The Bent County commissioners held a show-cause hearing last week to get answers about a water deal between Arkansas River Farms and the Lower Arkansas Water Management Association — a deal through which Colorado Springs Utilities obtained 2,500 association water shares from Arkansas River Farms.

The commissioners ordered the hearing to have the association and Arkansas River Farms explain why they failed to disclose their relationship with Colorado Springs Utilities and failed to meet other 1041 permit requirements.

At a January hearing, Colorado Springs Utilities officials said attaining the 2,500 LAWMA shares was part of a long-term effort to prepare for increased water demand in Colorado Springs driven by an expanding population and reduced water supplies due to climate change.

"The issue is whether the applicants ... have failed to comply with certain requirements of resolution number 2018-5, which we refer to as the 1041 permit, and the requirements of the general 1041 regulations in Bent County," said County Administrator Calvin Feik.

Bent County has taken issue with Arkansas River Farms and the association, saying they have failed to comply with multiple stipulations of the county's 1041 regulations, rules that give local governments the power to regulate areas and activities of state interest, namely development projects, through a local permitting process, according to the Colorado Department of Local Affairs.

Feik said Arkansas River Farms and the association failed to meet 1041 permit requirements in four major areas: the applicants failed to submit an annual report within 30 days prior to the permit anniversary date of April 3; the applicants failed to provide a deposit of $20,000 by March 1; the applicants failed to comply with standards for reclamation of dry-up parcels and dry land farming; and the applicants failed to disclose Colorado Springs Utilities' involvement throughout the permitting process.

Although the applicants did provide a dry land farming report to Bent County in December 2018, it did not sufficiently cover aspects of the permit, including wildlife impact, economic mitigation, re-vegetation or dry land farming status, according to Feik.

Attorney Ray Petros, of Petros & White, a Denver-based water rights law firm, represented Bent County at the hearing.

"Now the project, the ARF, LAWMA and CSU project, was to dry up several thousand acres of land in Bent County, irrigated by Fort Lyon's Canal shares," said Petros. "which would then allow those shares to be transferred to LAWMA in return for LAWMA issuing what we call LAWMA trade shares back to ARF."

However, Colorado Springs Utilities' involvement was not disclosed before, during or after the nearly six-months-long permitting process, said Petros.

Colorado Springs Utilities had a letter of intent preceding Arkansas River Farms' final 1041 permit application, that stated its goal to acquire 2,500 association shares from ARF. The letter of intent had been signed on Sept. 27, 2017 — one day after Arkansas River Farms filed its first 1041 permit application with Bent County.

That letter of intent, along with thousands of other documents and more than 7,200 pages of correspondence, was obtained by Petros and Bent County after they issued a Colorado Open Records Act request.

But Colorado Springs Utilities' intent to acquire 2,500 shares was not the only evidence of the utility's undisclosed participation in the Arkansas River Farms-association agreement, Petros asserted.

He said the letter of intent also gave Colorado Springs Utilities the exclusive right to negotiate with Arkansas River Farms for the 2,500 shares, barring other entities from swooping in on the deal. In addition, the letter set a specific budget for the 1041 permitting process in which Colorado Springs Utilities was responsible for half the costs.

"So the parties at that time recognized the fact of a 1041 permit, and Colorado Springs agreed to pay half of those costs. The budget was estimated to be about $104,000. Again, engagement," said Petros.

Various emails obtained by Bent County's public records request revealed that Colorado Springs Utilities participated in and "often directed strategies" in Arkansas River Farms' and the association's permitting process and that the utility had planned a press campaign should word get out of its involvement, according to Petros.

Feik said, "CSU staff and attorneys were essentially coaching the process."

Petros went on to assert that the utility assisted the association in developing its website and in writing amendment bylaws for the sale of shares to the utility and had appropriated funds in early 2018 in preparation of the purchase of shares from Arkansas River Farms.

"The concern was that 'we need to make sure that it doesn't appear that we have a final deal,'" Petros said in regards to the utility's alleged secrecy. "But in fact I think if you look at what was done, there was a definite deal there in the process."

Petros said that, were the utility's involvement and intentions to acquire 2,500 shares disclosed, it would have led to discussions with Bent County regarding whether or not economic development actually would take place following the Arkansas River Farms and association deal.

Because the deal involved the drying up of land in Bent County, the county wanted assurance that Arkansas River Farms would make an effort to re-vegetate the land on which the farms are located. Petros asked that, had the utility disclosed its intentions to attain 2,500 association shares from Arkansas River Farms, would it have been considered a guarantor of the re-vegetation process? Petros also asked what effect the upstream exchanges of water from the Lower Arkansas River by the utility would have in terms of water quality in Bent County.

Karl Nyquist, principal and co-founder of C&A Companies, Arkansas River Farms' parent company, said that in the hundreds of letters of intent he's worked on with various entities, very few have ever proceeded past initial discussions.

Sims read an excerpt from the letter of intent between the utility and Arkansas River Farms to demonstrate that the letter is only a statement of each party's intentions and that it explicitly disclaims that it constitutes a binding commitment or proposes to enter a binding commitment on behalf of either Arkansas River Farms or the association.

"There was no interest," said Sims. "... It wasn't an agreement. There was no contract."

A provision in Bent County's 1041 regulations mandates that all parties with an interest in a 1041 permitted project must clearly be identified within the permitting application.

Feik raised other concerns of Arkansas River Farms' "failure to comply with standards for the reclamation of dry-up parcels, including delays and lack of timely progress; failure of weed control and prevention of error; water born soil loss; failure to use irrigation water to aid re-vegetation; failures of dry land farming and unexplained reduction of land suitable for dry land farming; and failures to adequately identify dry-up parcels for watering purposes."

A decision wasn't made at Tuesday's hearing, although Petros did outline Bent County's options going forward.

"In the event of noncompliance with terms and conditions of the 1041 permit, the county may pursue revocation or suspension of the permit, penalties, or such other remedies as provided for in the 1041 regulations ...," said Petros.

Bent County has three more actionable options to choose from, according to Petros: It could request a separate 1041 permit from the utility; it could choose to enter into an intergovernmental agreement with the utility directly; or it could choose to accept the Arkansas River Farms/association permit as it is now.

Another public hearing is scheduled to be held at 10 a.m. June 6 at the Bent County Courthouse.

cburney@ljtdmail.com