In a small brewery town in Minnesota, options for water are running dry

COLD SPRING, Minn.

On a splendid Saturday afternoon, Chad Jungels sat outside Cold Spring Brewing Co. with his hands wrapped around a glass of his favorite beer.

The brew is made right here, from the cold underground water that gives the town its name and the brewery the essence of its products. And the name of Jungels' beer — Lost Trout Brown Ale — is a cheeky dig at the six-year battle over water use that nearly drove the homegrown company and its 445 jobs out of Minnesota.

"This creek used to be flowing with trout," said Jungels, waving at the tiny stream hidden by trees that stand next to the brewery.

"But," he added, "there is not so much water in it anymore."

Cold Spring's quandary — protecting a trout stream while supplying water to a fast-growing employer — is just one of many challenges emerging across Minnesota as a state renowned for its abundant water confronts a difficult new fact of life. It may no longer be able to guarantee what its residents have always taken for granted: Clean drinking water, industrial and agricultural growth, and many thousands of healthy lakes and streams.

Hastings, Park Rapids and a dozen other towns across Minnesota are spending millions of dollars to treat drinking water contaminated by fertilizers, with many more competing for state money to do the same. In St. Paul's northeastern suburbs, residents may have to limit lawn watering to protect their much-loved White Bear Lake from shrinking during dry summers.

In central Minnesota, angry farmers face new state pressure to monitor and report their water use. Nearby tributaries of the Mississippi River show rising pollution levels, caused in part by agriculture's reliance on chemicals and irrigation wells that draw on increasingly stressed aquifers.

"In Minnesota, we are water rich," said Scott Bender, who runs Cold Spring Brewing for an East Coast private equity firm. "It's the one thing we have. But if we don't take care of it, we won't stay that way."

'If it wasn't for the water'

Water has been Cold Spring Brewing Co.'s business since 1874, when the company was founded near a spring that gushed "prehistoric glacial lake water."

Today, the brewery and its Monarch Custom Beverages division sell 35 million cases of drinks per year — everything from Monster to its own house brands such as Hula. And, of course, beer.

Its primary ingredient has also been virtually unlimited and largely free. Vic Esplan, a 40-year employee who was greeting brewery visitors during Hometown Pride Days this year, said that in the 1970s, there was so much water bubbling up around the brewery that the company had to tear up the concrete floor and install drainage pipes.

"If it wasn't for the water, we wouldn't be here," he said.

Even today, there's no shortage of water around Cold Spring — the Sauk River, a chain of recreational lakes, and enough groundwater to supply a commercial bakery, a massive chicken processing plant and all the farmers who rely on irrigation to raise their crops.

What's in perilously short supply is uncontaminated drinking water for Cold Spring's 4,500 residents.

Most of the town's wells are contaminated by nitrate, a chemical salt, most likely from the fertilizers that nearby farmers, homeowners and maybe the golf course have spread on the land for decades.

Hydrologists believe the complex mix of geology around Cold Spring — sand, clay and granite — also contributes to the problem by somehow aggravating the movement of nitrate into groundwater.

Local officials have tried to protect their drinking water since the 1990s, said Dennis Fuchs, administrator of the Stearns County Soil and Water Conservation District. They worked with homeowners and local farmers to minimize fertilizer use and to better manage manure from livestock, an effort that continues to this day.

Now, a few local farmers are even experimenting with perennial grain crops that don't need fertilizer, he said.

So far nothing has worked. Nitrate levels in the city's wells have continued to inch up toward the legal limit of 10 parts per million.

For years the city's engineers have achieved an acceptable nitrate level in the drinking water by carefully blending water from wells with high and low concentrations. The brewery uses water from three wells near the stream — two of its own and one leased from the city — and treats it in-house to remove nitrate and other contaminants. And over time, the brewery has become twice as efficient — it doubled beverage production without using more water.

That worked — until 2012, when the brewery needed more water to expand its business.

The expansion was great news for the town because it meant more jobs at a company that not too long ago was nearly bankrupt.

But it posed a problem for Cold Spring Creek, the 1.7-mile spring-fed trout stream that threads its way through the town's neighborhoods on its way to the Sauk River. More production at the brewery would require more groundwater pumping, and that threatened the trout stream, according to the Minnesota Department of Natural Resources (DNR), which regulates surface water in the state. Over time, that could fundamentally change the stream from one where stocked trout successfully reproduce to one more suitable for carp.

"This was a fairly significant percentage of the flow," said Jason Moeckel, a manager with the DNR.

It also sent a clear signal that too much groundwater pumping was depleting surface water — a violation of a state law that the DNR is required to enforce.

DNR officials agreed to a temporary increase in the brewery's water use, but advised city leaders to find another source to protect the stream.

A year later they imposed a deadline — the end of 2014. And that's when things got testy.

"Well, you can't just shut the spigot off," said state Sen. Jeff Howe, R-Rockville, whose district includes Cold Spring. "They've been there for almost 150 years."

The argument soon grew into a statewide political fight that pulled in some of Minnesota's biggest business groups, from the state irrigators' association to the AgriGrowth Council. The Legislature passed laws to ensure the town's water supply. The DNR grudgingly extended the water permits again. The brewery continued to operate, but delayed its expansion.

And through it all, the city continued to look for a water source that would supply the brewery, protect the trout stream and wasn't contaminated by nitrate. In all, it spent three-quarters of a million dollars poking holes in the ground and buying land it ultimately didn't need.

Frustrated local officials still don't see it as a nitrate problem — they have always seen it as a trout stream problem, noting that decades ago the DNR stocked the stream in the first place.

"The DNR put the trout there," said David Heinen, Cold Spring's mayor. "Now they are trying to tell us we have to save the trout that they planted. That's the hard part for me."

Minnesota's two advantages

The hard part for the company was the uncertainty.

"Investors hate uncertainty," said Bender, the plant manager.

He grew up nearby in Becker, Minn., and, like all the employees, wears the company's uniform of a black polo shirt with the Cold Spring logo. He drives a beige Buick, and despite his job, his drink of choice is what he grew up with — sugar-free cherry Kool-Aid.

But, tall and gray-haired, he has a gravity that reflects his concern for the business and its role in the vitality of the town. Some families have worked there for four generations, he said.

The company is "probably bigger than anyone thought we would get to," he said. "That's a pretty prideful moment for a lot of us."

But he's also felt the competitive discipline of the national beverage business, where profit margins can be as thin as a penny a case.

"Minnesota is not a cheap state to operate in for a lot of reasons," he said, sitting at one of the dark wood tables in the Third Street Brewhouse. Taxes are higher, he said. Shipping is a lot higher.

Minnesota does have two key advantages. "A phenomenal workforce," Bender said.

And water.

"We may pay higher taxes, but with lower water costs, it becomes a match," he said.

So when the water supply was threatened, so was the company. To complicate matters, during the tug of war between the town and the DNR, the company was being sold to a Greenwich, Conn., private equity firm, Brynwood Partners. And Brynwood had plenty of drink manufacturing space in other states.

"Our customers are screaming because they want more capacity," Bender said. "I've been turning business away. Do we simply move this plant out of state and take advantage of better shipping routes? Or do we stay where the workforce is great … and we can keep the investment we already made here?"

A price on water

Early one morning, Adam Schellinger, a technician from Traut Wells, stood in the fresh snow on a hill a mile or so from the Third Street Brewhouse and twirled an old pickle jar full of water over his head. He was checking for sand.

The water was from Cold Spring's newest well, No. 7. A few hundred yards away rose the concrete walls of the brewery's new drinks manufacturing plant, literally in the shadow of the town's blue water tower.

In the past year, most everything fell into place. The city did find another source of water, but it was miles out of town and would have cost millions of dollars to connect to the city's water system and the brewery.

Last November, DNR officials relented, and instead allowed the town to dig a new well next to three of its other wells, where water is plentiful. The brewery built its plant next to the wells to save pumping costs, and it's using water from the one with the highest nitrate levels.

And, for the first time, the company is paying the city for the water it uses at the new plant — 85 cents per thousand gallons, or $255,000 per year.

"So, five jobs," said Bender, with a shrug. But he's happy with the bargain that kept the business in town.

Thanks to Minnesota taxpayers, Cold Spring is also on its way to solving its nitrate problem: It was one of the projects funded by the 2018 Legislature's infrastructure bonding bill — $4 million to start developing a treatment system.

Sen. Howe said he doesn't know why legislators decided to choose that project over dozens of others. "We've been talking about this thing for six years," he said. "I think they saw an opportunity to finish it."

City officials credit the political influence of Howe and their former state senator, Michelle Fischbach.

"What we got there was huge," said Heinen, the mayor.

Cold Spring's solution, however, does not answer the much larger questions facing Minnesota.

"If you have power, you get a result," said state Rep. Rick Hansen, a South St. Paul DFLer and a leader on environmental issues. "But we can't do that for everybody. We don't have the wallet for that."

And while the company is getting the water that it needs, the trout stream is an open question.

Even though they are a mile away, the city's four wells on the hill could reduce the stream's flow by 12 to 28 percent, according to the DNR's most recent estimate. In a dry period, that could be enough to harm the trout, though the DNR won't know until it completes a large groundwater study three years from now.

Then the whole fight could ignite all over again, especially if there's a drought or if the company wants to expand again — which it hopes to do.

"I'm fearful we will continue down this path again," said Howe.

In that case, the tale that's printed on every can of Lost Trout Ale — the one about the sad disappearing fish — won't just be a legend.

It could, instead, be a prophecy.