What changed in this filing

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Item 1A. Risk Factors

2024-11-13 compared with 2023-11-15 · 87 added, 82 removed, 417 unchanged (29% of the section changed)

10 unchanged sentences

To the extent that the general economic conditions in the Front Range area of Colorado deteriorate, the value of our assets, our results of operations and our financial condition could be materially adversely affected.

We are dependent on the housing market and development in our targeted service areas for future revenues.

We are dependent on the housing market and development in our targeted service areas for future revenue.

The homebuilding industry is cyclical and a deterioration in industry conditions or downward changes in general economic or other business conditions could adversely affect our business, results of operations, cash flows and financial condition.

Providing wholesale water service using our Colorado Front Range water supplies is one of our key sources of future revenue.

The timing and amount of these revenues will depend in part on housing developments being built near our water assets.

The timing and amount of this revenue will depend in part on housing developments being built near our water assets.

The development of the Lowry Ranch, Sky Ranch and other properties is subject to many factors that are outside our control.

1 unchanged sentence

We may not be successful in obtaining additional capital.

Although there have been positive market gains in the Colorado housing market in recent years, inflation and rising interest rates are intensifying and causing slow downs in the homebuilding industry which economic concerns could have a significant negative impact on our business and financial condition and our plans for future development of additional phases of Sky Ranch.

Although there have been positive market gains in the Colorado housing market in recent years, inflation and rising interest rates have caused slowdowns in the homebuilding industry.

These economic concerns could have a significant negative impact on our business and financial condition and our plans for future development of additional phases of Sky Ranch.

Although the Colorado economy has become increasingly diverse, the oil and gas industry remains an important segment of the Colorado economy.

3 unchanged sentences

For example, from 2020 to 2022 housing starts as well as home prices in Colorado increased.

In 2023 due to raising interest rates, the demand for new home starts has weakened in the Colorado housing market, and we could experience declines in the market value and demand for our lots and rental homes, any of which could have a material adverse effect on our business, results of operations, cash flows and financial condition.

In 2022 and 2023 due to rising interest rates, the demand for new home starts weakened in the Colorado housing market.

Notwithstanding stabilizing house conditions in 2024, the current demand for new homes is subject to continued uncertainty due to many factors, and we could experience declines in the market value and demand for our lots and rental homes, any of which could have a material adverse effect on our business, results of operations, cash flows and financial condition.

Significant competition from other development projects could adversely affect our results.

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The single-family home rental market is also highly competitive.

There are numerous companies and individuals that own rental homes

in the Sky Ranch area which may have more experience than we do renting single-family homes, better locations, and better pricing.

There are numerous companies and individuals that own rental homes in the Sky Ranch area which may have more experience than we do renting single-family homes, better locations, and better pricing.

If we are unable to rent the homes at rates that cover our costs or are unable to manage the properties and expenses incurred to manage the properties, the impact to our business, results of operations, cash flows and financial condition could be materially negative.

10 unchanged sentences

To the extent such costs continue to increase, we may be prevented, in whole or in part, from passing such cost increases through to our existing and prospective customers, or our customers may seek other competitive sources due to supply chain delays, which could have a material adverse impact on our margins, business, financial position, results of operations and cash flows.

Our water business is subject to seasonal fluctuations and weather conditions that could affect demand for our water service and our revenues and that could become more extreme with climate change.

Our water business is subject to seasonal fluctuations and weather conditions that could affect demand for our water service and our revenue and that could become more extreme with climate change.

We depend on an adequate water supply to meet the present and future demands of our customers and their end-use customers and to continue our expansion efforts.

1 unchanged sentence

Drought and overuse may limit the availability of water, and such droughts may become more frequent and prolonged with climate change.

These factors might adversely affect our ability to supply water in sufficient quantities to our customers, and our revenues and earnings may be adversely affected.

These factors might adversely affect our ability to supply water in sufficient quantities to our customers, and our revenue and earnings may be adversely affected.

Additionally, cool, and wet weather, as well as drought restrictions and our customers’ conservation efforts, may reduce consumption demands, adversely affecting our revenue and earnings.

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Throughout the year, and particularly during typically warmer months, demand will vary with temperature and rainfall levels.

If temperatures during the typically warmer months are cooler than expected or there is more rainfall than expected, the demand for our water may decrease and adversely affect our revenues.

If temperatures during the typically warmer months are cooler than expected or there is more rainfall than expected, the demand for our water may decrease and adversely affect our revenue.

The physical impacts of natural disasters and severe weather conditions could reduce consumer demand for housing, result in service disruptions, delay the closing of the sale of residential lots at Sky Ranch and increase our costs, any of which could harm our sales and results of operations.

9 unchanged sentences

Our continuing development of Sky Ranch requires significant cash expenditures.

We have advanced the Sky Ranch CAB $50.8 million

for construction of public improvements in Phases 1 and 2 at Sky Ranch and expect to advance another $11.7 million for the completion of the Phase 2A and 2B public improvements.

The Sky Ranch CAB is not required to repay us for advances made or expenses incurred for improvements at Sky Ranch unless and until the Sky Ranch CAB and/or Sky Ranch Districts generate sufficient funds from either tax revenues, fees or by issuing bonds in an amount sufficient to reimburse us for all or a portion of advances made or expenses incurred.

