By wading into energy policy, did Texas GOP chair break ethics law?

By Jim Malewitz, The Texas Tribune

(March 21, 2017) – Tom Mechler strolled across the lobby of the William B. Travis State Office Building on a recent morning and took an elevator to the 12th floor. The chairman of the Texas Republican Party was about 20 minutes early for an unusual meeting with Texas Railroad Commissioner Ryan Sitton.

The party chairman had not traveled from Amarillo to talk politics. He was there as an oil and gas producer and consultant, representing a group of fellow Panhandle producers who claimed the local pipeline company was unfairly cutting payments to producers for their natural gas.

In a letter to the state’s three railroad commissioners three months earlier, Mechler had asked that they “actively engage senior corporate management” at Denver-based DCP Midstream. The pipeline company had a monopoly on transporting gas across the Panhandle, Mechler told the Republican commissioners, and he needed the state’s help to prevent DCP from squeezing small-time producers already reeling due to dropping oil and gas prices.

After filing a number of informal complaints and going through mediation for two of his clients — but not getting any resolution — Mechler got an audience with Sitton, who agreed to act as a solo mediator on such a dispute for the first time in his two-year tenure. The March 2 meeting with Mechler, a handful of Panhandle producers, and pipeline company representatives stretched into the afternoon, according to those who attended.

Meanwhile, Mechler was also trying to address his clients’ problem at the statehouse, pushing draft legislation — which he called an “Oil and Gas Fairness Bill” — that would require the Railroad Commission to adopt new rules and set prices for gas purchasers like DCP.

No lawmakers agreed to carry Mechler’s proposed bill, and it’s not clear whether his meeting with Sitton will resolve the dispute. But experts say Mechler’s efforts to sway elected officials on behalf of his clients sound a lot like lobbying — something he is not registered to do.

“If he’s being paid anything of any consequence representing these oil and gas companies and he’s writing the Legislature, he’s lobbying,” said Randall “Buck” Wood, a longtime ethics attorney in Austin and a Democrat. “I’m seeing more and more people – they’re lobbying, and they’re being paid for it, and they’re not registering.”

Texas law defines a lobbyist as someone who has “direct communication” with members of the executive and legislative branches to “influence legislation or administrative action.” That would include trying to influence “rulemaking, licensing, or any other matter that may be the subject of action by a state agency or executive branch office,” according to the state government code.

Anyone who receives more than $1,000 over three months while spending more than 5 percent of their paid time (including preparation) on such influencing must register as a lobbyist under state law.

Mechler insists he was not lobbying. He said he was only bringing an issue of statewide importance to the attention of Texas’ elected officials and looking out for clients of his firm, Covenant Contracts, which negotiates contracts for oil and gas producers.

“I’m certainly, absolutely not being paid to propose legislation,” he said. “If you really want to look into the story, I would suggest that the story is the hundreds of millions of dollars that are being taken by these gas purchasers.”

Correspondence and other documents obtained by the Texas Tribune show how someone like Mechler — a party chairman, oilman and industry consultant — can blur the line between business and politics when interacting with state officials.

Plunging prices in the Panhandle

Pricing disputes have erupted in the Panhandle for nearly two years, wafting into conversations in coffee shops and diners, locals say. That’s what happens when prices plunge — oil has dropped from more than $100 a barrel to below $50 per barrel since mid-2014, while natural gas prices have dropped nearly 40 percent — and companies of all sizes scramble for every dollar.

To get their gas to market, many Panhandle producers have to go through DCP. The company operates a web of pipelines that funnel gas from wells to a processing plant north of Amarillo. It also sends gas liquids through a larger pipeline that snakes to the Texas Gulf Coast.

Before the market tumbled, DCP simply paid producers a percentage of what it earned by selling their natural gas. Now, amid low commodity prices, the pipeline company is deducting extra fees from what they pay producers. Producers say the new contracts also give DCP all of the proceeds from selling certain liquids extracted from their natural gas — which are used in plastics, petrochemical plants and vehicle fuel blends.

In his correspondence with Texas officials, Mechler said the new contracts amount to “theft.” He attached an example illustrating the dramatic changes: one unnamed producer who earned about $2,800 per month under the original contract would get $1,600 per month under the updated terms.

