Mountain Mutual Water Company -- Membership

1. Introduction

2. Rights of Membership

3. Transfers of Membership

4. To Be Entitled To Service, You Must Be a Registered Owner of a MMWC Membership

5. Lots For Which Memberships Have Been Forfeited May -- But Are Not Entitled To -- Purchase a Tap from MMWC

6. MMWC Restricts Membership to Owners of Lots in CCME

7. MMWC Is Reluctant To Serve Non-Members As Customers

Introduction

MMWC's members consist of over 1400 lots in Cripple Creek Mountain Estates (CCME), a subdivision developed in the 1960s and 1970s by the Golden Cycle Land Corporation. CCME is located approximately 5 miles northwest of Cripple Creek, Colorado. MMWC also serves several non-member customers in lots through which MMWC has secured easements for its water transmission line.

The right to water service from MMWC is represented by membership in MMWC. When MMWC was formed, the owners of each lot in CCME became members.

Rights of Membership

Article VI, § 1 of the By-Laws entitle each registered holder of a membership to take water as provided by the Board of Directors. Water supplied by MMWC may be used only for domestic purposes in single family dwellings on the associated lot. MMWC By-Laws, Art. VI, § 3. In times of scarcity, MMWC has the right to require conservation measures and curtail water use. MMWC By-Laws, Art. VI, § 1.

There is one membership per non-forfeited lot, and each non-delinquent membership is entitled to one vote. See MMWC Articles of Incorporation, at ¶ V; By-Laws at Art. II, § 10.

Transfers of Membership

Memberships in MMWC are automatically transferred with sale of the lot. If you are not the original owner of a CCME lot, the membership was automatically transferred to you when you purchased the property, unless the membership associated with the lot was previously forfeited for non-payment.

It is difficult for MMWC to keep track of the memberships when a lot is sold. Should you sell your lot, please notify MMWC. If you have sold your lot and are still receiving bills and notices from MMWC, please notify MMWC at once so that the bills and notices can be sent to the proper party.

To Be Entitled To Service, You Must Be a Registered Owner of a MMWC Membership

MMWC is not obligated to recognize any interest in any membership, or the rights deriving from a membership, unless the person claiming the interest is a registered owner of the membership. See MMWC Art. of Incorporation, at ¶ 9.

For information on registering, please call MMWC.

Lots For Which Memberships Have Been Forfeited May -- But Are Not Entitled To -- Purchase a Tap from MMWC

MMWC currently permits -- but is not obligated to permit -- CCME lot owners for which membership rights have been forfeited and for which water service is feasible to purchase a membership, along with an accompanying right to tap, for a fee of $3,000.

Pursuant to a resolution adopted by the Board of Directors at a special meeting on February 23, 2009, that fee will rise to $8,000 in 2010. That fee is rising to $8,000 for several reasons:

(1) the membership purchase fee will raise needed revenue for MMWC, further its efforts to upgrade the existing infrastructure, and thereby benefit all concerned;
(2) the membership purchase fee more closely reflects a fair valuation of a membership in MMWC;
(3) MMWC previously kept its membership fee constant for decades, not keeping pace with inflation; the increase catches MMWC back up;
(4) the membership purchase fee is more consistent with what other Teller County water providers charge for a tap;
(5) the membership purchase fee is unlikely to impose significant hardships because it is incidental, and not unaffordable, relative to the much larger cost of building a home;
(6) the membership purchase fee helps MMWC maintain a stable revenue base by incentivizing those who have purchased multiple lots for long-term investment purposes, and who might otherwise be tempted to forfeit their memberships to save money, to stay current on their availability fees;
(7) the membership purchase fee rewards existing members' good stewardship: to the extent that it raises the cost of building a home on a lot with a forfeited membership, it will also raise the value of existing homes and vacant lots in CCME that have kept their memberships current; and
(8) the membership purchase fee protects existing members from freeloading: for the past several decades, over 1000 existing memberships have made substantial investments -- by paying annual availability fees -- to maintain MMWC's system and preserve its precious water rights, and it is only fair that they be compensated for restoring water availability back to those who, for years, contributed nothing to those efforts.

