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WATER POLITICS

Courtesy of Bloomberg, a report on BlueTriton Brands – a private equity firm that owns Poland Spring, Arrowhead and other bottled water brands. As it tries to grow, experts worry sensitive springs, creeks and groundwater supplies from Florida to California are paying the price:

It’s also big business. For years, a local operator has been pumping the water to sell to bottlers, despite evidence of declining flows. Years of extraction have led the water district to label the lower Santa Fe River basin as “in recovery.”

“There’s way less vegetation. The river has shrunk. You don’t see as many turtles. You don’t see as many fish,” said Ryan Smart, executive director of the Florida Springs Council, an advocacy group that fights to limit bottling. “It’s like watching a family member get sick.”

Yet the business, Seven Springs Water Co., keeps taking more. In early 2021, Seven Springs won the right to withdraw close to a million gallons per day. (Seven Springs did not respond to a request for comment.) In the past, the company had usually pumped about a quarter of that volume. But Seven Springs had a new customer, Nestlé SA, which had recently purchased a nearby plant producing Zephyrhills branded bottled water, a ubiquitous presence in Florida grocery stores. To keep up with demand, Nestlé was expanding the facility, with plans to increase production equal to the permit’s full amount.

That same year, Nestlé sold Zephyrhills — and most of its other North American bottled water brands — to a pair of private equity firms. Operating under the name BlueTriton Brands, Inc., the new owners now control a large share of the bottled water sold in the US, including Poland Spring, Arrowhead and Deer Park.

In its nearly three years since entering the business, BlueTriton has made good on its permit at Ginnie Springs, according to public water use reports obtained by Bloomberg Green. In 2022, close to 115 million gallons of water flowed through the pumps at Ginnie Springs, up more than 37% from 2020, the year before the acquisition, records show. They’re on track to take more in 2023. A Bloomberg Green investigation found that from 2020 to 2022, pumping increased at other BlueTriton sources in at least six states: Florida, Maine, Colorado, Michigan, Texas and South Carolina.

Not all of BlueTriton’s springs around the US are being squeezed tighter than before; at some, usage has been flat or gone down. In many cases, including at Ginnie Springs, the company is still taking less water than local permits allow.

BlueTriton Is Pumping More Water From Springs Around the US

Annual water withdrawals in gallons, 2020-2022

Yet BlueTriton’s reliance on springs, as well as its private equity ownership, has drawn the attention of researchers and activists who question its stewardship of resources. Other major players in the bottled water industry, such as The Coca-Cola Company and PepsiCo Inc, rely largely on what is effectively tap water to fill their product lines, paying municipalities for water that they then purify. While BlueTriton also draws from public supplies for some of its offerings, many of its best-known brands bottle from springs, natural features that tend to be located in sparsely populated areas where water is often virtually free.

While BlueTriton’s increased water use at individual springs is legal, these fragile ecosystems can be uniquely impacted by pumping. A report by Florida’s environmental agency in 2021 showed that while bottling consumes far less water than other industries such as agriculture, it shrinks spring flows disproportionately because it takes water so close to the source.

Longstanding concerns over the bottling industry have increased as rising temperatures dry rivers and pumping drains aquifers around the world. Regulators and lawmakers across the US have moved in recent years to rein in bottling. In 2021, Congress directed the US Geological Survey to study the growing industry to better understand its effects on watersheds. Many of the springs that will receive individual scrutiny in the agency’s study are operated by BlueTriton, including Ginnie Springs.

Laura Krueger, director of external communications at BlueTriton Brands, said as the company has ramped up pumping, Ginnie Springs remains healthy. More broadly, she said, the company has a team of geologists and engineers who manage springs for sustainability. She said BlueTriton is working with the USGS to provide data for its investigation.

“Responsible and proactive water resource management is central to our company and is a core reason why BlueTriton and its predecessors have been able to source water from some of our springs for more than 150 years,” she said.

