We all know water from Lake Mead eventually works its way down the Colorado River and into California, but it’s turned up in a surprising place: several Walmart stores in the Bay Area.

According to a report published a few weeks ago by the Washington, D.C.-based Environmental Working Group, three samples of bottled water sold under the Sam’s Choice label at Walmart stores in Oakland and Mountain View contained “disinfection byproducts” called trihalomethanes “at levels that violate the state’s legal limit for bottled water.” As a result EWG is threatening to sue the retail giant. And what’s this have to do with us? The water in those bottles all came from Las Vegas’ water supply.

The trihalomethane levels in the tested water were between 21 and 37 parts per billion, according to the report. Fine for Nevada, where the standard is 80 ppb. But not good in California, whose stringent regulations limit these byproducts to 10 ppb. “When you chlorinate a drinking-water supply, which is absolutely necessary to keep diseases at bay, the chlorine interacts with the water and creates these byproducts,” says Southern Nevada Water District spokesman J.C. Davis. So why the difference between California’s standards and ours?

The feds set minimum guidelines for drinking water in the municipal system. “As a general rule the federal government provides the floor, but states are free to supply their own ceiling,” says Margot Perez-Sullivan, spokeswoman with the Environmental Protection Agency’s office in San Francisco, which oversees California and Nevada. “But they can’t go below our floor.”

“The EPA’s standard for trihalomethanes is incredibly weak,” says Renee Sharp, senior analyst with the Environmental Working Group, which is why California has enacted tougher standards.

But Davis counters that Nevada’s standards—and most of the rest of the country’s—were built around “rigorous human health studies” and that there are no demonstrable effects at the lower level. “Obviously you’d like everything to be zero, but there are no demonstrated health effects at the levels in Nevada or the rest of the country.”

Davis says that municipal water supplies are regulated by the EPA, and bottled water—classified as a beverage—is regulated by the Food and Drug Administration, which holds bottled water “to a less rigorous standard.”

The Walmart water was supplied by a local bottler called Nevada Water Company. The company’s general manager, John Richter, says his water is ozonated and run through reverse osmosis, a carbon filter and a filter that will reduce total dissolved solids in the water to below 10 parts per million. He says tap water typically is at 30 parts per million. “We take their water and process it further,” says Richter, of the municipal water system, “so you can take that for what you want …”

Comparisons between tap water and bottled water are not easy to come by, but the EWG report found that trihalomethane levels reported by the Las Vegas Valley Water District in 2007 range from 7.8 ppb—below the California threshold—to 88 ppb—above the Nevada threshold.

Private bottlers are required to do testing on their site, but they do not have to submit those records to the Southern Nevada Health District. And if the water comes from a municipal supply, “They’re only required to do bacteriological sampling,” says SNHD spokesman Mark Bergtholdt.

Richter says Nevada Water lost the contract with the company that supplies Walmart at the end of the summer. But there’s plenty of water coming out of Lake Mead and heading to a store shelf near you. Kevin Bernhard, general manager of Nevada Crystal Premium, guesstimates that at least 1 million gallons of water are used daily by local bottlers—only about 3 acre feet coming from a water system that currently holds around 12 million.

Still, at a recent visit to Walmart, not a single shopper picked up Sam’s Choice; one dad, his little girl in tow, lingered before the 24-bottle packages, almost reached for one and then moved on. Maybe they were from California.