Energy Policy for Sale?

Abstract: Senior management at a Kansas utility wanted a special exemption from regulations as part of the national energy plan last year. Members of the U.S. House of Representatives wanted campaign contributions. Each got what they were after, it seems.

Analysis: Twenty-five years ago, eight professionals from Brownwood, Texas headed south in a motor home to fish in Mexico. Everything went smoothly at the border until a Mexican customs official noticed a small, uninflated dinghy with a boxed trolling motor nearby.

That was a boat, the customs official said, and needed a special permit. Not so, the owner of the motor home replied. The conversation bounced back and forth and eventually went nowhere. Superiors came. The conversation escalated as all eight professionals, sometimes together, tried to explain the presence of an inflatable dinghy to bewildered customs officials.

Eventually the impasse brought a senior administrator. He listened to both sides, then outlined the solution. The inflatable item could pass. But here is what it will take, he said. He listed the various officials and explained the amount of money needed for each one. The levy was paid in cash and the motor home moved up in the queue and went on to some great fishing west of Tampico.

Sad to think U.S. energy policy may be made in a similar manner.

Possible evidence resides in an independent report on corporate wrongdoing at a Midwestern utility that has been filed with the U.S. Attorney in Wichita, Kansas. Two internal company memorandums are apparently the result of a meeting in May 2002 between former corporate officials at Westar Energy, the largest utility in Kansas, with key officials of the U.S. House of Representatives who were crafting provisions for the House version of a national energy plan.

Apparently, at that meeting, in which the utility sought to obtain a provision in energy legislation that would exempt the company from regulation under the Public Utility Holding Company Act (PUHCA), U.S. Representatives Joe Barton (R - Texas), Billy Tauzin (R - Louisiana), and U.S. Senator Richard Shelby (R - Alabama) outlined fundraising needs for campaign committees associated with the group.

Spokespersons for those elected representatives, along with House Majority Leader Tom DeLay (R - Texas) who was also named in the memos, are denying any quid pro quo.

Company officials had an entirely different perception, however. According to the memos, company executives apparently thought they were obtaining a "seat at the table" with the House/Senate Conference Committee on energy. Within 60 days, company officials made donations totaling $56,000 to the campaign committees named by the elected officials. Representative Joe Barton included the provision that gave the utility a special exemption from PUHCA regulation during the summer of 2002.

A copy of the investigation is posted on the website for Westar Energy, Kansas' largest utility, at The memos are contained in Exhibits 236 and 237.

The story is generating interest at the national level because of the inclusion of U.S Representative Tom DeLay, whose "agreement is necessary before the House Conferees can push the language we have in place in the House bill," one memorandum says.

Indeed, what started as regional news coverage of corporate malfeasance in the late 1990s at a Kansas utility during the heady days of deregulation has now moved up to national media attention at, the Washington Post, and over the last couple of weeks.

Former senior managers at Western Resources, now Westar Energy, are accused of using corporate property for personal gain. At the same time senior executives earned millions of dollars in bonuses after leading the utility on an acquisition binge in the late 1990s, some of which turned out to be of questionable financial benefit for the utility's shareholders.

Two officials subsequently resigned from the company, including former chairman David Wittig who was indicted by a federal grand jury last September on an unrelated bank fraud case. According to the memos, Mr. Wittig provided the okay for company officials to contribute to campaigns identified by the elected representatives with a combination of personal and corporate donations.

While spokespersons for the elected representatives say it is wrong to connect the dots on this issue, Representative Joe Barton, who originally inserted the provision benefiting Western Resources, subsequently removed the provision within days of Mr. Wittig's indictment last September.

There is likely general agreement in principle that a national energy policy is a great concept. So is a national policy on personal freedom. The problem for both is in the details. A national energy policy is a Rorschach test for the American population. Mention it to the environmental community, for example, and they see opportunities to reduce dependence on foreign oil consumption by improving gas mileage. Mention it to Rocky Mountain gas producers and they see greater access to public lands. The beauty of a national energy policy resides in the eyes of the beholder.

In reality, it means every special interest is scrambling to include parochial provisions that benefit their particular constituency, all in the name of national energy security. And perhaps indeed some quid pro quo does exist.

Judging by debate last year, national energy policy meant drilling in the Arctic National Wildlife Refuge for Republicans or subsidizing ethanol production for Democrats. It's ironic that the policy package eventually collapsed over an inability to work out differences on electricity deregulation.

This brings up a broader issue regarding why the oil and gas industry would want the government setting energy policy. The history of such attempts has not been good, largely because of unintended consequences. California energy deregulation is one example that comes to mind.

This year's attempt at a national energy policy seems to be devolving into an abundance of subsidies, primarily for nuclear power plant construction, ethanol production, and the creation of a pipeline to ferry Arctic gas to the lower 48 through Alaska.

If government subsidies are such a good idea, how can one explain the steady decline in the American farm industry? A couple generations of agricultural subsidies created economic inefficiencies that resulted in American agricultural production becoming one of the most expensive forms of farming in the world. Now the agricultural industry cannot exist financially without ever-escalating government support.

Even the venerable Oil and Gas Journal has editorialized against omnibus energy packages, suggesting the best way to approach energy issues is by specific legislation intended to address specific incidents such as pipeline safety.

With allegations and denials bouncing back and forth, no one knows whether the Westar memos were a flight of fancy, as elected officials claim, or factual representation of how one company sought to influence national policy in Washington.

Of course, the Brownwood fishermen never obtained a receipt for their job and economic growth efforts at the border 25 years ago either.

But in the wake of Enron, the last thing the energy industry needs is another example of questionable conduct--especially one that possibly involves elected government officials.


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