Mountain Mutual Water Company -- FAQs

Several years ago, there was some discussion of the possibility of MMWC and CCMEPOA merging into a common entity. There are several very practical reasons not to do this. For example, it would be unfortunate, in the aftermath of a lawsuit involving a POA, for the community the POA serves to have their water distribution system seized to satisfy a judgment debt. There are also some special circumstances, peculiar to Colorado statutory law, for keeping the entities separate.

Mountain Mutual Water Company is a “special purpose corporation” under Colorado law. The Colorado Revised Statutes have specific provisions for different classes of “special purpose” corporations, including, for example, “telegraph companies” (Title 7, Art. 41), “ditch and reservoir companies (Title 7, Art. 42), and “toll road companies,” (Title 7, Art. 45). As a mutual ditch company, MMWC is not organized under the general Colorado corporation statutes, but under special legislation for ditch and reservoir companies.

MMWC’s status as a mutual “ditch and reservoir” company confers a number of quasi-governmental advantages. First, the status confers certain water rights and rights-of-way to MMWC. See C.R.S. § 7-142-103. Second, the status gives its members an equitable right to a pro rata share of the water rights for which MMWC holds legal title. See Jacobucci v. District Court, 541 P.2d 667 (Colo. 1975). Moreover, those water rights are effectively “judgment proof” in any action against MMWC. See Millers Mutual Insurance Assoc. v. Grace, Civil Action No. 82-JM-1517 (D.Colo.), Memorandum and Order dated June 20, 1983. Third, the status gives MMWC considerable power with respect to assessments. The status empowers MMWC to levy assessments on its members to keep its system in good repair; gives MMWC a perpetual lien on memberships for all unpaid assessments; and authorizes MMWC to sue, deny service to, and/or cause a sale or forfeiture of the membership rights of a delinquent member. See C.R.S. § 7-142-104. Fourth, it allows MMWC to specify the manner in which memberships may be transferred. See C.R.S. § 7-142-104(4).

Assuming that it is even possible to merge MMWC and CCMEPOA, the merged entity would not constitute a mutual “ditch and reservoir” company. Under C.R.S. § 7-42-101, a “ditch and reservoir” company must be formed “for the purpose of constructing a ditch, reservoir, pipeline, or any part thereof to convey water from any natural or artificial stream, channel, or source whatever to any mines, mills, or lands or for storing the same….” (Emphasis added). The Colorado Supreme Court has observed that mutual ditch companies are “organized solely for the convenience of its members in the management of the irrigation and reservoir systems.” See Jacobucci v. District Court, 189 Colo. 380, 541 P.2d 667, 672 (1975) (emphasis added). Furthermore, they are “formed expressly for the purpose of furnishing water to shareholders, not for profit or hire.” Id. at 671 (emphasis added).

Because a merged water & POA entity would not be organized “solely” for the management of a water delivery system, it would not qualify as a “ditch and reservoir company.” Therefore, the merged entity would forfeit the benefits that Colorado state law confers on “ditch and reservoir” companies.

MMWC could also forfeit some tax advantages. According to Art. X, Sec. 3 of the Colorado Constitution, "[d]itches, canals and flumes owned and used by individuals or corporations for irrigating land owned by such individuals or corporations, or the individual members thereof, shall not be separately taxed so long as they shall be owned and used exclusively for such purposes." (Emphasis added). The merged entity would also be subject to a different – and potentially stricter – set of requirements in order to obtain exemption from federal income taxes. See 26 U.S.C. § 501(c)(12).

Furthermore, it may be legally and/or practically impossible for CCMEPOA to merge with MMWC. The members of MMWC – and not MMWC – own the water, along with the rights to it, that is conveyed by MMWC’s distribution facilities. MMWC could not transfer these rights to CCMEPOA.

In any event, a merger of MMWC and CCMEPOA would be inadvisable. CCMEPOA exists to maintain, preserve, and architecturally control the residence lots and common areas within CCME -- and thereby maintain and improve CCME residents' quality of life. MMWC exists to serve a more fundamental necessity – water. The loss of potable water would severely disrupt the lives of MMWC customers. To ensure a continued supply of potable water to its customers, MMWC regularly addresses complex water rights, water transmission and distribution, and water quality issues that require a considerable amount of serious attention. Securing the continued delivery of potable water to its customers merits the undivided attention of MMWC’s employees and directors.

