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The Broadmoor stalls on deal to buy the city's Rosemont Reservoir 

Liquid assets

click to enlarge Rosemont Reservoir draws fishermen, about 12 miles from The Broadmoor's golf courses, to which the water flows. - CASEY BRADLEY GENT
  • Casey Bradley Gent
  • Rosemont Reservoir draws fishermen, about 12 miles from The Broadmoor's golf courses, to which the water flows.

A gravel road winds through pine trees, gaining altitude from Colorado Springs until it leads to a locked gate, signifying something in need of protection. A few more turns reveals that something.

A pristine mountain lake lies undisturbed by the bustle of campsites, tourist attractions or motorized vehicles. Fishermen, having arrived via a footpath, dot the banks, casting lines into a placid pool as an osprey circles overhead.

Here, Rosemont Reservoir holds nearly 1 billion gallons of water destined for use by one customer — The Broadmoor. This untreated water, diverted from two watersheds west of Colorado Springs, flows onto the five-star resort's world-renowned golf courses, a dozen miles and 45-minute drive downhill.

If The Broadmoor can make a deal with the city to acquire the Rosemont system, this idyllic setting might serve as the resort's next wilderness experience in a lineup that already includes three posh outlying adventure properties.

Perhaps more importantly, it would allow the resort to better control its luxurious environment, which trades on hundreds of acres of grass, hedges, flowers and trees, especially in times of water rationing brought on by drought.

But The Broadmoor's billionaire owner, Philip Anschutz, won't make a move to buy the system unless it makes good business sense, and he's spent hundreds of thousands of dollars trying to answer that question over the last five years.

Exhaustive evaluations contained in thousands of pages of documents obtained by the Independent through an open records request show the combined value of Rosemont's land, water system and water rights approaches $60 million.

If a sale goes through, it might be unprecedented.

"I'm not aware of any privately owned water system that has mountain resources in the American West," says Paul Fanning with Pueblo Board of Water Works, who also serves on the Colorado Water Congress and as a trustee for the Rocky Mountain Section of the American Water Works Association.

But the city, too, wants to know if it makes good business sense to sell the system. Colorado Springs Utilities, which owns the property and is run by a board consisting of the members of City Council, is game to discuss a deal, and delivered its decision in an Aug. 30, 2016, letter to The Broadmoor that states the staff "will recommend sale of the Rosemont System to the Broadmoor to the Utilities Board" — but only if terms can be reached and a public process completed. The system also has a downside — a pipeline that needs millions of dollars in repairs to remain viable, which means it might behoove the city to unload it.

So far, City Council hasn't been briefed on any details, says City Council President Pro Tem Jill Gaebler. "A year ago [mayor's chief of staff] Jeff Greene was telling me, 'As soon as we're done with Strawberry Fields, we're going to take up Rosemont.' Boom, boom," she says, referring to Council's highly controversial May 24, 2016, decision to trade a 189-acre open space in North Cheyenne Cañon to The Broadmoor in exchange for other lands.

In the last year, since Utilities issued the letter, the resort has gone silent about Rosemont, and it wouldn't respond to several requests to comment from the Indy.

Gaebler notes that Council elections in April brought several new members on board, one of whom — Richard Skorman, now Council president — led a citizen uprising against the trade of Strawberry Fields, also known as Strawberry Hill, that eventually led to a lawsuit against the city. Regardless, Utilities chief water officer Dan Higgins says he considers the door open on both sides to a potential transaction, and that makes former City Councilor Randy Purvis, who served 20 years before leaving office in 2011, a bit nervous. "We live in an arid climate, and we need every drop we can get," Purvis says.

But Rosemont, with three reservoirs, 12 miles of pipe and other infrastructure, comprises just a tiny piece of Utilities' far-reaching and vast system, which boasts more than two dozen reservoirs, 39 pump stations and 230 miles of pipe that deliver water from the Western Slope. To lend perspective, a recent two-day Utilities-sponsored tour of facilities for partners and regional officials visited a mere 15 percent of the mammoth system.

In other words, Utilities might never miss Rosemont. So if Anschutz wants to buy, the city might be ready to sell. As Higgins says, "If it's a good business decision that's in the best interest of our customers, then it's worth pursuing."

But there are barriers, including a sizable tab for repairs and maintenance and a "contemplated" covenant advocated by the city that would ban development on Rosemont's shores.

The irony behind The Broadmoor's interest in buying Rosemont is that most of the system was built, owned and operated by the Broadmoor Water and Power Co. for more than 40 years before the city bought it for $874,000 in 1973. About seven years after that, The Broadmoor and other southern subdivisions were annexed into the city. (See "Flow through time, p. 22.)

