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I_WRRC_2017A 08/02/2017 09:00 AM Committee Summary

Final

STAFF SUMMARY OF MEETING



WATER RESOURCES REVIEW COMMITTEE

Date: 08/02/2017
ATTENDANCE
Time: 09:01 AM to 04:54 PM
Baumgardner
X
Becker K.
X
Place: SCR 357
Coram
X
Fields
*
This Meeting was called to order by
Jones
X
Senator Sonnenberg
McLachlan
X
Saine
X
This Report was prepared by
Willett
X
David Beaujon
Arndt
X
Sonnenberg
X
X = Present, E = Excused, A = Absent, * = Present after roll call, R = Remote
Bills Addressed: Action Taken:
Agricultural Water Alternative Transfer Methods

Arkansas River Management Issues

Historical Consumptive Use Rules, House Bill 17-1289

State Engineer Update (Republican River, Water Court Rules, Statutes)

South Platte Water Storage Study, House Bill 16-1256

Severance Tax and Federal Mineral Lease Revenue

Recent Water Supply Projects and Implementation of Senate Bill 16-200

Funding Mechanisms for Water Projects

Aquatic Nuisance Species Prevention and Funding

Public Testimony
Briefing only

Briefing only

Briefing only

Briefing only

Briefing only

Briefing only

Briefing only

Briefing only

Briefing only

Briefing only





09:03 AM -- Agricultural Water Alternative Transfer Methods



John Stulp, Governor’s Special Policy Advisor on Water, explained that alternative transfer mechanisms (ATMs) enable temporary agriculture water rights transfers for other uses and discussed how ATMs may reduce the need to permanently transfer agricultural water rights to address growing urban water demand (Attachment A). ATMs include interruptible supply agreements, long-term rotational fallowing, water banks, deficit/partial irrigation practices, and alternate cropping types. He provided an update on the implementation of Senate Bill 07-22 that created the Alternative Agricultural Water Transfer Methods Grant Program. To date, 27 grants have been approved totalling $5 million including 13 projects in the South Platte Basin and five projects in the Arkansas River Basin. Mr. Stulp also discussed several of the grant recipients including a Larimer County Open Space project and the System Conservation Pilot Project to address potential water shortages in the Colorado River Basin. He also responded to questions from the committee about the System Conservation Pilot Project and efforts to address water















demand in the lower Colorado River Basin. He also discussed the role of Lake Powell to generate hydroelectric power and store surplus water that enables the upper Colorado River Basin states to comply with the Colorado River Compact.



Attachment A.pdfAttachment A.pdf



09:21 AM



Jim Yahn, Executive Director, North Sterling Irrigation District, discussed an ATM sponsored by the North Sterling Irrigation District called the Point of Rocks 2 that provides water for BNN Energy oil and gas production and discussed changes to the districts water rights to enable this ATM. He also discussed farmers who are participating in the ATM and infrastructure that needed to be developed to facilitate the ATM. He estimated that the ATM project may use 5 to 10 percent of the water rights in the district depending on BNN's water needs. He also responded to questions from the committee about the Point of Rocks 2 project and measures to protect other water rights from the water transfer. He also discussed an interruptible water supply agreement that provides water for the Xcel Energy Pawnee Power Plant.



09:39 AM



Jack Goble, Lower Arkansas Valley Water Conservancy District, discussed the Catlin Lease-fallowing Pilot Project that was approved by the Colorado Water Conservation Board (board) in 2015 under the authority of House Bill 13-1248 (Attachment B). This law authorizes the board, in consultation with the State Engineer, to administer a pilot program consisting of up to 10 pilot projects, each up to 10 years in duration, to demonstrate the practice of fallowing agricultural irrigation land and leasing the associated water rights for temporary municipal use. He also discussed measures to protect nonparticipating water rights from the effects of the water transfers related to the Catlin Lease-fallowing Pilot Project. He explained that the average payment to a farmer participating in this project was about $1,000 per acre. He also identified proposed ATMs in the Arkansas Basin and responded to questions from the committee about the Catlin Lease-fallowing Pilot Project.



