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Water Developer Takes It Slowly: Pure Cycle’s Purchase of Fort Lyon Water Fits into Long-Term Plans for Denver Metro Development.

December 4, 2006

By Chris Woodka, The Pueblo Chieftain, Colo.

Dec. 4–A water developer with plans to pipe Arkansas Valley water to the Denver metro area is playing a waiting game, and it may be years before the company seeks court approval, let alone build a pipeline.

“It’s a long-term project, no question,” said Mark Harding, president of Thornton-based Pure Cycle Corp.

Pure Cycle completed its purchase of Fort Lyon Canal farms and water rights from High Plains A&M in late August, but there is no urgency to file a change of use case in Division 2 water court, where Chief District Judge Dennis Maes shot down High Plains’ change request in 2004 as speculative.

The Colorado Supreme Court upheld Maes’ decision, saying High Plains had failed to identify an end user in its ambitious plan to market the water in 28 Eastern Colorado counties.

Pure Cycle plans to take a more cautious approach, and only after its current water resources are more fully put to use, Harding said.

Harding has already outlined Pure Cycle’s future plans for the Fort Lyon Canal board and will meet with shareholders at their annual meeting on Dec. 11. By purchasing the High Plains Farms, Pure Cycle became the ditch company’s largest shareholder, with about 20 percent of the water rights and 17,500 acres of land, mostly north of Las Animas.

“What we expect is a 10-12 year process before they start deliveries to the Front Range,” said Fort Lyon president Dale Mauch. “They don’t need it now, but they will.”

Harding is less definite about Pure Cycle’s plans, saying much depends on the pace of growth east of Denver and where it occurs.

“It will happen in the future, but we don’t know how far in the future,” Harding said. “Timing is a key issue and the metro area growth will determine how soon we move.”

Lowry Range development

In 1986, the Rangeview Metropolitan District entered a lease with the State Land Board for the water rights under the Lowry Range, a 26,000-acre tract of land southeast of Aurora once used for bombing runs from Lowry Air Force Base. Pure Cycle will be the water supplier and wastewater contractor for any future development on the property.

In 1996, Pure Cycle assumed management of the groundwater, combining it with surface rights it owns on two creeks that flow through the Lowry Range

The State Land Board’s mission is to generate revenue from state trust lands for public education, and Lowry is one of its most valuable properties. Its role was refined by Amendment 16 in 1996 to include a Stewardship Trust to preserve conservation values as well.

Currently, development is being confined to the northernmost portion of the Lowry Range, about 3,800 acres north of Quincy Avenue. The Land Board is considering three proposals to develop the land and a fourth that addresses conservation.

Rangeview’s lease allows Pure Cycle to move 40 percent of the water off the site. Pure Cycle also has plans n and conditional water rights n to build several reservoirs on the Lowry Range as well.

Aurora could be a potential partner in one of the reservoirs, which it envisions as part of its $800 million indirect potable water reuse plan. The reservoir site is east of Aurora Reservoir and would initially be 15,000 acre-feet, but could expand to three times that size if there were other partners.

“We would like to work with Rangeview in development of the reservoir,” said Mark Pifher, Aurora’s deputy director for water resources.

Pifher said Aurora does not have any interest in Pure Cycle’s plan for a $400 million pipeline, however.

Pure Cycle’s approach to Lowry water development is to cooperate with other regional interests as the metro area expands eastward toward Watkins and Bennett along the Interstate 70 corridor, Harding said.

“Being regionally oriented, we are looking for more cooperative ways to use water,” Harding said.

Harding said there is enough water on site n 34,000 acre-feet annually between deep wells and surface rights n to serve 80,000 single-family connections. Its water from the Fort Lyon Canal n consumptive use of about 40,000 acre-feet annually n would more than double that capacity.

The water moved off site by Pure Cycle would serve the Ranch development, which is located due north of Lowry near I-70.

Reservoirs on the Lowry Range would recycle treated wastewater return flows into dual distribution systems for outdoor irrigation.

“We want to maximize water supplies. Historically, water supplies have been clean, front-end supplies,” Harding said. “The best use of water is to provide for multiple uses at the point in the system where it’s being used. Most of the water in the irrigation system would be either raw water or treated effluent.”

