September 3, 2013

For regulators and Nestle Waters, conflict by the gallon

All three PUC commissioners and Maine's public advocate have ties to Poland Spring's parent company, which is seeking a 25-year contract.

By Colin Woodard cwoodard@pressherald.com
Staff Writer

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A Poland Spring truck heads south on Route 302. Fryeburg’s quality water is the result of quartz-rich geology and clean runoff.

Photos by John Patriquin/Staff Photographer

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Fryeburg residents Bruce Taylor, left, an intervenor in the case, stands with contract opponents Cliff Hall and Nickie Sekera in front of the Poland Spring offices on Main Street in Fryeburg.

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"The regulatory process depends to a considerable degree on people's confidence in its integrity," Weil said, "and anything that might possibly undermine that confidence is not desirable."

Bradford, who also spent many years as PUC chairman, said Maine legislators should consider legal changes to allow for the appointment of alternate commissioners when a sitting one recuses himself. "This way of dealing with it puts less of a constraint on who gets appointed, and lets you not spend so much time trying to scratch your head and try to see the future in terms of potential conflicts," he said.

FRYEBURG CASE CONFLICTED

Many in this town of 3,500 people are especially sensitive to perceived conflicts of interest because they have cropped up so often among the entities involved in the case now before the PUC.

Fryeburg Water Co., which serves Fryeburg and East Conway, N.H., is unusual in that it is a privately held water utility. (About 15 percent of the nation's water utilities are privately held.) It was founded in 1883, but by the 1990s the majority of the shares were held by members of the Hastings family, whose patriarch, Hugh Hastings, has served as company president since 1969 and as an officer since 1950.

Recognizing that Fryeburg had excellent water -- the result of quartz-rich geology and clean, copious runoff from the Presidential Range in the White Mountains -- Hastings hoped some could be profitably sold to bottlers. But in the interest of fairness, the PUC prohibits utilities from selling water to any entity at a higher price than it charges its ordinary customers, so Hastings and a business partner, Eric Carlson of the engineering firm Woodard & Curran, came up with a workaround.

In 1997, Hastings and Carlson created a company, Pure Mountain Springs, that bought water from the utility at its ordinary rate and sold it to Nestle Waters at a much higher -- but undisclosed -- rate. Pure Mountain Springs was headed by Hugh's son, John, who shared ownership with Carlson. PUC filings show Hugh Hastings maintained power of attorney over his son for the first five years of the company's operation.

Between 2003 and 2007, previous PUC proceedings revealed, this pass-through entity had revenues of $3 million and paid Fryeburg Water Co. $700,000 in rents and water fees. Hastings wrote in 2004 that the initial capital financing was "over $100,000."

"Fryeburg's water had the right geological recipe for Poland Spring," said Mark Dubois, Nestle Waters' Maine-based natural resource manager. "But it also had entrepreneurs who saw the spring and invested in their business and started selling that water to us. Here was a willing seller; we were a willing buyer."

Cliff Hall, a longtime opponent of Nestle's operations who served on Fryeburg's Board of Selectmen from 2007 to 2010, takes a dimmer view of the situation. "They set up a nepotistic arrangement which bypassed the (utilities) laws that say if you take an excessive amount of money, you're supposed to reinvest it in infrastructure," he said. "It seems to me this was a dummy company set up ... to take the money and put it back in the Hastings' trust."

Others share these concerns. "A public utility is supposed to do the best they can for the customers, the public and the municipality," adds Bill Harriman, one of four Fryeburg-area residents who have formally intervened in the current PUC case. "And if you look at what these guys were doing back then, they weren't looking out for the people of Fryeburg."

PREDICTABLE CASH FLOW

This arrangement ended in 2008, when Nestle stepped in and bought Pure Mountain Springs, allowing it to purchase bulk water at the going rate, currently about one-tenth of a cent per gallon.

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Additional Photos

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Poland Spring water trucks fill up at the water pumping station at Fire Lane No. 4 along Route 113 in Fryeburg.

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Wards Pond off Route 113 in Fryeburg is part of an aquifer where Poland Spring water trucks fill up and travel through Fryeburg.

 


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