At an Aug. 29 work session, the Pagosa Springs Town Council discussed the town’s geothermal utility system, in particular its ongoing contract with the community’s biggest user of geothermal water, The Springs Resort.
Council member Gary Williams, who’s been working on the issue with council member Leonard Martinez, explained that the 2009 contract with The Springs “takes them out of the normal geothermal utility customer line of thinking and puts them in a special category.”
The contract gives The Springs 450 gallons per minute of hot water for eternity, Williams explained, and “in that contract they’ve been paying the town $8,300 per year for the water.”
The Springs uses the geothermal water to heat floors, baths , sidewalks and the spa, he noted, and the contract document states that the town would keep the water it gives to The Springs at 30 percent below the market value for the water.
After analyzing the numbers with Public Works Director Karl Johnson, Williams said that the town has been “way undercharging our biggest user,” and, in addition to that, “we’ve only been focused on the heat and not the mineral content of the water we provide.”
He said that anyone who soaks in mineral water knows about the therapeutic value of the water, adding that it was difficult to “find a fair market price” for “the healing water.”
“Our basic recommendation is this: There should be two components to the fee,” with the first being the heat of the water and the second being the mineral content, he said.
On the first component, the heat, the town “raised the rate 100 percent” for normal users in the 2023-2024 season, and the fee would be raised 50 percent the following year, Williams explained.
If the town would have applied this raised rate to The Springs as well, it would have paid closer to $20,000 per year, instead of the $8,300 per year that it’s been paying, he said.
The group looking at these numbers, which included Martinez and Johnson, was being “very conservative” when it came up with a numbers of $2,000 per month, or about $25,000 per year, that The Springs should be paying for the water, Williams explained, adding that this would still be below the market rate for the heat component.
Mayor Shari Pierce asked the rest of the council what it thought about applying the same level of the raised rates on The Springs as normal customers faced.
“Do we think that’s appropriate?” she asked, also asking what would happen to the hot water if the town decided not to continue to extend its contract with The Springs.
Williams suggested, “One thing we thought we could do was heat a community,” suggesting public hot springs pools “along the water banks for people to create hot springs pools along that beachy area down there.”
Martinez also said, “A community pool for this community is a real option,” adding that the town has the potential to start doing things with the water that it has not even thought about yet if The Springs walked away from the contract.
Pierce stated that when she first got on the council, she helped work on the current contract with The Springs “to benefit the community, but that was 15 years ago,” and “the community has changed a lot, so I think we’re smart to look at this with different eyes today.”
Williams then went into “the second part of this,” which addressed the value of the mineral water, saying that he had figured a rate for the therapeutic value based on what The Springs charges an individual ($67) to soak in its mineral springs.
His calculation took the $67 entry price for one individual and multiplied it by the 25 pools at The Springs for a monthly fee of $1,675 per month, or $20,100 per year, explaining that this mineral fee would be on top of the rate for the heat.
Council member Brooks Lindner asked Williams to explain the rationale behind using this calculation to come up with a mineral fee, with Williams saying that he thinks this is “a modest amount to ask for the town’s return on what we’re giving them.”
“I’m certainly not opposed to it — I have an open mind towards it — I’m just wondering how it will be accepted by others hearing this,” Lindner said.
Martinez explained that the group looked “far and wide” for other examples of a “fair market value for geothermal water that had therapeutic value,” but could not find any.
“There’s no place in the world … there’s no one … and we were kinda stuck with that a little bit, like, well, should we be a pilot and how would we approach it?” explaining that The Springs had determined the value by what they are charging for access.
“So, all we’re saying is that we’re relying on what you [The Springs] determined is a fair market price for a fair market value, and all we’re trying to say is this [mineral water] has value.”
Williams added that if “they don’t want to do this, we’ll find something else to do with the water.”
Pierce suggested there are other opportunities if The Springs walks away, including a local entity who has reached out to the town about an interest in the water.
Council member Mat deGraaf asked if the town would “be in a better place” if it did not have this contract in place, to which Martinez asked, “Are you asking for an opinion?”
Martinez then stated his opinion that the town should not have entered into the contract with The Springs, but now the best way forward is to “try to get a fairer contract.”
“What you guys have presented is very fair, and I think anyone looking at it would say, ‘That’s fair,’” deGraaf said.
Council member Madeline Bergon stated that she doesn’t want to go down a path “where we are purposely unfair to one of our biggest economic drivers in our community.”
deGraaf replied that The Springs has been “quite unfair to the people of this community, when the town has gone out of its way to try to accommodate growth … and yet, the cost of a local soak continues to skyrocket. Clearly they do not want the ‘local’ business.”
Bergon suggested that keeping prices lower for locals could be added to the contract.
“All we are doing is leaning on what they have determined is the fair market value, and then taking it to the next step to say … how do we go forward from here, as partners in this thing? That’s not a bad place to start,” Martinez said.
“If we are in a bad contract, there are ways to get out of that,” deGraaf added.
Pierce reminded the council that when the contract was first entered into, The Springs had different owners.
“We negotiated with different people then,” she said, adding that the town’s main rationale for the original contract was “economic development for the community,” but the town may have “a different purpose” now.
Williams suggested that the town should communicate to The Springs that it wants the contract to be fair and wants to be good partners so that The Springs can be successful, but that the new figures on the rates “is our starting point.”
He explained that the existing contract could stay in place with the new rates being the only change in the contract.
Bergon stated she wanted a clear breakdown of the price The Springs pays now compared to what it would pay under the new rates.
Williams explained that, under a new addendum to the contract, they currently pay $12,000 per year for the water.
deGraaf explained that it would be going from a $12,000 per year fee for only the heat to $45,000 per year total, including $25,000 per year for the heat and $20,000 per year for the minerals, with Williams explaining that these new rates include the rate raise levels that regular customers are facing.
Lindner said, “I don’t think we should do anything to get into an adversarial relationship” with The Springs, but that he thinks that the rates Williams and Martinez came up with are “great.”
“In the end, this is a drop in the bucket for them. They are gonna be able to fit this bill and it’s gonna make us feel like this is more fair for what they are getting,” Lindner said.
Since no final decision could be made at a council work session, the rate change for The Springs’ usage of the town’s geothermal water will have to come back before the council in a regular or special meeting.
Pierce and Bergon asked about the next steps to get this change officially made, with Pierce saying that she wants it brought back as an agenda item at a future council meeting.
There was also a discussion about the town expanding its geothermal system by obtaining the rights to unused and capped geothermal wells around town.
Martinez said, “We want to be the ones controlling the future of what happens with all of the mineral, thermal water here, so that’s a significant strategic step.”
Johnson added that new rates would “get the town in a better position with our geothermal asset. I mean, that’s what we are known for. And it’s not just the town’s [water], it’s the citizens of the town’s [water], and it could get us in a better position where we can look to the future and acquire more water rights to expand the [geothermal] system.”
derek@pagosasun.com