Attachment B.pdfAttachment B.pdf



09:56 AM



Mr. Stulp identified other ATMs in Colorado including the McKinley Ditch ATM. He also identified the benefits of ATMs for farmers and other water users and lessons learned from the ATM pilot projects.



10:05 AM -- Arkansas River Management Issues



Jack Goble, Lower Arkansas Valley Water Conservancy District, discussed proposed water storage projects using excess capacity in the John Martin Reservoir and explained how these projects will enable Colorado to meet its obligations under the Arkansas River Compact (Attachment C). He also discussed the uses of John Martin Reservoir to store agriculture water and provide recreation and identified water levels in the reservoir for the previous 50 years. He also discussed the Colorado Water Users Account that would create a 40,000 acre-feet (AF) storage account in John Martin Reservoir and identified potential users of the additional water. He also explained











how the account would benefit farmers and municipalities in the Arkansas River Basin, as well as benefit water users in Kansas.



Attachment C.pdfAttachment C.pdf



10:17 AM




Jim Broderick, Executive Director, Southeastern Colorado Water Conservancy District, discussed the Frying Pan-Arkansas Project and the proposed Arkansas Valley Conduit (AVC) Project. The purpose of the AVC is to deliver a bulk water supply pipeline to meet existing and future municipal and industrial water demands of the AVC participants. He discussed the AVC feasibility study and explained how it will be funded. He also discussed the need for additional federal appropriations to pay for the project and provided an update on the development of a hydroelectric power facility for Pueblo Reservoir that is expected to be completed next year. He also discussed a proposed project to create an additional outlet in the Pueblo Reservoir and efforts to recover storage lost in Pueblo Reservoir due to sedimentation.



10:33 AM -- Historical Consumptive Use Rules, House Bill 17-1289






Kevin Rein, State Engineer, Division of Water Resources, explained that Colorado water law allows water rights to be changed to another use provided such changes will not injure other water rights (Attachment D). He also discussed requirements under the law to ensure that other water rights are not harmed by such changes and identified factors that must be considered when determining how much water may be transferred to other uses. In part, such determinations are based on the history of water diversions, consumptive use, and return flows.



Attachment D.pdfAttachment D.pdf



10:43 AM



John Stulp, Governor’s Special Policy Advisor on Water, explained that pursuant to House Bill 17-1289, the Water Resources Review Committee must study during the 2017 interim the issue of whether the State Engineer should be given statutory authority to promulgate rules that would: a) adopt a nonbinding, streamlined methodology for determining factors and using other assumptions for calculating the historical consumptive use of a water right; b) provide guidance for all components of an historical consumptive use analysis for a change of water right using geographically specific considerations; and c) ensure that the calculation of the historical consumptive use complies with section 37-92-305 (3), C.R.S. The goal of the study is to investigate the feasibility, costs, and impacts of providing a nonbinding alternative to other methods of calculating historical consumptive use of a water right that may reduce transaction costs and the time necessary to obtain approval of loans and temporary and permanent changes of water rights while ensuring that no injury results from the approval. Mr. Stulp also identified the potential benefit of the historical consumptive use rules and how they may facilitate alternative transfer mechanisms for agricultural water rights.



10:48 AM



Mr. Rein responded to questions from the committee about the lease fallowing tool that was developed in response to HB 13-1248. This tool was developed to simplify and streamline the evaluation of historic depletions (consumptive use) and return flows from irrigation and the review of lease-fallowing projects. It was developed by the Division of Water Resources and Colorado State University under the direction of the Lease Fallow Tool Technical Committee.





11:12 AM



The committee recessed.



10:51 AM -- State Engineer Update (Republican River, Water Court Rules, Statutes)



The committee returned from recess. Kevin Rein, State Engineer, Division of Water Resources, discussed measures taken by Colorado to comply with the Republican River Compact including a pipeline that delivers water to the Colorado-Nebraska state line. He also discussed the need for rules to regulate groundwater pumping in the Republican River Basin to comply with the Republican River Compact. He explained statutory changes may be needed to allow the development of these rules. He also discussed potential changes to other statutes concerning the Division of Water Resources and the water court process.



