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Senate leader's day job is ripe for conflict of interest, watchdogs say

12:36 AM, Jan. 14, 2011  

Written by John Russell. Call Star reporter John Russell at (317) 444-6283

Original article http://www.indystar.com/article/20110114/BUSINESS/101140345/Key-lawmaker-coal-too-cozy-?odyssey=tab|topnews|text|IndyStar.com

State Sen. James Merritt and electric utilities bump into each other at nearly every turn.

In his re-election campaign last year, Merritt raised money from American Electric Power, Duke Energy Corp., NiSource and other utilities, making them the largest single industry to support him.

Merritt, R-Indianapolis, has championed many of the industry's pet issues, from redefining coal as a renewable energy source to permitting the state to buy and sell billions of dollars worth of substitute natural gas made from coal.

As chairman of the Senate Utilities and Technology Committee, Merritt gets to decide which bills affecting utilities get a hearing and which die in committee.

But his latest connection to the industry is raising some eyebrows among government watchdogs and consumer advocates.

Last year, Merritt took a job as vice president of corporate affairs with the Indiana Rail Road Co., a regional freight carrier that specializes in hauling coal from southwestern Indiana mines for customers such as Duke, Indianapolis Power & Light Co. and Hoosier Energy. The utilities burn coal to create electricity.

The railroad seems to make no bones that it is counting on Merritt's experience in state government to promote its business. The company wrote about Merritt's hiring in a recent company newsletter, pointing out he has been in the Senate since 1990, serves as majority caucus chairman and is a member of numerous legislative committees.

"Jim is well respected and very capable, both in business and in the Statehouse," the newsletter story said. "These leadership qualities that he brings to the Indiana Rail Road Company will represent us very well where our business goals and growth strategies relate to broader issues of public policy."

Merritt said he sees no conflict between his job as a railroad executive and chairman of the Senate utilities committee. Neither did the Senate Ethics Committee, which cleared him to take the job after Merritt asked the panel to review the issue.

But consumer advocates and government watchdog groups are howling over the move.

"I think it's a huge problem, because he's the chair of the utilities committee, and he has control over what bills are heard or not heard," said Grant Smith, executive director of watchdog group Citizens Action Coalition of Indiana. "He should remove himself as committee chair. It's a clear conflict."

Merritt pointed out that the Indiana Rail Road hauls much more than coal -- such as lumber, plastics, grain, refrigerators and food sweeteners.

The company's website, however, points out that one of Indiana Rail Road's "primary businesses is transporting coal" from southwestern Indiana and other regions for such customers as IPL's generating station in Indianapolis, Duke's Wabash River Generating Station in Terre Haute and Hoosier Energy's generating station in Merom, Ind.

Coal accounts for more than half of the railroad's business, the company said. Last year, its trains hauled more than 15 million tons of coal.

A few months ago, the railroad began hauling coal from Peabody Energy's Bear Run Mine in Sullivan County after winning a contract to become the mine's exclusive railroad. Peabody Energy has said the mine will become the largest coal mine east of the Mississippi River when it reaches full capacity.

Some of that mine's coal now goes to Duke Energy's power plants in southwestern Indiana. Duke also has said it could use Bear Run Mine coal for its controversial Edwardsport coal-gasification plant in Knox County, where construction costs have ballooned to $2.9 billion.

Merritt said he hasn't hidden his daytime job as a railroad executive. He has included the fact on campaign and Senate websites and discussed it with reporters during last year's re-election campaign. He said his railroad duties would include things such as organizing town meetings, working on clothing giveaways for the poor, participating in breakfast groups and the like.

"It's really a lot of community outreach," Merritt said.

His boss, Tom Hoback, president of Indiana Rail Road Co., described the job more broadly. In an interview, he said Merritt would act as a senior business adviser to him, dealing with high-level strategic issues, identifying market opportunities and "targeting business we may be able to get."

Hoback took exception to any suggestion that Merritt's job would present a potential conflict with his Senate duties, including his chairmanship of the Senate utilities committee. He said he hired Merritt for his entrepreneurial and business skills, not to influence state policies or laws.

He said Merritt's job does not include lobbying and pointed out that most railroad issues are decided by federal agencies, not state agencies.

"It's disturbing that someone would take away from Jim's reputation and cast aspersions on his ethics," Hoback said. "Trying to say there is a conflict is just plain wrong."

He added: "We've hauled coal without Jim Merritt, and we're going to continue to haul coal."

But some observers say that Merritt, in his new job, might be a little too close to the industry he oversees as chairman of an important Senate committee that considers issues relating to utilities, one of the railroad's biggest customer groups.

