Photo: Artist Phil Seth adds feathers to a Great Blue Heron on the north side of the Town’s geothermal heating building on S. 5th Street. The mural will be dedicated on Saturday, September 27 at 10am.
In 2009, the Pagosa Springs Town Council established a geothermal water lease with The Springs Resort — a so-called “discharge lease” — allowing the Springs Resort to make use of the hot geothermal water discharged from the Town’s geothermal heat exchanger on S. 5th Street.
The geothermal heat exchanger is housed in a metal building currently receiving colorful murals on all four sides. The artist is Phil Seth, from Pittsburgh, Pennsylvania, who is working with a wide selection of canned spray paints.
You can help the Town celebrate the new mural at the Dedication event, tomorrow, Saturday September 27 at 10am.
When I peeked inside the building last week, I could see Mr. Seth’s boxes of spray cans stacked on a table. Outside, the artist worked on finishing some fine details on the north side of the metal building.
The building itself houses key machinery for Pagosa’s municipal heating system, that provides winter heating to certain downtown schools, businesses and homes. The municipal geothermal water is also “leased” to the Springs Resort, to be used for various resort purposes, including more than three dozen “therapeutic” soaking pools.
There’s a curious incongruity about the geothermal “discharge lease” written in 2009. That lease purportedly allowed The Springs Resort to make second-hand use of municipal geothermal water, after it passed through the municipal heat exchangers — which seems like a sensible use of a geothermal resource. Supposedly, this was merely “waste water” from a heating system.
“Discharged water”.
Warm water that would otherwise simply be dumped into the San Juan River.
The municipal heating system operates only during colder part the year — the winter “heating season”. But the Town government continues to provide “discharge water” to the Springs Resort spring, summer and fall, during the tourist season, even when the heat exchanger is not operating.
It would seem that we’re not really talking about a “discharge lease” at all, for most of the year.
The 2009 lease agreement with the Resort called for the Town to renegotiate the lease in 2024, and to set the lease rate at “Fair Market Value”. Reportedly, research by the Town staff and Council failed to find any other municipality in the U.S. that was supplying “discharge water” to a private resort.
A Council subcommittee determined that the Town was supplying “heat” to the municipal system customers, but was supplying “heat plus therapeutic mineral water” to the Springs Resort. Two different types of municipal service. Clearly, therapeutic water used for soaking pools, year round, might be considered more valuable than water used merely for winter heating purposes… so the Town subcommittee looked at how much the Springs Resort was charging customers to soak in the Town’s municipal geothermal water, in an effort to calculate a “Fair Market Value”.
The new calculations, as performed by Roaring Fork Engineering, also involved an analysis of important maintenance requirements facing the Town’s geothermal department, as the 40-year-old system infrastructure “ages out”.
From the introduction to the 2025 Geothermal Rate Study shared with the Town Council on September 16:
General users of the Geothermal Utility had an increase of rates from 2022/23 heating season to the 2023/24 heating season of 100% for our largest users. Rates for the 2023/24 to the 2024/25 heating season will see an increase of 50% for these same users with an escalation of 2% inflation going forward in future years.
On September 19, 2024 Council and Staff discussed the following rate structure, and adopted this rate as part of the 2025 budget and fees.
There is currently no better way to represent fair market value for the mineral water benefit then what the spas charge for an individual daily soak. This charge represents the price of one daily entrance fee per month per pool for all spas that use Town leased geothermal water.
After this discussion, the Springs Resort questioned the methodology for the new rates adopted, and [Town staff] was asked to request a rate study for the geothermal utility. Roaring Fork Engineering performed the rate study requested and the report is attached. In this report there are multiple scenarios proposed, with scenario #1 most resembling Staff’s proposal from September 2024 adopted by Council.
You can download the main study here.
In a effort to identify the revenue requirements to operate and maintain the geothermal system, the Town is reportedly pursuing the identified projects listed in the 2020 assessment completed by Plummer. “as the system has largely reached the end of its useful life.”
From the Roaring Fork rate study:
The financial goal is to self-fund a majority of the projects; however, the larger distribution system replacement project will likely need to be funded with a low-interest loan given the high cost of a complete replacement. To determine the required revenue to fund the identified capital projects, cost estimates calculated in the Plummer Assessment were adjusted to account for inflation and recent upgrades conducted since 2020.
Additional capital projects, such as well replacement and rehabilitation, were identified and planned to occur over the next 20 years of operation.
Typical of future cash flow analyses, several critical assumptions were made. These assumptions should be reviewed annually, and the study updated if any assumption changes. All assumptions apply to both proposed rate structures.
Some key assumptions used in the rate calculations include inflation, absence of grant funding, replacement of the distribution system at a cost of perhaps $4 million, debt service on a future revenue bond, a rapidly declining Reserve Balance…
…and last but not least, the fact that the Springs Resort recently added 78 new hotel rooms, 75,000 square feet of interior heated space, and 24 additional soaking pools.
In my opinion, the Town taxpayers have been subsidizing the Springs Resort since the 1990s. It’s normal for a government-subsidized private business to grow accustomed to their subsidies, and when the government takes steps to modify the amount of the subsidies, it can occasionally lead to lawsuits.
So this would be a good place time to introduce Durango attorney Amy Huff, one of the Springs Resort’s water attorneys, speaking to the Town Council on September 16.
“My name is Amy Huff and I am here to represent the Springs Resort, as well as the investors, EPR.”
(You can learn about Kansas-City-based EPR, here.)
“The topic I have is in regard to the item under ‘New Business’… the geothermal rate study that was recently performed by Roaring Fork Engineering.
“This study was circulated to my clients — the Springs Resort and their investors, EPR — over the weekend. I understand the Town may adopt the report this evening. My client and investors would like an opportunity to review the report and discuss the report with the Town attorneys, both Jeff Kane and Mr. Bob Cole, along with myself and our water attorneys and the attorneys for the investors, EPR.
“To just make sure we don’t see a dispute, down the road.
“This would be for the purpose of preventing future litigation, and to consider whether the Town wants to adopt the report as written, or to amend it in three or four weeks after my clients have had the opportunity to fully vet the report and provide written comments for the Town’s consideration…”
Normally, local governments do what they can to prevent future litigation.