Ian James

The Desert Sun

California water regulators told Nestlé that the company doesn’t appear to have valid water rights for much of the water it’s been piping out of the San Bernardino National Forest and selling as bottled water.

Regulators at the State Water Resources Control Board notified Nestlé of their findings following a 20-month investigation, recommending the company limit its use of water from the namesake source of Arrowhead 100% Mountain Spring Water unless it can show it has valid rights for all of the water it’s been taking.

Victor Vasquez, a senior water resource control engineer in the board's water rights division, told the company in a letter Wednesday that its “current operations do not appear to be supported by rights to the diversion or use of water exceeding 26 acre-feet” per year, or about 8.5 million gallons.

That would represent about a fourth of the water the company piped from sources in the national forest in 2016, and less than 15 percent of average amount of water that has been extracted yearly for decades. The company reported drawing about 32 million gallons of water — or about 100 acre-feet — from the national forest last year.

“Any diversions in excess of that amount may be unauthorized,” Vasquez said in the letter. He said the company “must limit its appropriative diversion and use of water to 26 (acre-feet per year) unless it has evidence of valid water rights to water within the permitting authority of the State Water Board and/or evidence documenting the extent of additional water claimed to be percolating groundwater.”

The agency posted the letter and a 37-page investigation report on its website Thursday, along with other documents detailing the findings.

Nestlé Waters North America has insisted it has valid rights to continue its bottled water operation in the national forest.

The company collects water from the national forest north of San Bernardino using a system of 10 gravity-fed boreholes and two water tunnels drilled deep into the mountainside. The water flows downhill through a stainless steel pipeline to a roadside tank, where it is pumped into tanker trucks and hauled to a bottling plant about 30 miles away.

Nestlé’s use of water from the national forest has generated an outpouring of opposition, protests and a lawsuit since a March 2015 Desert Sun investigation revealed that the U.S. Forest Service has been allowing the company to continue drawing water from the national forest using a permit that lists 1988 as the expiration date.

The Forest Service subsequently announced a review of the permit and in 2016 released a proposal to grant the company a new five-year permit. The issue also prompted several complaints to the State Water Board starting in April 2015. Regulators at the agency later said they had begun investigating questions about the company’s claim of having water rights dating to the 1800s.

The battle over Nestlé’s operation in the San Bernardino Mountains is one of several fights that opponents have waged across the country — in states including Oregon, Michigan and Pennsylvania — to try to block the company from siphoning water from springs and aquifers.

Amanda Frye, a local activist who filed one of the complaints that prompted the investigation, said she was pleased with the result.

“I feel like it’s a victory,” Frye said. “I’m happy that the State Water Resources Control Board did pursue it and look into it. I feel that they’re protecting the people of California.”

Water from Arrowhead Springs was first bottled for sale more than a century ago. It’s named after the famed arrowhead-shaped natural rock formation on a mountainside north of San Bernardino and the springs near it — both hot and cold springs that flow from the mountain. The hot springs were once the central attraction of a glamorous hotel, which closed in the late 1950s and now stands vacant at the base of the San Bernardino Mountains.

Nestlé has owned the Arrowhead brand since it acquired Perrier in 1992.

While officials were conducting the investigation, Nestlé had insisted it holds rights that are “among the most senior water rights” in California.

“We are disappointed by the fact that we have just received a copy of the report from the State Water Resources Control Board and that others appear to have received it much sooner," Alix Dunn, a spokesperson from Nestlé Waters North America, said in an email. "Once we have had an opportunity to review the report thoroughly, we will be in a position to respond.”

Dunn later said in a statement that the company is pleased the report "validates Nestlé Waters’ chain of title and reaffirms that we hold valid, pre-1914 surface water rights and groundwater rights to a significant amount of the water in Strawberry Canyon."

The case involves documents going back more than 150 years and legal distinctions between surface water and groundwater, which fall under separate water-rights systems, as well as complex distinctions between different categories of groundwater.

