CHC protests settlement of gas-lease bid-rigging.

Conservation groups protest
gas-lease bid-rigging settlement

April 22, 2012 

Five local conservation groups are charging that the U.S. Department of Justice is letting a pair of natural gas companies off with a “wrist slap” in a case of illegal bid-rigging over four leases in Gunnison and Delta counties.

In a formal protest letter (PDF) delivered Thursday, they called on federal prosecutors to impose higher penalties and also to investigate 18 other alleged violations by the same two companies, many of which concern contested leases in federal roadless areas.

The letter raises the suspicion that this case could be only the tip of an iceberg of more widespread illegal bidding on public lands in Colorado.

The groups signing the letter are Citizens for a Healthy Community (Paonia), High Country Citizens’ Alliance (Crested Butte), NFRIA-WSERC Conservation Center (Paonia), Western Colorado Congress (Grand Junction) and Wilderness Workshop (Carbondale).

On Feb. 15, the Department of Justice filed a complaint against Gunnison Energy Corporation and SG Interests, and simultaneously announced a proposed settlement in which the two companies would pay $550,000 in fines to settle violations of the Sherman Act and the False Claims Act. The investigation stemmed from a whistleblower lawsuit filed by a former Gunnison Energy employee in 2009.

The whistleblower stated that the two companies went so far as to draw up a written agreement not to bid against each other at sales of leases in the upper North Fork Valley in 2005 and 2006. The agreement stated that prior to each lease sale the companies would agree on a maximum bid, and that SG would buy the leases and then convey a 50-percent interest in them to Gunnison Energy.

The DOJ arrived at the $550,000 figure by estimating how much revenue the government lost on the four leases due to the collusion.

A U.S. District Court judge in Denver will finalize the settlement after the close of the public comment period on Tuesday.

The conservation groups maintain that the $550,000 fine is far too low to act as a deterrent to future collusion at lease sales, “and may even encourage it.” Since the fine is merely what the companies should have paid for the leases at the sale, they argue, it amounts to no penalty at all, and sends the message that there’s no downside to companies’ engaging in illegal bidding.

“This ‘fine’ is nothing more than a wrist slap, and would serve as an incentive for such behavior moving forward rather than any sort of disincentive,” said Peter Hart, staff attorney for the Wilderness Workshop. “And it calls into question just how serious DOJ is about clamping down on bid rigging – which we believe may be a systemic problem.”

It’s important to get the penalty right in this precedent-setting case, noted Hart. The Department of Justice says this is the first time it has challenged an anticompetitive bidding agreement for mineral rights leases.

The groups also point out that the proposed fine fails to get a fair price for the leases for American taxpayers. The fine works out to an average of $175 per acre, far below the $300 per acre maximum bid that the companies agreed on prior to at least one sale – “a number the companies were clearly comfortable paying, even with slanted scales.”

The letter asks DOJ to impose treble damages on the companies, as DOJ in fact demanded in its complaint.

The letter additionally requests that DOJ invalidate the leases in question, since the companies should not be allowed to enjoy their ill-gotten gains, and cannot be trusted “to act as good stewards of the public trust.”

“The proposed settlement raises serious questions concerning SGI and Gunnison Energy’s dealings with the federal government and the American public,” said Matt Reed, Public Lands Director for High Country Citizens’ Alliance in Crested Butte. “If these companies are dishonest when participating in a lease sale, how can the public trust that they won’t cut corners when it comes to preventing impacts to public health, water, air and wildlife?”

The letter also urges the DOJ to conduct a “thorough, transparent investigation” of the other 18 leases that the companies are alleged to have obtained through anticompetitive bidding.

The groups’ research indicates that 10 of the 18 other leases are so-called “gap” leases, meaning that they overlap with Forest Service roadless areas and may violate the 2001 Roadless Area Conservation Rule. The 10 leases lie within the Huntsman Ridge, Clear Fork, Raggeds and Pilot Knob roadless areas in the upper reaches of the North Fork Valley. Six of them lie within the Thompson Divide area, where the Carbondale-based Thompson Divide Coalition is actively seeking to buy out the existing leases.

Finally, the groups’ letter urges the DOJ to pursue criminal charges against Gunnison Energy and SG Interests. It notes the stark contrast between DOJ’s mild civil penalty in this case and its criminal prosecution and the 10-year prison sentence it sought against environmental activist Tim DeChristopher for falsely bidding on gas leases at a 2008 sale. (DeChristopher is currently serving two years in federal prison while his lawyers appeal.)

“Citizens for a Healthy Community and North Fork Valley residents are gravely concerned about this settlement because both companies are allowed to keep their leases in spite of serious antitrust allegations,” said Daniel Feldman, Chairman of the Board of Directors for Citizens for a Healthy Community. “It makes no sense for DOJ to pursue only a civil investigation with such a nominal fine, while Tim DeChristoper spends two years in federal prison for a comparable offense.”

Sarah Sauter, executive director of the NFRIA-WSERC Conservation Center, expressed dismay that the companies had brought themselves into disrepute through their actions. “Over the years, we’ve worked hard to build working relationships with SG Interests and GEC. I am disappointed they would be involved with something like this,” she remarked.

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