Money Mag says check out CCME

The May 2009 issue of Money Magazine lists Cripple Creek as one of the four best places to buy an affordable vacation home. And it specifically promotes Cripple Creek Mountain Estates:

Check out: Cripple Creek Mountain Estates, a planned community that still
has buildable lots available.

MMWC members have good reason for optimism. With CCME getting national attention, a secure and stable water supply should improve property values.

Vacant lot owners

Many MMWC vacant lot owners have expressed their disappointment with the $80 special assessment and the decision to raise availability fees to $150/year, starting 2010.

The two biggest objections are (1) they are not getting any water, so why should they have to pay, and (2) actual users aren't paying enough.

Are the costs being spread fairly -- or, more particularly, are MMWC's water users paying enough?

Let me start by saying that I agree with the second objection, to the extent that we are talking about high-volume users. But CCME also has quite a number of low-volume users, particularly those who use their properties only a few weekends or months a year. While it may be fair -- based on what others are paying -- for high-volume users in CCME to pay $60-$70/month, that would arguably be unfair to MMWC's low-volume users.

The fundamental problem is that MMWC's customers aren't metered. Until that happens, there is no practical way for MMWC to make high-volume users pay more than low-volume users.

I have some good news on this front. By the end of 2011, all MMWC water customers must be metered. Once users are metered, MMWC will be able to impose a rate structure that more fairly distributes the costs based on those who receive the most benefits.

Also, MMWC's special assessment is not, by any means, giving MMWC's water customers a free ride. MMWC water customers will be paying more in three ways. First, MMWC water users are also paying the $80 assessment. Second, most MMWC water users will see their fees rise to $50/month starting next year. This is a 100% increase over the $25/month rate they paid through Aug. 2007. By comparison, vacant lot owners will have experienced a 67% increase over the same time period. Third, MMWC water users will also soon incur several hundred dollars in expenses to install meters and meter pits, if they don't already have one. All in all, MMWC water customers will be making a very big investment in MMWC's water system and their water security.

Why is MMWC imposing the same $80 assessment on all of its members -- users and non-users alike?

The fairness argument: It costs money to maintain an infrastructure capable of delivering water to your lot, even if you never tap into it. The $80 assessment will enable MMWC to start making some very desperately needed improvements in that infrastructure. These capital improvements are critical to serving new users -- that is, people building on formerly vacant lots -- in CCME. Because everyone benefits , MMWC's existing users cannot be expected to shoulder the entire burden of those infrastructure improvements, which are compelled in large part by the need to meet the demands of new users.

The we-had-no-safe-alternative argument: MMWC's board considered imposing a higher special assessment on its water users than its non-using members. But Colorado law requires that special assessments on mutual ditch company members be assessed in a "pro rata" manner to its members.

What benefit do I, as a vacant lot owner, get out of paying availability fees?

First, the existence of a central water system in CCME increases the appeal and market value of lots in CCME. Most of the surrounding real estate lacks a central water system, and the value of that real estate suffers by comparison.

Second, your paying availability fees gives you a right to tap into MMWC's water distribution system and thereby obtain water and water service, and at a bargain price. Currently, availability customers are charged only $500 to connect to MMWC's distribution lines. This is considerably less than the tap fees that most water companies and districts in Teller County charge (tap fees typically range from $8000-$14000 in Teller County).

Third, the mere maintenance of your water rights is exceptionally valuable. Owners of most tracts of land in Teller County can't even legally dig a well because the area's water rights are heavily over-appropriated. Simply having the right to water here in Teller County is not something a typical property owner can take for granted any more.

Your paying availability fees plays an important role in maintaining those water rights. In 1983, MMWC secured a very valuable set of water rights to serve the then-existing and future anticipated needs of CCME residents. Under Colorado law, however, a person abandons their water rights if they (1) don't use the water and (2) act in a manner that indicates an intent to abandon their water rights. Your paying availability fees constitutes ongoing evidence of your intent to not abandon those rights.

But I don't ever intend to either sell or build on my lot!

I could ask, why did you acquire a subdivision lot in a covenant-controlled community if you don't intend to develop it? Particularly when there are so many non-subdivision tracts of land you might have acquired instead? (These questions are not fair to everyone concerned -- see below -- but they are fair to some owners).

To develop a rural subdivision with amenities presents a chicken and egg problem. It's hard to get people to move into a subdivision -- or in CCME's case, to build on their lots -- without first providing attractive amenities. At the same time, it would have been impossible for CCME or MMWC to establish the amenities they provide -- including a clubhouse, fishing ponds, and a central water supply -- simply by collecting fees from the then-existing homeowners. There simply weren't (and still aren't) enough of them.

To overcome that chicken-and-egg problem, Golden Cycle Land Corp. created a subdivision with covenants that required all members -- including vacant lot owners -- to both contribute to the maintenance of the property owner's association and to join the water company (which in 1973 became Mountain Mutual).

