By Janet Wilson, THE PALM SPRING DESERT SUN
July 11, 2019
California Gov. Gavin Newsom on Thursday directed his secretary of natural resources to fire Ken Harris, the state’s top oil regulator, after learning from The Desert Sun/USA TODAY and watchdog groups that fracking permits have doubled without his knowledge since he took office and that seven supervisors charged with regulating the industry own shares in major oil companies.
Ann O’Leary, chief of staff to Newsom, sent a letter to Wade Crowfoot, California’s secretary for Natural Resources, asking him to immediately make several changes in the Department of Conservation, including firing Harris.
Harris is the head of the Division of Oil, Gas, and Geothermal Resources, also known as DOGGR. He could not be reached for comment Thursday evening.
O'Leary also told Crowfoot to "continue at full pace the investigation you have already started related to the allegations that employees at DOGGR have holdings in energy companies, which could constitute actual or apparent conflicts of interest, and take the maximum disciplinary action appropriate under law."
In the meantime, she directed him to ensure that all employees and contractors who own oil or gas stocks recuse themselves from all permitting decisions pending individual reviews based on new conflict rules that are being formulated.
On Wednesday, The Desert Sun reported the pace at which fracking permits are issued has doubled since Newsom took office in January, and thousands of permits for new and re-used oil and gas wells also have been approved, angering environmental and public health groups who hoped for a phase-out of the state's billion-dollar industry following the retirement of Gov. Jerry Brown.
The Desert Sun also reported on the findings of two watchdog groups, Consumer Watchdog and FracTracker Alliance, who uncovered records showing that top state regulators and engineers held investments in Exxon Mobil, Chevron, BP, Valero and other petrochemical giants.
Almost half of the 2,300 well permits issued in 2019 have benefited oil companies invested in by agency officials, the consumer groups said.
Consumer Watchdog and FracTracker Alliance uncovered the regulators' personal investments and permit data through public records requests, and the two groups shared the documents with The Desert Sun and the USA TODAY Network.
"This is a good start," said Jamie Court, president of Consumer Watchdog. “This shows the governor wants to change the culture at the agency to make sure it’s free of conflicts and safety comes before the oil companies’ interests. The next move has to be to hold accountable Mr. Harris’ supervisors, who were well aware that this was an agency that was permitting wells with the oil companies’ interests first in its mind and the public last.”
Investments could be up to $100,000
The investments were reported on required disclosure forms completed by agency supervisors or senior officials in March this year. The forms cover 2018 holdings of stock and other securities and show seven senior staff with investments in a dozen of the world's top petroleum companies.
The exact amounts are unclear, because the forms ask supervisors to simply indicate whether their investments are valued at less than $10,000 or between $10,001 and $100,000, or higher amounts.
On Wednesday, the groups asked Newsom to put a freeze on all drilling permits and to clean house at DOGGR.
"We have uncovered outrageous conflicts of interest at the state agency charged with oil and gas well approval and inspections that endanger the public. Oil regulators should not be invested in the same oil companies that they regulate," wrote Court; Adam Scow, senior consumer advocate with the nonprofit; and Brook Lenker, executive director of FracTracker Alliance.
"This scandalous ethical breach is an opportunity to advance your stated goal of curbing drilling and fracking in the state," they added. "Reform begins with ethical and honest regulation."
In her letter to Crowfoot on Thursday, Newsom's chief of staff said:
"The governor is taking these actions today because he has learned that since January 2019, well stimulation (fracking) permits have increased without his knowledge. The governor has long held concerns about fracking and its impacts on Californians and our environment, and knows that ultimately California and our global partners will need to transition away from oil and gas extraction. In the weeks ahead, our office will work with you to find new leadership of DOGGR that share this point of view and can run the division accordingly."
Harris was not among those DOGGR officials and employees who disclosed oil industry investments. Among those who did disclose investments were several of his senior staff, including:
- The agency's deputy director of programs, David Gutierrez, reporting to Harris
- The agency's enforcement unit supervisor, Simeon Okoroike
- District supervisors, deputies and senior engineers in various oil-producing sections of the state.
Nicholas Abu, a senior oil and gas engineer overseeing the state's underground gas storage program, reported owning a side gas consulting business called Sandstone Reservoir Solutions.
The Desert Sun reached out on Wednesday to the eight supervisors who disclosed investments or consulting. Only one, Gutierrez, responded.
Deputy director: 'I'm trying to follow the rules'
Gutierrez told The Desert Sun that when he was hired less than two years ago, he informed DOGGR officials he held shares in Exxon Mobil and Magellan Midstream Partners and asked if he should sell them. He said he was told that because California was not currently regulating either company, he didn't need to divest. He said he was told that if a conflict did arise, "you would just kind of step back" and leave decisions about the company to other agency officials.
According to Gutierrez’s job description, he has "direct program management responsibility" of several statewide well programs and is responsible for compliance with state environmental laws. He's also charged with formulating and implementing policies to support DOGGR's mission "to prevent damage to life, health, property and natural resources, while also encouraging the wise development of oil, gas and geothermal resources to increase the ultimate recovery of these natural resources."
He filled out Form 700 as required this March, checking the boxes showing that in 2018, he owned between $10,000 and $100,000 worth of investments in Exxon and Magellan.
He said as soon as the agency received a Public Records Act request from the two watchdog groups in late April and he was notified, he “instantly” sold the stocks. He said, "I asked our legal office and I asked our ethics attorneys" and "they calmed me down and said 'don't worry about it.' "
"I'm trying to follow the rules," Gutierrez said.
He said he earned about $14,000 by selling 200 shares in Exxon Mobil, and about $25,000 from just under 400 shares he had owned in Magellan. He said he had owned both sets of shares for at least 10 years and had all but forgotten about them. Prior to DOGGR, he said he was in the federal sector, and held a variety of posts in Washington, including "doing national security work."
Gutierrez also said he is not involved in permitting, and wasn’t aware until April that Aera Energy was a subsidiary of Exxon Mobil, one of the companies in which he owned stock.
Aera Energy, which is jointly owned by Exxon Mobil and Shell affiliates, has received the lion’s share of fracking permits this year, and says on its website that it spent most of 2017 "educating" DOGGR about why an alternative method to verify well integrity would work. Without DOGGR approval, it “might have been forced to spend millions of dollars abandoning and re-drilling wells.”
Court, the president of Los Angeles-based Consumer Watchdog, was harshly critical of Gutierrez’ response, saying that the highest-ranking civil servant in the agency overseeing the oil industry should know that Aera and Exxon Mobil are linked, and if he doesn’t, he should find a new job.
211 fracking permits issued in first half of 2019
Others said it is not just conflicts of interest that are at stake, but public health. They want the oil industry phased out completely in the Golden State, both to stem climate change and to keep dangerous toxics out of air and water.
Since Newsom took office, DOGGR has been issuing permits for controversial hydraulic fracking at twice the rate they were issued under Brown, according to a Desert Sun review of records: 211 permits were issued in the first half of 2019, compared to 223 in all of 2018 and 228 the year before.
Batches of applications are being processed in as little as three weeks, with most going to Aera Energy. Key positions in the agency also continue to be held by former California oil company executives, engineers and other industry staff.
An analysis by the Last Chance Alliance — a network of organizations that says it was “formed to address the ongoing climate, health, and environmental justice emergency caused by the oil and gas industry in California” — found at least 20 of DOGGR’s appointments and hires during Brown’s tenure came from oil companies operating in the state, and, the group said, all are still there, including two top officials.
William "Bill" Bartling, a DOGGR chief deputy who oversees field operations across the state, previously headed or managed several oil-related companies, and worked for Chevron for 14 years. Chevron has received 616 permits from DOGGR this year for new wells or to rework existing wells. Bartling did not report any investments in oil companies.
The so-called "revolving door" and accelerated permitting has concerned environmentalists. Many hoped for major change under Newsom, who signed a pledge not to take any oil industry donations during his campaign.
But backers of the industry note that its products play a vital role in everyday life, not just in transportation but in myriad other products. The Western States Petroleum Association or WSPA, a lobbying and trade group, as well as major oil companies, have routinely been among the largest donors to candidates. They are also active in opposing or supporting ballot measures seen as harmful or helpful to the industry. There are 368,000 jobs in California connected to oil and gas operations, with $24.6 billion in tax revenues, according to WSPA's website.
Foes of the industry are heartened that Newsom included $3 million in his first budget for a pair of studies: one on how to phase out fossil fuel use in California and the second on accelerating electric vehicle use. But they say that's hardly enough.
“DOGGR continues to roll out the red carpet for and is doing the bidding of the industry they’re supposed to be regulating,” said Kassie Siegel, Climate Law Institute director for the Center for Biological Diversity, who is based in the Morongo Valley. “The agency has done nothing to change its culture.”
Calls for change at agency date back years
DOGGR was often riven by controversy during Brown’s tenure.Harris was appointed after it was learned his predecessor had agreed to a request from the then-governor to evaluate the Brown family's ranch lands for potential oil holdings. An independent science commission in 2015 determined there were large, unknown risks due to fracking and a second oil extraction technique. The panel recommended a suite of changes to current policies, including a 2,500-foot buffer between oil production facilities and schools and homes, an end to unlined wastewater pits and other measures designed to protect public health and groundwater aquifers near drilling sites.
Under increasing scrutiny by the legislature since the report, DOGGR has pledged for the past four years to put public health front and center as part of an overhaul. But it has not instituted a buffer zone or other recommendations.
The Golden State is the fifth-largest producer of oil in the nation, extracting and refining about 200 million barrels per year, though production has been gradually declining since 1990. To tap last bits of oil in largely exhausted fields, energy companies are increasingly turning to hydraulic fracturing, or fracking, blasting steam down boreholes to fracture rocks holding remnant crude oil.
Oil extraction, production and use have been linked to air and water pollution and serious illness. The Central Valley, greater Los Angeles and the Coachella Valley have the worst ozone smog in the nation, according to air quality regulators. About 80% of that pollution comes from cars, trucks and trains that use petroleum, while another large chunk comes from refineries that process the oil into fuel.