February 17th, 2016 North Dakota's Top Elected Leaders Approve Policy That Will Hurt Private Sector Yesterday, the North Dakota State Industrial Com

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February 17th, 2016

North Dakota's Top Elected Leaders Approve Policy That Will Hurt Private Sector

Yesterday, the North Dakota State Industrial Commission (comprised of Governor Jack Dalrymple, Attorney General Wayne Stenehjem, and Agriculture Commissioner Doug Goering) took steps to allow the Western Area Water Supply Authority (a state-created, state-financed, and state-regulated entity) to undercut their private sector competition.

For years, lawmakers have been told - "don't worry, WAWS has to charge 84 cents per barrel of water for fracking to simply pay its loans."

That has all now changed, the state's leaders have approved a plan to allow the state-financed socialist entity to start a price-war with its private sector competitors.

Industrial Commission 2-16-16 Motions

What makes this amazing is that just a few months ago, the legislative interim committee was told by one of its own members (who is also part of the WAWS Board of Directors) that lower prices would probably not generate more sales, it may just reduce WAWS income.

Water Topics Minutes 11-4-15

Intentional Deficit Spending

WAWS is already having a revenue problem due to the oil price collapse and the slowdown in the Bakken.

A glance at their balance sheets shows that in January WAWS had a deficit of $243,000+ which followed December's deficit of $348,000-. October/November were barely in the black, and September has a $265,000+ deficit.

WAWS Revenue Numbers 3

Things are getting worse for WAWS, so why are the state's leaders willing to let WAWS' revenue sink further by slashing prices?

To undercut private competition!

This policy is much like the policies of OPEC countries, trying to bankrupt American oil companies to re-gain their lost market share.

While it is one thing for a sovereign foreign government or cartel to do this, is another for a state in America to do this against its own tax-paying companies and residents in the same business.

This will only deepen the hole that is being dug, and increase the size and scope of an eventual bailout to save WAWS.

Our state officials are proving that to them WAWS is too big to fail.

Socialist Structure Conflicts With Market Realities

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Last Month, we told you about how the state-financed and state-regulated Western Area Water Supply Authority was creating a bail-out for itself by forcing local city governments to charge their citizens more for basic water services, and commandeering the cities' own revenues from industrial sales.

At its January 11th, 2016 meeting, the North Dakota Industrial Commission authorized the Western Area Water Supply Authority to offer more services to customers for the same base rate of $0.84 per barrel.

This is the motion that was passed at the Industrial Commission:

It was moved by Commissioner Goehring and seconded by Attorney General Stenehjem that the Industrial Commission, in accordance with §61-40-11 accepts the recommendation of the Western Area Water Supply Authority and establishes $20.00/kgal ($.84 a barrel) as the industrial water depot and lateral retail rate for the year 2016 and authorizes the Authority to offer additional customer services and credits to be provided with the base rate. On a roll call vote, Governor Dalrymple, Attorney General Stenehjem and Commissioner Goehring voted aye. The motion carried unanimously.

IC motions 1-11-2016

WAWSA's financing structure had been established in the past to require revenue of at least $0.84/barrel in order to remain in good standing with its loans at the Bank of North Dakota.

When members of the Independent Water Providers voiced concern over the WAWSA's ability to undercut the market, WAWSA leadership told legislators not to worry because the $0.84 was required to make their loan payments. Now, the Industrial Commission has authorized WAWSA to cheat by including more than water in their base price.

The fact is, WAWS is a socialist entity that just happened to be created by Republicans, and as such will attempt to capture and monopolize profits when times are good, and ask for flexibility and bailouts when times are bad.

The action taken by the State Industrial Commission is nothing more than a blank check to protect WAWS from market forces.

WAWS Balance Sheet - 2nd Half 2015

By allowing WAWS to offer more services for the same base rate, this is a backdoor price cut that is intended to create a price-war with private water providers.

Furthermore, this action puts taxpayers and the Bank of North Dakota at risk since it has long been established that the $0.84 cent per barrel rate is the lowest price point needed to ensure WAWSA can fulfill its debt obligations to the bank and to the people of North Dakota.

None of this should be shocking, considering the fact that WAWS's balance sheet is getting pretty ugly with the oil downturn.

Principal Payments Suspended

Also at the January 11th meeting, the State Industrial Commission approve a request to suspend the loan principal payments made by WAWSA to the Bank of North Dakota.

It was moved by Commissioner Goehring and seconded by Attorney General Stenehjem that effective December 1, 2015 the Bank of North Dakota (BND) consider suspending the monthly principal payments on BND Loan Number 125025800001 until 7/31/2017 with monthly interest payments continuing to be made and that suspended monthly principal payments (or a portion of a monthly principal payment) be made based on either a formula/calculation or cash threshold as negotiated between the Western Area Water Supply Authority and BND. Further that it be noted that since the Western Area Water Supply Authority has prepaid principal ahead to 7/31/2017 this is not considered a payment restructure or modification. On a roll call vote, Governor Dalrymple, Attorney General Stenehjem and Commissioner Goehring voted aye. The motion carried unanimously.

WAWSA was pre-paid through July 2016 on these payments, so it will be interesting to see when these payments resume.

Special Treatment Is A Bailout

Considering the fact that WAWS is already needing to rest on its previous pre-payments to the bank rather than continuing to make regular payments, the action of offering more services for the same price can only further deteriorate WAWSA's balance sheets, while providing what amounts to a subsidy program for the oil services industry - all while forcing private water providers to further respond to the negative nature of a government-backed competitor.

Simultaneous to the NDIC's approval for WAWSA to offer more services to industrial customers , it has started the process of charging local communities more for domestic water, as well as commandeering those communities' own industrial sales.

The State Industrial Commission's approval of these activities reinforces the perception that WAWSA's priority is not to deliver domestic water at the lowest cost, but to maximize its business in the oil fields - regardless of the cost to the residents.

There does not seem to be a limit for how far the state will go to protect its socialist approach to water in western North Dakota.

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-Dustin Gawrylow, Managing Director

North Dakota Watchdog Network

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