MMWC is aware that there are some existing CCME lot owners with forfeited memberships who purchased their lots on the basis, in part, of an expectation that a membership would be available for $3,000. Although MMWC is obligated only to its members and contractual customers, and not to third parties with whom it has no current legal or contractual relationship, MMWC is giving those owners, for which water service is feasible, an opportunity to protect their expectations by buying a MMWC membership for only $3,000 before the end of 2009.

MMWC reserves the right to raise its membership purchase fee and -- although it currently has no plans to do so -- place a moratorium on the sale of new memberships.

MMWC Restricts Membership to Owners of Lots in CCME

MMWC's by-laws currently -- and have always -- restricted memberships to owners of platted lots in CCME. See MMWC By-Laws, at Art. II, § 1 (“There may be one class of memberships known as Class A Memberships. Each member must own one platted lot in CCME per Class A Membership, as a condition of membership….”).

MMWC Is Reluctant To Serve Non-Members As Customers

MMWC has the right, under Art. VI, § 2 of its By-Laws, to supply water and water services to non-member customers on a case-by-case basis.

MMWC provides water and/or tap rights to many of the landowners through whose lots MMWC's main transmission line from the Gillette wells run. Most of these commitments to supply water were made in exchange for easements for MMWC's transmission line. Also, in its 1983 contract with GCLC, MMWC agreed to assume the water supply commitments that GCLC had made to a few other non-CCME owners in exchange for the water rights and facilities that GCLC transferred to MMWC.

But outside of these circumstances, MMWC almost always denies requests for service from non-CCME landowners, for a number of very good reasons.

First, MMWC has rights to a limited supply of water. MMWC's principal obligation is to supply water to its members in CCME. MMWC secured water rights that it believes will be adequate to meet CCME's current and future water needs, along with the needs of the few non-CCME customers that MMWC serves. Those water rights, however, are not adequate to serve a large population of non-CCME customers.

Second, it would generally be cost-ineffective for MMWC to extend distribution lines to isolated customers outside of CCME. Due to covenants that run with CCME lots, MMWC effectively has a monopoly on water service to CCME. See Amended and Consolidated Declarations of Protective Covenants of Cripple Creek Mountain Estates, dated March 16, 2005, at §§ 2.1(b) & (f). This ensures that by the time CCME is fully developed, MMWC's service area will have a sufficient customer density to enable MMWC to serve its members efficiently and cost-effectively.

Generally, no such covenants run with land outside of CCME. In land outside of CCME, owners may have the opportunity to dig their own wells or secure water from other providers. Moreover, the areas outside of but proximate to CCME are unlikely to be developed as quickly or densely as CCME. Therefore, service by MMWC to these outside areas is unlikely to be cost-justified.

Third, the costs of operating, maintaining, and improving MMWC's water distribution facilities are shared by not only users but also -- through annual availability fees -- owners of CCME lots that are not yet connected to MMWC's system. In a sense, owners of empty CCME lots have long subsidized and are continuing to subsidize MMWC's operating and capital costs in exchange for the right and opportunity to connect and the value that the availability of MMWC's water service adds to their property.

Unlike CCME's lot owners, owners of lots outside of CCME have not been subsidizing MMWC's costs over the past three decades. Absent exceptional circumstances, it is difficult to justify allowing non-CCME lot owners -- who were never subjected to such costs -- to tap MMWC's lines, much less to share in the continuing subsidies provided by MMWC's availability fees.

Fourth, MMWC is a non-profit "mutual ditch and reservoir" company. In order to maintain its tax-exempt status, it must receive no more than 15% of its gross income from non-members. See 26 U.S.C. § 501(c)(12). Also, as a "mutual ditch and reservoir" company, MMWC was “formed expressly for the purpose of furnishing water to shareholders, not for profit or hire.” See Jacobucci v. District Court, 189 Colo. 380, 541 P.2d 667, 671 (1975) (emphasis added). MMWC's status as a non-profit mutual ditch company restricts MMWC from engaging in profit-making activities. Accordingly, MMWC's members stand to gain little benefit -- but nevertheless must bear additional liabilities -- by extending service to non-members.