San Francisco Bay Guardian - October 8, 1997



How the Energy Foundation has abandoned environmentalists and used big money to greenwash the private utility industry.


By Savannah Blackwell


The staff at the little nonprofit that was trying to fight the private electric companies realized there was trouble on the way when one of its major funders pulled up on a motorcycle to deliver this message: Get with the program and stop rocking the boat.


It was the autumn of 1992, and The Utility Reform Network (TURN) was discussing a program that would let the utilities make a profit from selling less electricity. The way the program was supposed to work, private companies such as Pacific Gas and Electric Co. would be financially rewarded for getting residential and industrial consumers to invest in energy-efficient appliances, such as better light bulbs and refrigerators and better motors for factories, that would reduce the demand for power.


The Energy Foundation, a San Francisco-based organization that claims to finance innovative approaches to energy issues, had given TURN a two-year, $120,000 grant to analyze the program, which was known as demand-side management (DSM). TURN had used the money to hire a leading utility economist, Eugene Coyle.


Coyle quickly discovered the DSM theory was flawed, and testified against it to state regulators. It made no sense, he said, to count on a private utility to “unsell” its product. “I saw the utilities selling as much electricity as they ever had,” Coyle recently told the Bay Guardian.


But that wasn’t what the Energy Foundation, created in 1991 by Pew Charitable Trusts and the John D. and Catherine T. MacArthur and Rockefeller Foundations, wanted to hear. Eric Heitz, a senior program officer for the foundation, drove to the TURN office on his motorcycle to personally deliver that news to Audrie Krause, TURN’s executive director at the time.

On Dec. 21, 1991, Heitz followed up with a letter reminding Krause that the foundation wanted different results for its money. “Frankly,” he wrote, “I’m a bit disappointed in the way things have developed so far….


“I’m concerned that TURN’s DSM-related testimony, other written materials, and participation in advisory proceedings are not focused on the goal spelled out in your [grant] proposal: To ensure ‘that the Collaborative will succeed.’”


The “Collaborative” was a project implemented largely by Ralph Cavanagh, codirector of energy programs at the powerful, lawyer-packed environmental organization called the Natural Resources Defense Council (NRDC). In 1989 Cavanagh came up with the notion that key environmentalists should meet behind closed doors with top executives from private utilities to smooth over their differences and hammer out energy-efficiency programs. He called the project the California Collaborative. (In 1992 Cavanagh stated publicly that he regretted the term, because “ ‘collaboration’ still has overtones of Vichy France.”)


Coyle didn’t back down. In May 1993 he told California Public Utilities Commission officials that despite DSM programs the utilities were still raking in billions of dollars in profits, and that as long as they were earning a lot of money they had a strong incentive to push more sales. Coyle proposed what he saw as the only valid way to discourage increased sales of energy: cutting the utilities’ fat profit margins.


That, apparently, was not the solution the Energy Foundation was looking for. TURN’s grant was terminated.


“We understood the Energy Foundation wasn’t happy with the policies we were putting forward and that it was clear we wouldn’t be re-funded,” Coyle told the Bay Guardian.


Coyle is unusual: He’s an energy activist who has refused to change his policies to meet the needs of the foundation that controls a huge amount of the available money for energy research. And he’s willing to talk about it publicly.


“The Energy Foundation is fast creating a monopoly in the energy-funding world,” Jeffrey St. Clair, environmental editor of the progressive newsletterCounterPunch and an expert on foundations, told the Bay Guardian. “If you get a reputation for being obstinate or giving [private utilities] hell, you can be tarred. And god forbid you criticize [the Energy Foundation] publicly.”


The Energy Foundation is a clear and disturbing example of a growing trend in progressive politics. A handful of private foundations that provides the lion’s share of funding for activist groups is setting the political agenda – and that agenda is increasingly pro-business and pro-private utility.


The Energy Foundation, like most other so-called progressive funders, rarely puts money into organizations that challenge big business. The foundation stresses cooperation, working with private industry to forge consensus-based solutions.


That’s a big problem for environmental activists. A handful of large corporations controls the vast majority of the energy industry, and many efforts to work cooperatively with those businesses have helped neither consumers nor the environment.


Mark Dowie, environmental writer and author of Losing Ground: American Environmentalism at the Close of the Twentieth Century, told the Bay Guardian. “The result is a moderating force in American politics and science. [The foundations] are moderating radicalism.”


Hal Harvey, the Energy Foundation’s congenial executive director, flat-out denies that the foundation attempts to control the groups it funds.


“A funder doesn’t control an artist’s art. Nor do we control the strategies of our groups,” Harvey told the Bay Guardian.

As for what happened to TURN’s grant, Harvey said, “[Eugene Coyle] quit doing energy efficiency because he was attacking DSM. He had this bottom line: ‘Anything that helps utilities, we’re against.’ That’s not our bottom line….His work as an energy-efficiency advocate had become less effective compared to other [funding] opportunities we had.”


But Ralph Nader, the consumer and environmental advocate, told the Bay Guardian that the Energy Foundation and many of the like-minded organizations that Energy and Pew fund have effectively created a “new electricity oligopoly.”


“That’s one of the more ominous developments,” Nader said in a recent telephone interview. “The network of funders had become a network of enforcers. And these guys are all on a first-name basis with these corporate [utility] executives. The Energy Foundation is at the front of this….I know groups who keep telling me they can’t talk about it or they will lose their funding.”


Dan Berman, solar-energy activist and author of Who Owns the Sun?, agrees. “There’s an element of fear,” he told the Bay Guardian. “If you don’t buy the line that cooperation with the major players in energy, like PG&E, is the way to go, you won’t get funded….It has a dampening effect. That’s the way it is.”


Free-market power


The Energy Foundation owes its existence to a pair of oil fortunes and one insurance fortune. In 1991 Harvey convinced the Pew foundation (the legacy of Sun Oil) and the Rockefeller Foundation (the legacy of Standard Oil), along with the MacArthur foundation (the legacy of Bankers Life and Casualty), to grant him a total of $20 million over three years to launch a foundation devoted to energy issues. (See “Buying the News,” page 43, for an in-depth look at Pew’s influence on the news media.)


The idea, according to Harvey, was to promote lower energy consumption by providing money to organizations focused on that goal.


“There’s a whole host of environmental problems, from global warming to air pollution, that can’t be solved without dealing with our energy problems,” Harvey told the Bay Guardian in an interview last month.


The idea suited Pew perfectly. Pew is a big supporter of DSM programs and has poured more than $6 million into DSM efforts throughout the country, according to the Philadelphia Inquirer. And Energy has used its Pew money to back nearly 30 DSM programs, the Inquirer wrote. Harvey said the foundation wanted to “push DSM programs” in states other than just California.


Indeed, in Energy’s initial 1991 report, Harvey wrote that “a utility executive is unlikely to pursue efficiency aggressively if his or her company cannot generate a fair return on investment.” He set out the confines within which the foundations would work: “The free market has problems, but it also has great power.” Then he wrote that the group would “help to build alliances between different interests….Despite traditional antagonisms, industry, regulators, environmentalists, and consumers ultimately share an interest in saving money, creating jobs, reducing congestion and air pollution, and in keeping our cities and our forests alive.”


Energy’s initial commitment of $20 million over three years from Pew, MacArthur, and Rockefeller has grown into an annual budget of $11.7 million, $10 million of which the foundation spends each year awarding grants and hosting conferences.


The foundation has comfortable, plant-filled offices in the Presidio, near the Tides Foundation, another self-described progressive organization that critics say uses Pew money to subvert progressive causes (see “Tax-Exempt Secrecy,” page 24).


In fact, the Energy Foundation put up $100,000 in December 1992 to fund research on alternative energy at the Presidio. The fruit of this research: a recommendation in the Presidio general management plan that PG&E take over the system at a cost to the National Park Service of $22 million. After the Bay Guardian revealed the impending sweetheart deal between the NPS and PG&E (see “Presidio Power Grab,” 1/12/94), the park service stated that the power system would be put out to bid at a cost of $13 million. PG&E eventually offered a zero-cost bid to get the contract from the city.


And all through the long, bitter fight to keep PG&E out of the Presidio and give San Francisco a chance to make the new park a public-power beachhead and enforce the Raker Act (the 1913 act that stipulates that San Francisco be a public-power city), the Energy Foundation – whose board includes John Fox, a former DSM manager for PG&E who now works for a Toronto utility – said nothing.


“We’re indifferent to that kind of thing,” Harvey told the Bay Guardian.


The Energy Foundation, Harvey said, takes no position on the merits of public power versus private power and has not funded many public power-oriented organizations.


“The dollars are in the private-utility sector,” Harvey said. “I think public power can be great, but we haven’t done much on that.”


As for promoting energy efficiency at the Presidio, Harvey said that solar cells in front of the Thoreau Center power two electric cars belonging to staffers at the center.


The deregulation debacle


The most significant policy issue that the foundation has been involved in is probably the deregulation of California’s electric utility industry. The results, Nader and others say, have been disastrous.


In fact, critics say, by promoting demand-side management programs that let private utilities appear to be good environmentalists, the Energy Foundation set the stage for the biggest consumer rip-off in state history.


“All the chickens are coming home to roost,” Ed Maschke, who fought the private utilities in Sacramento on behalf of the California chapter of the Public Interest Research Group (PIRG), told the Bay Guardian. “DSM programs made the utility companies seem more reasonable and put a human face on them.”


Utility deregulation has been under discussion for year. Its origins can be traced to a national push by industrial consumers in the early 1990s to make electricity providers compete. And California, where electricity rates are higher than most everywhere else in the country, was the perfect stage. The Pete Wilson appointed commissioners at the California Public Utilities Commission thought it sounded good, taking frequent trips to England, where Margaret Thatcher’s government had already deregulated the country’s electric industry.


Supporters of deregulation say that once the market is open, competition will save millions for consumers. But there was a major obstacle to the opening of the market: California utilities have invested billions in capital-intensive projects, mostly nuclear power plants and other energy facilities, over the past 20 years. Under the old rules, consumers were required to pay for those investments – even though many consumers opposed them. And some $28 billion worth of such investments hadn’t been paid off.


In the deregulated era, private utilities such as PG&E, Southern California Edison, and San Diego Gas and Electric would have had a hard time competing if they had had to absorb the costs of their own past business mistakes. So while they fought to promote the free-market principles of deregulation, they insisted that ratepayers still be forced to pay off the huge “stranded costs” (the difference between the value of initial investments in plants and their current market value) of old investments.


By 1995 the CPUC had approved the notion of sticking consumers with a multibillion dollar tab for highly unpopular investments in nuclear plants while giving private utilities the right to operate free of regulations. At the state legislature, many environmental and consumer activists hoped to get a better deal, but they had a big problem: key environmental groups, particularly the Natural Resources Defense Council, the $25 million political powerhouse, took the side of the utilities on the issue. The NRDC was cofounded in 1970 by Yale Law School graduate John Bryson, now CEO of SoCal Edison and a major figure in deregulation discussions in Sacramento. It has received $3.1 million from the Energy Foundation since 1991 and took $1.13 million from Pew between 1993 and 1995.


Critics call the process “greenwashing”: by praising private companies for very modest conservation efforts and siding with them on major policy issues, environmental groups like the NRDC give the corporations the public credibility they need to get away with political murder.


The point person on the NRDC’s efforts on behalf of the utilities is Ralph Cavanagh, the group’s codirector of energy programs, who operates out of the NRDC office in San Francisco. For years, Cavanagh has been helping the private utilities boost their image. In 1991 he praised PG&E, which was under fire for building the disastrous Diablo nuclear power plant, in a statement attached to the President’s Environmental and conservation Challenge Award.


“PG&E programs benefit every sector of the economy. The farmer, the factory owner, or the family of four can save money and improve the environment through PG&E’s various energy-efficiency efforts,” Cavanagh said at the time.


When deregulation reached the state legislature in 1996, Cavanagh privately took the position that the only important issue was the preservation of demand-side management programs. In the end, when Wilson signed the bill that September, it contained a relative pittance - $2 billion – over the next four years for energy-efficiency programs, research and development, low-income programs, and renewables.


Cavanagh consistently refused to challenge the utilities on the $28 billion bailout. “He argued against addressing stranded costs with any strength many times in many meetings and in many venues,” TURN’s lobbyist, Lennie Goldberg, told the Bay Guardian. “I’ve never seen anyone give away so much and get so little in return….He said you’ve got to cut your deals with utilities to get some things.”


Cavanagh, insiders say, was the first to come to the podium when the deal was ready to go to the floor of the legislature.

“[Cavanagh] was very involved at the table,” Goldberg told the Bay Guardian. “He was one of the first people to get up

and say, ‘We support this thing.’”


TURN initially supported the deal but has changed its position. It now denounces the nuclear bailout as a rip-off of consumers. “It was a bad deal and we should have opposed it,” Goldberg said.


And this summer, when the state senate passed legislation that would authorize bonds backed by consumers to pay for the lost investments in nuclear power plants (see “You Lose,” 8/13/97, and “Ducking Deregulation,” 9/3/97), Cavanagh provided a letter that allowed lawmakers to feel comfortable with it – because, after all, the environmental giant NRDC had signed off on the deal.


“Vote yes … and in doing so maintain California’s momentum toward a truly sustainable electricity future,” the letter read.


When the Bay Guardian asked Assemblymember Kevin Shelley (D-S.F.) to explain why he had voted for the 1996 deregulation bill, he said he thought there were decent environmental and consumer protections in the measure and faxed the NRDC’s letter to the Bay Guardian as proof.


The lunch bunch


Bob Finkelstein, TURN’s attorney for electricity matters, said Cavanagh’s acquiescence on stranded costs was not a surprise. When various consumer and environmental groups signed onto the “Framework for Restructuring in the Public Interest” in 1995, shortly after the CPUC issued its deregulation orders, Cavanagh was not keen on a provision calling for “substantially less than full recovery of stranded costs,” Finkelstein told the Bay Guardian.


“Of all the elements in the Framework, that was probably the one that Ralph was least comfortable with,” Finkelstein said.


“It didn’t surprise me that would be the element he would abandon first.”

Cavanagh’s willingness to go along with utilities’ demands damaged what leverage the other environmental and consumer groups had, PIRG’s Ed Maschke and others involved say.


“Once you accept that you have to make the deal and to collaborate in the process, you’ve lost the edge of saying ‘no deal’ … ‘Make the deal’ – that’s their whole mantra,” Maschke told the Bay Guardian. “In the end, with that approach, sometimes you get a good deal, sometimes it’s bad. But in the end, they become the guys who go to lunch.

“We couldn’t get a grassroots thing going. We didn’t have the resources. And the Energy Foundation didn’t want to hear our position.”


Cavanagh and others at the NRDC defend the organizations’ strategy and the outcome of the deregulation process, declaring it a much better deal than the one the CPUC issued in 1995, which also allowed utilities to make consumers pay for bad investments. What was at stake were energy-efficiency programs, they argue, and those were saved.


“If the legislature had tried to mandate less than full recovery of stranded costs, [the deregulation bill] would not have passed,” Peter Miller, a senior scientist at the NRDC who deals with energy issues, told the Bay Guardian. “The utilities would have pulled away from the table absolutely.”


Cavanagh told the Bay Guardian, “The ‘no deal’ card was there throughout. All the parties that supported [the bill] withheld their support to the last possible minute. I’m very comfortable with the positions we took.”


Others sat Cavanagh completely lost sight of the issues. “This deregulation deal is Alice in Wonderland 10 times over,” Herbert Gunther, president of the Public Media Center in San Francisco, told the Bay Guardian. “What is being called a rate reduction [the bonds] is really a 30 percent increase to insure the utilities’ profits.”


The Energy Foundation’s Hal Harvey said that he personally felt the nuclear bailout was a lousy deal but that the foundation took no official position on utilities’ demands that consumers pay their stranded costs. “From a consumer’s point of view, the companies that made those mistakes [such as investing in nuclear power plants] should pay for it,” Harvey told the Bay Guardian. “But we didn’t have a dog in that fight.”


The truth is, the Energy Foundation did have a dog. Since 1991 Energy has provided significant funding to the NRDC and has generally not funded groups that are opposed to deregulation as a concept. Money from Energy went to backing the NRDC’s lobbying efforts during the CPUC’s discussion of deregulation.


“If we hadn’t had years of collaboration and DSM, we wouldn’t have this nuclear bailout,” solar-energy activist Dan Berman told the Bay Guardian.


Consumers get FERCed


Sacramento isn’t the only forum in which the Energy Foundation has sided with the private utilities and opposed the interests of consumers.


In the early to mid-1990s, a Washington, D.C.-based environmental and consumer-oriented organization called the Environmental Action Foundation (EAF) was busy fighting the utilities’ demand for full recovery of stranded costs at the federal level, through the Federal Energy Regulatory Commission (FERC). The EAF got $155,000 from the Energy Foundation from 1993 to the end of 1995, specifically to continue its work at FERC. But while the EAF was taking a hard line, the NRDC was making filings on behalf of private utilities, according to David Lapp, a former staffer at the now-defunct EAF.


