Tracking public fund investments in fossil fuel projects.
Communities across Oregon and Washington are growing increasingly agitated about the risks of fossil fuel export. Proposed coal terminals generated unprecedented opposition from local residents and, more recently, dramatic increases in oil train traffic have many questioning the grave safety risks associated with a cargo so prone to explode. Yet at the very same time, the state governments of both Oregon and Washington are bankrolling coal, oil, and gas infrastructure.
In some cases, the subsidies and expenditures are known but relatively small. But in other cases, large quantities of public money fund the very same facilities so bitterly opposed by the taxpayers that the states are supposed to be investing for.
The governors of each state have voiced strong concern about—and even outright opposition to—major fossil fuel infrastructure projects. Yet, while Governors Inslee and Kitzhaber preach a sustainable future for our region, another wing of the executive branch is quietly betting public money on a vastly different vision.
The Oregon Investment Council (OIC) and the Washington State Investment Board (WSIB) oversee all public investments made for their respective states. These little-known governing bodies manage the funds that will be used for public employee pensions and retirement accounts, labor and industry insurance and care coverage, the state guaranteed college tuition program (in Washington), developmental disability programs, and the like. They invest the monies in a variety of financial instruments, a major portion of which are private equity funds.
Normally, once invested, funds are very difficult to track. But private equity funds pitch investors like the OIC and WSIB on specific portfolios of investments, highlighting not only the overarching theme of the investment package but often specific companies. While state funds are combined with other monies, investors have a much more specific idea about where their dollars are going. They can’t claim ignorance about its final destination.
In other words, it allows us to follow the money.
Washington State Investment Board
Since 2010, WSIB has invested billions (seriously, billions with a “b”) in private equity funds focused on fossil fuel investments, many of which can be directly linked to energy projects in the Northwest.
Through a $250 million investment (p.3) in Stonepeak Infrastructure Fund, WSIB funded Tidewater Transportation and Terminals in December 2012. Tidewater, a Vancouver, Washington-based firm, later signed a deal with Ambre Energy to barge coal downriver from Boardman to Port Westward, Oregon, for its proposed Morrow Pacific coal export project.
From the same fund, WSIB also invested in an oil train project, the Casper Crude to Rail facility, in October 2013. This Wyoming-based project is a major oil shipment hub moving mostly Bakken shale oil, the volatile crude involved in numerous oil train explosions. While we cannot link individual oil trains to specific rail facilities, we do know that Casper Crude to Rail serves West Coast oil refiners, including Tesoro, Shell, and Phillips 66, all of which have major oil-by-rail projects planned for the Northwest.
In 2012, WSIB invested another $250 million in Global Infrastructure Fund II, a fund targeting “midstream energy” in North America, Europe, and Australia (p.2). Although we cannot directly link WSIB dollars to specific fossil fuel projects in the Northwest, the investment firm that owns the fund, Global Infrastructure Partners, owns 50 percent of the the Ruby Pipeline, a project to deliver gas to a pipeline hub at Malin, Oregon, from which it would be moved (p.4) to a controversial liquefaction and export site planned at Coos Bay, Oregon. [Note: In an earlier version of this article we reported that Fund II's portfolio included the Ruby Pipeline when, in fact, the Pipeline is included in the portfolio of Fund I, which WSIB has not invested in. Please see the update at the bottom of this post for more detail.]
Oregon Investment Council
In 2012, Oregon invested alongside Washington. OIC put $100 million into the same Stonepeak Infrastructure Fund that the Evergreen State funded. Through Stonepeak, the state of Oregon bankrolled the very same Northwest fossil fuel centers: Casper Crude to Rail—with its West Coast-bound oil trains—and Tidewater—with its designs on Columbia River coal barges that Governor Kitzhaber vociferously opposes.
In 2013, Global Partners acquired an oil train facility at Port Westward on the Columbia River. Bankrolling this purchase was a $70 million loan from a “lender of last resort” and longtime OIC investment partner, GSO Capital. OIC has invested hundreds of millions with GSO. Some of those funds were deployed to provide the loan to the Port Westward project (although they were likely mixed with money from other investment funds).
The site has been a lightning rod in the region, especially after it was revealed that site operators brought in five times more oil than they were legally allowed. (Rather than pare back operations at the site, Oregon authorities subsequently issued a permit allowing Global Partners to ship nearly 120,000 barrels per day, making it by far the largest operating oil-by-rail facility in the Northwest.)