Infrastructure Questions:

No. MMWC's water system is a gravity-feed system. Also, the majority of MMWC's transmission and distribution lines consist of 3" pipe. MMWC's system provides neither the volume nor the pressure required to supply pressurized fire hydrants. Nevertheless, some cisterns for fire-fighting purposes have been installed, at CCMEPOA's expense, in various parts of CCME.

No. Among other legal impediments, Article 2.1(f) of the Amended and Consolidated Declaration of Protective Covenants and Building Restrictions, Cripple Creek Mountain Estates, dated April 26, 2005, provide that "[n]o individual water supply system shall be constructed or allowed in the Subdivision. Water will be provided and distributed in accordance with the Articles of Incorporation and By-laws of the authorized mutual water company (the 'Water Company'). Each lot owner shall connect to this service and pay monthly water bills, assessments, or dues, if any, necessary for the continuing operation, repair and maintenance of said system."

MMWC's Regulations provide that "[t]he repair to any portion of the water line from the main line to the property shall be the responsibility of the property owner after connection to the water main. Repairs and replacement of the valve/meter/meter box shall be the Water Company's responsibility, except that any repairs made necessary as a result of property owner's negligence or misuse shall be chargeable to that owner." Likewise, Article 2.1(f) of the Amended and Consolidated Declaration of Protective Covenants and Building Restrictions, Cripple Creek Mountain Estates, dated April 26, 2005, provide that "[e]ach lot owner shall maintain, at the owner's expense, the water piping to the point of connection with the Water Company."

6. If my cistern or service line freezes, will MMWC deliver water to me by truck?

MMWC users are responsible for their own cisterns and water lines. Moreover, MMWC's Regulations require all cisterns to have a heater installed. If a freeze occurrs in a user's cistern or service line, MMWC is not obligated to fill a user's cistern by water truck. MMWC currently charges $50 to deliver water to a customer's cistern by truck.

Money Questions:

MMWC's authority comes from multiple sources. Mountain Mutual Water Company is a mutual ditch company. C.R.S. § 7-42-104 authorizes ditch companies to make assessments on its shareholders for the purpose of keeping the property of the corporation in good repair. That section also grants such corporations "a perpetual lien upon such shares of stock and the water rights represented by the same for any and all such assessments until the same are fully paid."

Moreover, the Colorado Supreme Court has held that "[b]y becoming a stockholder," a member, "by implication, enter[s] into a contract with the company to pay all assessments upon his stock, levied pursuant to the governing statute and by-laws of the company, of which by-laws appellant will be presumed to have had notice." Callahan v. Chilcott Ditch Co., 86 P. 123, 124, 37 Colo. 331, 334-335 (Colo. 1906)

Furthermore, Article 2.1(f) of the Amended and Consolidated Declaration of Protective Covenants and Building Restrictions, Cripple Creek Mountain Estates, dated April 26, 2005, provide that "[w]ater will be provided and distributed in accordance with the Articles of Incorporation and By-laws of the authorized mutual water company (the 'Water Company'). Each lot owner shall connect to this service and pay monthly water bills, assessments, or dues, if any, necessary for the continuing operation, repair and maintenance of said system."

When someone buys a platted lot in Cripple Creek Mountain Estates, the person who buys the lot automatically acquires the prior owner's membership (if any) -- together with any outstanding obligations attached to that membership -- in MMWC. See C.R.S. § 7-42-104(4) (providing that the shares of stock in a ditch company "shall be ... transferable ... in the manner provided by the bylaws); MMWC Bylaws, Art. V, Section 2 (providing for automatic transfer of membership upon sale of a platted lot in CCME).

However, the transfer of a membership from one owner to the next does not expunge the fees owed by that membership. State law gives mutual ditch companies a "perpetual lien" against the membership -- not the lot itself -- for any and all charges owed. See C.R.S. § 7-42-104(3) ("[S]uch corporation shall have a perpetual lien upon such shares of stock and the water rights represented by the same for any and all such assessments until the same are fully paid. Such corporation may also provide that no water shall be delivered until all assessments are paid"). If those fees are not paid by the new owner, MMWC can avail itself of a number of legal remedies, including refusing to provide water or water service, suit for payment of delinquent fees, and/or forfeiture of the membership. See Delinquencies page.

