Bush’s Energy Plan Bares Industry Clout

WASHINGTON —  Throughout February and March, executives representing electricity, coal, natural gas and nuclear interests paraded quietly in small groups to a building in the White House compound, where the new administration’s energy policy was being written.

Some firms sent emissaries more than once. Enron Corp., which trades electricity and natural gas, once got three top officials into a private session with Vice President Dick Cheney, who headed the energy task force. Cheney did “a lot of listening,” according to a company spokesman.

Many of the executives at the White House meetings were generous donors to the Republican Party, and some of their key lobbyists were freshly hired from the Bush presidential campaign. They found a receptive task force. Among its ranks were three former energy industry executives and consultants. The task force also included a Bush agency head who was involved in the sensitive discussions while his wife took in thousands of dollars in fees from three electricity producers.

The final report, issued May 16, boosted the nation’s energy industries. It called for additional coal production, and five days later the world’s largest coal company, Peabody Energy, issued a public stock offering, raising about $60 million more than expected. While Peabody was preparing to go public, its chief executive and vice president participated in a March 1 meeting with Cheney.

The report also touted new gas extraction technologies. An early draft noted controversy over a gas recovery technique offered by Halliburton Co., the firm Cheney ran from 1995 to 2000, before becoming vice president. The plan released to the public deleted the negative language.

Cheney continues to resist demands by Congress to disclose who met with administration officials during the 106 days earlier this year when the energy plan was fashioned. The private nature of the work fostered candid and creative discussions “from new and unused quarters,” said Cheney Press Secretary Juleanna Glover Weiss.

But interviews and a review of task force documents show how the administration relied on familiar faces who stood to benefit from the process.

Just once, the task force departed from its pledge to keep secret the names of people invited to pitch their opinions face to face. After producers of power from the sun, wind and geothermal heat met with Cheney, officials led the group to the front of the White House and waiting reporters.

The date was May 15, just one day before the plan was sent to President Bush.

Others whose views might conflict with industry--the Union of Concerned Scientists, the Sierra Club, even federal agency staff--found themselves shut out or overruled.

In the sessions they held while they worked on the plan, Cheney and his staff generally heard a message reinforcing their own mind-set: Free markets, fewer pollution rules and expanded development of traditional fuels.

Using less energy and energy in different forms were notions mentioned but not emphasized. “What do you expect?” asked one energy industry insider whose colleagues met with Cheney. “These people make their living from coal and natural gas and nuclear power. Do you think they’re going to push for solar and wind?”

The influences are evident in the final product.

The report focuses on easing regulation for oil and gas drilling, coal-fired generators, nuclear power plants and transmission of electricity, while providing energy assistance to poor households. Though the plan also backs alternative fuels and conservation, it gives the most support to increasing the supply of traditional sources of energy.

One passage adopts word for word a proposal on global warming from the U.S. Energy Assn.’s National Energy Strategy, which is dominated by trade groups. The section suggests encouraging other countries to build factories with clean technologies sold by U.S. companies.

Even basic assumptions in the report were tailored to industry’s measure.

A briefing paper prepared for a March 19 task force meeting with Bush said that, “on the whole, U.S. energy markets are working well, allocating resources and preventing shortages.” But two months later, the final task force report proclaimed that “America faces the most serious energy shortage since the oil embargoes of the 1970s.”

The energy situation hadn’t changed. One staffer recalls seeing a memo that discussed “utilizing” California’s rolling blackouts and the past summer’s high-priced gasoline to press for more drilling for gas and oil.

The task force began work in late January, nine days after Bush’s inauguration.

By all accounts, the vice president dominated the meetings. Energy Secretary Spencer Abraham; Bush’s chief economic advisor, Lawrence B. Lindsey; and Environmental Protection Agency Chief Christie Whitman were the others with the most to say, one administration official said. But everyone jumped in on matters outside his or her own immediate jurisdiction.

