Commentary and Analysis Regarding Colorado Law

With the ever-increasing development along the Northern Front Range, many of Lyons Gaddis’ irrigation company clients are asked to either permit a crossing of their ditch easement or to relocate their ditch to facilitate development. Both should result in an agreement. The difference between these two agreements is frequently not well understood but they are dramatically different legal agreements.

License Agreement for a Crossing

A license agreement for a crossing allows another party, frequently a developer, utility, telecommunication provider or a municipality, to install a crossing of their easement without affecting the easement. The license agreement does not grant an easement or other real property interest to the entity crossing. It simply allows or licenses the crossing on terms and conditions that protects the use of the ditch easement, covers all of the ditch company’s costs and almost always assesses a modest license or crossing fee, generally in the range of $1,000 - $5,000 per crossing. These license agreements for crossings utilize fairly standard forms and are relatively simple to draft once the necessary information is obtained. These license agreements for crossings are also used for bridges, road crossings, utilizing culverts, and sometimes for overhead powerlines. The guiding principle is that the irrigation company’s easement remains intact and unaffected.

As I was preparing recently to write this blog post a few weeks ago, several friends had just lost homes in the Marshall Fire that occurred in Boulder County on December 30^th, and I was reminded that my LAST blog post, dated October 22, 2020, “Climate Change Impacts on Colorado Water Users,” specifically touched on increased wildfires as a potential consequence of climate change. In October of 2020, Colorado was just coming out of one of the hottest and driest summers in recorded history.  Unfortunately, the beginning of 2022 isn’t shaping up to look much better.  As of the date of the Marshall fire, Colorado, and the country as a whole, had just experienced the hottest six months in recorded history.  The next highest six-month average temperature occurred during the 1930s, during the Dust Bowl.

The data, sourced from the National Oceanic and Atmospheric Administration, illustrated that the average Colorado temperature between July and December reached 53.4 degrees, which is over a degree and a half warmer than the same six-month span in 2020.  The next highest six-month state average was 52.1 degrees in 1933.

Barefoot Lakes

Lyons Gaddis represents Brookfield Residential and its affiliates in connection with the 1,300 acre Barefoot Lakes master planned community located adjacent to the St. Vrain River and immediately east of I-25 in Firestone, Colorado. With over 1,000 homes already built or under construction, when completed, Barefoot Lakes will contain a new residential community consisting of over 3,500 single-family homes, 100 acres of lakes, miles of trails, new regional water and wastewater utility systems, new regional roadways, and 350 acres of parks, trails, and open spaces for public use. Lyons Gaddis attorneys Cameron Grant, Suzan Fritchel, Jeff Kahn, and Sean Stewart assisted Brookfield Residential with entitlements on the project, including the annexation of the property to Firestone, preparation and approval of Planned Development zoning, subdivision platting, and third-party negotiations crucial to project success. Several of the unique components of this complex land use and development project are summarized below:

Recent fires and high temperatures across the West may have water users wondering what rising temperatures and sustained drought conditions might mean for Colorado water users.  While only time will tell, it’s relevant to note that the summer of 2020 was one of the hottest and driest on record.  The month of August was one of the top ten warmest Augusts on record according to the National Oceanic and Atmospheric Administration’s “August Climate Summary,” with 26 days above 90 degrees Fahrenheit and 17 days above 95 degrees!  Denver received only 0.35 inches of precipitation in August, which is 1.34 inches below normal, and there were only 5 days total during the month with measurable rainfall at all.

What does this mean for Colorado water users?  Changes in temperature and precipitation can impact snowpack, length of crop seasons and quantities produced, wildfires, and pests, just for starters.  According to the US EPA, snowpack in the western United States has been decreasing since the 50’s, and the amount of snowpack measured in April at Colorado sites specifically has declined by 20-60%, on average.  Diminishing snowpack can mean less spring/summer runoff, which typically provides much of the water needed by agricultural and municipal water users.  Earlier runoff can mean changes in the priority system relied upon by Colorado water users, as many decrees for reservoirs (typically relied on to capture spring runoff for later summer use) have limitations on when such storage can start and when it must stop.  Rising temperatures can also increase evaporation from soil, crops, and storage reservoirs, meaning more water is lost to the air than usual.  Soils may become drier as evaporation rates increase, which can mean they retain more water when there IS precipitation so that less water is ultimately flowing into the state’s stream systems.  Changes to Colorado snowmelt, rainfall, and temperature patterns may also impact Colorado’s farms and ranches.  Increased evaporation can increase irrigation demands and mean that some farms change to dry land farming, which typically decreases crop yields.

