To the shock of many, California state regulators recently deemed the Aliso Canyon gas storage facility safe to reopen — the same facility that experienced a massive methane blow out in 2015-2016 that carried with it devastating health, economic, and environmental impacts.
In allowing the facility to re-open, state regulators have effectively chosen to prioritize the interests and profits of the company behind the methane leak – Southern California Gas, which is owned by San Diego-based Sempra Energy – over the interests of residents in communities surrounding the facility and the public interest writ large.
The decision raises fresh concerns about the state’s close relationship with the company.
Specifically, Governor Jerry Brown’s sister, Kathleen Brown, is a highly-compensated board member of Sempra Energy – a significant conflict of interest that the governor’s office has apparently taken no steps to manage.
In 2015, when PAI released a report on this issue, Kathleen Brown’s total compensation from the company stood at $456,245 from 2013-2014. Since then, her compensation from the company over the course of her tenure has increased to over $1.1 million in the form of cash, stock, and other benefits.
Since the leak, the governor and his staff have dismissed any concerns about this million dollar conflict as off-base, while taking no steps to provide a legal rationale or manage the conflict.
Kathleen Brown’s Million Dollar Part-Time Oversight Role at Sempra Energy
Kathleen Brown has served on the Sempra Energy board since 2013, a four-year period during which she has collected a whopping $1.1 million for the part-time oversight role.
Kathleen was initially installed on the company’s board due to her knowledge of state government, according to Sempra Energy’s 2014 proxy filing, which cited her “extensive experience in both the public and private financial sectors, as well as in-depth knowledge of California government processes.”
Though she has her own experience in California government – in Los Angeles city government and as state treasurer – it is hard to see how her relationship with her brother, who was serving as governor in 2013 when she was appointed to the board, would not inform her knowledge of state government and be a relevant consideration for the company.
In addition to having fiduciary responsibility for the company, Kathleen also serves as a member of the board’s Environmental, Health, Safety, and Technology Committee. The committee’s responsibilities are clearly relevant to the Aliso Canyon gas leak – both in overseeing the company’s response to the leak and monitoring relevant regulatory developments. These responsibilities include the following, as outlined in the proxy:
- “Assisting the board in overseeing the company’s programs and performance related to environmental, health, safety and technology matters”
“Reviewing environmental, health and safety laws, regulations and developments at the global, national, regional and local level and evaluating ways to address these matters as part of the company’s business strategy and operations.”
For her role on the board, Kathleen Brown is richly compensated, through a combination of cash fees, stock awards, and other benefits that come in the form of a donor match from the company for each dollar she contributes to charitable causes. In total, this compensation is currently worth $1.1 million.
Table I. Kathleen Brown Total Compensation from Sempra Energy, 2013-2017
|Compensation category||Total Value||Notes|
|Current value of phantom stock awards||$739,948||Based on 6,438.25 phantom shares reported owned in 7/3/2017 Form 4; Sempra stock price at market close 7/21/2017.|
|Cash compensation||$359,000||Cash paid for board and committee service|
|Charitable match||$87,316||Company match with Kathleen Brown charitable donations|
|Total to Kathleen Brown personally||$1,098,948||Not including charitable match|
Notably, her stock-based compensation comes in the form of “phantom shares.” These are shares of stock that are awarded to directors at the beginning of board service, at annual meetings, and quarterly. The price of these shares is based on the common stock price, but they come with no voting rights and can only be converted to cash at the end of the director’s board service, for the value at that time of the company’s stock price. Furthermore, she likely has earned additional cash compensation in 2017 of an estimated $100,000 that will be reported in the company’s next proxy filing.
Governor’s Handling of Conflict of Interest
The Brown administration’s main tactic for managing the conflict has been to deny, dismissively and brazenly, that it is a conflict of interest or might impact policy in any way, and then to pivot discussion towards the governor’s self-proclaimed environmentalist credentials or towards the reiteration of his professed concern for the health and safety of citizens.
For example, Deborah Hoffman, Brown’s press secretary, said that any hint that the Brown administration did not exercise “its full regulatory and oversight authority” was “scurrilous and irresponsible.”
Brown spokesman Evan Westrup declared that there was “absolutely not” any conflict of interest that might impact the state’s management of the Aliso Canyon crisis, while he dismissed a report that documented Brown’s oil and gas conflicts as the “[s]ame drivel, different day.” Westrup then went on to claim that “t]he state is exercising its full regulatory and oversight authority” and that the administration’s “focus is the health and safety of residents, period.”
The San Diego Tribune reports that Brown’s staff “scoffs at the charges” that the Governor is too cozy with the fossil fuel industry and that the conflict surrounding his sister is emblematic of this charge.