There was no shortage of private energy experience. Besides Cheney’s stint as Halliburton’s chief executive, Commerce Secretary Don Evans ran an oil company and Lindsey served on an Enron advisory board.

The committee still gathers on occasion, most recently last month, to monitor progress of its recommendations. The House of Representatives passed an energy measure that reflects the plan. Once the Senate votes next month and the two houses of Congress sit down to negotiate a final bill, “we’ll be bringing a lot of pressure to bear,” Weiss said. “Our objective is to get that legislation as close to the policy as possible.”

To Howard “Bud” Ris, who heads the Union of Concerned Scientists, the process represents an opportunity lost. He disagrees with the report’s conclusions but says he would have felt better if task force members and staff had thoroughly explored all sides.

“They should have done a really rigorous review. They foreclosed all kinds of options.”

Electricity

If any group had the White House wired, it was the electricity industry.

The director of its major lobbying arm, the Edison Electric Institute, roomed at Yale University with George W. Bush. Electricity generators and marketers contributed $19.7 million to Republicans since 1998, roughly double what they gave Democrats, according to the Center for Responsive Politics. And electricity companies negotiated contracts with administration friends, political operatives and, in one case, a family member.

Take Haley Barbour, former chairman of the Republican National Committee. In the spring of 2000, the Bush campaign recruited him to help with strategy.

A year later, as a lobbyist for several electricity producers, he pushed Bush and Cheney to renege on a campaign promise to restrict power plant emissions of carbon dioxide. The gas has been linked to global warming.

On March 1, Barbour sent a sternly worded memo on the subject to Cheney. “A moment of truth is arriving,” the note began. Complying with carbon dioxide limits would be so expensive that Bush should reverse his position, Barbour argued.

“Clinton-Gore policies meant less energy and more expensive energy,” he wrote. “Most Americans thought Bush-Cheney would mean more energy, and more affordable energy.”

Within weeks, Cheney’s task force had adopted the same reasoning on carbon dioxide. Bush cited the task force position when he announced in March that he had changed his mind.

The National Electric Reliability Council, an industry trade group, hired former Montana Gov. Marc Racicot as a Washington representative. Racicot was a close Bush advisor during the tumultuous postelection days in Florida.

Racicot said he met with Cheney and his energy director, Andrew Lundquist, on the subject of the EPA’s forcing old plants to update their clean air equipment.

The task force report suggested that the Justice Department consider dropping lawsuits it has already brought for alleged violations.

Three electricity companies employ Diane Allbaugh as a lobbyist. She is married to Joe Allbaugh, the only member of Bush’s so-called iron triangle of trusted Texas cohorts to serve on the energy task force. During meetings of the panel, Joe Allbaugh always took a chair at one end of the table, with Abraham to his right and Whitman to his left. He serves by virtue of his position as director of the Federal Emergency Management Agency.

In her most recent disclosure reports in January, Diane Allbaugh said that the three firms--Reliant Energy, Entergy and TXU, paid her $20,000 apiece in the previous three months. She wrote that she did no lobbying on their behalf. The companies say she performed other consulting duties.

Reliant spokesman Richard Wheatley said the company is “actively supporting” the energy plan, but Diane Allbaugh’s “minimal assignments have not involved the task force, specifically to avoid any specter or allegation that there is a conflict of interest.” She is a consultant on “Texas-related” issues, he said.

Spokeswomen for TXU and Entergy said Diane Allbaugh’s work for them is likewise restricted to their Texas operations.

Meanwhile, her husband, Joe Allbaugh, has participated in task force talks with a direct bearing on the energy companies’ interests generally, such as environmental rules for power plants and electricity deregulation--a specialty of his wife’s.

At least twice he was privy to updates from economic advisor Lindsey on California’s malfunctioning market, where Reliant stands accused by the state of overcharging. The company denies any wrongdoing.

Joe Allbaugh’s spokeswoman, Christi Harlan, said that nothing “about the situation would suggest that the director would need to seek ethics guidance” and added that his wife’s lobbying reports “are going to have to speak for themselves.”

Diane Allbaugh declined comment. Visited at the townhouse that the Allbaughs bought in March from the Cheneys, she said: “I appreciate the effort you’ve gone to, but I don’t think we’re going to talk.”

In 1996, the Dallas Morning News reported that she represented clients with interests in pending Texas state deregulation of telecommunications and utilities markets, while her husband served as then-Gov. Bush’s chief of staff. At the time, Bush said he was troubled “if it creates a public perception that something unfair is taking place.”

At the time, she wrote the governor’s counsel that she was withdrawing from her contracts. And Bush instituted a policy that division heads and senior aides could not be married to registered lobbyists, according to Texas newspapers.

As president, Bush has no special guidelines beyond those of the Office of Government Ethics, said White House spokeswoman Claire Buchan. These regulations appear less stringent, prohibiting participation only if a particular matter applying to a specific company is addressed.

TXU Chief Executive Erle Nye--a client then and now--said Diane Allbaugh has been a consultant on deregulation issues. She registered as a lobbyist, he said, just in case she happened to talk about a pertinent issue to a politician. “To my knowledge, we would not have let her lobby,” he explained, “because she is the wife of Joe.”

Natural Gas

Natural gas was connected in high places too.

When the Energy Department drafted a chapter for the report about how to increase domestic energy production, the text mentioned the importance of hydraulic fracturing, a method of accelerating production of natural gas wells. It so happens that Halliburton is a major provider of the service.

Chemicals and sand are injected under high pressure into gas-bearing geological formations, causing underground cracks. The gas rises into the cracks and moves closer to the well, making recovery easier.

The process has its foes. Neighbors of natural gas wells in Alabama complained of oily goop and sulfur smells streaming out of faucets just after a company conducted fracturing. An Alabama federal appeals court ordered the state to regulate the process--and EPA to step in if needed. Natural gas drillers, and hydraulic fracturing purveyors, expect similar lawsuits to be filed in the Rocky Mountain states, according to material submitted to the task force by the Domestic Petroleum Council.

The EPA is studying whether hydraulic fracturing is linked to water well contamination but doesn’t expect to finish its preliminary inquiry until at least February. The agency will decide then if further research is warranted, officials said.

Halliburton complained in federal court, during Cheney’s last year at the company, that new federal restrictions on the process would “have a significant adverse effect” on its business.

The Energy Department chapter mentioned the environmental controversy as well as the potential of hydraulic fracturing. With the Energy Department chapter in hand, a Cheney assistant informed an EPA official in late March that hydraulic fracturing would go on the April 3 agenda for the Cabinet-level gathering. The agency was advised to prepare a recommendation.

EPA officials balked at suggesting any actions for the task force before the study was completed. The subject disappeared from the agenda by the day of the meeting.

But it didn’t disappear from the final report. The document emphasized the technique’s importance as “one of the fastest-growing sources of gas production” and noted that “each year nearly 25,000 oil and gas wells are hydraulically fractured.” The information about potential water well contamination, the appeals court decision and the possibility of EPA controls had all been dropped.

A few paragraphs after the hydraulic fracturing discussion comes the task force recommendation that the nation “promote enhanced oil and gas recovery from existing wells through new technology.”

Halliburton spokeswoman Wendy Hall said company executives did not discuss the energy report with Cheney. “Of course, we talk to him; you don’t work with someone for that long and then not talk to him. But not about the plan, and not about hydraulic fracturing.”

Coal

Perhaps the biggest winner in the task force report was coal.

Though coal produces more than half of the country’s electricity, natural gas dominates the next generation of power plants. The reason: clean air rules. Burning coal produces a significant amount of carbon dioxide, which has been linked to global warming, and other elements tied to acid rain and smog.

Under President Clinton, “ ‘coal’ was a dirty word,” said John Feddock, an industry analyst based in Bluefield, Va.

Not so under Bush, whose U-turn on carbon dioxide was the coal industry’s biggest victory in Washington in years.

“If rising electricity demand is to be met, then coal must play a significant part,” the task force report stated. The plan recommended spending $2 billion in federal money for research into making coal-fired electricity cleaner. And the task force recommended directing federal agencies “to provide greater regulatory certainty relating to coal electricity generation.”

“The president is friendly to energy, and so is the vice president, and thank God,” said Fred Palmer, a vice president at Peabody Energy, the world’s largest coal producer. “Our society needs energy.”

Peabody, an affiliate called Black Beauty Coal and their employees have directed $900,000 to Republican coffers over the last two years. Peabody Chief Executive Irl F. Engelhardt personally gave $100,000 to Bush’s inaugural committee.

Two Peabody executives and one from Black Beauty were named to Bush’s energy advisory team after his election victory.

Two weeks after the task force was formed, Peabody announced plans to make a public stock offering. Several weeks later, on March 1, Palmer and Engelhardt attended a coal-interests meeting with task force members Abraham and Lindsey and Cheney’s energy director.

On May 21, five days after the task force report touted coal, Peabody’s stock went on sale. The company received $420 million, about $60 million more than analysts expected.

Could Peabody have gone public if Al Gore had beaten George W. Bush?

“That’s an interesting question,” Palmer said. “We’d been working on [the stock offering] for a long time. But it picked up steam this year, no question. I am sure it affected the valuation of the stock.”

Conservation

Environmental leaders say they never got a real chance to influence the report in favor of greater conservation efforts and renewable power.

Just after the election and again in January, when the task force was announced, several groups requested meetings with Bush, Cheney or both.

Months passed without a reply.

Dan Becker, legislative director at the Sierra Club, heard suddenly from an Energy Department staffer in late March: Please give us your thoughts on the plan. We need them within 24 hours. Then, he says, the caller mentioned that Abraham was traveling and wouldn’t be reading the response.

On April 3, the Energy Department submitted a briefing paper on nuclear power to the vice president’s office, recommending the U.S. use more of it. Under “pros,” the paper noted that this policy would be “a bold step” and added that it would underscore “the responsible approach of the administration towards carbon emissions”--the global warming issue.

But under “cons,” the paper noted: “Environmental groups will sharply criticize any proposed expansion” because of waste disposal issues and the history of accidents at Three Mile Island and Chernobyl. Environmentalists will “use the proposal to fund-raise and organize to defeat the administration’s policy, and use the proposal to suggest our national energy policy is out of the mainstream.” Nuclear power would go on to win a place in the report as “a major component of our national energy policy.”

By this time, the task force was well aware that environmentalists would be unhappy about many aspects of the report.

The panel had already abandoned its original plan for a release date of April 6. It was too close to Earth Day, a staffer with knowledge of the discussion said, and it would offer much too tempting a target.

In this wary atmosphere, Lundquist met April 4 with 15 emissaries from environmental groups.

The assembled activists barely had time to introduce themselves in the allotted 50 minutes. “To characterize it as meaningful consultation is quite a stretch,” said Elizabeth Thompson, who attended for Environmental Defense.

Ris, from the Concerned Scientists, asked twice to meet directly with Cheney “to no avail,” according to a memo written afterward by one of the participants.

Environmental leaders finally sat down with Cheney on June 5, weeks after the report was released.

The environmentalists’ clear anti-Bush sentiments during the election campaign sealed their fate, said William K. Reilly, who headed the EPA when Bush’s father was president.

“They have roles to play,” he said. “But they’re not going to be insider roles.”

*

Times staff writers Robert Patrick, Megan Garvey and Richard Simon contributed to this story.

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Input From Energy Industry

Passage from the Bush administration’s national energy policy appears to have come almost verbatim from the U.S. Energy Assn.’s National Energy Strategy, an organization that represents the energy industry.