learning.

Rep. Ed Vigil

THANK YOU to all who assisted in the development of this issue. Headwaters’ reputation for balance

Reagan Waskom

and accuracy in reporting is achieved through rigorous consultation with experts and an extensive peer review process, helping to make it Colorado’s leading publication on water.

Copyright 2016 by the Colorado Foundation for Water Education. ISSN: 1546-0584 6

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TEN THINGS TO DO IN THIS ISSUE:

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with experts during our 1 Interact Water Economics webinar August

16 and Sustaining Colorado Watersheds Conference Oct. 11–13.

PAGES 2–3

efficient by ordering your copy 2 Get of CFWE’s new Citizen’s Guide to Water Conservation.

PAGE 3

3 Celebrate CFWE’s 2016 awardees: Gov. John Hickenlooper for our Diane Hoppe Leadership Award, and Heather Dutton for the Emerging Leader Award.

PAGES 9–11

up with the latest in water 4 Keep

technology.

PAGE 17

responsibility for next steps in 5 Take Colorado’s Water Plan with regard to new storage and funding.

PAGES 18–19

water and find tools to 6 Appraise communicate the importance of this priceless resource.

PAGE 24

7 Delineate funding needs as identified by Colorado’s Water Plan for each of the state’s eight river basins.

PAGE 33

ways for philanthropy 8 Explore to play a more fundamental role in Colorado’s sustainable water future.

PAGE 34

9 Assess the impact on Water Supply Reserve Account grants resulting from severance tax refunds in coming years.

10 Unite and collaborate by taking a

holistic “One Water” view of water.

PAGE 38

BRETT ELLISON

PAGE 34

n our information age, people expect constant connection to a world of answers. We watch real-time changes—to our investments, to the weather, to news and social media—all on our smart phones. But Googling doesn’t often reveal accessible data to demonstrate the need for water improvements (or how those are relevant to you, your job, your family, or your future). And no online search will arm you with the problem-solving skills or creative thinking and emotional intelligence required to advance Colorado’s water conversation around how to pay for the necessary water projects ahead.

In this issue of Headwaters, we acknowledge the necessity of water for business, for production, for the environment, for life; we look at the value of water for all things and witness this great call to finance a future where we have the water we need. It’s all imperative: The economics, financing, and value of water are basic societal building blocks. But, despite a brilliant and dedicated community committed to water in our state, some question whether lack of water data is standing in the way of investment in the resource.

“I believe if we’re going to fuel greater investment from other stakeholders outside of the water sector, we need to make sure that they have the data that informs whether it’s a good investment or not,” says Will Sarni with Deloitte Consulting. Are we missing an opportunity by not backing up our claims of need and making that information available to all?

Others aren’t harping on data, but have honed in on the need for better storytelling to stoke philanthropic investment and reach beyond the traditional waterinterested supporters. (See “Paying for What’s Ahead,” page 27.) Still others have identified the need for education to help all understand the state’s legal and historical framework, and the need for continued creative thinking to make the value of water shine anew and flexibly work within the construct of existing water rights systems. (See “A Price for the Priceless,” page 20.) Finally, examples abound, from water markets to regional partnerships, where linking up and sharing assets enable some smaller special districts and municipalities to thrive in funding scenarios that wouldn’t have flown by going solo. (See “Linking Up,” page 35.)

This issue explores different approaches to valuation and funding in Colorado, while others are working nationally. The Water Now Alliance, for example, is pursuing a policy guidance document it hopes will remove some of the inhibitions associated with spending a utility’s capital budget more flexibly. Rather than issuing loans and bonds strictly for traditional infrastructure like pipes and water treatment systems, for example, funding could also be spent in new and resilient ways on green infrastructure like rain gardens or bioswales that would slow the flow of stormwater and improve water quality.

The subject of valuing and financing water improvements is especially timely in Colorado, given our state’s recently adopted water plan. The fundamental, ongoing question of how to fund water solutions, as well as communicating the need for doing so, is a local and statewide priority. We hope to help Coloradans make informed water decisions, and that requires examining water through a wider lens in order to recognize its relevance amid a multitude of public policy challenges.

As you page through this issue, consider wider access to and involvement in the water needs and values that many of us internalize. It’s water for all facets of Colorado’s business, environment, and way of life.

Caitlin Colema� Associate Editor

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Denver, CO | Round Rock, TX | (303) 455-9589

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LREwater.com |

@LREWater

Public Works Natural Resources We deliver best fit solutions and responsive services for all your water resources planning, water rights and water quality needs in Western Colorado

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Quality, Sustainability and Reliability

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A good time was had by all at Colorado water’s premiere annual event, where CFWE board president Eric Hecox (far right) and executive director Nicole Seltzer (second from right) presented awards to Governor John Hickenlooper (far left) and San Luis Valley Water Conservancy District manager Heather Dutton (second from left) in honor of their leadership.

2016 PRESIDENT’S AWARD To celebrate the great men and women of Colorado water, the Colorado Foundation for Water Education annually recognizes two exemplary leaders who demonstrate above-and-beyond commitment to water resources stewardship and education.

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This year, CFWE has renamed its President’s Award as the Diane Hoppe Leadership Award to honor the late Diane Hoppe, CFWE’s founding president and previous President’s Award recipient. In 2016, we are proud to recognize Governor John Hickenlooper with this award for lifetime achievement in water education and Heather Dutton of the San Luis Valley Water Conservation District with the Emerging Leader Award. The awards were presented during CFWE’s annual reception on May 20 at the Space Gallery in Denver.

THEO STROOMER

CFWE WOULD LIKE TO THANK THESE GOLD LEVEL SPONSORS…

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Colorado’s Water Governor John Hickenlooper Diane Hoppe Leadership Award Honoree

By Justice Greg Hobbs

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began my interview with Governor John Hickenlooper in his office at our state’s capitol building by suggesting he’d become our “Water Governor.” I brought along a copy of the Winter 2016 issue of Headwaters magazine, The Collaborative Alchemy Around Water Today. Its content features the tone he has helped set around the water courses of our state’s future.

I mentioned his 2012 “Year of Water” proclamation kicking off water education events throughout Colorado; his 2013 proclamation calling on the Colorado Water Conservation Board to coordinate preparation of a statewide water plan; and the November 2015 History Museum celebration where he toasted the hard work of the CWCB and the nine Basin Roundtables, recognizing also the Colorado General Assembly for its leadership role in passing the Water for the 21st Century Act in 2005.

He quickly steered me to the second week of his moving to Colorado in 1981, when he rafted the Arkansas River through Brown’s Canyon. “I discovered water in the West is more like poetry than prose. In the East, huge flows blunt everything. It’s more nuanced out here, like fly fishing.” He’s fascinated with how rivers became transportation corridors for settlement. He thinks state agencies work better if they relate well to the river basins they work in. He’s a reader, a thinker, and a conversationalist.

Born in Narberth, Pennsylvania, a suburb of Philadelphia, he majored in English at Wesleyan University and completed his Master’s degree in geology there in 1980.

He worked as a geologist for Buckhorn Petroleum in the early 1980s, then, when the oil industry buckled, co-founded the Wynkoop Brewing Company near Denver’s old Union Station, participating in the remarkable remake of the lower downtown (LoDo) district centered around baseball’s Coors Field.

As a businessman, two-term mayor of Denver, and now in his second term as governor, he’s learned that “water affects people and enlightened self-interest” often leads to resolution. “The harder you

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listen the more you realize fights are often about things that aren’t really that important. When you hear others talk about their problems you find ‘I can fix that.’”

The terrible drought year of 2003 was his first as Denver’s mayor. While campaigning he’d heard some old-line civic leaders boasting the city could stand on its senior water rights, while Aurora and Douglas County had to cope with their less certain junior rights. But the self-interest of neighboring cities and counties were already aligned with each other and “establishing a context for relationships” was paramount.

None can afford to have any other “run out of water.” His new appointees to the Denver Water Board, working with manager Chips Barry, relied less on Denver’s “cushion” and more on building cooperative relationships along the Front Range and across the Divide. Meanwhile, Denver residents cut their water use by 20 percent over a fiveyear period from 2003 to 2008.

As Colorado’s Water Plan was taking shape, the governor traveled throughout the state as Colorado experienced drought,

fire and flood in rapid succession. I recall, in particular, a meeting in Fort Collins where he talked with northern Colorado Chamber of Commerce members about the expected doubling of our state’s population by the year 2050. Drawing on his experience as a businessman and municipal leader, he pointed to conservation, collaborative water projects, and environmental measures as essential to meeting Colorado’s future water needs.

The governor holds a deep regard for farmers and ranchers. “Preserving the long-term asset that is Colorado,” he says, requires protecting the quality of life on farms and ranches as well as in cities—and the streams for rafting and fishing. “It’s part of Colorado’s code of ethics. It’s not our water. It’s Colorado’s water.”

As I left his office, our Water Governor reminded me he learned to work water in the brewery business. His purchase of the old Silver State Cleaners & Laundry property included a water well. Colorado’s water alchemy is a collaborative partnership he leads well personally and enthusiastically.n

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Water Manager and Restoration Specialist Heather Dutton Emerging Leader Award Honoree

By Justice Greg Hobbs

THEO STROOMER (2)

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eather Dutton, the newest manager of the San Luis Valley Water Conservancy District, glories in the heritage of the Rio Grande River. She’s a fifth-generation daughter of the Valley’s farming and ranching community; her father, Doug, farms in the center of the Valley. A 2008 graduate of Colorado State University, she doublemajored in rangeland ecology and natural resources management, adding a Master’s of Science in agriculture in December 2010.

She’s also a student of the river and those who work and love the waters and the land.

“Right out of school, I had the good fortune of landing a job with the Rio Grande Headwaters Restoration Project.” Sandwiched between older brother Cory and younger brother Chris, she had to learn “how to take stuff apart and put it back together.”

“The river’s like that, too,” she says. “It’s a big hydraulic system. Years of alteration, eroding stream banks, loss of anchoring vegetation, and putting stuff in the river took it apart. Restoration is about putting it back together.”

Land and water right owners up and down the Rio Grande care about the river’s health because erosion capsizes stream banks, resulting in property loss and damage to diversion structures and critical habitat for threatened or endangered bird species, such as the willow flycatcher and the yellow-billed cuckoo. Increased sedimentation interferes with operation of local water rights and the delivery of water necessary to meet Rio Grande Compact obligations.

The San Luis Valley Water Conservancy District itself is sandwiched between the Rio Grande’s headwaters in the towering San Juan Mountains and senior surface water right owners on the Valley floor impacted by water well pumping north of the river, where much of the best of the Valley’s cropland exists. The District’s job under former manager Mike Gibson, and now Heather, includes shepherding well augmentation water from the Rio Grande Reservoir above Creede into the river to support agricultural, domestic, municipal and commercial uses in the Valley’s heartlands in cooperation with the Rio Grande Water Conservation District.

She sees her San Luis district board members as “big thinkers” who are highly motivated to cooperate with anyone who cares about the river and the Valley’s economy and environment. A remarkable alliance of governmental and nonprofit organizations and private property owners have united in the common interest of preserving the Rio Grande’s multiple land, water, wildlife and recreational functions. This includes the work of the Rio Grande Basin Roundtable and the Colorado Water Conservation Board as part of Colorado’s Water Plan, as well as its open space heritage fostered by the Rio Grande Headwaters Land Trust’s conservation easement program. “Engaging in hard conversations with mutual respect comes with the territory,” she says.

In this milieu she thrives at work and play.

“Luckily, I married a very adventurous guy, so we spend our weekends in the backcountry snowmobiling, skiing, backpacking, dirt biking, and camping.” Her husband, Tanner, is a range management specialist for the U.S. Forest Service’s sheep and cattle grazing program based out of Del Norte.

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Heather credits her mother, Julie Messick, as being “the person behind the scenes, keeping the family going!” She is also grateful to Travis Smith, Mike Gibson, and Steve Vandiver for “raising her up” in her career.

