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Cherokee metro district wades cautiously into water deal

January 31, 2011

The sagebrush prairie of far eastern El Paso County is one of the state’s drier places, a barren landscape that receives an average of just 14 inches of precipitation a year.

But could this area hold the solution to the water struggles of the Pikes Peak region’s smaller providers?

A Denver businessman says “yes.”

Jerry Kessel, of CoH20 LLC, says he has a huge amount of water to sell, rights owned by ranchers and farmers in the Horse Creek Basin of El Paso, Lincoln and Elbert counties. After more than a year of approaching water providers in the area, he has piqued the interest of the Cherokee Metropolitan District.

District officials recently signed a letter of intent, saying that if Kessel proves he can deliver the water, they will buy it, even while their manager and other water providers in the area remain skeptical that Kessel can get the 8,000 acre-feet he has promised.

"This water is relatively close, and we’ve got some work to do to get them to the point where they’re comfortable with the water, and I don’t blame them (for being skeptical),” Kessel said. “We would hope that once we get this pipeline in the ground the other districts in the Pikes Peak area will see the light and say, well, we need some water too.”

Cherokee serves 18,000 mostly residential customers just east of Colorado Springs. (Click here for a district map.) Unlike Colorado Springs, which gets water from a mountain pipeline system stretching hundreds of miles, Cherokee relies on wells, a dwindling resource that forces water-use restrictions and high prices. A recent court case forced the district to abandon four of its wells, making the search for a new water source all the more urgent.

“We want to pursue it further,” said Cherokee board member Larry Keleher. “He’s a seller and we’re a buyer, and we want to check things out.”

Kessel also runs Newport Realty Investments, which in 2008 was sanctioned by the state’s Division of Securities for offering unregistered investments in a Denver real-estate project.

He attended the district’s January board meeting and told its members he will sell up to 8,000 acre-feet at a cost of $15,000 per acre-foot. He said the water has been declared nontributary to the Arkansas River, limiting the ability of downstream users to challenge moving the water from the basin. Also, he said, the water is clean and his company will pay for a pipeline to Cherokee’s system.

Cherokee currently leases water from Colorado Springs for $3,500 an acre-foot, much less economically feasible than owning water rights, because the water can be used only once.
Kessel had made the district offers in the past, and his sales pitch was somewhat gruff.

“I’m at a point where, frankly, I don’t have enough time left in my life to play around with you guys,” he told the board in insisting on a letter of intent.

Kessel has also talked with other water providers, including Woodmoor Water and Sanitation District in northern El Paso County. Its board was not interested.

“There is some question as to whether or not the water that Mr. Kessel has for sale, whether or not it has long-term viability,” said district manager Jessie Shaffer. “I think he has something. I just know without a whole bunch more engineering analysis, I don’t know he can demonstrate it’s really renewable or reliable.”

Sean Chambers, Cherokee’s manager, voiced similar concerns after the January meeting.

“I firmly believe there is water out there. I believe it’s of good quality. But the real question is, is it economically feasible for the quantity of water that’s available, and how much opposition will be faced?” he said.

The Horse Creek Water Users Association, a consortium of farmers and landowners in the basin, pumped 5,010 acre-feet in 2009 and 4,157 last year, according to the Office of the State Engineer. Kessel claims to have 25,000 acre-feet to sell.

Despite the misgivings, the board met in executive session last week and decided to pursue the deal. Neither Kessel nor district officials would discuss the terms of the letter of intent because it is part of an ongoing negotiation.

Keleher said the letter does not set a price or purchase volume and is nonbinding.

“I think the whole board wants him to actually prove what he says he can deliver,” he said.

Kessel said he plans to do that, though he would not elaborate on his company’s water studies or who is selling the water rights.

“I can just tell you that the water’s there,” he said. “How I know that the water’s there is something that I’d just as soon not get into at this point. We know it’s there. We’ve spent hundreds of thousands of dollars checking out the water in that basin.”

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