When you acquired a lot in CCME, you acquired a lot that was already "encumbered," legally speaking, with this development plan, fee-raising structure, and all the land-use restrictions that are recorded in the Covenants that run with the land.

Although this may conflict with some owner's notions of their property rights, CCME lots didn't come with absolute unencumbered property rights. They came encumbered with a vision of a planned, architecturally-controlled community with a central water supply. It costs money to sustain that vision. And hundreds of people have invested hundreds of thousands of dollars building homes in CCME in the belief and expectation that this vision will be sustained.

There are many CCME property owners who bought lots in CCME with the dream of one day building here, but for one reason or another (e.g., financial difficulties, health problems, etc.) no longer anticipate realizing that dream. For many such property owners, the property taxes they pay, the fees they pay CCMEPOA, and the availability fees that they pay MMWC are a hardship.

For some property owners, the best response to that change in circumstance is probably to sell their lot to a buyer who does share in that community-building vision. That is not to say that selling the lot will not be a hardship -- some might end up selling their lots at an inflation-adjusted loss. But CCME is, fundamentally, a community development. Its covenants and fees are structured to encourage the development of that community.

Express Yourself

The letters informing residents of the $80 special assessment, the new metering-by-2011 requirements, and the new rate structure going into effect next year have gone out.

And the calls have started pouring in.

It would be a mistake to deny the validity of our members' grievances. The special assessment, the metering requirements, and the new rate structure will impose hardships on many of MMWC's members.

I want this post to be an outlet for members to express their grievances, and share them with everyone else who reads this blog. So post your comments here.

In a future post, I will explain some of the reasons why MMWC is taking the actions it is taking. I don't expect members to agree with all of those reasons. And those reasons will not necessarily shield our actions from your critiques. After all, there is no government or organization in which the distribution of benefits and burdens is perfectly equitable.

But I think we can all benefit from listening to each other. So express yourself here, that we may listen.

2009 Annual Meeting

I want to thank everyone who attended the 2009 MMWC Annual Meeting, and for their questions, contributions, and input. For those who didn't make it, I hope to see you at next year's annual meeting.

We had two very good candidates running for the Board -- Donna Brazill and Joe Weiner. Donna, who made tremendous contributions to MMWC over the past 3 years, was re-elected. I think that Joe, whom I met for the first time today, would have made a great director too. He has volunteered to help in a number of ways, and I look forward to working with him.

I presented a two-hour PowerPoint presentation setting forth a long historical overview of MMWC's infrastructure and budget challenges. Don enhanced the presentation with his input and several demonstratives (pipes, valves, etc.). For those of you who missed the presentation, an abbreviated version of the presentation is here. Most of the rest of the information I presented is discussed on Mountain Mutual Water Company's website, on the "Budget" and "Infrastructure" pages.

After the presentation, we presented two resolutions to the membership. First, MMWC will be assessing $80 per MMWC member or customer, to raise funds needed this year for operational and capital expenditures. Second, MMWC will raise user fees to $50/month in 2010, except that those who are metered by that time will pay the lesser of $50/month or $25/month + $0.005/gallon. Also, availability fees will be $150/year starting 2010. Both of these rather monumental resolutions passed without any opposition, which indicates that we successfully made the case that these measures were needed.

MMWC is implementing a lot of changes. For those on tight budgets, the changes may be difficult. We are sensitive to that. However, the grim infrastructure reality -- driven home by the challenges MMWC suffered during the harsh winter of 2008 -- is that MMWC cannot responsibly put off investing in much-needed infrastructure improvements. And the grim budget reality -- revealed in convincing detail on MMWC's "Budget" page -- is that MMWC has no good alternative to raising rates, and in percentage terms, rather significantly. However, even after these changes, MMWC's rates will still be below rates most other rural Teller County providers charge.

Ponder the Unthinkable: What if MMWC Went Bankrupt?

Let's do a little thought experiment. What if MMWC went bankrupt?

Now don't misinterpret this question -- MMWC's Board of Directors has no intention of letting that happen.

But imagine what would happen if singleminded opposition to rate increases led to MMWC's insolvency. After all, it wouldn't be the first time a ditch company failed. See Farmers Water Development Co. v. Barrett, 376 P.2d 693 (Colo. 1962); Doland v. Grand Valley Irrigation Co., 63 P. 300 (Colo. 1900).

The first thing to realize is that upon dissolution of MMWC, each member would still own their share of the 1.04 cfs water rights. But these water rights would no longer be owned collectively.

CCME's residents would then face several options.

(1) One option would be for residents to hire a water-hauling company to periodically fill their cisterns. That could easily cost $85/load. The average full-time water user would need between 2 and 4 loads per month. The resulting water bill would amount to between $170/month and $340/month.