Julia Vaughn, director at Common Cause/Indiana, said Merritt's two roles have the "potential to be a huge conflict."

"Given the scrutiny that is being placed on everything related to utilities, electricity and coal, it's going to be interesting to see what his agenda is for the Senate utilities committee, how closely people are watching and what questions are raised," she said.

And Merritt, as chairman of the utilities committee, has a lot of influence over coal and utility issues. He has pushed many bills supported by the industries.

He voted for a bill that redefined "renewable energy" to include coal, protecting the market for Indiana's abundant coal reserves. He voted to allow utilities that transport carbon dioxide by pipeline to acquire land through eminent domain.

He also co-sponsored and voted for a bill that allows the Indiana Finance Authority to enter into contracts to buy and sell substitute natural gas from coal-gasification plants. The bill, which was signed into law, will pave the way for a $2.6 billion coal-gasification plant in Rockport, Ind., which will open a new market for the state's coal mines. Some consumer groups, however, have criticized the deal as risky for taxpayers.

Hoback brushed aside any connection between those issues and his company. He said his railroad does not have tracks near Rockport, and "it is unlikely we would ever move coal there." He added that his railroad can haul "only so much coal," and anything the state might do to increase coal markets would not necessarily help his business.

"The thought that there is a huge bonanza out there for us just doesn't fit the reality," he said.

Last year, Merritt and Rep. Ryan Dvorak, D-South Bend, each introduced bills on "net metering," a policy that allows businesses and institutions to generate their own electricity and get a credit for their surplus power.

Merritt's proposal was much more favorable to the industry. The House and Senate were unable to reach an agreement on the issue, and Dvorak blamed Merritt for not compromising, dooming the measure. "Jim Merritt took the bill to conference, did absolutely no compromise at all and killed it," said Dvorak, one of the leading champions of net metering. "He's always been supportive of the utility industry position."

Merritt said he thought the Indiana Utility Regulatory Commission could craft an effective rule to expand net metering. Late last year, the IURC approved a rule to expand net metering beyond homeowners and schools, allowing business and government bodies to generate their own power and receive a credit.

That's not to say Merritt has never voted against utility, coal or railroad interests. According to a legislative report card prepared by Citizens Action Coalition, Merritt sided with consumers in 50 percent of important energy or utility issues last year, up from 45 percent a year earlier, including net metering and establishing a revolving loan fund to allow schools to finance geothermal heating and cooling systems.

But Kerwin Olson, program director for Citizens Action, called that 50 percent score misleading.

"He may have voted -- and even authored -- some decent net metering bills, but he killed them in conference committee," Olson wrote in an e-mail. "It was all theater."

In an interview, Merritt said he hasn't set a firm agenda yet for the utilities committee in this session, which began last week and runs through the spring. But he said the committee might discuss issues concerning utility rate stabilization, wind power and nuclear energy.

He said he would decide issues on their merits, not because of campaign contributions or how they might affect business for the Indiana Rail Road.

Several months ago, the Senate Ethics Committee issued a report clearing Merritt's employment, pointing out that Indiana maintains a part-time citizen legislature. "There is an expectation that most members will maintain outside full-time employment," the report said.

"The committee finds there is no inherent conflict between Senator Merritt's private employment and his service in the Senate arising from the Senate rules," the ethics report said. The report was passed by a 4-0 vote, with an equal number of Republicans and Democrats. Last week, the Senate accepted the report.

His boss at the railroad said the issue has been settled by the Senate ethics report and by a favorable opinion from the company's outside attorneys at Ice Miller.

"They've all said there is no conflict," Hoback said. "I think the issue is settled. Who is the final arbiter?"

FOLLOW THE MONEY

Electric utilities were the largest single industry to contribute to state Sen. James Merritt's re-election last year, following only contributions from other candidates.

• Contributions from candidates: $27,800.
• Electric utilities: $9,750.
• Health professionals: $5,489.
• Beer, wine and liquor: $4,100.
• Telecom services and equipment: $3,500.

Here are the individual utility contributions:

• American Electric Power: $2,750.
• Duke Energy: $2,500.
• NiSource: $2,000
• Indiana Statewide Association of Rural Electrical Cooperatives: $1,500.
• Indianapolis Power & Light Co.: $1,000.

Source: www.FollowTheMoney.org

Editor's Note: The only really interesting factoid about the information above is that Vectren Corp (aka Southern Indiana Gas & Electric) was NOT LISTED as a contributor to Sen. Jim Merritt in 2010. For details on Vectren's Indiana contributions in 2010 see:

http://www.followthemoney.org/database/StateGlance/contributor.phtml?d=1950460975