The company told authorities its ownership of spring water in Strawberry Canyon can be traced back to a possessory claim filed in 1865 by David Noble Smith — who first built a simple “infirmary” hotel where people eased their ailments at the hot springs. Nestlé also pointed to a subsequent U.S. patent obtained by Smith and recorded in 1882. It said the water rights were upheld in court in 1931 and have not been legally challenged since.

Frye, however, studied the historical documents cited by Nestlé and told state regulators she thought the company didn’t have valid rights. She said the 1865 claim cited by the company staked out 160 acres near the base of the mountains around the future hotel site, yet Nestlé has been drawing water from locations about 2.5 miles away and much higher in the mountains, at an elevation of around 5,000 feet.

In his letter to Nestlé Waters North America, Vasquez said the Division of Water Rights staff concluded, based on their review of available information, that Nestlé’s claim to a water right originating from the 1865 claim "is limited to riparian uses and is not valid for Nestlé’s current appropriative diversion and use of water from the San Bernardino National Forest."

RELATED: Next to Nestlé's bottled water pipeline, a creek trickles

Vasquez said in the letter that over the period from 1947 to 2015, Nestlé’s reported water extractions from the San Bernardino National Forest have averaged 192 acre-feet, or 62.6 million gallons, per year.

He wrote that Nestlé could claim up to 26 acre-feet of water per year for diversions from Indian Springs. The staff identified that water right “based on 1912 plans to bottle water in Los Angeles.”

There are also other complexities in the regulators’ findings. Vasquez said Nestlé “likely has an appropriative groundwater claim to an unknown amount of developed percolating groundwater that would not have contributed to surface flow in a natural channel elsewhere in the watershed.”

He was referring to a distinction in state law between “percolating groundwater” — or groundwater that is filtering down to an aquifer and is not subject to the water board’s legal authority — and groundwater that is flowing “in a known and definite channel” and does fall under the board’s authority.

“If it’s essentially an underground stream, then it is subjected to the board’s permitting authority,” said David Rose, an attorney at the board who is assisting the water rights division's enforcement section on the case. He said the groundwater issue is an “open question” and separate from the finding on the company’s surface water rights.

Vasquez wrote in the letter that while the company may be able to claim a valid right to some water in Strawberry Canyon, “a significant portion of the water currently diverted by Nestlé appears to be diverted without a valid basis of right.”

Vasquez also referred to the 1931 court judgment involving Nestlé’s predecessors, saying the diversion of water under the right recognized in that decision “would have required a permit insofar as it was not based on an appropriation initiated before 1914.”

Vasquez said the Division of Water Rights staff “recommends that Nestlé immediately cease any unauthorized diversions.”

The report on the investigation’s findings is just the first step in what could be a contentious process before the State Water Board.

Now that the findings have been released, the water rights division’s enforcement section will have discretion to choose whether to initiate an enforcement action for unauthorized water diversions, which could include a “cease and desist” order or fines. Under that process, Nestlé would be able to request a hearing, in which the enforcement team would act as prosecutors and the five-member water board would decide.

In its letter, regulators recommended that the the company take a list of actions, including submitting within 30 days an initial statement for “unauthorized diversions” and for diversions under any valid pre-1914 rights.

Within 60 days, Vasquez said, the company should submit a compliance plan for the agency to review and approve, “to ensure that diversions do not exceed those allowable.”

Nestlé signaled its willingness to cooperate.

"We are pleased that they have confirmed we have a right to these 'authorized diversions,' and we will continue to operate lawfully according to these existing rights and will comply fully with California law," Dunn said in a statement.

The company will cooperate with the water board during review process and will provide "necessary documents to supplement" the investigation report, Dunn said.

READ MORE: Is Arrowhead bottled water really spring water?

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Arrowhead 100% Mountain Spring Water is one of the biggest bottled water brands sold in California, and the national forest is one of the company’s primary sources for the brand. Nestlé also uses water from several other locations in Southern California, including springs in a desert canyon near Cabazon, where water is piped to a bottling plant on the Morongo Band of Mission Indians’ reservation.

Nestlé SA, headquartered in Vevey, Switzerland, is the world's largest food company, and its Paris-based subsidiary Nestlé Waters is the world’s largest water bottling company. Nestlé Waters North America is also the largest water bottling company in the United States, with $4.5 billion in sales last year.

