This article is part three in a five part series on the water industry in western North Dakota.
Every legislative session and campaign season, some politicians will utter the phrase “we can’t be picking winners and losers”. This statement is often meant to squelch any conversations regarding subsidies for businesses and industries. A statement used primarily by republicans as a talking point and syntactical strategy to divert the conversation away from the people and businesses they have chosen to receive money from the government.
In reality, winners and losers are picked by government everyday. Public officials will often give corporations like WalMart years of tax deferments when they come to a town, farmers will follow the subsidy money in order to win the corn or soybean sweepstakes and young “connected” entrepreneurs receive substantial amounts of tax dollars to keep their unproven ideas funded.
Arguably North Dakota’s public officials, from local to county to state, select winners and losers more than any other state in the union.
North Dakota is the only state in the union with a state-owned bank and state-owned mill and elevator. Plus their continuous amendments to bills end up directing tax dollars to private businesses, nonprofits and political groups. Now, North Dakota has a state-owned water company competing for business in the Bakken oil fields. For a republican run state, it is easy to understand why more and more people are questioning North Dakota’s reality of being a red state.
“The story of the Western Area Water Supply is probably the biggest story of government intrusion into private business since the state of North Dakota created the Bank of North Dakota, the only state-owned bank in America, and the state-owned mill and elevator, the only state mill in the country,” Duane Sand, president, North Star Water said.
In 2011, The North Dakota legislature created a water company and political subdivision under the same name – The Western Area Water Supply Authority (WAWSA). According to WAWSA’s executive director Jaret Wirtz, there wasn’t a good system for reliable drinking water in western North Dakota and the Bakken was bringing in an influx of people, causing strain on the current water infrastructure.
“We have this huge Missouri River, this huge source running right next to us and through us. It was looked at by McKenzie County and Williams County as how to get more water into their areas,” Wirtz said. “Communities like Watford City had a very aged water plant and were looking at building their own reverse osmosis plant at the time.”
The thought of bringing potable water to the residents of western North Dakota was welcomed by everyone, including the private water companies. However, when the state began tinkering with the business model and entered the industrial water market, problems quickly arose and many questions surfaced.
According to North Dakota Representative Denton Zubke, WAWSA’s entrance into the private water market was because there wasn’t enough private businesses to handle the oil field in 2011. The demand and frenzied pace created an environment for the state to approve a water project in the height of the Bakken boom that would funnel water revenues from the private water market to pay for their costly water project.
“The private industry had not been there, and that will be a point of contention because the private industry will say ‘hey we had this all taken care of’, but they really didn’t,” Zubke said. “Those (Bakken) cities had been selling water already for a number of years trying to help with that need.”
Robert Harms, an attorney who represents companies from the water industry, said Zubke’s statements about the private water industry are off mark.
“I would disagree with him (Zubke) because the private sector was made up of a few small companies, but also made up several dozen or more private individuals up in that part of the state that were private water suppliers,” Harms said. “They had developed a private water supply, they had a water permit, and they were going to evolve in response to the market just like WAWSA was attempting to capture.”
Harms even went a step further in attempting to understand, if not justify, Representative Zubke’s claim that there were not any viable private water companies in the Bakken.
“I think what Representative Zubke is talking about is that there wasn’t a lot of large $25 million dollar investments that were made or had been made by the private sector yet,” Harms said. “We’ve got a half a dozen companies that have made tens of millions of dollars in investments, I think he is saying that wasn’t present. And I agree with that, but the private sector was evolving.”
Steve Mortenson, president of the North Dakota Independent Water Providers, also disagrees with Zubke’s claim about the lack of private water companies in the Bakken oil fields.
“We could have supported this whole industry, but we were never given the chance,” Williston native and resident Mortenson said. “The state felt they needed to come in and garner some of that revenue.”
Wirtz believes WAWSA entrance into the private sector was something everyone was on board with and the common bond moved this water project forward.
“We all think it is a great idea in North Dakota, I think, to take advantage of that resource we have in our back yard and lay claim to it that and get as much water as we can to benefit our state,” Wirtz said. “The decision was made to team up as a group instead of people trying to get funding on their own, we might as well go with one common voice. So that’s when the plan sort of started.”
Wirtz’s inclusionary language and statements like “everybody can agree” and “we all” drew questions and disagreements from many familiar with the issue. According to public statements and articles, everyone didn’t think it was a great idea nor was there a common voice.
