Gallon Enviro Letter: Enron Reports Via NY Transfer News * All the News That Doesn't Fit ************************************************************* THE GALLON ENVIRONMENT LETTER 506 Victoria Ave., Montreal, Quebec H3Y 2R5 Ph: (514) 369-0230, Fax (514) 369-3282 Email cibe@web.net Vol. 6, No. 11, May 28, 2002 ************************************************************* U.S. GOVERNMENT HELPED FINANCE ENRON'S ENVIRONMENTALLY UNSOUND PIPELINE DEVELOPMENT IN BRAZIL Enron Corp.won the promise of US $200 million in federal financing from the U.S. for a 390-mile natural gas pipeline from Bolivia to Brazil through the Chiquitano Dry Tropical Forest. Enron built the natural-gas pipeline directly through South America's largest remaining undeveloped swath of dry tropical forest, a region rich with endangered wildlife and plants. The pipeline, completed late last year, and its service roads have opened the forest to the kind of damage environmental groups had predicted: Poachers travel service roads to log old-growth trees. Hunters prey on wild game and cattle graze illegally. An abandoned gold mine reopened and its workers camp along the pipeline right-of-way. Perhaps most stunning, however, to many federal employees who reviewed the project, was how Enron persuaded a U.S. agency, the Overseas Private Investment Corp., (OPIC) to support the pipeline, even though the agency was charged with protecting sensitive forests such as the Chiquitano. "It shouldn't have been done," said Mike Colby, a former Treasury Department senior environmental adviser and now a corporate consultant. "The forest had already been declared by the World Bank as "one of the two most valuable forests in Latin America." And OPIC chose to ignore that under pressure from George Bush?s close friend, Kenneth Lay. While Enron was seeking billions in OPIC loans and insurance, Enron lobbied Congress to save OPIC from extinction. Enron needed OPIC's backing for Cuiabá because no commercial bank would finance it. Germany offered $165 million in loans, but the support was contingent on OPIC's pledge. "We had to have that OPIC board vote before we could actually start the construction," Enron Vice President John Hardy Jr. said. Enron also included Cuiabá in an transaction to inflate company revenue and hide debts and losses and enrich several top Enron executives. Enron bookkeepers recorded a $65 million profit from the project before the pipeline had delivered any gas. But the true numbers, not known until now, show that Cuiabá came in three years late and more than 50 percent over budget, ballooning to $750 million from $475 million. After triumphing in one of OPIC's most contentious financing battles, Enron ultimately lost its loan money in February 2002 after missing key funding deadlines. OPIC is now reviewing its handling of Cuiabá and has asked the U.S. Justice The actual project began under the Presidency of Bill Clinton, who, himself, was lobbied extensively by Enron. What is more interesting is that OPIC?s President and Chief Executive Officer (CEO),George Muñoz, appeared to be under the direct influence of Enron and Kenneth Lay. Munoz took an unusual interest in the Enron Cuiabá funding request and exerted intense pressure down the line to get the project funding approved. "I never saw anything during my time with Muñoz that rivaled his determination with Cuiabá," said a former senior official, who requested anonymity. "His commitment and his determination to stick with Cuiabá so stands out, it is so striking." Muñoz arrived at OPIC in 1997 and two months after taking charge, Muñoz invited Enron then-chief executive Kenneth L. Lay to speak to an OPIC employee retreat about "the kind of investment support you will need from international agencies like OPIC." In the Muñoz era, Enron increasingly turned to OPIC to fund risky projects in developing countries. With $3 billion in OPIC loan pledges, Enron was the agency's largest customer in the 1990s. At the same time, Enron battled a congressional coalition seeking to cut "corporate welfare" by killing OPIC during its 1997 and 1999 re-authorization votes. In 1999, Hardy, Enron's Cuiabá lobbyist, led industry groups working Congress to save OPIC. Lay wrote every member of Congress in April 1999 seeking votes for OPIC reauthorization. The effort paid off, and, to celebrate, Enron executives joined trade groups to fete OPIC employees at a posh holiday party. As Enron's reliance on federal agencies grew during the Clinton administration, the company boosted its soft money donations to Democrats. From 1998 to 2000, as Enron pursued OPIC loans, the company's increased donations to the Democratic Party by a factor of five, to $533,000. Just after OPIC's vote, Cuiabá became enmeshed in byzantine financial program that now is under investigation by the U.S. Justice Department. In September 1999, Enron sold a 13 percent stake in the pipeline for $11.3 million to LJM1, a partnership controlled by Enron's then-chief financial officer, Andrew S. Fastow. Source, "Enron