DCP officials declined to comment. But the company has argued to the producers that the sluggish market forced it to tack on fees. The company could not afford to keep its processing plants running under the old deals, DCP argues. Not with gas selling so cheaply.

Panhandle producers say the new contracts could force them to shut down hundreds of wells across the region.
“Certainly we’re in a bind,” said Todd Lovett, president of Mewborne Oil Company, who attended Mechler’s meeting with Sitton.

Complaining to the commission 

As the state’s oil and gas industry regulator, the Railroad Commission can referee such disputes when one party files a complaint with the agency. That can lead to a trial-like hearing — cross-examination and all — before an agency hearing examiner, who then issues a lengthy report with recommendations to the three elected commissioners, who make the final decision.

That long, winding process can become expensive for small producers, particularly when lawyers get involved. That’s why, during a drilling downturn in the mid-1990s — another era rife with contract disputes — the Railroad Commission created an informal complaint process. When producers choose that route, the agency can choose a staffer or private mediator to try to resolve the dispute before it becomes a drawn-out formal complaint.

In his December correspondence with the commissioners, Mechler said he had filed an informal complaint on behalf of his own oil company, Makar Production, and later withdrew it after settling with DCP. He had also filed six other informal complaints on behalf of his clients, he wrote, but none of those were resolved. In fact, through December only one of 21 informal complaints about the DCP contracts had been settled. That was the complaint Mechler’s company filed.

Mechler accused DCP of blowing off the process and asked the elected officials for help.

Commissioners Christi Craddick and Wayne Christian did not step in. Their offices declined to comment for this story. But Sitton thought he could help.

Jared Craighead, Sitton’s chief of staff, said it was the first time Sitton had conducted a meeting related to a gas pipeline dispute without his fellow commissioners. He did so because he’d heard from a number of Panhandle producers unhappy with DCP’s contracts and because the dispute covered a large region of the state, Craighead said.

“The goal was to try to help the parties come together and develop some common ground,” Craighead said. “I think it’s in DCP’s interest and the Panhandle producers’ interest not to have some expensive formal litigation that takes several months, if not years to get worked out.”

Craighead said Mechler “was engaged on behalf of Panhandle producers and he’s an expert contract negotiator, so I didn’t feel like he was ever lobbying us.”

But was it lobbying?
Ethics experts suggest Mechler’s actions sounded like lobbying, but it’s tough to say whether he broke any laws by not registering as a lobbyist. The Texas Ethics Commission can investigate such questions if they receive a complaint, and it can fine violators up to $5,000 or triple the amount of money at issue.

Andrew Wheat, research director at Texans for Public Justice, a liberal watchdog group that tracks the influence of money in politics, said the GOP chairman “walks and talks just like a hired-gun lobbyist” in his correspondence with the railroad commissioners and by drafting legislation.

“Whether Mechler legally was required to register as a lobbyist hinges largely on how much his clients paid him for his lobby activities,” Wheat said. “We don’t know what Melcher was paid, however, precisely because he failed to file any lobby disclosures.”

Mechler said he believed lobbying laws did not apply because his clients did not specifically pay him — or ask him — to interact with elected officials. His attorney, who he declined to name, told him he didn’t need to register, Mechler added.

“I’m certainly absolutely not being paid to propose legislation,” he said. “This is something to help these small producers.”

Four experts interviewed by The Texas Tribune pointed out that Texas ethics law does not differentiate between those who sign specific lobbying contracts or others trying to influence public officials as part of their day job. The $1,000-per-quarter registration threshold applies “whether or not the person receives any compensation for the communication in addition to the salary for that regular employment,” the law states.

Cathie Adams, president of the conservative Texas Eagle Forum and a former state Republican chairwoman, said she found Mechler’s behavior troubling even if he didn’t break any ethics laws.

“Mechler is just playing fast and loose with the rules and profiting off of being party chairman,” she said “Even logic would tell me that it’s extremely questionable behavior.”

Mechler insisted he was not abusing his chairmanship, a position that does not come with a paycheck.

“I never indicated — not one time — that I’m doing any of that on behalf of the Republican Party of Texas,” he said.
This article originally appeared in The Texas Tribune at https://www.texastribune.org/2017/03/21/mechler-and-lobbying-questions/.

The Texas Tribune is a nonprofit, nonpartisan media organization that informs Texans — and engages with them — about public policy, politics, government and statewide issues.