Governors Lean Heavily on Industry-Funded Group on Offshore Drilling

It was a brisk February morning, and the governors of Alabama, Mississippi, Virginia and North Carolina were seated around a ring of tables draped with pleated beige fabric in the ornate Nest Room of Washington, D.C.’s Willard InterContinental Hotel. Sitting across the tables was Interior Secretary Sally Jewell, whom the governors had invited so they could make their case for expanding offshore energy production. It was a long-awaited meeting for the governors, and they’d armed themselves with specific “asks” — that Jewell’s department open access to oil and gas drilling in the Atlantic, for instance, and improve “regulatory certainty” for energy companies operating rigs off the coasts.

The get-together this past winter was but one small push in the type of broader political campaign that occurs every day in countless Washington conference rooms, watering holes and hotel suites. For the past three years, a group of eight, mostly Republican governors from coastal states has been lobbying the Obama administration to expand access to the nation’s offshore oil and gas deposits, working through an organization called the Outer Continental Shelf Governors Coalition.

While the message from the governors that morning would have come as no surprise to Jewell, less clear, perhaps, was that the governors were drawing on the research and resources of an energy lobbying firm acting on behalf of an oil industry-funded advocacy group.

Indeed, the background materials handed to the governors for the meeting, right down to those specific “asks,” were provided by Natalie Joubert, vice president for policy at the Houston- and Washington D.C.-based HBW Resources. Joubert helps manage the Consumer Energy Alliance, or CEA, a broad-based industry coalition that HBW Resources has been hired to run. The appeal for regulatory certainty, for example, came with a note to the governors that Shell, a CEA member, “felt some of the rules of exploration changed” after it began drilling operations in the Arctic.

The governors’ efforts have produced more than just talking points. This summer, the coalition won a major victory when the Interior Department said it would accept applications to probe the Atlantic seabed for oil and gas with seismic tests, a significant step toward allowing drilling off the East Coast — drilling that has been off-limits for decades. While the federal government ultimately controls where offshore drilling is allowed, the Obama administration has made clear it will allow production where the public — and public officials — support development.

And so it appears as if CEA’s considerable investment of time and resources has paid off. Indeed, a review of thousands of pages of public documents, obtained by the Center for Public Integrity through records requests, shows that much of the governors coalition work has been carried out by HBW Resources and CEA, a group that’s channeled millions in corporate funding to become a leading advocate at the state level for drilling.

The governors coalition is just one of many groups, such as the American Legislative Exchange Council (in which CEA is actively involved), that allow powerful corporate interests to gain a direct line to state policy makers not available to common citizens or other stakeholders, all under the banner of a generic advocacy organization.

“It would be alarming I think for many people if they found out that some of the biggest polluters were running a governors group, but less so if it’s a nonprofit,” said Nick Surgey, director of research at the Center for Media and Democracy, a liberal advocacy group. “That one step removed stops the alarm bells going off, but it should really concern people.”

The documents suggest that CEA staff attended the February meeting with Jewell, but Interior Department spokeswoman Jessica Kershaw did not respond to a question asking whether Jewell knew of CEA’s involvement, saying only that the department speaks with “a broad group of stakeholders,” and considers “all points of view.” She said Jewell told the governors that the department “is committed to working with them and their participation in the planning process is fundamental for any kind of coastal development.”

The Center requested interviews with staff of each of the governors — additional coalition members include the chief executives of Alaska, Texas, South Carolina and Louisiana — but none made anyone available, though Alaska responded to questions in writing.

There’s been little effort to explain CEA’s relationship with the coalition, which is currently chaired by North Carolina Gov. Pat McCrory. The coalition’s website made no mention of CEA until recently, when one page was edited — after the Center began reporting this article — to acknowledge the organization provides “information and administrative support.” In March, when the Center first asked who staffs the coalition, Ryan Tronovich, a spokesman for McCrory, said the governors provide the staff (records show Tronovich actually consulted with CEA to answer the Center’s questions). When the Center asked again after learning of CEA’s involvement, Tronovich said in an email that he “should have been more clear,” and compared CEA’s help to that given by an intern. (The Republic Report, an investigative news website, first reported a possible connection with CEA in February when it noted that a coalition letter appeared to have been written by Joubert.)