Destination points

The reservoirs on the Lowry Range would likely be the the ultimate destination points for water through a pipeline from the Fort Lyon Canal, although other water deliveries might be made at points along the way in El Paso and Douglas counties, Harding said.

Right now, there are no alignment, sizing or treatment options for the pipeline, which has a cost estimate of $400 million, determined from previous High Plains engineering studies.

There are also no immediate plans to build it.

“We’d start looking at it when we have about 20,000 connections,” Harding said.

That’s a ways off, since Pure Cycle now has operating revenues of about $1 million annually, 300 customers and contracts for 5,000 more. On the Lowry site, the only development so far consists of the Ridge View Youth Services Center and some gravel operations.

But as development along the E-470 toll road and I-70 increases, some of the fallout is expected to land in Pure Cycle’s service areas, Harding said.

“Colorado is expected to add 1.3 million in population by 2025,” Harding said.

Valley interests

In the meantime, Pure Cycle is beginning to look at what it has acquired in the Arkansas Valley through new eyes, and surprisingly not just the eyes of speculators who view the water rights simply as cold, hard business assets.

“One of the things we want to try to do is to understand the Fort Lyon system and find a way where our development benefits others on the Fort Lyon,” Harding said.

Pure Cycle inherits a determination made by stockholders in 2003 that water can be exported from the canal, so long as it is taken “in rotation” from the point where it was historically diverted.

It also has kept High Plains contracts to farm the land it owns and retained High Plains to manage those contracts for the next five years, after which Pure Cycle will be in the farming business itself. High Plains also continues to make payments on some of purchase agreements along the Fort Lyon.

Those arrangements satisfy Harding.

“My philosophy is that you are better off to treat the water and deal with it at the site where you bought it,” Harding said. “We’re not looking at exchanges, which I don’t think would be morally or legally right. A drop of water in the mountains or Pueblo Reservoir is a different quality of water than a drop of water in the Fort Lyon.”

Beyond that, Harding wants to work with the Fort Lyon to improve water quality by improving irrigation efficiency and increasing the value of water that is used within the valley. Harding is open to the possibility of working with the Lower Arkansas Valley Water Conservancy District’s Super Ditch program or becoming a supplier for the Arkansas Valley Conduit envisioned by the Southeastern Colorado Water Conservancy District.

“We’re looking for a synergy with the users on the Fort Lyon Canal,” Harding said. “Their system is our system. Maybe some of our improvements can help them get their water to other markets.”

Pure Cycle does not want to purchase more water rights on the Fort Lyon, which is a different philosophy than High Plains, and Colorado Interstate Gas in the early 1990s, took when they tried to gain majority control of the canal.

“I want to make sure what we’re doing doesn’t harm any agricultural efforts,” Harding said. “Can we create jobs and economic opportunity in the valley? Can we make it so ranching can continue? I want to be cognizant of their interests.”

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CANAL ROOTS

Pure Cycle Corp. is the latest developer with designs on the Fort Lyon Canal, the Arkansas Valley’s largest ditch system. The canal diverts from the Arkansas River near La Junta, irrigating more than 90,000 acres along 113 miles. The ditch company also operates a storage canal and two reservoirs.

* An irrigation ditch was built in 1863 by the U.S. government for an Indian reservation with the headgate at the present site of the Fort Lyon diversion. * Investors, principally T.C. Henry, founder of Traveler’s Insurance, began expanding the canal in 1887, selling government lands along its course. * Farmers gained legal control of the canal in 1897, but disputes over water allocation along the canal continued until the early 1900s. * A storage canal was constructed in 1906 to fill reservoirs on Horse Creek and Adobe Creek. * Colorado Interstate Gas attempted to buy more than half of the Fort Lyon Canal in 1991, with stated intentions to pipe the water to the Front Range. * High Plains A&M, a group of investors led by New Orleans businessman Terry White, bought about 20 percent of the Fort Lyon beginning in 2001. Fort Lyon and High Plains reached agreement in 2003 after a five-day hearing that water could be exported only if it were taken “in rotation” along the canal. * Pure Cycle Corp. announced in May it had purchased High Plains’ interest on the canal, about 21,700 shares, along with land. The deal was closed on Aug. 31.

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ON THE NET:

Pure Cycle Corp.: http://www.purecyclewater.com/

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Copyright (c) 2006, The Pueblo Chieftain, Colo.

Distributed by McClatchy-Tribune Business News.

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