… AND OUR OTHER SPONSORS WHO HELPED MAKE THIS EVENT POSSIBLE: Aurora Water, Black and Veatch, Colorado Water Conservation Board, Colorado Water Trust, Ducks Unlimited, Forsgren Associates, George K. Baum and Company, Guaranty Bank and Trust, HDR Engineering, Kogovsek and Associates, Leonard Rice Engineering, Mallon Lonquist Morris and Watrous, Miller Coors, Odell Brewing Company, Porzak Browning and Bushong LLP, Pueblo Board of Water Works, Reagan Waskom, South Metro Water Supply Authority, Spencer Fane Law, Upper Yampa Water Conservancy District, Vranesh and Raisch, Western Summit, West Sage Water Consultants, White and Jankowski, Wilson Water Group, Wright Water Engineers n 11

Business > Technology

WATER IS RESOURCES Colorado Parks and Wildlife staff searched painstakingly for fish on a stretch of the Big Thompson River near Drake one year after the September 2013 flood, only to find it had been rendered virtually sterile, mostly due to road construction undertaken hastily—and out of necessity—in the flood’s aftermath. Significant, ongoing investments of both time and money will be needed to restore this river stretch and others around the state, whether impacted by floods, housing development or water diversions, in coming decades.

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V. RICHARD HARO/FORT COLLINS COLORADOAN

Water is Business

Taking Care of Business For Colorado businesses, water stewardship and risk management is a matter of accountability—and the bottom line.

BY JOSH CHETWYND

Y

ou don’t need an MBA to know Colorado businesses have a math problem when it comes to water. Business Insider named the state the fastest-growing economy in the nation just two years ago. At the same time, water resources to support those businesses—and the accompanying workforce—are finite, and companies are increasingly taking water risk into account.

“Water isn’t someone else’s problem to solve,” says Denver Metro Chamber of Commerce president and CEO Kelly Brough. “We have to commit ourselves to changing behavior. And as a business community we can, and should, be the ones to lead on this.”

In 2013, the Denver chamber named water one of its five priority issues (alongside education, energy, transportation, and engaging independent voters) and has no plans to take it off that list. As part of a multi-pronged approach in support of that commitment, the state’s industry leaders have a long-standing policy of discouraging companies with hefty water consumption requirements to settle in Colorado.

For example, a few years ago, a large television maker with a water-intensive manufacturing process wanted to come to the state but was dissuaded by business leaders, according to Metro Denver Economic Development Corporation CEO Tom Clark. They were “highly consumptive and we were honest with them,” Clark says. “You’d be here 10 years and then [you] would go away.”

For the rank-and-file, the focus has been on education. In 2014, chambers of commerce throughout the state held briefings

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in locations around the state for members discussing the essential economic impact of water. These events featured economists providing overviews on numerous water-related issues, including drought conditions and Colorado’s Water Plan. In 2015, the Denver chamber followed up with a “State of Water” summit that attracted a group of about 200 from the business and water communities to discuss the state’s water policies.

While leaders are looking to rally the troops on water, there are many businesses within the state that have already gotten the memo. They’re paying attention to water because it makes economic sense to do so.

Kelly Bennett is a managing partner of Ponderosa Advisors, which runs Water Sage, an online tool that helps companies identify available water rights in Colorado and elsewhere. Bennett’s business is growing, and he believes the increasing interest in water rights “highlights a recognition that in a place like the Front Range there is a growing number of users for a finite resource.” This combination means stakeholders are increasingly keen to understand the legal process of securing and maintaining water rights, and, notes Bennett, there is also an economic imperative to be good stewards.

This economic importance of water isn’t limited to companies seeking to control their water destiny. Even businesses that rely on municipal water providers recognize the financial upside of smart water use. “Businesses are interested in being water efficient because it is good for their bottom line,” says Denver Water manager of conservation Jeff Tejral. “Direct eco-

nomic value and return on investment has been a large consideration with every business we have worked with.”

While business and industry take about 11 billion gallons of the overall 48 billion gallons of retail treated water delivered annually to Denver Water customers, total use by this sector has been trending downward in recent years. To advance this trend, Tejral’s group has provided technical assistance for

floo-uhnt water fact

The “triple bottom line” is an accounting framework that looks beyond a company’s earnings and instead evaluates social, environmental and financial stability.

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DELIA PALMISANO/BLUE HOUSE PHOTOGRAPHY

Denver Metro Chamber of Commerce president and CEO Kelly Brough issued a call to action to the Colorado business community at the first annual State of Water event hosted by the Denver chamber in late 2015, saying, “Water isn’t someone else’s problem to solve…we can, and should, be the ones to lead on this.”

commercial customers looking to reduce water use, working with companies ranging from building owners looking to make their cooling towers more efficient to a restaurant chain that wanted to audit its water consumption. For the restaurants, it turned out a major culprit was overuse in the cleaning process. As a result, the company devised new techniques to cut its water bill while maintaining sanitary conditions.

For many Colorado companies the bank ledger isn’t the only motivating factor when it comes to water. Take MillerCoors. Clearly, the brewing company, which employs 2,000 people in the state, has a vested interest in water quality and availability as it relates to its product. But it’s making investments that stretch beyond simply pro

tecting its own water sources. For example, taking a watershed approach, in 2014 MillerCoors teamed up with PepsiCo and the Wells Fargo Foundation to contribute $1 million to The Nature Conservancy’s work restoring healthy Front Range forests in order to lessen the threat of fire danger and ensure clean, sustainable water sources for Denver and neighboring communities. The brewer has also provided funding for a water quality management program at Emily Griffith Technical College in Denver.

It’s that sort of ethos that continues to draw water-conscious companies to the state. For instance, CH2M, a global engineering firm known for its innovative work in the water space, moved to Colorado in the early 1980s. Along with Colorado’s cenH E A DWAT E R S | SUMM E R 2016

tral location and robust economy, the company values the state’s general approach toward water stewardship.

“Colorado water utilities are among some of the most forward thinking and innovative in the country in regard to how they view conservation, technology and design,” says Scott Ingvoldstad, CH2M’s Colorado area manager and vice president of government relations. “As a company it’s exciting to work with these types of organizations, and for our staff it keeps them engaged to find more cutting-edge approaches to our water challenges.”

Even so, stress points are bound to materialize. Consider the newly emerging cannabis industry. John-Paul Maxfield, co-founder of the Organic Cannabis Association, says honing in on water issues is still a work in progress. He believes growers are water aware—and marijuana cultivation has proved far less water intensive than some other sectors such as garden nurseries and breweries—but says that, for the most part, cannabis cultivators are more focused on what they need to do to stay in compliance with so many other regulations.

Brough remains optimistic that the business community as a whole will continue to take the necessary steps to protect water resources. After all, beyond whatever people do professionally, water plays such a huge role in attracting people and employers to Colorado.

“The workforce comes here for quality of life, and snow and the mountains are a big part of that,” Brough says. “We [as a business community] plan for what the workforce wants.” n 15

Water is Technology

Pioneering Water Tech How an entrepreneur’s vision might change the water grid

BY ANDREW KENNEY

E

mily Morris is about to make Atlanta’s water grid a source for its power grid.

As this spring ends, the city plans to unveil a concrete box at its Hemphill water treatment plant, connected on either end to the city’s water supply. A current will flow through the box all day, small but steady— enough to push its turbine blades.

Morris’ start-up, Emrgy Hydro, has innovated on technology meant to propel submarines and built a smaller, more reliable hydropower generator. Weighing 800 pounds, plus its concrete casing, it should fit easily into a room of Atlanta’s oldest operating water plant.

With the unveiling, the Hemphill plant will join a handful of facilities in the United States equipped to harvest electricity from the flow of a municipal water supply. It will be the first real-life test of Morris’ product, which promises to generate the energy equivalence of seven average U.S. homes. Morris also is deep in negotiations for a second deployment with a major Colorado utility.

The heart of the business is its intellectual property: a magnetic gear system that expands on technological development once pursued by the Office of Naval Research. If it works, it could place Emrgy at the heart of the “micro hydro” movement.

“It’s not a big market right now, but the opportunity is huge,” says Abhirabh Basu, a research associate who studies water technology for Lux Research, referring to electricity

16

generation from municipal water. Basu thinks generators like Emrgy’s could power sensors and pumps that make the grid smarter, more efficient and more robust. “This would be something that’s self-sustainable. It can be powered from the water—it’s something that looks very much like common sense. Why wouldn’t you want that?”

The applications may be even greater in the long term. Micro hydro could tap onceignored flows and grow the country’s hydropower capacity for the first time since the 1980s. The barriers to innovation are high, but the potential applications range from rural electricity stations to a more efficient urban grid.

As of April 2016, Morris is a time-strapped business owner, balancing investors’ demands as she races toward an unveiling ceremony. She has been sprinting to lock down the first round of investor funding for the twoyear-old company. It has been a crazy couple weeks—but it’s about to pay off.

“Any minute now, I can check the bank,” she says. She’s expecting funds from the New Belgium Family Foundation and Village Capital to appear in her bank account, and the rest of the round should follow, totaling about $650,000 of investments.

This marks a crucial moment for Emrgy Hydro. The company’s early phases were funded almost entirely by $1.6 million in federal grants, much of it from the Department of Energy’s low-impact hydropower initiative. That’s not uncommon: Water start-ups remain reliant on government

funding because venture capitalists have shown little interest in the world of water.

“Last year, there were 39 [water-related] venture deals for $44 million,” says Scott Mosley, director of investment strategies for The Water Council, citing PitchBook data.

“That’s a drop in the bucket.” In 2015, total investment in water startups amounted to just 2.2 percent of the broader clean-tech category, and only 0.07 percent of all startups.

The reason? Water is a complicated, slow-moving industry governed by countless regulations. Even companies with experience in other renewable resources are hesitant. But new pathways to innovation still are emerging, and Morris is finding them. Economic development organizations for water, such as The Water Council, have multiplied in the last decade. Basu counts more than a dozen now, and says that the utilities also are showing more interest in testing and buying new technology.

This shift is driven in large part by the new threats and demands that strain water supplies. “The reason why this hasn’t really taken off, necessarily, is that utilities don’t

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MARK MCDADE

Emrgy founder Emily Morris presents her startup’s core technology—a hydrokinetic device used to generate electricity in water systems—to Denver Water’s Ian Oliver (left) and Bob Lindgren (center) in May 2016.

like to take on a lot of risk,” Basu says. “But when there are water shortages, the price of delivering water increases. If you’re using a new technology, and it improves efficiency—in the long run, that’ll pay off.”

Despite the market’s obstacles, Emrgy’s product already faces competition. Companies like Rentricity, LucidEnergy and Hydrospin all offer ways to draw electricity from municipal pipes. All of them are trying to convince utility managers that their products can be easily deployed—and that they won’t harm the existing system.

Morris says her company’s ace is its technology. Emrgy generators are built around a frictionless driveshaft, with energy transferred by magnetic force rather than the physical connection of gears. The National Renewable Energy Lab has named magnetic gears a top priority, but notes that they have seen “little to no manufacturing and research and development” activity in the United States.

Morris first encountered the technology in her work as a manager at a government contractor. The contractor, AMT, made sig

nificant progress on a project sponsored by the Office of Naval Research before shelving the technology.

As the years passed, Morris realized that all the potential she once saw was gathering dust. So she decided in 2014 to take it off the shelf. She formed an LLC, acquired the nascent technology from her former employer, and has since turned the research into a full-fledged product.

Ultimately, her magnetic gearbox allows a small generator to harvest low flows without the maintenance issues of a traditional gearing system, she says.

Morris sees applications in pipes and rivers, or even in wind turbines, but she deliberately chose utilities as a starting point.

“As regulated as municipal water authorities are, they’re faster and more achievable than going out into the broader network of watersheds and rivers,” she says. “These waters, you actually know who owns them, and you know who has jurisdiction over them—and they are a group that can routinely purchase equipment.”

In fact, utilities all over the country alH E A DWAT E R S | SUMM E R 2016

ready employ devices to reduce pressure in water pipelines; at $40,000 each, Emrgy’s units could allow them to earn a return on the investment made to bring down that pressure.

Real success, however, will depend on how this summer’s pilot goes—and how well Emrgy’s technology stands up to its competitors. “She can’t just do two times better, or three times better. She has to be 10 times better,” Mosley says. “You’ve got to have radical breakthrough technology, a partner who’s willing to site the technology and let you demo it—and you need somebody with a checkbook.”

Innovation, in other words, takes more than good ideas. n TAKE THE NEXT STEP Track advancements in water tech at national conferences like the BlueTech Forum (www.bluetechforum.com), the Next Generation Water Technology Conference (www.watertechonline. com), and the Water Council’s Water Summit (thewatercouncil.com).

