cottonwood mutual water company discussion of outstanding issues with regard to the wilkinson farm...

Cottonwood Mutual Water CompanyCottonwood Mutual Water Company

Cottonwood Mutual Water Cottonwood Mutual Water CompanyCompany

Discussion of outstanding Discussion of outstanding

Issues with regard to the Issues with regard to the Wilkinson Farm LLC.Wilkinson Farm LLC.


Class C SharesClass C Shares

• The water company is comprised of The water company is comprised of several classes of Sharesseveral classes of Shares– Class A 712 sharesClass A 712 shares– Class C 7000 sharesClass C 7000 shares

• Class C share are “Ownership” or Class C share are “Ownership” or “Control” shares“Control” shares


Class C Shares Cont.Class C Shares Cont.

• Class C to Maintain control during interim Class C to Maintain control during interim periodperiod

• Deeded over to Gardner Development as part Deeded over to Gardner Development as part of the land sale contractof the land sale contract

• Gardner agreed to allow Wilkinson's to retain Gardner agreed to allow Wilkinson's to retain half voting powerhalf voting power

• Both agreed to never use Class C vote during Both agreed to never use Class C vote during shareholder meeting to avoid throwing the shareholder meeting to avoid throwing the vote.vote.


Class C. Shares Cont.Class C. Shares Cont.

• Class C ownership unclear Class C ownership unclear – Control of company unknownControl of company unknown– Difficult to manageDifficult to manage

• Water company desires to rid company of Water company desires to rid company of Class C shares so it can move forwardClass C shares so it can move forward– Tax incentives Tax incentives – Decision making powerDecision making power– Control over futureControl over future


Class C. Shares contClass C. Shares cont

• Gardner Development agrees to Gardner Development agrees to relinquish interest in Class C shares in relinquish interest in Class C shares in exchange for a development agreementexchange for a development agreement– GCC will deed over all infrastructure and GCC will deed over all infrastructure and

provide easementsprovide easements– Water company agree to continue service Water company agree to continue service

developmentdevelopment

• Great. Great.


Class C. Shares contClass C. Shares cont

• Wilkinson Family agrees to relinquish Wilkinson Family agrees to relinquish interest in Class C shares in interest in Class C shares in exchange for a master agreement.exchange for a master agreement.– Wilkinson current proposalWilkinson current proposal– Will eliminate all legal concernsWill eliminate all legal concerns– Allow the company to move forwardAllow the company to move forward– Particulars of agreement are of concern.Particulars of agreement are of concern.

Methods to deal with Methods to deal with disagreementdisagreement• 1) Both parties come to a mutually 1) Both parties come to a mutually

acceptable agreementacceptable agreement

• 2) Mediation (non-binding)2) Mediation (non-binding)

• 3) Arbitration (binding)3) Arbitration (binding)

• 4) Litigation4) Litigation


Wilkinson Proposal Wilkinson Proposal

• ( 1. Cottonwood Mutual Water Company will pay to the Wilkinson Family LLC $116,000.00 past due on the Loan note, either in a lump sum or by payments to be agreed upon—starting Sept. 1 of 2011.

• A. WFLLC will retain 86 thousand gallons of storage water.


Wilkinson Proposal cont.Wilkinson Proposal cont.

• (2. Wilkinson Family will expect a contract from the Water Company stating that they will supply Will Serve Letters for the build-out of the rest of the farm.

• (3. The Water Company will not pursue the supposed $54K payback



• (4. The Water Company will not charge the Wilkinson Family (questionable) $35 K legal fees or any other past legal fees.

• (5. The Wilkinson Family will retain the ‘fifty acre feet’.



• (6. There will be a binding contract between WFF and CMWC stating that neither party will pursue legal (or otherwise) action concerning these matters after there is an agreement and settlement.



• ( 7. A document stating that the C shares held in Escrow will be signed by Rulon Gardner and the Wilkinson’s releasing said shares to the Wilkinson’s so they can then be turned over to the Cottonwood Mutual Water Company thereby giving control of the Company to the rest of the share holders.



• For this the water company will getFor this the water company will get

• A company worth 1.5 million dollars. To A company worth 1.5 million dollars. To includeinclude– All remaining Wilkinson C SharesAll remaining Wilkinson C Shares– Ground under 500k tank worth $100,000Ground under 500k tank worth $100,000– All infrastructure-tanks-pipelines-All infrastructure-tanks-pipelines-

easements-reservoir, ect.easements-reservoir, ect.– The reservoir (silver lake)The reservoir (silver lake)



Utah State LawUtah State Law

• R746-330-6R746-330-6– There is a rebuttable presumption that There is a rebuttable presumption that

the value of original utility plant and the value of original utility plant and assets has been recovered in the sale of assets has been recovered in the sale of lots in a development to be served by a lots in a development to be served by a developer-owned water or sewer utility.developer-owned water or sewer utility.


