Utilities, Reclamation inch toward agreement on SDS

August 24, 2010

Colorado Springs Utilities and the U.S. Bureau of Reclamation edged closer to an agreement Tuesday in their fourth round of negotiations over long-term water contracts needed for the Southern Delivery System pipeline.

After nearly 12 hours of talks, the two sides came to agreement on several key aspects of the 38-year contracts that the SDS partners will need to store and convey up to 42,000 acre feet of water through Pueblo Reservoir.

The negotiation session ended at 9:30 p.m. Tuesday. Talks are scheduled to resume at 9 a.m. today  in the Pueblo Shrine Club in Pueblo West.

“We’ve made some real progress in a number of areas, and we still have some work to do to reach an agreement,” said John Fredell, SDS project director and chief negotiator.

The SDS partners scored a major win, however, when Reclamation increased the amount of financial credit it was willing to give Utilities for construction of an outlet in the dam that will connect with the pipeline. The federal agency initially offered Utilities a $288,000 credit for what’s called the “North Outlet Works.” By the end of the day, it had increased the amount to $5 million.

The major issue still to be resolved is how much per acre-foot the SDS partners will pay for what’s called “excess capacity contracts.” Those contracts will enable the participants to store water in the reservoir if and when the space is available.

The Bureau of Reclamation wanted to charge the SDS partners $50 an acre-foot when negotiations started last May. Utilities on Tuesday asked Reclamation to drop the price to $35 an acre-foot. When the two sides called it quits, Reclamation had put $37 on the table.

Reclamation is involved in the negotiations because the reservoir is part of a federally owned water system that brings water from the West Slope to the Front Range through a series of conduits, tunnels, dams and reservoirs collectively known as the Fryingpan-Arkansas Project.

The Arkansas River is the primary vehicle for delivering the water and Pueblo Reservoir is the final reservoir in the system.

Despite the millions at stake, the negotiations were courtly and recalled a different era. Sitting on one side of the room were five negotiators from Utilities. Facing them were four negotiators for Reclamation. The two teams often left the room to “caucus,” that is, to strategize behind closed doors.

At midday, Reclamation took public comments. One speaker was Colorado Springs City Councilman Tom Gallagher, who once again voiced his opposition to the pipeline project and pointed out that there are other water-storage locations that could be used in lieu of Pueblo Reservoir.

Those alternatives include at least one project being examined by a Colorado Springs developer that has employed Gallagher. Four years ago, Gallagher's advocacy of SDS alternatives prompted fellow members of the council to accuse Gallagher of a conflict of interest by trying to represent both Colorado Springs utility ratepayers and his employer.

At the time, Gallagher, a surveyor, denied any conflict. More recently, the developer, Mark Morley, has said he no longer is interested in adding any of his water projects to the SDS system.

In another concession to the SDS partners, Reclamation dropped the annual inflation fee it wants to tack onto the contracts from about 3 percent to 1.79 percent.

Utilities’ Fredell fought hard to see the utility was properly credited for building the North Outlet Works, which will cost $31 million to build and will benefit other water providers.
Fredell and his team kept hammering at the methodology that Reclamation was using to come up with its costs.

“Everybody up and down the river ought to be treated the same,” Fredell said.

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