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S P E C I A L F E AT U R E

Meeting the plan’s storage and funding goals

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oloradans put far too much work into Colorado’s Water Plan for it to simply gather dust on the shelf of some government office. Yet the plan, whose final draft was released in late 2015, remains a non-binding advisory document. That means those who helped

shape it must take responsibility for acting on it as well. In part two of an ongoing series on the water plan’s implementation, Headwaters examines what we as a state must do to achieve the goals for two of the plan’s nine defined measureable outcomes: storage and funding.

STOR AGE

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hether the water to fill Colorado’s projected mid-century gap of more than 500,000 acre-feet comes from new projects, conservation, or better sharing between farms and cities, we’ll need a place to store it. Aside from giving water providers flexibility in how and when to use their water supplies, adequate storage provides a hedge against droughts, floods and a changing climate. The water plan sets a goal of attaining 400,000 acre-feet of new storage by 2050 by completing at least 80 percent of the projects identified in the 2010 Statewide Water Supply Initiative.

Those projects involve everything from the expansion of existing reservoirs to construction of new ones and increased use of aquifer storage and recovery (ASR), which is the storage of surface water underground.

Ensuring adequate storage will also require reforming the arduous water project permitting process. The process includes important environmental protections in compliance with federal laws like the Clean Water Act and National Environmental Policy Act, but can take more than a decade and cost millions of dollars to complete.

BY NELSON HARVEY 18

According to Becky Mitchell, chief of the CWCB water supply planning section, excessive fear of the permitting process could already be discouraging the pursuit of major projects: “There is some post-traumatic stress from past experiences and people are looking to avoid the permitting process, so we are hoping that if we start by reforming permitting, folks won’t be so afraid to get into it.”

A major improvement would be to “frontload” the process through better coordination between government agencies early in a project’s lifespan. “It has been pretty

haphazard in the past as far as when different agencies from different levels of government weigh in,” says Lane Wyatt, co-director of the Water Quality and Quantity Committee for the Northwest Colorado Council of Governments.

To minimize costly last-minute delays, the water plan recommends that each state agency involved in reviewing a water project signs a Memorandum of Understanding early in the permitting process, dictating who will lead the review and how the agencies will work together to gather the data they need.

The water plan also acknowledges the growing importance of multi-purpose, multipartner water storage projects. Getting a broad range of stakeholders involved in building new storage can help defray the massive expense, complexity and controversy inherent in the enterprise, according to Joe Frank, general manager of the Lower South Platte Water Conservancy District and chair of the South Platte Basin Roundtable.

“You need lots of money, so you need lots of partners,” says Frank. “Also, the more people you bring on board from the agricultural, environmental and municipal communities, the less opposition you’ll run into down the line.”

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JULIE KRUGER

Adding capacity, flexibility and resiliency to water systems

FU NDING

Paying the way to a sustainable water future

RICK WILKING

C

olorado’s economy may depend on water, but water management also relies on an essential ingredient: money.

With that in mind, Colorado’s Water Plan sets the straightforward goal of funding itself. This means finding ways to pay for the vast array of priorities that the plan identifies, from new reservoir storage, conveyance, and treatment facilities to recreational projects, watershed plans, and river improvements.

Colorado officials estimate it will cost state and local entities about $20 billion by 2050 to maintain and improve Colorado’s existing water infrastructure while constructing new projects currently on the drawing board. And that’s just to get the projects in place—it doesn’t include the ongoing costs of treatment and distribution.

Generating that money may require a new public funding source dedicated exclusively to water. Existing water-related loans and grants from the Colorado state government are largely funded through revenue from severance taxes on oil and gas, which oscillate wildly with the price of oil and can be siphoned away to pay for other budget priorities. Because of that, state funding for water projects has varied widely in recent years: In 2009 it was $319 million, but it plummeted to just $36 million in 2010.

A new “water-only” funding source would likely require voter approval and could take many forms: One idea that nearly made the state ballot in 2010 was a volume-based fee on bottled beverages. Legislative economists estimated that charging a penny for every six ounces of liquid and capping the charge at 50 cents per container could raise about $110 million a year. That cash could be divided between priorities like additional investment through Colorado Water Conservation Board (CWCB) loans and grants, more money in the state Water Supply Reserve Account for Colorado’s nine basin roundtables to invest regionally, and a legal fund to protect Colorado’s water rights under interstate compacts.

“We knew that there had to be a new dedicated, independent revenue source that would not be competing with K-12 education, transportation, Medicaid and things like that,” says Dick Brown, a lobbyist for the Pike’s Peak Regional Water Authority who led the container fee campaign in 2010 along with former Arkansas Basin Roundtable chair Gary Barber.

The container fee didn’t make the ballot in 2010 due to opposition from the bottled beverage industry, which convinced the Colorado Supreme Court that it violated the “single-subject test” for ballot initiatives by altering more than one area of state law.

Brown says backers need time to educate voters, but a similar measure could reappear in 2017.

Even if voters aren’t willing to raise taxes for water, the water plan proposes a suite of new ways to use existing state revenues.

One is a repayment guarantee fund, where the state would put up money to back the H E A DWAT E R S | SUMM E R 2016

repayment of bonds issued to finance multi-partner water supply projects. Currently, participants in projects like the Windy Gap Firming Project, which involves 13 northern Colorado water providers, can’t issue bonds collectively (they still can individually) because the lower credit rating of smaller water providers makes it tough to obtain a favorable interest rate, making borrowing more expensive.

The water plan also suggests a green bond fund to help pay for environmental and recreational projects: The state or an affiliated entity would issue bonds offering slightly below market-rate returns in the hopes of attracting socially minded investors.

Finally, the water plan notes that the state should use incentives like low-interest loans and extended repayment periods to encourage multi-purpose, multi-partner projects that accomplish more with each scarce dollar—and each drop of water.

A recent collaboration in the Rio Grande Basin illustrates the potential of multi-partner projects. To combat heavy metal contamination from the Summitville Mine and rehabilitate the local fishery, the watershed group Alamosa Riverkeeper acquired water rights to boost streamflows. But the group lacked a place to store the water in order to time its most effective release. In 2013, they partnered with the irrigation company that operates Terrace Reservoir southwest of Alamosa and secured state and federal money to improve the reservoir’s spillway.

That permitted the irrigation company to store more water, and in exchange the company granted Alamosa Riverkeeper 2,000 acre-feet of free storage.

Cindy Medina, Alamosa Riverkeeper cofounder, says the project was successful in attracting state funding because it served both environmental and agricultural uses.

“I think the state wants to get the biggest bang for their buck these days,” she says, “and projects like this are the ones that will succeed from here on out.” n 19

A Price for the Priceless How do we value Colorado’s water?

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ou might call it the great economic riddle of our time: It sustains human life, lubricates the entire economy and has no known substitute, yet a month’s supply can be delivered to your home for less than the cost of cable TV or cell phone service. It belongs to the public but the right to use it is bought and sold, and changing that use requires a pricey court approval process. It supports kayakers and anglers, trout and sparrows, and all the ecosystems in between, yet those benefits are rarely reflected in its cost. It is cheap, and yet it is priceless. What is it?

If you’re reading this magazine, you already know that the answer is water, and you already know that water is invaluable. What you may not know is that water’s price, according to many economists, comes nowhere near to reflecting its true value, and that blunt economic fact has consequences for the long-term sustainability of both our water resources and our water systems.

Aligning water’s price with its value is much harder than it seems. That’s because water is traded and regulated in ways that reflect its unique and irreplaceable role in our economy. Depending on who you ask, water is a private commodity or a public good, an economic input or a human right.

These varying roles affect the accuracy of water prices, and the freedom—or lack thereof—of water markets. Some examples: In Colorado, many water utilities are prevented by their charters from charging more than they need to cover their costs.

This keeps water rates affordable but also prevents providers from charging customers for the current market value of their waBY NELSON HARVEY

20

ter, also called the “scarcity value,” to encourage conservation. Legal restrictions on water transfers—in place to protect other water users—make those transfers complicated and expensive, slowing the flow of water from farms to cities and helping to preserve the gap between agricultural and municipal water prices. At the same time, many non-market costs of water transfers or appropriations—“externalities” like the open space, wildlife habitat and fishing grounds lost when farmers sell their water rights to a city or a new water right is appropriated, further depleting a stream— are not typically paid for by the buyer or the seller.

Ignoring the full cost of water—and the non-market values that water provides— saves money in the short term by keeping water rates low. In the long run, however, it could prove both financially and culturally expensive. Over time, wasteful use may hasten the need for costly new water projects, and public benefits like wildlife habitat and open space are less likely to be preserved if they aren’t factored into the price of water transfers. Given the stakes, how can we value water more accurately,

while preserving the legal framework that protects water users and the environment?

Supply and demand, within limits

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hen utilities, ditch companies and irrigation districts buy water rights to serve their populations, the price of those rights is determined in part by the basic interplay of supply—what the water costs to deliver—and demand—what it’s worth to buyers. Brett Bovee, intermountain regional director for the consulting firm WestWater Research of Fort Collins, helps clients value water rights for purchase or sale. He considers factors like a water right’s source, location, current use, historical buyers and sellers, ease of storage, and seniority, since older rights are more dependably fulfilled than those appropriated more recently.

Bovee might compare a water right to a handful of others with similar characteristics to arrive at a reasonable price, or, if the water is agricultural, he might use a technique called the income approach, calculating the yields that a farmer could get irrigating with the water compared to dryland farming yields. (A slight variation is comparing the sale price of dry farm ground to that of irrigated land nearby, then using the difference to infer a water right’s value). A final technique, the replacement cost approach, involves calculating the cost of the next-most expensive water supply option and then advising clients to pay just less than that.

“Usually the replacement cost sets the ceiling, the income approach sets the floor, and the market price is somewhere between those two,” Bovee says. “The willing seller must make more off a water transac-

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CARMEL ZUCKER

Water not only supports overall well-being, it lubricates the entire economy. It’s a necessity for all life and an integral component of businesses and industries ranging from agriculture and tourism to tech development and manufacturing.

tion than he would in farming, and the willing buyer is only going to buy water if it is cheaper than alternative sources.”

Yet the economic playing field is not completely level where water is concerned, as evidenced by the vast and enduring price differences between agricultural and municipal water. As University of Arizona law professor Robert Glennon and his co-authors point out in the 2014 paper “Shopping for Water: How the Market Can Mitigate Water Shortages in the American West,” agricultural users in many parts of the West may pay just a few cents for a thousand gallons of water, while urban users pay $1 to $3 for the same amount.

That’s partly because, in a strictly financial sense, urban users can earn more money with the water they consume: If you ignore the vital non-market values of agriculture like open space, wildlife habitat and food security, urban activities like manufacturing frequently generate more money per acre-foot of water than farming does. Used to grow lettuce in Yuma, Arizona, Glennon writes, an acre-foot of water might generate $6,000. Used to make microchips in California’s Silicon Valley, it would generate $13 million.

The price disparity between agricultural and municipal water is further explained by higher treatment and conveyance costs H E A DWAT E R S | SUMM E R 2016

for urban water, from the chemicals that disinfect drinking water to the pumps that keep it pressurized and ready to flow from the tap. “If farmers needed really clean, pressurized water at their farm headgate on demand, the price between agricultural and municipal water may not be all that different,” Bovee says.

Agricultural water users who inherit their land also benefit from the investments their ancestors made in ditch and reservoir systems originally constructed to put the water to beneficial use. Today, they pay only the water assessments necessary to maintain or improve these systems or to make the occasional legal filings. When they sell their shares in their infrastructure or water rights, they earn the appreciated value of both, which can be substantial in areas like Colorado’s Front Range where a booming residential real estate market has kept water demand high.

Finally, federally funded irrigation projects provided a subsidy to early agricultural water users: Many of the West’s large water diversions were paid for with federal dollars between the 1930s and the 1970s.