The company runs 28 bottled water plants across the U.S., including five bottling plants in California, and sells spring water brands including Deer Park, Ice Mountain, Poland Spring and others.

It’s not clear how much of a financial hit the Arrowhead brand might take as a result of the investigation’s findings.

In documents filed last year with the U.S. Forest Service, Nestlé said if it were to lose access to water from the national forest, that could have “significant market impacts” and could risk job losses among its 1,200 employees in California who are connected with the Arrowhead brand. The company told the agency that water from the Arrowhead springs “may not be replaceable.”

Nestlé’s opponents have argued that taking water from the forest harms spring-fed Strawberry Creek and the wildlife that depends on it.

In a visit to the national forest this summer, Desert Sun journalists confirmed that while the creek’s east fork was flowing freely, the western fork — which lies in the watershed below Nestlé’s boreholes and water tunnels — was just a trickle, with a series of shallow puddles hidden in a thicket of trees and bushes.

Nestlé denies causing any harm to the environment in the national forest. The company says its engineers and scientists monitor the company’s water sources as well as the surrounding environment.

Activists have argued that the withdrawal of water threatens sensitive habitat and species such as mountain yellow-legged frogs and southwestern willow flycatchers. They’ve criticized Forest Service officials for allowing the company to continue piping out water for so many years, even during California’s severe drought, without assessing the impacts on the environment. And they’ve argued the company shouldn’t be permitted to continue taking unrestricted amounts of water, especially as climate change exacts a toll on the ecosystem of the forest.

The water board’s report detailed the complaints and noted they were filed following The Desert Sun’s 2015 investigation.

“As a result of the complaints and due to repeated media and private citizen inquiries, the Division determined that an investigation … was appropriate,” regulators said in the report. They noted that Supervisor Jody Noiron at the national forest had also “requested assistance with clarifying” Nestlé water rights in May 2016.

The report described how regulators visited the national forest, talked with the company and Forest Service officials, and reviewed documents.

“Unless any information to the contrary is available, all diversions from springs that would flow to a channel are within the permitting authority of the State Water Board,” officials said in the report. They said the staff “determined that a significant portion of the water diverted by Nestlé is within the permitting authority of the State Water Board.”

The report summarized complaints in which people argued that bottling water from the forest in the midst of California’s severe drought was “an unreasonable use of water” and potentially harmful to the ecosystem.

Regulators said they found “insufficient information to determine if Nestlé’s diversion injures public trust resources.” They also said the Forest Service “is the appropriate agency to address the environmental impacts in this case.”

Based on the findings, Frye said she thinks the Forest Service should declare that the groundwater belongs to the national forest under federally reserved rights. She also called for the government to hold the company accountable for claiming water rights that didn’t exist over the years.

“Look how much water they’ve taken. They had no right to it, and they took it," Frye said. "I would like to see that upper headwaters spring flow again. I’d like to see water in that creek, where it should be."

The Forest Service is continuing to review a proposal to issue the company a new permit for its water pipelines and other infrastructure in the national forest.

Zach Behrens, a Forest Service public affairs officer, said the agency doesn’t have any comments on the state agency’s document, and it’s not yet clear when the Forest Service will complete its review.

Three environmental groups sued the federal government in 2015 in an attempt to shut down the 4.5-mile pipeline that Nestlé uses to collect water from the forest.

Forest Service officials have defended their actions, arguing that Nestlé’s 1978 permit, which was issued to predecessor Arrowhead Puritas Waters Inc., remains in effect while they consider the company’s renewal application. A federal judge agreed with the Forest Service, ruling the permit was still valid because the company's predecessor in 1987 took the proper step of writing to the agency to request a renewal and didn’t receive a response.

That court decision allowed Nestlé to continue drawing water from the forest. The environmental groups have appealed.

Nestlé’s Forest Service permit allows the company to use its horizontal wells, pipelines and water collection tunnels in the mountains north of San Bernardino. The Forest Service, which does not charge a fee for the water, has been charging the company an annual permit fee of $624.

The conditions of the permit say that the document “confers no right to the use of water.” State officials have authority over water rights, and the company has told the Forest Service it has valid rights.