10:59 AM



Scott Cuthbertson, Deputy State Engineer, Division of Water Resources, identified statutes that may need to be updated to reflect common practices and to repeal obsolete provisions (Attachment E). For example, under current law, the State Engineer is required to approve the siting of nuclear facilities. Mr. Cuthbertson explained that this provision is unnecessary because the State Engineer does not have expertise in radiation control. Also, other state agencies, including the Colorado Department of Public Health and Environment, currently oversee the siting of such facilities.



Attachment E.pdfAttachment E.pdf



11:08 AM




In response to a question from the committee, Mr. Rein discussed the role and staff of the Division of Water Resources.






11:27 AM -- South Platte Water Storage Study, House Bill 16-1256



The committee returned from recess. Andy Moore, Senior Water Resource Specialist, Colorado Water Conservation Board, provided an update on the South Platte Water Storage Study that is authorized by House Bill 16-1256 (Attachment F). The act requires the Colorado Water Conservation Board (board), in collaboration with the South Platte Basin and Metro roundtables, to consider whether to award a grant under the water supply reserve fund to conduct or commission, in collaboration with the state engineer, a storage study of the South Platte river basin. The purpose of the storage study is to determine, for each of the previous 20 years, the amount of water that has been delivered to Nebraska from the river in excess of the amount required under the South Platte river compact. The study must also include a list of locations that have been identified as possible sites for the construction of a reservoir, enlargement of an existing reservoir, or implementation of an alternative storage mechanism along the mainstem and tributaries of the South Platte river between Greeley, Colorado, and Julesburg, Colorado.



Attachment F.pdfAttachment F.pdf



11:37 AM



Mr. Moore explained that the South Platte Basin Roundtable developed the request for proposal (RFP) for contractors to conduct the study. In November 2016, the CWCB selected the contractor for the study. The study is expected to be completed in October 2017. He also identified the scope of the study including water demand analysis, historical flows, and reservoir sites. The study has identified 147 potential water storage sites in the basin including surface and aquifer storage. The study's authors are currently reviewing these sites and narrowing these sites to the most viable ones. He also discussed historical flows in the South Platte River and identified potential flows that may be available for additional diversions. Mr. Moore responded to questions from the committee about the study and potential water storage sites.



11:58 AM



Jim Yahn, Executive Director, North Sterling Irrigation District, thanked former Representative J Paul Brown for sponsoring the bill that commissioned the South Platte Water Storage Study and discussed the participation of local water users in helping to identify the potential storage sites.



12:00 PM



Mr. Yahn and Mr. Moore responded to questions from the committee about the flows that may be available for additional storage and potential storage sites in the South Platte Basin.



12:15 PM



The committee recessed.





01:32 PM -- Severance Tax and Federal Mineral Lease Revenue



The committee returned from recess. Bill Levine, Budget Director, Department of Natural Resources, explained the Colorado Water Conservation Board (CWCB) Construction Fund receives revenue from the repayment of loans, interest on the fund in the state treasury, and federal mineral royalty distributions (Attachment G). The CWCB received $14.4 million in federal mineral lease revenue in FY 2014-15 and $8.6 million in FY 2015-16. On average, the CWCB has received $13 million in federal mineral lease revenue over the last 9 years. As of June 30, 2017, the fund's value was approximately $600 million, of which $510 million is authorized for projects or loans in repayment, $10 million is available for new loans, and $80 million in water rights ownership. Mr. Levine explained that severance tax is paid by producers of oil, gas, coal, and other minerals. State law provides that 50 percent of severance tax revenues are credited to the Severance Tax Trust Fund and 50 percent of the revenues are credited to the Department of Local Affairs for grants and distributions to local governments impacted by mining activities. Of the revenue credited to the Severance Tax Trust Fund, 50 percent is allocated to the Perpetual Base Fund of the Severance Tax Trust Fund (or 25 percent of total severance tax revenues) for use by the CWCB to build water projects. The other 50 percent of Severance Tax Trust Fund revenues (or 25 percent of total severance tax revenues) are allocated to the Operational Fund to fund programs that "promote and encourage sound natural resource planning, management, and development related to minerals, energy, geology, and water." The CWCB is authorized to issue loans for water projects from moneys in the Severance Tax Trust Fund Perpetual Base Fund. As of June 30, 2017, the fund's value was approximately $410 million, of which $375 million is authorized for projects or loans in repayment. Approximately $35 million is available for future projects.