Some of the company’s actions follow a more modern playbook. Private equity firms are well known for buying underperforming assets, restructuring them and quickly selling them at much higher prices to maximize profits. Cost-cutting measures such as lay-offs are par for the course, and BlueTriton has followed suit. While this strategy has played out for decades in just about every industry in America, from auto-parts manufacturers to toy stores to hospitals, BlueTriton is now extracting value from some of nature’s most sensitive watersheds.

In addition to dialing up water use from springs across the country, the company is deploying lobbyists and lawyers to battle regulators that stand in their way. In Maine, the company lobbied to derail a proposed law that would have put limits on its water purchase agreements with local governments. In California, legal experts say the company, like bottlers before it, is avoiding regulation by taking advantage of uncertainties in state water law.

“At BlueTriton, we respect and follow all state laws and regulations,” Krueger said.

But the laws are, in many cases, easy to work around, said Richard Frank, director of the California Environmental Law & Policy Center at the University of California at Davis. “Springs fall between the cracks of California water rights law,” Frank said. “BlueTriton and its predecessors have been a textbook example of how to exploit those ambiguities or pursue outright violations of existing water rights law.”

In 1964, a local businessman named Don Robinson started bottling the water supply of his small city in central Florida. He also borrowed its name. That was the start of the Zephyrhills Spring Water Company, which was purchased in 1987 by the Perrier Group of America, which soon after became a subsidiary of Nestlé. Nestlé later turned its attention to the wealth of artesian springs across Florida as it built out the Zephyrhills brand, quenching America’s growing thirst for packaged products.

But bottled water — especially the kind that gets sold in large cases of plastic containers — is a low-margin operation. Sourcing, production and warehousing all cost money. Companies can only charge so much before consumers turn to their taps.

In 2021, amid slowing demand in recent years and competition from private label producers, Nestlé sold most of its North American water brands, including Poland Spring, Pure Life and Arrowhead, for $4.3 billion. The company said that it planned instead to focus on premium offerings like Perrier, Sanpellegrino and Acqua Panna, which it retained.

The buyers were the private equity firms One Rock Capital Partners and Metropoulos and Co., which took out billions in debt to finance the purchase amid a rush of leveraged buyouts delayed by Covid-19. Metropoulos and Co. was founded by Greek-American billionaire C. Dean Metropoulos, whose family empire has snapped up countless brands and distressed assets over the decades, including Pabst Blue Ribbon, Morton Salt, and Chuck E. Cheese. It was one of the funds behind the 2013 purchase of Hostess, the bankrupt maker of Twinkies, which was sold a few years later, earning Metropoulos and its partners a return of nearly 13 times their original investment.

As is common after buyouts, the new company employed a fraction of the workers who’d lost their jobs in the bankruptcy. Krueger of BlueTriton said that under Metropoulos’ leadership, Hostess invested millions of dollars into upgrading plants and improving working conditions for employees.

Whether Zephyrhills or Poland Spring will produce as much profit as Twinkie is yet to be seen. At BlueTriton, multiple rounds of layoffs after the takeover affected hundreds of workers. Environmental sustainability projects were sidelined after the acquisition to make way for streamlining efficiency and maximizing profits, according to three former employees. “It was all about making money,” said Niki Price, who worked as a senior project manager in packaging and engineering until leaving in October 2022. (Krueger said that BlueTriton’s investments in sustainability measures have been at or above previous levels and that it has completed $745 million in capital projects since 2021.)

Driving $46 billion in annual revenue, bottled water has been the top-selling beverage in the US for the past six years, according to the Beverage Marketing Corporation. It’s a mature industry, with sales projected to grow in the single digits through 2030.

But BlueTriton has faced headwinds. In March, Moody’s Investors Service downgraded the company’s credit rating, describing BlueTriton’s financial policy as “aggressive.” It cited the additional debt BlueTriton has taken on to deliver profits to investors, such as a round of shareholder payouts at the end of 2021 financed by a loan of $250 million. Increasing volume is one way for the company to grow value, but that’s been challenging: A series of price hikes drove up revenue for BlueTriton in 2022 and early 2023, but in keeping with an industry trend, sales have slowed in recent quarters, according to a September report by S&P Global Ratings that gave the company a ‘B’ rating.

