Republican Socialism Runs Amuck In North Dakota
Imagine if the government decided it wanted to be part of the largest economic sector and that it would compete with private industry even though private industry was servicing the economic sector just fine?
You’d probably be upset and think President Obama was pushing big government and socialism onto the economy right?
Well, in North Dakota, it is happening today – and it’s not Obama's doing.
In 2011, House Bill 1206 created what is known as the Western Area Water Supply Authority under the premise that it would supply the needs of residents (farms, house, cities, towns, etc.) and sell water to the oil industry on-the-side.
The “on-the-side” part over time has become the problem because as anyone knows, the oil fields take lots and lots of water to “frack”. Very quickly, the folks running WAWS realized that selling water to the oil industry is a very lucrative business. And instead of just selling water on the side, WAWS began to cater to the oil industry – a role better left to private industry since, obviously, the oil industry can afford to pay for catering and does not need a state-sponsored and state-financed project to do it – with taxpayer dollars at risk.
The legislature created a loan fund for the project at the Bank of North Dakota designed to finance the installation of rural water needs. As with all loans of this sort, if the project fails to make the payments back to the bank, the legislature (using taxpayer money) is on the hook to pay back the loan.
As of November 2013, the state has funded this project to the tune of $229 million in several forms:
· $110 million of guaranteed loans in 2011,
· $40 million loan from the Bank of North Dakota in 2013
· $40 million loan from the State Water Commission (also guaranteed by the state),
· $39 million grant from the State Water Commission.
Beyond this, the project already has plans to spend another $100 million to become at least a $368 million total project – with no end in sight.
With so much state taxpayer money on the line, legislators who have supported this project may feel the need to constantly throw more money at the project to make sure it succeeds – or provide a bailout and forgive the loans.
While the amount of money being pour into the project is a major concern, the real issue is the project’s impact on private business. In 2011 during its first year, WAWS claimed 11% of the industrial water market share. By 2013, that figure had doubled to 22% - but in counties like Williams and Mackenzie Counties, it has gone past 40% market share.
Why does a state-financed and managed water project need to take control of 40% of the industrial water market? There’s no shortage of private businesses willing to find, develop, manage, and deliver water to the oil fields. Yet, the state of North Dakota is intervening and competing in a market that was and can be fully served by private industry.
Is WAWS a rip-off for Williston taxpayers?
Because WAWS is a consortium of existing governmental entities, it has found a way to fast-track for itself the ability to acquire water rights by simply purchasing water from those existing governmental entities.
Case in point: WAWS buys municipal water that has been treated by the Williston Water Treatment plant for $3.65 per 1,000 gallons, this comes out to about 16 cents per 40 gallon barrel. WAW then turns around and sells the water to the oil industry for $20.00 per 1,000 gallons, roughly 86 cent per barrel.
The question is: is Williston being paid a proper amount for this water, considering the fact that WAWS turns around and sells the water down the line for over five times as much?
This would not be so bad if Williston had an excess capacity to supply the water, but the opposite is true. In the past several months, stories have appeared in the Williston Herald about the increasing demand for water, the strain it places on the city’s infrastructure, and even the potential for rationing.
To put in perspective where the real demand on Williston’s water treatment plant comes from, one only needs to look at State Water Commission numbers which paint an approximate picture, breaking down municipal water use and industrial water sold via WAWS:
In 2010 municipal use was 2173.6 Acre Feet with Industrial at 372.3, in 2011 Municipal at 2656.6 and Industrial at 579.1, in 2012 Municipal at 3372.5 and Industrial at 1331.7, in 2013 Municipal at 4100.3 and Industrial up to 3600.
So, in 2013, Industrial sales via WAWS equated to more water usage than municipal demanded from 1976 to 2012.
Yes, Municipal demand has gone up from 2173.6 to 4100.3 from 2010 to 2013, but that would not be a problem if Industrial demand via WAWS had not gone from a trivial 372.3 to 3600!
The residents of Williston should be asking what they are getting out of the city’s association with WAWS – are they getting better service at lower price, or are they in fact getting worse service at a higher price?
Interestingly, WAWS pays Watford City twice as much ($6.95 per 1,000 gallons) for water purchased on Watford City’s water system.
Two Problems Of Pricing
On the issue of pricing, there are two problems: wholesale and retail.