While the Rosemont system originally was developed to supply water to the hotel, grounds and golf courses, over time The Broadmoor's demands grew and water-quality regulations tightened, Utilities said in a statement. Today, the yield from the Rosemont system meets The Broadmoor's outdoor irrigation demands with non-potable water. In most years, all of the resort's watering requirements are satisfied by Rosemont. In dry years, those needs are supplemented from other Springs Utilities sources to meet demand. In wet years, Rosemont might provide a surplus beyond The Broadmoor's requirements.

The gravity-fed Rosemont system collects, stores and conveys non-potable water from East Beaver Creek and Gould Creek, tributaries of Beaver Creek and the Arkansas River. The system includes the C.L. Tutt Diversion on Gould Creek and Platt Rogers Tunnel, Rosemont Reservoir, the pipeline and Fisher Canyon and Penrose reservoirs. Water from Fisher Canyon Reservoir irrigates the Mountain Golf Course, while Penrose Reservoir feeds the east and west golf courses.

Combined, the three reservoirs' storage capacity totals 2,639.9 acre feet, with Rosemont by far the largest of the three, at 2,541 acre feet.

click to enlarge The Broadmoor is a community asset, the city says, and should be enhanced and protected in any deal involving Rosemont. - CASEY BRADLEY GENT
  • Casey Bradley Gent
  • The Broadmoor is a community asset, the city says, and should be enhanced and protected in any deal involving Rosemont.

In December 2012, The Broadmoor approached the city about buying the system, according to a July 22, 2014, letter that sets out terms for how the system would be evaluated to determine if a sale might work. Those terms specify The Broadmoor would:

• Purchase the system for a "sum mutually agreed upon" that "shall not be less than the fair market value."

• Operate and maintain the system and assume responsibility for obtaining needed approvals, easements, licenses and permits for the system from the city, Colorado Springs Utilities and the U.S. Forest Service.

• Grant Utilities all necessary easements for its water system infrastructure on lands sold to The Broadmoor as part of the deal.

• Acknowledge that some components of the system need "significant infrastructure improvements or replacement" for which The Broadmoor would be responsible.

• Use the water to irrigate its golf courses and deliver any excess to Utilities; the resort would be barred from selling water to a third party, although the entire system could be sold to a buyer taking ownership of the hotel.

The terms also required The Broadmoor to foot the bill for real estate appraisals, water rights valuations and assessments of the physical components of the system to be conducted by outside contractors, and to pay Utilities for time spent by its staff analyzing those studies.

According to an Aug. 18, 2014, outline labeled as protected under attorney-client privilege but released to the Indy, the city's "guiding principles" for the deal call for water supply and financial neutrality, meaning the city's supply wouldn't be eroded and the transfer wouldn't cost the city anything. The deal also would have to be in Utilities customers' best interest, and yet "enhance and protect the Broadmoor as an asset in our community."

Utilities agreed to deliver a recommendation of whether to sell by April 19, 2016. But it was postponed for four months, because about that time, public debate was swirling over recently released appraisals of the land swap parcels, including Strawberry Fields open space, and additional public meetings were being planned. On May 24, 2016, City Council OK'd the trade, which gave the city nearly 500 acres of trails easements and wilderness land, while The Broadmoor got the open space upon which it will build a stable and pavilion for its guests.

On Aug. 30, Utilities told The Broadmoor's President and CEO Jack Damioli it was ready to deal, "subject to the parties being able to reach agreement on the final proposed terms and conditions of such a sale and the successful completion of a public process regarding the proposed transaction."

Since then, silence.

"Absolutely nothing has gone on," reports City Councilor Andy Pico, former chair and current vice-chair of the Utilities Board. "I can tell you flat out, I've heard absolutely zero since last year. We took their inquiry seriously, but I don't think it's gone anywhere since. I'm not sure why."

One reason might stem from the value and condition of the system. Studies and appraisals have cost The Broadmoor at least $400,000, including nearly $60,000 paid to Utilities for staff time.

The cheapest part of the system is the land itself, according to land appraisals conducted by Nash-Johnson Associates, Inc., of Englewood, which appraised 12 parcels between June and December 2015. That land, including easements for the pipeline, totals 1,856 acres. Excluding Rosemont Reservoir, the parcels are valued at $1,280,382.

If the reservoir was sold "as is," Nash-Johnson put its value at $3,165,000 as of December 2015. But if a proposed covenant is considered, the value drops to $1,245,000. That covenant, contemplated by Utilities, would bar development on surrounding land.