(2) Another option (which is what occurred in the Barrett and Doland cases cited above) would be for a group of CCME residents to band their resources and water rights together and make a bid on MMWC's wells, transmission, and distribution system. The group would probably have to go into debt to finance the acquisition and attorneys' fees. Moreover, the group would probably have a hard time getting owners of vacant lots to join -- so CCME residents would probably end up footing the full bill for their water service -- instead of about 50-60% as they do currently.

Moreover, the new company would probably end up with only a small fraction of MMWC's 1.04 cfs water rights -- potentially preventing the group from accommodating new members. Meanwhile, MMWC residents or lot owners who declined to join the new company might end up abandoning their water rights. Or savvy water districts and utilities would offer to buy those water rights from the members on the cheap.

Assuming enough people joined to make a new company viable, members of the new company would still probably end up paying over $100/month for their water, perhaps as much as $150/month if attorneys' fees are factored in. This is considerably higher than the $50/month rates MMWC is proposing starting in the year 2010.

(3) A third -- and certainly more practical -- option would be for residents to form a water district. The water district would be easier to capitalize than a new mutual ditch company, because it would have the right to tax property and sell bonds. But it would be expensive to form and more expensive to manage, because of the vastly larger body of regulations that apply to special districts. Also, the district would have to go into debt to buy MMWC's infrastructure. The new water district would likely lose the ability to charge availability fees. Consequently, full time residents would bear a much larger share of the fiscal burden. In the end, users would probably end up paying $80/month or more for water. Moreover, there could be significant obstacles to transferring all of MMWC's water rights to the new district.

Conclusion: Allowing MMWC to fail would be very unfortunate. It would be a lot more expensive to solve CCME's water problems if MMWC members let them grow into a full-blown crisis, than if they address them now.

Our Water Rights -- What Are They Worth?

Many residents take their water for granted. Few have any idea how much their water rights, measured collectively, are worth.

MMWC's members own 1.04 cfs of relatively senior priority Beaver Creek water rights, with an initial appropriation dating back to 1865. 1.04 cfs amounts to 753 acre-feet per year.

Recently, the Pueblo Board of Water Works made an offer for shares of the Bessemer Ditch water rights -- most of which are also relatively senior -- equal to $9,000 per acre-foot. See the Pueblo Chieftan article on the subject.

At that valuation, MMWC's members' Beaver Creek water rights would be worth $9,000 * 753 = $6.78 million. Split evenly between about 1450 members, that amounts to about $4,675 per member.

But Pueblo's offer was for dirty ditch water. Pueblo is offering to sell its pristine Columbine ditch water rights for $22,800 per acre-foot. At that valuation, MMWC's members' Beaver Creek water rights would be worth $22,800 * 753 = $17.17 million. Split evenly between about 1450 members, that amounts to about $11,840 per member.

Also last year, the City of Broomfield paid $7.65M to acquire 525 acre-feet of Big Thompson water rights. This amounts to about $14,600 per acre-foot. At that valuation, MMWC's Beaver Creek water rights would be worth about $11 million -- or about $7,600 per member.

Our water is indeed a precious resource.

See also:
Colorado Big Thompson Water Right Price Trends, 1990-2003
Broomfield laps up some Greeley water

MMWC's Budget and Infrastructure Problems and Solutions

In the Slide Presentation below, learn about the longstanding infrastructure and budget problems that MMWC faces:

1) A 3", Sch. 40 PVC transmission line that is less than adequate to meet the needs of CCME's existing residents, much less future growth.

2) Pressure problems, freezing lines, and other issues that interrupt and threaten water delivery for CCME's residents.

3) Rates and revenues that haven't kept pace with inflation or MMWC's growing user population.

4) Dwindling reserves and the threat -- if nothing is done -- of insolvency.

But also learn what MMWC intends to do to solve those problems:

1) Immediately increase investment in needed infrastructure improvements, especially a new 6" transmission line from the Gillette Flats well field to our main water tank, and -- within the next 5 years -- to CCME.

2) Require all users be metered by 2011.

3) Levy a special assessment of $80 on all MMWC members and customers in 2009.

4) Raise availability fees to $150/year in 2010.

5) Raise user fees to $25/month + $0.005/gallon (if metered, with monthly amount temporarily capped at $50 to encourage early metering) or $50 (if not metered) beginning Jan. 2010, to encourage metering and conservation and
to transition toward a more equitable distribution of MMWC's costs.

6) Investigate and pursue grant opportunities.

The following is an abbreviated, internet-based version of the slideshow presentation:

Uploaded on authorSTREAM by ecernyar

If you would like a copy of the complete, 2007 PPT version of the presentation, please contact me.

MMWC members are welcome to attend Mountain Mutual Water Company's Annual Meeting on Saturday, March 21, 2009, at 10:00 a.m., at Rocky Mountain Chapel next to MMWC's office building.