Attachment G.pdfAttachment G.pdf





01:58 PM



Mr. Levine identified the factors behind fluctuations in severance tax revenue including the price of oil and gas and the property tax offset for oil and gas producers. He also explained Senate Bill 16-281 addressed a severance tax refund obligation related to the Colorado Supreme Court's 2016, decision in BP America v. Colorado Department of Revenue. The act creates a mechanism for refunds of severance tax revenue to businesses, including businesses that revise their severance tax returns to claim additional tax deductions for tax years 2012 through 2015. The act established a reserve in which all severance tax revenues were set aside in order to make severance tax refunds prior to allocation to the Severance Tax Trust Fund and the Local Government Severance Tax Fund. The act also placed restrictions on several cash funds that received severance tax revenue until released by the Joint Budget Committee. None of these restricted funds were needed to pay refunds, and all restrictions have since been released by the Joint Budget Committee. Instead, severance tax moneys transferred to the General Fund were used for the refunds. As of March 2017, $110.1 million has been transferred from the General Fund for severance tax refunds between FY 2015-16 and FY 2016-17.



02:05 PM



Mr. Levine explained that a law enacted in 2008 divides programs funded from the Operational Fund of the Severance Tax Trust Fund into two tiers. The tier 1 programs support the operations of the Colorado Department of Natural Resources, including paying salaries for employees. The tier 2 programs support grants, loans, research, and construction. Tier 2 programs are subject to proportional reduction if mid-year revenue projections indicate there are insufficient funds. The distribution of funding for tier 2 programs is staggered over the course of the fiscal year with 40 percent released July 1; 30 percent released January 4; and the final 30 percent released April 1. Mr. Levine estimated that Tier 2 programs will receive $14 million in FY 2017-18 under the current forecast.



02:03 PM -- Recent Water Supply Projects and Implementation of Senate Bill 16-200



John Stulp, Governor’s Special Policy Advisor on Water, discussed water supply projects in Colorado including the Chatfield Reallocation Project, Bear Creek Reallocation Project, and John Martin Reservoir (Attachment H). He also responded to questions from the committee about the proposed Chimney Hallow and Gross Reservoir expansion projects.



Attachment H.pdfAttachment H.pdf



02:19 PM



Rebecca Mitchell, Director, Colorado Water Conservation Board, explained that the Colorado Water Plan recommended that the planning and permitting process for water project be streamlined. Towards that end, the State of Colorado and U.S. EPA Region 8 jointly convened a Lean event in March 2016 that brought together stakeholder groups to address these challenges. Lean (or process improvement) is a set of principles and methods to improve customer experience by identifying and eliminating waste from a process. The result of the Lean event was a series of recommendations to improve communication and cooperation across federal, state, and local regulators. The Lean team met on July 6 to discuss implementation of those recommendations, including the Colorado Water Supply Planning and Permitting Handbook. The handbook will help entities wanting to develop a water supply project better understand the process. The handbook will emphasize the need to engage agencies and relevant stakeholders and to incorporate regulatory requirements at the earliest stages of project planning. Ms. Mitchell also explained the CWCB and the Colorado Department of Public Health and the Environment adopted a memorandum of understanding for the permitting process. The CWCB is also developing a process to involve nongovernmental organizations earlier in the permitting process.





