Nestle Waters North America, which bottles Maine water under the Poland Spring brand, has been dealt a potential setback in its effort to secure long-term supplies from Fryeburg’s privately held water utility at prices critics say are too low.

The proposed contract should not be approved by the Public Utilities Commission, a PUC staff report made public Friday recommended.

The report, by PUC hearing examiner Matthew Kaply, said the local utility – the family-controlled Fryeburg Water Co. – had been established to “convey to the village of Fryeburg a supply of pure water for domestic and other uses” and not to sell that supply as a “bulk commodity” to bottlers like Nestle.

The development raises the possibility that the PUC might invalidate not only the proposed contract but Nestle Waters’ current arrangement in Fryeburg as well. “I would say if this ruling were adopted by the commission and became final – and wasn’t vacated by the Supreme Court on appeal – that the existing contracts should be considered void,” said Bruce McGlauflin, the attorney for several opponents of the contract in the proceedings.

“The report validates everything we’ve been saying all along: that this 25-year proposal with options of extending it to 45 years … was a shameful sweetheart deal with a multinational corporation to strip a local community of its right to water,” said Nisha Swinton of Food & Water Watch, an advocacy group that has been campaigning against the contract.

Jane Lazgin, a spokeswoman for Nestle Waters North America in Stamford, Connecticut, said in an email the company was disappointed with the recommendation but understands that “Fryeburg Water Company will have an opportunity to provide further comment prior to the Commissioners making a binding ruling.”

Conflicts of interest

The report is indeed nonbinding, as the PUC commissioners themselves have the final say in whether to approve the contract. But none of the three regular commissioners will be ruling on this case, as all three have recused themselves because of past associations with the conglomerate, a subsidiary of Swiss foods giant Nestle SA.

The Legislature had to step in and pass a new law allowing for the appointment of alternate commissioners after the second commissioner recused himself, denying the body a quorum. Under the new law, Gov. Paul LePage appointed two retired Maine judges – Paul Rudman and John Atwood – to step in.

The state’s public advocate, Timothy Schneider, who is charged with representing ratepayers, also recused himself over his past ties to Nestle Waters, which he represented as an attorney for Pierce Atwood.

A controversial case

The contentious case involves approval of a long-term contract between Nestle Waters and Fryeburg Water Co.

Under the 25-year contract, Fryeburg Water would get a stable, predictable flow of cash for water that Nestle pumps from its spring, while Nestle would cement control of a key supply of spring water, possibly paving the way for investment in a multimillion-dollar bottling plant in Fryeburg. The contract can be extended for as long as 40 years.

Like other water utilities, Fryeburg Water is not allowed to sell water to major customers at a rate different from the regular tariff it charges its ordinary customers. But in the 1990s, members of the Hastings family, which controls the company, got around that barrier by creating a pass-through entity, Pure Mountain Springs, which purchased water drawn from the local aquifer at the low “tariff” rate, then sold it to Nestle at an undisclosed markup.

In 2008, Nestle purchased the pass-through company outright, and the parties began negotiating the new contract. Under the contract, Nestle would continue to pay the “tariff” rate of about a tenth of a cent a gallon and would have exclusive rights to commercial bottling of the utility’s water.

Opponents have wanted to learn what Nestle Waters was willing to pay the pass-through company for its water before 2008, as a way of determining the fair market price for the water Nestle wants to pump from Fryeburg’s springs for the next 25 to 40 years. Nestle Waters has refused to disclose what the rate was, and at a hearing a year ago, Fryeburg Water President Hugh Hastings and his son John, who ran Pure Mountain Springs, testified they couldn’t remember what it was.

The report released Friday also said the granting of exclusive rights to Nestle violated relevant laws obliging the utility “to provide service in a non-discriminatory manner.”

The PUC will receive submissions from the parties in the case in early October and the commissioners will make a decision thereafter.

Colin Woodard can be contacted at 791-6317 or at:

[email protected]