November 9th, 2015 North Dakota’s War On Private EnterpriseProtecting the state-financed Western Area Water Supply continues to have a negative impa

      Web Version   Preferences   Unsubscribe  
North Dakota Watchdog Network Logo

November 9th, 2015

North Dakota’s War On Private Enterprise

Protecting the state-financed Western Area Water Supply continues to have a negative impact on taxpaying private businesses.


The long saga of the Republican-endorsed state-run Western Area Water Supply (WAWS) has been a colorful one. It was a well-intended program designed to make it easier to get water to communities in the Bakken, but it quickly became more focused on acquiring political influence than actually serving the people. That influence has resulted in a bloated, over-built spiderweb of pipelines that make fracking easier for some companies but most of all pad the pockets of one specific engineering firm.

In 2013, the legislative backers of the WAWS project tried to be clever and create what I called then “Soviet-style Exclusionary Zones” which, if it had passed, would have made it illegal for private enterprise to sell industrial water to oil companies for fracking purposes. This plan was approved by the State Senate, but defeated by the House.).

Also in 2013, Republicans attempted to create an entirely new type of tax called the “Water Extraction Tax” of 11.5% to match the total tax on oil production and extraction. (The state was saved from this plan by the fact that a majority House Democrats voted against it.)

Both of these attempts to protect WAWS were defeated.

It was not until the 2015 legislative session that lawmakers finally realized the need to formalize the interaction between WAWS and the private businesses that were doing the job of supplying oil companies already. While that process is finally starting to proceed, a new front has opened up in North Dakota War on Private Enterprise.

Now, the ND State Engineer has put into process a plan to cease a program that allowed previously under-utilized or unused water permits to be used for the purpose of developing water for industrial use (fracking). The current policy was put into place to help reduce truck traffic. (WAWS itself was sold to legislators as a way to reduce over-the-road truck traffic as well).

Reactions to this policy change, which are set to kick in on January 1st, are almost universally concerned that it will negatively affect the oil industry by limiting the amount of water available to complete the few wells that are actually being fracked and put into service.

IWP Letter

The North Dakota Petroleum Council also is studying how the policy change will affect industry. Ron Ness, president of the industry group, said Wednesday that reducing the number of water sources will mean increased costs and travel for oil companies.

“There’s no question it will cause more truck traffic,” Ness said.

The timing of the decision - announced in mid-October - also gives oil companies little time to adjust their drilling plans, Ness said.

“This has impacts immediately and companies were making big plans around some of these water facilities,” Ness said. “A little more time may be the answer.”

While it is true that this policy was temporary, (implemented in 2011) no one realized that it would be retracted so quickly and in the middle of the first major downturn the Bakken had seen.

Did you catch that? There is no question this will cause more truck traffic.

If that is the case, why do it?

The answer is quite simple: to protect WAWS by eliminating some of their private competition.

A comparison of the map provided by the Water Commission compared to a map of the proposed 2013 "No Compete" exclusionary zones shows that a majority of the permits impacted by the policy change would have been frozen out of the market if the supporters of WAWS had gotten their way in 2013.

ILOP vs. 10 Mile Zones

WAWS has been hit hard by the slow-down, and now there is worry that if the slow-down continues, WAWS could start to fall behind on its payments to the Bank of North Dakota. In order to prevent this from happening, everything possible is being done to prevent that from happening going into an election year.(Both the Governor and Agriculture Commissioner are on the Water Commission as well as the State Industrial Commission which regulates the Bank of North Dakota.)

According to reports readily available, WAWS was starting to have negative income in May 2015 - however between May and June the losses were already exceeding $700,000.

WAWS Revenue Numbers

Then, more recently, WAWS has shown a net loss of $54,000 for the 1st Quarter of the 2015-17 biennium despite a $253,303 income in July. As we all know, the situation has only gotten worse since then.

WAWS Revenue Numbers 2

Since Day 1 of the WAWS project there have been those who have warned about the state creating a new Socialist business for itself.

In March of 2011, now-Congressman Kevin Cramer wrote an editorial warning state senators to not go along with the House plan to create WAWS:

While solving problems is a noble goal for government, it should never intrude on free enterprise. President Reagan once said, “Government does not solve problems, it subsidizes them.”

Republicans were swept into power in 2010 largely as a result of the government’s overreach into private enterprise. Obamacare accompanied by intrusion into the auto industry, financial services, housing, student loans, and attempts at energy choice all contributed to the power shift in Washington.

In North Dakota, state senators are considering a bill that would put the government in direct competition with private enterprise by guaranteeing bonds to finance a pipeline project designed to deliver water to the oil industry. The proposal is called the Western Area Water Supply Project (HB 1206) and would pump water from the Missouri River to be sold to cities and oil companies. While the state may have a legitimate role in facilitating the delivery of potable water for human consumption, it has no business selling it to the oil industry when individual entrepreneurs are already doing it or building the infrastructure to do it better and more efficiently.

Proponents of the plan say it cannot go forward without a guarantee. They also say it is a rare opportunity to get a water project paid for by private industry. If the oil industry is certain to pay the project off, why does it require a guarantee from taxpayers?

Private pipeline companies are already building projects to deliver water from Lake Sakakawea to the oil patch for hydraulic fracturing. The price they are offering is less than the WAWSP needs in order to pay off the state debt. That means either the government project will not be price competitive and taxpayers will be on the hook for a failed business, or the government will undercut the private sector, sending the entrepreneurs packing until the state has a monopoly on water sales in the oil patch. After which the government can charge whatever it wants or needs to cover the debt.

Our entire system of freedom was founded by skeptics of government intrusion. Thomas Jefferson said, “I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them.”

I encourage our senators to approach this issue with caution and resist the temptation to take care of things already being taken care of.

With WAWS now being in the red fiscally, and the downturn showing no signs of letting up, Republicans will likely realize the folly of growing government and creating Socialist businesses that are financed by the state and compete with other taxpaying businesses.

Unfortunately, when that time comes, the taxpayers at-large will likely have to bail out WAWS because it is now too big to fail.


-Dustin Gawrylow, Managing Director

North Dakota Watchdog Network

Paypal Button