In an interview, David Holt, president of CEA and managing partner of HBW Resources, said CEA provides assistance to the coalition at the governors’ request. He said both the coalition and CEA have an “all-of-the-above” energy policy that supports renewable as well as fossil fuels. He also characterized his organization’s role as supportive of the coalition in the same way any number of stakeholders may be.

But there’s no evidence that any other group has played a substantive role in the coalition, or that environmental organizations have been invited to any of its meetings. Earlier this month, the McCrory administration organized a meeting with federal officials to discuss Atlantic drilling; no other governors were there, but staff representing the governors of South Carolina and Virginia did attend. McCrory administration staffers told journalists and environmental organizations that the meeting was closed to interest groups so as not to “allow for the potential of the appearance of influence.” In fact, CEA and other industry groups did attend the meeting. Nadia Luhr, the legislative counsel for the North Carolina Conservation Network, wrote a letter to the administration protesting the circumstances of the meeting. She had not previously been aware of CEA’s role in the coalition, but indicated she wasn’t surprised.

“It’s just another example,” she said, “of industry having a voice where no one else does.”

Rebirth of an industry

Each May, tens of thousands of people gather in Houston for the Offshore Technology Conference, the industry’s premier event, and in 2011 they were looking for a fresh start. A year earlier, the Deepwater Horizon rig had exploded in the Gulf of Mexico just weeks before the conference, killing 11 people and leading to the largest oil spill in the nation’s history. In the aftermath, Obama placed a moratorium on deep-water drilling and canceled plans to allow drilling in the waters off Virginia.

Nevertheless, the 2011 conference was bigger than ever, with exhibit booths displaying the latest in drilling technology sprawling over nearly 600,000 square feet of Houston’s Reliant Park complex, which encompasses a cavernous exhibition center, an indoor arena that seats nearly 6,000 people, and covered outdoor booths. There were policy discussions and technical events with titles like “Active Heating for Life of Field Flow Assurance.” The first day kicked off with a panel hosted by Holt and an executive with Noble Energy that featured officials from the five inaugural states of the coalition — Texas, Alaska, Virginia, Mississippi and Louisiana — who decried the federal government for standing in the way of development.

It was there that the governors of those five states announced their coalition, with a stated goal of improving dialogue between the states and the federal government. The coalition’s first chairman was Louisiana Gov. Bobby Jindal, who as a congressman in 2006 sponsored a bill that would have removed the federal moratoriums on drilling in the Atlantic and Eastern Gulf. In 2010, as governor, Jindal railed against Obama’s deep-water moratorium — a moratorium that had been lifted by the time the 2011 conference was held. The governor has been a reliable friend to the oil industry, which has contributed more money to his campaigns than any other sector — more than $1.4 million over the past decade, according to the Center for Responsive Politics and the National Institute on Money in State Politics.

Jindal’s office did not respond to an interview request or to questions about the coalition’s formation. Sharon Leighow, a spokeswoman for Alaska Gov. Sean Parnell, the second chairman of the coalition, said in a written response that the founding governors, not CEA, had decided to form the coalition. When asked how CEA got involved, she wrote: “Unknown.” (Parnell recently lost a bid for re-election.)

CEA president Holt said the governors approached his group because it represents not only energy companies, but also other sectors like airlines, trucking and construction. “They knew of us and asked CEA because we represent the whole economy,” he said.

Some environmental advocates have a dimmer view of why the group was formed that May. “The Outer Continental Shelf Governors Coalition is a Trojan horse,” said Richard Charter, who has fought against offshore drilling for decades and is now a senior fellow at the Ocean Foundation, which supports marine conservation. Oil companies and other industry groups, including CEA, started a campaign a decade ago to repeal the Atlantic moratorium by lobbying officials and the public state-by-state, he said, and the coalition is the culmination of that effort. “They want to create the appearance that a bunch of coastal states are clamoring for ‘drill here, drill now.’”

