Local officials worry IP has found an exit strategy as Superfund site negotiations falter

City of Libby officials and their legal representative are at an impasse in negotiations with a multi-billion dollar company over an agreement that would continue subsiding municipal water for residents due to long-standing groundwater pollution.

Since January, talks between the city and International Paper Company, the world’s largest paper manufacturer, over a new contract have largely stalled, said Allan Payne, the attorney representing Libby in the affair.

“There have been numerous back-and-forths to get IP to agree to meet with the city and they are not even willing to do that,” Payne said during a Nov. 22 interview.

Richard J. Angell, an attorney representing IP declined to comment, saying he could not speak about ongoing legal matters.

The debated agreement would ensure that IP would continue compensating residents for the cost of being unable to use wells due to creosote and other chemicals that leached into an aquifer beneath the city during past wood treatment operations. Since the city passed an ordinance banning residents from using groundwater because of the pollution, IP and a company previously responsible for the contamination, have subsidized the cost of providing residents with irrigation water from the Flower Creek Reservoir.

After the previous agreement expired in June of 2020, city officials and Payne claimed IP has failed in its legal obligation to compensate residents. Local officials, including Mayor Peggy Williams and City Councilor Kristin Smith, also are critical of the EPA’s decision to opt out of negotiations, considering IP is under a federally enforceable order to address local groundwater contamination.

Andrew Schmidt, EPA remedial project manager overseeing the Libby Ground Water Contamination Superfund site, said federal officials eschewed the talks since the agency isn’t a party to the agreement. Furthermore, Schmidt said in a Nov. 29 statement, Payne had “specifically asked [EPA] not to be involved in the negotiations.”

Payne said EPA may have misinterpreted his stance on a separate but related issue. When it comes to the new water agreement between IP and the city, he said he would like to see the agency assist with talks.

“Without EPA’s involvement, IP has no incentive to reach an agreement as is aptly demonstrated by IP’s ridiculous offer to date,” he said in a Dec. 7 statement.

While EPA intends to stay out of negotiations, Schmidt said that it was important for the city and IP to come to an agreement over the new water contract given that municipal officials asked to delay talks on a proposed Controlled Groundwater Area (CGA) until after the completion of negotiations.

“The proposed CGA is a new institutional control that expands upon the city’s current well ban and is necessary to ensure citizens aren’t exposed to groundwater that has been impacted by the site,” he said.

The CGA would expand groundwater restrictions to protect nearby county residents from contamination. Within the CGA zone, future well installation would be prohibited. Property owners unconnected to city water could receive compensation from IP for abandoning their wells and linking to the municipal system. Well-owning landowners currently on city water would receive offers from IP to abandon their wells. In the case these landowners used well water for irrigation needs, the company would offer compensation for the increased cost of using city water, according to EPA documentation.

City officials worry the CGA proposal was initiated by IP as a way to skirt legal responsibility to address and remediate groundwater and soil contamination. Williams, who became mayor after years spent on Libby City Council, said that IP could then pay residents an upfront amount to close their wells rather than continually subsidizing city water payments.

“There wouldn’t be ongoing payment for their water or anything like that,” she said.

IP’s legal counsel has suggested that the CGA would not preclude a new water agreement. In a September 2019 correspondence, Angell said that while the CGA and the water agreement are related to impacted groundwater, “they serve separate functions.”

Compensation from companies for groundwater contamination in Libby dates back to 1985 when Champion International Corporation instituted a “Buy Water Plan.” That year, Champion purchased St. Regis Co., which — along with J. Neils Lumber Co. — was responsible for wood treatment fluids leaching into the aquifers beneath the city from 1946 to 1969, according to court documents. After detecting the chemicals in the water Libby-area homeowners were drawing from their wells, Champion offered to provide an alternative supply to affected residents.

Champion’s plan was expanded the following year as part of a record of decision on remedies for the groundwater site. Along with a 1986 Libby ordinance precluding residents from installing wells for human consumption and irrigation, Champion entered into an agreement to directly pay the city for “a fixed amount of irrigation water per household,” according to court documents.

“The primary reason for [the] installation of new wells by Libby residents has been to avoid the increasing costs of city water,” reads the 1986 record of decision. “Water use is highest in the summer lawn and garden irrigation season.”

Beginning in October 1986, Champion began paying the city $30,000 annually for 10 years. In 2008, a few years after IP acquired Champion, the city entered into a new agreement requiring a payment of $400,000 for fiscal years 2008-2009 and 2009-2010. Under the terms of the city’s latest agreement with IP, executed in 2010, IP was responsible for making annual payments to the city until at least June of 2020.

The payments started at $250,000 and were adjusted each year based on inflation. The contract also required IP to pay a lump sum of $1.15 million to cover years when the city had not received compensation payments.

Talks over the new agreement began in June 2019 when an executive with IP told city officials the company would not renew the 10-year contract.

In an initial correspondence, Payne thanked attorneys representing the company for the chance to renegotiate the agreement and suggested slightly increasing IP’s contribution. Payne noted in an August 2019 letter that the two prior contracts IP held with the city were based on a compromise that the company would cover 23 percent of the city’s anticipated water system operational costs. After the city undertook an expensive repair of the Upper Flower Creek Dam, which Payne said approached $15 million, he proposed increasing IP’s contribution to 25 percent.

“Given the large expense the city was forced to bear under the last water agreement, a slight increase … is more than warranted,” Payne wrote in the letter.

In response, Angell argued the water agreement was not intended to subsidize the water system but rather provide “a reasonable amount of free irrigation water to property owners,” according to a September 2019 letter. Angell also argued Payne exaggerated the costs of the dam replacement project and claimed that the CGA was not relevant to negotiations over a new water agreement.

Payne responded by saying he hoped his interpretation of Angell’s assertion, that CGA would not replace the city’s ordinance, would prove true. He said that “the course of these negotiations and IP’s conduct will ultimately deliver or dash that hope,” in a November 2019 letter. Payne again pointed to previous agreements, which didn’t “mention replacement of irrigation water as their sole, or even partial purpose.”

Objecting to IP’s reliance on media accounts to gauge the cost of the dam, Payne again requested the company cover a quarter of the city’s water system costs.

As the end of the 2010 agreement approached, correspondence between the two parties began to stall.

“What’s driving this stalemate is that IP is unwilling to continue with prior payments,” said Payne. “IP casts itself as an innocent party because it didn’t operate the site it bought from Champion. The way I look at it, is that when they bought it from Champion, they knew there was contamination here.”