Pipeline Leaves Scar on South America: Lobbying, U.S. Loans Put Project on Damaging Path," by James V. Grimaldi, the Washington Post Washington, D.C., May 6, 2002. Visit the Enron website at http://www.enron.com/corp/ . ************************************************************************ BUSH AND CHENEY COULD HAVE INTERVENED AND STOPPED ENRON AND HELPED CALIFORNIA, BUT THEY DIDN'T - SAYS NEW YORK TIMES The New York Times reported that, "throughout California's energy crisis early last year, President Bush and Vice President Dick Cheney strongly opposed any government intervention or price controls intended to rein in the surging costs of electricity." Two of California's most prominent politicians who called for federal intervention, Gov. Gray Davis and Senator Dianne Feinstein, both Democrats, reacted with anger at the release of documents showing that Enron traders had used questionable strategies intended to increase the company's profits from trading power in the state using such names as "Fat Boy" and "Death Star". Both Mr. Davis and Ms. Feinstein criticized what they said was the Bush administration's failure to heed their suspicions that more than just market forces were to blame for the enormous price increases in wholesale electricity in the state. They had suspected market manipulation as the cause of soaring wholesale power prices that pushed one of the state's largest utilities, PG&E, into bankruptcy and drove another, Edison International, to the brink. "Those who suggested that the problem had nothing to do with manipulation turned out to be plain wrong," Mr. Davis said. "It's now clear that manipulation was the strategy." Senator Feinstein said she tried "three or four times" to discuss the state's energy crisis with Mr. Bush last year, but the president refused to meet with her. "What I wanted to do was communicate those suspicions directly to the president," Ms. Feinstein. Instead, Ms. Feinstein said she settled for two meetings with Mr. Cheney as part of large groups one on March 27, 2001 the other on June 12, 2001. Both meetings were brief, she said "Their attitude was laissez-faire, let the market do what the market does, but it was a broken market," she said. She said that Mr. Cheney "spoke but did not listen much" during both meetings. "Everyone gave Enron great deference," Mr. Davis said. "Enron was the mother ship of deregulation. They were given great weight." Senator Feinstein lamented that she was not given the same access to the president that Enron representatives had. "Here is a company that was as ribald, as brash, as swashbuckling and as unethical as any company I can possibly conceive of," she said of Enron. "And they had major access to this administration," she added. "But the senior senator California Energy Stance Faulted," by Don Van Natta, Jr., New York Times, May 7, 2002. **************************************************************** BUSH GOVERNMENT TAKES GLOBAL CHANGE RESEARCH OUT OF SCIENCE AND PUTS IT INTO COMMERCE DEPARTMENT Normally one would be happy that the U.S. Department of Commerce would take such an interest in the environment. But, unfortunately under President George Bush, the Commerce Department is more likely to stunt and bury the environment work of the U.S. Global Change Research Program (USGCRP). He has shifted the oversight of the Global Change program from a prestigous scientific steering group to the Commerce Department. White House officials say that the reorganization will make climate-change research programs more relevant to government policy as well as improve coordination of the entire research effort. At the moment, climate change research is coordinated by the USGCRP which was set up in 1989 by former President George Bush. USGCRP embraces six agencies including the National Aeronautics and Space Administration, the National Science Foundation, and the Environmental Protection Agency and is run by researchers in an inter-agency office that coordinates those various programs. Under the proposals, a new Committee on Climate Change Science and Technology Integration, whose members will include most members of the Cabinet, will be responsible for making recommendations to the President on climate-change issues and setting research priorities for climate change. Two new offices, a Climate Change Science Program Office headed by the Assistant Commerce Secretary for Oceans and Atmosphere, and a Climate Technology Program Office run out of the Energy Department, will coordinate the government's climate-change research. Both offices would report to an inter-agency working group, which in turn would report to the committee chaired by the Secretary of Commerce. The present USGCRP would be subsumed under the new organization. Source, Science and Environmental Policy Update for May 3, 2002, A Bi-Weekly Publication of the Ecological Society of America. Visit the USGCRP website at http://www.usgcrp.gov/ . ******************************************************************** EPA OFFICIAL DENIES 'SHILLING' FOR