Public Citizen Urges End to Billion-Dollar Big Oil Giveaway

Jan. 17, 2007

Public Citizen Urges End to BillionDollar Big Oil Giveaway

Report Documents How a Consortium That Includes Oil and Gas Companies With $100 Billion in Profits Foisted Industry Research Costs Onto Taxpayers

WASHINGTON, D.C. – A report released today by Public Citizen details the corporate lobbying and backroom deals that resulted in a multimillion-dollar energy subsidy. While Congress this week is considering repealing oil industry tax breaks – a positive first step – lawmakers should at a later date revoke this subsidy and implement reforms to ensure that similar giveaways are not surreptitiously enacted again.

The report, “The RPSEA Rip-Off: How the Natural Gas Industry Extracted a Billion-Dollar Boondoggle from Congress,” describes how companies with profits that totaled more than $100 billion in 2005 set up a taxpayer-funded subsidy establishing a 10-year, $1.5 billion research program to find ways to extract oil and gas from “ultra-deepwater” depths and hard-to-access onshore areas. American taxpayers will begin doling out about $400 million – and possibly more than a billion dollars – over 10 years to a research consortium that includes wealthy oil and gas companies due to a provision slipped quietly into the enormous 2005 energy bill.

The Research Partnership to Secure Energy for America (RPSEA) was set up by the Gas Technology Institute (GTI), a group that was successor to another gas industry organization that had lost a dedicated source of funding from pipeline operators worth more than $200 million annually. GTI subsequently led the effort to help replace those lost funds with taxpayer dollars. The subsidy it secured is a relic of the tenure of former House Majority Leader Tom DeLay, who ensured that much of the program’s money would be guaranteed without further congressional action. RPSEA and GTI established offices in DeLay’s former district of Sugar Land, Texas.

Members of the consortium eventually included 17 publicly traded companies – including such energy giants as Halliburton Energy, Chevron and BP – which could fully fund the entire 10-year research program by setting aside just 1.5 percent of their total profits in 2005 alone.

“The subsidy doled out to this consortium is an extreme example of corporate welfare for an industry that is raking in mind-boggling profits,” said Joan Claybrook, president of Public Citizen. “Lawmakers should leave ‘Sugar Land’ behind and reform lobbying and campaign finance laws to help prevent boondoggles of this magnitude.”

The report documents the law’s journey to passage and illustrates what is wrong with the lawmaking process and how some of the world’s richest corporations are able to foist industry research costs onto taxpayers. The measure was slipped into a conference report in the dead of night, after conferees had signed off on what they thought was a final bill. The plan incorporated the use of a non-profit consortium to make the legislation look less like a special favor for a known entity. The legislative leaders who inserted the measure were among the top recipients of campaign contributions from the members of the front group.

The chief lobbyists for GTI illustrate Washington, D.C.’s rapid revolving door. One was Melanie Kenderdine, a top policy aide to Energy Secretary Bill Richardson when gas interests approached her for advice about how to win federal money. Kenderdine recommended that they call for the money to be competitively awarded and to form a consortium that included universities and non-profits to better situate itself to win the contract. GTI hired Kenderdine in March 2001, shortly after she left the DOE at the end of the Clinton administration. GTI founded RPSEA in 2002, and Kenderdine became RPSEA’s acting president, overseeing a lobbying budget of more than $2 million total between 2002 and 2005. The expenditures included generous allocations to two other lobbyists who previously held influential positions in the government: C. Kyle Simpson, also an alumnus of the DOE, and Drew Maloney, who was an energy specialist on DeLay’s staff before becoming a lobbyist in 2002.

Sometime between 3 a.m. and noon on July 26, 2005 – after the committee had already approved what it thought was the final version of the bill – a quartet of leaders from a conference committee considering the mammoth energy bill slipped in a provision for the funding of ultra-deepwater exploration and other unconventional forms of exploration. These leaders were some of the favorite beneficiaries of RPSEA’s members, receiving more than $325,000 in political contributions from the consortium’s members between the 2000 and 2004 election cycles, according to the report. Each placed near the top of his respective chamber in amounts received from the group, including Rep. Joe Barton (R-Texas), who received the most. DeLay, who ranked sixth among House members in RPSEA contributions, testified in support of the measure and played a key role in ensuring that the provision would be guaranteed for 10 years. He was reportedly supportive due in large measure to the location of the program in his district in Sugar Land, Texas.

The research provision required an “open, competitive process” to choose a consortium to manage a 10-year research effort, but the measure also set such narrow criteria – and laid down such tight deadlines for submission of a bid – that RPSEA, the creation of the Gas Technology Institute, was the only organization to apply. The DOE announced RPSEA’s selection in May 2006, and the DOE signed a contract with the group in December 2006 for $375 million. GTI will be paid $1 million a year to help run the organization and is eligible to apply for research grants from the consortium.

Based on the findings of the report, Public Citizen calls on Congress to repeal the RPSEA deal and recommends a number of remedies to prevent similar abuses from occurring: ensuring adherence to regular order in Congress to prevent subsidies from being inserted after the House-Senate conference committee approves the final version of a bill; increasing disclosure of earmarks to provide greater transparency of individual lawmakers and their corporate beneficiaries; broadening and extending restrictions on government employees passing through the revolving door to K Street lobbying positions; and instituting a system to publicly fund congressional campaigns.

“A public funding system would address the fundamental problem of money’s corrosive influence on politics,” said Laura MacCleery, director of Public Citizen’s Congress Watch division. “Eliminating this one earmark for RPSEA alone could fully fund a voluntary program of public funding for congressional elections for a full election cycle. Public funding would also help to save money by preventing taxpayer-funded spoils from flowing to highly profitable industries and closing down access points for boutique lobbying outfits to secure parochial tax breaks and subsidies.”

The House will vote on HR 6 on Thursday, which would repeal $14 billion worth of subsidies for the oil and gas industry. This legislation is a great step forward in holding the industry accountable to taxpayers, and begins the necessary task of fixing America’s broken oil royalty system. While the RPSEA subsidy is not part of HR 6, Public Citizen urges Congress to consider repealing this wasteful spending program in future legislation to end all subsidies to the oil and gas industry.

To read the report, click here.

To read a statement by Joan Claybrook, click here.

To read a statement by Laura MacCleery, click here.