Move over Koch Brothers, San Antonio's Valero Energy is working overtime to stop climate-change legislation and keep the future oily

The "new energy economy" got a boost last week when OCI Solar Power announced a move to our sunny city to manufacture solar components and produce up to 400 megawatts of solar power for CPS Energy. "San Antonio's vision is to occupy a space right at the intersection of environmental stewardship and job creation," said Mayor Julián Castro at a press conference behind La Villita Assembly Hall.

Castro and his predecessor, Phil Hardberger, have called for a bold push into the carbon-free economy to prepare South Texas for a future where global warming finally forces caps on greenhouse gas emissions. While local leaders try to stay a step ahead of the new energy game, San Antonio's Valero Energy Corp. and Tesoro Corporation are using political spending and litigation to lead an historic battle against state and federal policies that threaten the old energy establishment.

Valero and Tesoro were vilified on the West Coast in 2010 when they spent $5 million and $2.3 million, respectively, on Proposition 23, also known as the "California Jobs Initiative." The failed ballot initiative asked voters to postpone the Golden State's greenhouse gas regulations — the first in the nation — until the unemployment rate fell from that year's 12.5 percent to 5.5 percent.

Voters rejected the measure, but Valero doesn't consider it a wasted effort. "Any time you have a chance to influence policy that affects our business, we'll take that, because there are a lot of things we can't control — like crude oil prices," Valero spokesman Bill Day told the Current.

Then-Governor Arnold Schwarzenegger was among Californians pissed off by the oil industry's meddling in their election cycle. "Valero and Tesoro are in a conspiracy. Not in a criminal conspiracy, but a cynical one about self-serving greed," Schwarzenegger told Greentech Media in September 2010. "Does anyone think in their black oil company hearts that they want to create jobs? Valero and Tesoro want to stop the movement from old energy to new energy because it means lost market share."

Prop 23 would have stalled AB 32, California's Global Warming Solutions Act, which was designed to trigger investments in electric vehicles and clean technology by pushing transportation and energy production away from fossil fuels. Voters thwarted Valero's political machinations, but the company managed to get a favorable outcome only a year later.

On December 29, 2011, a federal judge ruled that California's low-carbon fuel standard was unconstitutional because it discriminates against out-of-state fuel sources. The ruling stemmed from lawsuits brought by the ethanol industry, big agriculture, and the National Petrochemical & Refiners Association, or NPRA, where Valero CEO Bill Klesse served as chairman between 2009 and 2011.

The fuel standard would have penalized refiners for using high-carbon-density crude from Alberta's tar sands (which Valero is courting) or corn-based ethanol from the Midwest (where Valero operates 10 ethanol plants). California's Clean Air Board promises to appeal the ruling.

Valero's name hasn't only grown dirty in California. San Antonio's long-awaited solar news last week came the day after Valero diffused a Texas controversy by backing down from a pursued tax exemption that would have stripped public schools and local governments of more than $130 million per year in property tax revenue across the state. Valero filed for the exemption for its Texas refineries in 2007, but its continued push for the tax breaks after the state cut a whooping $4 billion from the education budget upset a coalition of environmentalists, school districts, and parents near Valero's Houston-area refinery. It was a sort of Occupy Valero movement that inspired a series of Associated Press articles.

"If you look at campaign spending or the bald-faced attempt to get tax breaks, Valero sticks itself out there as a corporation that doesn't let an opportunity pass it by regardless of how distasteful or even how unjust this opportunity might be," said Matthew Tejada of Houston's Air Alliance, the group that first warned parents of the exemption. "They're up there with the Koch Industries, I think, in plowing money into politics, policy, legislation, and any other arena where they might receive some business edge."

Although staff at the Texas Commission on Environmental Quality declined the tax exemption, two out of the three TCEQ commissioners — all appointed by Governor Rick Perry — instructed the staff to consider giving Valero a partial exemption anyway. "No one expected such a clear slap at established rules that would have had a huge impact on local and school funding," Tejada said.

Activists accused the governor and commissioners of "crony capitalism" by granting favoritism to a company that was among the leading energy industry contributors to Perry and the campaigns of other top Republicans who won office in 2010.

 

Shareholders strike back

Watchdogs fear Valero will become even more emboldened by the U.S. Supreme Court's Citizens United v. Federal Election Commission ruling, which permits corporations to spend freely on political campaigns without disclosure. Together, Prop 23 and Citizens United triggered a backlash from a handful of progressive groups with enough Valero shares to file resolutions that urge its board of directors to come clean on corporate money funneled to organizations that pay for political advertising.

The Unitarian Universalist Association sought a comprehensive review of Valero's political expenditures with a report to investors. The group received little support, but it inspired others to take action. A resolution by the Nathan Cummings Foundation sought to force disclosure of Valero's political spending to trade associations. It received a favorable response from 35.7 percent of shareholders, enough to pass the resolution. But since it didn't hit the requisite 50 percent necessary to force policy changes, Valero's board voted against disclosure, Day said.

"That's still an impressive number — basically, a third of shareholders said Valero should disclose that type of spending," said Sister Susan Mika of the San Antonio chapter of the Socially Responsible Investment Coalition. "The issue won't go away anytime soon."

The Nathan Cummings Foundation resolution would require Valero to reveal how much it gives to groups like the NPRA and American Petroleum Institute, which started running pro-Keystone XL pipeline advertisements in Midwestern states last week. NPR reported that approval of the pipeline is likely to become a hot issue in the states along the proposed 1,700-miles route from Canada to Port Arthur.

Valero has a reported 20 percent stake in TransCanada's Keystone XL pipeline. It plans to refine tar sands crude into gasoline and diesel at its Port Arthur facility for export to Europe and developing nations. Thanks to a state-level push in California, Valero might eventually have to disclose political spending under the proposed AB 1148, the California DISCLOSE Act. It's a state-level response to both the Citizens United ruling and the Prop 23 push behind the scenes by Tesoro, Valero, Koch Industries, and other energy interests. The act now moving through the state assembly would require the three largest funders of political advertisements to clearly identify involvement with names and logos.

Valero's business model focuses on refining oil and selling petroleum products at "corner store" fueling stations. It differs from the "big five" oil companies like BP and ExxonMobil, which supposedly have greater control over costs since they drill for oil, transport it, and market products in addition to refining.

Valero is the nation's largest independent refiner, so it has managed to compete against the big five, in part, by focusing at least one-third of its capacity on refining "heavy sour" crude. This has earned Valero criticism among environmentalists, who say the cheap and dirty crude results in greater carbon emissions and air pollution.

As heavy crude production declines in Latin America, Valero's long-term strategy looks to source heavy oil from Canada's tar sands. Processing the bitumen in Canada, transporting the heavy crude via Keystone XL, and refining the oil would require about 20 percent more carbon emissions than the refining of "light sweet" crude from, say, the Eagle Ford shale, environmentalists say.

For that reason, none other than NASA scientist-activist Jim Hansen has said the Keystone XL would be "game over" for the planet's climate, while Midwest residents and environmentalists worry a major spill would contaminate the nation's largest freshwater aquifer, the Ogallala.

President Obama put the pipeline on hold, but Republicans are working overtime to put it back into play. With the assist is Valero lobbyist Craig Felner — a former staffer in the George W. Bush White House and aide to Senator Kay Bailey Hutchison — working K-Street to the tune of $167,000 per year. "It just goes to show how the same oil industry insiders cycle through politics," said Ryan Salmon, manager of the Oil & Gas Program at Ceres, a Boston-based coalition of investors and environmental groups active on climate change and water scarcity issues.

Many in the socially responsible investment community say Valero has become a leader in political spending to hedge against environmental regulations. The recent tax-exemption dustup, for instance, was tied to the installation of equipment that reduces pollution near refineries, such as the Valero facility near Houston's East End and Pasadena. Valero argued that installation of pollution-removing hydrotreaters qualified it for tax exemptions, but the TCEQ disagreed. Its staff said such equipment would actually increase pollution in neighborhoods near refineries before benefits could be realized through low-sulfur vehicle exhaust.

"Valero was taking a small loophole and trying to drive a refinery through it," Tejada told the Current.

 

Texas-style cronyism

On December 21, TCEQ's executive director issued a final decision denying the exemption. Valero had until Tuesday last week to appeal, but allowed the deadline to lapse without taking action. "It was ridiculous that a company that was continuously making profits would want more when our schools lost so much from budget cuts," said Patty Gonzales, a parent in the Pasadena Independent School District who traveled to Austin last fall to protest the TCEQ commissioners' support of Valero.

Valero actually reported consecutive losses in 2008 and 2009, however. Day, the spokesman, said the company deserves more credit for avoiding layoffs and maintaining millions of dollars in donations to the United Way and other charities during those lean years. "If we feel like we're paying too much in taxes, we'll go through the appropriate procedures to see if we can reduce it," he said.

Observers say Valero's tax concession last week proves that Texas' powerful energy industry can be held in check, but it takes a budget crisis to mobilize an angry mob of parents, school districts, and community leaders. This type of activism has been especially challenging under the leadership of Perry, the king of crony capitalism, according to watchdog groups that have been tracking Valero's political spending. "The company has clearly had a keen interest in opposing global warming issues, and our governor and our attorney general have been very vocal about challenging federal rules having to do with pollution controls, global warming, and carbon restrictions," said Andrew Wheat, research director at Texans for Public Justice.

Houston activists feel that Valero's insistence on the exemption spoke to the company's political spending on Perry's campaign, though Valero's Day said those accusations are baseless and unfair. Added Perry spokeswoman Allison Castle: "Neither Gov. Perry nor our office has been involved in TCEQ's review or decision on this matter."

But Perry's critics say it's all part of a sophisticated game where political spending at Valero's level automatically gets the company a seat at the negotiating table with an implied quid pro quo. "This is just one example of corporate cronyism," said Chris Young of the Texas Organizing Project. "We make no bones about calling the TCEQ commissioners Rick Perry's commission."

Out of the $2.4 million that Valero's political action committee spent in the 2010 election cycle, nearly $900,000 went to Texas candidates, according to Texans for Public Justice. The oil and gas industry's next highest spenders on Texas politics were ConocoPhillips with $803,451 and Spectra Energy Corp with $483,795.

According to FollowtheMoney.org's 2010 data, Valero's biggest five-digit contributions in Texas included: $78,078 to Rick Perry, $55,000 to Kay Bailey Hutchison (who lost to Perry), $35,000 to Attorney General Greg Abbott, $35,000 to Lt. Gov. David Dewhurst, $22,500 to Rep. Joe Straus, and $10,000 to Comptroller Susan Combs. Forty Valero executives and senior-level employees contributed another $12,500 to Perry in 2010, according to a review of FollowtheMoney.org data.

"Of Rick Perry's industry supporters, the oil and gas industry are clearly the ones he listens to first when considering policy questions," said Edwin Bender, executive director of the National Institute on Money in State Politics, which created FollowtheMoney.org. "That may not be a bad thing in Texas."

Nearly 80 percent of Valero's Texas money in 2010 was spent on incumbents, while 82.8 percent of its Texas money went to Republicans, according to FollowtheMoney.org. And nearly 76 percent of its Texas candidates won elections during the last cycle.

Perhaps the failed efforts of Prop 23 and the Texas tax exemption give a false impression that Valero has a poor batting average on getting returns for its political spending. Those winning Texas Republicans certainly didn't disappoint Valero after their successes. According to Texans for Public Justice, Abbott filed seven lawsuits against the U.S. Environmental Protection Agency during the 2010 cycle. "These included the nation's first frivolous state lawsuit challenging EPA regulation of greenhouse-gas emissions from industrial sites. The rules apply to large industrial plants, including Valero's refineries," according to a TJP report "Texas PACs: 2010 Election Cycle Spending."

Tejada said Valero and the state's oil and gas industry will remain powerful in politics for years to come as long the public relies on oil and gas for transportation. And don't expect Valero to stop fighting as its carbon-based world closes in with new technologies and EPA regulations. "There's a natural fit between Valero and these kinds of Texas candidates who are 'carbon defenders,'" Wheat added.

Yet even if it wins Keystone, Valero remains on a collision course with the rapid development of carbon-free energy technologies, Salmon said. Perry's poor performance in the GOP presidential primary — where he made global warning denial and opposition to environmental regulations a key platform — also suggests cracks in the politics of good-ole-boy, carbon-economy protectionism.

Perhaps even last week's bankruptcy talks by Eastman Kodak Co., the former film giant that floundered with the rapid evolution of digital cameras and smart phones, may be a lesson for Valero of what happens when an industry-leading corporation fails to adapt to change. •

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