Although those federal outlays were partly recouped through a combination of cost sharing from local governments and revenues from projects’ hydroelectric features, the federal government never required full reimbursement from water users. Examples include the Colorado-Big Thompson Project, authorized by Congress during the Great Depression to provide a supplementary source of water to farmers and cities in northern Colorado, as well as earlier Western Slope projects like the Uncompahgre Project and the Grand 21

Valley Project. “Recipients of irrigation water from federal projects will have repaid, on average, about U.S. $0.10 on each dollar of construction cost,” writes University of California, Berkeley economist W.M. Hanemann In his 2005 paper “The Economic Conception of Water.” Today, federal funds are largely unavailable to help finance water supply infrastructure.

Although they remain much higher than agricultural water prices, municipal water rates are hardly exempt from market manipulation, and for good reasons. Because water is widely considered a basic necessity for human life and economic activity, many Colorado utilities are public entities whose rates are regulated by local governments or appointed boards, and even the rates of private, investor-owned utilities are limited by the Colorado Public Utility Commission. Many municipal utilities set their rates through “cost-of-service” pricing, which doesn’t account for the value of water itself but factors in only what it costs to run the utility—energy, water treatment chemicals, office staff—plus maintain financial reserves, make debt service payments, and repair aging pipes, tanks, reservoirs and other infrastructure. A growing number of utilities also employ “increasing block rate” pricing to keep everyday water use affordable while penalizing higher water users to encourage conservation.

Yet their rates include little or no charge for water’s replacement cost or “scarcity value:” what it would cost to obtain their water on the open market today, or what they could earn by selling their water and using the proceeds to pay off debt or meet other obligations.

“For a farmer to keep a tractor, they have to be earning more by keeping it than they could make by selling it,” says Chris Goemans, an associate professor of economics at Colorado State University (CSU) who specializes in water issues. “For water rights portfolios, there is no charge to households to reflect the fact that the water could go somewhere else and earn more money for the utility.”

Failing to account for this opportunity cost encourages customers to use their water for purposes worth less to them than the cost of bringing that water to the tap, whether that’s watering the lawn or filling 22

the swimming pool. That’s highly inefficient from an economist’s point of view. “You don’t want people using water that costs $10 per gallon to produce on applications for which they place a value of a dollar or two,” says Chuck Howe, a professor emeritus of economics at the University of Colorado, Boulder. “If the price to the consumer doesn’t cover all the costs of production, then individual customers will apply water to uses that are, at the margin, worth less than the costs imposed on society.”

Artificially cheap water saves customers money today, but in the long run will prove expensive as utilities are forced to meet growing demands by acquiring expensive new water rights or building new infrastructure. In a 2013 analysis, city staff in Westminster, Colorado, calculated that water rates would be 135 percent higher and water tap fees 99 percent higher if per-capita water demand in the city had not fallen by 21 percent since 1980. That declining consumption—driven by a combination of utility-sponsored conservation programs, conservation-oriented increasing block rate water pricing and stricter national plumbing codes—saved the city over $5.9 million on water and wastewater treatment, new water rights, and loan interest payments, which would have been passed along to residents in the form of higher rates and tap fees. Even though water rates have risen in Westminster since 1980, in part to compensate for declines in per-capita consumption, they have risen much less than they would have if per-capita consumption had stayed flat as the population grew.

Howe believes that charging customers for the scarcity value of their water could have a similarly virtuous effect on consumption—and thus on water rates—over the long haul. In an unpublished paper cowritten with water attorney Peter Nichols of the Boulder firm Berg Hill Greenleaf Ruscitti LLP, Howe argues that utilities could encourage conservation by charging customers more for each 1,000 gallons of water they use, then refunding any resulting profits by reducing the fixed service charges that appear on monthly water bills. By increasing the price of each 1,000 gallons of water by just $1.50, Howe and Nichols surmise, the City of Boulder could earn $20 million per year, a sum equivalent

to 5 percent of its $400 million water rights portfolio. This would encourage conservation without harming ratepayers’ overall bottom lines, since higher volumetric usage fees would be offset by reductions in fixed service charges.

Love thy neighbor: Legal restrictions on water transfers

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espite the limits on what municipal utilities can charge, the gap between urban and agricultural water prices persists. That’s partly because significant legal barriers discourage those who get their water cheaply—farmers—from selling it to the cities who will pay dearly for it.

Those barriers serve noble goals: Because water, unlike other commodities like land or electricity, is often used several times in succession within the same river basin, many users depend on the reliable timing and amount of return flows from their neighbors upstream. To protect those flows, legal restrictions, such as the "no harm to juniors" rule, prevent anyone who moves their water or changes its use from impacting other water users. Colorado water courts employ several other principles

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ANDREA DEAN

WestWater Research’s Brett Bovee helps clients determine the value of water rights prior to transaction, where the prices those rights fetch on the market is affected by factors ranging from source to ease of storage to seniority.

in regulating water trades: The beneficial use requirement is intended to discourage waste and requires water to be put to beneficial uses approved by the legislature or the courts or else abandoned, and the antispeculation doctrine mandates that anyone changing their water use show precisely its new use, location and amount, to prevent speculators from buying water and simply holding it, unused, until prices rise.

Water courts also limit the salable portion of a water right to its “historical consumptive use,” the average amount actually absorbed by crops, retained by people and lawns, or used up by industrial processes over the water right’s history. This prevents farmers from harming other water users by selling water they no longer have to divert as a result of improving their irrigation efficiency, provided they leave irrigated acreage and consumptive use unchanged.

Before the efficiency improvements, the unused portion of the water diverted and

applied had served other users in the form of return flows, so Colorado law protects those historical return flows for appropriation by other users after efficiency improvements are made.

Taken together, these restrictions discourage water from simply flowing to the highest bidder. They make the process of transferring water rights time consuming and expensive, since detailed engineering studies and costly legal filings are necessary to prevent other water users from being injured without compensation. And yet, examples abound of Colorado water law flexing to accommodate changing state pri-

floo-uhnt water fact

The Colorado River is an economic lifeline, supporting 2.1 million Colorado jobs and $189 billion of gross state product—59 percent of Colorado GSP. Source: Arizona State University

H E A DWAT E R S | SUMM E R 2016

orities. The nonprofit Colorado Water Trust and the Colorado Water Conservation Board (CWCB)—the only entity in the state that can hold an instream flow water right— are now seeking water court approval for the state’s first permanent “split-season” water right on the Little Cimarron River in Gunnison County. The right, acquired by the Colorado Water Trust, will permit the same water to be used for agricultural irrigation in the early summer and then for instream flows that benefit fish in the fall. Another example: Under a state law passed in 2013, farmers and municipal water providers can now enter into so-called “interruptible supply agreements” three out of every 10 years without the approval of a water court.

In this arrangement, farmers fallow some of their land or reduce irrigation and then, with the blessing of the State Engineer, convey the freed-up water to cities in exchange for short-term lease payments. One such arrangement, the Arkansas Valley Super Ditch, is partway through a three-year pilot project that began in spring 2015 when irrigators on the Catlin Canal east of Pueblo leased 500 acre-feet of water to the cities of Fowler, Fountain and Security.

“It went so smoothly the first year that I don’t think we want to mess it up by changing anything,” says John Schweizer, president of the Lower Arkansas Valley Super Ditch Company and the Catlin Canal Company. Because agricultural commodity prices were low in 2015, Schweizer says, the farmers who participated earned at least twice as much fallowing land and leasing water as they would have growing corn, wheat or alfalfa on the same acreage.

And they still kept at least 70 percent of their water rights in agricultural production, as required by law. Even though there are two years left in the pilot project, Schweizer says, “The City of Fountain is already talking about coming back and negotiating a longer term lease, which could mean bringing more farmers into the program.”

Ideally, these alternative transfer methods (ATMs) could give cities reliable sources of water in dry years without requiring the “buy and dry” of agricultural lands. Yet short-term leases are a relatively new concept, and because urban water providers must plan for a reliable, long-term supply they often prefer to purchase agricultural 23

Pricing the priceless: The non-market value of water

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he market for C-BT units is a compelling example of what freer water trading might look like, yet several factors make it unlikely that such a market could be replicated across Colorado. Under a 1938 contract between Northern Water and the U.S. Bureau of Reclamation, all contracts for C-BT water must be exercised within the boundaries of Northern Water’s service area. Units of C-BT water can only be used once before being allowed to flow down the

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1 Boulder’s Avery Brewing Company is one among 230-plus Colorado craft and micro breweries that have combined water with barley, hops and other specialty ingredients to establish a nationally recognized market for beer enthusiasts. 2 Water feeds Colorado’s booming new marijuana grow industry, for which sales reached nearly $1 billion in 2015.

3 Colorado whitewater and other water-related recreational pursuits contribute significantly to Colorado’s $34.5 billion recreational economy.

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1. COURTESY AVERY BREWING COMPANY 2. MATT NAGER PHOTOGRAPHY 3. WINTER PARK CONVENTION AND VISITORS BUREAU

water outright. Some urban utilities then lease the water back to farmers until they need it, giving them flexibility in deciding when to begin the sometimes long and arduous process of filing for a change of use in water court.

“If you are a water [utility] manager, when you provide a water tap to a developer you are promising them water. Short-term leases are just not reliable enough right now to fulfill that promise,” says Goemans, at least not for a city’s entire water supply.

Still, reducing regulatory barriers to water leasing is likely to make it more common over time. In the South Platte River Basin, where the Colorado-Big Thompson (C-BT) Project diverts water from the upper Colorado River, owners of contracts for C-BT water are only required to obtain the blessing of the Northern Colorado Water Conservancy District board, rather than a water court, before selling or leasing their water interests, and a robust leasing market has materialized there.

According to a 2016 WestWater Research report, leases have accounted for about 80 percent of all water trades in the South Platte Basin in recent years, and most transactions have involved farmers leasing their water to cities. The value of this streamlined process is also reflected in the sale price of C-BT units—unlike a lease, a sale gives a buyer rights to the unit in perpetuity. In 2015, C-BT units changed hands 67 times and fetched an average sale price of $36,300 per acre-foot—by the second quarter of 2016 the price was above $40,000. Meanwhile area ditch shares, whose transfer requires water court approval, were traded just 23 times for an average price of $13,800 per acre-foot.

lower South Platte River between Greeley and the Nebraska border, for the benefit of irrigators there. And yet, irrigators on the lower river have no legal right to claim injury if the lease or sale of C-BT units affects the return flows they rely on, since the prior appropriation doctrine—including the noharm-to-juniors rule—applies only to native flows within a river basin, not to transbasin diversion water. This minimizes objections when C-BT units are leased or sold.

Leaving aside these complicated machinations, there is a simpler reason why most of Colorado’s water sales and leases are still regulated by water courts: Legal safeguards like the no-harm-to-juniors rule play an important role in limiting harm to third parties or the environment when water is moved. They also highlight water’s role as both a private good and a public resource with important environmental and cultural values.

Economists have devised a suite of techniques to translate those “non-market” values into financial terms so that they can be factored into cost-benefit analyses of water projects. Perhaps the most prominent technique is “contingent valuation,” where economists survey water users to gauge their financial willingness to pay for environmental benefits or willingness to accept environmental harms.

People value water’s role in the environment for a wide variety of reasons: “Use value” reflects the benefit of using a waterway for kayaking, rafting or swimming; “existence value” measures the well-being gained from simply knowing that a river exists; and “bequest value” shows the worth of knowing that an environmental good will be preserved and passed down to future generations. There is also “intrinsic value”—the notion that other water-dependent species should be allowed to exist regardless of their value to humans.

Because some of these values have an emotional component, it can be tough to give them the same weight as purely financial considerations, and many cost-benefit analyses reflect this problem. In 2011, for instance, the Colorado Department of Public Health and the Environment was considering additional limits on releases of phosphorous and nitrogen from wastewater treatment plants to comply with enforce

“We have struggled to convey how important having water in the river is to the economy in the headwaters region, especially in the summer.”

— Torie Jarvis, Northwest Colorado Council of Governments ment of the federal Clean Water Act by the Environmental Protection Agency. A statecommissioned study by the consulting firm CDM Smith weighed the costs of those new regulations—new equipment and more intensive wastewater treatment and monitoring—against benefits like reduced spending on drinking water treatment, better-tasting and better-looking drinking water, improved ecological function in rivers and streams, and increased recreation.

The study found that the regulations would yield just $0.79 worth of benefits for every $1.00 spent to implement them. Yet it relied on rough estimates—derived from previous economic studies—of the financial value that people place on environmental benefits. And it did not weigh qualitative benefits like existence and bequest value, despite the fact that these values often account for half of people’s willingness to pay for environmental benefits, according to CSU environmental economics professor John Loomis.