The State of Colorado prides itself on its system of water management. Situated in the arid American West, a once novel priority system was established for equitable water distribution. This prior appropriation system allows the delivery of water to senior users basing the order of use on priority date, not location or proximity to the water source. This system is aimed at allowing water to flow to its most valuable use, preventing speculation, while maximizing beneficial use. The Decennial Abandonment List represents one of the system's checks to make sure that water stays in use.

If you have a water right that appears on the Decennial Abandonment List or would like more information on the process, the best course of action is to hire a water professional to defend your right from abandonment. Consider hiring one of the Lyons Gaddis water team for the best results. 

Water rights in Colorado are prioritized and administered based on the year of their decree and date of appropriation. The oldest decreed water rights are most senior and are entitled to divert their decreed flow rate when water is in short supply. If there is not enough water in the stream at their diversion point, they can place a call for the delivery of water against junior water users to satisfy their full demand. The State Engineer and Division Engineers can also shut down water diversions that cannot be adequately administered to protect other water users.

In many parts of Colorado, the streams have been over-appropriated for 100 years or more at certain times of the year, and calls for water rights may be as senior as the 1860s. Water rights on the main stem of the Yampa River had never been called out until 2018. It happened again in 2020. Those highly publicized calls were placed to protect water rights decreed in 1951 through 1963 near Dinosaur National Monument. The calls lasted about 23 days in 2018 and only ten days in 2020, assuming the early September snowstorm puts an end to calls this year. Those calls would have lasted longer if it had not been for tremendous cooperation between the water users, Division Engineer, Tri-State, Colorado Water Trust, and the Colorado River District.

Recently, the City of Aurora entered into a contract to purchase 119 shares in the Whitney Irrigation Company from BCI Waterco, LLC, an affiliate of the Broe Companies. Some are concerned that this purchase signals a renewal of water raids from the Denver metro area into northern Colorado water supplies. However, the Denver metro area water needs are on a scale that water providers want to purchase and assemble large blocks of water.

It is not efficient or economical for metropolitan water providers to purchase small amounts of water and then transport that water to the south. Economies of scale discourage such patchwork purchases where options to make a single purchase of a larger quantity of water exist. The Aurora purchase is for shares with an already quantified historic consumptive use of 1,629 acre feet for a purchase price of more than twenty-six million dollars. The shares historically irrigated approximately 1,100 acres.

Lyons Gaddis Covid-19 Alert

This Alert is one in a collection of articles created by Lyons Gaddis in our effort to get important information to our clients regarding the effect of the novel coronavirus (COVID-19) outbreak in the United States.  This Alert focuses on the transfer of C-BT water by the NCWCD. 

Lyons Gaddis COVID-19 Alert

This Alert is one in a collection of articles created by Lyons Gaddis in our effort to get important information to our clients regarding the effect of the novel coronavirus (COVID-19) outbreak in the United States.  This Alert focuses on the Colorado “Stay-at-Home” Order and whether Ditch Companies qualify as “Essential.”

The Colorado River serves over 40 million people across seven states and Mexico, and the basin has been experiencing historic drought conditions since 2000, according to the Department of the Interior.  The Upper Colorado River Commission, formed in 1948 to help the “Upper Basin” states of Colorado, Wyoming, New Mexico, and Utah administer the Colorado River Compact, unanimously agreed Wednesday, December 12, 2018 to enter into three agreements addressing drought contingency planning.  The agreements, in conjunction with a similar set of agreements currently being negotiated between the “Lower Basin” states of California, Nevada, and Arizona, are intended to increase water levels in Lake Powell and Lake Mead.  The Lower Basin states have been given a deadline of January 31, 2019 by the federal government to complete their agreements, or risk federal involvement in the matter. 

The agreements approved by the Upper Basin states address increased collaboration between the states and the Bureau of Reclamation to manage reservoir releases in the basin, increased allowable storage in Lake Powell if such water is available for storage as a result of conservation efforts in the Upper Basin States (Lake Mead is located in the Lower Basin), and increased cooperation between the Upper and Lower Basin states regarding water conservation and increased storage in Lake Mead.