Throughout its three-and-a-half-year life, the governors coalition has focused on the Interior Department’s “Five-Year Program” — the arcane, bureaucratic process the department uses to plan the nation’s offshore drilling regimen — lobbying at each incremental turn for the department to open more areas to drilling and to ease restrictions where drilling is underway. The coalition has also pushed for the federal government to share more drilling revenue with the states.

The Center requested documents related to the governors coalition from the three states that have chaired the coalition. Louisiana and Alaska provided thousands of pages, though Alaska’s response was heavily redacted. North Carolina has yet to respond to the request, which was submitted in April.

Whatever the origins of the coalition, the documents show that Holt was an early driving force. In May 2011, he and his colleagues at CEA designed a logo for the group. In July, he sent an email to Chip Kline, deputy director of Jindal’s Office of Coastal Activities,congratulating Louisiana on being named the coalition’s first chair, stressing that the governors would add a “meaningful voice” to the energy debate. When they were planning the coalition’s first meeting, alongside a Republican Governors Association gathering in Jackson Hole, Wyoming, and RSVPs weren’t coming in as hoped, Holt fired off a message saying, “REALLY need to have this OCSGC meeting to get things rolling.”

Voice of the consumer?

The Consumer Energy Alliance calls itself “The Voice of the Energy Consumer.” The group was formed in 2006, operating initially out of a small office park in Houston. Its first board of directors included executives with Shell, Hess and a wind power company, as well as geologists and representatives of “consumer” industries such as trucking. Also on the board: Jim Martin, chairman of the 60 Plus Association, which bills itself as the conservative alternative to the elderly advocacy group AARP, but which is also part of the well-financed political network led by Charles and David Koch, the billionaire industrialists with major stakes in oil and gas.

Holt, 48, who speaks with folksy Texan charm, has been the alliance’s only president. Before starting CEA, he had worked in government affairs for Hart Energy, an industry publishing company, and before that, he says, as legal counsel to the top oil and gas regulator in Texas.

The alliance says it seeks to improve understanding of the nation’s energy needs and advocates for lower energy prices through an “all-of-the-above” policy of increased domestic energy production. Over the past eight years, the group’s membership has grown to about 240 corporate entities, including groups from “energy consuming” industries like transportation and construction, as well as energy companies. CEA also claims to have some 400,000 individual members who have signed petitions or taken other actions that are described on its website. (In October, however, Wisconsin regulators rejected a petition CEA had filed in an electricity rate case there after an investigation by the Madison Capital Times revealed that some of the 2,500 people whose names had been used were unaware they appeared on the petition, and actually opposed CEA’s stance. CEA said it stood by the 2,500 signatures, but had actually requested that the petition be withdrawn before it was rejected.)

In 2011, the year the governors coalition was formed, CEA’s annual revenue ballooned to $3.8 million from just $737,000 the previous year, and it’s remained above $3 million since then. Holt says the majority of CEA’s members are from “consuming” sectors and that its funding comes from all members. He wouldn’t say who pays what, however, and tax records show that in 2011 and 2012, the most recent years available, at least 30 percent of the money came from just three entities: the American Petroleum Institute, the American Fuel and Petrochemical Manufacturers and America’s Natural Gas Alliance, each a prominent oil and gas industry group.

More than $1 million of that revenue goes as a management fee to HBW Resources, an energy-focused lobbying and consulting firm that Holt formed in 2008 along with Michael Whatley — a former chief of staff for Sen. Elizabeth Dole — and Andrew Browning, who had worked as a lobbyist and in the Department of Energy. With the exception of a few regional directors, CEA’s staff is comprised of HBW staff, and to the layman, it’s hard to tell the difference between the two.

