June 6, 2013 Board of Trustees University of Tennessee 719 Andy Holt Tower Knoxville, TN 37996-0170 Re: UTIA's Proposed Oil and Gas Lease and Related Research Initiative Dear Members of the Board of Trustees: The University of Tennessee's Institute of Agriculture ("UTIA") proposes to lease approximately 8,636 acres of the Cumberland Forest for oil, gas and coal bed methane extraction.1 UTIA proposes to use proceeds from this lease to fund an "oil and gas research initiative;" according to UTIA, the initiative will examine the impacts of natural gas and oil extraction on groundwater, wildlife and other aspects of the Cumberland Forest. Indeed, UTIA states that it must secure an industry partner and open the Cumberland Forest to oil and gas drilling if it is to study the environmental effects of hydraulic fracturing (or "fracking") and other aspects of oil and gas extraction.2 This proposal has engendered significant opposition from faculty, students, and staff of the UT System, as well as civic organizations and members of the public.3 These groups and individuals have voiced concerns relating to: (1) the potential environmental impacts of the proposed drilling activities and whether mineral extraction is appropriate on environmentally-sensitive, publicly-owned lands, (2) whether the proposed research initiative is being developed in ways that protect the University's reputation for scientific integrity, (3) whether due care has been exercised in the development of the proposed oil and gas lease, and (4) whether UTIA administrators have engaged stakeholders in good faith and with candor. These concerns are not based on mere speculation; instead, many of them stem from a review of UTIA's own internal documents. These concerns speak directly to the powers and duties of the Board of Trustees (the "Board"). The Board is the keeper of the University of Tennessee's good name, for it has "full authority to determine and to control the activities and policies of all organizations that bear, or that may be carried 1 See University of Tennessee, UT Cumberland Forest Unit (undated), attached as Exhibit A. See, e.g., Answer from UT Institute of Agriculture to Question Posed by Rebecca S. of Joelton, TN (received February 5, 2013), at https://ag.tennessee.edu/gasandoil/Pages/Questions-and-Answers.aspx (last visited June 3, 2013). 3 For example, the public was allowed to submit written comments in advance of a special hearing that the State Building Commission's Executive Subcommittee ("ESC") held regarding the proposed oil and gas lease. Despite the fact that the public was given only four days to submit comments, the ESC received approximately 627 written comments. All but one of these comments opposed opening the Cumberland Forest to oil and gas extraction; and the other person commented that the University should slow down and wait for other, ongoing studies on the environmental impacts of fracking to be completed. In addition to those comments, two petitions were submitted in opposition to the proposed oil and gas lease. One petition contained 611 signatures from UT-affiliated staff, students and alumni. The other contained 1,971 signatures from members of the general public. Copies of these public comments and petitions are on file with the Southern Environmental Law Center ("SELC") and are available on request. 2 under, the name of the University."4 The Board is vested with broad authority over conveyances of the University's interests in real property.5 The Board has similarly broad powers to develop and implement governance best practices, including governance measures addressing conflicts of interest.6 Finally, the Board has an affirmative duty to promote constructive debate about major initiatives and transactions such as the proposed oil and gas lease and related research initiative. 7 In light of the many concerns stated by internal and external stakeholders, the factual evidence supporting those concerns, and the direct relevance of those concerns to the Board's authority and duties, we assumed that the Board would review this transaction at some point. We recently learned, however, that the Secretary of the Board of Trustees has stated that the Board will not consider the issue at its June 2013 meeting and that the Board does not expect to consider the issue at any future meetings.8 We write now to express our concerns over this response and to ensure that you have the information necessary to carry out your duty of care to act in the best interest of the University.9 We submit that the University of Tennessee Bylaws (the "Bylaws") and the Code of Ethics for Appointed Trustees (the "Code of Ethics") mandate Board action regarding at least two aspects of this controversial deal. First, as it is currently designed the lease and research initiative cannot produce the objective results that UTIA says it seeks. Instead, the fundamental structure of the proposed transaction - a research initiative on the environmental impacts of oil and gas extraction which would be funded by the very activities and industry under study - presents significant institutional financial conflicts of interest. Despite UTIA's assurances that it has strong policies and procedures in place to handle potential conflicts of interest, it appears the University lacks policies that address the institutional financial conflicts of interest presented here. As a result, the proposed lease and research initiative threaten to make the University a poster child of "frackademia" - discredited, conflict-ridden studies on the environmental effects of fracking. As the recent problems at other universities show, such research would do nothing to enhance the University's standing among public research universities. Before pursuing this controversial deal with the oil and gas industry, then, the Board of Trustees should review - and, as necessary, supplement - the University's policies and procedures regarding 4 The University of Tennessee Bylaws (as amended through Feb. 29, 2012), art. I, ? 2 (hereinafter "Bylaws"). Bylaws, art. III, ? 6(g) (describing the authority of the Finance and Administration Committee regarding conveyances of the University's real property); Bylaws, art. III, ? 4(a)(1) (describing the authority of the Executive Committee regarding such conveyances). 6 See Bylaws, art. III, ? 5 (describing responsibilities of the Trusteeship Committee). 7 See Code of Ethics for Appointed Trustees (amended Oct. 9, 2009), art. I, ? 5 (hereinafter "Code of Ethics"). 8 David Hayes, a student at UT Knoxville, asked to present a statement regarding (1) environmental concerns relating to the oil and gas lease, including fracking, (2) inconsistencies between the proposed oil and gas lease and the University's commitments to sustainability and civility, and (3) risks that the proposed lease and research initiative pose to the University's academic integrity. Letter from David Hayes to Catherine Mizell (May 20, 2013), attached hereto as Exhibit B. The Secretary of the Board of Trustees rejected this petition without explanation, stating only, "The matter is not on the agenda for the June 2013 meeting and is not expected to be on the agenda in the future." Letter from Catherine Mizell to David Hayes (May 28, 2013), attached hereto as Exhibit C. 9 We appreciate that the Board usually looks to the University's management for such information. See Code of Ethics, art. I, ? 5 (providing that Trustees "shall require management to provide information necessary to carry out the Trustees' duty of care to act in the best interest of the University"). As detailed below, our research leads us to conclude that the institutional conflicts of interest surrounding this transaction extend to many of the individuals who would normally serve as a resource to the Board. 5 2 institutional conflicts of interest. As part of this step, the University should consider best governance practices regarding such conflicts of interest identified by bodies such as the Association of American Universities and the American Association of University Professors.10 The Board should also consider the policies and procedures that leading research universities such as Duke University and the University of Minnesota have adopted regarding institutional financial conflicts of interest.11 Second, there is a serious policy gap at the State level regarding mineral extraction on lands where the State owns the subsurface mineral rights, and this gap makes the Board's fulfillment of its fiduciary duties regarding this deal all the more pressing. Most notably, Tennessee lacks State laws that guarantee robust public participation in decisions about mineral extraction on State-owned lands, or that require an environmental review process that would identify and protect State lands that are unsuitable for mineral extraction because of their conservation value. The few procedural protections that do exist can be easily waived. With respect to UTIA's proposed oil and gas lease, for example, the State Building Commission has waived the need for independent appraisals of the value of the mineral resources,12 a basic step that would help ensure that the State receives fair value for nonrenewable mineral resources that are held in trust for the benefit of future generations.13 Given this lack of a public policy backstop, it is especially important that the Board fulfill its fundamental governance responsibility to ensure open communication with campus constituencies; indeed, the Code of Ethics requires the Board to promote constructive debate about major transactions. At a minimum, then, the Board should establish opportunities for such debate on whether any of the Cumberland Forest is suitable for oil and gas drilling and, if so, whether more stringent environmental protections are warranted in light of the Cumberland Forest's conservation value. Consistent with its duty of care and UT Knoxville's Environmental Policy, the Board should also institute a comprehensive environmental review process. As part of this process, the Board should obtain independent appraisals of both the value of the mineral interests at issue and the conservation value of the land, so that any 10 See, e.g., Association of American Universities Task Force on Research Accountability, Report on Individual and Institutional Financial Conflict of Interest (Oct. 2001), available at http://www.aau.edu/WorkArea/ showcontent.aspx?id=6358; American Association of University Professors, Recommended Principles and Practices to Guide Academy-Industry Partnerships (Draft Report, June 2012), available at http://www.aaup.org/report/recommended-principles-practices-guide-academy-industry-relationships. 11 See Duke University, Institutional Conflict of Interest in Research Policy (approved Dec. 4, 2009), available at http://duke.edu/services/ethicscompliance/coi/icoi_policy.php; University of Minnesota, Board of Regents Policy: Institutional Conflicts of Interest (amended July 13, 2012), available at http://regents.umn.edu/sites/default/ files/policies/Institutional_COI.pdf; University of Minnesota, Administrative Policy: Institutional Conflicts of Interest (revised May 2013), available at http://www.policy.umn.edu/Policies/Operations/Compliance/ INSTITUTIONALCONFLICT.html. The most recent report from Arizona State University's Center for Measuring University Performance ranks the University of Minnesota among the top 25 public research universities in the United States. See John V. Lombardi et al., The Top American Research Universities (2011), at 24, available at http://mup.asu.edu/research2011.pdf. 12 Minutes of Meeting of the State Building Commission's Executive Subcommittee (March 15, 2013). 13 See Tenn. Code Ann. ? 12-2-112(a)(2) (establishing default requirement of appraisal by at least two independent, qualified appraisers for any conveyance of any interest or rights in minerals, coal, natural gas, oil, timber and any other energy-related resources on State property); By-Laws, Policy and Procedure of the State Building Commission of Tennessee (revised April 2013) ? 8.02(C) (establishing default procedure of public advertisement or appraisal in the case of disposals of interests other than fee simple that benefit a private person or entity); Tenn. Code Ann. ? 1114-303 (recognizing that land and minerals owned by the State are nonrenewable resources which are held in trust for the benefit of future generations). 3 decisions concerning these trust resources are informed by a meaningful assessment of environmental costs and benefits. For your reference, this letter reviews the history of the proposed oil and gas lease, including the history of public opposition to opening the Cumberland Forest to drilling. It then outlines the Board's authority and duties relating to the proposed transaction and analyzes what those duties mean given the conflict of interest issues and the environmental policy problems that the proposed deal presents. It concludes with recommendations for action. I. The Cumberland Forest, the Proposed Oil and Gas Lease, and the Related Oil and Gas Research Initiative A. The Cumberland Forest From a conservation perspective, it is difficult to overstate the significance of the area where the Cumberland Forest is located. The forests of the Cumberland Plateau are among the highest conservation-value forests remaining in our country. They provide important habitat for neotropical migratory songbirds, they serve as the headwaters to the most biologically diverse freshwater stream systems of any temperate region in the world, and they contain some of the most diverse plant communities in the eastern United States.14 Among the forest tracts on the Cumberland Plateau, the "North Tract" of the Cumberland Forest - the largest tract of land that UTIA proposes to open to oil and gas extraction - stands out.15 It is a large, mature forest tract contained almost entirely within a single watershed. The fact that it is owned by the State means that it can be managed as a whole for watershed protection, wildlife habitat, and other conservation purposes. Its value is enhanced by the fact that it borders lands that were acquired as part of the North Cumberlands Conservation Acquisition; thus it could be managed in concert with those lands.16 Likewise, the "South Tract" of the land that would be leased has recognized conservation value. In particular, the "Little Brushy Mountain" tract shares a boundary with land that is part of an existing conservation easement which is designed to protect the Little Emory River watershed and the rare and uncommon plant and animal species that live there.17 The Cumberland Forest is one of the few forest tracts in the area for which the State of Tennessee owns both the surface rights and the mineral rights. Other State lands in the area - including the North Cumberland Wildlife Management Area and Frozen Head State Park - were acquired for conservation purposes. Yet, as shown in Exhibit E, much of this other land has been opened to extractive industries, including oil and gas drilling and coal mining, because Tennessee was able to acquire only the surface rights to the land. As a result, many thousands of acres of State-owned land in the immediate vicinity of 14 See ROBIN A. ABELL ET AL., FRESHWATER ECOREGIONS OF NORTH AMERICA: A CONSERVATION ASSESSMENT (2000); TAYLOR H. RICKETTS ET AL., TERRESTRIAL ECOREGIONS OF NORTH AMERICA: A CONSERVATION ASSESSMENT (1999). 15 See University of Tennessee, UT Cumberland Forest Unit (undated), attached hereto as Exhibit A. 16 See North Cumberlands Conservation Acquisition, at http://tennessee.gov/environment/northcumb/index.shtml (last visited May 30, 2013). 17 See Letter from Kathleen Williams to Dr. Kevin Hoyt (Dec. 21, 2012), attached hereto as Exhibit D. 4 the Cumberland Forest have already been leased to oil and gas operators. Knox Energy, LLC ("Knox Energy") alone holds leases on more than 216,000 nearly contiguous acres of land in Anderson, Campbell, Morgan, Scott, and Roane Counties.18 Atlas Energy, L.P. ("Atlas Energy") has another nearly 100,000 net undeveloped acres in northeastern Tennessee.19 As oil and gas development proceeds on these lands around the Cumberland Forest, the watershed protection and wildlife habitat services provided by the Cumberland Forest will only increase in value. B. The Proposed Oil and Gas Lease and Research Initiative Such environmental concerns have prompted State officials and the University to put off past versions of the proposed oil and gas lease for more than a decade. It is important to understand this history as it highlights both the evolution of UTIA's interactions with potential industry partners over time and the troubling shift in State policy that the newly proposed oil and gas lease signifies. As detailed in the attached timeline,20 Knox Energy, LLC ("Knox Energy"), CNX Gas Company, LLC ("CNX Gas") and their corporate precursors and affiliates have pursued an oil and gas lease with the University in the Cumberland Forest since 2001.21 In October 2002, the University first asked the Executive Subcommittee ("ESC") of the State Building Commission to approve a request for proposals ("RFP") to enter into an oil, gas and coal bed methane lease on 8,300 to 8,600 acres of the forest.22 The University presented this request to dispose of mineral rights as a source of income for the University.23 The Treasurer and Secretary of State voiced environmental concerns, and the ESC directed its staff to draft policies and procedures regarding leases of mineral rights owned by the State for the Subcommittee's review.24 It is unclear whether the staff drafted such policies and procedures; if the policies were drafted, the State Building Commission did not adopt them. In 2006, the Executive Subcommittee again considered the University's request for approval of disposal by lease.25 At the time, there still was no State Building Commission policy or procedure in place with regard to leasing mineral rights. Treasurer Dale Sims asked if the RFP would be advertised, and if the request for waiver of appraisals was the reason the request was before the Subcommittee.26 Alvin Payne, then Assistant Vice President of the University's Office of Capital Projects, explained that the University "wished to issue the RFP and let the market tell them what the value was."27 He also stated 18 See Project Map for Knox Energy LLC (undated), attached hereto as Exhibit F. Atlas Energy, L.P, Annual Report on Form 10-K for Fiscal Year Ended December 31, 2012 (filed March 1, 2013), at 57. 20 See Exhibit G. On request, SELC will provide an electronic version of the timeline that contains links to scanned versions of the email messages and other documents that are referenced in the timeline and in the footnotes below. Such a linked version of the timeline is also available online at http://web.knoxnews.com/news/060213fracking/utrfp-timeline.pdf. 21 Over the past twelve years, the corporate affiliates of Knox Energy and CNX Gas have included New River Energy, LLC and CONSOL Energy, Inc. 22 Minutes of Meeting of the State Building Commission's Executive Subcommittee (Oct. 21, 2002). 23 Id. 24 Id. 25 Minutes of Meeting of the State Building Commission's Executive Subcommittee (March 20, 2006). 26 Id. 27 Id. 19 5 that the lease would be a good way to generate revenue for the Institute of Agriculture. The Executive Subcommittee approved the request, contingent upon agreement by the Attorney General. In 2009, the University issued the lease proposal package and received one bid - from CNX Gas and its wholly-owned subsidiary, Knox Energy.28 The University duly submitted a request for approval to award a lease for oil, gas, and other hydrocarbons including coal bed methane. In the submission package, the University's Robbi Stivers, then Director of the University's Office of Real Estate Administration, explained that the proposer offered not the flat 15% royalty rate specified in the RFP, but rather "a 15% average royalty based on a sliding scale." The royalty rate would range from 12.5% to 17.0% depending on the price of gas. Mr. Stivers further commented, "The proposer believes that this royalty rate structure provides the University an opportunity to exceed the 15% royalty in conjunction with future increasing gas prices."29, 30 On April 20, 2009, the Executive Subcommittee considered UT's request for approval of the proposed lease.31 Dave Goetz, Commissioner of the Department of Finance and Administration, stated that the Subcommittee had received concerns about the fracturing process and its effects on ground water. Commissioner Goetz explained that Governor Bredesen preferred to delay the request pending further study. The Subcommittee asked its staff to work out a "reasonable review process" with the Tennessee Department of Environment and Conservation ("TDEC") and deferred the request for one month to allow the public to submit questions and comments.32 Four days later, the University withdrew its request for approval of the oil, gas and coal bed methane lease. In its public statement, the University explained that the lease "was being pursued for the valuable research and educational opportunities it would offer, as well as a new source of revenue for the center."33 From 2002 through 2009, the University was candid about the fact that it sought the lease primarily to obtain (1) a source of revenue to support its educational, research, and other programs, and (2) the road infrastructure that UTIA desires to facilitate timber sales from the Cumberland Forest.34 The University was generally silent about the lease in 2010, although legislation was enacted which ensured that the proceeds of any sale of UTIA property or mineral rights would remain within UTIA's budget and purview to be used for the fulfillment of the institute's teaching, research or statewide public service mission.35 Then, in December 2012, UTIA announced that it intended to issue not an RFP for an oil and 28 Memorandum from Robbi Stivers to Jurgen Bailey (March 20, 2009). Id. 30 Mr. Stivers had previously promised the prospective proposers that the University would delete a portion of the lease that provided for free gas for the lessor. See Email from Robbi Stivers to David Miller et al. (March 3, 2009). This was not mentioned in the submission package; and it is unclear whether the parties to the proposed lease had agreed that the final oil and gas lease would exclude that provision. 31 Minutes of Meeting of the State Building Commission's Executive Subcommittee (April 20, 2009). 32 Id. 33 Email from Hank Dye to Gary Rogers et al. (April 24, 2009). 34 See, e.g., Fact Sheet re Proposed Oil & Gas Lease Agreement (April 20, 2009) (listing additional revenue and road infrastructure as the top two reasons for leasing the Cumberland Forest). 35 See Tenn. Code Ann. ? 49-9-1409 (providing that any proceeds derived from the sale or liquidation of properties, mineral rights or other assets of value from within UTIA are to remain within the Institute's budget and purview and are to be used at the discretion of the Institute's chief officer for the fulfillment of the institute's teaching, research or statewide public service mission); 2010 Tenn. Pub. Acts, ch. no. 891, ? 5 (effective May 10, 2010). 29 6 gas lease, but rather an RFP "to secure an industry partner for a research project to determine the environmental impact of the drilling process for oil and natural gas."36 UTIA's announcement was preceded by a thorough public relations campaign that involved discussions with the Governor's office,37 TDEC,38 local government officials,39 and members of the State Building Commission.40 UTIA's outreach efforts were augmented by those of a political consultant, Bryan Kaegi, who has represented CONSOL Energy, Inc., the parent company of CNX Gas.41 On December 6, 2012, UTIA held an open house regarding the proposed research initiative in Wartburg, Tennessee. Attendees included representatives of several public interest groups, local landowners, and members of the oil and gas industry.42 The next day, SELC submitted Open Records Act requests to the University, TDEC, and others relating to the proposed oil and gas lease. On January 22, 2013, we discovered by chance that at the January 31, 2013 meeting of the ESC, the ESC would decide whether to approve the University of Tennessee's issuance of an RFP to enter into an oil lease, gas lease and coalbed methane lease on the Cumberland Forest with a waiver of independent appraisals. Despite their ongoing communications with SELC regarding public records requests on the same topic, neither UTIA nor the University had provided any notice that it had submitted a request to the ESC. Likewise, UTIA had not provided any notice to members of the public who had attended the open house or members of the local media who had covered it. We wrote to the ESC and argued that approving the RFP with a waiver of appraisals would run afoul of the By-Laws, Policy and Procedure of the State Building Commission of Tennessee, which require the State to seek consideration for conveyances of interests other than fee simple based on their fair market value.43 We also pointed out that the University took from December 7, 2012 to January 28, 2013 to make documents responsive SELC's public records requests available for inspection, and that concerned members of the public deserved a meaningful opportunity to inspect relevant documents and offer input before any decision was made regarding such an important issue. We requested that the ESC 36 UTIA Media Advisory (Dec. 3, 2012). It is not clear to what extent the University's contact with the Governor's office was initiated by the University or the Governor's office. See, e.g., Handwritten Notes (Oct. 22, 2012) (stating "Calls from the Governor's office - 'Let's go'" and "(MARK CATE) - Haslam will not stop us!!") (emphasis in original). 38 It appears that TDEC was asked to serve as an active proponent on the University's behalf. According to an email between Larry Arrington (Chancellor of the Institute of Agriculture) and Bryan Kaegi (a political consultant representing CONSOL Energy), UTIA's strategy was to have TDEC help push for approvals - and TDEC agreed to this role. See Email from Larry Arrington to Bryan Kaegi (March 8, 2012). Later, the Commissioner of TDEC sought to arrange a meeting including Mark Cate, TDEC staff, and the University's team in order to get the "state team" on the same page. See Email from Robert Martineau, Jr. to Mark Cate (Dec. 7, 2012). 39 See, e.g., Email from Kevin Hoyt to Martin Schubert (Nov. 30, 2013) (outlining talking points for calls with county officials, and explaining that the point that the "project will require an RFP from a yet to be named industry partner sometime in the future" is "optional if they ask"). 40 See, e.g., Email from Larry Arrington to Kevin Hoyt et al. (Oct. 29, 2012) (stating that Robbi Stivers had received positive feedback from the Secretary of State and the Comptroller). 41 Mr. Kaegi also provided a list of "Research Options for UT" on behalf of CONSOL. See Email from Bryan Kaegi to Larry Arrington (Sept. 6, 2012). 42 See Sign In Sheet for the Morgan County Open House (undated). 43 See Letter from Delta Anne Davis and Gwen Parker to Members of the Executive Subcommittee (Jan. 29, 2013), attached hereto as Exhibit H. 37 7 reject the University's request for a waiver of appraisals and defer any decision on the RFP until these fiscal and transparency concerns could be resolved. During the January 31, 2013 meeting of the ESC, it was announced that the University's request for approval of an RFP would be deferred at the University's request.44 On February 14, the ESC announced that a special meeting on the University's request to issue the RFP would be held on March 15, 2013. On March 4 (a Monday), the ESC informed the public that the deadline for submitting written comments on the issue would be 2:00 p.m. that same Friday. Despite this short turnaround time, the ESC received approximately 627 written comments.45 All but one of these comments opposed opening the Cumberland Forest to oil and gas extraction; and the other person commented that the University should slow down and wait for other, ongoing studies on the environmental impacts of fracking to be completed.46 In addition to those comments, two petitions were submitted in opposition to the proposed oil and gas lease. One petition contained 611 signatures from UT-affiliated staff, students and alumni.47 The other contained 1,971 signatures from members of the general public. At the special meeting itself, seven individuals spoke in favor of the proposed lease, 16 spoke in opposition to it, and two expressed neutral opinions.48 After the public comment period closed, the ESC quickly approved the University's request to issue the RFP with a waiver of appraisals.49 The RFP package that was approved consisted of the same RFP package that the University had used in 2009, together with a four-page addendum which provides a vague overview of the proposed oil and gas research initiative.50 However, the ESC also required the University to conduct a pre-proposal conference, because extensive communications between UTIA and CONSOL Energy/CNX Gas raised a 44 Minutes of Meeting of the State Building Commission's Executive Subcommittee (Jan. 31, 2013). Copies of these public comments and petitions are on file with SELC and are available on request. 46 Perhaps the most visible study currently underway on the environmental impacts of fracking is a study by the United States Environmental Protection Agency ("USEPA") on hydraulic fracturing and its potential impacts on drinking water, which is expected to yield a report for peer review in 2014. See USEPA, EPA's Study of Hydraulic Fracturing and Its Potential Impact on Drinking Water Resources, at http://www2.epa.gov/hfstudy (last visited June 3, 2013). This study is one of several efforts underway pursuant to a Memorandum of Understanding among the USEPA, the Department of Interior, and the Department of Energy regarding the development of unconventional shale gas and tight oil resources in the United States. See Memorandum from Arun Majumdar, David J. Hayes and Bob Perciasepe re: Multi-Agency Collaboration on Unconventional Oil and Gas Research (April 13, 2012), available at http://epa.gov/hydraulicfracture/oil_and_gas_research_mou.pdf. Also underway is work by United States Geological Survey scientists on surface-water and groundwater quality in areas of unconventional oil and gas development. See David Susong et al., Water Quality Studied in Areas of Unconventional Oil and Gas Development, Including Areas Where Hydraulic Fracturing Techniques are Used, in the United States, U.S. Geological Survey Fact Sheet 2012-3049 (April 2012), available at http://pubs.usgs.gov/fs/2012/3049/. 47 Among other things, this petition stated, "The reported purpose of this lease: to facilitate research between the UT Forest AgResearch & Education Center and oil/gas companies. Similar arrangements between oil/gas companies and universities like the University of Texas have historically resulted in bunk and discredited research, faculty resignations, and more." The petition is available at http://www.change.org/petitions/ut-board-of-trustees-don-tsupport-the-ut-lease-on-oil-gas-drilling-in-the-cumberland-forest. 48 See Minutes of Meeting of the State Building Commission's Executive Subcommittee dated March 15, 2013. 49 Id. 50 The addendum is attached as Exhibit I. As detailed in public comments that were submitted to the ESC, the addendum fails to provide a clear research objective. See, e.g., Letter from Annetta Watson to Georgia Martin (March 7, 2013), attached hereto as Exhibit J. Furthermore, UTIA has not provided an examination of the technical literature or a review of related research efforts to identify potential data gaps that the proposed research initiative would address. See id. 45 8 concern that there was a preferred bidder.51 In response to the ESC's decision, the University stated, "We will move forward in a transparent manner, in which we will seek to engage and receive input from all interested parties."52 As of this writing, the pre-proposal conference has not been scheduled.53 After it is held, the University may issue the RFP, accept bids, and negotiate the precise terms of an oil and gas lease with its preferred bidder. The University will then need to seek approval from the State Building Commission (or its Executive Subcommittee) before it can enter into the final, proposed lease. This approval process at the State level cannot substitute for review and debate within the University community, however. In light of the University's commitments to enhancing its standing as a public research university and furthering environmental sustainability, it is critical that the Board of Trustees consider the following conflict of interest and public policy issues. Indeed, given the nature of the trustees' authority concerning conveyances of University property and their fiduciary duties, the Board has a central role to play regarding this transaction. II. Trustees' Authority and Duty to Review the Proposed Transaction As you know, the Board of Trustees is the corporate entity responsible for the governance of The University of Tennessee.54 It is vested with "full authority to determine and to control the activities and policies of all organizations that bear, or that may be carried under, the name of the University."55 This broad authority includes the power to approve conveyances of the University's interests in real property, and the power to develop and implement governance best practices.56 Such governance practices include policies and procedures governing individual and institutional conflicts of interest. Trustees' fiduciary duties are commensurate with the scope of their authority. Trustees hold a position of public trust and are expected to carry out their governance responsibilities in an ethical and diligent manner.57 Trustees must discharge their duties in good faith and with due care, and each trustee must act in a way that he or she reasonably believes to be in the best interest of the University.58 With respect to the duty to exercise due care, perhaps the most fundamental duty of a trustee is to remain informed as to the work of the University.59 Trustees must require University management to provide any 51 See Minutes of Meeting of the State Building Commission's Executive Subcommittee dated March 15, 2013. UTIA Gas and Oil Research Initiative, SBC Executive Subcommittee Grants the University of Tennessee Permission to Release Gas and Oil Research RFP, at https://ag.tennessee.edu/gasandoil/Pages/SBC-ExecutiveSubcommittee.aspx (last visited June 3, 2013). 53 UTIA has promised to provide public notice of the pre-proposal conference on its Gas and Oil website, which is located at https://ag.tennessee.edu/gasandoil/Pages/default.aspx. See Answer from UT Institute of Agriculture to Question Posed by Jackson C. (received April 19, 2013), at https://ag.tennessee.edu/gasandoil/Pages/Questions-andAnswers.aspx (last visited June 3, 2013). 54 See Tenn. Code Ann. ? 49-9-209 (establishing powers of the Board of Trustees); Code of Ethics, art. I, ? 1. 55 Bylaws, art. I, ? 2. 56 Bylaws, art. III, ? 6(g) (describing the authority of the Finance and Administration Committee regarding conveyances of the University's real property); Bylaws, art. III, ? 4(a)(1) (describing the authority of the Executive Committee regarding such conveyances); Bylaws, art. III, ? 5 (describing responsibilities of the Trusteeship Committee). 57 Code of Ethics, art. I, ? 1. 58 Code of Ethics, art. I, ? 3. 59 See Bylaws, art. I, ? 3 (describing duty of trustees to keep informed). 52 9 information necessary to carry out the Trustees' duty of care to act in the best interest of the University. 60 Trustees must also promote a culture of constructive debate about major initiatives and transactions.61 Finally, if a matter comes before the Board for action, trustees are required to conduct a "critical analysis of the risks and benefits" of the issue.62 As detailed below, the proposed oil and gas lease and research initiative present institutional conflicts of interest and public policy concerns that require the Board of Trustees' attention. First, trustees' fiduciary duty of care requires that Board members inform themselves of the conflicts of interest that the proposed transaction presents and consider whether additional governance measures are required to protect the integrity of the proposed research and the University's reputation. Second, the proposed transaction is highly controversial in large part because it represents the first conveyance of State-owned mineral interests in many years. Yet Tennessee lacks State laws that guarantee robust public participation in decisions about mineral extraction on State-owned lands, or that identify and protect State lands that are unsuitable for mineral extraction because of their conservation value. The Board's fulfillment of its governance responsibilities to ensure open communication with campus constituencies and to promote a culture of constructive debate about major initiatives is all the more important where, as here, State policy does not provide adequate opportunities for public participation and debate. Similarly, the lack of an environmental review process for this type of transaction at the State level enhances the importance of the Board informing itself regarding the oil and gas lease and conducting a critical analysis of risks and benefits relating to this transaction.63 III. Anticipating and Addressing Institutional Conflicts of Interest A. Institutional Financial Conflicts of Interest Presented by the Proposed Transaction Research institutions such as the University of Tennessee must be concerned about financial conflicts of interest because they "strike to the heart of the integrity of the institution and to the public's confidence in that integrity."64 Conflicts of interest occur when financial considerations might compromise, or give the appearance of compromising, the professional judgment of the researchers, and it may affect the collection, analysis, and interpretation of data, as well the choice of protocol and statistical methods. Conflicts of interest can also occur when the institution has an external relationship with a company that itself has a financial interest in a faculty research project.65 Increasingly, a distinction is drawn between individual conflicts of interest, which concern risks that professional judgment or actions 60 Code of Ethics, art. I, ? 5. Id. 62 Id. 63 Cf. Code of Ethics, art. I, ? 5 ("Trustees shall undertake with due diligence a critical analysis of the risks and benefits of any matter coming before the Board for action."). 64 Association of American Universities Task Force on Research Accountability, Report on Individual and Institutional Financial Conflict of Interest (Oct. 2001) at i, available at http://www.aau.edu/WorkArea/ showcontent.aspx?id=6358. The report identifies several key values that universities need to protect from such conflicts, including their commitment to educating students, to academic freedom, to advancing knowledge of the natural world, and to protecting both the appearance and the actual integrity and objectivity of research, instruction, and public service. Id. 65 Id. 61 10 regarding a primary interest (such as research conduct) will be unduly influenced by an individual's secondary interest (financial gain), and institutional conflicts of interest, which involve risks that the financial interests of an institution or an institutional official, acting within his or her authority on behalf of the institution, may affect or appear to affect the research, education, or other governing activities of a university.66 Such a distinction is helpful because different policies and procedures are required to address individual versus institutional conflicts of interest. Currently, the University of Tennessee's policies concerning conflicts of interest primarily address individual conflicts of interest; institutional conflicts of interest are expressly addressed only in the context of research involving human subjects.67 These policies simply do not address the institutional conflicts of interest presented by UTIA's proposed oil and gas lease and related research initiative. Perhaps the most obvious institutional conflicts of interest stem from the fact that UTIA's research initiative on the environmental impacts of fracking would be funded by the very drilling activities under study, and the University stands to gain millions of dollars of free natural gas if those drilling activities continue. The projected financial gain to UTIA and the University from this lease is enormous, and the ongoing financial incentives to find no environmental problems with hydraulic fracturing are hard to overstate. This proposed lease could provide millions annually to the UTIA. The five-year lease (with three additional five-year terms) provides for a $300,000 signing bonus and an annual lease payment of $301,000. It also provides for a 15% royalty on gross proceeds of production (free of all costs); in 2009, the University estimated that its annual revenue from the lease would be $3 million to $5 million.68 In addition, the lease provides that the University may use any gas produced free of charge by laying a pipe to the producing well.69 In 2012 alone, UT's gas bills totaled over $6.2 million, and over the last five years the University's payments for natural gas totaled almost $22 million.70 Thus, UTIA and the University have a multimillion dollar incentive to find no environmental problems with the drilling, so that drilling can continue and the campuses can continue to receive millions of dollars a year under this lease. Studies of hydraulic fracturing at other universities have recently been discredited with much less visible conflicts of interest. In 2012, a study by the University of Texas, Austin, with the participation of the Environmental Defense Fund, found no groundwater contamination from hydraulic fracturing. That study, while initially praised, was ultimately discredited in December 2012 by an outside review panel for, among other things, a failure to disclose that the principal investigator was a paid board member of a 66 American Association of University Professors, Draft Report: Recommended Principles and Practices to Guide Academy-Industry Partnerships (June 2012), at 153, available at http://www.aaup.org/report/recommendedprinciples-practices-guide-academy-industry-relationships (hereinafter "AAUP Principles and Practices"). 67 See University of Tennessee System Policy No. FI0125 (effective Aug. 24, 2012), available at https://my.tennessee.edu/portal/page?_pageid=34,140536&_dad=portal&_schema=PORTAL&p_policy=FI0125. 68 Handwritten Notes (April 8, 2009). 69 University of Tennessee Request for Proposals, Transaction No. 06-02-008, Attachment A, ? 8 ("Free Gas for Lessor"). 70 Email from Kevin Hoyt to Larry Arrington, William Brown, and Richard Evans (Oct. 18, 2012). 11 firm engaged in hydraulic fracturing.71 The panel also criticized the relationship between the University of Texas and the oil and gas industry. The University of Texas withdrew the study, and the principal investigator was fired.72 In April, 2012, SUNY-Buffalo announced it was opening a research institute to study hydraulic fracturing and provide "objective fact based information;" only months later it was shut down amid scandal as its first report, claiming that hydraulic fracturing had gotten safer, was deemed to be industry propaganda. In that case, strong industry ties to the institute were criticized, although it was never clear where the funding for the study originated.73 Similarly, a 2009 report by Penn State University, prepared with a $100,000 grant from an industry group (the Marcellus Shale Coalition), was criticized and discredited because it did not identify the sponsor in the first release of the report, although it did so thereafter.74 UTIA's proposed lease arrangement creates much greater hurdles to an academically rigorous and unbiased study of hydraulic fracturing than did these studies. The studies described above were simply funded by industry or had close ties to industry. UT's proposed lease arrangement would create a research initiative on hydraulic fracturing that would be directly, financially dependent on continuation of the very activities under study. In other words, UTIA's proposed study will not only be funded by the industry, but there is a projected stream of millions of dollars of lease revenues and free natural gas that will continue, year after year, only if the University's studies report no problems with hydraulic fracturing. B. Facts Indicating Conflicts of Interest Warrant Careful Scrutiny The risks that such institutional financial conflicts of interest pose for the integrity of the research have already become evident. UTIA has actively solicited research ideas from potential industry partners.75, 76 One UTIA administrator has proposed letting industry select the study areas that would 71 The review panel pointed out that "in studies of controversial topics, such as the impact on public health and the environment potentially stemming from shale gas hydraulic fracturing, credibility hinges upon full disclosure of any potential conflicts of interest by all participants and upon rigorous, independent review of findings." Puck Lo, Frackademia: How the Fracking Industry Tries to Bully or Buy Scientists, CORPWATCH BLOG, Jan. 18, 2013, available at http://www.corpwatch.org. 72 Id. 73 The president of the university, after several months of controversy and student protest, wrote to his faculty and staff that he was closing the institute: "It is imperative that our faculty members adhere to rigorous standards of academic integrity, intellectual honesty, transparency, and the highest ethical conduct in their work." Id. 74 William Easterling, the Dean of the College of Earth and Mineral Science at Penn State said, "We would agree that whether or not this study came out with a Penn State seal on it or not, it is not appropriate to call it a Penn State study." Jim Efstathiou Jr., Frackers Fund University Research That Proves Their Case, BLOOMBERG BUSINESSWEEK, July 23, 2012, available at http://www.businessweek.com/news/2012-07-23/frackers-funduniversity-research-that-proves-their-case. 75 See, e.g., Debrief from 10/12/12 Energy Company Meetings (K. Hoyt) (undated); Email from Kevin Hoyt to Larry Arrington (Oct. 4, 2012) (explaining that he planned to meet with representatives from CONSOL and Atlas to develop a list of "industry specific" research topics and to gauge their level of interest in research partnerships). 76 In UTIA's meeting with public interest groups, which was held on February 13, William Brown and Kevin Hoyt were asked three times whether UTIA had solicited research ideas from potential industry partners. Each time, Mr. Brown would only state that the Advisory Committee had not had its first meeting yet. 12 receive funding.77 UTIA has also canvassed oil and gas companies regarding their concerns about the research component of the "new" RFP.78 CONSOL Energy's concerns deserve careful consideration, for they speak to the manner in which industry partners could well influence the research process and the research results. According to notes from UTIA, CONSOL Energy's concerns include: ? ? ? Must first meet all state/fed compliance regulations prior to implementing research projects. Would want an 'ongoing' in-house sharing of research data for continuous improvement purposes. Would want an in-house subject matter expert on the UTIA research team.79 CONSOL's request to receive the research data as they are generated so that CONSOL can continuously improve its operations deserves some thought. Such continuous data sharing would significantly undermine the usefulness of the research results from a regulatory standpoint. If such continuous data sharing occurred, the research results would not reflect the true range of environmental impacts from oil and gas operations as they are conducted in the real world. Yet it is these real impacts that regulators need to know to develop rules and procedures that adequately protect public health and the environment.80 The research proposed by UTIA will not fill this important gap. Even in the absence of a continuous data-sharing arrangement, the industry partner will know its operations are under scrutiny, and it will conduct them accordingly. CONSOL's concern that regulatory requirements must be met before research projects can begin underscores this point. Moreover, the research component of the RFP is notably lacking in scientific rigor: as noted in public comments, the addendum to the RFP that describes the research initiative omits basic information that is standard for requests for proposals relating to scientific research.81 The addendum does not state a clear research objective, and it does not even attempt to provide any examination of the technical literature or a review of related research efforts to identify potential data gaps that the proposed research initiative would address. By all appearances, then, the prospect of financial gain - and not a scientifically rigorous research agenda - is driving this transaction. It has been difficult for the public to detect the potential magnitude of these potential conflicts of interest because UTIA has publicly downplayed the importance of the revenue that it would receive from 77 See Email from Kevin Hoyt to William Brown et al. (Oct. 26, 2012). In this email, Dr. Hoyt suggests that UTIA could put together "a list of research projects that the potential industry partners have identified and work some potential research cost numbers into them." Dr. Hoyt further suggests, "We could like these examples with a minimum expected amount for each study and ask the proposers to select the top five they are willing to support and the amount of funding they are willing to commit for each." (The underlining shown here replicates the underlining in the original document.) 78 See Debrief from 10/12/12 Energy Company Meetings (K. Hoyt) (undated). The "new" RFP consists of the 2009 RFP package and a four-page addendum which outlines, in very general terms, the research initiative which would be funded in whole or in part by proceeds from the oil and gas lease. 79 Debrief from 10/12/12 Energy Company Meetings (K. Hoyt) (undated). 80 As detailed in SELC's challenge to the proposed fracking regulations, the Tennessee Department of Environment and Conservation ("TDEC") currently lacks the information that is needed to assess the actual impacts of hydraulic fracturing operations, in part because it does not monitor ground water quality near existing natural gas wells. See Letter from Delta Anne Davis and Gwen Parker to Robert Cooper (Nov. 26, 2012), attached hereto as Exhibit K. 81 See Letter from Annetta Watson to Georgia Martin (March 7, 2013), attached hereto as Exhibit J. 13 the proposed oil and gas lease. Instead, UTIA justifies "securing an industry partner" (i.e., leasing the Cumberland Forest for oil and gas production) solely on the ground that they "have to secure an industry partner in order to conduct the proposed gas and oil well research."82 The Institute also claims it does not know how much revenue the lease might generate.83 UTIA prepared talking points on the issue stating: ? ? Yes, there may be revenue generated, but any revenues will go back into this research and to support other research initiatives at our Forestry Resources AgResearch and Education Center. We can't say how much money could be made. There are a number of variables out there including commodity prices for natural gas, which are quite low at this time. Those numbers are still being worked out in the RFP.84 In fact, UTIA's leaders have tracked natural gas prices and have calculated the potential value to the University of the free natural gas that the proposed oil and gas lease would allow the lessor to take.85 They have long been cognizant of the significant revenues at stake. In 2009, for example, Mr. Stivers asked, "Are there other reasons, other than for revenue, for the University to extract finite oil and gas resources? I could hear someone ask this kind of question. The answer may simply be that revenue is the only reason to do it."86 Similarly, when the research initiative was announced in December 2012, one of UTIA's original proponents of oil and gas drilling in the Cumberland Forest wrote to his colleague, "My congratulations to the person who came up with the creative idea for a fracking research project as a means of gaining approval to lease petroleum reserves under the Cumberland Forest. I hope the leases yield much money for the Experiment Station."87 The above facts highlight the need for the Board of Trustees to review - and, as warranted, supplement - University policies and procedures to address the institutional financial conflicts of interest that this deal presents. In doing do, the University can look to universities such as Duke University and the University of Minnesota, each of which has established comprehensive policies regarding institutional financial conflicts of interest.88 Such steps seem all the more imperative given the University's goal to 82 Answer from UT Institute of Agriculture to Question Posed by Rebecca S. of Joelton, TN (received Feb. 5, 2013), available at https://ag.tennessee.edu/Pages/Oil-and-Gas-Q-and-A.aspx. 83 Answer from UT Institute of Agriculture to Question Posed by Matt L., Knoxville Independent Media (received Feb. 5, 2013), available at https://ag.tennessee.edu/Pages/Oil-and-Gas-Q-and-A.aspx. 84 "Talking Points" (undated). 85 See, e.g., Email from Kevin Hoyt to Larry Arrington et al. (Sept. 7, 2012) (discussing gas prices); Email from Kevin Hoyt to Larry Arrington (Oct. 4, 2012) (requesting that Chancellor Arrington "quietly" obtain the UTK Physical Plant's historical usage records for natural gas); Email from Kevin Hoyt to Larry Arrington, William Brown and Richard Evans (Oct. 18, 2012) (forwarding a "quick analysis" of the UTK utility data that Chancellor Arrington previously obtained and opining that the analysis "illustrates the 'wildcard' we were looking for") (emphasis in original). 86 Email from Robbi Stivers to Gary Rogers and Alvin Payne (April 17, 2009). 87 Email from Roland Mote to Richard Evans (Dec. 5, 2012). Dr. Mote and Mr. Evans worked together on the oil and gas lease beginning in 2001. See Memorandum from Richard Evans to Roland Mote (Nov. 6, 2001); Memorandum from Roland Mote to Robbi Stivers (Nov. 8, 2001). 88 See Duke University, Institutional Conflict of Interest in Research Policy (approved Dec. 4, 2009), available at http://duke.edu/services/ethicscompliance/coi/icoi_policy.php; University of Minnesota, Board of Regents Policy: Institutional Conflicts of Interest (amended July 13, 2012), available at http://regents.umn.edu/sites/default/ files/policies/Institutional_COI.pdf; University of Minnesota, Administrative Policy: Institutional Conflicts of Interest (revised May 2013), available at http://www.policy.umn.edu/Policies/Operations/Compliance/ INSTITUTIONALCONFLICT.html. As explained in note 11 above, the most recent report from Arizona State 14 become one of the top 25 public research universities in the nation.89 Chancellor Cheek has identified the University's overall reputation as one of the two factors that most need improvement if the University is to continue its progress toward that goal.90 As the recent problems at other universities show, conflictridden research on fracking would do nothing to enhance the University's standing among public research universities. IV. Fulfilling Governance Responsibilities in the Absence of a Public Policy Backstop At present, Tennessee lacks strong environmental protections for oil and gas drilling.91 Even if such protections were in place, certain places should be off limits to drilling because of their ecological, scenic, or recreational significance. There has not yet been the opportunity for an open, informed discussion as to whether the Cumberland Forest is such a place. Moreover, to our knowledge this would be the first oil and gas lease on State land where the State owns both the surface rights and the subsurface mineral rights. The lease threatens to set a reckless precedent because Tennessee lacks policies and processes that adequately protect the public's interest in these types of transactions. The State Building Commission is empowered to promulgate rules regarding conveyances of State-owned minerals and other energy related resources, but it has never done so.92 In part because of this inaction, we lack State laws that guarantee robust public participation in decisions about drilling on State-owned lands, or that identify and protect State lands that are unsuitable for drilling because of their conservation value. These gaps in public policy at the State level have direct implications for the Board of Trustees' duties with respect to the proposed oil and gas lease. First, the Board's governance responsibilities include responsibilities to ensure open communication with campus constituencies.93 Indeed, the Code of Ethics requires the Board to promote a culture of constructive debate about major initiatives and transactions.94 The Board's fulfillment of these responsibilities is especially important where, as here, State policy does not provide adequate opportunities for public participation and debate. The summary dismissal of a student petition to present concerns to the Board is not consistent with the Board's responsibilities on this front. University's Center for Measuring University Performance ranks the University of Minnesota among the top 25 public research universities in the country. 89 Chloe White Kennedy, UT's Focus: The Top 25, KNOXVILLE NEWS SENTINEL, Jan. 30, 2010, available at http://www.knoxnews.com/news/2010/jan/30/uts-focus-top-25/?print=1. 90 David Cobb, Cheek, SGA Collaborate Toward Top 25 Goal, THE DAILY BEACON, Sept. 20, 2012, available at http://utdailybeacon.com/news/2012/sep/20/cheek-sga-collaborate-toward-top-25-goal/. 91 TDEC recently adopted regulations that include some provisions addressing hydraulic fracturing. See TDEC, Rulemaking Hearing Rule(s) Filing Form (filed March 20, 2013), available at http://www.tn.gov/sos/rules_filings/03-13-13.pdf. However, key provisions of the regulations do not apply to the fracking treatments that are currently conducted in Tennessee, and TDEC's oil and gas program lacks the staff needed to ensure adequate inspection and enforcement. 92 See Tenn. Code Ann. ? 12-2-112(a)(4) (providing that the State Building Commission shall have authority to promulgate rules and regulations over the disposal or conveyances of any State-owned interest or rights in minerals, coal, natural gas, oil, timber and any other energy related resources pursuant to the Uniform Administrative Procedures Act). 93 See, e.g., Association of Governing Boards of Universities and Colleges, Statement on Board Responsibility for Institutional Governance (March 26, 2010), available at http://agb.org/statement-board-responsibility-institutionalgovernance. 94 Id. 15 Second, both the mineral interests and the land interests at issue here are trust resources that are to be managed for the benefit of future generations of Tennesseans.95 Documents obtained from UTIA cast doubt on whether the University has exercised the level of care required to responsibly manage such trust resources. For example, nothing in the large volume of documents obtained from UTIA suggests that the value of the oil resources under the Cumberland Forest has ever been assessed, yet Professor Robert Hatcher has informed his colleagues that "there is probably greater economic potential in oil here than natural gas" on University lands.96 Likewise, in 2009 the University agreed to delete the lease provision that allowed the lessor to take free gas, apparently without assessing the potential value of that gas to the University.97 Also in 2009, the University agreed to the sliding scale royalty rate that CNX requested, despite the fact that this shifted significant market risk from CNX (a sophisticated and repeat participant in oil and gas leases) to the University.98 According to the University's internal documents, it did not engage anyone knowledgeable about oil and gas leases when it prepared the 2009 RFP package,99 and nothing in the documents received from the University indicates that it has had a subject matter expert review the RFP package since that time. These facts raise red flags as to whether the resources at stake in the oil and gas lease are being managed with adequate care. Given that the Board of Trustees is vested with broad authority over conveyances of University property, and given trustees' duty of care, these red flags should prompt careful review and analysis of this transaction. At a minimum, the Board of Trustees should obtain independent appraisals of both the value of the mineral interests at issue and the conservation value of the land, so that any decisions concerning these trust resources are informed by a meaningful assessment of both financial and environmental costs and benefits. The Board of Trustees should also ensure that there is adequate opportunity for an open, constructive debate as to whether any of the Cumberland Forest is suitable for oil and gas drilling and whether more stringent rules than the new State regulations governing oil and gas drilling are warranted in light of the Cumberland Forest's conservation value. In closing, it is important to note that the steps outlined above are consistent with UT Knoxville's Environmental Policy. This policy states that UT Knoxville will "apply principles of energy conservation, carbon footprint minimization, responsible purchasing, waste minimization, and sustainable design" in its operations.100 It also states that faculty, staff and students "will strive to increase awareness of environmental issues and will promote sound environmental practices" and that "UT Knoxville will encourage consideration of environmental impacts in decisions made by university faculty, staff, and 95 See Tenn. Code Ann. ? 11-14-303 (recognizing that land and minerals owned by the State are nonrenewable resources which are held in trust for the benefit of future generations). 96 Email from Robert Hatcher to Kevin Hoyt et al. (Dec. 6, 2012). 97 See Email from Robbi Stivers to David Miller et al. (March 3, 2012) and attachments thereto. 98 Memorandum from Robbi Stivers to Jurgen Bailey (March 20, 2009) (explaining that the proposer "offers a 15% average royalty based on a sliding scale," and that the royalty rate would range from 12.5% to 17.0% depending on the price of gas). 99 See Email from Alvin Payne to John Gregory (March 12, 2009); "Oil and Gas Production" (undated) (explaining that Gary Rogers turned down a request to "engage a consultant knowledgeable of petroleum leasing arrangements," and thus Robbi Stivers and Roland Mote prepared a model lease document and request for proposal). 100 See University of Tennessee Knoxville Environmental Policy (revised Sept. 2011), available at http://www.cce.utk.edu/policy.html. 16 students."101 While UTIA and UT Knoxville remain separate campuses, the proposed oil and gas lease and research initiative has direct implications for both. Most notably, the possibility of that UT Knoxville might benefit from free natural gas through the lease makes it imperative to assess whether additional steps are needed to make the proposed oil and gas lease consistent with UT Knoxville's environmental commitments and policies. V. Conclusions We first investigated this oil and gas lease because the Cumberland Forest has significant conservation value, yet no one seemed to be weighing the potential loss of an important conservation asset against the potential financial gain from the lease. This remains a pressing concern. As detailed above, our investigation has revealed other problems with the proposed lease that should concern all students, faculty and alumni of the University of Tennessee. Most notably, as it is currently designed the lease and research initiative cannot produce the objective results that UTIA says it seeks. Instead, the fundamental structure of the proposed transaction - a research initiative on the environmental impacts of oil and gas extraction which would be funded by the very activities under study - presents significant institutional conflicts of interest. Despite UTIA's assurances that it has strong policies and procedures in place to handle potential conflicts of interest, it appears the University lacks policies that address the institutional conflicts of interest presented here. As a result, the proposed lease and research initiative threatens to make the University a poster child of "frackademia." Such conflictridden research on fracking would do nothing to enhance the University's standing among public research universities. Before pursuing this controversial deal with the oil and gas industry, then, the Board of Trustees should review - and, as necessary, supplement - the University's policies and procedures regarding institutional financial conflicts of interest. As part of this step, the University should consider best governance practices regarding such conflicts of interest identified by bodies such as the Association of American Universities and the American Association of University Professors. The Board should also consider the policies and procedures that leading research universities such as Duke University and the University of Minnesota have adopted regarding institutional conflicts of interest in the context of academic-industry partnerships. Second, there is a serious policy gap at the State level regarding mineral extraction on lands where the State owns the subsurface mineral rights, and this gap makes the Board's fulfillment of its fiduciary duties regarding this deal all the more pressing. Most notably, Tennessee lacks State laws that guarantee robust public participation in decisions about drilling on State-owned lands, or that require an environmental review process that would identify and protect State lands that are unsuitable for drilling because of their conservation value. The few procedural protections that do exist can be easily waived, as the State Building Commission's recent waiver of independent appraisals shows. 101 Id. 17 Given this lack of a public policy backstop, it is especially important that the Board fulfill its fundamental governance responsibility to ensure open communication with campus constituencies; indeed, the Code of Ethics requires the Board to promote constructive debate about major transactions. At a minimum, then, the Board should establish opportunities for such debate on whether any of the Cumberland Forest is suitable for oil and gas drilling and, if so, whether more stringent environmental protections are warranted in light of the Cumberland Forest's conservation value. Consistent with its duty of care and UT Knoxville's Environmental Policy, the Board should also institute a comprehensive environmental review process. As part of this process, the Board should obtain independent appraisals of both the value of the mineral interests at issue and the conservation value of the land, so that any decisions concerning these trust resources are informed by a meaningful assessment of environmental costs and benefits. In sum, the proposed oil and gas lease and related research initiative present serious conflict of interest issues and pressing environmental concerns. We respectfully urge the Board of Trustees to direct University management and staff to suspend further development or negotiation of the proposed oil and gas lease until these issues and concerns can be resolved. Respectfully submitted, Delta Anne Davis Managing Attorney Nashville Office Gwen Parker Staff Attorney cc: Lieutenant Governor Ron Ramsey Speaker Beth Harwell Commissioner Larry Martin, Department of Finance and Administration Secretary of State Tre Hargett Comptroller of the Treasury Justin P. Wilson State Treasurer David H. Lillard, Jr. State Architect Bob Oglesby Commissioner Bob Martineau, TDEC Deputy Commissioner Shari Meghreblian, Bureau of Environment 18