Standard Procedure for new Standard Procedure for new developmentdevelopment• Developer builds required infrastructureDeveloper builds required infrastructure• Developer acquires water rightsDeveloper acquires water rights• Developer deeds infrastructure/water Developer deeds infrastructure/water

rights to water company free of chargerights to water company free of charge• Water company services new Water company services new

development.development.– No cost to new or existing customers No cost to new or existing customers


Item #1 Wilkinson Loan Item #1 Wilkinson Loan

• 1997 Babcock and Wilkinson's jointly build 1997 Babcock and Wilkinson's jointly build a 250,000 tanka 250,000 tank

• Wilkinson Proportion: 146,000 gallons. Wilkinson Proportion: 146,000 gallons.

• Engineers estimate of all improvements Engineers estimate of all improvements for Wilkinson Portion.for Wilkinson Portion.– $135,925.40$135,925.40

• Actual cost unknownActual cost unknown

• Proportion of costs for new vs old dev. unknownProportion of costs for new vs old dev. unknown


Wilkinson Loan Cont.Wilkinson Loan Cont.


Concerns with Wilkinson LoanConcerns with Wilkinson Loan

• Water company forced to buy infrastructure Water company forced to buy infrastructure to support future developmentto support future development– Major PSC FailureMajor PSC Failure– Undesirable loan term. Undesirable loan term. – No connection fees associatedNo connection fees associated

• No known actual costs. No known actual costs. – Only engineers estimate Only engineers estimate – How much of costs was required to maintain existing How much of costs was required to maintain existing

system vs. support new development. system vs. support new development.


Concerns with Wilkinson Concerns with Wilkinson LoanLoan• Interest accrued between 1997 and Interest accrued between 1997 and

19991999– $22,106$22,106– Not enough money in company to pay for Not enough money in company to pay for

loanloan– PSC did not grant rate increase to pay for PSC did not grant rate increase to pay for

full loan. full loan. – Interest balloons over course of loan.Interest balloons over course of loan.


Concerns with Wilkinson Concerns with Wilkinson LoanLoan• 1999 Water company sells storage 1999 Water company sells storage

back to Wilkinson familyback to Wilkinson family– $54,180$54,180

•Where did this figure come from?Where did this figure come from?

•$0.37/gal, undervalued?$0.37/gal, undervalued?

•No credit for interest paidNo credit for interest paid

•Bad business deal for water companyBad business deal for water company


Concerns with Wilkinson Concerns with Wilkinson LoanLoan• 2003 Wilkinson’s sell back extra 2003 Wilkinson’s sell back extra

storage to water company storage to water company – $109,500 $0.75/gal $109,500 $0.75/gal

•Going rate for new constructionGoing rate for new construction

– No PSC approvalNo PSC approval– PSC audited books, PSC FAIL PSC audited books, PSC FAIL


Concerns with Wilkinson Concerns with Wilkinson LoanLoan• Water company sold to GCC as part Water company sold to GCC as part

of land saleof land sale

• 2008 payments stopped2008 payments stopped– Lack of fundsLack of funds– Concerns over loan Concerns over loan


Concerns with Wilkinson Concerns with Wilkinson LoanLoan• Paid approx $186,000 in principal Paid approx $186,000 in principal

plus interestplus interest

• Loan Balance $100,464Loan Balance $100,464

• Original estimated costs $135,000Original estimated costs $135,000

• Wilkinson’s charging 18% interest Wilkinson’s charging 18% interest between 2008 and 2011between 2008 and 2011


Wilkinson proposal to Wilkinson proposal to companycompany• Wilkinson’s to buy back 86,000 of storage at Wilkinson’s to buy back 86,000 of storage at

$0.75/gal (same as 2003)$0.75/gal (same as 2003)– Company charged interest between 2003 and 2011.Company charged interest between 2003 and 2011.