On the wholesale side, there must be a determination of what the true cost of the water is and what it is worth. WAWS takes advantage of the Williston city water permit that uses water from the Missouri River and is processed at the Williston Water Treatment Plant, as such, WAWS middleman more than a supplier and the question is whether the price WAWS pays is equal to the cost impact and value to Williston.
The residents of Williston should be asking what they are getting out of the city’s association with WAWS – are they getting better service at lower price, or are they in fact getting worse service at a higher price?
Interestingly, WAWS pays Watford City twice as much ($6.95 per 1,000 gallons) for water purchased on Watford City’s water system.
On the retail side, the issue is whether the price WAWS charges oil and fracking companies is commiserate with what private independent waters suppliers need to charge to justify their investments. Because WAWS is for all intents and purposes a state owned, managed, and subsidized industry it should be highly regulated by the State Industrial Commission to prevent it from under-cutting the private water market.
Both these questions are, as of yet, unanswered.
The burden must fall on WAWS and the state regulatory agencies involved to ensure that the people of Williston who must pay more for their water-related infrastructure and independent private water producers are treated fairly by the governments their taxes go to fund.
WAWS Legislative Efforts To Hurt Private Water Producers Are Well Documented
By creating WAWS, the state legislature has created a feud between private water providers and the political subdivisions that populate WAWS’ membership and governing board.
Seeing the writing on the wall, during the 2013 legislative session, WAWS tried to put up barriers to keep private water providers at bay, and to make it harder for private water to succeed so that the government run monopoly could more easily meet its revenue benchmarks and pay off its loans on time.
Senate Bill 2359 was passed by the North Dakota State Senate by a vote of 33 Yeas to 14 Nays. This bill contain one of the most shocking and dangerous provisions I have ever seen in any legislation which read as follows:
Independent water producers may not sell water for industrial purposes within a ten - mile [16.09 kilometers] radius from any of the twelve approved water depots of the authority unless the producer has facilities located within the ten mile [16.09 kilometers] radius from which the producer is selling water for industrial use before July 1, 2013, under a water permit issued before July 1, 2013 .
Translated, this provision would make it illegal for private industry that is not already doing business within 10-miles of the state-financed WAWS water depots.
Additionally, WAWS supported a first in the nation Water Extraction Tax – which would have taxed private water sales at 11.5% on top of the standard income tax all businesses pay.
State-Priority Should Be On Public Services For Citizens, Not Industry
There is no arguing the need for state support when it comes to supplying water to North Dakota residents in areas where reliable water has historically been a problem. However, there is no need for a state-subsidized and managed entity to even exist that competes with private water providers who are doing the job the oil industry needs to have done.
Nor should an entity such as this should be allowed to use the weight and power of state and local government to push its weight around
In essence, this water authority believes the state of North Dakota should be in the business of creating monopolies to prevent private industry from existing. The term “socialism” gets thrown around generically a lot these days, but this most certain fits the textbook definition of socialism.
What needs to happen?
First, the state should treat this water authority as two separate entities: one, which serves residents and cities in North Dakota, and is supported by state tax dollars; and another which is put on a path to privatization. The state of North Dakota simply should not be in the business of competing with private industry when it comes to a critical resource for the oil industry. There is enough private money in the oil business that the state of North Dakota does not need to be in the industrial water business, and it most certainly should not allow an entity it created to us the power of the state to block private enterprise.
The legislature should re-prioritize the role of WAWS, and take the needed steps to eliminate the ability for government-backed entities to act in monopolistic and anti-competitive ways.
Allowing WAWS to continue to push its weight around sends the wrong message to the oil industry because it creates uncertainty as to what the State of North Dakota’s role might be in the future when it comes to controlling the inputs for the oil.
There is enough uncertainty for the oil industry created by the federal government, the international monetary system, and the world oil market itself – the State of North Dakota and publicly backed entities created by the state should not add an ounce of uncertainty to that mix.
There is no reason for the state of North Dakota to either subsidize the oil industry by financing the water supply, nor is there any reason for the state to be in a position of controlling the means of production in oil industry.
And the people of Williston should not be footing the bill so that WAWS has access to cheap below-market water prices.
The state should support the water needs of its citizens, but the needs of the oil industry can be taken care of by private industry.
