Green Mountain's Other Faces
Austin-based Green Mountain Energy Co. 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 states where the energy business is deregulated, including Texas. Green Mountain grew with deregulation until the trend was reversed by Enron Corp.’s implosion. The spectacular crash of the Houston-based company spurred regulatory changes that Green Mountain blamed in 2005 for driving it out of its largest market: Ohio. Now the company could face new hurdles after two principal owners—oil giant BP PLC, and Dallas billionaires Sam and Charles Wyly—are under civil and criminal investigations. Will the resulting negative publicity turn off Green Mountain customers who pride themselves on knowing where their kilowatts come from?
A Dallas grand jury 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 raises questions about whether Green Mountain—which the Senate report claims has lost money every year of its existence—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 pipeline corrosion that spewed a record 200,000 gallons of oil over Alaska’s North Slope in August, and to an explosion at BP’s Texas City refinery last year that killed 15 workers.
Is this what feel-good, renewable energy looks like?
The Wyly brothers worked for IBM Corp. in the late 1950s before they launched their own computer firms, which they later sold at the height of the tech bubble for $8 billion. Other Wyly ventures over the years have included the Bonanza Family Restaurant chain, Michaels Stores Inc., insurer Scottish Re Group Ltd., Ranger Capital Group, Maverick Capital Ltd., 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 business relationship has been mutually beneficial.
A major scandal of Bush’s gubernatorial administration occurred when University of Texas regents appointed by the governor doled out lucrative contracts to investment firms tied to cronies of Bush and the regents. The firms were hired to manage portions of UT’s $13 billion endowment. The largest of these investment contracts went to the Wylys’ Maverick Capital. Later Sam Wyly, aided by former Green Mountain executive and current Republican Congressman Jeb Hensarling of Dallas, bought $2.5 million in ads during the 2000 GOP primary that portrayed Bush as a clean-sky champion and rival Sen. John McCain of 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 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 embraced offshore tax shelters so aggressively that it may have broken U.S. tax laws, according to “Tax Haven Abuses,” a recent 370-page report by the U.S. Senate Permanent Subcommittee on Investigations.
To defer or dodge taxes, many wealthy Americans transfer assets into trusts that typically 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 former Wyly family financial adviser told the subcommittee that some trustees questioned “recommendations” by the Wylys that the trustees invest in money-losing Green Mountain. Yet Senate investigators found no evidence that the supposedly independent trustees ever bucked the wishes of the Wylys. “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 untaxed funds to be shipped offshore and then “brought back onshore to invest in Green Mountain.” The Senate report suggests that the Wylys’ control over their 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, says in a written statement to the Observer. “The Wylys believe that their actions were entirely proper.”
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 N.V. 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. Executives of BP and the Wylys’ Ranger Capital have occupied other seats on the board. As of last year, the Wyly family and related entities controlled 36 percent of Green Mountain stock. Wyly-founded Maverick Capital, where Evan Wyly also 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.
While Green Mountain officials refuse to discuss their investors, the company 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 says in a written statement.
Another major Green Mountain investor with legal and public relations problems is London-based oil giant BP. Around the time that BP and Amoco Corp. 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 No. 2 oil giant has been battered recently by disasters worthy of the most infamous corporate citizens.
BP’s sprawling Texas City refinery suffered an enormous explosion in March 2005, injuring 170 people and killing 15. A subsequent federal probe hit BP with a record $21 million fine 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. At the same time, the aging pipeline that BP operates in Alaska already was under federal investigation for alleged violations of the Clean Water Act this March, when it dumped a record 200,000 gallons of oil onto the tundra. BP’s chief executive, John Browne, quickly flew in from London to the scenes of both the Texas City and Alaska disasters, pledging to fix the root causes of the 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 exercises no control over the 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.
Declining to be quoted, an environmentalist with Green Mountain ties called the Observer to warn that negative publicity about the Wylys and BP should not be allowed to harm Green Mountain and its clean-energy mission. Green Mountain—which has urged consumers to consider where their kilowatts come from—understandably prefers not to focus on the major stakes that the Wylys and BP have in the company. Yet consumers in deregulated markets are required to weigh the pros and cons of competing providers. Green Mountain’s ownership may muddy this equation for some discriminating customers.
Contributing writer Andrew Wheat is research director for Austin-based Texans for Public Justice.