FOR: Water Subcommittee Meeting [May 29, 2024]
TO: Honorable Water Subcommittee Members
APPROVAL: Tanya Williams, Assistant City Manager
...Title
Request the Water Subcommittee authorize the City Manager and the City Attorney to Enter Into Negotiations for Agreement to Pursue PFAS Settlement Funds for the Baseline Feeder System. (ACTION)
...Body
BACKGROUND
The San Bernardino Valley Municipal Water District (District) proposes a joint agreement among the City of Rialto (City), the Riverside Highland Water Company (RHWC), and the West Valley Water District (West Valley) (jointly, the Parties) to pursue a claim from the national PFAS litigation settlement fund to address potential future discoveries of PFAS contamination in the Baseline Feeder System, which provides water supplies to the Parties. We recommend that the Subcommittee authorize the City Attorney to enter into negotiations for the proposed joint agreement.
A. THE BASELINE FEEDER SYSTEM
The Baseline Feeder System (Baseline Feeder) is a facility that delivers water from the southern and central part of the San Bernardino Basin to various users. The Baseline Feeder, which was originally built in around 1990 and was extended deeper into the City between 1991 and 1992, is comprised of pipelines and related facilities. The District financed the construction of the Baseline Feeder through bonds and loans, and the other three Parties have been making annual payments to the District since July 2012 in renumeration of these bonds and loans. The City has paid about $173,000 annually in reimbursement costs, pursuant to the May 2012 Baseline Feeder System Agreement (2012 Agreement) between the Parties that formalized their respective obligations. At these rates, the City will pay off its share of the Baseline Feeder's capital reimbursement costs in July 2041. The 2012 Agreement also calculated each party's monthly costs for the water supply provided by the Baseline Feeder using calculations of annual unit water costs and the quantity of water delivered to each party. The City has paid $14,410.28 monthly since July 2012 for water supply delivered via the Baseline Feeder.
The 2012 Agreement provided that the District would construct, operate, and own the Baseline Feeder System at no cost to the District. The aforementioned annual and monthly payments from the City and the other parties to the District implement this directive. The 2012 Agreement also contains mutual indemnity provisions and reiterates that it governs only the Baseline Feeder, not the Parties' various connections thereto.
B. PFAS: "FOREVER CHEMICALS"
Per- and polyfluoroalkyl (PFAS) substances are artificial chemicals that have been used extensively since the 1940s, especially in nonstick cookware, water-repellant clothing, stain resistant textiles and materials, some cosmetics and firefighting foams, and in products designed to resist grease, water, and oil.1 Because of their resilience, PFAS chemicals migrate easily through water, air, and soil, and PFAS are now found in human and animal blood worldwide, as well as in many food products and across the environment. The scientific data on the human health risks associated with exposure to PFAS chemicals is still being developed, but preliminary data suggests that long-term exposure to PFAS can cause adverse effects.2 Workers in facilities handling PFAS may have greater risks, as well as young children that have weaker immune systems and that are prone to ingestion of PFAS-containing items.
C. THE NATIONAL PFAS LITIGATION SETTLEMENT
In March 2024, the federal court overseeing the nationwide multidistrict litigation against the 3M and DuPont companies regarding PFAS drinking water contamination approved a final settlement resolving the case.3 The class-action litigation sought damages for the costs of testing and monitoring for ongoing PFAS contamination in drinking water; the costs of designing, constructing, installing, operating and maintaining filtration systems; and the costs of complying with any applicable regulations requiring further measures to address PFAS contamination in drinking water.
Per the settlement, 3M and DuPont will pay between $10.5 billion and $12.5 billion to members of the "Settlement Class" in exchange for a releases, dismissals, and covenants not-to-sue for PFAS-related drinking water claims. Notably, the "Settlement Class" includes every active public water system in the United States that either has PFAS-contaminated water sources as of June 22, 2023, or does not have PFAS-contaminated water sources as of June 2023, but is required to test for PFAS under the Safe Drinking Water Act or serves more than 3,300 people.
The settlement requires that funds be disbursed to those public water systems with PFAS-contaminated water sources first, followed by the remaining systems. The funds are allocated 55 percent to the systems with current contamination, and 45 percent to those systems without confirmed contamination yet. The funding is further broken down into categories based on past testing and remediation costs and future possible testing and remediation costs. To receive compensation, water systems will be required to submit claims forms indicating flow rates and levels of PFAS contamination. A claims administrator will then use mathematical formulas to determine the compensation due a particular claimant.
The deadline for systems that detect PFAS in their water sources after June 2023 is January 1, 2026 to receive funds for PFAS testing, and between June 30 and July 31, 2026 for post-testing remediation funding. All other systems will have until December 31, 2030, to test for PFAS and receive remediation funding.
ANALYSIS/DISCUSSION
No PFAS have been detected in the Baseline Feeder yet, and so the Baseline Feeder would qualify as a Phase 2 claimant. The District is proposing that it pursue the Phase 2 PFAS settlement proceeds from the 3M/DuPont settlement as operator of the Baseline Feeder. However, consistent with the 2012 Agreement, the District maintains that it must not incur any costs or expenses in pursuing the claim. Within 60 days of being awarded/receiving any settlement funds, the parties will meet and confer regarding how to disburse the funds. The funds must be restricted to remediating PFAS contamination and related activities in the Baseline Feeder.
We recommend that the City accept the District's proposal. The District is the owner and operator of the Baseline Feeder, and is the appropriate entity to submit a claim for any PFAS contamination that may be discovered in the system in the future. However, there are several items we need to clarify with the District before accepting the proposal:
1. First, it is unclear who will pay the legal and administrative costs of submitting a PFAS settlement claim if the District will not finance these expenses. Presumably these costs would be levied from, or in addition to, the Parties' monthly payments to the District.
2. Will the water supply and payment disbursement calculations in the 2012 Agreement inform how the PFAS settlement funds received, if any, will be distributed among the Parties? Alternatively, if the settlement funds are restricted to the Baseline Feeder, does the District as system operator retain the funds for conducting remediation?
3. If the PFAS settlement funds are restricted to the Baseline Feeder, will the City need to file individual claims for PFAS contamination in its systems that are not part of the Baseline Feeder?
4. The mutual indemnification provisions of the 2012 Agreement provide that each party indemnifies the other for claims arising out of the operation of their individual systems. Does this require the District to indemnify the City for any PFAS that migrates into the City's system from the Baseline Feeder?
We believe that most of these issues can be resolved through negotiation with the District and the other parties, and should not foreclose consideration of an agreement. The City Attorney's office will return with a final proposed agreement for the City to consider before execution.
RECOMMENDATION
Request the Water Subcommittee authorize the City Manager and the City Attorney to Enter Into Negotiations for Agreement to Pursue PFAS Settlement Funds for the Baseline Feeder System . (ACTION)
1 U.S. Agency for Toxic Substances and Disease Registry (ASTDR), What Are PFAS? (Jan. 18, 2024), .
2 U.S. EPA, Our Current Understanding of the Human Health and Environmental Risks of PFAS (June 7, 2023), .
3 In Re: Aqueous Film-Forming Foams Products Liability Litigation (D. S.C./J.P.M.L. Mar. 29, 2024, No. 2:18-mn-2873-RMG, Docket No. 4754).
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