• Estimated over $60,000Estimated over $60,000

– Leaves loan at approximately $100,000 $248/con.Leaves loan at approximately $100,000 $248/con.– Going rate $1.10Going rate $1.10– Total gain to Wilkinson's, $151,000 plus 86,000 Total gain to Wilkinson's, $151,000 plus 86,000

gallons/storagegallons/storage• $286,000 paid minus estimate cost of $135,000 for 60,000 $286,000 paid minus estimate cost of $135,000 for 60,000

gal storragegal storrage


Water company proposed Water company proposed PositionPosition• PSC approval of 1998 rate increasePSC approval of 1998 rate increase

– $90,526 “capacity held for expansion”$90,526 “capacity held for expansion”

• 1997 Rate based loan adjusted to $44,4741997 Rate based loan adjusted to $44,474– Apply same payments/Loan TermsApply same payments/Loan Terms– Wilkinson’s retain extra storageWilkinson’s retain extra storage

• Accept 2003 buy of 146,000 gal of tank Accept 2003 buy of 146,000 gal of tank storage at $0.75storage at $0.75– Apply same payments/Loan TermsApply same payments/Loan Terms


Water company proposed Water company proposed PositionPosition

• Accept Purchase of Extra Tank StorageAccept Purchase of Extra Tank Storage– Fulfill new fire suppression standardsFulfill new fire suppression standards

•60,000 gal60,000 gal

– Retire old tanks Retire old tanks – Minimize amount due to water companyMinimize amount due to water company

• Shows overpayment of loan Shows overpayment of loan – Approximately $7,200Approximately $7,200

Cottonwood Mutual Water CompanyCottonwood Mutual Water CompanyItem #3Item #3$54,000 payment to $54,000 payment to Wilkinson'sWilkinson's• Company Files for PSC exemption Company Files for PSC exemption • April 21, 2006 Board approves to pay April 21, 2006 Board approves to pay

Wilkinson's for InfrastructureWilkinson's for Infrastructure• September 16, 2006 Board amends September 16, 2006 Board amends

April 21, 2006 minutes to state April 21, 2006 minutes to state $1,000/lot for 70 lots$1,000/lot for 70 lots

• $54,000 paid out by October 16, 2006$54,000 paid out by October 16, 2006


$54,000 payment to $54,000 payment to Wilkinson'sWilkinson's

• October 16, 2006 Memo indicates October 16, 2006 Memo indicates payment is for Rose hill sub. payment is for Rose hill sub. Infrastructure.Infrastructure.

• No proof of expendituresNo proof of expenditures

• R746-330-6 LawR746-330-6 Law

• PSC said NO to Wayne for many PSC said NO to Wayne for many yearsyears


$54,000 payment to $54,000 payment to Wilkinson'sWilkinson's• Drained Company’s savingsDrained Company’s savings

– Company collects connection fees for a reason.Company collects connection fees for a reason.– Company ran out of money.Company ran out of money.

• Potentially an illegal distribution of funds Potentially an illegal distribution of funds to share holders. to share holders.

• Wilkinson’s settlement asking for Wilkinson’s settlement asking for remaining $16,000 or $174/connection for remaining $16,000 or $174/connection for $70,000$70,000


Water company proposed Water company proposed positionposition

• Water company requesting written Water company requesting written documentation showing expenses documentation showing expenses and validating expenses as an and validating expenses as an appropriate water company expense. appropriate water company expense. Ie. Not to support new development Ie. Not to support new development (Rosehill), or(Rosehill), or

• Pay back the $54,000Pay back the $54,000


Item #4 Additional costs to Item #4 Additional costs to perfect water rightsperfect water rights

• In addition to the 50 acre feet there In addition to the 50 acre feet there were other water rights not in the were other water rights not in the company after the sale. company after the sale.

• Water company expended Water company expended $35,273.26 to correct them. $35,273.26 to correct them. $87/connection.$87/connection.


Item #4,5Item #4,5Proving of water rightsProving of water rights• Important to understand that ability Important to understand that ability

to develop consists of providingto develop consists of providing– Source of WaterSource of Water– Storage / InfrastructureStorage / Infrastructure– Water RightWater Right


Proving of Water Right Proving of Water Right

• Missing 50 Acre feet to supply homes built Missing 50 Acre feet to supply homes built between 1986 and 1999 (52 Total)between 1986 and 1999 (52 Total)– Streets affected include:Streets affected include:

• Garnet DriveGarnet Drive• Cottonwood Canyon RoadCottonwood Canyon Road• Old HighwayOld Highway• Lilac LaneLilac Lane• Daisy DriveDaisy Drive• Tulip DriveTulip Drive• Iris AvenueIris Avenue