State financing and control is not needed, and may someday be viewed as a negative by the oil industry.
You’d probably be upset and think President Obama was pushing big government and socialism onto the economy right?
Well, in North Dakota, it is happening today – and it’s not Obama's doing.
In 2011, House Bill 1206 created what is known as the Western Area Water Supply Authority under the premise that it would supply the needs of residents (farms, house, cities, towns, etc.) and sell water to the oil industry on-the-side.
The “on-the-side” part over time has become the problem because as anyone knows, the oil fields take lots and lots of water to “frack”. Very quickly, the folks running WAWS realized that selling water to the oil industry is a very lucrative business. And instead of just selling water on the side, WAWS began to cater to the oil industry – a role better left to private industry since, obviously, the oil industry can afford to pay for catering and does not need a state-sponsored and state-financed project to do it – with taxpayer dollars at risk.
The legislature created a loan fund for the project at the Bank of North Dakota designed to finance the installation of rural water needs. As with all loans of this sort, if the project fails to make the payments back to the bank, the legislature (using taxpayer money) is on the hook to pay back the loan.
As of November 2013, the state has funded this project to the tune of $229 million in several forms:
· $110 million of guaranteed loans in 2011,
· $40 million loan from the Bank of North Dakota in 2013
· $40 million loan from the State Water Commission (also guaranteed by the state),
· $39 million grant from the State Water Commission.
Beyond this, the project already has plans to spend another $100 million to become at least a $368 million total project – with no end in sight.
With so much state taxpayer money on the line, legislators who have supported this project may feel the need to constantly throw more money at the project to make sure it succeeds – or provide a bailout and forgive the loans.
While the amount of money being pour into the project is a major concern, the real issue is the project’s impact on private business. In 2011 during its first year, WAWS claimed 11% of the industrial water market share. By 2013, that figure had doubled to 22% - but in counties like Williams and Mackenzie Counties, it has gone past 40% market share.
Why does a state-financed and managed water project need to take control of 40% of the industrial water market? There’s no shortage of private businesses willing to find, develop, manage, and deliver water to the oil fields. Yet, the state of North Dakota is intervening and competing in a market that was and can be fully served by private industry.
Is WAWS a rip-off for Williston taxpayers?
Because WAWS is a consortium of existing governmental entities, it has found a way to fast-track for itself the ability to acquire water rights by simply purchasing water from those existing governmental entities.
Case in point: WAWS buys municipal water that has been treated by the Williston Water Treatment plant for $3.65 per 1,000 gallons, this comes out to about 16 cents per 40 gallon barrel. WAW then turns around and sells the water to the oil industry for $20.00 per 1,000 gallons, roughly 86 cent per barrel.
The question is: is Williston being paid a proper amount for this water, considering the fact that WAWS turns around and sells the water down the line for over five times as much?
This would not be so bad if Williston had an excess capacity to supply the water, but the opposite is true. In the past several months, stories have appeared in the Williston Herald about the increasing demand for water, the strain it places on the city’s infrastructure, and even the potential for rationing.
To put in perspective where the real demand on Williston’s water treatment plant comes from, one only needs to look at State Water Commission numbers which paint an approximate picture, breaking down municipal water use and industrial water sold via WAWS:
In 2010 municipal use was 2173.6 Acre Feet with Industrial at 372.3, in 2011 Municipal at 2656.6 and Industrial at 579.1, in 2012 Municipal at 3372.5 and Industrial at 1331.7, in 2013 Municipal at 4100.3 and Industrial up to 3600.
So, in 2013, Industrial sales via WAWS equated to more water usage than municipal demanded from 1976 to 2012.
Yes, Municipal demand has gone up from 2173.6 to 4100.3 from 2010 to 2013, but that would not be a problem if Industrial demand via WAWS had not gone from a trivial 372.3 to 3600!
The residents of Williston should be asking what they are getting out of the city’s association with WAWS – are they getting better service at lower price, or are they in fact getting worse service at a higher price?
Interestingly, WAWS pays Watford City twice as much ($6.95 per 1,000 gallons) for water purchased on Watford City’s water system.
Two Problems Of Pricing
On the issue of pricing, there are two problems: wholesale and retail.