Back in 2011, WAWSA had many contrarians for the industrial portion of the project – the established water industry, then-Public Service Commissioner Kevin Cramer, landowners and even some elected state officials. By no means did everybody agree with the project or the harmonious talking points supporters stated in the media or at the state capital.
In fact, many felt it was closer to a slight of hand by North Dakota’s elected leaders.
“The thing was just hush hush when it first came on board,” Mortenson said. “In fact, it was myself and another local supplier, Mike Ames, and we went to the city commission in Williston and questioned what they were doing about this.”
Mortenson said WAWSA’s original plans were for $150 million dollars to create a residential system of potable water and have the ability to sell water to the industrial market, aka oil and gas companies.
“We (IWP) never opposed the potable water to the residents, we felt it was needed,” Mortenson said. “Like any other water project in the state, we felt it should be paid through grants and revenues from selling residential and domestic water.”
Zubke said in the beginning there was a group lobbying the state for the creation of the Western Area Water Supply Authority, but their needs and wants were falling on deaf ears.
“No one was willing to give us any money,” Zubke said. “I don’t know if the state just did not have the money or they did not want to replicate a couple water projects that were already in the state of North Dakota. I remember a legislator saying ‘we don’t want to do another SouthWest Pipeline.’”
Zubke said the SouthWest Pipeline is owned by the state of North Dakota and it has been funded by federal and state funds.
“Their repayment on those funds is simply whenever you can pay us back as you go along,” Zubke said.
According to Zubke, RT Water Supply (Tioga, Ray and Stanley), Watford City, McKenzie County Resource District and Williston were all selling industrial water to the oil industry. Since several of the towns were already selling water to the oil industry, allowing WAWSA to take over those sales was decided as a way to generate revenue in order to fund the project.
“It all kinda morphed together to where through the state of North Dakota and some negotiations, the whole idea hatched having those entities (R&T Supply) turn over their industrial sales to Western Area Water Supply Authority and that becoming the repayment capacity for those loans,” Zubke said.
Zubke added the industrial water sales became one of the few options for generating revenue for repaying a loan for the water projects.
“These oil companies were just begging for water,” Zubke said.
Harms said while that is technically true, there is more to the story than just those talking points. He continued saying that the private industry was servicing 70-80% of the water market in 2011, while the balance was being provided by communities like Tioga, Williston, Crosby and Watford City.
With questions still unanswered and requests to slow the conversation down still present, the state decided to move ahead on the project. Move ahead as long as competing in the private water market was part of the plan to fund the project.
“Everybody was doing everything they could to bring this development on and obviously there was some money to be made too because the oil companies were just screaming for water so they could frack oil wells,” Zubke said.
Mortenson, Sand and others have publicly stated multiple times that the IWP never opposed municipal water sales when each city was selling it on their own. However, when WAWSA began their huge expansion project in the industrial realm, a new level of aggressive and ruthless business practices emerged from WAWSA and the state of North Dakota.
“During the 2013 legislature, several bills were introduced by legislators who were supportive of WAWSA, to literally by state code, make it illegal for independent water providers to provide water within a 10-mile radius of any WAWSA’s truck depots,” Sand said. “That is clearly not right.”
Sand continued citing examples of how his business is constantly having to fight battles created by the state legislature in the name of funding WAWSA. Battles that are financially draining and in direct competition to the already established private water industry.
“Then in 2015 the push kept coming and coming,” Sand said. “They changed their tactic completely and decided WAWSA could sell water to oil companies by piping it directly to their well pads from any piece of pipe they put in the ground. And they have put hundreds of miles of pipe in the ground.”
When asked about some of the methods the state and WAWSA have demonstrated in the past, Zubke was quick to dismiss some while putting the onus on the private water companies to pay closer attention.
“The issue over the miles with the depots was I think six years ago, again like I said, that is a ship that has sailed,” Zubke said. “I can see where some of the independent providers certainly need to pay attention to what the legislature is doing.”
This creates a ripple into private companies impacted by WAWSA, igniting a variety of economic and social issues. Reduced revenues create layoffs and downsizing actions. It also creates psychological issues which produce an environment of uncertainty and powerlessness.
Expansion plans put on hold, annual raises to employees eliminated and fighting battles in the legislature become physically and emotionally draining. Not to mention threatening letters from lawyers being funded by tax dollars divert professional energies.
