By Richard Prince
and Esther Cassidy
(Washington, June 14) A saga involving Big Oil, millions of unrealized tax dollars, whistle-blowers, members of Congress and campaign contributions is resuming on Capitol Hill, with a highly partisan House committee threatening contempt-of-Congress charges against a small, besieged public-interest watchdog group.
She's acting at the request of the committee chairman, Rep. Don Young, Alaska's sole House member and the House's number one recipient of contributions from oil and gas political action committees in the current election cycle, according to the Center for Responsive Politics.
Cubin ranks number 4.
In the hot seat is the Project on Government Oversight, a Washington, D.C.-based government watchdog group whose reputation was made by publicizing overpriced military spare parts, such as a $7,600 coffee maker and a $1,000 pair of pliers.
POGO encourages and is sympathetic to whistle-blowers. One of its board members, Anne Zill, president of the Fund for Constitutional Government, told the subcommittee that in 27 years with the Fund, she found that despite legal protections, whistle-blowers are �frequently vilified by their own agencies."
In 1996, a former Arco Oil employee filed a sealed lawsuit in Texas alleging that 18 major oil companies cheated taxpayers by underpaying the federal government for royalties on oil they had extracted from government-owned lands. A year and a half later, POGO filed its own lawsuit. In 1998, Mobil Oil settled for $45 million; collectively, oil companies have paid about $300 million to settle similar claims.
In addition, several states, including Alaska, California, Louisiana, New Mexico and Texas, have settled with the oil companies for millions of dollars over underpayment of royalties. California, Texas and Alaska together have won close to $5 billion; Louisiana $10 million, New Mexico $8 million. Moreover, private landowners have filed at least seven class action suits against the industry.
The former Arco Oil employee, J. Benjamin Johnson Jr., and POGO agreed to share their information and share any financial recovery.
POGO's share of the settlement in the Mobil lawsuit was $1.2 million, and the organization decided to share some of the proceeds with two federal employees who had often objected to the way the oil companies calculated how much they owed the government. POGO gave $383,000 each to an Interior Department employee, Robert Berman, and to Robert A. Speir, who recently retired from the Energy Department. POGO called the payments �public service awards."
In undervaluing how much they owed the government, the oil companies perpetrated a �fraud," Cubin charged. But that isn�t the subject of her hearings.
The sessions' purpose has been to examine the public-interest group and the �apparent and serious conflict of interest" posed by the two federal employees who accepted POGO's money.
The former Arco Oil employee, Johnson, said Berman and POGO had called him after Johnson had filed his secret 1996 lawsuit, asking questions about oil valuation. In 1999, a year after the Mobil settlement came through, Johnson testified, he �didn�t know POGO had agreed to pay these people in side agreements." Federal employees profiting from their whistle-blowing raised the possibility that they had a personal interest in the case, possibly compromising it, Johnson said he feared.
(Johnson's suit against Shell, Unocal and ExxonMobil continues, set for trial in Texas in November. Though POGO has been dismissed from the lawsuit, POGO, Berman and Speir still stand to profit from any settlement.)
The Republican members of the subcommittee have cast this episode in the worst light.
�As we begin this hearing," Cubin said on May 4, �I ask everyone to . . . imagine that it was Exxon, or Shell, or Mobil Oil instead of POGO that made two $383,600 payments, called them �public service awards,� and secretly promised one-third of everything it saved on oil royalties to two federal oil policy advisers. Just imagine that. If that scenario makes the federal employees silent partners of the oil companies, then the POGO payments make the federal employees silent partners of POGO. Agency decision-makers should not be silent partners of anyone."
Her colleague, Kevin P. Brady, R-Texas, minced fewer words.
�The only reason you are here today," he told POGO's board of directors, �is that someone blew the whistle on you."
The committee summoned POGO to appear before two contentious hearings, the last one, on May 18, lasting until 10 p.m. As Cubin insistently gavelled her out of order, POGO's director, Danielle Brian, decried from the witness chair the committee's �constant barrage of unsubstantiated allegations of every imaginable impropriety."
Earlier in that hearing, Berman, one of the recipients of $383,000 from POGO, repeatedly refused to answer any of the committee's questions �because of the defamatory conduct" he said the Republicans had exhibited. Berman said he would respond only if the Republicans waived the constitutional protection granted members for statements made while in Congress. Berman wanted those members to defend in court statements during the May 4 hearing calling him a �common thief" who was �up for the highest bidder."