HBW’s Washington, D.C., office sits in a giant truncated pyramid of a building, with sloped outer walls, that overlooks Farragut Square on the city’s lobbyist-dense K Street. The firm has offices in five other cities in the U.S. and Canada and has its fingers in many pies. Its 18 employees manage not only CEA, but also the Energy Producing States Coalition, a group of state lawmakers that work on energy policy, and the National Ocean Policy Coalition, a collection of energy companies, commercial fishing organizations and other business interests that opposes the Obama administration’s oceans policy. Whatley is also the vice president of Nebraskans for Jobs and Energy Independence, ostensibly a group of Nebraskans who support the construction of the Keystone XL pipeline. The firm lobbies on behalf of just a handful of clients, including Noble Energy and The Babcock and Wilcox Company, which makes nuclear reactors and other industrial power equipment.

HBW employees have contributed tens of thousands of dollars to dozens of political campaigns. Notably, they gave $1,600 to Democrat Terry McAuliffe — who, following his election as governor of Virginia last year, joined the governors coalition after Whatley and Joubert made a direct appeal to one of his senior advisers during a December meeting. They also gave more than $8,300 to Gov. Nikki Haley of South Carolina within a day of a coalition meeting that Haley attended, in Houston in 2013.

One of the firm’s first major campaigns began in late 2009, when Whatley worked with a Canadian diplomat to help block state and federal attempts in the U.S. to pass low-carbon fuel standards, which could have threatened imports from Canada’s tar sands oil deposits.

The effort previewed what would become a recurring strategy for Whatley and his colleagues: pairing a public advocacy campaign with direct, behind-the-scenes appeals to elected officials, urging them to make similar public comments in their own voices. More recently, CEA has worked through the American Legislative Exchange Council, the conservative state legislators group, to oppose a new federal rule limiting greenhouse gas emissions.

Holt says his organization supports all forms of energy production and is directed by its board, which no longer includes energy companies. “We are a consumer controlled and a consumer funded and a consumer dominated organization,” he said.

Most of its campaigns and communications focus on oil and gas, however. That, coupled with what’s known about its funding, has led some advocacy groups to view CEA as a front group for energy companies, an entity created to give the appearance of an independent and broad-based voice. To these advocacy groups, the governors coalition is just another player in the larger game. “This is a purposed campaign to mislead the public,” said Claire Douglass, campaign director for climate and energy at Oceana, an environmental group that opposes offshore drilling. “The politicians are now doing industry business, not being public servants.”

Gaining speed

The governors coalition’s work inched forward through much of its first year-and-a-half, at least in part because there wasn’t that much it could do. The Interior Department had excluded new areas from the current drilling plan, covering 2012-2017, and it hadn’t yet begun substantive work on the next one. The coalition wrote letters to Congress and the Obama administration (two of which appear to have been edited by Shell and Exxon Mobil), urging open dialogue and pressing on other issues, such as revenue sharing. It held periodic meetings. On December 7, 2012, three Alaska officials — Kip Knudson and Nathan Butzlaff, who led Parnell’s work on the coalition, and state Commerce Commissioner Susan Bell — attended CEA’s holiday party at the Old Ebbitt Grill in Washington, according to emails.

In 2013, the newly-elected McCrory, formerly a Duke Energy executive, joined the coalition, adding an important player in the group’s push for drilling off the South Atlantic coast. The group had a new chairman in Parnell, who before entering office had been ConocoPhillips’ chief lobbyist in Alaska and had worked on energy for Patton Boggs, a D.C. lobbying firm that represented Exxon Mobil.

As part of the coalition’s effort to establish itself, the governors and CEA formalized their relationship with a memorandum of understanding designating CEA as volunteer staffwith specific duties to manage the organization. It held a “strategy session” with the American Petroleum Institute.

In October, the coalition convened at the Beau Rivage Resort and Casino in Biloxi, Mississippi, alongside the annual gathering of the Southern States Energy Board for what would be a formative meeting. The following year would present the first opportunity for the group to weigh in on the next five-year drilling plan, and the governors and CEA wanted to make sure they were prepared to make their case.

Govs. Parnell, McCrory and Bryant, along with staff of the other governors, met for more than an hour in one of the resort’s ballrooms with executives from Exxon Mobil, Shell, Spectrum Geo — a seismic testing company — and other energy groups, including the Southeastern Coastal Wind Coalition, to hear their concerns, according to a meeting agenda.

Briefing documents prepared by CEA include talking points on the economic benefits of drilling, saying, “the key is to echo these messages to Congress and the Obama Administration, encouraging them to pursue a sensible path that allows for Atlantic leasing.” The document adds that “coastal governors, legislators, and other stakeholders should play a lead role in delivering the messages below to the Administration and to Congress.”

According to notes from the meeting prepared by CEA’s Joubert, Randall Luthi, president of the National Ocean Industries Association, an offshore industry group, advised the governors that they could suggest to the Interior Department which areas should be leased, and he “urged the governors to keep their areas of potential interest as broad as possible.” He also warned of “increasing activism by NGOs against seismic activity and cautioned the governors about some of these groups’ false rhetoric.”

The day after the meeting, Tony Almeida, a senior adviser to McCrory, sent an email to Holt saying the governor had agreed to serve as vice-chairman of the coalition. “Great news, Tony!” Holt replied, adding, “Great work yesterday. Pat was outstanding! Lots of key action items. We can’t thank you enough for all your support and leadership on OCSGC. 2014 is going to be… interesting. :)”

An “interesting” year

This year, the debate over drilling in the Atlantic picked up significantly just as the coalition finally gained the sort of direct access to the Obama administration it had been seeking. And, the emails show, CEA played a critical role in helping the governors respond.

Two weeks before the governors’ meeting with Jewell that cold February morning in Washington, officials from Alaska and North Carolina had a series of email exchanges and phone calls with CEA’s Joubert to prepare for the meeting. Joubert advised Donald van der Vaart — North Carolina’s deputy environment secretary, who had been tasked with preparing McCrory — on specific policies, such as what to request regarding seismic testing. Van der Vaart asked Joubert to send talking points, noting that a previous briefing book she had sent was “an amazing resource.”

In that meeting at the Willard, Jewell reportedly told the governors that her job isn’t “to get in the way of development,” but rather “to make sure it’s done right.” She and her staff also noted that environmental organizations had increased scrutiny of seismic testing, so her department would make sure appropriate mitigation measures were in place to protect marine animals.

Just days after the meeting, the Interior Department released a long-awaited environmental assessment that would allow seismic testing, and the governors coalition decided to defer to industry for their response. “Natalie — Would you be able to check with NOIA and/or API to see where they are on their respective reviews/analyses?” wrote Butzlaff, the Parnell staffer, in March, referring to the National Ocean Industries Association and the American Petroleum Institute, and calling Joubert by her first name. Joubert responded that the industry hadn’t yet reached consensus, but that it “has concerns more broadly that setting a precedent for stringent mitigation measures in the Atlantic could affect future measures in the Gulf and the Arctic.”

This past summer, the Interior Department said it would begin reviewing applications for that testing, with those more stringent measures in place. At the same time, it began accepting comments from industry, advocacy groups and other stakeholders on which areas it should open to drilling beginning in 2017.

Representatives of the governors coalition have maintained that it is an open and transparent group that strives to include different viewpoints. But the Center was only able to learn the details of the organization by submitting records requests — which North Carolina still has not provided — and there’s no evidence that opponents of drilling have been invited to any meetings.

Indeed, critics point to that North Carolina meeting earlier this month as the perfect illustration of what’s wrong with the way the governors coalition operates. On Nov. 6, North Carolina hosted a meeting on the five-year planning process that focused on the Atlantic. Officials from the Department of Environment and Natural Resources told journalists and environmental groups that the event was invitation only and that “neither special interest groups nor industry representatives” would be present.

That was true in regard to environmental groups — but apparently not for others. During the event, reporters waited in the halls of Raleigh’s Nature Research Center as state and federal officials listened to panel discussions that featured, among others, a CEA staffer and someone from the Center for Offshore Safety, an industry group.

McCrory did allow reporters in, but not until after the meeting was finished, and industry groups had given their presentations. McCrory’s position hasn’t wavered, and he made that clear, telling reporters that “North Carolina ought to participate in our country’s energy independence.”