We have advanced the Sky Ranch CAB $67.5 million for construction of public improvements in Phases 1 and 2 at Sky Ranch and expect to advance approximately another $30.0 million for the completion of the Phase 2 public improvements.

The Sky Ranch CAB is not required to repay us for advances made or expenses incurred for improvements at Sky Ranch unless and until the Sky Ranch CAB and/or Sky Ranch Districts generate sufficient funds from either tax revenue, fees or by issuing bonds in an amount sufficient to reimburse us for all or a portion of advances made or expenses incurred.

We have funded and expect to continue to fund such expenditures with cash on hand and cash flows from operations.

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State regulations set the training, experience and qualification standards required for our employees to operate specific water and wastewater facilities.

Failure to find state-certified and qualified employees to support the operation of our facilities could put us at risk for, among other things, regulatory penalties (including fines and suspension of operations), operational errors at the facilities, improper billing, and collection processes, claims for personal injury and property damage, and loss of contracts and revenues.

We may be unsuccessful in managing our operations and growth.

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Both increased customer demand and increased water conservation may also impact the overall cost of our operations.

If the costs for construction and operation of our wholesale water services, including the cost of extracting our groundwater, exceed our revenues, we would be providing water service to the Rangeview District for use at the Lowry Ranch at a loss.

If the costs for construction and operation of our wholesale water services, including the cost of extracting our groundwater, exceed our revenue, we would be providing water service to the Rangeview District for use at the Lowry Ranch at a loss.

The Rangeview District may petition the Land Board for rate increases;

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Further sales to this customer base as well as renewals of our oil and gas leases in the future may be impacted by ballot initiatives, new federal and state legislation, regulations by multiple federal and state agencies such as the U.S.

Environmental Protection Agency, the Colorado Energy and Carbon Management Commission (formerly the Colorado Oil and Gas Conservation Commission (COGCC)), the Colorado Department of Public Health and Environment (DPHE), and the Colorado Air Quality Control Commission (AQCC), local

zoning rules, court interpretations of laws and regulations at all levels of government, fracking technologies, the success of the wells, and the price of oil and gas, among other things.

We could see increased opposition and tougher oversight of oil and gas operations, which could reduce the demand for water for fracking and reduce our associated water sales as a result of the enactment and implementation of multiple state bills over the last several years targeting the siting of, emissions from, and chemicals used in oil and gas production, such as Senate Bill 19-181 (SB 19-181) (increased local and state government oversight of oil and gas siting and environmental impacts), SB 22-198 (fees on oil and gas wells for an orphaned well fund), HB 22-1361 (audits of and reporting on oil and gas taxes and emissions), HB 22-1244 (toxic air emissions reporting, permitting, and controls from certain sources, which may be more stringent than the federal Clean Air Act), HB 22-1348 (disclosure of chemicals used in oil and gas operations and ban on use of added perfluoroalkyl or polyfluoroalkyl chemicals), and HB 22-1345 (ban on PFAS in oil and gas products).

Environmental Protection Agency, the Colorado Energy and Carbon Management Commission (CECMC, formerly the Colorado Oil and Gas Conservation Commission

(COGCC)), the Colorado Department of Public Health and Environment (DPHE), and the Colorado Air Quality Control Commission (AQCC), local zoning rules, court interpretations of laws and regulations at all levels of government, fracking technologies, the success of the wells, and the price of oil and gas, among other things.

We could see increased opposition and tougher oversight of oil and gas operations, which could reduce the demand for water for fracking and reduce our associated water sales as a result of the enactment and implementation of multiple state bills over the last several years targeting the siting of, emissions from, and chemicals used in oil and gas production, such as Senate Bill SB 19-181 (increased local and state government oversight of oil and gas siting and environmental impacts), SB 22-198 (fees on oil and gas wells for an orphaned well fund), HB 22-1361 (audits of and reporting on oil and gas taxes and emissions), HB 22-1244 (toxic air emissions reporting, permitting, and controls from certain sources, which may be more stringent than the federal Clean Air Act), HB 22-1348 (disclosure of chemicals used in oil and gas operations and ban on use of added perfluoroalkyl or polyfluoroalkyl chemicals), HB 22-1345 (ban on PFAS in oil and gas products), and SB 24-230 (establishing new fees on oil and gas production).

The oil and gas industry, and associated demand for water for fracking, may also be impacted by the adoption of new or revised state regulations in recent years, such as:

(i) Colorado Energy and Carbon Management Commission fees and financial assurance requirements for oil and gas facilities (adopted in 2022);

(ii) AQCC GHG intensity standards that will become more restrictive over time and apply to upstream oil and gas operations, including well sites and production facilities (adopted in 2021), and related “verification” and monitoring requirements (adopted in July 2023) ;

(iii) AQCC reporting and emission reduction requirements for GHGs, ozone precursors, and hydrocarbons from oil and gas operations and industrial wastewater treatment, as well as regional haze limit (adopted in 2022);

(i) Colorado Energy and Carbon Management Commission fees and financial assurance requirements for oil and gas facilities (adopted in 2022) and a new rule (adopted in October 2024) requiring that oil and gas operators seeking drilling permits must analyze the cumulative impacts of their proposals and conduct enhanced community outreach in disproportionately impacted communities ;

(ii) AQCC GHG intensity standards that will become more restrictive over time and apply to upstream oil and gas operations, including well sites and production facilities and related “verification” and monitoring requirements (Regulation 7);

(iv) a list of toxic air contaminants identified by the DPHE in 2022 as a first step in implementing HB 22-1244;

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Recent federal laws and regulatory initiatives may also impact the oil and gas industry and thus associated water demand and sales.