Not surprisingly, Republican committee members refused to waive any such immunity. Instead, they repeatedly threatened to seek contempt of Congress charges against Berman and the POGO officials who refused to answer questions to the committee's satisfaction.
A committee investigator said the committee could report out a contempt-of-Congress resolution, or perhaps a censure motion, by the end of June. Such a resolution would go to the House floor for a vote before being sent to the U.S. attorney's office for presentation to a grand jury.
Democrats have cried overkill. 'something's wrong with this committee when citizens see this kind of force come down on our citizens," protested Democrat George Miller of California, a former chairman of the committee.
That was before Cubin referred to Miller as �Judge Wapner" of television's The People's Court. Miller had already called Cubin �Judge Judy."
Between the accusations, Democrats raised a charge that hovered over the proceedings: �This subcommittee has never held a single hearing to investigate the billions of dollars that oil companies owe the American taxpayer," Rep. Carolyn Maloney, D-N.Y., said, �but now it is wasting the taxpayers' money to pursue a variety of groundless and unsubstantiated allegations."
Heading for a floor vote, Cubin portrayed her subcommittee as evenhanded. �This committee has been trying to collect the appropriate amounts that [the public] is owed in royalties ever since I�ve been on the committee," Cubin told The Public i, by trying to implement an alternate system of royalty payments called royalties-in-kind. Pressed on whether that amounted to investigating how the oil companies so profitably exploited a defective system, Cubin agreed to �review" the idea of hauling the oil companies before the committee as well.
�We�re not ignoring them," added her subcommittee colleague, James A. Gibbons, R-Nev. �We�ve had hearings on oil royalty valuations, and additional hearings [will be] coming up." (Unlike the POGO hearings, the 1998 sessions at which oil representatives testified did not last into the evening.)
And for the time being, any additional hearings contemplated concern POGO.
The public-interest group has refused subpoenas for its telephone records, and more than 100 non-profit organizations, including the Center for Constitutional Rights, Common Cause, the Natural Resources Defense Council, Public Citizen and the Reporters Committee for Freedom of the Press, sent a letter to Young on March 14 supporting POGO's refusal. They cited First Amendment rights to freedom of association and speech.
POGO officials say the crusade against them is retaliation for their settlement victory and for the organization's campaign to bring the battle over oil royalties to national attention.
And behind the skirmishing is the issue of campaign contributions.
According to the Center for Responsive Politics, Young received $79,400 in oil and gas company contributions so far in 1999-2010, based on data released by the Federal Election Commission on May 1. That includes money from individual donors and from political action committees.
Cubin received $39,250 from oil industry individuals and political action committees over the same time period.
Brady ranks number 20 among House members, having received $25,250 so far this election cycle.
(According to the Center for Responsive Politics, Young's 1998 campaign received $119,708 from oil and gas company contributions, both from individuals and political action committees, ranking him number 2 in the House. Cubin received $58,000, ranking her 12th; Brady got $57,500, making him number 13.)
Republicans counter that the Democrats are big recipients of contributions from trial lawyers, who benefit from the litigation against the oil companies. A recent report from the Federal Election Commission found the Association of Trial Lawyers of America and 25 law firms and lawyers contributing more than $100,000 each gave $6.2 million to Democrats and $1.6 million to Republicans.
Regardless, there are legitimate ethical questions about government employees accepting outside money, and the matter is under investigation by the Justice Department.
At the May 4 hearing, the subcommittee majority said that ethics rules of the departments of Interior and Energy, and federal criminal statutes, prohibit awards to an employee except with prior agency approval; and accepting or soliciting outside compensation for doing an employee's official duties.
An assistant U.S. attorney, O. Kenneth Dodd, testified that he had said at the time that he believed it �potentially a violation of ethics rules" for the federal employees to accept a share of the POGO money.
�I gotta admit it looks pretty bad" for POGO, Miller said at the hearing.
The committee's accusations actually go beyond whether a government employee should be entitled to a �public service award." Cubin charged at the hearing that �before word of the payments became known, there was no reporting of the payments, and no disclosure of them. After the payments became known, what appears to be an elaborate cover story was developed to hide the true nature of the payments."