Those same omissions have characterized, and potentially marred, other studies.

A 2009 study by the Front Range Water Council, a group of Front Range water providers that has advocated for new transbasin diversions from Colorado’s Western Slope, found that the Front Range withdraws 19.4 percent of the state’s water but generates 80 to 86 percent of the state’s economic activity, while western Colorado withdraws 41 percent of the state’s water but comprises just 10 percent of the state’s economy. By that logic, the Front Range produces about $132,268 in economic output per acre-foot of water used, compared to just $7,200 per acre-foot on the Western Slope. Yet those figures fail

floo-uhnt water fact

to account for the economic costs that diverting water to the Front Range imposes on the Western Slope, along with the financial benefits of things like tourism and recreation, which rely on keeping western Colorado water in the stream. The Northwest Colorado Council of Governments (NWCCOG), a coalition of Western Slope municipal governments whose members generally oppose new transbasin diversions, attempted to address these omissions with its own 2012 study: “Water and its Relationship to the Economies of the Headwaters Counties.”

“We have struggled to convey how important having water in the river is to the economy in the headwaters region, especially in the summer,” says Torie Jarvis, codirector of the Water Quality and Quantity Committee at NWCCOG. “That study was meant to point out that there were values that studies like the Front Range Water Council's were not accounting for.”

Some of these values, and the economic implications of protecting them, are relatively easy to quantify: The town of Winter Park, for instance, is forced to treat its wastewater to a higher standard because 65 percent of the Fraser River that once flowed through town is diverted to the Front Range, making wastewater more difficult to dilute. “We have seen an impact on the cost of wastewater treatment year-round due to the lack of dilution flows,” says Bruce Hutchins, manager of the Grand County Water and Sanitation District 1. Faced with ongoing transbasin diversions, Winter Park town leaders have also opted to curtail the town’s development to keep at least 10 cubic feet per second of water in the Fraser River at all times. That has clear economic

The 1891 Strickler v. City of Colorado Springs Colorado Supreme Court decision recognized for the first time that a municipality could change an irrigation water right to municipal use, holding that a water right is a property right that can be bought, sold, and changed if other water rights will not be injured.

H E A DWAT E R S | SUMM E R 2016

25

consequences: At buildout, the town could accommodate about 9,300 single-family housing units if officials were willing to dry up the river to provide them with water. Instead, the town has capped the number of water taps it will dispense to allow for just 8,300 single-family units in order to maintain river flows.

“It’s a bit backwards from the way that other communities have done it,” says Winter Park community development director James Shockey. “We’ve put the river first, and then looked at how much we can develop from there.”

Other values compromised by transbasin diversions, like the potential effect of changes in water use on tourism, require non-market valuation in order to be expressed financially. In a March 2003 study, CSU economists Adam Orens and Andrew Seidl surveyed winter tourists in the towns of Gunnison and Crested Butte to see how changes in the area’s open space ranch landscape would affect their decision to vacation there. More than half of those surveyed said they would reconsider vacationing in the area if just 25 percent of the existing ranchland were converted to second homes or other uses. If all of the ranchland were converted, the researchers concluded that tourism in the area could drop by as much as 40 percent.

Contingent valuation surveys have also shed light on the value of water left in rivers for recreation, wildlife habitat and scenic views, which sometimes exceeds the economic benefit of diverting that same water to farms or cities. In a 2008 study, CSU Economist John Loomis surveyed a random sampling of Fort Collins residents and found that they were willing to pay an average of $352 per year to keep peak spring and summer flows in the Cache La Poudre River rather than letting agricultural and municipal users deplete them. “It appears the value of these instream flows to Fort Collins residents is of the same magnitude as the market value of the water in alternative uses,” like irrigation and municipal use, Loomis concluded. In Colorado today, there are two legal mechanisms that Fort Collins residents could use to keep that water in the stream, and both involve the prior appropriation system. In theory, they could convince local or state government 26

to acquire a water right on the Poudre from a willing farmer or utility, then convert it to an instream flow right (held by the CWCB) or a recreational in-channel diversion right (held by a local government) to keep its recreational and wildlife benefits intact.

Such benefits are protected in some states by the public trust doctrine, a legal concept which holds that certain resources should be held in trust by the government for public benefit. Yet that concept holds no legal sway in Colorado.

“We are not a public trust doctrine state,” says retired Colorado Supreme Court Justice Greg Hobbs. “We are a prior appropriation state with a market. The Constitution provides that the water is owned by the public and is dedicated to the use of the people of the state subject to appropriation. Therefore, the public values protected by the constitution consist of the beneficial uses made by water rights owners.”

Wading through no man’s land: Accounting for social costs

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here are some good examples of water users paying for the public and private costs of their diversions. Under a 2012 pact called the Colorado River Cooperative Agreement between Denver Water and 17 Western Slope entities, the Front Range utility won support for its efforts to enlarge Gross Reservoir north of Boulder in exchange for helping to fund dozens of river improvements on the Western Slope.

Among them: channel maintenance and habitat improvements on the Fraser River, a catchment basin that reduces sediment in the Fraser and cuts water treatment costs for Winter Park, and a whitewater park in the Colorado River at the mouth of Gore Canyon near Kremmling.

Yet some observers argue that there should be a more formalized way to charge for the public costs of diverting water. Aside from mitigation requirements imposed on water projects by state and federal environmental laws, the existing legal mechanisms for protecting public values—instream flow rights and recreational in-channel diversion (RICD) rights—were introduced into Colorado water law relatively recently. (The legislature authorized the first instream flows in 1973 and RICDs in 2001.) That means that many instream flow rights have junior

priorities and cannot be exercised when more senior rights are diverting, which can render them ineffective during dry parts of the year. As an added way to safeguard water-related public goods, the CSU economist Chris Goemans floats the idea of a public fund—perhaps financed by a tax on the buy and dry of agricultural lands—dedicated to preserving water-related public goods like open space and wildlife habitat.

“There are social values of water use that are not factored into the transaction when a farmer sells their water to a city,” says Bovee. “A farmer cannot charge a developer twice as much simply because his water is irrigating nice open land that will dry up once the water is gone. The developer will not pay extra to compensate for the loss of that public good.”

In extreme cases, in the absence of state intervention, the social costs of water diversions can undercut the economy of an entire region. A well-known example of this is southeastern Colorado’s Crowley County, where droves of farmers sold their water rights to the growing cities of Aurora, Colorado Springs and Pueblo between the 1960s and the 1980s, then took the profits, packed up and moved away. Because few of the proceeds from those water sales were reinvested in the community and the region lacked an alternative economy to fall back on, widespread unemployment ensued that persists to this day.

“If you looked at this transaction from a statewide perspective, it was a net benefit,” Bovee points out. “The revenue from moving that water to the Denver Metro area was greater than the lost income from farming in the county. But there was a spatial problem—Crowley County did not have a second and third economy to rely upon, so it was economically devastating, and there was huge poverty and social fallout.

Open markets see nothing wrong with that transaction. But the state has to look out for the health of its rural populations and mitigate the downside in some way.” n TAKE THE NEXT STEP The Value of Water Coalition’s toolkit is a free resource that aims to shift how Americans view water by pointing out its many values and uses. Learn more at www.thevalueofwater.org.

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PAYING FOR WHAT’S AHEAD

COURTESY NORTHERN WATER

IF

a new 2-cent tax was tacked onto that bottled tea, would you notice?

What if there was a small tax on every liquid-filled container—water, tea, soda, all of it—sold in Colorado?

Would you have the same reaction if your water bill increased?

There are other options—but somehow Coloradans will need to come up with about $20 billion by 2050 for water projects across the state. The question is: How will we do it…and what will it mean for our bank accounts?

That $20 billion figure is what the Colorado Water Conservation Board (CWCB) estimates is necessary to implement Colorado’s Water Plan. The numbers aren’t exact, says Tim Feehan, former CWCB deputy director, and the specific projects and precise allocations aren’t completely set, but $20 billion is a starting budget as the state evaluates how the actions outlined in the water plan could be funded.

Aimed at addressing the municipal and industrial water supply gap so the state’s growing population doesn’t come up water short, Colorado’s Water Plan, published in 2015, also sets goals around alternatives to agricultural transfers, water infrastructure, storage, education, conservation, environmental projects, and recreational needs—plus it aspires to fund its own sustainable implementation. “[The water plan] identifies a lot of solutions for the state and comes with a very high price tag,” says Margaret Bowman, a consultant working with the Water Funder Initiative to develop impact investing in the West. “Now the state’s got to figure out how to finance it.”

And the trouble is, the actual price tag is even higher than what’s outlined in the plan—Coloradans will have to finance that $20 billion and more. A higher sum will

By Caitlin Coleman H E A DWAT E R S | SUMM E R 2016

be needed for securing environmental and recreational needs as well as agricultural viability. Plus, that $20 billion doesn’t include treated water projects—drinking water, wastewater and distribution—which are all costly on their own. For context, the Colorado Water Resources and Power Development Authority has identified 377 projects on its drinking water needs list—valued at $5.4 billion—and another 305 projects on its wastewater list—for $4.6 billion.

But back to the initial $20 billion figure, which already sounds like an outrageous chunk of cash to many, that amount is divvied into more manageable sums that different entities will furnish in different ways for individual projects. The CWCB, for its part, sees itself in a complementary role, says Tim Feehan. “We’re there to make the process more streamlined—to fill in small funding gaps and help maybe with a little political will,” he says. Individual water providers and other project backers, whether 27

“When you ask how you pay for [a water project loan], it directly goes to customers.”

—Mike Brod, C O L O R A D O W A T E R R E S O U R C E S A N D P O W E R D E V E L O P M E N T A U T H O R I T Y

pursuing water infrastructure, water supply, or water conservation, will be responsible for what the water plan’s Statewide Funding Committee, an advisory group of experts who work extensively in water and finance in Colorado, estimates to be 70 percent of that total—or $14 billion.

If the CWCB’s budget stays as it is in 2016, which is unlikely for at least the next two years while the state pays out severance tax refunds as a result of an April 2016 Colorado Supreme Court decision, it would have approximately $3 billion that could be used for loans and grants between now and 2050. That’s as much as $17 billion that can theoretically be accounted for, leaving an estimated $3 billion to be sourced through some new, creative, yet-to-be-determined initiative or funding source.

Colorado might have been two-thirds of the way there had a ballot measure, the Colorado Water Projects Bond Referendum or Referendum A, passed in 2003. The measure would have allowed the CWCB to borrow up to $2 billion for public and private water projects by issuing bonds, but it didn’t have a detailed plan outlining how and where the money would be spent, nor was there any new revenue to pay it back.

“Everybody knew there was a need out there, but we [through the water plan] have spent the past 13 years trying to qualify it better,” Feehan says.

Now that that’s done, the state needs a new plan for generating the cash. And whether financed by the state or individual project backers, anything not philanthropically gifted through impact investing will still need to come from taxpayer funds or be borrowed and paid off, largely by Colorado water users through higher water rates and—yep—more taxes.

That’s where the container tax comes in, or any other idea with merit to distribute the costs across willing Coloradans.

Broken down over the next 30 years, the CONTINUED ON PAGE 30 >

River restoration work across Colorado is estimated to floo-uhnt cost $150,000 to $650,000 water fact per mile, depending on the degree of work required.

Source: Colorado’s Water Plan Chapter 9 28

TRADITIONAL FINANCING

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here is an increasing need, but financing water projects and repairs on the state’s aging infrastructure isn’t all new. “Water and wastewater providers constantly need capital improvements,” says Alan Matlosz with investment banking firm George K. Baum & Company. “Stuff is falling apart, rules change, and there’s population growth.

[Water providers and municipalities] have to keep changing and adjusting, and they borrow a lot of money.”

Traditionally, water projects are thought of as tangible storage, treatment, and distribution needs that are bond- or loanfunded. Who provides the financing and how depends on the scope of the project and entity completing it, along with the parameters they’re looking to meet. For one municipality, water provider or project lead, it may be important to obtain the lowest possible interest rate, while another may need flexible loan terms or the fastest means possible of securing that money.

Loans

A

water-related loan occurs under a scenario similar to any personal loan.

