Politics and PACs in the energy industry

Richard Nemec
OGFJ Correspondent

With Congress re-awakened and President Bush making a national pitch for an energy bill he can sign, the political arena once again has focused on the oil and natural gas industry this year. Of course, record wholesale prices and continuing upward pressure on gasoline prices at the pump tend to be powerful motivators for consumers of all stripes - industrial, commercial, and individual - who are applying pressure to their representatives to “do something” about bringing supply and demand into balance.

At this particular point in time, the energy community has a well-entrenched system of effective lobbyists and political action committees (PACs) at federal and state levels that continue to sustain the industry against attacks from outspoken opponents, including many environmental organizations.

With this in mind, Oil & Gas Financial Journal contacted top executives and government relations staff at several key industry associations to get their candid assessments of industry efforts to date and the prospect for comprehensive legislation to boost domestic exploration and production and related activities.

“I believe the energy industry collectively - primarily through its respective trade associations - has been very effective in educating not only the business community, but in fact all energy customers about the importance of passing national energy legislation,” said Richard “Rick” Shelby, a former state and national Republican Party executive who is now the American Gas Association’s (AGA’s) executive vice president for public affairs.

“It was through the leadership of energy trade associations that the nation’s largest coalition ever assembled to lobby Congress - the Alliance for Energy and Economic Growth - was formed in 2001,” he noted.

Over time, the issues change, along with the players. Every two years, newly elected officials come to Washington, DC, and consolidation in the oil and gas industry, along with increased globalization, changes the mix of voices that are heard in the capital at any given time.

Another change is that some individual corporations are opting out of an individual “presence” in the nation’s capital in favor of representation by strong industry associations and the widely touted influence of PACs. This is all part of the continually shifting landscape in Washington.

One long-time industry lobbyist thinks the mix of company-affiliated and contract lobbyists specializing in energy is less a presence today than it was five or ten years ago. And don’t confuse and combine political fund-raising (PACs) with grassroots efforts in lobbying for particular legislation or issues, the veteran lobbyist says. Perceptions aside, PACs are not the major tools some outsiders might think they are.

“Clearly, action on energy policy is long overdue,” said Red Cavaney, president and CEO of the American Petroleum Institute (API), speaking at the beginning of this year to a sympathetic audience at the US Energy Association Forum in Washington. “Congress needs to approve a comprehensive, national energy policy, and the key word is ‘comprehensive.’ A piecemeal approach is not the answer.”

Three months later, it was Cavaney, representing one of the industry’s most powerful Washington-based associations, who praised President Bush for recognizing the need for action and speaking out forcefully. Much of the political and public affairs work of the industry is helping get policymakers to recognize the need for action and to recommend choices and their potential impact.

“I think across the board, most of the energy and oil companies have some level of presence in Washington, DC,” said Sheree Anne Kelly, director of political involvement at the Washington-based Public Affairs Council.

“Even as they are expanding internationally, they are finding they have to use internal resources - either abroad or at the state levels,” she commented. “So I am seeing that a lot of companies are using their internal resources on international and state public and governmental affairs. A lot of time, if that happens, they may outsource the Washington, DC, component. But all of them have some level of presence in DC. It has just shifted a bit from previous tendencies.”

Part of the changed landscape relates to the increased globalization of the national economy and the petroleum industry, along with the increased competition for resources from emerging economic giants China and India. It makes domestic resources and land - particularly federally held landmasses - much more furiously contested. Land and its related permitting collectively represent probably one of the key issues that cuts across all segments of the industry these days.

“Going forward, in order to serve the needs of the nation, the natural gas industry will continue to push for responsible access to more of our domestic resources, including non- [national] park, multi-use federal lands,” said Joseph Blount, chairman of the Natural Gas Supply Association (NGSA), who was careful to strike a bipartisan note in a prepared statement late in April that evoked the names of both Sens. Pete Domenici (R-NM), chairman of the energy/natural resources committee, and Jeff Bingaman (D-NM), the former committee chairman, in response to action on a potential new energy bill.

