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The Problem with a Ten Year Lease, Part One |
Bill Hudson | 10/9/08
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In preparation for Tuesday’s Town Council discussion of a proposed lease of geothermal water to the Springs Resort, I spent a few hours researching and writing my Tuesday editorial, posing a simple question: How much is geothermal water worth? My very amateur calculations came up with a suggested street value of the 210 million gallons the Springs Resort wants to lease from the Town’s two geothermal wells: $14 million, based simply on what it would cost to re-create that amount of heated water — using state of the art technology and natural gas as a heat source.
When I attended the actual Town Council meeting later that evening, I had a chance to hear several other valuations of the proposed lease.
 I heard Council members defend the basic concept of the lease: committing the lion’s share of the Town’s geothermal water rights to the Springs Resort, for ten years or longer, in order to encourage the resort to proceed with a planned expansion of its popular, and attractive, lodging and bathing complex.
I also heard members of the audience urge the Council to reconsider certain aspects of the lease — including the amount of water being committed to one single Pagosa business, and the lack of a clear ‘off-ramp’ to allow the Town to terminate the lease if needed.
The Council and the audience were in basic agreement on one point: that the Town’s geothermal water rights — 450 GPM to be used for “municipal use associated with geothermal heating” — could be a potent source of economic well-being in the Town’s future. The Council, as a whole, seemed to feel confident that the Springs Resort can single-handedly provide that economic benefit. The audience, as a whole, seemed to feel that a long-term lease of 400 GPM to a single business entity — out of a total water right of 450 GPM — was imprudent.
Councilor Mark Weiler made the case for valuing the Town’s geothermal water in terms of the community-wide benefits he sees coming from an expanded Springs Resort. Weiler is President of Parelli Natural Horsemanship, a Pagosa-based business which itself has expanded greatly over the past ten years. Weiler noted that the Durango non-profit Region 9 Economic Development had conducted a study on behalf of Parelli, analyzing the community benefits of that company’s expansion. Weiler said he took those figures and calculated the economic benefits of the Springs Resort expansion — the plans for which have already been studied and approved by the Town Council.
“One thing that I think would help us a great deal would be to have Region 9 prepare an economic impact statement, as to what the value of the [Springs Resort] development would be to the town, on an annual basis… what the sales tax generation would be… instead of just somebody’s opinion. I suspect that the economic impact of a fully built out Springs Resort would be somewhere in the neighborhood of $150 million.
“With $150 million in economic impact, the sales tax revenue generated by that would be somewhere in the neighborhood of $9 million. I believe the current sales tax revenues to the Town, today, is about $3 million.
“If, as a Town Council member, I can agree to lease [geothermal] water to generate a sales tax increase of $9 million, that is in my opinion the highest and best use of the water. We shouldn’t focus on the [per gallon] value of the water, we should focus on the value the water brings to the whole community.
Weiler referred to some attachments to the lease — which were unfortunately not attached to the packets distributed to the media or to the Town Manager, Tamra Allen, nor, apparently, to Weiler’s copy.
“I believe that the attachments, that are not attached to this lease, stipulate that they actually have to build it, in order to use the water. It’s not in the attachments — the attachments are blank — but that’s part of the discussion process.”
The situation facing the Town Council is not a simple one. As Mayor Ross Aragon phrased it later in the meeting, “You’re damned if you do, you’re damned if you don’t.” The community’s construction and real estate industries — which were thriving just a few years earlier — have come to a comparative standstill, and the proposed $250 million Springs Resort expansion is one of very few commercial projects in the planning stages.
The Springs Resort expansion would be based largely upon tourism, of course. And the key element of the resort’s popularity is, of course, the “naturally therapeutic” bathing pools — pools filled with Pagosa’s famous mineral rich geothermal water, cooled down from its original 145 degrees to a safe and pleasant soaking temperature of around 100 degrees. The resort now has 17 operational pools and is in the process of building five more.
Across the street from the Springs Resort is the Spa Motel — sometimes known as the Spa at Pagosa Springs. That smaller complex, owned by the Giordano family, makes use of geothermal water from two wells to fill an outdoor swimming pool, one exterior soaking pool and two enclosed bath houses — one for men and one for women.
At the Springs Resort, we find an outdoor swimming pool in addition to the 17 existing outdoor soaking pools — which feature a range of temperatures, views and pool sizes. A couple of those pools feature tiny waterfalls. The water in the Springs Resort pools, from what I can tell, comes from two sources: a small water right drawn from the Great Pagosa Hot Springs itself, and the Town’s geothermal wells on the other side of the San Juan River.
The water coming from the Town’s wells is sometimes referred to as “waste water” because during the colder months of the year it first runs through the Town’s municipal heating system. The Springs Resort currently leases 200 GPM of the Town’s “waste water.”
The resort’s previous developers, Bill Dawson and Matt Mees, apparently purchased other geothermal water rights near the resort during the early phases of their own expansion process — during the years when the Springs Resort, then known as the Spring Inn, sported just two tiny fiberglass hot tubs full of geothermal water. As far as I can tell, those other water rights have never been developed. The Springs Resort now belongs to the Whittington family, and it is that family which is proposing the $250 million expansion.
The Town of Pagosa Springs began developing a municipal geothermal heating system in the early 80s, and won the rights to 450 GPM — about 210 million gallons annually — to provide heat to downtown businesses, homes and schools. That system has considerable potential for expansion, according to discussions I’ve had at Town Hall — which means considerable potential for reducing the town’s carbon footprint. But whether the Town can find funds to expand and improve the system’s infrastructure is questionable, even though climate change and global warming have become important parts of the worldwide energy debate.
Whether or not the Town ever expands its own geothermal system, the water is available for various ‘recycled’ uses after running though the Town’s heat exchangers — including use in bathing pools at the Springs Resort or elsewhere. The state of Colorado, however, apparently does not allow a business to file for water rights on “waste water” — even though the Springs Resort has done exactly that: filed for water rights on the Town’s water water. According to the discussion at Tuesday’s meeting, the Council and Town staff want the resort to drop that water rights filing immediately.
So here is a quick summary of the situation in which the Springs Resort finds itself. The Town has 450 GPM of geothermal water which the Springs Resort can convert into profits even after the Town has finished using it. That amount of geothermal “waste water” put to profitable use would easily justify continued expansion of the Springs Resort — but the resort cannot seem to get permanent rights to the “waste water.”
The Town Charter specifically prohibits the Town Council from signing a lease that extends for more than ten years. This Charter provision is, of course, aimed at preventing one particular elected Town Council from making very-long-term decisions about Town-owned resources. So the longest lease permitted is ten years.
If you want to invest $250 million in a tourist attraction, you want to make very sure that you have secure access to the mineral-rich geothermal water that supports that tourist attraction. The last thing you would want is another tourist-related business springing up — say, at the site of the current County Courthouse, or on the acres of downtown commercial property currently owned by developer David Brown just footsteps away from the Town’s geothermal wells — and outbidding you for the hot water you depend upon.
It’s a big problem. So, what does the Town Council plan to do about it?
Read Part Two
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