Nevertheless, records show some Forest Service officials raised doubts about the company’s water rights in the 1990s.

Documents released by the Forest Service show that in the 1990s and early 2000s, there were discussions within the agency about conducting a review of the permit and carrying out environmental studies, but those steps didn’t lead to action.

During a 1997 meeting, Forest Service officials told David Palais of Nestlé that they were seeking information from the State Water Board about the water rights, according to typed notes of the meeting. The notes were prepared by Gary Earney, who administered permits, and he wrote that Forest Lands Officer Ernie Dierking “had advised me that we first needed to determine whether or not (Arrowhead) had proper water rights in the area.”

Earney said he explained to Palais that by later that year, they planned to have determined whether there was proof of water rights, and if not, “we would be significantly down the road in an environmental process that would eventually determine whether we would either re-issue the permit (with take limits) or would deny such use and force removal of all current improvements.”

Earney, who is now retired and critical of Nestlé’s operation, recalled in an interview in 2015 that a lack of adequate staffing prevented a review of the permit, and he and others had a list of other priorities.

When floods and mudslides in 2003 destroyed portions of Nestlé’s pipes, the Forest Service allowed the company to rebuild and didn’t require a new permit.

Gene Zimmerman, the forest supervisor who was in charge at the time, retired in 2005 and has since done paid consulting work for Nestlé.

As opposition to the bottling operation has flared with protests and a petition drive by opponents, Nestlé has fought back with lawyers and a PR campaign. Some of its ads on billboards and online displayed photos of the San Bernardino Mountains with the slogan “Respecting nature is in our nature.”

Nestlé’s attorneys have made their case in detailed exchanges with investigators at the State Water Board. Emails and letters released by the board earlier this year show the discussions have focused on subjects including the Food and Drug Administration’s requirements for bottled water labeled as “spring water,” and distinctions between surface water and groundwater.

With surface water, California and other western states use a “first-in-time, first-in-right” system in which the first party to use water from a stream or river obtains a priority right. With groundwater, in contrast, California law says landowners have a right to pump water from beneath their property, and generally no one holds priority rights.

Nestlé said in a document submitted to federal and state officials that the historical basis of its rights “includes both surface water and subterranean water.”

Larry Lawrence, the company’s natural resources manager in California, said in a statement in August that the company had responded to every request from state regulators and that the “chain of title” of the company’s water rights is well documented.

“These rights have remained unchallenged for nearly a century,” Lawrence said at the time.

Responding to the regulators’ findings, activists with the groups involved in the lawsuit called for the Forest Service to shut down Nestlé’s water pipeline.

“As if diverting water off our public lands under a 29-year-old expired Forest Service permit wasn’t egregious enough, now under expert scrutiny from the State Water Board, Nestle’s claims of water rights falls apart,” said Ileene Anderson of the Center for Biological Diversity. “This is a first step in making sure that there’s enough water in Strawberry Creek.”

The controversy over Nestlé’s operation in the San Bernardino Mountains is unique in that it’s located on national forest land. But it’s one of many disputes that have sprung up across the country in places where the company is bottling water or has sought to bottle more water.

Last year, voters in Oregon blocked Nestlé’s plans to tap water from a spring in the Columbia River Gorge, approving a ballot measure that bans commercial water bottling in Hood River County. Nestlé also dropped plans last year to extract spring water in Eldred Township, Pennsylvania, withdrawing a zoning permit application after local residents protested and filed a lawsuit. In Michigan, Nestlé opponents have also been fighting the company’s plans to increase pumping.

As the company has run into opposition in those locations, it has continued searching for other spring sites and expanding elsewhere. Last year the company announced plans to open a bottling plant in Phoenix.

Demand for bottled water continues to grow in the United States. Last year, the Beverage Marketing Corporation reported that the U.S. bottled water market reached a milestone, with Americans consuming more bottled water than carbonated soft drinks — and bringing in nearly $16 billion in wholesale revenues.

Ian James writes about water and environmental issues for The Desert Sun. Email: ian.james@desertsun.com Twitter: @TDSIanJames.