Energy’s relative position

Among the top 50 corporate PACs, only two oil and gas industry company names appear - Exxon Mobil Corp. and Valero Energy Corp. Among ALL 50 PACs, only two corporate entities make the top 50 - delivery giants United Parcel Service and Federal Express. The list is dominated by a variety of special interest groups, representing such groups as labor unions, banks, healthcare organizations, airlines, and particular ideologies that tend to swing toward either the Democratic or Republican parties.

The two largest PACs, both bipartisan political contribution funding sources for all levels of government - America Coming Together and MoveOn PAC, had collective receipts for the 2003-2004 period of $65.5 million, about 10 times the total contributions made during the period by oil and gas industry PACs.

“You don’t want to make the assumption that just because you have a PAC that it generates legislative results,” said Kelly Philson, the Independent Petroleum Association of America (IPAA) PAC director. “That isn’t the case at all.”

Her colleague, Lee Fuller, vice president in the Washington IPAA office, agreed, saying that generally what an industry trade group does is develop a series of common policy issues and their preferred resolution. Then, members and the Washington, DC, office concentrate on committees and individual members of Congress that can be the most helpful in resolving the issues to the industry’s satisfaction.

Fuller noted that the House and Senate vary markedly in how they are approached by advocates.

“In the House, the real power over an issue resides in the committee. A committee will do most of the dealing with a given issue. Then, when the issue goes to the floor, because of the rules structure in the House, it is very difficult if you are not on the committee to make an amendment. Ultimately, the committee members are the members who go to conference committee (no one else). For our industry, it is the Resources, Ways and Means, and Commerce committees that are key.”

In the Senate, the committee will be the primary focus at first, and again in conference, but on the Senate floor, the rules are much more flexible, so there can be a lot of amendments. “Senate members from oil and gas producing states have opportunities to make amendments on the floor that members in the House don’t,” Fuller said. “So we are looking for members who will be sympathetic to the issues that we’re trying to raise.”

Fuller pointed out that within the IPAA, PACs get involved in the election process across what he classifies as three broad criteria: (1) looking at members who have interests along the lines of our interests, so primarily members from oil and gas producing states; (2) secondly, looking at the committee members who are supportive, and (3) looking at the make up of the majority in Congress.

“Ultimately both houses will decide which bills get out of committee and to the floor, the tone of the issues, and what hearings will be held. Most of our PAC money tends to go toward states where we’ve had a natural base, and the constituency is supportive.”

How PACs work

Contrary to popular perception, the energy industry and the PACs tied to its associations and companies give relatively modest amounts of money to federal political candidates compared to other industries. In the last four US Presidential election years, oil and gas industry PAC contributions have been relatively flat, staying in the $6.5 million to $7 million range, according to Internet-based OpenSecrets.Org, a web site provided by the nonprofit, Washington, DC-based Center for Responsive Politics.

In the 2004 election year, there were 4,867 registered PACs, only 140 more than in the 1992 Presidential election, but the total collective receipts in the political funds was close to $1 billion ($915 million), compared to $385 million, collectively, in 1992.

“Most larger companies are running their own PACs, although a lot of them work with their specific trade association PACs, too,” said the Public Affairs Council’s Kelly, who noted that solicitations by association PACs are more restrictive under current campaign finance reform laws.

“You can only allow one association PAC to solicit your eligible employees. (A company with a PAC has to choose among various associations with PACs in its industry.) For the most part, companies all have their own PACs and use them pretty thoroughly,” she said.

The Federal Election Commission (FEC) in April reported the results of political fund raising and disbursement in 2003-04, citing a 34 percent increase in monies raised, compared to the 2001-2002 period. For the two most recent calendar years through last Dec. 31, PACs raised $915.7 million and spent $842.9 million, 34 percent and 28 percent increases respectively. Cash on hand this year for more than 4,800 PACs is just short of a quarter of a billion dollars, the FEC said.

PAC contributions to all federal candidates in 2003-04 totaled $310.5 million, a 10 percent jump up from 2001-2002. Most of the money -- $292 million - was given to candidates seeking election in 2004.

In the oil and gas industry, total political contributions over the past two calendar years totaled $23.8 million, with $6.9 million coming from PACs. (Comparably, in 1992, the total for energy industry PACs was nearly identical -- $6.6 million. Meanwhile individual contributions in the industry have effectively doubled -- from $8.6 million in 1992 to $16.8 million in 2004.)