For example, in December 1994 Cavanagh and PG&E jointly filed comments to FERC on the issue of stranded costs.

“The best approach to … “stranded costs’ … is to recover them through charges paid by all customers of a utility that remain physically within its service territory and retain connections to the integrated grid,” the filing says.

In contrast, the EAF told FERC in August 1995 that the commission’s utility-friendly stranded-cost proposal was “not based on solid legal or public-policy ground [and] should be withdrawn.”


At that point the EAF was already on thin ice with the Energy Foundation, the NRDC, and Pew, according to Lapp. That’s because in 1994 Lapp had written an article called “The Demanding Side of Utility Conservation Programs,” which criticized utility-run DSM programs. In the piece Lapp wrote that such programs place an unfair burden on low-income customers, whose energy bills reflect a larger portion of their income than those of more well-off consumers. He also wrote that utility-run energy-efficiency programs are frequently shams.


Lapp said he had already sent the Energy Foundation details of his group’s position on DSM, at Energy’s request. “It was clear they were not happy with our agenda,” Lapp told the Bay Guardian.


“We were going at the heart of the utilities….We were fighting to lower their profits,” Lapp told the Bay Guardian. “They [Energy] were concerned that if the utilities started hurting financially, it would make it harder for the NRDC and others using DSM to work with them….But these companies that are making a killing are the biggest polluters in the country.


Utilities make most of their money by selling electricity. Reducing energy consumption through energy-efficiency programs goes against their inherent interest in expanding sales.”


The Energy Foundation did not stop funding the EAF. Instead it worked with the CRDC to create a new organization in 1995 called the Project for a Sustainable FERC Energy Policy, to be run by an NRDC staffer, that would deal with energy issues at the federal level – in competition with the EAF. And that group, Lapp and many other energy activists say, took a much softer approach to issues like stranded costs.


“They were looking to take EAF’s perspective out of the game in the federal debate,” Lapp told the Bay Guardian. “They created this other group to say, ‘This is [the enevironmentalist] strategy.’”


And indeed, though the discussions are ongoing, FERC currently supports the notion that utilities should be allowed to make consumers fully liable for their lost investments.


A  Powwow


About twice a year the Energy Foundation hosts conferences for key regulators, utility executives, policy makers, and environmental and consumer groups to get together and “powwow,” as Hal Harvey put it. Critics say those conferences represent exactly what’s wrong with the Energy Foundation and its style of politics: By socializing with utility executives, activists wind up losing touch with their grassroots base.


Several members of groups who were present at such a conference in Chicago in 1995 said NRDC staffers referred to their organization as an “insider” – and to grassroots environmental and consumer activists as “outsiders.”


“These ego-boosting meetings allow the public-interest bit players to feel like they’ve got a role to play,” Gunther told the Bay Guardian.


Harvey said these were important sessions, meant not to decide or dictate policy but to give groups the chance to pass on knowledge and information.


“We do not seek consensus. We seek an exchange of ideas,” Harvey told the Bay Guardian.

Many activists involved in energy issues are loath to comment publicly on the Energy Foundation for fear of losing funding.


But when offered anonymity, they have plenty to say.


“These guys [Energy and NRDC] have a strategy that has completely lost sight of the original goal,” one activist who asked not to be named told theBay Guardian. “They see grassroots organizations as a nuisance.”


Said another: “My impression is that some of the leading groups that were funded by the Energy Foundation set their sights very low. They declare victory and it makes the funders happy.”


“The bottom line,” another said, “is we’re getting our rumps kicked by the bad guys and I believe that it is directly related to the [Energy Foundation’s] micromanaging of this movement.” ■


P.S. The NRDC has been of no help in recent efforts in San Francisco to buy out PG&E. Indeed, Sheryl Carter, the NRDC staffer on the San Francisco Public Utilities Commission’s committee that was to choose a consultant to conduct a municipalization feasibility study and review its findings, did not support other members’ efforts to get a pro-PG&E consultant disqualified. In October 1996, when the Bay Guardian Exposed the consultant’s PG&E bias and handed a cop of the piece to Carter, she tried to refuse it, saying, “I’m not interested in conspiracy theories.”


As for the Presidio giveaway, activist Joel Ventresca sought the NRDC’s support early on – only to find out that the group had already signed off on Rep. Nancy Pelosi’s disastrous 1996 bill to privatize the park.


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