Hence, with the covenant, the system's land was valued at $2,525,382, while its value without the covenant was $4,445,382.

Specifically, the proposed covenant states that no residential or industrial use would be allowed, "except that facilities for daytime and/or overnight use by the guests of the Broadmoor Hotel may be constructed and operated on the Property provided that any septic tank or leach field used in connection with such facilities must be located at least ___ feet away from the high water line of the Reservoir and the channel of East Beaver Creek above the Reservoir." No number of feet is stated in the covenant.

As Nash-Johnson noted in its appraisal of that 422-acre reservoir property, "These 'loss' of rights from the encumbered acreage are a loss of potential income from not being able to subdivide the land and sell residential lots."

More costly for The Broadmoor would be acquisition of the 2,639.9 acre feet of water rights associated with the system. Helton & Williamsen P.C., also of Englewood, valued those rights in August 2015 at $18,579,616.

But while some water rights date to the 1860s and are considered "senior," meaning first in line for water available in the creeks, other Rosemont water rights stand behind others in line for access to that water, Helton & Williamsen reported.

"There are several senior water rights on Beaver Creek downstream of East Beaver Creek associated with the Beaver Park Ditch and other irrigation ditches that if stream flows are insufficient could place a call against many of the less senior Rosemont Water Supply System's water rights," the consultant wrote.

The same split between senior and junior rights exists with Rosemont's storage rights, the consultant said. Rosemont's first storage right is superior for storage in John Martin (upstream from Lamar) and Pueblo reservoirs, but its second storage right "would be one of the last storage rights in the Arkansas River basin to fill."

Thus, the consultant said, "The storage rights are in priority only in exceptionally wet years and not as reliable as the storage rights of other reservoirs in the Arkansas River basin."

Helton & Williamsen arrived at the water rights value of $7,038 per acre foot by analyzing sales from 1999 to 2014, and adjusting the values using a consumer price index factor. Those indexed 2015 prices ranged from $4,290 per acre foot paid by the city of Aurora to the Rocky Ford Ditch Co. in 1999, to $17,788 per acre foot paid by the Security Water District for shares in the Fountain Mutual Irrigation Co. in 2006 and 2007.

While the water is non-potable in the Rosemont system, the water rights associated with it equate to less than 1 percent of Utilities' system-wide storage capacity and less than 3 percent of its developed potable water supply.

But as Utilities' 2017 Integrated Water Resource Plan notes, the amount of water available year-to-year varies due to a complex web of interactions regarding legal and physical availability of water, along with infrastructure capacities and operational constraints.

In addition, the city is still in the process of developing access to its water rights, via the Southern Delivery System's capacity, which eventually will enable the city to meet potable water demands of up to 136,000 acre feet — 43 percent more than the 95,000 acre feet available today. Therefore, over time, the Rosemont water will equate to an even smaller proportion of Utilities' capacity.

All that said, former Councilor Purvis remains skeptical of selling water rights.

"It's a small amount," he says, "but with all water rights, the question is where is the water, and what do you have to do to get it into the system so it's usable? That system is very close to the rest of the [South Suburban] system. Putting it into the system to get a broader use out of it would be relatively inexpensive compared to, say, the Southern Delivery System." SDS, a pipeline from Pueblo Reservoir completed in 2016, cost $825 million and spanned nearly 20 years of planning, permitting and construction.

"The question is," Purvis continues, "what might those water rights be worth, and how might that water help in the future for other city needs? When I was on Council, I was always jealously protecting any and all water rights. Ceding water rights to any entity, whether The Broadmoor or anybody else, was not on the table for discussion."

But David Robbins, a well-known water attorney in Colorado who's consulted for Utilities over the years, though not on the Rosemont issue, says there's no hard-and-fast rule when it comes to water rights.

"The city has historically not disposed of water rights, but that doesn't categorically mean it doesn't make sense to entertain a business transaction that would improve Utilities' operations in some other way," Robbins says in an interview. "There's no rule that you don't sell your water rights. Water rights are sold all the time."

click to enlarge The Rosemont pipeline is the system's weakest link. - CASEY BRADLEY GENT
  • Casey Bradley Gent
  • The Rosemont pipeline is the system's weakest link.

Turning to the system itself, AECOM, a global engineering firm with an office in Denver, conducted a detailed assessment and produced a 612-page report in January 2016 outlining not only the existing system's value, but also which parts need work and how much that might cost.

The bottom line: The Rosemont system has a replacement value of $29,976,284. That figure includes the Gould Creek intake, piping and flume; Rosemont pipeline and associated valves and metering stations; Penrose-Fisher pipeline system; Platt Rogers Tunnel, and the reservoirs.

