The contract between Crestview and Calleguas provides that all capital costs above $2.1 million must be borne by Crestview. At the November 29 board meeting, Crestview approved an amendment that raises the cap to $3.3 million, but a realistic cost estimate is $5-6 million.
As previously explained, Well #8 cannot deliver any additional water to Crestview shareholders. All the added pumping capacity would go to Calleguas if there is an interruption of supplies from the State Water Project. The only benefit Crestview gets from this contract is that it may use Well #8 as a backup to Well #6. That maybe worth something but not millions of dollars. In its 70-year history, Crestview has never had a backup well.
Not only is the cap too low, but the types of costs for which Calleguas is responsible may not include any of the following costs that are normal for such a project:
- Insurance and taxes on the property and security services before the well is put into service,
- Damages paid to third parties as a result of nuisance, trespass, injury to neighboring properties, infliction of personal injuries, etc.,
- Inverse condemnation claims (the board is ignoring the fact that these are likely on the order of $2 million),
- Et cetera.
Another contractual blunder by Crestview is that it is unconditionally obligated to get the permits for Well #8. What happens if, like Well #7, permits are denied and the project cannot go forward? Crestview could terminate the contract but would have to pay back all the costs advanced by Calleguas. Those costs were over $800,000, exclusive of land, for Well #7. Calleguas could terminate the contract, but then it would be letting Crestview out of its obligations to execute the project, which it may not want to do.
Finally, if Crestview does not bring Well #8 online by October 8, 2024, Calleguas may terminate the contract and require Crestview to pay back all sums laid out by Calleguas. Under the current contract, that could be $3.3 million. That is such an unreasonable provision, it should be amended out of the contract. This is a Calleguas project, and Crestview is just its agent or general contractor. This contract is a stinking bad deal for Crestview.
The board should go back to Calleguas and amend the contract again to eliminate the cap entirely, and there must be a provision that lets Crestview terminate at no cost if permits are unobtainable. If Calleguas will not agree, Crestview should exercise its right to terminate now and swallow the termination costs of $100,000 to $400,000 (which will get larger as more project expenses are incurred).
We have previously reported that the three most senior board members, having served 7 to 25 years, are looking to resign. They created this mess, and they should clean it up before they go.