A borrower approaches a lender to finance a project; if the project meets the lender’s criteria, an interest rate and repayment schedule is set and the lender issues a loan.

Most water loans in the state are issued at low interest rates through a state agency or quasi-governmental organization because many banks can’t issue a loan under the long repayment terms that water projects require. “Most community banks or local banks will only do business loans of about five to seven years,” says Brian Ervin, lead relationship manager with the water team at CoBank, a national lender and the only member of the Farm Credit System with the authority to lend directly to rural infrastructure customers. “In the water business, the

assets have long lives, maybe 20-plus years, so it makes sense for water utilities and wastewater utilities to finance with long-term debt.” With most loans repaid over a 20- to 30-year period, the lifespan of the project, there are only so many options for borrowing.

The CWCB issues between $50 and $60 million in low-interest loans each year through its Water Project Loan Program, lending money from the agency’s Construction Fund and Severance Tax Fund for raw water projects around the state to agricultural, municipal and commercial borrowers. Interest rates range from 3.1 percent for high-income municipal loans to a low 1.7 percent for ag loans.

The Colorado Water Resources and Power Development Authority also issues between 20 and 40 low-interest loans per year, with interest rates between 0 and 2 percent, and loans averaging between $1 million and $5 million each and totaling $100 to $200 million annually, says Mike Brod, director of the authority. Authority loans go to municipalities and other local government entities typically in communities of fewer than 10,000 people to fund water and wastewater infrastructure development.

That encompasses treatment, distribution, supply and collection.

Although the authority loans out higher sums than the CWCB, there could be a limit to its capacity. “We haven’t run out of money yet in terms of being able to make a loan, but there may come some day when we hit that point,” Brod says. That day would come if too many of the potential projects on the authority’s needs list seek funding at the same time.

The authority uses monies coming through two state revolving funds, the Drinking Water State Revolving Fund and Clean Water State Revolving Fund, to loan out and buy down their interest rates. That money is funneled into CONTINUED ON PAGE 30 >

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WHEN BORROWING ISN’T EASY

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raditional bonds and loans fall primarily under the water providers’ purview—theoretically they’ll comprise $14 billion of the $20 billion in needed funding identified in Colorado’s Water Plan. And though bonds and loans are the perfect funding mechanism for some projects, with no cap on how much they can bring in, some hopeful borrowers have a hard time accessing that financing. Whether a project is too small, too big or too risky, lacks political support or is not a moneymaker, grant funding, private investment, philanthropic dollars, and creative solutions may be able to move those forward.

State Grants and Funding

THEO STROOMER

I

n addition to its lending authority, the state has some grant-making capacity.

There are many different grant-making pools: Water Efficiency Grants; Water Supply Reserve Account Grants—the largest fund, authorized at up to $10 million per year; Watershed Restoration Grants; Alternative Agricultural Transfer Method Grants; Emergency Drought Grants, and many others, totaling around $25 million per year.

A small portion of the state’s grant making, about $4 million each year, comes out of its Construction Fund, but the majority of grants are made from the volatile and unpredictable severance tax pool. Severance tax is the tax on nonrenewable mineral extraction. Although it includes coal, metals and oil shale, between 90 and 95 percent of the severance tax revenue stream comes from oil and gas. Historically, Colorado has collected an average of $188 million in severance taxes each year, but the revenue stream is so volatile that it changes by an average of 86 percent from year to year, says Bill Levine, budget director for the Colorado Department of Natural Resources. In 2009 Colorado col-

Ben McConahey and his colleagues at Hydro Venture Partners have made it their business to usher capital investors into the water space.

lected $319 million in severance tax. That amount dropped by 90 percent the following year to only $36 million—a massive dip, the likes of which occur regularly but still stymie economists’ attempts to make accurate predictions in order to inform budgets. Still, the state typically relies on that funding, splitting it evenly between the Department of Natural Resources and the Department of Local Affairs.

But a Colorado Supreme Court decision in April 2016 from BP America Production Company v. the Colorado Department of Revenue triggered changes, at least for the near future of Colorado’s severance tax revenue. The ruling broadens the deduction that oil and gas companies can claim against their severance tax liability, so moving forward the state will not only receive less severance tax revenue than usual, but must also issue refunds to ac-

H E A DWAT E R S | SUMM E R 2016

commodate deductions from the past few years. Those refunds will likely eliminate much of the CWCB’s current grant-making fund for the next year or two.

Creative New Funding

“IF

there’s a good project, it’s reasonable, and it can be paid back, then it can be financed by somebody,” says Alan Matlosz with investment banking firm George K. Baum & Company. “None of those projects will be unfunded.” Unfundable projects are often too expensive, speculative or risky.

For example, if a small rural community of 300 people wanted to build or update a water treatment facility to come into compliance with drinking water quality CONTINUED ON PAGE 31 >

29

“Our model can be a powerful vehicle for the private sector to have access to and make solid in —BEN M c Conahey, H Y D R O V E N T U R E P A R T N E R S

TRADITIONAL FINANCING <CONTINUED>

Colorado through the U.S. Environmental Protection Agency, and the authority provides a 20 percent match for every dollar that comes in, funded through bond issues.

Similarly, the U.S. Department of Agriculture’s Rural Development program as well as CoBank both lend money for water projects, with CoBank often issuing bonds to finance loans. The USDA issued rural utility funding to five entities in 2015, totaling just over $7.5 million in both loans and grants. CoBank hasn’t worked extensively in Colorado, as most municipalities seek lower-interest loans, but the lender has worked with USDA Rural Development on two loans where CoBank financed project construction, while USDA provided a long-term loan after construction. “Municipalities here [in Colorado] go to the State Revolving Fund,” Ervin says. “To my knowledge they’ve been successful in getting what they need from lenders.” But CoBank offers an option, particularly for small for-profit water companies, and issues water loans across the country ranging from $500,000 to $100 million. The lender offers market rates—slightly higher than the state offerings, with current rates around 4.5 to 5 percent—that can complement

The 8.5-mile Pleasant Valley Pipeline, completed in 2004, was built jointly by six northern Colorado water providers.

state grants and loans and are more accessible for certain borrowers. “CoBank is going to be much, much faster than the State Revolving Fund [loans offered by the authority],” Ervin says. Plus, the loan approval process is often easier and cheaper, he adds, because CoBank doesn’t always require so many steps, like environmental assessments, that can piggyback off a government loan.

Bonds

M

unicipal bonds have the same objective as loans—a municipality, water provider or special district wants to CONTINUED ON PAGE 32 >

2015 Colorado State Budget

39% Health and Human Services: $10.55B 34% Education: $9.21B 13% Other: $3.53B 7% 6% 1%

Public Safety and Courts: $1.88B Transportation: $1.43B Natural Resources: $0.25B—Source of funding for water, mostly in the form of loans SOURCE: Governor's Office FY2015-16 Budget Request

CONTINUED ON PAGE 34 > 30

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COURTESY DENVER WATER

$3 billion not yet accounted for is not an unreasonable sum: It works out to about $100 million a year. “Let's say that we do need $100 million a year and there are 1 million households in the Denver metro area. That means each household would need to pay an extra $8.33 per month,” says Alan Matlosz with investment banking firm George K. Baum & Company and board treasurer for the Colorado Foundation for Water Education. Spreading that over the Front Range would cut that number in half—spread over the entire state it’s even less. That money could be distributed across the state’s grant making, loans, new green bonds, pilot projects, education and outreach programs, and other new items identified in the water plan.

Of course, that’s on top of increased water rates. “When you ask how you pay for [a water project loan], it directly goes to customers,” says Mike Brod, executive director of the Colorado Water Resources and Power Development Authority. Rate hikes to pay for projects will differ across the state, with some places having more affordable rates than others, just as some communities will have a greater need for water projects than others.

However not all customers—or communities—have equal ability to pay. Many smaller communities don’t have the revenue or ratepayers necessary to fund a major project. In those situations, there are other options: steeper rate hikes, projects that may be covered in part by a grant, different loan structures, creative financing, or regionalized systems where costs can be spread across more water users. “I’m not worried about Denver finding a billion dollars to finance their projects, that should not be our concern,” Matlosz says, pointing to Denver Water’s high credit rating, old water rights, and huge customer base across which it can distribute its debt.

“But,” he adds, “if there are big water needs in less urbanized areas, that’s trickier.”

When you combine rate increases with the $3-plus billion of new funding, possibly generated through taxation, plus the still-uncalculated treated water needs and wastewater needs, and look at all of that on top of other state funding priorities,

d investments in water."

WHEN BORROWING ISN’T EASY <CONTINUED>

standards, the project would cost millions of dollars that the community couldn’t afford at any interest rate. It would instead have to look to alternatives to accomplish what was needed.

“I’ve never seen a system completely closed down. You absolutely go and find a way to get it done,” says Mike Brod, director of the Colorado Water Resources and Power Development Authority. Regionalization is sometimes a way for smaller systems to bring projects in reach. In other cases, project backers are finding private capital to be their best option.

Private Investment

“W

hat we’re finding is there’s a lot of interest out there—there are billions of dollars looking to make investments in water, and they’re trying to find the vehicles best suited for their interest,” says Ben McConahey, partner with Hydro Venture Partners, speaking of private investment in the water arena. Investors have a growing interest and likewise can be attractive for water projects. The function of investors is similar to loans and bonds as they provide immediate capital or a needed service and make money back on their investment over time.

Hydro Venture Partners aims to solve some of the state’s water funding gaps and to platform strategies around water storage, supply and delivery, as well as energy and technology. Seeking capital primarily from wealthy individuals, family offices, and small institutional investors, Hydro Venture Partners earns money for its backers by investing in water projects.

“Our model can be a powerful vehicle for the private sector to have access to and make solid investments in water, a space into which the market hasn’t had much of this type of visibility,” McConahey says.

Private investment also presents an opportunity for those working to ensure Col-

orado is prepared for the future envisioned in Colorado’s Water Plan. “Everyone wants to prove that the work that went into the water plan can be executed,” McConahey says, expressing Hydro Venture Partners’ desire to help shepherd some elements within the water plan toward completion.

McConahey believes private capital can offer some advantages to traditional water project financing, including private-sector expertise, accelerated delivery, and consolidation of resources.

That’s not to say that there aren’t barriers. Private equity investors actively analyze the level of risk in their investments and revenue sources, so deals have to be well structured to work. And the fear of privatization of public resources can lead to negative perceptions and challenging politics.

“We would love to prove that opportunities being identified aren’t just pipe dreams,” says McConahey. “There are feasible ways to mitigate the risk, deal with political, social and environmental factors, and ways to structure and provide solutions across different sectors of the community and benefit everyone involved.

That’s our goal. To put together these opportunities where all the players can win.”

P3s

P

ublic Private Partnerships, or P3s, similarly aim to share the responsibility of water projects between the public and private sector. The impetus for these projects, however, typically comes from an unmet need or new infrastructure needed by the public sector. From there, a private company can invest resources or offer its expertise as an investment. Although P3 models are common in transportation— a private company might front money or design and build a new road or bridge and then operate a toll to recoup its initial investment—they aren’t yet as popular in the water world.

“They’re not the same as transportation projects,” says Tim Feehan, former CWCB deputy director. “Water is a different monster. I don’t have to drive a turnpike if I don’t want to, but I don’t have a choice of

H E A DWAT E R S | SUMM E R 2016

who’s delivering my water. It gets sensitive on how we develop a model that works for water projects.”

Even so, P3s are listed as a possible funding option in Colorado’s Water Plan.

The CWCB is focused on the potential for private capital in regionalized multi-partner projects and the Governor’s Office is supporting the effort by putting together a hub of experts who can analyze a project and determine where a water-based P3 might be logical.

Plus, as Colorado and the rest of the West builds its next round of infrastructure, it may need to rely on private funding to create the kind of sustainable, flexible infrastructure that’s needed, says Margaret Bowman of the Water Funder Initiative.

“What we need is the next generation of infrastructure that’s more sustainable, recognizes the ecological system, and tries to work with that system not against that system.”

A new flexible and resilient infrastructure could include things like stormwater best management practices, watershed restoration projects, and projects typically thought to be outside the realm of traditional water project financing. “Unfortunately, the [public funding] rules are for traditional gray infrastructure. Whether you’re an environmentalist or not, you want the most responsive infrastructure there,” Bowman says. Gray infrastructure refers to distribution systems and traditional water or wastewater treatment. But for pilot projects, restoration work, and other less traditional water projects, private funding could be key. “[Public funding] is going to be important but it’s not going to be enough,” says Bowman. And that leaves philanthropic dollars.