AECOM rated most of the system as "good" or "acceptable." But the pipeline itself is another story. It scored a "poor" rating and obviously is the system's biggest weakness. A Black & Veatch study in 2008 found that 70 percent of the Rosemont pipeline should be replaced.

It helps to understand the 12-mile pipeline from Rosemont Reservoir was installed nearly 90 years ago using mules and drag lines to heave it into place in forest terrain.

For Keith Riley, Utilities general manager of water systems operations, the pipeline is inspiring from a historical perspective. "This is a gravity system," he says as he drives up Old Stage Road toward the reservoir. "There's not a single pump on this thing. How sophisticated the old-timers were to be able to lay grade through this topography — for them to figure that out over a long distance from the back of a horse."

But that system poses extreme challenges, because little of the line is accessible near roads. It's so remote, in fact, that AECOM included the cost of a helicopter in its repair estimate of $36.5 million.

Not surprisingly, AECOM found that 12 of 13 segments of the pipeline are failing. In its detailed descriptions of the pipeline segments, AECOM reports at least four places are located where a "major landslide has occurred," and in one spot the report notes, "Ute Pass fault zone in close proximity, seismic event could trigger landslide."

Other common problems, AECOM reports, include dents, rust, pipes exposed to debris flows, unprotected pipes, thin walls, washouts around pipes and at least three possible leaks. That's no surprise to Riley.

"We know this pipeline is leaking in several places," he says. "The pipeline goes through the forest. We're going to have to hike in. ... We're having to go up and chainsaw our way through. We can't bulldoze our way through those areas."

Finding the leak in the first place is nearly impossible. Utilities personnel have been known to walk the length of the line looking for drips, but most of the pipe is buried, so a leak often goes undetected, Riley says.

Another test for leaks is by calculating water loss. "We measure it at one end and measure it at the other end," he says. "When we see big losses, then we have to look for the big leak. But it might have been a pinhole leak and might be hard to find."

A recently identified puncture caused the loss of approximately 100,000 gallons per day, Riley says. "It was a luck of the draw that we stumbled on it," he adds.

One so-called leak that made headlines came after heavy spring rains of 2015 inundated the region. In a Nov. 5, 2015, letter to Utilities, The Broadmoor claimed it was a leaky line from the Fisher Canyon and Penrose reservoirs that caused the resort to close a damaged Mountain Golf Course, which in turn caused a loss of $590,000 in revenue and posed a potential repair bill in the millions. The Broadmoor claimed the leak also caused $12.9 million in damage to residential estate lots owned by a Broadmoor affiliate.

But Utilities disputed the damage stemmed from a leaky pipe, because the amount of water lost was "not significant." Utilities also noted in a March 8, 2016, letter that "This area has been identified as a landslide susceptible area as documented by the Colorado Geological Survey." (See News, March 23, 2016.)

In a recent interview, Higgins expanded on that. "It was the wettest May on record," he notes. "We had significant rainfall in that area and that caused land movement that caused that pipeline to fail. There are temporary lines in place now above ground. We're still looking at what's the long-term viable routing and installation of that segment of the pipeline. Until we determine the route we will continue to use the above-ground lines."

Higgins says the line remains an unresolved issue, pending The Broadmoor's decision on whether to pursue acquisition of the entire system.

It's worth noting that if The Broadmoor declines to buy the system, the roughly 30 Utilities ratepayers included in the non-potable water class with the resort would likely foot the bill for pipeline replacement and repairs. "That would be a large amount for a small class of customers," Higgins says, referring to the multi-million-dollar tab.

But it's unlikely customers would have to suck up that bill all at once. Utilities plans to nurse the system along with as little capital investment as possible in the next few years. "We would continue to operate the system as efficiently as we can," Higgins says, "but given our limited funds for capital improvements and ongoing maintenance, it would be a lower priority than the improvements we need to make at [potable water] treatment facilities and distribution lines, and probably for several years to come."

That said, the city has spent nearly $900,000 repairing the Fisher pipeline leak near The Broadmoor's golf course. Plans in the coming seven years for maintenance and capital improvements for the Rosemont system top $18.5 million.

Excluding capital improvements, AECOM estimated operations and maintenance (O&M) costs over 50 years would come to $15.6 million, figuring an annual inflation rate of 2.5 percent, or more than $35 million if inflation averaged 5 percent annually.

click to enlarge Rosemont's acreage includes two unused storage buildings. - CASEY BRADLEY GENT
  • Casey Bradley Gent
  • Rosemont's acreage includes two unused storage buildings.