“In this past 2017 session, the state legislature HB 1020, they were asking if they could reduce their (WAWSA) rates so they can compete more with us,” Mortenson said. “They did this last year too. This is a direct effect of competition from the state.”
Mortenson pointed out that WAWSA’s business plan was done at $0.84 a gallon and now they are looking to change that once again. He added that supporters of the project said during the second session in 2011 there would be plenty of water for everyone to sell.
“Well when the market dropped out there wasn’t enough water for everyone to sell,” Mortenson said. “And now they want to come in and compete with us at a lower rate.”
Lowering the rates would be a peculiar move because it would allow WAWSA to change their model and increase their encroachment into the private water sales once again. Mortenson also verbally wondered if residential rates in local municipalities like Ray, Stanley and Tioga would be affected to make up the lower price difference.
“Basically they are giving the oil companies a break,” Mortenson said.
The Western Area Water Project Authority’s projections looked good on paper for those who supported it, but in reality, the oil industry isn’t as predictable as the leaders of the state would have you believe.
Since 2011, oil and gas revenue projections have been revised multiple times. So have the population projections. This volatility is nothing new to oil and gas either. Yet the state officials have orchestrated WAWSA to a point where some are asking if the project actually has an end in sight.
“This project was built without any oversight and it was really frustrating to see the state continue to throw money at it,” Mortenson said. “And it was disappointing to see the state go ahead and support the competition with private industry.”
This decision for the state to create an entity to compete in the water industry is perplexing for a variety of reasons.
One reason, according to Mortenson is the stab of selective subsidizing. From his perspective, as well as others in the water industry, the private water companies are taking on the lion’s share of subsidizing WAWSA.
“Every dollar WAWSA has sold in industrial sales has come from an independent,” Mortenson said.
Private water companies have a hard time competing against this type of state-sponsored competition. The government can adjust and create laws impacting the private sector and their ability to effectively perform simple day-to-day business operations. Every piece of pending legislation, price change and new water pipe placed in the ground from WAWSA drains more resources from the private sector.
In addition to the amount of money WAWSA spends on lobbying, the legal fees and engineering costs truly do tell the story of risk management, or rather, the lack of. Yet WAWSA’s risk management budget and Bank of North Dakota line of credit approval appear endless – thanks to the backing of the tax payers.
“WAWSA is a tax payer funded project that has grown beyond what they intended and now they want to continue to fund it no matter what the cost and risk is to the taxpayers and private industry,” Sand said.
The state legislature mandated WAWSA to “minimize impacts” upon private sector as it located water depots in the Bakken, however, the ambiguous language is open to interpretation.
“In the business plan it does sell water to the oil field and at that time there wasn’t a lot of supply out there and the public was taking care of about 20% of that market,” Wirtz said. “We needed to maintain 20% of that market share and the private could still have that 80%.”
When words like “minimize” and “try to” are introduced into policies and protocols, issues are bound to surface. According to a 2013 presentation from the North Dakota State Water Commission, WAWSA captured 41% of the industrial water market in McKenzie and Williams County. Furthermore, the presentation revealed WAWSA had a contract signed with Continental Resources for up to 35 million-gallons-a-month, which accounted for about 25% of the water in Williams County.
“The state had to look at it and say yeah we are going to compete with private industry, but we think there is over a $100 million market out there and WAWSA just needs a share of that to keep the project going and benefit the public,” Wirtz said.
Sand believes Wirtz’s comments are more evidence that North Dakota is picking winners and losers in the marketplace. He believes this not only goes against the ideology of North Dakota being a red state, but also questions the motivations of elected officials who call themselves republicans.
“More people need to know the WAWSA story, especially anyone who votes for republicans in Bismarck, and I’m a republican,” Sand said. “The Republican Party is supposed to stand for less taxes and smaller government, but the republicans in power have shown their true colors with their spending behaviors.”
It appears the state of North Dakota is continuing to forge ahead with the Western Area Water Supply Authority, while there is literally is no end in sight. This past January the House Appropriations Committee presented a new total of $465 million for the WAWSA project. The new estimated cost for the project is now over three times the original projection of $150 million.
These new projections do not bode well for the private water industry who have already seen millions of dollars of market share siphoned away.
“This project (WAWSA) has has greatly affected my business,” Mortenson said. “If they would have built in the areas where the independents were not in or where not providing service, we maybe could have gotten along.”
To read part two – North Dakota’s newest big bad wolf, click here.
To read part one – The rough waters of western North Dakota
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