Water use data for individual companies is difficult to come by. Diversions from springs and groundwater sources aren’t uniformly regulated across the US. Bloomberg Green contacted 33 federal, state and local agencies to request water use data for 40 locations advertised by BlueTriton as sources of its bottled spring water. In some cases, agencies did not respond; in several cases, no data was publicly available. Krueger of BlueTriton said that consumer demand drives withdrawals from individual sources, and that the company adjusts collection levels to balance water resources.

BlueTriton’s Bottling Operations Span the US

Active 2023 plants that bottle water

What records were available show that, in several parts of the country, BlueTriton is stepping up its water use. Across the 10 springs in Maine the company uses as sources for Poland Spring, total water use has steadily increased in recent years, rising 6% from 2020 to 2022. At Moffit Spring in Walker County, Texas, one of BlueTriton’s sources for Ozarka, the company pumped 23% more water in that time frame. At Ruby Springs in Chaffee County, Colorado, a source for Arrowhead, it took 37% more water.

Few scientific studies have examined the ecological impacts of diverting springs for bottled water. Jill Culora, vice president of communications for the International Bottled Water Association, disputed the notion that bottled spring water depletes resources from sensitive ecosystems. “When choosing a spring water source, bottlers spend time and resources to ensure the source has excellent water quality, is well protected from pollution sources, and has sufficient volume while not affecting the rights of other users,” she said.

The growth of bottled water and its increased demands on nature prompted the US Geological Survey in 2021 to open an investigation into the scope of the industry and its effects on local watersheds. As part of the research, the agency is collecting water use data for bottling facilities across the country. USGS planning documents obtained by Bloomberg Green show that Ginnie Springs is one of the areas of study, which will begin by collecting water use and hydrological data in order to eventually assess bottling’s impacts there.

“Over the past few decades, many of Florida’s springs have been declining in health,” one USGS document states. “Sufficient data are needed to evaluate the effects that pumping of the aquifer by water-bottling facilities have on springs — or that withdrawals from springs by such facilities have on the health of spring-fed rivers — to preserve these valuable natural resources.”

Another focus area for the study will be Southern California, where “the high density of bottled-water facilities… sourced mostly from spring flow, has the potential to alter already affected groundwater-surface water interactions in the region, reducing streamflow and affecting water quantity and quality for both human and ecological uses.”

Cheryl Dieter, a USGS hydrologist who is coordinating the research, declined to comment on unpublished results. Culora also declined to comment. Krueger said BlueTriton welcomes USGS’ examination.

In September, California’s State Water Resources Control Board adopted a cease and desist order requiring BlueTriton to stop diverting approximately 80% of the water the company had historically taken from a set of springs along Strawberry Creek in the San Bernardino National Forest. Originally prompted by public complaints in 2015 over Nestlé’s withdrawals during a period of drought, the state undertook a multiyear investigation and ultimately determined in 2023 the company had no right to most of the water. BlueTriton is now challenging that decision in court.

Experts say the ruling casts a spotlight not only on the environmental impacts of bottled water production, but also on how BlueTriton and its predecessors have taken advantage of weak regulations and uncertainties in California law. Bloomberg Green found that several other BlueTriton water sources in California are also unpermitted by the state water board, the authority tasked with overseeing surface water.

BlueTriton said it is “confident in the water rights for collection at every spring we use for our bottled water.”

California water rights are infamously complex. Surface water, such as rivers and streams, is regulated by the State Water Resources Control Board. There are some exceptions, but most surface water users that move water from streams connected to their lands are required to obtain permits with the state water board.

Groundwater, on the other hand, is largely unregulated. In much of the state, land owners are allowed to pump what is considered “percolating groundwater” (i.e., water that filters down through the soil on a path of least resistance) without anyone’s approval. The Sustainable Groundwater Management Act, the state’s first attempt to regulate groundwater, has yet to be fully implemented since its passage in 2014, and its impacts remain unclear.

