Tuesday, December 10, 2013
The chairman of the state’s Public Utilities Commission isn’t recusing himself from proceedings involving a former legal client of his, at least for now.
The family-owned utility Fryeburg Water Co. is seeking PUC approval of the terms of a 25-year contract with Nestle Waters North America, a subsidiary of Switzerland’s Nestle SA, the world’s largest food and beverage company, which bottles Fryeburg water under its Poland Spring brand. But the proceedings have been in jeopardy because all three PUC commissioners and the state’s public advocate have ties to Nestle.
Before joining the PUC in 2011, Chairman Thomas Welch was an attorney at Pierce Atwood, where he represented Nestle Waters for several years, including during the 2008 reorganization of the Fryeburg Water Co., which set the stage for the current contract. He has been asked twice to recuse himself by an attorney representing some of the contract’s opponents.
In August, Welch told the Portland Press Herald that he wouldn’t come to a final decision on whether to recuse himself until after the final hearing on the contract held Sept. 3. He said he took the concerns about perceived conflicts seriously but had to weigh those against the fact that the PUC would be unable to act on the issue if he recused himself, as it would no longer have a quorum.
Welch now says he has not made a final decision on recusal and has decided not to do so until “after I have read the briefs” from the two sides. The Fryeburg Water Co. filed its brief Sept. 17, but final briefs won’t be filed until Oct. 8.
“At the hearing, I asked the parties to address some of the issues that may be relevant to that decision (for example, the relationship between past reorganizations and the issues that will govern the decision in this case),” Welch said in an email to the Press Herald.
One of the three commissioners, Mark Vannoy, already has recused himself. He previously did work for Nestle Waters while vice president and minority shareholder at the engineering firm Wright-Pierce.
Public advocate Timothy Schneider — who represents ratepayers before the PUC — also recused himself, as he did work for Nestle Waters on the current Fryeburg case while an attorney at Pierce Atwood.
The other remaining commissioner, David Littell, was a partner at Pierce Atwood a decade ago, but did not work on Nestle matters personally.
Welch’s recusal decision hinges on the degree to which the proceedings wind up focusing on the past relationship between Nestle Waters and an entity created and largely controlled by the family that owns the Fryeburg water utility, and through which it sold local water at a mark-up.
For decades, members of the Hastings family have controlled a majority of the shares in the Fryeburg Water Co., the privately held utility that serves Fryeburg and East Conway, N.H. The family patriarch, Hugh Hastings, has been company president since 1969. In the late 1990s, Hastings sought to sell spring water from the company’s wells to commercial bottlers but learned the PUC does not allow utilities to sell water to any entity at a higher rate than it charges its ordinary customers.
To overcome this obstacle, in 1997 Hastings and business partner Eric 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 the business partner, Eric Carlson. Hugh maintained power of attorney over his son for the first five years of the company’s operation.
This arrangement ended in 2008, when Nestle bought Pure Mountain Springs, allowing it to purchase bulk water at the going rate, currently about one-tenth of a cent per gallon. Welch, then at Pierce Atwood, advised the company on the deal. Simultaneously, Fryeburg Water Co. gave Nestle its contractually required five-year notice that it wanted to renegotiate their relationship, setting the stage for the current case before the PUC.
Under the proposed contract, Nestle will continue to draw water at a low “tariff” rate and pay lease fees to the water company but will make a guaranteed minimum payment of about $144,000 every year, ensuring a more predictable cash flow. Nestle Waters’ payments account for about 40 percent of the utility’s operating revenues.
Opponents of the contract have argued that this price may be too low, and that the PUC would be wise to learn what price Pure Mountain Springs charged Nestle for the water between 1997 and 2008 as a way of determining its fair market value.
Bruce McGlauflin, an attorney representing two contract opponents, said their ultimate concern is about long-term sustainability of the resource. Low-pricing, he told the Press Herald, would “incentivize Nestle to maximize its purchases” of Fryeburg water, rather than encourage sustainability.
Opposition briefs are due to be filed Oct. 1, and the company’s rebuttal to them on Oct. 8. Staff reports would follow later in the month, clearing the way for a final decision on the matter to be made in early November.