On the wholesale side, there must be a determination of what the true cost of the water is and what it is worth. WAWS takes advantage of the Williston city water permit that uses water from the Missouri River and is processed at the Williston Water Treatment Plant, as such, WAWS middleman more than a supplier and the question is whether the price WAWS pays is equal to the cost impact and value to Williston.
The residents of Williston should be asking what they are getting out of the city’s association with WAWS – are they getting better service at lower price, or are they in fact getting worse service at a higher price?
Interestingly, WAWS pays Watford City twice as much ($6.95 per 1,000 gallons) for water purchased on Watford City’s water system.
On the retail side, the issue is whether the price WAWS charges oil and fracking companies is commiserate with what private independent waters suppliers need to charge to justify their investments. Because WAWS is for all intents and purposes a state owned, managed, and subsidized industry it should be highly regulated by the State Industrial Commission to prevent it from under-cutting the private water market.
Both these questions are, as of yet, unanswered.
The burden must fall on WAWS and the state regulatory agencies involved to ensure that the people of Williston who must pay more for their water-related infrastructure and independent private water producers are treated fairly by the governments their taxes go to fund.
WAWS Legislative Efforts To Hurt Private Water Producers Are Well Documented
By creating WAWS, the state legislature has created a feud between private water providers and the political subdivisions that populate WAWS’ membership and governing board.
Seeing the writing on the wall, during the 2013 legislative session, WAWS tried to put up barriers to keep private water providers at bay, and to make it harder for private water to succeed so that the government run monopoly could more easily meet its revenue benchmarks and pay off its loans on time.
Senate Bill 2359 was passed by the North Dakota State Senate by a vote of 33 Yeas to 14 Nays. This bill contain one of the most shocking and dangerous provisions I have ever seen in any legislation which read as follows:
Independent water producers may not sell water for industrial purposes within a ten - mile [16.09 kilometers] radius from any of the twelve approved water depots of the authority unless the producer has facilities located within the ten mile [16.09 kilometers] radius from which the producer is selling water for industrial use before July 1, 2013, under a water permit issued before July 1, 2013 .
Translated, this provision would make it illegal for private industry that is not already doing business within 10-miles of the state-financed WAWS water depots.
Additionally, WAWS supported a first in the nation Water Extraction Tax – which would have taxed private water sales at 11.5% on top of the standard income tax all businesses pay.
State-Priority Should Be On Public Services For Citizens, Not Industry
There is no arguing the need for state support when it comes to supplying water to North Dakota residents in areas where reliable water has historically been a problem. However, there is no need for a state-subsidized and managed entity to even exist that competes with private water providers who are doing the job the oil industry needs to have done.
Nor should an entity such as this should be allowed to use the weight and power of state and local government to push its weight around
In essence, this water authority believes the state of North Dakota should be in the business of creating monopolies to prevent private industry from existing. The term “socialism” gets thrown around generically a lot these days, but this most certain fits the textbook definition of socialism.
What needs to happen?
First, the state should treat this water authority as two separate entities: one, which serves residents and cities in North Dakota, and is supported by state tax dollars; and another which is put on a path to privatization. The state of North Dakota simply should not be in the business of competing with private industry when it comes to a critical resource for the oil industry. There is enough private money in the oil business that the state of North Dakota does not need to be in the industrial water business, and it most certainly should not allow an entity it created to us the power of the state to block private enterprise.
The legislature should re-prioritize the role of WAWS, and take the needed steps to eliminate the ability for government-backed entities to act in monopolistic and anti-competitive ways.
Allowing WAWS to continue to push its weight around sends the wrong message to the oil industry because it creates uncertainty as to what the State of North Dakota’s role might be in the future when it comes to controlling the inputs for the oil.
There is enough uncertainty for the oil industry created by the federal government, the international monetary system, and the world oil market itself – the State of North Dakota and publicly backed entities created by the state should not add an ounce of uncertainty to that mix.
There is no reason for the state of North Dakota to either subsidize the oil industry by financing the water supply, nor is there any reason for the state to be in a position of controlling the means of production in oil industry.
And the people of Williston should not be footing the bill so that WAWS has access to cheap below-market water prices.
The state should support the water needs of its citizens, but the needs of the oil industry can be taken care of by private industry.
State financing and control is not needed, and may someday be viewed as a negative by the oil industry.