The politics of (cheap) petroleum

Citgo Petroleum’s program to provide discounted heating oil to American communities is raising political heat on Capitol Hill and in some states in the Northeast.

Last month, House Energy and Commerce Committee Chairman Joe Barton (R-Texas) and Rep. Ed Whitfield (R-Ky.) wrote Citgo to demand documents about the program. The members, for example, asked how the company selected which communities would get the oil and whether the program violated federal antitrust laws.

Democrats on Capitol Hill came to the company’s defense. Rep. Bart Stupak (D-Mich.), the ranking member on the Oversight and Investigations Subcommittee of Energy and Commerce, wrote a letter in response that included a bitter-cold National Weather Service forecast for his hometown and the December heating bill from a senior center.

“Here is a company that is trying to assist our most needy and vulnerable constituents and you are writing an intimidating letter to them,” Stupak asked.

Meanwhile, in Connecticut, Gov. Jodi Rell, a Republican, raised concerns that the program may violate antitrust laws that prevent companies from unfairly gaining market access, as her likely Democratic gubernatorial opponent, New Haven Mayor Dennis DeStefano, negotiated a deal with Citgo.

Citgo also had entered into talks with New Hampshire officials about providing cheap heating oil to the state, but those ended after Sen. John Sununu (R-N.H.) called the program a “disgrace.”

What leads some to view the oil program as a gift and others as an attempt to manipulate American public opinion? Citgo is owned by Venezuela’s state-owned Petroleos de Venezuela SA, or PDVSA. Venezuela’s president, Hugo Chavez, is a strident critic of the United States. His accusations include calling President Bush a “terrorist” and a “genocidal murderer.” 

“So rarely does one find Fidel Castro’s best friend in the Western Hemisphere prepared to do Americans a favor, that just possibly it’s not a favor,” said Energy and Commerce Deputy Staff Director Larry Neal.

Citgo officials told the committee they plan to cooperate but wouldn’t be able to meet the Feb. 23 deadline set by Barton and Whitfield. The company said it would provide the documents within 30 days.

While the House committee’s review progresses, Citgo received a legal go-ahead from Attorney General Richard Blumenthal. Responding to questions about the legality of the program from Rell, Blumenthal wrote Monday that there was “no legal impediment to this proposal.”

Rell has called the popularly elected Chavez a dictator, according to local news reports. But in a news release dated Feb. 27, she said the program would proceed and commended DeStefano, her gubernatorial rival, for working to develop it.

Citgo has plans in place to distribute nearly 40 million gallons of heating oil to communities in seven states, not including Connecticut.

By the company’s own estimates, providing 12 million gallons of subsidized oil to Boston alone will cost it in excess of $10 million — the reason some see it primarily as a mechanism to embarrass the U.S. government.

“Given President Chavez’s clear anti-American sentiments, his current efforts must be viewed with concern that he is attempting to politicize the debate over U.S. energy policy,” the Barton and Whitfield letter stated.

But Rep. Bill Delahunt (D-Mass.) is negotiating to extend the program to five years. He said the administration and Congress do not provide enough money to low-income energy programs.

“Something has to fill in the gap,” he said.

A Citgo official would not comment beyond the letter sent Feb. 17 in response to Barton’s committee. The letter notes that senators had called on oil companies to donate some of their record profits to programs to distribute cheap fuel to poor people.

An outside counsel for the company not authorized to talk on the record said officials knew the heating oil would get attention, given Chavez’s previous comments.

“We knew we were going to take a political hit. You have to be cleaner than Caesar’s wife,” the source said.

Simply giving the oil to customers would likely be illegal under predatory-pricing laws. So Citgo works through a nonprofit group in the states. The nonprofit group buys the oil from Citgo at a 40 percent discount and then decides where to distribute the fuel. That way, the company may protect itself from allegations that it is trying to take over a market with unfair pricing practices.

Citizens Energy has worked with Citgo in Massachusetts. In Delaware, Citgo has worked with Catholic Charities.

One concern of the House committee apparently is with how Citgo decided where to distribute its oil. The source said it has concentrated in the Northeast because of its market presence there and because the area primarily uses fuel oil to heat homes.

Another question is whether Chavez directed Citgo to go forward with the program. If the policy is Chavez’s strategy to undermine political support for the administration or otherwise affect U.S. policy, then Citgo’s Washington representatives might have had to register under the Foreign Agent Registration Act, which requires firms seeking to influence American political opinion on behalf of a foreign government to register with the Justice Department. Violations of the registration law can result in a fine.

Citgo’s lone outside lobbyist is Dutko Worldwide, according to Senate public records. The firm did not register as a foreign agent. Citgo’s Venezuelan parent company is represented by Collier Shannon.

The Citgo counsel said that while the program couldn’t go forward without Chavez’s support, the idea fits with the company’s overall corporate strategy to embrace charitable causes.