Philanthropy

W

ith the need for funding, heightened media messaging, and increased water scarcity in recent years, philanthropists, like many investors, have developed an interest in moving more money into Western water issues, Bowman says.

In addition to the philanthropies that have CONTINUED ON PAGE 32 >

31

“A lot of [philanthropic] groups are funding healthy communities—it’s a really big topic right now.”

—April Montgomery, T E L L U R I D E F O U N D A T I O N

TRADITIONAL FINANCING

WHEN BORROWING ISN’T EASY

fund a project so they borrow money, only they create a bond and borrow from investors rather than one bank or agency. Issuing bonds can be an expensive endeavor involving consultants, advisors, attorneys and a bond underwriter who work with the bond issuer, create the bond issue and sell it to investors. Potential buyers analyze the municipality’s credit rating, the risk of investment, and the project itself. “The higher the rating on the bond, the fewer questions—but it all comes down to whether the interest rate is right,” Matlosz says. A borrower looking to issue a bond with a poor credit rating will pay higher interest rates—the risk is greater for investors so higher rates sweeten the deal.

Colorado Water Resources and Power Development Authority also issues bonds, with a bond issue limit capped at $500 million. The authority can create an issue by grouping various funding needs from numerous small municipalities, water providers, and other entities into one bond. “There are economies of scale to be had,” Brod says. For example, he’s working with Woodland Park to come up with $6.5 million and concurrently working with the City of Evans, which needs $42 million to finance a wastewater treatment plant.

Pooling those needs into one bond issue creates a better deal for both entities and buyers—plus, those small municipalities benefit from the authority’s high credit rating.

The authority only issues a few bonds each year, while there are other water bond issues on the market much more frequently—regardless, there isn’t a cap on the quantity of bonds either can issue, as long as there is investor demand. “We do have a loan capacity,” Brod says. “But if we ran out of money on both [State Revolving Fund Loan] programs, I could still go out and sell bonds unrelated to those programs.” n

been long supporters of water in Colorado like El Pomar, the Anschutz Foundation, and the Walton Family Foundation, others that have traditionally focused on economic development, early childhood education, public health, or the arts have started to realize water’s paramount importance. Nonprofits and projects seeking funding need to continue to make that pitch.

“A lot of [philanthropic] groups are funding healthy communities—it’s a really big topic right now and there are so many ways water fits into [it],” says April Montgomery, programs director with the Telluride Foundation and CWCB board member. “I think we need to change our dialogue a little bit.”

Montgomery helped convene a small group of foundations, businesses and water leaders in February 2016 with the goal of educating funders about the need to support Colorado water and the intersection of water across many interests. “We had a lot of great feedback,” Montgomery says, including word from many funders that they aren’t being approached about water. “There’s a need to be a little bit more creative and to pitch your issue in a different framework.”

For funders interested in making new investments in water, the Water Funder Initiative is helping guide that interest and those philanthropic dollars by outlining the broad issues and strategies that can transform the West into a more sustainable water environment. The initiative’s first move has been to compile a “blueprint” guide, published in March 2016, which lays out those initial strategies and critical, timely issues.

Although philanthropic investment doesn’t provide a huge pool of money, it isn’t insignificant. Colorado is home to more than 1,300 grant-making foundations; in 2013 they held more than $12

<CONTINUED

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<CONTINUED

billion in assets and gave $803 million.

That money can fund work that might not be possible otherwise, such as pilot projects, working through P3s, coordinating think-tank groups, and coming up with data to facilitate widespread transformation. “Philanthropy can convene people to deal with these things,” Bowman adds. “[It’s] a little bit of money that then can prompt broader private investment.”

Green Bonds

S

ome of those mission-driven projects that traditionally benefit only from grants and philanthropy could also be funded through green bonds.

Green bonds, an idea that the funding committee hopes to actualize in Colorado, would mean the CWCB helping secure and provide private capital to environmental and recreational projects by selling bonds to investors at just-belowmarket returns. Once developed, that bond money could provide immediate funding for environmental projects.

Lacking either taxing authority or a reliable revenue source—and therefore the ability to issue traditional bonds— environmental and recreational projects struggle to finance their work. “You really are dependent on the largesse of granting foundations and individual donors,” says Ken Neubecker, with American Rivers—that is unless the environmental work is connected a municipal, industrial or agricultural benefactor’s project. Even the scale of need for environmental work is unknown because it’s underfunded. “There’s a lot we don’t know, and it costs money to find out,” Neubecker says.

A dedicated funding source would help. Still, details on green bonds for water in Colorado, including repayment cycles, have yet to be worked out. The water plan suggests that repayment might come from a combination of severance tax revenue or a new public initiative, such as a container fee. n

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Colorado Water Project Statewide Funding Need Tabulated according to sectors and counties, total project costs associated with the eight Basin Implementation Plans that fed into Colorado's Water Plan tallied over $2.2 billion. However, most of the plans' projects do not yet have cost estimates. The price tag to fully cover municipal and industrial infrastructure needs could reach $20 billion, Colorado's Water Plan estimates. And that doesn't include river restoration work or costs associated with water treatment.

PROJECT COSTS IDENTIFIED IN THE BASIN IMPLEMENTATION PLANS* SINGLE-PURPOSE PROJECTS AND METHODS BASIN

MULTI-PURPOSE PROJECTS

TOTAL

ENVIRONMENTAL, RECREATIONAL, OR WATER QUALITY

MUNICIPAL AND INDUSTRIAL

AGRICULTURAL

Arkansas

$345,000,000

$270,000,000

$10,000,000

$792,000,000

$1,407,000,000

Colorado

$1,500,000

$4,000,000

Forthcoming

$132,000,000

$137,500,000

Gunnison

$8,000,000

$46,000,000

$9,000,000

$423,000,000

$486,000,000

North Platte

Forthcoming

Forthcoming

Forthcoming

Forthcoming

Forthcoming

Rio Grande

Forthcoming

Forthcoming

$80,000

$130,000,000

$131,080,000

South Platte / Metro

Forthcoming

Forthcoming

Forthcoming

Forthcoming

Forthcoming

$60,000,000

Forthcoming

Forthcoming

Forthcoming

$60,000,000

$5,000,000

Forthcoming

Forthcoming

Forthcoming

$5,000,000

$419,500,000

$320,000,000

$19,080,000

$1,477,000,000

$2,235,580,000

Southwest Yampa/White/ Green TOTAL

* As of November 2015 when Colorado's Water Plan was finalized, most projects identified in the Basin Implementation Plans did not have associated costs.

Additional estimations and refinement will be needed to develop an overall statewide summary of water project funding needs.

ESTIMATED NEAR-TERM INFRASTRUCTURE NEED Total estimated cost of projects by county, in millions of dollars $600 or more

$250–$600

$140–$250

$70–$140

LARIMER

$40–$70

$15–$40

$0–$15

WELD

DENVER ARAPAHOE JEFFERSON

DOUGLAS

EL PASO

LA PLATA

Source: Colorado's Water Plan, Section 9.2, "Economics and Funding"

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it starts to add up. The cumulative result begs a larger question about priorities and how to determine the most necessary solutions that can be achieved affordably.

Water is crucial, but so are public safety programs, human services, transportation, education, and other government spending areas. And water isn’t the only one in need of additional funding.

There’s about a $5 billion shortfall in state education funding today, ranking Colorado, the 14th richest state in the nation, 42nd in how much it spends per student; the Colorado Department of Transportation has only enough funding to maintain roads unless it can work out public/private partnerships, as was done on the U.S. 36 corridor; the economy is growing slowly; plus, the state’s TABOR limits, based on the Taxpayers Bill of Rights passed in 1992, cap property tax and income tax revenue to limit state government growth, leaving little money in the state’s general fund for new projects or to make up for these shortfalls.

The state’s Department of Natural Resources budget, which includes the Colorado Water Conservation Board, is only 1 percent of the state operating budget and 0.3 percent of the state’s general fund budget. “Those [general funds] are under constant pressure to fund growth,” says Bill Levine, budget director for the Colorado Department of Natural Resources.

“There are many people who believe that there has not been enough in the general fund to meet the needs of a lot of the general fund programs.”

That’s problematic for a state that’s been working to accommodate a population growing by approximately an additional 8,000 people every month. Maybe it’s time to rethink how we invest in the future of Colorado. Everything has a cost.

Can we come up with what’s needed? Are we ready to pay for what’s ahead? n TAKE THE NEXT STEP Review the Water Funder Initiative’s Blueprint for Philanthropy to see its suggestions for shifting investment in more sustainable water management at www. waterfunder.org.

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New Severance Tax Refunds Put a Dent in Water Funding

A

n April 2016 Colorado Supreme Court decision requires Colorado to refund millions of dollars in severance taxes and to broaden the deductions that oil and gas companies can claim against their severance tax liability.

This will mean cuts to the Department of Natural Resources budget, which includes funding for the Colorado Water Conservation Board (CWCB), especially over the next year.

Back-dated refunds could reach $125 million, according to Department of Revenue estimates, and will likely come in a torrent this year. At the same time, future severance tax revenues are expected to decline by 12.5 percent as a result of ongoing refund requests. Back-dated refunds will be paid out of the state’s general fund and restricted money. That restricted money includes $10 million from the CWCB’s operational account that would normally go toward the Water Supply Reserve Account (WSRA) and other grantmaking for regional water projects but is instead being tapped to help pay the refunds.

The total dollar amount invested in the WSRA changes annually depending on severance tax income—it doesn’t always receive a full $10 million— but there will likely be no money coming into the account this year. If that is the case, according to CWCB public engagement specialist Mara Mackillop, the WSRA will have just $2.3 million—its current balance—to work with for the new fiscal year, though each of the state’s river basins could have a balance in its account. “They have to use that money wisely and prioritize their projects because that’s all they get until July 1, 2017,” Mackillop says.

That is unless, of course, some of the $10 million of restricted money reserved to pay back those refunds isn’t needed. The uncertainty stems from not knowing how many refunds will be requested or how robust the general fund will be next year. “Let’s say that, unexpectedly, economic activity picks up or slows down and that translates into $100 million, plus or minus, into the general fund,” says Bill Levine, budget director with the Colorado Department of Natural Resources. “That will greatly factor into whether or not the general fund will be able to pay all of the refunds.” General fund money comes from sales and income tax. As the state’s largest fund, it goes toward K-12 education, Medicaid, corrections, and other large programs. Even under the best-case scenario, the WSRA and other programs that depend on severance tax funding might be funded at just 16 percent this year, Levine says.

The CWCB is studying a potential $10 million annual transfer from its own reserve to the WSRA. That would ensure that the fund has $10-20 million available annually, with anything above $10 million fluctuating with severance tax revenue. The proposal will include reforms to the WSRA and will have to be approved by the CWCB board and the state legislature before it’s actualized. If approved as presented, the funds would be available July 1, 2017. “Right now it’s just a conceptual plan,” Mackillop says. “If this funding plan doesn’t get approved, there’s $0 coming into the WSRA July 1 this year, and there could be nothing coming in July 1 of 2017. We don’t know what the future will look like.” n — CAITLIN COLEMAN

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Linking up The case for regionalization…when thinking big and partnering across jurisdictions can make the difference between success and failure, and where opportunities hinge on geographic, economic, political and legal realities.

LIBRARY OF CONGRESS

IN

the 1880s, Colorado’s South Platte River Basin had already seen the dark side of drought more than once or twice. In any given year, month followed month of little or no rain. The river disappeared from its channel in spots. And the Russian and German immigrants who had settled there to farm had no choice but to band together and go in search of a new, more reliable source of water for their sugar beets and corn.

They looked west to the snow-capped Never Summer Mountains in what would become Rocky Mountain National Park.

They recruited bankers and politicians and farmers to help. Beet growers who couldn’t spare cash contributed their own horses, plows, harnesses, and weeks of backbreaking labor during months when the snow receded. On the crest of the Continental Di-

BY JERD SMITH

vide they worked, camping with their families summer after summer until the project was done. After more than 30 years what became known as the Grand River Ditch, the oldest operating transbasin diversion in Colorado, began delivering water to the South Platte Basin, saving the region’s farm economy.