For example, the federal Inflation Reduction Act of 2022 imposes of a fee on methane emissions from certain oil and gas facilities, and it increases certain corporate taxes that could impact the oil and gas industry.

For example, the federal Inflation Reduction Act of 2022 imposes a fee on methane emissions from certain oil and gas facilities, and it increases certain corporate taxes that could impact the oil and gas industry.

The Inflation Reduction Act also increases the amount of federal property available for oil and gas leasing, which could impact the desirability of developing oil and gas on private property.

In addition, the EPA proposed a new rule “New Source Performance Standards” rule to regulate methane emissions from the oil and gas industry (initially proposed in 2021;

supplemental proposal in 2022).

In addition, the EPA issued a final rule that includes, among other things, revised “New Source Performance Standards” regulating greenhouse gas (GHG), methane, and volatile organic compounds (VOCs) emissions for the Crude Oil and Natural Gas source category pursuant to the Clean Air Act, as well as emissions guidelines for states to follow in developing state plan to establish performance standards to limit GHG emissions from existing sources in the Crude Oil and Natural Gas source category.

That final rule was announced by the EPA on December 2, 2023 and published in the Federal Register on March 8, 2024, and a new interim final rule to make technical corrections was issued on June 11, 2024.

Other future potential laws, regulations, or ballot initiatives may also impact oil and gas development and, therefore, our water sales.

7 unchanged sentences

We do not currently anticipate any short-term concerns with physical, legal, or continuous availability issues in our service areas.

Insufficient availability of water or wastewater treatment capacity could materially and adversely affect our ability to provide for expected customer growth necessary to increase revenues.

Insufficient availability of water or wastewater treatment capacity could materially and adversely affect our ability to provide for expected customer growth necessary to increase revenue.

We continuously look for new sources of water to augment our reserves in our service areas, but our ability to obtain such rights may depend on factors beyond our control.

1 unchanged sentence

Also, increased costs to develop water from aquifers could have a significant negative impact on our business, results of operations, cash flows and financial condition.

To utilize our water resources as intended, we may need to apply for a change of use with the water court from time to time.

This may take several years to complete, and there is no assurance that we will be able to obtain a favorable ruling, which may adversely impact our business and financial condition.

Water resources that have been historically used for purposes other than municipal and industrial uses or that have been used in other locations, such as or Lost Creek Water, require a favorable change of use ruling by the water court in order for us to use the water as planned.

A change of use ruling by the water court could take several years and be a costly and contentious effort since it is anticipated that many parties will oppose the change of use and the transfer of the water.

There are several conditions which must be satisfied prior to our receiving a change of use decree.

One condition that we must satisfy is a showing of anti-speculation in which we, as the applicant, must demonstrate that we have contractual obligations to provide water service to customers prior to the water court ruling on the transfer of a water right.

The water court is also expected to limit the transfer to the “consumptive use” portion of the water right and to address changing the historic use of the water from agricultural uses to other uses such as municipal and industrial use.

We expect to face opposition to any consumptive use calculations of the historic agricultural uses of this water.

The water court may impose conditions on our transfer of the water rights such as requiring us to mitigate the loss of the farming tax base, imposing re-vegetation requirements to convert soils from irrigated to non-irrigated, imposing water quality measures, and imposing limitations on the timing and location of transfers to mitigate other users who may be affected by such transfers.

Any such conditions, including a change of use ruling that precludes us from using the water resource as intended, would likely increase the cost of transferring the water rights or require us to develop alternative plans or water resources, which could result in substantial delays or expense which my adversely impact our business and financial condition.

A failure of the water wells or distribution networks we own, or control could result in losses and damages that may affect our business and financial condition.

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We have limited experience with the development of real property.

While we have extensive experience designing and constructing water and wastewater facilities and maintaining and operating these facilities, despite having completed Phase 1 and a substantial amount of Phase 2A at Sky Ranch, we have less experience developing real property.

While we have extensive experience designing and constructing water and wastewater facilities and maintaining and operating these facilities, despite having completed Phase 1 and a substantial amount of Phase 2A and 2B at Sky Ranch, we have less experience developing real property.

We may underestimate the capital expenditures required to complete the development of Sky Ranch, including the costs of certain infrastructure improvements and construction costs related to our single-family home rental business.

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The funds we are advancing to the Sky Ranch CAB for construction of public improvements might not be repaid, which would negatively impact our income, gross margin on selling lots, and cash flows.

Since the start of development at Sky Ranch, we have advanced the Sky Ranch CAB $50.8 million for construction of public improvements and expect to fund an additional estimated $11.7 million to complete the buildout of public improvements in Phases 2A and 2B.

At August 31, 2023, of the amounts advanced to the Sky Ranch CAB, $24.9 million has not been repaid, including interest.

We expect these amounts will be repaid by the Sky Ranch CAB.