02:25 PM



Paula Daukas, Environmental Planning Manager, Denver Water, discussed the permitting process for the Gross Reservoir Expansion Project (Attachment I). In July 6, 2017, the Army Corps of Engineers issued its Section 404 permit for this project Section 404 of the Clean Water Act (CWA) establishes a program to regulate the discharge of dredged or fill material into waters of the United States, including wetlands. Activities in waters of the United States regulated under this program include fill for development, water resource projects (such as dams and levees), infrastructure development (such as highways and airports) and mining projects. Section 404 requires a permit before dredged or fill material may be discharged into waters of the United States. Ms Daukus explained that Gross Reservoir was built in 1964 and she discussed water supply planning changes implemented by Denver Water after the EPA denied the permit for the Two Forks Project on the South Platte River. These policies include increased water conservation and reuse. She explained that Denver Water currently receives 80 percent of its supply from its southern storage facilities. Consequently, it needs to diversify its supply source to increase the reliability of its supply system. She identified local entities that Denver Water worked with to identify local impacts project and develop measures to mitigate these impacts. She also identified other state and federal agencies involved in the permitting process for the Gross Reservoir Expansion Project including the US Forest Service, the US Fish and Wildlife Service, and the Colorado Division of Parks and Wildlife.



Attachment I.pdfAttachment I.pdf



02:51 PM



Ms. Dkkas responded to questions from the committee about the permitting requirements for the Gross Reservoir Expansion project. Ms. Mitchell responded to questions from the committee about the water project permitting process and the need for additional water supplies to address the state's growing population.





03:03 PM -- Funding Mechanisms for Water Projects



Rebecca Mitchell, Director, Colorado Water Conservation Board (CWCB), explained that the legislature appropriated $10 million in the CWCB Construction Fund Bill (House Bill 17-1248) to fund studies, programs, or projects that implement the state water plan. She also discussed the process for applying for these grants and identified the eligibility requirements for such projects.



03:08 PM



Kirk Russell, Finance Section Chief, Colorado Water Conservation Board, explained the CWCB Construction Fund receives approximately $40 million each year from severance tax revenue (Attachment J). The fund is the state's largest revolving loan program to finance water diversion and storage projects. It receives revenue from the repayment of loans, interest on the fund in the state treasury, and federal mineral royalty distributions. The board is authorized to adjust loan interest rates that currently range from 1.75 percent for agricultural loans and 2.50 to 3.25 percent for municipal loans. The minimum value for loans is $100,000. The CWCB is authorized to issue loans for less than $10 million without General Assembly approval. For loans under $10 million, the board is required to submit a report by January 15 of each year to the Colorado General Assembly describing the basis for such loans, called the small project loan report. Approximately 70 percent of the CWCB Construction Fund loans are issued to agricultural borrowers and 30 percent are issued to municipalities.. He identified water diversion and















storage projects funded by the CWCB Construction Fund loans. He also identified other programs that receive funding from the CWCB Construction Fund in the annual appropriation bill including moneys for water rights litigation and satellite monitoring of water resources.



Attachment J.pdfAttachment J.pdf



03:22 PM



Mr. Russell identified funding to implement the Colorado Water Plan and the need for additional funding to address the water supply gap. He also responded to questions from the committee about CWCB Construction Fund borrowers and the risk of default for such borrowers. Mr. Russell to responded to questions from the committee about the application process and eligibility for the grants to implement the Colorado Water Plan. He also discussed funding to address intestate compacts litigation.





03:41 PM -- Aquatic Nuisance Species Prevention and Funding



Doug Krieger, Chief of Fisheries, Colorado Parks and Wildlife (CPW), explained that Zebra and Quagga Mussels larva were detected in Pueblo Reservoir in 2008 (Attachment K). Zebra and Quagga Mussels are invasive aquatic nuisance species (ANS) that pose a significant threat to aquatic wildlife and water quality in Colorado. Due to their hard shell and ability to rapidly reproduce, these species are capable of clogging water facilities and impairing the operation of dams, water treatment facilities, and power plants. Other ANS include New Zealand Mudsnail, Asian Carp, Rusty Crayfish, and Eurasian Watermilfoil. In response to the discovery of the Zebra and Quagga Mussels larva, the legislature enacted Senate Bill 08-226, the State Aquatic Nuisance Species Act. The act makes it illegal to possess, import, export, ship, transport, release, plant, place, or cause an ANS to be released into a body of water in the state. The act also created and allocated funding for the ANS Program in Colorado Parks and Wildlife (CPW), in the Department of Natural Resources. As part of the ANS Program, CPW is authorized to inspect and, if necessary, decontaminate or quarantine recreational watercraft or motor vehicles used to transport a watercraft. He explained that Colorado has since been determined to be free of Zebra and Quagga Mussels. However, Colorado is surrounded by several states that have ANS (ANS). For example, the Zebra Mussel has spread to 33 states, including Kansas, Nebraska, and Utah. Mr. Krieger identified areas in Colorado where boats infested with ANS have been detected. Over 100 boats coming into Colorado from other states with attached zebra or quagga mussels have been intercepted at boat inspection and decontamination stations. These boats were found throughout the state including Blue Mesa Reservoir, Boulder Marine, Canon Marine, Carter Reservoir, Chatfield Reservoir, Lake Dillon, Horsetooth Reservoir, Pueblo Reservoir, and Williams Fork Reservoir.



