The politics of energy: Oil and gas

Introduction

The sweeping energy bill now pending in Congress offers a geyser of new tax breaks and other government goodies for energy companies and related industries. Although the 1,200-page bill stalled out in the Senate in November, legislative backers have sworn to revive it early in the 2004 session of Congress.

Not surprisingly, the well-connected oil and gas industry—which has been among the leading contributors to the presidential campaigns of George W. Bush, as well as other Republican candidates and political committees—stands to reap the biggest bonanza should the legislation eventually become law.

Since 1998, oil, gas and related services companies on the Fortune 1000 list gave $13.9 million to Republicans, compared to $3.2 million to Democrats—a ratio of more than four-to-one—according to figures compiled by the Center for Public Integrity.

In many ways, the $30 billion energy legislation is a classic example of money, influence and hardball politics at their worst—or best—depending on your point of view. Senator John McCain, an Arizona Republican who helped Democrats temporarily sink the Republican-written legislation in November, dryly dubbed it “the No-Lobbyist-Left-Behind Act.”

Even the conservative National Review editorialized that the bill was “pages of special-interest giveaways, almost devoid of worthwhile reforms.”

Indeed, the bill seems to contain something to benefit just about every sector of the energy industry that bothered to ask. There were billions of dollars of subsidies for clean coal technology for utilities along with revisions to the Clean Air Act that would save them billions more; for the nuclear industry, there was the renewal of its federally subsidized catastrophic insurance plan and tax credits to build up to six new nuclear power plants.

But no group would get more than the oil and gas industry, which secured everything from the elimination of royalty payments for oil wells on public lands to a legislative shield from an estimated $29 billion in lawsuits the petroleum industry is facing over a cancer-causing gasoline additive that has leached into the groundwater of hundreds of communities nationwide. In addition to such big ticket items, the legislation contains dozens of lesser provisions benefiting oil and gas companies, large and small—many inserted by legislators at the behest of industry lobbyists or individual companies back home.

Overall, the new tax breaks in the latest version of the energy bill were pegged at about $23.5 billion by Congress’s Joint Committee on Taxation. There is also another $5.4 billion in grants, subsidies and loan guarantees.

But critics say those figures only represent a fraction of the true cost of the legislation.

For example, the minority staff of the House Committee on Government Reform says the total cost of the legislation to taxpayers will be more than $140 billion over the next 10 years. Besides the direct costs to the federal budget, that estimate takes into account secondary impacts of the legislation, including such items as higher prices for gas and electricity.

“This secretive, exclusive process has led to a 1200-page monstrosity that is chock full of special interest giveaways and exemptions from environmental and other laws that frankly can’t withstand the light of scrutiny,” said McCain.

Both conservatives and liberals say that the energy bill represents new watermarks for political pork and policymaking.

“It became a total grab bag of handouts to special interests and campaign contributors, all of it done behind closed doors in consultation with energy industry lobbyists,” says Alyse Campaigne, vice president for federal affairs at the liberal leaning Center for American Progress.

Charli Coon, an energy policy analyst with the conservative Heritage Foundation, says the bill had some positive provisions, but was far too weighted down with questionable handouts to special interests.

“Personally, I have never seen anything in the past that compares to (the energy bill) when it comes to political pork and serving special interest groups,” she said. “Unfortunately, that appears to be the only way to get something through Congress these days.”

Fouled water, no foul

One of the most controversial provisions in the energy bill—and what probably doomed its prospects for passage in 2003—involved a widely used gasoline additive called methyl tertiary butyl ether, or MTBE.

MTBE has been blended into gasoline since the 1970s, initially to boost the octane level in no-lead fuels and more recently to help gas burn more cleanly. It is the additive most commonly used to produce so-called “oxygenated” fuels, which have been mandated in many communities to help reduce pollution.