UTILITIES ON CLEAN AIR REVISIONS An Environmental Protection Agency official on May 1, 2002 denied that the agency is "shilling for industry" with its proposal to replace the Clean Air Act's New Source Review (NSR) program with a cap-and-trade mechanism based on the highly successful acid rain program. The Clean Air Act's NSR program requires older power plants to upgrade with the latest pollution control technology whenever major modifications are made. Jeffrey Holmstead, EPA Assistant Administrator for Air and Radiation, contended that NSR has not been effective in reducing power plant emissions and has resulted in extensive litigation. Administration critics say revising NSR is being proposed at the behest of the electric industry, which was slapped with multimillion-dollar lawsuits by the Clinton administration for non-compliance with NSR requirements. While the electric industry favors replacing NSR with a cap-and-trade system, the plan is opposed by environmentalists and pollution control officials who believe that the cut in power plant emissions including nitrogen oxides by 67 percent, sulfur dioxide by 73 percent, and mercury by 70 percent is not enough. Holmstead was questioned sharply by Republicans as well as Democrats for EPA's failure to respond to members' requests for technical data that would support the major goals of the clear skies initiative. In response, Holmstead said that the EPA would deliver extensive computer modeling programs used to substantiate its proposals "within the next two weeks." See more at the website http://www.mapcruzin.com/news/bush042202a.htm . Also see the US EPA website on air at http://www.epa.gov/ebtpages/air.html . ********************************************************************* US EPA CHRISTIE WHITMAN LETTING POLLUTERS OFF THE HOOK Polluters that exceed federal clean water standards are getting an alternative to reducing discharges or installing new controls. The U.S. Environmental Protection Agency under President George Bush's administration is going to let polluters buying credits from others polluting below their legal limits. The idea "offers greater flexibility and incentives to states, tribes and companies to comply with the Clean Water Act," said Environmental Protection Agency chief Christie Whitman. The plan is similar to a market-based initiative the Bush administration wants for air pollution. It is aimed at reducing urban stormwater and sanitary sewer overflows, agricultural runoff and air pollutants that fall into waterways. "Trading provides incentives for voluntary reductions from all sources to improve and maintain the quality of the nation's waters," she said. The EPA hopes to have the program in place before the end of the summer 2002. The agency considers the proposal a policy change that does not require congressional approval. The EPA says the amount of pollution would balance out. However, environmentalists contend the Clean Water Act does not allow for such trading. President Bush said in February 2002 that he wants mandatory ceilings on total industry output for air pollution from older power plants, and letting companies earn and trade credits would reduce emissions by millions of tons. The EPA already has emissions trading programs to reduce acid rain-causing sulfur dioxide and smog-forming nitrogen oxides. The problem is that the regulated caps and their progressive reductions have not been put in place. Currently, federal law requires that each industrial and municipal facility receive permits from the EPA specifying the amount of pollutants they can discharge into rivers, lakes and streams. The new program would let them buy credits from permit holders whose pollutants are below the permit level. Credit buyers then could legally pollute at higher levels than allowed in their permits without violating the law. "This plans lacks the safeguards to ensure water quality improvement," said Nancy Stoner, director of the clean water project for Natural Resources Defense Council (NRDC). "The risk is that it will unravel existing Clean Water Act protections." It would also result in severe pollution in those areas that have heavy industry that can't meet pollution standards and must by credits from across the United States for other cleaner operations. It would be a form of regional prejudice. Some areas would just remain severely polluted, but still meet the letter of the new George Bush distorted environmental law. The EPA has started pilot projects to test the trading program at Cherry Creek Reservoir, Colo.; Long Island Sound, N.Y.; Fox Wolf Basin, Wis.; Kalamazoo River, Mich.; Lower Boise River, Idaho; and the Chesapeake Bay in six states and the District of Columbia. The NRDC, the Sierra Club and other environmental groups asked the EPA in a letter last month to delay the new program until the agency has a way of measuring whether the credits improve water quality. Source, "EPA Touts Pollution Trading Program," Associated Press, Washington, D.C., May 15, 2002.On the Net: EPA trading policy: