Multinational Monitor

SEP/OCT 2006
VOL 27 No. 5


Greasing the Deal: A Royalty Scam
by Mandy Smithberger

Not Very Sporting: Outdoor Sporting Goods Retail Subsidy Scam
by Greg LeRoy

Relocation Racket: How Relocation Consultants Pit Cities and States Against Each Other
by Greg LeRoy

South Africa Embraces Corporate Welfare: Mega Deal Subsidies Over Services for the Poor
by Patrick Bond

The Corporate Beneficiaries of the Medicare Drug Benefit
by Dean Baker

Public Funds Up in Flames: The Incineration Industry Seeks Renewable Energy Subsidies
by Monica Wilson

Green Mountain's Other Faces: The Dirty Side of Clean Energy
by Andrew Wheat


The Big Box Swindle: The True Cost of the Mega-Retailers
an interview with Stacy Mitchell


Behind the Lines

Letter to the Editor

The State of Corporate Welfare

The Front
Climate Changing Africa -- African Inequality

The Lawrence Summers Memorial Award

Book Note
The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer

Names In the News


Green Mountain's Other Faces: The Dirty Side of Clean Energy

by Andrew Wheat

Austin-based Green Mountain Energy sells ecologically correct electricity to people willing to pay a premium to feel good about kilowatts. The privately held company resells electricity generated from renewable energy sources to about 150,000 customers in five deregulated states. In these deregulated markets, consumers can purchase from energy generators based anywhere, rather than just those operated by their local utility (the utility continues to delivery energy over lines directly to consumers).

But a company that should be booming as concern over climate change intensifies, is instead facing serious problems. The implosion of Enron reversed a national deregulatory trend that had fueled Green Mountain’s growth. Company insiders blame Enron for regulatory changes in 2005 that drove Green Mountain out of its largest market, Ohio.

Now the company could face new hurdles. Two of the company’s principal owners — oil giant BP and Dallas’ billionaire Wyly brothers — are under civil and criminal investigations. Will all this negative publicity turn off Green Mountain customers who pride themselves on knowing where their kilowatts come from?

A federal grand jury in Dallas is investigating allegations that the Wylys abused dozens of offshore tax shelters to bilk Uncle Sam out of tens of millions of dollars. A U.S. Senate probe concluded in August that the brothers used some of these offshore accounts to pump $187 million in tax-sheltered funds into Green Mountain. The Senate investigation, which alleges that Green Mountain has lost money every year of its existence, raises questions about whether Green Mountain would have survived without massive transfusions from the Wylys’ legally dubious tax shelters.

Congress and federal investigators also are trying to ascertain if negligence by BP — which bought a major stake in Green Mountain in 2000 — contributed to the pipeline corrosion that spewed a record 200,000 gallons of oil over Alaska’s North Slope in August, and the 2005 explosion at BP’s Texas City refinery that killed 15 workers. Is this what feel-good, renewable energy looks like?

Gimme Shelter

Louisiana natives Sam and Charles Wyly worked for IBM in the late 1950s before they launched their own computer firms that they later sold for $8 billion at the height of the tech bubble. Other Wyly ventures over the years have included Bonanza restaurants, Michaels craft stores, insurer Scottish Re, Ranger Capital, Maverick Capital and Green Mountain. Yet the Wylys’ most famous investment is George W. Bush. The Washington-based Center for Public Integrity reported in 2000 that the Wylys ranked among the top 10 patrons of Bush’s political career. This relationship has been mutually beneficial.

In a scandal that marred his gubernatorial administration, some of Bush’s University of Texas regent appointees helped award lucrative contracts to invest portions of the university’s $13 billion endowment to investment firms with close ties to Governor Bush. The fattest of these contracts went to the Wylys’ Maverick Capital. Later, Sam Wyly, aided by former Green Mountain executive and current Representative Jeb Hensarling, R-Texas, bought $2.5 million in attack ads during the 2000 GOP primary. Those ads portrayed Bush as a champion of clean skies and his opponent, Senator John McCain, R-Arizona, as air pollution incarnate. Telling the New York Times at the time that he was devoting his life to renewable energy, Wyly said, “I’m a monomaniac with one goal.”

Another apparent monomaniacal Sam Wyly goal — sheltering his wealth — reportedly was inspired by the huge divorce settlement that his first wife obtained in the early 1990s. The Wyly family then embraced offshore tax shelters so aggressively that they appear to have broken U.S. tax laws, according to “Tax Haven Abuses,” a 370-page report by the U.S. Senate Permanent Subcommittee on Investigations.

To defer or dodge taxes, many wealthy people in the United States transfer assets into trusts that typically are set up to benefit family members or charities. To legally dodge the IRS, however, a benefactor must cede control over trust assets to independent trustees. The Senate report — half of which addresses “The Wyly Case Study” — found that the Wylys directed their trustees to buy extravagant art, jewelry and real estate that wound up in the hands of Wyly family members. The report also found that the Wylys got trustees to pump millions of tax-sheltered dollars into Wyly-related companies — including Green Mountain.