For its part, Sempra has either denied any conflict or evaded discussion of it. Sempra spokesperson Art Larson stated that “the company saw no conflict,” while he refused to “say whether Kathleen Brown’s role on the board, and on the board’s environmental committee, involved her directly in decision-making or interacting with the state in managing the leak.”
Spectra’s director of corporate communications Doug Kline would “not give a specific comment on Brown’s role” when asked, only saying that “[o]ur board of directors has been actively engaged and regularly briefed on the Aliso Canyon incident.”
Notably, the only public dismissals of conflict of interest concerns have come from parties to the conflict of interest – the governor’s office and Sempra Energy.
It appears that Jerry and Kathleen Brown are close. Kathleen joined the governor and his wife, Anne Gust Brown, on a family trip to Ireland and Germany in July 2013 (shortly after Kathleen joined the Sempra board, coincidentally). Kathleen also joined her brother as part of the delegation for an official visit to Mexico in 2014.
When Kathleen moved out of state, the governor adopted her dog. The dog, according to Kathleen, “humanizes my brother, makes him more approachable.” When Kathleen returned to California in 2013 after living in Chicago for several years, she spoke of a “heavy lobby” to bring her back, adding that “a family tie is hard to break.”
When Jerry ran for governor in 2010, he refrained from attacking his opponent, Meg Whitman, for her ties to Goldman Sachs, in part because of his sister’s role at the company at the time, which “neutralized the issue,” according to the Chicago Tribune. Clearly, the governor has considered his sister’s business relationships a relevant matter in the past.
Regulators’ Questionable Rationale for Re-opening Aliso Canyon
In the press release that announced the reopening of Aliso Canyon, the state claimed that the decision was made “to prevent an energy shortage in Southern California.” But this rationale has drawn strong criticism from county officials, local politicians, and environmentalists.
For example, the L.A. Times reports that L.A. Deputy County Counsel Scott Kuhn says that there is “no immediate need to open the facility” and that “concerns about energy shortages are overblown.” Kuhn claims that, even without reopening the facility, “[t]here’s enough gas in there right now for them to withdraw during any peak day.”
Moreover, the claim that Aliso Canyon must be reopened to meet energy needs has been rejected by several independent studies, including one that was commissioned by L.A. County Supervisors and made public earlier this year.
The report, which was conducted by EES Consulting, Inc., found that various mitigation measures would obviate the need to reopen facility. “Absent an unlikely extreme worst-case case scenario,” it concluded, “there should not be a need to withdraw gas from Aliso Canyon during summer 2017.”
The L.A. County report also criticized previous reports issued by the state that claimed there could be energy shortages if Aliso Canyon wasn’t reopened. “The various CPUC/California Energy Commission (CEC) reports are confusing, utilize different measurement standards and fail to provide the public with a complete picture of the impact of mitigation measures and the need for withdrawals from Aliso Canyon,” it said.
An April 2016 study co-authored by several state agencies and Southern California Gas is a prime example of one of these suspect reports. The report claimed that if Aliso Canyon was shut down over the summer, “a significant risk exists of natural gas curtailments during up to 16 days” that “could interrupt service and affect millions of electric customers during as many as 14 summer days.”
However, the report was put together solely by the the company that stands to profit off of Aliso Canyon along with state agencies that have questionable ties to the oil and gas industry. It appears that no consumer representatives were included in putting together the report and crafting its conclusions.
The state’s decision to reopen Aliso Canyon has been widely questioned by many others. The L.A. Times reports that environmentalists and politicians have called the move “unnecessary and reckless because officials have not determined what caused the blowout.”
L.A. County is also suing state regulators and Southern California Gas Co. for “failing to conduct required safety and environmental studies and to turn over public documents” before reopening Aliso Canyon. The complaint states that “[t]he reopening of the facility is highly troubling and irresponsible,” and calls it a case of “a regulator rushing to approve reopening without completing necessary investigations and risking public health.”
Supervisor Kathryn Barger said the suit, which follows a previous one in March, “reflects the Board of Supervisors’ commitment to protect the health and safety of our residents and to require the state to complete the legally mandated studies and mitigate all risks to the maximum extent possible.”
The drive by state officials and Sempra Energy to reopen the Aliso Canyon facility, even against the findings and recommendations of L.A. county and public interest groups, is symbolic of the larger problem of rising energy overcapacity in California.
A February 2017 L.A. Times investigation found that “California has a big — and growing — glut of power” and that “t]he state’s power plants are on track to be able to produce at least 21% more electricity than it needs by 2020, based on official estimates,” not including rising rooftop solar panel energy production.