The first in a 5-part series on the controversial water industry of western North Dakota. Reprinted with permission.
The state of North Dakota is now experiencing a serious crossroads situation regarding the Western Area Water Supply Authority (WAWSA) and its future path. Uncertainty is nothing new to WAWSA and its project as controversy, a questionable business plan and forceful government politics have followed this project since its very beginning.
“There has been controversy from day one,” said Jared Wirtz, executive director, WAWSA. “It started right away that there was a fight against not wanting the public sector competing with private.”
According to WAWSA website, the domestic water project utilizes Missouri River water that is treated partially at the Williston plant to meet municipal, rural and industrial water needs for Burke, Divide, McKenzie, Mountrail and Williams counties. Residential water services include the cities of Williston, Watford City, Ray, Tioga, Stanley, Wildrose, Crosby, Fortuna, Noonan, Columbus and Ross. The idea was to provide affordable water to the residents of western North Dakota. In order to offset costs to the residents, WAWSA would sell water to the oil industry.
The WAWSA website also states that currently the project is providing water to over 70,000 people and are estimating 160,000 people will received water by 2038.
So how did WAWSA go from a water infrastructure concept everyone seemed to support to questioning and changing its business plan?
From water infrastructure to oil industry supplier
Let’s start from the beginning and find out how WAWSA’s original projection of $150 million in 2011 became a current reality of $292 million and a new completion projection of $400 million, according to public records. According to Wirtz, the decision to move ahead with WAWSA wasn’t fleshed out completely due to the speed of the Bakken in 2011.
“Keep in mind this was 2011 when its really busy up in the Stanley, Ray, Tioga, Williston and Watford City was just starting to get a lot of activity,” Wirtz said. “Things had to happen quick and we didn’t have a lot of time if we wanted to sustain the population growth.”
Duane Sand, president of North Star Water and vice chairman of the Independent Water Providers, believes the project’s original concept was good, but the business plan was not viable or thought out properly.
“The intent was good at first,” Sand said. “The stated goal was to bring water to rural North Dakotans. That’s a great and noble goal, but there’s still a lot of farmers and ranchers, even today, that do not have a reliable source of non well water from a central location.”
Sand added there had been precedent for this type of project in the state.
“It’s the same that has been created in eastern North Dakota for years and in southwestern North Dakota out of Dickison which has been supplying water to the southwest water district for 20 years,” Sand said. “The difference is that in 2011 the legislature gave WAWSA the authority to sell water to the oil industry.”
Another early critic of WAWSA business plan was Robert Harms, an attorney who represents the interests of several private water companies. Harms said the business plan and costs should have been questioned more from the start as well as being questioned today.
“The business model they proposed was that the infrastructure would be paid for largely by selling industrial water to the oil industry,” Harms said. “Then the water industry was mature, well developed. Six years ago 80% of the water that was provided to the oil industry was private with the other 20% was provided by communities like Watford City, Williston,Tioga, Stanley, Crosby, they all sold the balance to the oil industry.”
While oil prices were favorable in 2014, WAWSA generated over $35 million in sales. According to Wirtz, WAWSA prepaid the principal on the loan through March 2016. However, in 2015, industrial water sales dropped significantly due to the downturn in the Bakken. In 2015 WAWSA sold about $24 million in water and $12 million in 2016. This decreased sales trend has no sign of turning around either since a large amount of WAWSA’s revenue is tied to the oil industry.
“The study that was done in 2010 reached the conclusion that we needed a new water supply system that would cost about $150 million,” Harms said. “They could have done that standing on our heads if they stayed true to the mission of providing water to the people as opposed to chasing this dream of being a water supplier to the oil industry and having this cash cow everyone was hoping for.”
Since then, however, WAWSA has not been able to keep up with its payments and is now looking for options on how to deal with their enormous debt. Currently, WAWSA owes $164 million to the state of North Dakota and $26 million to Williston, McKenzie County and R&T Supply. R&T Supply is short for Ray and Tioga Supply, which also provides water for Stanley.
WAWSA currently has nine water depots operating and the potential to build 22 depots.
“At this time we don’t have any plans for additional ones (past the nine),” Wirtz said.
Another peculiar aspect of the WAWSA model is the North Dakota Water Commission does not have any WAWSA oversight despite the fact they receive money from the the Water Commission. Furthermore, according to the State Water Commission, their position was removed to WAWSA’s board of directors.
Sand believes the changes made to WAWSA business plan to adapt to the oil industry’s efficiency is creating an entity that is growing without a plan to break even anytime soon.
“What happens with every government program happened to this program, it’s grown and grown,” Sand said. “Particularly in 2015 WAWSA board of directors tried to literally make it illegal for private citizens to sell water to the oil companies within ten miles of these truck depots. Two years after WAWSA was created.”
Sand added that when that act of government trying to garner more control the Bakken’s industrial water market was defeated in the legislature they changed their tactic and made it so WAWSA could sell industrial water from any piece of pipe they put in the ground.
“This type of government growth has a term – mission creep,” Sand said. “So the Western Area Water Supply trying to empower themselves and make more money because they were spending more money than they were taking in.”
Wirtz disagrees with Sand’s claim that WAWSA has been increasing their size and encroachment into the private sector.
“We operate like a cooperative, it’s a public entity,” Wirtz said. “We are trying to get the water out here and with the money we make it goes to either growing the project or paying off debt.”
Although WAWSA has overspent its projections and has fallen short with its revenue, Wirtz isn’t concerned as he believes the state will keep the project going regardless of what WAWSA critics think.
“Yes there may be a handful of hundred or so businesses that may be effected by us competing with them, but I think everyone can do the math on that, and go, when you put it like that it isn’t such a back thing when public has to compete,” Wirtz said.
Wirtz conceded that there will always be an issue as long as they continue to sell water to the private sector.
According to public documents, in 2016 WAWSA had to generate $800,000 in monthly water sales to break even. And in 2017, that monthly figure doubles to a whopping $1.6 million in industrial water sales.
“There’s good and bad with public competing with private, but when there is such a good benefit for us to do this, it kinda outweighs that,” Wirtz said. “We will continue to make this project work.”
To say that WAWSA is at a crossroads is an understatement considering the only way this business model is proving to be viable is with government force, taxpayer dollars and changing their strategy without regard to the cost. In the private sector, this type of business would have gone under by now, but the state of North Dakota, engineering lobbyists and policy makers without real life business experience are trying making sure that doesn’t happen. No matter what the cost is to the people and businesses of North Dakota.
Up Next: Part Two – The New Cost of Water