POGO vigorously denies such charges, saying the payments were disclosed on tax forms.
�They make things up," POGO lawyer Stan Brand, former counsel to the House of Representatives, said of the subcommittee. �That's what they do."
The Republican congressional challenge to POGO continues a long fight by members of Congress who receive large sums of oil company money.
On March 15, after a four-year battle, the Department of the Interior published new oil valuation, or price, guidelines. The price of oil determines the amount in royalties that oil companies must pay for oil drilled on federal- and state-owned lands.
The new regulations base the price of oil on market value, thereby increasing by at least $67 million annually the royalties that oil companies must pay. Previously, oil prices had been all but determined by the oil companies themselves. The new rules had been delayed for almost two years by Young and by Sen. Kay Bailey Hutchison, R-Texas, who sits on the Appropriations Committee. Common Cause lists Hutchison as the largest U.S. Senate recipient of oil and gas industry individual and PAC contributions; the Center for Responsive Politics says the total to Hutchison has been $1,611,888 since 1993.
Hutchison and Young opposed the new rules for past two years, saying they would impose excessive costs on the industry, cause the loss of jobs and hurt the oil industry because of the low cost then paid per barrel.
Oil royalty payments benefit federal and state parks, the U.S. Land and Water Conservation Fund, state government budgets, Indian nations and educational programs.
The Interior Department's Mineral Management Service calculates that oil royalties have funded more than 37,000 park and recreation projects, such as Gettysburg National Memorial Park, Niagara Falls, the Appalachian Trial and the Everglades.
Four years ago, Interior began a legal process to institute new rules to replace the complex oil price-setting formula. Every year that implementation of the new rules was delayed cost state and federal authorities millions in underpayment of royalties.
The Justice Department will probably soon agree to an additional settlement of more than $200 million. A trial date is set for Nov. 6 in Johnson's lawsuit against Shell Oil Co., and others, accusing the industry of �. . . a nationwide conspiracy to shortchange the United States of hundreds of millions of dollars in royalties � derived from the production of oil from federal and American Indian owned land." Involved are more than 27 million acres of off-shore and on-shore tracts located in or off the coasts of 22 states.
In the 1980s, the city of Long Beach, Calif., began the legal saga by suing six major oil companies -- Arco, Shell, Chevron, Mobil, Texaco and Unocal -- for underpayment of oil royalties. The city challenged the oil firms' practice of basing royalty fees on oil prices the companies posted, instead of the prices that oil sold for in the fair market. Almost 10 years later, the oil firms settled for about $350,000.
The oil companies claimed that their settlement was not an admission of guilt, but rather, an avoidance of litigation.
The 1991 California oil settlements prompted a lengthy Interior Department investigation and review process of oil undervaluation in California, which began in 1994. After analyzing the results of their investigation, in 1996 the Interior Department's Mineral Management Service billed 10 oil companies that drilled public-owned lands in California $257 million for underpayment of the companies' 1980-1988 royalties.
In February 1998, the Justice Department intervened in suits against four major oil companies. (To date, Justice has interceded against seven large oil companies, as well as negotiated a settlement between the Mineral Management Service and Mobil for crude oil payments.
On May 1, 1998, President Clinton reluctantly signed an appropriations bill that included an amendment that Hutchison single-handedly pushed through the Appropriations Committee in a midnight session.
The amendment delayed the publishing of the new proposed oil valuation regulations for six months. At a hearing that June, Hutchison and her Senate Committee on Appropriations again delayed the publishing of the proposed regulations until a year later -- June 1, 1999 -- again without a Senate vote.
At the request of Reps. Ralph Regula, R-Ohio, and Maloney, and Sen. Barbara Boxer, D-Calif., the General Accounting Office prepared an August 1998 report on the federal oil valuation issue.
The GAO supported the proposed rules from Mineral Management Services.
In March 1999, Hutchison and her Appropriations Committee again amended an appropriations bill, this time to delay implementation of the new regulations until October.
Although the amendment passed the Senate, the president refused to sign the bill until the Republicans agreed to discontinue the moratorium on the new rules. It took almost two months before the White House and the Republicans agreed that the moratorium would end March 15.
Richard Prince is editor of The Public i. Esther Cassidy is a free-lance writer based in New York.
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