More than 100 years later, as they work to ensure the next generations of Coloradans have enough water, major players from Denver and Fort Collins to Durango and Bayfield are examining whether they, too, can join forces to establish regional water systems that are not only more economically feasible but also more environmentally sustainable than going it alone.

Denver Water, the largest utility in the state, for decades did not pursue regional projects because its agreements with the West Slope hinged on a promise not to expand its service area and divert more water from the scenic high country than it absolutely had to. Roughly half of Denver’s supplies come from transbasin diversions H E A DWAT E R S | SUMM E R 2016

out of Summit and Grand counties’ Blue and Fraser rivers.

Instead, during the past 15 years, under fierce political pressure from its watershort urban neighbors and the state, Denver Water began partnering with Aurora to help fast-growing nearby cities such as Highlands Ranch, Parker and Centennial.

Those South Metro communities were desperate to establish a surface water supply alternative to nonrenewable groundwater resources.

The effort became Colorado’s most ambitious regional project to date, known as WISE for Water, Infrastructure, and Supply Efficiency. Not yet operational, when completed it will recapture Denver’s treated wastewater after it is released to the South Platte River downstream and deliver it, through Aurora’s Prairie Waters Project, to ABOVE: The Grand River Ditch was hand-dug over decades to divert Colorado River water into the Poudre River.

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“I’m not saying that 10 partnering South Metro communities.

Denver and Aurora are contributing water and the South Metro entities came up with $30 million to purchase an existing pipeline to transport the water south and west.

WISE came about only after Douglas County and the cities, which had grown up on a system of cheap municipal groundwater wells, came within a few years of running out of water. The region, one of the fastest growing in the metro area and the nation, was also one of the wealthiest in the state. But it had allowed development to race forward without a sustainable water supply, relying instead on nonrenewable groundwater. When it became clear that the aquifer was dropping at an alarming rate and the region’s wells were failing, the pressure to act and to convince Denver and Aurora to step in could no longer be ignored.

As with other regional projects, everyone gets something. The bigger cities, which needed to put in place some kind of drought protection, get access to their return flows in dry years, while the South Metro area can gradually reduce its dependence on the aquifer without diverting more water from the West Slope. Economically and politically it makes sense, says Denver Water CEO Jim Lochhead, but he wants to see metro Denver, home to the majority of Colorado’s 5.5 million residents, do even more to integrate regional water systems.

A concept known as “One Water” involves a newer, much bigger, and more holistic view of water, one that tracks water from its origin to its first use, to its treatment as wastewater, and finally to its integration back into the treated water supply. According to Lochhead, the concept is already being pioneered in cities like Melbourne and Sydney, Australia, as well as Amsterdam and, closer to home, San Francisco.

One Water employs aggressive conservation techniques but takes them farther, considering the entire urban water network as an ecosystem of water cycles that incorporates fresh water, stormwater and wastewater. The concept makes it possible to dramatically expand water supplies without actually taking new water out of the state’s already-stressed river systems.

Using a One Water approach traditional supplies are, in effect, doubled or tripled through reuse and repeated applications.

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we won’t need new supplies. We will.

But we can be a lot smarter and more incremental in our approach.”

Jim Lochhead, Denver Water But it only works if local water players coordinate and connect their systems so that water collection and treatment systems at the start of the process have a way of tapping the wastewater that is reclaimed at the end. And to fully employ One Water would require changes to laws, water quality regulations, and building codes.

Still, with this integrated approach to water supply Lochhead believes that the 500,000 acre-foot water supply gap the state has estimated may develop by 2050 could be dramatically reduced. “Urban water efficiency could take that number to something far less than what is contemplated by that state estimate,” says Lochhead. “I’m not saying that we won’t need new supplies. We will. But we can be a lot smarter and more incremental in our approach.”

Major water technology and engineering companies including General Electric, known for its sophisticated treatment membranes, and MWH Global, known for its massive infrastructure projects worldwide, have begun testing new system designs and key technologies that could enable One Water as a solution for heavily populated, water-short areas. The concept relies heavily on the reuse of existing supIf successful, the Northern Integrated Supply Project floo-uhnt will supply 15 northern Front water fact Range partners with 40,000 acre-feet of reliable water annually.

plies and repeated wastewater treatment, but reuse has been slow to catch on in many areas. That’s due in part to the immense energy required to treat water sufficiently, and also to the fact that systems that incorporate extensive stormwater runoff and wastewater by nature must be designed differently than traditional collection, distribution and treatment systems.

Recently, however, General Electric has acquired new technology that uses the biogas released during wastewater treatment to generate electricity. The technology is part of a pilot now underway in Chicago, at one of the nation’s largest wastewater treatment facilities, which aims to become energy neutral across its entire plant by 2023. At certain times, the recaptured energy may even be in excess of the treatment system’s needs and can be exported to the grid. GE is promoting this and related technologies as part of a changing paradigm, where wastewater treatment starts to be viewed instead as resource recovery—recovery that enables not only power generation through energy recapture but also increased water reuse.

These kinds of breakthroughs, experts believe, will allow strapped urban areas to dramatically expand their water supplies without tapping rivers. But even smaller communities without the financial resources to implement sophisticated reuse programs with their neighbors are adopting regional systems. Eight years ago outside the small town of Bayfield in southwestern Colorado, the largely rural population was watching the water wells that served as its sole source of supply become increasingly unreliable, with water quality deteriorating almost as fast as groundwater levels were dropping.

For 20 years, the region had tried to form a water district with a stable source of fresh water and a treatment plant. But the costs were staggering. In the 400 square-mile area there were fewer than 100 homes that needed taps. “They could not get the cost down to where people could afford it,” says Ed Tolen, manager of the La Plata Archuleta Water District in La Plata and Archuleta counties. Here, where poverty rates are high and median incomes low, homeowners could not afford to pick up the whole tab—roughly $10,000 to $15,000 in tap fees—the district would

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COURTESY SOUTH METRO WATER

The WISE project relies on existing infrastructure and a few new facilities, including this 2-million gallon potable water tank at Smoky Hill Road and E-470.

H E A DWAT E R S | SUMM E R 2016

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have needed to charge to generate enough money to build the system.

But in 2008, with support from the Southwestern Water Conservation District, local citizens were able to form a special district to tax themselves and, more importantly, the booming natural gas industry. They generated enough cash to buy a long-term water lease from the Pine River Irrigation District.

With the help of loans from the Colorado Water Resources and Power Development Authority, they were able to pay to expand neighboring Bayfield’s water treatment plant, reserving enough capacity so that the tiny La Plata water district will always have access to treatment for its own customers. In exchange, Bayfield now has an expanded treatment plant and access to some of the new district’s pipelines, all at no cost to its own small community of 2,300 residents. “We had to find a win-win situation,” Tolen says.

The La Plata district, which generates more than $1.7 million in revenues annually, delivered its first treated water in January 2014. Now serving just 60 homes, the district will be able to serve 3,600 to 4,000 homes at buildout.

Some regional efforts elsewhere in Colorado have not yet succeeded, delayed by political disagreements and decades-long permitting battles. On northern Colorado’s Front Range, what’s known as the Windy Gap Firming Project was supposed to start 38

seven years ago. The project includes construction of the 90,000 acre-foot Chimney Hollow Reservoir between Loveland and Longmont to store additional Windy Gap Project water from the upper Colorado in years when it is available.

The first phase of Windy Gap was built in 1985 to serve Estes Park, Fort Collins, Greeley, Loveland, Longmont and Boulder.

The firming project is a much larger, 13-entity regional effort that includes Broomfield, Louisville, Lafayette, Erie, Evans, Fort Lupton, Superior, the Platte River Power Authority, the Central Weld County Water District, and the Little Thompson Water District. Although the project is now close to being finalized, the project’s sponsor, the Municipal Subdistrict of the Northern Colorado Water Conservancy District, has had to expand the scope of the project and dedicate new flows to the river to help mitigate environmental issues.

Eric Wilkinson, general manager of Northern Water, says that even major regional water projects such as the Windy Gap Firming Project are problematic because of the permitting delays and the unpredictable nature of the costs associated with those delays. Those kinds of problems make the process of buying agricultural lands and transferring the water to urban use seem much easier and less expensive to water-short cities, Wilkinson says, de-

TAKE THE NEXT STEP Attend monthly webinar offerings, look for proceedings from the June 2016 One Water Summit, and collaborate with One Water practitioners by visiting www.uswateralliance.org/one-water.

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COURTESY FEI ENGINEERS

In pursuit of reliable drinking water, the newly formed La Plata Archuleta Water District in southwestern Colorado found a cost-effective solution in paying neighboring Bayfield to expand its water treatment plant.

spite the long-term damage done to Colorado’s irrigated agriculture economy.

Other regional projects have gone down in flames, including the Two Forks Dam project, which was rejected by the U.S. Environmental Protection Agency (EPA) in 1990 after Denver and its suburban partners had spent more than a decade and $40 million trying to win its approval. And other more recent major water projects, including Denver Water’s effort to expand Gross Reservoir in western Boulder County and another Northern Water effort—to build what’s known as the Northern Integrated Supply Project (NISP) on the northern Front Range—have yet to succeed despite the numerous cities that support them. There may be some hope ahead, however. Under Colorado’s Water Plan, adopted in December 2015, numerous policies are in place that encourage, but stop short of mandating, multi-use and multi-participant projects.

In addition, Wilkinson says he has been encouraged by a recent tightly focused effort by the EPA, U.S. Army Corps of Engineers, Bureau of Reclamation, and Colorado Department of Natural Resources to dramatically streamline the federal permitting process, another of the water plan’s action items.

Currently, any project that involves federal funding or requires a federal permit must deal with multiple agencies and stakeholder groups, all of which have different requirements for engineering, cost and environmental data. Under the federal Clean Water Act, any project that diverts from the “waters of the United States” requires a permit from the Army Corps. And most rivers and streams are considered U.S. waters. “The idea is to look at cutting out redundancies and lags in schedules [among the different agencies],” says Wilkinson.

“Instead of running processes sequentially, they will run in parallel.”

As the state’s population grows, regionalizing water systems in areas that share common boundaries or at least lie close to

COURTESY NORTHERN WATER (3)

1 Signing of the Windy Gap Firming Project’s Record of Decision by Reclamation in December 2014. 2 Site of the proposed Chimney Hollow Reservoir site looking south with Carter Lake to the east on left side of photo. 3 Completed in 1985, the original Windy Gap Project was built by six Front Range communities that came together in 1970 as the Municipal Subdistrict of Northern Water.

H E A DWAT E R S | SUMM E R 2016

one another will continue to make sense.

As communities fill in, connecting them becomes cheaper on a per-capita basis. Look at a map of the new WISE Project and it’s clear why those communities are better served by joining forces and sharing resources, says Lochhead.

However, far-flung water districts that have suffered with inadequate financial resources, expertise or water supplies will remain harder to serve. In Tolen’s La Plata district, for instance, 25 percent of residents have had to haul water. Nearby areas outside the district are facing the same problem. But they don’t have enough residents or commercial players, such as natural gas producers, to generate the tax revenue to build a sustainable system.

The state will have to continue to look for options to help these communities, says Tom Browning, deputy director of the Colorado Water Conservation Board. Browning says other small communities that are isolated due to geography won’t be able to rely on regionalization to meet their long-term water needs.

The City of Thornton has had to largely go it alone, not because it lacks cash, but because its water rights cannot be used outside its boundaries, according to Thornton’s water project director Mark Koleber. He is in charge of a massive pipeline project that will bring water from the Grand River Ditch, now largely controlled by Thornton, south to the city. According to Koleber, although regional cooperation on the project hasn’t been possible because of its water rights limitations, the city has talked with various Weld County entities about sharing the pipeline with other small communities who might need help.

Some have suggested that communities that can’t prove they have adequate water, such as the rural areas of eastern La Plata County, should be required to join districts that do, but Tolen believes such an approach goes too far: “I would rather see the state simply require that these communities demonstrate that they are working toward a sustainable water supply.”

Still those who have been able to work successfully at the regional level have seen the power and economies that result when communities band together. “It’s not going to be a single model in the future moving forward,” says Lochhead. “But regionalization makes sense. No one can do it alone.” n 39

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