Since the start of development at Sky Ranch, we have advanced the Sky Ranch CAB $67.5 million for construction of public improvements and expect to fund an additional estimated $30 million to complete the buildout of public improvements in Phase 2.

At August 31, 2024, of the amounts advanced to the Sky Ranch CAB, $41.0 million has not been repaid, including interest and project management fees.

We expect these amounts will be repaid by the

Sky Ranch CAB.

No payment is required by the Sky Ranch CAB with respect to construction of public improvements unless and until the Sky Ranch CAB and/or the Sky Ranch Districts have generated sufficient funds from property taxes, fee, or the issuance of municipal bonds in an amount sufficient to reimburse the Company for all or a portion of advances provided or expenses incurred for reimbursables.

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Labor shortages throughout the Unites States including the Colorado Front Range have become more acute in recent years as the supply chain adjusts to uneven industry growth.

The COVID-19 pandemic exacerbated these shortages.

Increased costs or shortages of skilled labor and/or concrete, steel, pipe, lumber, and other materials could cause increases in property development and home construction costs and delays, including in our single-family home rental business.

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We may purchase additional land parcels for development, construction, or other purposes.

As noted above, land development and construction require significant cash expenditures before positive cash flows can be generated from the sale of lots, rental of homes, and water and

wastewater tap fees.

As noted above, land development and construction require significant cash expenditures before positive cash flows can be generated from the sale of lots, rental of homes, and water and wastewater tap fees.

If there is considerable lag time between when we acquire the land and when we begin selling finished lots or renting homes, we may generate significant operating losses.

In addition, if sales of homes on the finished lots are delayed, renters can’t be found in a timely manner, our revenue from water and wastewater resource development services will be delayed.

In addition, if sales of homes on the finished lots are delayed, renters cannot be found in a timely manner, our revenue from water and wastewater resource development services will be delayed.

If our cash on hand and future cash flows from operations are not sufficient to fund our operations and the significant capital expenditure requirements to develop any acquired land, construct housing and build water and wastewater systems, we may be forced to seek to obtain additional debt or equity capital.

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In 2021 we launched a new division that involves the construction of single-family homes to be used for rental purposes.

We have no track record of building or maintaining homes for rent.

We had no previous track record of building or maintaining homes for rent.

Rental home construction can involve substantial up-front costs before a home is available for rent and generates income.

In addition to the up-front costs, building rental homes involves potentially significant new risks to our business, such as delays or cost increases due to changes in or failure to meet regulatory requirements, including permitting and zoning regulations, failure of lease rentals on newly-constructed properties to achieve anticipated investment returns, inclement weather, adverse site selection, unforeseen site conditions, construction materials and

labor and other risks described below.

We may be unable to achieve our objective of building new rental homes that generate acceptable returns and, as a result, our growth and results of operations may be adversely impacted.

We will depend on our tenants for all of our rental home revenues.

We will depend on our tenants for all of our rental home revenue.

Poor tenant selection and defaults and nonrenewal by our tenants may adversely affect our reputation, and financial performance.

We are dependent on rental income from tenants for all of our rental home revenues.

We are dependent on rental income from tenants for all of our rental home revenue.

As a result, the success of this division depends in large part upon our ability to attract and retain qualified tenants for our properties.

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We anticipate substantially all of our leases having a duration of one year.

As these leases will permit tenants to leave at the end of the lease term without penalty, we anticipate our rental revenues may be affected by declines in market rents more quickly than if our leases were for longer terms.

As these leases will permit tenants to leave at the end of the lease term without penalty, we anticipate our rental revenue may be affected by declines in market rents more quickly than if our leases were for longer terms.

Annual leases may result in high turnover, which involves costs such as restoring the properties, marketing costs and lower occupancy levels.

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Various local, state and federal statutes, ordinances, rules and regulations concerning health and safety, site and building design, environmental, zoning, and similar matters apply to and/or affect the construction and operation of our water and wastewater systems and our land development activities.

For example, as detailed further below, the COGCC adopted regulations that took effect in 2021 which implement SB 19-181 by imposing minimum distances between new oil and gas drilling operations and residences, schools, and childcare centers.

SB 19-181 also empowers local governments to enact regulations that are stricter than state requirements pertaining

to the surface impacts of oil and gas operations.

For example, as detailed further below, the CECMC adopted regulations that took effect in 2021 which implement SB 19-181 by imposing minimum distances between new oil and gas drilling operations and residences, schools, and childcare centers.

SB 19-181 also empowers local governments to enact regulations that are stricter than state requirements pertaining to the surface impacts of oil and gas operations.

Thus, local zoning or other regulations may seek to create stricter setbacks from oil and gas drilling operations or impose other restrictions on the use of land.

For example, Arapahoe County adopted oil and gas regulations in November 2021 and amended those regulations in 2023 to include, among other things, a one-mile setback from existing and planned reservoirs, subject to certain exceptions that may allow a 2,000-foot setback.

That 2,000-foot minimum setback is proposed to increase to 3,000-feet in a proposed rule under consideration by Arapahoe County as of as of November 2023.

Arapahoe County is also considering increasing the setbacks from occupied structures, platted lots, outside activity areas, and water bodies, as well as other proposed rules to address soil contamination, noise, and air pollution from oil and gas facilities.

