Oil Company Profits and The Senator From Windfall

Of all the politicians complaining about the profits and practices of America‘s wicked oil companies, few can top Sen. Maria Cantwell (D-Wash.).

Among her latest ventures is a demand that the oil company executives who testified Nov. 9 be brought back to the Senate, this time under oath. In a letter to the chairmen of the two committees that held the hearings, she claimed that the CEOs “failed to answer the simple questions asked of them. This is unacceptable. If we’re going to get to the bottom of high gas prices, we need complete answers that Americans can trust.”

Of course, “getting to the bottom” of price rises isn’t difficult. Energy exists in a global commodity market. Demand is rising from China and India, as economic growth brings a better life to more than two billion people, and supply has been constrained by OPEC, Hurricanes Katrina and Rita and absurd policies that restrict domestic drilling and the construction and expansion of pipelines and other energy infrastructure.

Cantwell has opposed such supply-boosting policies in the United States, lately blocking measures that would have benefited her own state while increasing tanker traffic in Puget Sound.

Another sure way to reduce supply is to pass laws to stop “price-gouging” in fuel costs — legislation such as Cantwell herself has introduced — or to exact special “windfall” taxes on a few large energy companies. Windfall taxes have been tried before, in the early 1980s, and, according to a Congressional Research Service study, they had a predictable effect. The taxes cut production by U.S. energy companies and increased our reliance on foreign oil. So much for “Energy Independence 2020,” the Democrats’ organization that Cantwell chairs.

Cantwell voted “yes” on Nov. 17 to an amendment (No. 2626) that would have imposed “a temporary windfall profits tax on crude oil.” The amendment failed, but the irony lingers because, as it turns out, Maria Cantwell’s life story has revolved around her own windfall profits.

Back in 1992, when I was editor of the congressional newspaper Roll Call, a young woman from Indianapolis named Maria Cantwell, who had spent her life working on campaigns (at age 24 she was out helping Jerry Springer run for governor of Ohio) and serving in government, won a U.S. House seat from a Seattle district.

At the time, according to the Associated Press, Cantwell earned $33,789 in the year before she came to Congress, and she had a net worth under $15,000.

The House provided her with a $10,000 raise, but, alas, she was washed away in the Republican tsunami of 1994. She emerged from Congress practically broke, but, luckily, with some nice friends.

One of them, Rob Glaser, a former Microsoft employee, “recruited the out-of-work politician for his new company, Real Networks,” according to The Industry Standard.

These were the lovely days when many high-tech firms were handing out stock options like crazy, and Glaser showered them on Maria Cantwell. A few years later, her Real Networks shares were worth, according to a definitive 2001 article in the Seattle Weekly, “roughly $80 million.”

She was rich — so rich that she could run for Senate, in a great Democratic tradition followed that same year by Sens. Mark Dayton (D-Minn.), the department store heir, and Jon Corzine (D-N.J.), former CEO of Goldman Sachs.

She used $9.2 million of her own money in the campaign, according to the Seattle Post-Intelligencer. About $6 million came from stock sales and the rest from loans using her stock as collateral.

Cantwell’s Senate seat itself is a windfall profit. Without the lucky timing of her plunge into Real Networks, it’s unlikely she would be a member of the world’s most exclusive club today.

As fortune would have it, just as Cantwell started her Senate campaign, Real Networks was hitting a new high ($93 a share, adjusted for splits). By February 2001, after she was safely sworn in, the stock had fallen to $8, in which neighborhood it’s pretty much been ever since (Friday’s close was $8.89).

So, if Cantwell had run first in 2002 instead of 2000, she couldn’t have mustered $9 million from her Real Networks stock to put into the campaign.

Maria Cantwell is truly the Senator From Windfall, but I wouldn’t want to slap some kind of special tax on her just because she got a bit lucky — like her colleague, Sen. Judd Gregg (R-N.H.), another backer of windfall profits, who won $853,000 in the Powerball lottery in October.

But let’s contrast the windfalls of Cantwell and Gregg with the increased earnings of integrated oil and gas companies in the third quarter of 2005. Those firms use a big chunk of their profits each year to make huge long-term capital investments in the risky business of exploring for energy and producing it. (ExxonMobil’s capital expenditures over the past 10 years have roughly equaled its reported earnings.) The price of oil, like that of any other commodity, bounces around, so some months oil companies make more from their upstream operations than others.

Are such profits a windfall? Of course not. They are the result of serious investment and research and development. But Senators like Cantwell and Gregg — and others who should know better — continue to try to exact special tribute from the same companies that are trying to boost America‘s energy supply.

The latest windfall profits tax proposals come in new guises — a change in LIFO inventory rules and a limit on the foreign tax credit. But the effect would be the same as the WPT disaster of the 1980s: to cut supply and increase dependence on oil produced by non-U.S. companies, many owned by nations like Venezuela and Saudi Arabia.

That would be a windfall loss for the public.

Originally published in Tech Central Station.