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Olin extracts $2.5 million in perchlorate deal

Eight years later, and the contamination of drinking water in the South Valley is still haunting residents.

An agreement between Olin Corp. - the company that was found responsible for polluting the area's groundwater - and the Santa Clara Valley Water District was reached in March, ultimately awarding Olin $1 million. Meanwhile, ratepayers will continue to pay for the perchlorate cleanup debt until 2013.

"The community shouldn't have to pay anything," said Sylvia Hamilton, chairwoman of the Perchlorate Community Advisory Group that formed after the discovery in January 2003 that a chemical, perchlorate, had leached into the area's aquifer from an old road flare plant owned by Olin.

Last spring, the district's board of directors - with encouragement from water district staff - voted to make ratepayers redress $4.6 million or what the district couldn't recover in a series of lawsuits and countersuits with Olin that were settled March 2, 2010.

Through the Freedom of Information Act, the Dispatch obtained the settlement agreement, in which the water district and Olin state they "agree that none of them admits to any wrongdoing." Though when the plume was discovered that affected a 9.5-mile stretch from Morgan Hill into east - most critically affecting San Martin - the water district believed Olin was responsible and thus employed an "aggressive" cleanup plan with the thought in mind they would be reimbursed.

Assemblyman Bill Monning (D-Carmel) weighed in on the issue Thursday, the same day he was announced as the "Clean Water Champion" by Clean Water Action, a national organization that promotes clean, safe and affordable water.

"I have followed closely the concerns of residents who have been impacted by the groundwater contamination caused by perchlorate from the Olin Corporation," said Monning, who represents the 27th District, which includes Morgan Hill and a section of south Gilroy.

"My primary concern continues to be the restoration of a safe and reliable drinking supply for residents. I'm distressed to learn that ratepayers are shouldering so much of the costs for cleaning up contamination they had no hand in creating."

Perchlorate is a chemical that affects the normal function of the thyroid gland if consumed by humans. Water that contains more than six parts per billion perchlorate is considered unsafe to drink and to cook with. Some of the wells in South County initially found to be contaminated contained up to 50 parts per billion.

Presently nine private wells are still considered hot spots - that are stable with fewer than six ppb perchlorate - and are frequently monitored.

The board of directors will review the settlement in closed session at its meeting Tuesday. Recently elected water district Director Don Gage said he hasn't seen the settlement and declined to comment until he had more information.

Since 2003, the water district has spent $7 million from its water utility reserves on the perchlorate response, including $819,000 on bottled water and $2 million in legal fees.

The water district's lawsuit against Olin and countersuit by Olin left the water district with nothing more than a bruised ego, water district critics say. They're resentful the cost is falling on their shoulders.

"I'm pretty well surprised to see what shenanigans are going on behind the scenes," said Bob Cerutti, a San Martin well owner.

The settlement, which was signed by water district CEO Beau Goldie March 2, 2010, awarded the water district $1.5 million from Olin and in turn the water district's insurers paid Olin $2.5 million.

Hamilton argues that if a judge ruled that $1.5 million was the "legitimate" amount owed to the water district by Olin, then why are ratepayers being asked to pay above and beyond?

"That's a really, really important fact. No way the community should pay more than what the judge found they deserve to have," Hamilton said.

The $2.5 million insurance payout is part of a "Treated Groundwater Reuse and Recharge Agreement" or "TGRR Agreement" to correct the damage at the contamination sites. The agreement frees Olin of paying for the cost to recharge the water back into the aquifer in areas where perchlorate leached; the water district cannot charge Olin to take water out of the ground and recharge the groundwater. The TGRR Agreement came from the Regional Water Quality Control Board, the regulatory agency that stepped in during the perchlorate crisis and keeps tabs on water quality in California.

Now, $4.6 million remains to refill the missing amount in the water utility reserves - a drop in the bucket for a fund that is expected to reach almost $200 million in 2011.

The water district spread the $4.6 million during the next two fiscal years: 52 percent - $2.4 million - by users of municipal and industrial water such as the city of Morgan Hill and its customers and well owners; 45 percent - $2.1 million - will be paid by a 1 percent property tax for South County agricultural water; and 3 percent - $141,000 - will be paid by agriculture water users.

In January 2010, then-South County Director Rosemary Kamei addressed the possibility that the water district would not attain the full amount needed from Olin. She was the sole voice on the board to advocate drawing the money from elsewhere. Extending the timeline to repay was another idea that Morgan Hill City Manager Ed Tewes brought to the board during the discussion.

"The district initially told everyone 'don't worry, these cost will be repaid by Olin' but in the end they weren't," Tewes said by e-mail. "We objected to the two years, because it was a big chunk of money that was incurred over a longer period of time. If recovered over the same period as incurred, the rates could have gone down."

The district ultimately argued the interest borne from spreading the refund of $4.6 million would be more costly than simply inserting it into ratepayers' bills.

Groundwater rates have remained at $275 per acre foot for the past three years. The last increase was 2007, though staff projects that it will rise to $365 by 2020 in South County and $1,070 in North County. Revenue from the 2010 rate was about $61 million.

For Morgan Hill residents, the median water bill is about $22, according to the water district; about $4 will go to the perchlorate response funds for the city and the water district.

"I just don't know how this all happened. Hopefully the new board will look at the budget - they may question it and do something different. At least I hope they do. We did not create the hazard into the groundwater and to burden the people with that amount of money is totally wrong," Cerutti said.

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