Similarly, in 2021, Adams County adopted a rule requiring oil and gas facilities to be set back 2,000 feet from residences, schools, and certain waterbodies.

That 2,000-foot minimum setback was once again amended in November 2023, requiring the setback from an occupied structure to be at 3,000 feet, allowing for a setback of not less than 1,000 feet through variance procedures, and increasing the setback to 3,000 feet for well pad sites that are hydrologically separated from existing and planned reservoirs, permitting a setback of 2,000 feet if approved through a Use by Special Review process Similarly, in 2021, Adams County adopted a rule requiring oil and gas facilities to be set back 2,000 feet from residences, schools, and certain waterbodies.

As these state and local setback regulations are implemented, and to the extent that additional regulations are enacted, the value of the land that we already own or the availability of land that we are looking to acquire may decline, either of which may adversely impact the financial position, results of operations and cash flows of our business.

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For example, HB 22-1362 requires the Colorado Energy Office to identify by 2025, and local governments to adopt by 2026, more energy efficient and low carbon building codes.

In addition, HB 21-1286 requires large (50,000 square feet) multifamily, commercial, and public buildings to meet energy performance and greenhouse gas standards, and the Colorado AQCC adopted implementing regulations in August 2023.

Further, HB 23-1161 establishes water and energy efficiency standards for a range of appliances, which could impact appliance costs and, relatedly, costs for finishing new buildings.

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(i) finalized a rule in December 2021 pertaining to monitoring of PFAS in drinking water;

(ii) issued a proposed rule in March 2023 to establish regulatory levels for PFOA, PFOS, PFNA, PFHzS, PFBS, and GenX chemicals in drinking water;

(iii) issued a proposed rule in August 2022 to designate two of the most widely used PFAS as hazardous substances under CERCLA, or Superfund;

(iv) announced two rulemaking efforts in October 2021 to address PFAS under the Resource Conservation and Recovery Act (RCRA);

(v) and expects to develop additional rules restricting PFAS discharges from industrial sources.

(ii) issued a final rule in April 2024 to establish regulatory levels for PFOA, PFOS, PFNA, PFHxS, PFBS, and GenX chemicals in drinking water;

(iii) issued a final rule in May 2024 to designate two of the most widely used PFAS – PFOA and PFOS – as hazardous substances under CERCLA, or Superfund;

(iv) announced a proposed rule in February 2024 to add nine specific PFAS substances, their salts, and their structural isomers to its list of hazardous constituents under RCRA;

(v) issued numerous notices concerning the addition of certain PFAS substances to the Toxics Release Inventory;

and (vi) expects to develop additional rules restricting PFAS discharges from industrial sources.

These new regulatory initiatives addressing PFAS in drinking water could impact the water side of our business.

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Environmental Protection Agency narrowed federal jurisdiction over wetlands under the Clean Water Act and related permitting requirements, which could simplify our permitting requirements for building near some wetlands.

However, it is expected that further clarifications and changes may arise through implementing federal regulations, additional litigation over application of the Court’s decision, and/or state laws and regulations.

Since the Sackett decision, various challenges have continued in federal courts in an effort to further clarify the scope of federal jurisdiction.

Indeed, Colorado passed HB 24-1379, requiring the Water Quality Control Commission to establish requirements, prohibitions, and standards for the regulation of discharged dredge and fill materials into state waters, including wetlands, and administering a state dredge and fill discharge authorization program, expected to be established by 2026.

It is expected that further clarifications and changes may arise through implementing federal regulations, additional litigation over application of the Court’s decision, and/or state laws and regulations.

Government agencies may initiate audits, reviews, or investigations of our business practices to ensure compliance with applicable laws and regulations, which can cause us to incur costs or create other disruptions in our business that can be significant.

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For example and as mentioned above, HB 22-1362 requires energy efficient and low carbon building codes to be adopted by the state and local governments by 2025 and 2026, respectively.

Further, HB 21-1286 requires large (50,000 square feet or more) commercial, multifamily, and public buildings to annually report energy usage and reduce the buildings’ GHG emissions by 7% by 2026 and 20% by 2030.

The AQCC adopted regulations implementing HB 21-1286 in 2023.

Additionally, HB 23-1233 will require multifamily buildings to be solar-ready and electric vehicle-ready.

Our future housing development costs and the cost of operating and maintaining our multifamily housing developments could be negatively impacted by HB 22-1362, HB 21-1286, and HB 23-1233, in conjunction with HB 23-1161 (appliance efficiency standards) and earlier enacted efficiency standards for appliances, plumbing fixtures, and buildings (e.g., HB 19-1231, HB 19-1260).

Our future housing development costs and the cost of operating and maintaining our multifamily housing developments could be negatively impacted by HB 22-1362, and HB 23-1233, in conjunction with HB 23-1161 (appliance efficiency standards) and earlier enacted efficiency standards for appliances, plumbing fixtures, and buildings (e.g., HB 19-1231, HB 19-1260).

Colorado has also enacted ambitions GHG reduction targets, initially with HB 19-1261 and recently made yet more stringent with SB 23-016, which aims to reduce the state’s overall greenhouse gas emissions 100% below 2005 levels by 2050 and includes a series of interim targets.