Some practitioners, such as Kelly, see PACs exerting ever-greater influence as legislation like the 2002 “Bipartisan Campaign Reform Act” (BICRA) restricts so-called “soft money” from individuals for federal candidates, and growing concentrations of money in PACs. Everyone agrees that PACs have become one of the primary ways to provide capital for the political process.

“In the years ahead, as PACs become the primary mechanism by which you contribute to political campaigns, you will see more PACs formed and they will get more active,” says IPAA’s Lee Fuller, vice president in the Washington, DC, office. IPAA is one of the half-dozen to a dozen major industry trade groups with active offices in the capital.

Strength in numbers

Trade associations, such as IPAA, the (NGSA), API, the National Petroleum Council, and AGA, among at least a dozen more, are a mainstay of the industry’s Washington, DC, presence. They tend to be issue-oriented, driven by a consensus of their membership.

For many, high-profile and very active issues, such as the Arctic National Wildlife Refuge (ANWR), are left to a relative few super majors and similar super independents with a direct stake in the North Slope.

The IPAA, for example, is more focused on regulatory issues that deal with restrictions in the oil and gas patch, such as Safe Drinking Water Act amendments that might preclude hydraulic fracturing, a growing technology applied in domestic drilling. There are also access issues related to the complex and always controversial use of federal lands. And there are always tax-related issues, which take on more importance in times of depressed wholesale energy prices.

“A lot of these issues weren’t on the table a decade ago,” said Fuller, a chemical engineer who began his career at an oil refinery before taking staff positions in the US Senate. He cited “liquefied natural gas” (LNG) as an example, or “methyl tertiary butyl ether” (MTBE), ethanol fuels were just starting to emerge.

A decade ago, the pre-interactive paths were the ones that created the driving force to create the oxygenated fuels. The use of ethanol and MTBE was just starting to develop and “the political driving forces behind mandating a certain amount of ethanol being used in gasoline didn’t have the same kind of momentum it has now,” said Fuller. “The liability issues from MTBE have risen, so they [the super majors] have had to shift their attention.”

From the perspective of natural gas suppliers, the primary issues cutting through all the public policy efforts are enabling a competitive marketplace for natural gas, which a spokesperson for the association said is “essentially a defensive” strategy in current times of record high wholesale prices.

LNG is another huge issue, heating up in this year’s Congressional debate over a national energy policy, and last year prompting major parts of the industry to form a Washington-based consortium, the Center for LNG, to push public education, efficient regulation for permitting and siting, and safety advances.

For the year, API stressed at least eight issues, beginning with the need for a national energy strategy and ending with industry security measures. In between are issues that are environmental (climate change, fuel compositions, oil field operations), financial (tax and trade restrictions), or operational (domestically or in particular parts of the world).

“Members of Congress frequently turn to AGA and other trade associations because we represent a respected, bipartisan ‘one-stop shop’ for information about energy problems and solutions,” said AGA’s Rick Shelby, who noted that among the gas association’s advocacy this year have been “one-on-one visits” with all 535 members of Congress and/or their staffs, quarterly briefings of key Congressional staff members, testimony before House and Senate committees, and placement of advertising in key Washington-based publications, such as the Congressional Quarterly, National Journal, and Roll Call.

Individual company efforts

Associations and companies alike obtain access with elected officials based on their members and employees who are constituents and voters. “Congress runs on votes,” according to the IPAA’s Fuller.

Issues and campaigns that the association takes on are not the same as individual companies. They tend to stay broad, representing the interests of the overall membership. Narrower issues individual companies will take on through their own Washington offices or through headquarters employees operating in various states.

Ultimately, the real results come from a wide variety of association members making their individual voices heard among Congressional or regulatory bodies. Grassroots work is much more effective than PAC contributions, added the IPAA’s Kelly Philson.

In this regard, a key roll for the association and company offices in Washington is communication - associations with their members and companies with their employees. Often, such basic involvement as providing help during voter registration drives has a greater impact on election results than financial contributions. OGFJ

The author

Richard Nemec [[email protected]] is a correspondent for Oil & Gas Financial Journal. He is based in Los Angeles.