Attachment K.pdfAttachment K.pdf





03:51 PM



Reid DeWalt, Assistant Director for Wildlife and Natural Resources, explained the ANS program has been funded by the Tier 2 Operational Account of the Severance Tax Fund. However, due to declines in severance tax revenue, the General Assembly needed to appropriate General Fund moneys for the ANS control program. He explained that SB 17-259 transferred $2.5 million form the General Fund to the ANS Fund. He also discussed efforts to identify alternative funding for the ANS program (Attachment L).



Attachment L.pdfAttachment L.pdf



03:58 PM



Brad Wind, Deputy Manager, Operations Division, Northern Colorado Water Conservancy District, identified reservoirs operated by the district that allow boats and that are at risk from ANS (Attachment M). He also discussed ANS control programs on the district's facilities and identified potential costs if these reservoirs become infected by ANS. He also discussed the importance of boat inspections to control the spread of ANS.



Attachment M.pdfAttachment M.pdf



04:04 PM



Joe Stibrich, Water Resources Policy Manager, Aurora Water, identified reservoirs operated by the city that allow boats and that are at risk from ANS (Attachment N). He discussed the cost of ANS control measures for Aurora's facilities and the need for reliable long-term funding sources for the state's ANS program.



Attachment N.pdfAttachment N.pdf



04:13 PM



Mr. Krieger responded to questions from the committee about the authority of the CPW to charge for the actual cost for boat decontamination instead of the current flat fee. Mr. DeWalt discussed the cost of boat permits and the use of these revenues to promote boating safety under current law. Mr. Krieger also discussed the threat of seaplanes spreading ANS.



04:22 PM -- Public Testimony



Daniel Niemela, Centennial Water and Sanitation District, commented on HB 16-1289 concerning the Division of Water Resources rules to steam line historical consumptive use methodology and the use of the lease fallow tool (Attachment O). He also discussed methods for calculating historical consumptive use and expressed concern about applying statewide the lease fallow tool that was developed for the Arkansas River Basin.



Attachment O.pdfAttachment O.pdf





04:30 PM



Marilen Reimer, American Council of Engineering of Colorado, expressed concern about applying statewide the lease fallow tool that was developed for the Arkansas River Basin. She also requested that the Water Resources Review Committee hold additional hearings on this issue before making any legislative recommendations regarding this issue.



04:31 PM



Joan Green, Water Rights Association of the South Platte, expressed concern about the introduced version of HB 16-1289 and discussed the potential legal cost for irrigators to defend their water rights if the Division of Water Resources develops a lease fallow tool for the South Platte River Basin.



04:32 PM



Robert Longenbaugh, representing himself, expressed concern about the development of lease fallowing tool that applies statewide and discussed potential legal cost for irrigators to defend their water rights if the Division of Water Resources develops the lease fallow tool. He also expressed concern about the sufficiency of staffing levels for the Division of Water Resources and discussed the need for additional water storage and phreatophyte control to address Colorado's growing demand for water. He expressed concern about the impact of artificial recharge on homes and agriculture fields and proposed legislation to require persons operating artificial recharge projects to protect persons from the impact of such projects. He also expressed concern about water quality impacts related to water exchange projects operated by municipalities that use recycled water. He also expressed concern about the potential impact on vested water rights of storing tributary water in designated groundwater basins.





04:54 PM



The committee adjourned.