In recent years, MTBE—identified as a carcinogen by the U.S. Environmental Protection Agency—has been found in the groundwater of hundreds of communities around the country. Because it is highly soluble, when the additive leaches out of leaking underground storage tanks, it can spread quickly through local groundwater supplies.

So far, municipal governments in nearly two dozen states have filed lawsuits against MTBE manufacturers and petroleum companies to help cover the cost of removing the additive from local water supplies. At least 500 public drinking-water wells and 45,000 private wells across the country are contaminated, in addition to the approximately 140,000 underground storage tanks still leaking gasoline containing the additive, according to the National Conference of Mayors.

“You cannot be held liable for making a legal and certifiable product,” Scott Segal, a partner at the law firm Bracewell & Patterson, which has lobbied for companies that make and use MTBE, told the Center. “You can be held liable for mishandling it.”

The estimated cost of a complete cleanup is $29 billion and rising.

Enter Representative Tom DeLay, House Majority Leader and one of the most powerful people in Washington.

DeLay’s Texas district is home to the country’s largest maker of MTBE, Lyondell Chemical Corp. Two other major MTBE manufacturers, Huntsman Chemical and Texas Petrochemicals, are based in or near DeLay’s district in Houston.

In addition to MTBE manufacturers, most major oil companies have also been named in the liability lawsuits, including Exxon Mobil, Chevron Texaco and Conoco Philips. All have major operations in DeLay’s Houston District.

Lyondell has been the top single contributor to DeLay’s 2004 campaign for reelection, giving $11,500 of the $779,486 he has raised so far, according to the Center for Responsive Politics. The oil and gas industry as a whole has given DeLay $48,575, or about six percent of his total contributions. Oil and gas companies have contributed more than any other industry to DeLay’s 2004 campaign so far.

During a closed-door, Republican-only, conference committee negotiation session in November, DeLay, along with Representative Billy Tauzin of Louisiana and Representative Joe Barton of Texas, slipped a provision into the energy bill exempting MTBE manufacturers such as Lyondell from product defect lawsuits involving the additive. The provision also calls for the exemption to be retroactive, covering all lawsuits filed after Sept. 5, 2003.

Another provision in the bill would have included $2 billion in grants to help MTBE manufacturers to branch out into other types of fuel additives. One of the most likely new businesses for such companies would be the manufacturing of ethanol, which had its own huge set of tax breaks and other incentives included in the energy bill.

That was all too much for several Republican senators from northeastern states where many MTBE lawsuits have only recently been filed. They sided with Democrats to effectively block the final version of the energy bill from reaching the Senate floor for action.

But DeLay would not relent, even when President Bush called him personally to urge him to drop the MTBE provisions, a move which most observers felt would have cleared the way for passage of the massive measure. Undeterred, DeLay, Tauzin and Barton say they will renew their push for the MTBE provisions in the 2004 session of Congress.

“With energy prices rising and America’s dangerous dependence on foreign oil growing, the need to enact a comprehensive national energy bill is crystal clear to everyone except for a handful of disgruntled Senators,” said Tauzin, following the vote that blocked final action on the bill by the Senate.

“Single handedly, they are holding up action on a much needed bill, which will provide jobs to nearly one million Americans and make our nation’s energy supplies more stable and affordable in the future,” said Tauzin. “Clearly, the time has come to stop playing politics and start putting people back to work again.”

Senate Minority Leader Tom Daschle, who had supported the bill because of provisions expanding the ethanol program—which is big business for Daschle’s South Dakota constituents—blasted DeLay and other House Republican leaders for not relenting on the MTBE provisions.

“This was a choice between fighting for an energy bill and fighting for a special interest,” says Daschle. “Congressman DeLay and others chose the special interest, and that decision is the only reason why Congress will adjourn for the year without an energy bill.”

Critics say enactment of the bill would be a fiscal and environmental disaster, as well as a huge gouge of consumers.

“This energy bill, if enacted, will raise electricity rates, increase gasoline costs, and increase the federal budget deficit,” says Representative Henry Waxman, a California Democrat who has been one of the harshest critics of the legislation. “It will do this while degrading the environment and handing out billions in special interest giveaways to industry.”

Special treats for special interests

MTBE aside, according to the Democratic staff of the House Committee on Government Reform, the energy bill would deliver billions in new tax breaks, grants, rule rollbacks and other government gifts to oil and gas firms and related industries.

Among them:

• Oil and gas construction activities would be exempted from the Clean Water Act, even though most other large construction activities would still have to obtain permits and control their pollution runoff.
• Drilling companies would get an exemption from the Safe Drinking Water Act for hydraulic fracturing, an oil and gas drilling technique. This exemption allows diesel fuel to be injected into underground sources of drinking water without any federal oversight. Halliburton, Vice President Dick Cheney’s former employer, is an industry leader in hydraulic fracturing services.
• Multiple provisions to spur oil and gas leasing and drilling on public lands and to minimize the inclusion of environmentally protective lease stipulations. An office would be established in the White House specifically to coordinate and expedite permitting of energy projects on public lands.
• $160 million to help speed leasing and permitting activities on public lands.
• Would require certain federal agencies (including EPA, the Army Corps of Engineers, the U.S. Fish and Wildlife Service, and the National Forest Service) to detail staff to Bureau of Land Management field offices. The detailed staff would be responsible for asserting their home agency’s concerns in the oil and gas permitting process, such as ensuring compliance with the Endangered Species Act and the Clean Water Act. They would be located in BLM offices and would report to BLM managers, however.
• Would reimburse oil and gas companies proposing to drill on federal lands for the cost of required environmental impact studies. Based on Congressional Budget Office estimates, this provision would cost the Treasury $330 million over the next ten years.
• Would establish a royalty stream of $1.5 billion, plus an authorization for an additional $500 million, for a research and development program for ultra deep and “unconventional” oil and gas drilling technologies. The program would be largely run by a private consortium, which could include oil companies. Members of the consortium may receive awards for projects, which include “commercial applications” of technology. Thus, commercial drilling projects are eligible for these funds. Halliburton is a leader in such drilling technologies.
• Would provide royalty incentives for offshore drilling for deep water production and ultra deep gas wells. CBO estimates this will cost the Treasury $95 million over the next ten years.
• Would allow the Secretary of Interior to waive or reduce royalties for oil and gas production in the western Arctic whenever the Secretary determines this would be in the public interest.
• Would remove the Secretary of the Interior’s ability to deny applications to drill on public lands. Upon receiving an application for a permit to drill in a particular portion of a leased area, this section allows the Secretary just 30 days to determine if any additional information is necessary in order to grant the permit to drill. Once the applicant provides this information, the Secretary is required to approve the application regardless of whether drilling in the time and place proposed would do unnecessary environmental damage. Although the language is ambiguous on this point, the provision may also apply to drilling in national forests.

Oil money lubricated process

Major campaign contributions by the oil and gas industry are widely credited with swelling the energy bill into one of the most pork-laden pieces of legislation to move through Congress in recent memory.

“Senators and representatives sprinkled the bill with sweeteners for supporters, home-district businesses and colleagues whose votes they needed,” said Frank Clemente, director of Congress Watch, the lobbying arm of Public Citizen, the watchdog group created by Ralph Nader. “Lobbyists managed to insert favorable deals for their clients. And the White House used the energy legislation to deliver paybacks to the president’s fundraisers.”

The energy bill was a direct outgrowth of Vice President Dick Cheney’s infamous energy task force.

In 2001, an unknown number of energy industry executives and insiders met with Cheney behind closed doors several times to draft a set of recommendations for a national energy policy, a report that formed the groundwork for the now-stalled energy bill.

The task force has been the subject of widespread criticism for its secrecy and the access granted to energy company executives. Cheney has steadfastly refused to release much of the information generated by the task force, even going to the mat in court with the General Accounting Office, Congress’s investigative arm, to keep the task force’s work private. In separate court cases, the government watchdog group Judicial Watch and the environmental group the Sierra Club are trying to obtain similar information about the task force; earlier today, the Supreme Court agreed to hear an unusual appeal from the administration, seeking to have the case against Cheney thrown out even before the lower court has ruled.

In addition to their campaign contributions, oil and gas companies have spent millions of dollars to lobby Congress and the Bush Administration. An analysis by the Center for Public Integrity found that the oil and gas industry reported spending $143.3 million in lobbying fees since 1998. Exxon Mobil topped the list of over 30 energy companies, doling $39.1 million out to lobbyists.

The oil industry’s deep pockets explain its influence in national politics, as well as its well-publicized connections in Washington. Exxon Mobil, Chevron Texaco, and Conoco Phillips together amassed more than $300 billion in 2002 revenues. At the start of the 21st century, all three completed historic mergers that attracted the attention of Congress.

While mergers reduced their numbers, it did little to limit their influence. Exxon Mobil’s $39.1 million led the way in lobbying expenditures, with Chevron Texaco close behind, spending $22.3 million on lobbying the federal government since 1998. Conoco Phillips spent $8.1 million on lobbyists. All three are among the country’s twenty largest companies, easily outdistancing the nearest competitors in their market.

Executives from Conoco Phillips and Exxon Mobil have also been active in the states. They continue to meet with Alaska’s Republican Gov. Frank Murkowski, who served as an energy industry-friendly senator until his daughter succeeded him in 2003. Both companies are seeking Murkowski’s help on their attempts to construct a $400 million natural gas pipeline from his state through Canada to fuel America’s lower 48 states.

“If you calculate [lobbying] as a stock market return, it is a drop in the bucket considering the payoff they get,” John Walke, the clean air director of the environmental advocacy group, the Natural Resources Defense Council, told the Center.

All three companies’ in-house lobbying teams have also lobbied on liability protection for MTBE. Much is clearly at stake for the oil industry when it comes to government rules. Billion-dollar projects can fall to regulations, environmental law, and resident opposition. With that in mind, oil and gas companies took no chances on the energy bill, hiring both high profile Democrats and Republicans to represent their interests.

Fortune 500 companies Murphy Oil and FMC Technologies signed up lobbyist Beth Viola of Holland & Knight, a Washington law firm. A former environmental advisor to the Clinton Administration, she lobbied for both corporations on Clean Air Act issues and securing appropriations, records show.

Once a close campaign advisor to Vice President Al Gore, Viola has taken full advantage of her insider status. She has also lobbied for the American Chemistry Council, which critics allege stalled protections for children against harmful household chemicals. In addition, Viola has represented FirstEnergy, which has been linked to the August 2003 Midwest/Northeast blackout.

Ed Krenik joined Bracewell & Patterson, a Houston-based firm, in September 2003 after resigning from the Environmental Protection Agency. In addition to EPA, Krenik learned the lay of the land in Congress as well: he served as the agency’s associate administrator for congressional affairs. Now, he lobbies for major coal, oil, and gas companies.

According to former Representative Jim Chapman, D-Texas, himself a partner at Bracewell & Patterson, Krenik is part of a “powerhouse team of professionals who are taking our government relations group to the next level.” Mark Racicot, who served as chairman of the Republican National Committee in 2002 and 2003, is also a Bracewell & Patterson partner; when he took over the top job at the Republican Party, he declared that he’d continue playing on the firm’s government relations “powerhouse team.” The negative reaction from pundits—including conservatives—eventually led Racicot to rethink his dual career choice. Though he remained with the firm, he did not continue working as a registered lobbyist.

Disclosure forms filed with the Senate show that, in the fall of 2003, Krenik lobbied to “protect liability reform” for Valero Energy, the country’s fourth largest petroleum refining company. Valero, which also manufactures MTBE, sought to shield itself from the same potential liability involving groundwater contamination that worried DeLay’s constituent, Lyondell Chemical Company. Krenik also lobbied for Lyondell.

Frank O’Donnell of the Clean Air Trust said of Bracewell & Patterson, “They represent virtually every bad guy on every environmental issue these days. They are in the middle of all of it.” The Clean Air Trust is an environmental group founded to protect the Clean Air Act.

Revolving door in reverse

In addition, several industry heavyweights have left K Street lobbying shops to take influential jobs within the Bush Administration.

Steven Griles was confirmed as the Deputy Secretary of the Interior in November 2001. Before his appointment, Griles was a lobbyist for major trade associations such as the National Mining Association. Griles lobbied for Devon Energy, a $4.3 billion oil and gas company, with his own firm as well as National Environmental Strategies.

The Bush White House has stated it wants to open up federal lands for drilling and mining. Griles’s old clients, who have been hindered by regulations that prevent them from exploiting public lands, soon landed him in hot water. Interior’s inspector general is currently investigating him for possibly violating his recusal agreement by meeting with some of his past clients while at Interior. Griles still receives over a quarter of a million dollars annually from his lobbying clientele due to past contracts at National Environmental Strategies.

Thomas Sansonetti is the Justice Department’s Assistant Attorney General for the Environment and Natural Resources. Like Griles, Sansonetti was a coal lobbyist at the firm Holland & Hart, representing Peabody Coal and Arch Coal.

Before his confirmation, Sansonetti also lobbied “to raise the federal acreage limitation for sodium leases” for FMC Technologies, a major oil and gas services firm.

The National Energy Policy Plan, the document developed by Cheney’s energy task force and released in May 2001, calls for “examin[ing] land status and lease stipulation impediments to federal oil and gas leasing.” Though subdued, the language is what most environmentalists fear: an intrusion of drilling by the oil and natural gas industry on wilderness preserves and closed federal lands.

The Center for Public Integrity found the oil and gas companies on the Fortune 1000 list had given $165,672 to the Bush/Cheney presidential campaigns. They have also given generously to key Republican members of Congress who have been the leading proponents of the energy bill.

Since 1998, the Center found that Fortune 1000 oil and gas companies have given $112,076 to DeLay and $88,400 to Tauzin. The companies have given $53,450 to Senator Pete Dominici, a Republican from New Mexico who was the Senate’s lead negotiator in the conference committee that drafted the final version of the energy bill.

The oil and gas industry has been the top campaign contributor to DeLay so far in the 2004 election cycle, according to CRP, giving the Texas Republican $48,575. The industry has been Tauzin’s fourth largest contributor for Tauzin’s 2004 campaign, giving the Louisiana Republican $34,780 so far.

Oil and gas companies have been Domenici’s second biggest campaign contributors for 2004, surpassed only by electric utilities. The industry has given the New Mexico Republican $179,308, according to CRP. In late November 2003, Domenici called together energy industry lobbyists on Capitol Hill to discuss the bill that they had helped craft and that he had helped shepherd through Congress. Sensing a final vote was near, the New Mexico Republican thanked the group for their efforts in constructing the legislation. He then left the room to a standing ovation.

“[Lobbyists] all but held the pen since the days of the Cheney’s energy task force,” said Walke. “They dictated the dirty, subsidized policies they wanted.”

Despite such criticisms, proponents of the bill are unapologetic.

“Comprehensive energy legislation is difficult to pass under any circumstances,” Segal, the Bracewell & Patterson partner, said. “The bill was more than a good faith effort at national energy policy.” Although the energy bill has been derailed for now, lobbyists say they are ready to resume the fight next year.

“I do think there will be a lot of interest in passing an energy bill next year,” said Segal. “It is possible to pass energy legislation during an election year.”

Agustin Armendariz and Aron Pilhofer contributed to this report.