City Wins $92.5 Million, New Water Facility in Landmark Settlement

By Juliet McShannon
Staff Writer

Nov. 21 -- In what is likely the largest legal settlement in Santa Monica history, three major oil companies that contaminated the city's drinking water have agreed to pay $92.5 million, as well as build and maintain a new water treatment facility, according to a settlement approved Friday by the City Council.

The agreement with Shell, Mobile and Chevron is a major breakthrough in the City's three year lawsuit against more than a dozen oil companies accused of contaminating five of the city’s 11 water wells with a gasoline additive that leaked from their underground storage tanks.

The City's suit helped draw national attention and helped lead to a California ban that takes effect January 1 on the oil additive Methyl Tertiary-Butyl Ether (MTBE), which is thought to be cancer producing.

"With this settlement, we will immediately begin the process of restoring the city's most important drinking water source," Mayor Richard Bloom said at a morning press conference at the Arcadia Well Field, site of the City of Santa Monica Water Treatment Plant. "This settlement is a landmark achievement. Clean water is vital to everyone."

The $92.5 million cash settlement paid by the oil companies is above and beyond the cost of cleaning the wells. Of this amount, $30 million will be put into an escrow account to cover the City’s out-of-pocket costs and improve the quality and security of its water.

The main term of the settlement requires the oil companies to design, operate and maintain a water treatment facility, which will likely be built at the Arcadia site, and to fund its operation until the MTBE is removed from the water. The new facility is still in pilot-testing stage as off-the-shelf technology has not as yet been used to remove MTBE.

The estimated running costs, uncapped, could prove to be anywhere in the region of $150 to $500 million, according to City officials.

“Nobody knows how long the facility will need to operate," Assistant City Attorney Joseph Lawrence, the City's key attorney on the case, said after the conference. "It all depends how many years it will take to clean the water.”

Shell US representative, Sally Hopkins, confirmed the company’s commitment to providing Santa Monicans with clean water.

“Shell and our industry peers working on this project, are focused on one common goal -- to provide the long-term technical expertise and funding needed to supplement the City’s resources in order to once again provide drinking water… to the citizens of Santa Monica,” Hopkins said.

Chevron Texaco’s Manager of Public and Government Affairs, Rod Spackman, thanked the various interest groups for striving to find a working solution. “There were days when I’m sure some people questioned whether or not we would ultimately arrive at this point," he said. "I am happy to say, in the end, it has been a productive journey.”

This new settlement supercedes a previous agreement between Mobil and Chevron, which was approved by the Council. Under that settlement the oil companies had offered to pay $30 million. The new settlement approved by the council Friday is still subject to court approval, expected in early January.

Litigation, however, will be vigorously pursued against the remaining oil companies, including Lyondell, manufacturer of the MTBE, which has decided not to settle, according to City officials.

It was the strength of the evidence that led to Friday's settlement, Bloom said. “We feel very strongly that we had a strong case and on the strength of the theories we proceeded on, we brought the defendants to the table," Bloom said after the conference.

The settlement, Bloom added, was “all the more important because the clean up will not cost the taxpayers.

“A good settlement that works for the good of Santa Monica is a sign of strength," Bloom said. "Even if we had an eighty percent chance of winning, that twenty percent chance of losing would be a potential loss of several hundred million to the city."

Mayor Pro Tem Kevin McKeown, who was present at the conference, hailed the landmark settlement as a major milestone in the history of Santa Monica.

“No other settlement of this kind has happened," McKeown said. "We are the first to figure out a way to work with the oil companies. Rather than take money from them to buy new water, we were looking for a long-term solution.

"If somebody accidentally burned down your house, would you want them to put you up in a hotel for the rest of your life, or would you want them to rebuild your house so that you could eventually leave it to your kids? With this we get to give the resource to the generations to come, which is so much in keeping with the sustainability that Santa Monica tries to do.”

Santa Monicans should feel secure that the settlement money received by the council would be used wisely, McKeown said.

“None of this money is available immediately to the City for any use, and all this money is being committed to clean up the water supply," he said. "This is a waterfall, not a windfall.”