The Northern Colorado Water Conservancy District influences many water use issues in Northeastern Colorado, including Boulder, Larimer and Weld Counties.  Northern Water is a public agency which is well-known for the construction and operation of the Colorado-Big Thompson Project. The C-BT Project collects West Slope water and delivers it to portions of eight Northeastern Colorado counties, providing supplemental water to more than 640,000 acres of irrigated farm and ranch land and about 960,000 people.

The following are some news items involving Northern Water which affect many of our clients:

• Eric Wilkinson retired after serving Northern Water as its General Manager from 1994-2018. Northern Water selected Brad Wind as its new General Manager.
• Following its Spring Water Users meeting, Northern Water Strong increased its 2018 quota allocation for the Colorado-Big Thompson Project to 80 percent citing strong regional water storage coupled with below-average precipitation. The May 1^st report from NRCS corroborates this decision, showing the median percent of normal snowpack and streamflow forecasts for Boulder Creek at 81% and for St. Vrain Creek at 60%. 
• In March, Northern Water conducted a sealed bid for 75 terminated C-BT units. Three parties were successful – one at $30,101/unit (50 units); one at $29,500/unit (2 units); and the one at $29,253/unit (23 units). Based upon monthly reported transfers, the C-BT market price appears to be approximately $28,500/unit.
• Also, in March, Northern Water auctioned off 15,000 acre-feet of C-BT water under its Regional Pool Program. Eight bidders were successful, with the high bid at $165.00/AF and the minimum successful bid at $126.00/AF. Bidders sought 38,985 AF of C-BT during this auction. To provide some perspective on the high demand for C-BT water, the 2017 Regional Pool auction for 12,300 acre-feet of C-BT yielded six successful bidders, with the high bid at $101.00/AF and the minimum successful bid at $81.00/AF.
• At its May meeting, Northern Water opened two separate rulemakings, each which has been continued to the June 14^th meeting. The first rulemaking action proposes modifications to the existing Regional Pool Program rules to ensure more efficient use of C-BT water, including:
• Allowing an Account Entity who contributed water to the same Regional Pool to lease water from that Regional Pool (currently prohibited);
• Eliminating the current restriction that a Regional Pool lessee must use all water from its Regional Pool account by the end of the water year in order to lease water from the Regional Pool in the subsequent year; and
• Giving the Board discretion to define a volumetric limit any single bidder may lease from the Regional Pool.
• The second rulemaking action proposes modifications to the existing C-BT tracking and accounting rules, to ensure maximum lawful use of C-BT water, including:
• Imposing upon Account Entities (those with authority to order C‐BT from Northern Water), additional accounting requirements for the diversion, exchange, or storage of C‐BT water and for Utilities that supply C‐BT Project water for municipal/industrial uses;  
• Requiring agricultural users, as well as municipal/industrial users, to maintain and submit accounting for the storage and subsequent use of untreated C‐BT water if that water is stored for longer than 72 hours in a reservoir with a decreed storage right;
• Requiring entities to keep daily accounting of C‐BT Project water stored, estimated losses due to evaporation and seepage from storage, and beneficial use of releases from storage; and
• Requiring Utilities that treat and supply C‐BT Project water for municipal/industrial uses to begin collecting daily information to be submitted monthly concerning the amount of treated C‐BT Project water provided to customers.
• More information on each rulemaking can be found at http://www.northernwater.org/sf/allottee-information/allottee-documents.

Many  landowners and small businesses use wells that provide a vital water supply for their property.  Some wells are used for watering livestock, for drinking water inside homes, for irrigation of lawns and gardens, or for drinking and sanitary purposes inside a shop or other business.  People often take for granted their right to use their well, and don’t realize that use may be threatened.  Finding out you don’t have the proper permit or decree after your well goes dry from a nearby construction project, or after the state orders you to shut down the well, may be inconvenient, expensive, and difficult to fix. 

In Colorado, water rights outside the Designated Basins are administered based on “first in time is first in right”, with many of the first rights dating back to the 1860's.  In order to establish the priority of your water right and protect it from new uses, you must have a court decree.  No diversion is allowed from a well unless the owner also has a valid permit from the Division of Water Resources (DWR). If you own a small well that is important to your home or business, you should make sure you have a valid well permit and your use falls within the permit limits.  If you don’t have a well permit, or if your use is out of compliance, the State may shut down your well.  For questions about administration of wells or questions about your individual well permit, you can call DWR’s groundwater information desk.  However, before talking with them, you may want to consult with an experienced water attorney.

When daffodils pop up, so do the “for sale” signs on the ranch and mountain properties.  Whether you are buying your forever property or your just-for-now property, be sure to conduct water rights due diligence.   Water rights are complicated, and you need to protect your investment with the following steps.

Initially, ponder “What do I want to do with the property?”  Do you want a sprawling mansion or a quaint cabin?  Do you want a luscious lawn and a fish pond?  Have you always wanted horses and chickens? 

“Use it or lose it” is often colloquially used to describe the prior appropriation doctrine for water rights in Colorado.  Nowhere is that phrase more accurate than when it comes to the decennial abandonment list.  CRS § 37-92-401(1)(a) requires the Division Engineer to maintain a tabulation of water rights and priorities in their Water Division, but also to “prepare decennially, no later than July 1, 1990, and each tenth anniversary thereafter, a separate abandonment list comprising all absolute water rights that he or she has determined to have been abandoned in whole or in part and that previously have not been adjudged to have been abandoned.”  The next issuance of this decennial abandonment list will happen in 2020, and there are some important considerations of which water users should be aware before that list is issued.

Water rights can be abandoned in whole or in part.  The Division Engineers office may physically inspect diversion structures and/or diversion records, if kept, to determine if water rights have actively been used over the past ten years.  They may be placed on the abandonment list if they haven’t been used at all, but also if they have only been used in amounts less than the decreed amount. In addition to non-use, the water right owner must intend to abandon the right.  See CRS § 37-92-103(2), also Beaver Park Water, Inc. v. City of Victor, 649 P.2d 300 (Colo. 1982). This is a very important element to note in the abandonment process, as the burden is on the water right owner to show they did not have an intent to abandon, if they wish to have their water rights removed from the list. Pursuant to CRS § 37-92-103(5)(a), any water right owner who wishes to protest inclusion of their water rights on the abandonment list must file a protest no later than “June 30, 1992, or the respective tenth anniversary thereafter” (so for the upcoming 2020 abandonment list, no later than June 30, 2022).  The forms for protesting inclusion of water rights on the abandonment list can be found here: https://www.courts.state.co.us/Forms/Forms_List.cfm?Form_Type_ID=10. 

Since the passage of the 2007 Farm Bill, buyers and sellers of certain water rights have enjoyed the ability to use tax deferred exchanges under Section 1031 of the Internal Revenue Code.  Recent changes to the tax code, however, deleted any reference to mutual ditch or irrigation company stock from the definintion of qualifying “like kind property.”  None the less, the IRS will still allow exchanges involving ditch stock provided that your state’s laws consider such stock as real property.

Following the passage of the 2007 Farm Bill, Internal Revenue Code §1031(i) specifically provided that mutual ditch or irrigation company stock could be used for a tax deferred like kind exchange for real property used in a trade or business or held for investment purposes. As a result, the gain from the sale of eligible mutual ditch company stock could be deferred if the other requirements of §1031 were met.  Eligible stock was defined as any stock in a mutual ditch, reservoir, or irrigation company, as described in Code § 501(c)(12)(A). That section required at least 85% of the revenue into the company be from member assessments.

According to http://www.treehugger.com, the UK calls rain barrels “water butts”. I was suspicious, but when I “Googled” water butts, a whole list of sites for rain barrels came up, so yes, rain barrels are really called water butts in the UK. The reason for this article is that until recently, rain barrels were illegal in Colorado. In Wisconsin where I grew up, my grandmother had rain barrels and used the water for flower boxes and also to wash her hair. She said it made her hair soft and slowed down the process of going gray. As I remember her now, she could have been right.

The Colorado Division of Water Resources website tells us that the State of Colorado claims the right to all rain that falls within the state. That is why rain barrels were illegal in Colorado until August 10, 2016. Practically speaking, there was concern that the collection of rain water would have an adverse effect on owners of senior water rights by taking too much water out of the natural water cycle. In 2009, there was Senate Bill 09-080, which allowed the use of rain barrels in limited circumstances, but it wasn’t until this year that the use of rain barrels or “rooftop precipitation collection” systems were made legal for most of homeowners in Colorado.

If you can’t bring LA to the water, you bring the water to LA…
– Roman Polanski’s Chinatown dramatizes the so-called “California Water Wars”.

I have yet to see Jack Nicholson roaming the plains of Northern Colorado but the factors that drove and challenged growth in Southern California in the late 1930s now take shape in Northern Colorado. 

It takes more than land and a strong market to create a successful development, at least around here.  In Northern Colorado, water is the key ingredient and that resource is in short supply.  The City of Longmont holds a lot of cards.  The Towns of Firestone, Frederick and Mead have the land and the demand.  Longmont’s City Council recently discussed Councilman Brian Bagley’s three point plan to protect Longmont’s eastern border from encroaching municipal neighbors.  A key prong in that plan is to protect Longmont’s store of water rights from being leased or sold to those towns.

Lyons Gaddis water lawyers have been asked by several of the firm’s clients to advise them on providing water to marijuana-related businesses cultivating marijuana in “grow operations.”  These matters are complicated by the fact that the cultivation and sale of marijuana remains illegal under federal law. Under the aiding and abetting doctrine of criminal law, persons or entities providing water to these businesses could be subject to a federal prosecution.

Lyons Gaddis attorneys Jeff Kahn and Matt Machado recently spoke to state and local bar associations regarding the legal and ethical implications of providing legal representation to water providers in negotiating sales or leases of water for grow operations.  Mr. Kahn’s presentation to the Colorado Bar Association, Water Law Section (available here) covered topics including the lack of clear direction provided by the Cole Memorandum and the Bureau of Reclamation policy regarding the use of reclaimed water for activities prohibited by the Controlled Substances Act.  Matt Machado participated in a panel at the Boulder County Bar Association Bench Bar Retreat, and discussed ethical requirements for lawyers representing marijuana-related businesses.  This is a new area of the law that continues to evolve rapidly.  If you have questions in this area of water law, please contact , Jeff Kahn or Matt Machado.

Submitted by Jeff Kahn

On November 19th, Longmont’s Sean Cronin testified before the Senate Committee on Finance, Subcommittee on Taxation and IRS Oversight’s hearing entitled “Tax Relief after Disaster: How Individuals, Small Businesses, and Communities Recover.”  Mr. Cronin is the Executive Director for the St. Vrain and Left Hand Water Conservancy District.  (Watch Mr. Cronin’s testimony) He spoke to the challenges faced by farmers and mutual ditch companies as they work to rebuild important water infrastructure damaged by the 2013 flooding and the benefits that would be offered by adoption of the National Disaster Tax Relief Act of 2014., currently under review in the House and Senate. The full text of Mr. Cronin’s testimony is available here.

Submitted by Matthew Machado

The EPA has proposed a rule that will expand the need for federal permits under the federal Clean Water Act (CWA) for discharges or other impacts to waters of the U.S. The activities requiring such permits include discharges of “dredged or fill material” (Section 404 Permits) and permits for point source discharges of pollutants the Colorado Department of Health and Environment (CDPS Permit). Typical examples of activities requiring a 404 permit include replacement of a ditch headgate for a municipally owned ditch or digging in a wetland. Examples of activities requiring a CDPS permit include municipal stormwater discharges, CAFOs, and industrial discharges. Depending on the activity involved, obtaining a permit could take hours or take years and millions of dollars.

I. Proposed Rule Redefining Waters of the U.S.The EPA and the Army Corp of Engineer are currently considering adoption of a Proposed Rule intended to expand and/or clarify (depending on who you talk to) the types of streams and wetlands that are considered to be “waters of the U.S.,” and therefore subject to the CWA. Comments on the proposed rule may be submitted to the EPA and Corps until October 20, 2014.The proposed rule will expand the definition of waters of the U.S. to lands that have more marginal water attributes, and result in more projects requiring CWA permits. Under the current rule, the term “wetlands” generally includes those areas normally inundated sufficient to support wetlands vegetations, including swamps, marshes, bogs, and similar areas. Under the proposed rule, the focus would be less on the degree of inundation and more on the connection to a larger water body that is clearly a water of the U.S. For the most part, unless exempt (see below), tributaries and wetlands in the watershed of a stream or river will definitely be deemed waters of the U.S. Furthermore, land with more marginal water attributes in the watershed not currently considered water of the U.S. (e.g. dry gulches and drainage ditches common in Colorado) could be deemed on a case by case basis water of the U.S based on the connection and other factors (“significant nexus” test).