An ex-trustee and a former Wyly family financial adviser told the subcommittee that some trustees questioned “recommendations” by the Wylys for the trusts to invest in money-losing Green Mountain. “The trust protectors identified no instance in which a trustee initiated a business investment on its own,” the report says, “and no instance in which a trustee actually declined to supply [Wyly] requested funding.” The report cites 2001 correspondence between Charles Wyly and then-Green Mountain CEO Dennis Kelly as evidence that Charles Wyly directed “the use of untaxed funds that he had placed offshore, brought back onshore to invest in Green Mountain, and then wished to deploy elsewhere.” The Senate report suggests that the Wylys’ control over these trusts made them illegal tax shelters.

“Sam and Charles acted at the direction, advice and counsel of lawyers, accountants and professionals,” a Dallas attorney for the Wylys, William A. Brewer, said in a written statement. “The Wylys believe that their actions were entirely proper.” The statement said that the Senate report “contains a number of misunderstandings of the facts and the applicable law.” It added that, “The Wylys are proud of the work done by Green Mountain.”

The Wylys were early investors in Green Mountain’s precursor and bought the privately held company outright from a Vermont utility in 1997. Sam Wyly himself chaired Green Mountain’s board before BP and the Dutch utility Nuon bought major stakes in the company in 2000. For the past three years, Sam Wyly’s son, Evan, has chaired Green Mountain’s board; an executive of the Wylys’ Ranger Capital also has sat on that board, as has a BP executive. As of 2005, the Wyly family and related entities controlled 36 percent of Green Mountain stock. Wyly-founded Maverick Capital, where Evan Wyly works, controlled another 12 percent. Yet it is unclear what these stakes in this privately held company are worth today. Citing the company’s chronic losses, a Maverick official told Senate investigators that the hedge fund recently downgraded the market value of its Green Mountain stock to zero. A Maverick Capital official declined a request to comment for this article.

Declining to discuss its investors, Green Mountain disputed the notion that it is in dire financial straits. “Over the last several years we have been growing profitably, have been cash flow positive, and have not required any additional external funding,” the company said in a written statement.

Beyond Petroleum?

Another major Green Mountain investor with public relations problems is London-based oil giant BP. Around the time that BP and Amoco merged in 1998, BP recast itself as an enlightened energy giant, suggesting that its initials no longer stood for “British Petroleum” but for “Beyond Petroleum.” BP’s leadership acknowledged a scientific consensus linking fossil fuels to global warming. And the company made significant investments in renewable energy ventures, including Green Mountain. Yet this image of the planet’s number two oil giant has been battered recently by disasters worthy of a corporation run amok.

Nobody was injured in an explosion at BP’s sprawling Texas City refinery in March 2004. But the resulting U.S. Occupational Safety and Health Administration (OSHA) investigation found “serious” safety violations that triggered a $63,000 fine against a company with $20 billion in annual profits. Shortly after receiving another $110,000 fine, for an accident that scalded two workers to death, this refinery blew up again in March 2005, injuring 170 people and killing 15 [see “The 10 Worst Corporations of 2005,” Multinational Monitor, November/December 2005]. Most of the fatalities struck workers attending their last safety meeting in a trailer that was itself a safety violation. It never should have been parked so close to the antiquated vent stack that triggered the explosion. This time, OSHA fined BP a record $21 million for 300 health and safety violations. Federal investigators became so disturbed by evidence of a lax safety culture that they issued an unprecedented call for safety reviews of all five of BP’s North American refineries.

BP also operates the largest U.S. oil field at Prudhoe Bay on behalf of a consortium of oil companies. A corroded pipeline there dumped a record 200,000 gallons of oil over two acres of Alaska’s North Slope in March 2006. At the time, the U.S. Environmental Protection Agency already was investigating allegations that BP violated the Clean Water Act by ignoring the corrosion of this aging pipeline. Pipeline workers long have warned that the company bullies anyone who raises safety concerns.

This past June, federal regulators and prosecutors simultaneously filed civil and criminal complaints that allege that BP’s Houston energy traders illegally cornered the $30 billion U.S. propane market in early 2004. Such a scheme would have hit hardest in rural areas that rely on propane heat. Audio recordings of BP traders form part of the government’s case. “In terms of whether we should do this or not,” a BP trader is quoted saying on tape, “what we stand to gain is not just that we’d make money out of it, but we would know from thereafter that we can control the market at will.” Although such actions could be ascribed to a few rogue traders, prosecutors allege that, afterwards, BP management helped circulate a list of “lessons learned.”

BP has denied manipulating propane markets and pledged to contest those allegations in court. Its chief executive, John Browne, quickly flew in from London to the scenes of both the Texas City and Prudhoe Bay disasters, pledging to fix the root causes of these problems.

Asked if these disasters should concern Green Mountain customers, Washington-based BP spokesperson Sarah Howell says that BP owns 18 percent of Green Mountain but that the oil giant exercises no control over that company. As a result, she says, BP’s woes have nothing to do with Green Mountain. “There is no tie between any of that,” Howell says.

Another BP spokesperson says that the main criterion for Green Mountain customers should be the environmental impact of its kilowatts.

Declining to be quoted, an environmentalist with Green Mountain ties called the Monitor to warn that negative publicity about the Wylys and BP should not be allowed to harm Green Mountain’s clean-energy mission. Green Mountain — which has urged consumers to consider where their kilowatts come from — understandably prefers not to talk about the major stakes that the Wylys and BP have in the company. Yet deregulation requires consumers to weigh the pros and cons of competing providers. For some customers, Green Mountain’s ownership may muddy this equation.

Andrew Wheat is research director for the Austin, Texas-based Texans for Public Justice.

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