HearingHearing Report Report


LotsLotsServedServed


Proving of Water Right Proving of Water Right

• Company currently whole through Company currently whole through Weber Basin Water Right leasesWeber Basin Water Right leases– Cost to companyCost to company

•$245.32 per acre foot$245.32 per acre foot•50 acre feet costs water company $12,266 50 acre feet costs water company $12,266

per yearper year

– Cost to youCost to you•$30.36 per active connection per year, or$30.36 per active connection per year, or•$2.53 per active connection per month$2.53 per active connection per month


Proving of water rightsProving of water rights

• Change application on right 35-5791 filed Change application on right 35-5791 filed June 11, 1992June 11, 1992– Original Place of Use: SW¼ Sec. 30 T5 NR 2EOriginal Place of Use: SW¼ Sec. 30 T5 NR 2E– Use Changed to: N ½ of SE ¼ Sec. 25 T5 NR Use Changed to: N ½ of SE ¼ Sec. 25 T5 NR

1E, S½ NW, W½ of SW Sec. 30 T5 NR 2 E1E, S½ NW, W½ of SW Sec. 30 T5 NR 2 E

• Purpose:Purpose:– Applying for additional water for use in Applying for additional water for use in

Wilkinson Water Company’s Culinary SystemWilkinson Water Company’s Culinary System


T 5 N R 2 E

T 5 N R 1 E

3025

SW 1/4


T 5 N R 2 E

T 5 N R 1 E

3025

S ½ NW, W ½ of SW

N ½ of SE ¼


Proving of water rightsProving of water rights

• Change Application Approved:Change Application Approved:– January 13, 2006January 13, 2006

• Change Application Authorized:Change Application Authorized:– 53 Domestic Connections53 Domestic Connections– 9 Irrigated acres between May 1 and Oct 9 Irrigated acres between May 1 and Oct

3131

Wilkinson ProposalWilkinson Proposal

• Retain the 50 acre-feet of water. Retain the 50 acre-feet of water. – Require water company to acquire and Require water company to acquire and

maintain water right to supply Wilkinson maintain water right to supply Wilkinson development (Rosehill).development (Rosehill).


Water Company positionWater Company position

• Require the transfer of the 50 acre Require the transfer of the 50 acre feet, water right 35-5791feet, water right 35-5791



Proposed Water Company Proposed Water Company ActionAction

• Cancel all will serves for Remaining Cancel all will serves for Remaining Wilkinson LandWilkinson Land

• Will not offer new Will Serves until all Will not offer new Will Serves until all issues resolvedissues resolved


Water Company Proposed Water Company Proposed CompromiseCompromise• Give Credit for Wilkinson’s voluntarily Give Credit for Wilkinson’s voluntarily

relinquishing interests in Class C Sharesrelinquishing interests in Class C Shares• These Issues are fuzzy, not sufficient These Issues are fuzzy, not sufficient

documentation to fully support either documentation to fully support either side.side.

• Give benefit of doubt on some issuesGive benefit of doubt on some issues• Let the past be the past and move Let the past be the past and move

forward. forward.


Water Company Proposed Water Company Proposed CompromiseCompromise• Wilkinson's Relinquish all interest in the Wilkinson's Relinquish all interest in the

water company except for Class A Shareswater company except for Class A Shares

• Wilkinson's transfer over water right 35-Wilkinson's transfer over water right 35-57915791

• Water company recognize all other issues Water company recognize all other issues resolved, estimated over $100,000.resolved, estimated over $100,000.

• Both sides give up right for future Both sides give up right for future recourse. recourse.

Summary of Wilkinson Summary of Wilkinson ProposalProposal• Pay Additional $116,000 or Pay Additional $116,000 or

approximately $288/active connection. approximately $288/active connection.

• Accept liability to acquire water rights Accept liability to acquire water rights for Rosehill sub, with annual for Rosehill sub, with annual $12,226/year$12,226/year

• Accept ownership of well #2. (High Accept ownership of well #2. (High nitrates)nitrates)


Summary of Wilkinson Summary of Wilkinson ProposalProposal

•Class C shares are gone!!Class C shares are gone!!– Legal issues resolvedLegal issues resolved– Full control given to communityFull control given to community


cottonwood mutual water company discussion of outstanding issues with regard to the wilkinson farm...

Documents

gallons of storage water

rid company of class

class c vote

easementswater company

sharesclass c share

shares contwilkinson

shares contgardner development

wilkinson family llc