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There are also ongoing efforts to implement these greenhouse gas targets, other bills (e.g., HB 19-096, requiring GHG emissions reporting by certain entities pursuant to AQCC regulations;

SB 23-1210, requiring the Colorado Energy Office to create a “carbon management roadmap”), and the Colorado Governor’s 2021 Colorado Greenhouse Gas Pollution Reduction Roadmap identifying strategies to reduce greenhouse gas emissions from a variety of sources, including buildings, transportation, and oil and gas mining and production.

SB 23-1210, requiring the Colorado Energy Office to create a “carbon management roadmap”), and the Colorado Governor’s Colorado Greenhouse Gas Pollution Reduction Roadmap (first released in 2021, and updated in 2024) identifying strategies to reduce greenhouse gas emissions from a variety of sources, including buildings, transportation, and oil and gas mining and production.

For example, pursuant to 19-096 the AQCC adopted and updated its Air Regulation Number 22 and Regulation Number 7 requiring monitoring, reporting, and reduction of GHGs and ozone precursors from certain categories of emitters, such as industrial wastewater treatment facilities and oil and gas operators.

In addition, at the federal level, the SEC’s proposed climate risks disclosures and greenhouse gas reporting rule could, if finalized, impose additional compliance costs on our business, as well as for the oil and gas producers with whom we do business.

In addition, at the federal level, the SEC’s climate-related financial risks disclosures and greenhouse gas reporting rule, finalized in 2024, could impose additional compliance costs on our business, as well as for the oil and gas producers with whom we do business.

As climate change concerns continue to grow, enactment of additional climate and energy legislation and regulations at the state, local, and federal levels may continue, and compliance with legislation and regulations of this nature is expected to become more costly.

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These issues could give rise to delays, cost overruns or performance deficiencies, or otherwise adversely affect the construction or operation of our water and wastewater delivery systems and the construction and delivery of residential lots.

In addition, we may experience quality problems in the construction of our systems and facilities, including equipment

In addition, we may experience quality problems in the construction of our systems and facilities, including equipment failures.

We may not meet the required deadlines under our sale and construction contracts.

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SB 19-181 also requires what is now the Colorado Energy and Carbon Management Commission and the AQCC to undertake rulemakings on environmental protection, facility siting, increased inspections and public disclosures, elimination of hard caps on application fees, increasing required financial assurances, and minimizing emissions of hydrocarbons and other compounds.

The COGCC and the AQCC have promulgated several rules pursuant to SB 19-181 over the past several years, as summarized below.

The CECMC and the AQCC have promulgated several rules pursuant to SB 19-181 over the past several years, as summarized below.

Regulations implemented by the Colorado Energy and Carbon Management Commission pursuant to SB 19-181 could adversely impact our land development activities by limiting the number of lots available for land development in Colorado and could adversely impact our water sales for fracking by limiting the land available for oil and gas production.

As a part of implementing SB 19-181, the COGCC approved a rule (Setback Rule) imposing setbacks and siting requirements for well locations.

As a part of implementing SB 19-181, the CECMC approved a rule (Setback Rule) imposing setbacks and siting requirements for well locations.

The Setback Rule, which took effect in 2021, prohibits, without exception, working well pad surfaces from being located within 2,000 feet of a school facility or childcare center, or within 500 feet from one or more residential buildings that are not subject to a surface use agreement or waiver.

The Setback Rule also generally prohibits any well pad surface from being located greater than 500 feet and less than 2,000 feet from a residential or high occupancy building, but allows such locations to obtain an exemption by satisfying certain requirements (such as consent from owners and tenants) or by obtaining a Commission finding, after a hearing, that the conditions of approval will provide “substantially equivalent protections” to a 2,000 foot setback for public health, safety, welfare, the environment, wildlife resources, and disproportionately impacted communities.

The Setback Rule also generally prohibits any well pad surface from being located greater than 500 feet and less than 2,000 feet from a residential or high occupancy building, but allows such locations to obtain an exemption by satisfying certain requirements (such as consent from owners and tenants) or by obtaining a CECMC finding, after a hearing, that the conditions of approval will provide “substantially equivalent protections” to a 2,000 foot setback for public health, safety, welfare, the environment, wildlife resources, and disproportionately impacted communities.

Depending on how the Setback Rule is applied and interpreted, it could have the effect of limiting property development within 2,000 feet of a well pad surface.

As noted above, to develop oil and gas near residential or high occupancy buildings, the applicant will need an exception from the Commission by obtaining explicit, informed consent from both the landowner and their tenants (as applicable) to the proposed oil and gas location, or by demonstrating that conditions on approval will provide “substantially equivalent protections” to

a 2,000-foot setback.

As noted above, to develop oil and gas near residential or high occupancy buildings, the applicant will need an exception from the CECMC by obtaining explicit, informed consent from both the landowner and their tenants (as applicable) to the proposed oil and gas location, or by demonstrating that conditions on approval will provide “substantially equivalent protections” to a 2,000-foot setback.

Applicants who are unable to obtain such an exception may be forced to choose between using their property for oil and gas development or for residential and commercial development.

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Additionally, any rules that would require the Land Board to elect between oil and gas or residential and commercial land development with respect to the Lowry Ranch would likely have an adverse effect on our financial condition, because we have the exclusive right to provide water service to customers on the Lowry Ranch, including both lessees of the oil and gas rights on the Lowry Ranch and future occupants of the Lowry Ranch if the Land Board sells the land for development.

Our business could be further impacted by more restrictive local regulations, such as Adams County’s rule requiring oil and gas facilities to be set back 2,000 feet from residences, schools, and certain waterbodies, and Arapahoe County’s recently adopted rule generally requiring a one-mile setback from existing and planned reservoirs, as well as Arapahoe County’s proposed rule that would, if adopted, increase setbacks from occupied structures, platted lots, outside activity areas, and water bodies.

Our business could be further impacted by more restrictive local regulations, such as Adams County’s rule requiring oil and gas facilities to be set back 2,000 feet from residences, schools, and certain waterbodies, and Arapahoe County’s rule generally requiring a one-mile setback from existing and planned reservoirs, as well as Arapahoe County’s recently adopted rule that increases setbacks from occupied structures (generally 3,000 feet), platted lots, outside activity areas, and water bodies.

These local ordinances, as well as similar ordinances that other local jurisdictions may implement in the future, may adversely impact the buildable area and costs of our development and our clients’ development.

In addition to the Setback Rule, state agencies have recently adopted other regulations on oil and gas development as a part of implementing SB 19-181 and other recently enacted legislation such as HB 22-1244, HB 19-096, and HB 19-1261.

For example, the Colorado Energy and Carbon Management Commission in recent years has adopted new rules for testing and ensuring the integrity of oil and gas flow lines and well bores and has imposed new fees and financial assurance requirements for oil and gas facilities.

In addition, the AQCC has, in recent years, approved rules calling for more frequent inspections of oil and gas equipment, imposing new GHG intensity standards for oil and gas operators, and requiring reporting and reduction of GHG emissions, ozone precursors, and hydrocarbons by oil and gas operations as well as industrial wastewater treatment facilities, where applicable.

In addition to the CECMC Setback Rule, state agencies have recently adopted other regulations on oil and gas development as a part of implementing SB 19-181 and other recently enacted legislation such as HB 22-1244, HB 19-096, and HB 19-1261.

For example, the CECMC in recent years has adopted rules for testing and ensuring the integrity of oil and gas flow lines and well bores and has imposed new fees and financial assurance requirements for oil and gas facilities.

The CECCM also adopted a rule in 2024 requiring that oil and gas operators seeking drilling permits must analyze the cumulative impacts of their proposals and conduct enhanced community outreach in disproportionately impacted communities.

reduction of GHG emissions, ozone precursors, and hydrocarbons by oil and gas operations as well as industrial wastewater treatment facilities, where applicable.

Similarly, the AQCC adopted increasingly restrictive GHG intensity standards for upstream oil and gas operations and related “verification” and monitoring requirements.

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In August 2023, environmental groups submitted language for the 2024 ballot that would ban new hydraulic fracturing permits after 2030.

It is not yet clear whether this proposal will make it to the ballot, but if it does and if it were to win, that could materially threaten our oil and gas clients and, in turn, our business.

While that initiative did not make it to the 2024 ballot, similar positions have been set forth by democratic lawmakers of the state, and if such initiatives do make it to the ballot in future years and are passed, it would have material impacts to our oil and gas clients.

We may be subject to significant potential liabilities because of warranty and liability claims made against us.

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Additionally, the coverage offered and the availability of general liability insurance for construction defects are currently limited and policies that can be obtained are costly and often include exclusions based upon past losses insurers suffered as a result of use of defective materials used by other property developers.

As a result, our subcontractors may be unable to obtain insurance, and we may have to waive our customary insurance requirements, which increases our and our insurers’

exposure to claims and increases the possibility that our insurance will not be adequate to protect us for all the costs we incur.

As a result, our subcontractors may be unable to obtain insurance, and we may have to waive our customary insurance requirements, which increases our and our insurers’ exposure to claims and increases the possibility that our insurance will not be adequate to protect us for all the costs we incur.

Any losses that exceed claims against our contractors, the performance bonds and our insurance limits at such facilities could result in claims against us.

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Conflicts of interest may arise relating to the operation of the Rangeview District, the Sky Ranch Districts and the Sky Ranch CAB.

Our Chief Executive Officer and two of our employees constitute the majority of the directors of each of the Rangeview District, the Sky Ranch Districts and the Sky Ranch CAB.

Our Chief Executive Officer and three of our employees, one of who is our Chief Financial Officer, constitute the majority of the directors of each of the Rangeview District, the Sky Ranch Districts and the Sky Ranch CAB.

These officers and employees, along with Pure Cycle and one unrelated individual, own certain property interests in the 40 acres that constitute the Rangeview District and the acreage that constitutes the Sky Ranch Districts.

We have made loans to the Rangeview District to fund its operations.

As of August 31, 2023, total principal and interest owed to us by the Rangeview District was just under $1.2 million.

Pursuant to our water and wastewater service agreements with the Rangeview District, of the net amounts retained by the Rangeview District, the Rangeview District retains two percent of the revenues from the sale of water to its end-use customers and 10% of the revenues from the provision of wastewater services to its end-use customers.

As of August 31, 2024, total principal and interest owed to us by the Rangeview District was $1.2 million.

Pursuant to our water and wastewater service agreements with the Rangeview District, of the net amounts retained by the Rangeview District, the Rangeview District retains

two percent of the revenue from the sale of water to its end-use customers and 10% of the revenue from the provision of wastewater services to its end-use customers.

Proceeds from the fee collections will initially be used to repay the Rangeview District’s obligations to us, but after these loans are repaid, the Rangeview District is not required to use the funds to benefit Pure Cycle.

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Growth limitations or moratoriums imposed by governmental authorities could adversely affect our land development activities or the land development activities of our customers, which could adversely impact both the land development and water and wastewater segments of our business.

The State of Colorado recently enacted HB 23-1255, which generally prohibits local governments from enacting or enforcing local housing growth-restrictions laws that would limit housing supply, development applications, or building permits.

In 2023, the State of Colorado enacted HB 23-1255, which generally prohibits local governments from enacting or enforcing local housing growth-restrictions laws that would limit housing supply, development applications, or building permits.

However, under certain circumstances, local governments may implement a temporary moratorium of up to 2 years.

While this new law alleviates concerns that a local government in our planned development areas might permanently restrict new growth, a temporary moratorium could still have the effect of delaying, limiting or halting development within Sky Ranch or other areas where we may provide water and wastewater services or develop land.

While this law alleviates concerns that a local government in our planned development areas might permanently restrict new growth, a temporary moratorium could still have the effect of delaying, limiting or halting development within Sky Ranch or other areas where we may provide water and wastewater services or develop land.

Because all of the property in Sky Ranch has been platted, we do not expect future growth moratoriums to restrict Sky Ranch as currently planned;

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We could be hurt by efforts to impose liabilities or obligations on us regarding labor law violations by other persons whose employees perform contracted services .

The infrastructure and improvements on our water and wastewater systems and on the finished lots we sell or that we must provide pursuant to service agreements and lot development agreements are done by employees of subcontractors and

other contract parties.

We do not have the ability to control what these contract parties pay their employees or the work rules they impose on their employees.

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We may incur significant costs in order to treat the contaminated source through expansion of our current treatment facilities or development of new treatment methods.

If we are unable to substitute water supply from an uncontaminated water source, or to adequately treat the contaminated water source in a cost-effective manner, there may be an adverse effect on our revenues, operating results and financial condition.

results and financial condition.

The costs we incur to decontaminate a water source or an underground water system could be significant and could adversely affect our business, operating results and financial condition and may not be recoverable in rates.

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Our surface water interests and reservoir sites at the Lowry Ranch are conditionally decreed and are subject to a finding of reasonable diligence from the Colorado water court every six years.

To arrive at a finding of reasonable diligence, the water court must determine that we continue to

diligently pursue the development of said water rights.

To arrive at a finding of reasonable diligence, the water court must determine that we continue to diligently pursue the development of said water rights.

If the water court is unable to make such a finding, we could lose the water right under review.

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Political concerns and governmental procedures and policies may hinder or delay our ability to enter into service agreements or develop our water rights or infrastructure to deliver our water.

While we have worked to reduce the political risks in our business through our participation as the service provider for the Rangeview District in regional cooperative resource programs, such as the SMWSA and the WISE partnership with Denver Water and Aurora Water, as well as education and communication efforts and community involvement, our efforts may be unsuccessful.

While we have worked to reduce the political risks in our business through our participation as the service provider for the Rangeview District

in regional cooperative resource programs, such as the SMWSA and the WISE partnership with Denver Water and Aurora Water, as well as education and communication efforts and community involvement, our efforts may be unsuccessful.

The number of connections we can serve are affected by local governmental policies that are beyond our control.

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As disclosed in Item 9A, during fiscal 2021, we concluded that a material weakness existed in our internal controls resulting from ineffective procedures related to the preparation and review of spreadsheets, which compromised the integrity of the spreadsheets used to support and record transactions related to tracking the public improvement reimbursable amounts and related interest income.

To address this material weakness, management has devoted, and plans to continue to devote, significant effort and resources to the remediation and improvement of its internal control over financial reporting by implementing additional steps in the review process of various complex schedules that support accounting entries on a monthly and quarterly basis or moving these manual tracking and reconciliation processes to a more automated software system.

To address this material weakness, management devoted significant effort and resources to the remediation and continues its efforts to improve its internal control over financial reporting by implementing additional steps in the review process of various complex schedules that support accounting entries on a monthly and quarterly basis or moving these manual tracking and reconciliation processes to a more automated software system.

Effective internal controls are necessary for us to provide reasonable assurance with respect to our financial reports and to effectively prevent fraud.

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We are vulnerable to the effects of conflicts, terrorist attacks and public health crises.

As has been the case with COVID-19, such effects have precipitated economic instability and turmoil in financial markets.

As was the case with COVID-19, such effects have precipitated economic instability and turmoil in financial markets.

The uncertainty and economic disruption resulting from hostilities, acts of terrorism or public health crises may impact our operations or those of our suppliers or customers.

Accordingly, any conflict, terrorist attack or public health crisis that impacts us or any of our suppliers or customers, could have a material adverse effect on our business, results of operations and financial condition.

Item 1B – Unresolved Staff Comments

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors