Hugh Bollinger / Wednesday, August 10, 2011

Gaming the system

by Conrad Anker In December 2008 during the last days of his administration, the particular time where pardons fly and gifts are acknowledged, George W. Bush offered up 116 energy leases in southern Utah. The leases for underground reserves are put to auction, a standard practice when public property is sold. The market determines the price for the unproven opportunities and in competitive bidding the state, on behalf of the public, receives the highest amount for the resources. Auctions generate revenue in a timely and open manner. Things go sideways when there is an information asymmetry. Asymmetries occur when one of the parties has additional critical information that can influence the outcome of the relationship. This power imbalance typically benefits one party at the expenses of the other. The laws regarding insider trading in the stock market are specifically designed to address the use of knowledge to create wealth. In December 2008 the oil companies bidding for the leases knew there was a fire sale going on, a thank you perhaps from the outgoing administration for the support the oil and gas industry bestowed upon the 43rd presidency. A young University of Utah economics student, 27 at the time, registered for the auction, received his bidding card and entered the world of open market energy bidding. For Tim DeChristopher, having grown up in West Virginia and seen the power the coal companies have over local communities, his goal was not to win a bid for exploration and eventual production, but rather as an act of civil disobedience to protest the BLM ignoring Department if Interior Secretarial Order 2336, a 2001 law that requires the BLM to weigh the impacts on climate change for all its major decisions, particularly resource development. Here again, an information asymmetry. DeChristopher’s fellow bidders did not know that he was bidding for an ulterior motive. DeChristopher eventual won the bid on 14 parcels, adjacent to Arches National Park for a value of $1.8 million. Once DeChristopher’s end goal was exposed he was arrested and brought to court. The BLM had rushed the parcels to market and in February 2009 the Department of the Interior revoked 77 of the parcels, deeming them unfit for exploration and extraction. After a lengthy legal battle DeChristopher was sentenced to 2 years in federal prison and fined $10,000. DeChristopher did not receive a jury trail by his peers, the bedrock of our judicial system, rather a sentencing from the federal district judge. The statement from the District Court notes on DeChristopher’s sentencing, “ "To be sure, a federal prison term here will deter others from entering a path of criminal behavior." DeChristopher noted, “As I actually stated in the trial, my intent was to shine a light on a corrupt process and get the government to take a second look at how this auction was conducted.” Outwardly this is a case of what might be referred to as “gaming the system”, that is to adhere to some but not all of the rules. The oil companies had an inkling that the were leases below market value. For DeChristopher he knew he could register as a bidder and win parcels. People take notice when individuals make scarifies on behalf of the community. Bit by bit, it is citizen action that has moved society towards a more just and equitable framework. Those that stand up to authority and power go against the system. What DeChristopher did, bidding for an ulterior motive, has also been practiced by the energy industry. They have bid on past parcels, failed to pay and in the process gamed the system to lower the price. While oil companies post record profits, a brave man stood up to expose the corrupt machinations of the energy lease system. - Conrad Anker is a world renowned climber and conservationist. He will lead an expedition to Mount Meru to attempt the first ascent of a 5000 foot wall of rock and ice in Northern India this fall.

Ice quakes Holy Crap!

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Gaming the system

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