Officials at the state water board said the issue makes the broader bottling industry a challenge to regulate.

“Even though they’re taking and selling what they market as spring water, because they’re characterizing it as a groundwater well, they have not reported it to us,” said Kenneth Petruzzelli, a state water board attorney in the office of enforcement who prosecutes water rights violations, referring to bottlers in general.

The investigation into Strawberry Creek, which began when Nestlé owned Arrowhead, demonstrated the challenge with regulating springs, areas where water naturally bubbles to the surface from an underground aquifer. High in the San Bernardino National Forest, Strawberry Creek splits into two streams. Its spring-fed western fork is largely desiccated, with a few puddles dribbling through the brush.

Prior to the 1930s, when bottlers started pumping large quantities of water, the currently dry creek was a perennial stream, flowing even during the warm summer and fall months, said Amanda Frye, a local activist who has spent years trying to hold the industry accountable.

“Arrowhead dried out the Strawberry Creek watershed, tapping and stealing water one spring at a time,” she said.

BlueTriton, like its predecessors, doesn’t have a permit to divert the water. During the state’s inquiry, the company maintained that what it was taking was groundwater, and therefore not subject to the state’s authority.

The state disagreed, determining that the spring flows that feed Strawberry Creek were, in fact, surface water.

In October, BlueTriton sued the board. In a statement, the company said the ruling “creates water rights uncertainty and negatively impacts every water agency and farmer in California that relies on groundwater, and in doing so, indirectly harms every Californian.”

Several other springs that appear to fall under the state’s jurisdiction are going unmonitored. Sopiago Springs, for instance, sits near the top of Sopiago Creek in El Dorado County, surrounded by national forest. It is advertised as an active water source on the Arrowhead website and its outflow is collected on land owned by BlueTriton, according to county records. Yet there is no permit with the state — and no way to account for how much water is being trucked away.

Comparing Sopiago Springs to Strawberry Creek, “it looks to be very much the same situation,” said Holly Doremus, a professor of environmental regulation at the University of California at Berkeley. “It looks like it needs a diversion permit.”

BlueTriton disputed that. “Water collected from Sopiago Springs is groundwater,” the company said. It also denied any harm to Strawberry Creek.

Due to classification challenges and other complexities, proving violations of California water law can take years, with the burden of proof largely falling on the party trying to change the status quo. It’s a bottom-up system leading to significant quantities of water going unsupervised and untracked, Doremus said.

“In a state where water resources are limited and are likely to become even more so with climate change,” she said, “that is obviously a problem.”

Calls for greater scrutiny are rising. In March, a UN think tank released a report calling for stronger regulations on bottled water as groundwater supplies dwindle across the world. The report found that the industry’s growth is undermining progress towards universal safe drinking water access by “redirecting attention to a less reliable and less affordable option for many, while remaining highly profitable for producers.”

The International Bottled Water Association disputed the report and the assertion that bottled water withdrawals contribute significantly to groundwater resource depletion, saying companies use an extremely small amount of water. In a statement, the group said: “Bottled water companies do not drain aquifers and/or surface waters or use more water than can be replenished.”

So far in Florida, efforts by lawmakers and activists to rein in BlueTriton haven’t panned out. In October, a judge upheld the water use permit allowing the company to bottle more water from Ginnie Springs, rejecting a legal challenge by Florida Springs Council that argued it wasn’t in the public interest. Smart, the group’s executive director, said their fight would resume in 2024. Eventually, he also hopes to persuade legislators to establish water use fees, which he thinks would force industry users to cut back and help with restoration.

In the US, water rights experts have advised states to step up their oversight. Frank and Doremus, the California water law experts, are part of a group of reformers proposing legislation that would give the state water board stronger tools to enforce violations, including heavier fines and more power to stop illegal diversions. For Frank, the growing influence of private investors on the state’s limited supplies — both within bottling as well as in water rights trading — demonstrates why such reforms are “long overdue.”