And OIC continues to make major investments with another company that is focused on developing the Northwest for fossil fuel exports, Blackstone Capital. Earlier this year, Blackstone Capital sold $962 million worth of American Petroleum Tankers to Kinder Morgan (p.11). (Kinder Morgan is a huge energy company with a notoriously bad track record, including the deadliest fish kill in a decade on the Willamette River and bribing a Portland ship captain to dump contaminated potash in the Pacific Ocean.) In recent years, the firm that has hatched plans for a (now-scotched) coal export terminal on the Columbia River and a major oil pipeline expansion in British Columbia. It’s entirely possible that Oregon’s public money helped pay for the ships that Kinder Morgan would use to export North American fuel.
We have an obligation to safeguard the public monies we hold in trust for firefighters, schoolteachers, and health care providers. We must protect the value of the investments as well as the economy and natural heritage that sustains us. At a time when the Northwest is choosing whether to become a carbon export hub of global consequence or a thin green line of climate protection, the way we spend our money says a great deal about our priorities.
At the moment, it looks like we’re betting the farm on coal and oil.
Update 9/18/14: In the scrum of media coverage that followed the publication of our analysis, WSIB challenged several elements of our analysis claiming that 1) they are not part of the executive branch; 2) they have not invested “billions” in funds focused on fossil fuels; and that 3) the money that they put into Global Infrastructure Fund II did not finance Kinder Morgan’s Ruby Pipeline.
We’ll take each of these in turn.
First, and easiest, WSIB is indeed part of the executive branch. The State Treasurer, who is indisputably a member of the executive branch, has an official job description that reads: “…custodian for all state-owned investments…including $30 billion in state pension and accident insurance funds managed by the State Investment Board. The Treasurer is one of nine members of the State Investment Board.”
So although the Board itself is independent in some sense, the Treasurer is legally responsible for the investments. In fact, the Treasurer Office’s website even takes credit for the investments and the return that WSIB provides. Finally, journalistic accounts of WSIB commonly refer to WSIB as part of the executive branch. For example, the Puget Sound Business Journal characterizes the body like so: “Governed by an independent board, the investment board is nevertheless a part of the state’s executive branch.”
Second, WSIB has in fact invested billions of dollars in private equity funds focused on fossil fuel investments. Even under the extremely narrow scope of our analysis—WSIB-supported private equity funds that made fossil fuel investments specifically in Oregon or Washington in the last few years—we identified $500 million. A more complete tabulation of all fund investments past and present that focus on fossil fuels nationally and globally easily yields billions. (We will publish a partial tabulation shortly.) What’s more, in the course of trying to rebut our claims, WSIB acknowledged that $108 million of its Trust Fund is directly invested in coal, an amount that appears to be above and beyond the figures we reported.
To be clear, many of the private equity funds in question invest in an array of projects that include both fossil fuel and non-fossil fuel (and, indeed, non-energy sector) investments. WSIB’s response to reporters, however, seems to imply a myopic view of what counts as an investment in fossil fuels—only direct investments in the energy companies themselves. Our view is that counting only the direct investments is a bit like saying, “we don’t invest in cars, just roads, gas stations, and parking lots.” So Sightline’s accounting includes fossil fuel infrastructure projects—pipelines, oil train loading terminals, and the like—not just direct investments in energy companies and commodities. In summary, we stand by our claim that WSIB has put billions of state dollars into funds that were advertised to investors as focused on the fossil fuel sector or that included specific fossil fuel infrastructure projects.
Third, WSIB argues that the money it invested in Global Infrastructure Fund II did not finance Kinder Morgan’s Ruby Pipeline in southern Oregon. On this score, it looks like we made a mistake. Although we are still exploring the minutiae of the group’s investment allocations, it looks to us now as though we misinterpreted materials available on the Global Infrastructure Partners’ website and, in fact, the Ruby Pipeline was funded by Global Infrastructure Fund I, not Fund II. We have updated the article to reflect our understanding and we regret the error.
That said, WSIB is still invested with Global Infrastructure Partners, the firm that owns and manages the two Funds, and Global Infrastructure still owns 50 percent of the Ruby Pipeline. So, at the very least, WSIB is investing money with a company that owns the pipeline. Furthermore, we found plenty of coal, oil and gas assets in the Global Infrastructure portfolio that we did not list because they are not directly focused on the Northwest. For example, we did not mention East India Petroleum Limited; Access Midstream Partners, a group dedicated to natural gas operations and development; the Transitgas Pipeline ,which will link gas pipelines across Europe; Guacolda Energia’s new coal plant in Chile; Freeport LNG‘s new export facility in Texas; or CLH, a Spanish refined oil storage and transportation facility.
Thanks to Cass Martinez, a diligent and informed citizen of the Northwest who first piqued our curiosity, and to Ben Serrurier for his perspicacious finance suggestions.