Moreover, the lien against the membership survives a tax sale or foreclosure proceeding. This is because the property rights a buyer acquires in a lot are separate from the connection rights associated with a membership. See C.R.S. § 7-42-104(4) (providing that the shares of stock in a ditch company "shall be deemed personal property").

If a prospective buyer of a CCME lot retains the services of a responsible title company, the title company will contact MMWC to find out if any outstanding fees are owed. If a prospective buyer chooses not to retain the services of a title company, it is incumbent on that buyer to do his or her own due diligence.

The construction, maintenance, and operation of a central water system for a remote, sparsely-populated mountain subdivision such as CCME would have been impossible without some charge to owners of CCME's vacant lots.

In 1983, for example, MMWC reportedly provided water to only about 60 different customers. Yet MMWC incurred over $150,000 in inflation-adjusted operating expenses that year. If those users were expected to bear the full cost of MMWC's operating expenses, MMWC would have had to bill them $2500/year (inflation-adjusted). It might have been cheaper for those customers to truck water to their cisterns than to pay $2500/year.

Obviously, to make a central water system available to the subdivision, availability customers had to bear some of the costs.

Today, MMWC provides water to over 320 taps. And today, these user customers now bear over 50% of MMWC's operating expenses. Availability customers are still subsidizing user customers, but to a smaller extent than in the past.

MMWC has the potential of providing water to as many as 1400 customers. As CCME's user population grows, users will bear an ever-increasing portion of MMWC's operating expenses.

Availability customers benefit in three ways. First, it gives them a right to tap into MMWC's water distribution system and thereby obtain water and water service. Second, availability customers are currently charged only $500 to connect to MMWC's distribution lines. This is considerably less than the tap fees that most water companies and districts in Teller County charge (tap fees typically range from $8000-$14000 in Teller County). Third, the availability of a central water system increases the market value of most members' lots.

11. Why do low-volume (e.g., seasonal and occasional) users have to pay as much as high-volume (e.g., full-time) users?

Because until February 23, 2009, MMWC had no regulation requiring users to install meters. Without some form of monitoring -- e.g., metering -- it is impossible to fairly and reliably distinguish between high- and low-volume users.

Several reasons. First, the pressure in some parts of MMWC's distribution system is sometimes inadequate. Metering will make it easier for MMWC to identify and remediate areas of MMWC's distribution system where water is leaking. Second, metering will encourage responsible water use, improving the security of the water supply for the whole community of users. Third, metering will enable MMWC to develop and implement a rate structure that more fairly distributes MMWC's operating costs. Those who benefit the most can expect to pay more than those who benefit just a little.

When one compares MMWC's rates with rates in other nearby communities, it is evident that CCME's full-time population is being subsidized by MMWC's availability customers and, to some extent, also by CCME homeowners whose homes are seldom occupied. On average, full-time residents in remote Teller County areas who consumer 5000 gallons/month are paying an average of about $65/month, whereas weekend warriors who use very little water are paying an average of about $30/month. The absence of metering impedes MMWC's ability to more fairly distribute its operating and capital costs.

MMWC's By-Laws, at Art. VI, § 5, provide that “[a]ll water service shall be metered unless otherwise specified by the board of directors.” This provision has been a part of MMWC's By-Laws since 1973. Over the past 35 years, MMWC has considered requiring meters on multiple occasions.

MMWC's By-Laws, at Art. VI, § 1, also provide that "[i]n times of scarcity, the directors may adopt such means of conserving use of water as to seem then appropriate in the circumstances, including the curtailing of water use by members." Metering is, arguably, the most practical means of conserving water.

As CCME grows, MMWC will be required, under the Colorado Water Metering Act, to meter anyway. C.R.S. § 37-97-103.

Mountain Mutual Water Company -- Frequently Asked Questions

Institutional Questions:

Infrastructure Questions:

Money Questions:

Copyright © 2009 MMWC Director Eric W. Cernyar
Last modified: 10-Feb-2010

Mountain Mutual Water Company -- Frequently Asked Questions

Institutional Questions:

Infrastructure Questions:

Money Questions:

Copyright © 2009 MMWC Director Eric W. Cernyar Last modified: 10-Feb-2010

Copyright © 2009 MMWC Director Eric W. Cernyar
Last modified: 10-Feb-2010