Because The Broadmoor didn't respond to multiple requests for an interview, it's not publicly known for certain why it's interested in buying Rosemont.

But Higgins says, "In my discussions with The Broadmoor folks, the things they emphasized the most are they wanted to have more flexibility and control over the non-potable system for the ability to use the non-potable system on their grounds and golf courses. If they had full control over their non-potable deliveries, that's what they would prefer to have."

Given The Broadmoor's involvement in marketing luxury home sites, it might be interested in developing portions of Rosemont Reservoir's borders, if the city backs off its proposed covenant that would forbid that. Or, considering The Broadmoor's foray into wilderness properties, it might view Rosemont Reservoir as an apt setting for another remote hideaway for its guests.

In 2013, The Broadmoor opened the Ranch at Emerald Valley, located about nine miles southwest of the hotel. The ranch sits on U.S. Forest land, but in February, the U.S. House of Representatives passed a resolution authorizing a trade of those 83 acres for 320 acres The Broadmoor owns west of Pikes Peak. Until that swap is finalized, The Broadmoor operates the ranch under a lease with the Forest Service. The ranch boasts at least two ponds and several rustic cabins, as well as a lodge that dates back 100 years. Guests are offered horseback rides, fishing, archery and hiking.

In 2014, Cloud Camp opened, a more tightly concentrated batch of cabins and a great lodge atop Cheyenne Mountain that can accommodate 60 people. And in 2015, The Broadmoor Fly Fishing Camp, located along a five-mile stretch of the Tarryall River, was launched. The camp features a restored lodge and seven guest cabins. Besides fishing, guests can ride horses and hike.

Websites that monitor travel trends report that adventure travel is growing, fueled in part by millennials, who are entering their top earning years and thirst for not only luxury but experiences outside the norm. The Broadmoor undoubtedly is appealing to that market. In fact, The Broadmoor's board chairman, Steve Bartolin, told the city when it withdrew a plan to build a stable facility across from Bear Creek Regional Park in spring 2015 that market research showed its guests and event planners didn't view rides in the park as "authentic" and that a wilderness experience was preferred.Whether the proposed covenant that would bar permanent residences on the Rosemont Reservoir property also would prohibit a guest lodge isn't clear. If it would, that might be a deal breaker for Anschutz.

Council President Richard Skorman has a lot of questions about a possible deal, including the prospect of selling water rights. But his chief concern rests with assuring an open public process if a proposed sale of Rosemont to The Broadmoor materializes.

"They've hit the pause button, and I wouldn't be surprised if it's because of the controversy around Strawberry Fields," he says.

The land swap drew stout public opposition and led to a court challenge that's pending in the Colorado Court of Appeals, brought by a newly formed nonprofit, Save Cheyenne, for which Skorman served as president. He resigned after he was elected to Council in April.

Those four months of boisterous public meetings — some drew more than 200 people — and a legal action that's still pending might have given the resort a taste of the community's reaction to a private business acquiring a key city asset. The resort is now hosting a series of meetings about its plans for Strawberry Fields, which include a 9-acre picnic retreat and stable for guests while opening the remainder for public use under a conservation easement.

Regarding any deal with The Broadmoor involving Rosemont, Skorman says, "I want to make sure there's a full and open discussion about the public purpose and use today and what the public use could be in the future and to make sure that question is at the table first and foremost."

Central to that discussion will be a lease for public fishing at Rosemont Reservoir held by the Colorado Department of Natural Resources Division of Wildlife. The 10-year agreement that began Jan. 11, 2007, expired at the end of last year, and has been renewed for five years. It allows public use of the reservoir for fishing and wildlife watching, and grants the state authority to determine use restrictions and regulations and enforce bans on open fires, camping, ice fishing, boating, dogs, swimming, wading and sail boarding. In exchange, the state provides trash cans, maintains parking lots and stocks the lake with fish.

Higgins says that during discussions with The Broadmoor about acquiring Rosemont, the city "emphasized long-term access" to the lake.

"They were fully accepting of that," he adds. "They had suggested there would be day trips in which they would take customers up to visit the site."

Today, it's hard to gauge whether any proposal will eventually surface, considering the system's cost and repair bill, not to mention potential public pushback. Moreover, it's not known what types of conditions of sale might be worked out. Could the city keep the water rights but sell the system? Could The Broadmoor contract with the city to run the system?

As former Councilor Purvis says about any type of transaction that might emerge, "There are a million variables that have to be resolved."

All of which begs the question of what that gate at the end of a winding gravel road is protecting: A wilderness treasure or a lingering liability?

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