Risky Business

Risky Business

Tolls for Tots

Texas’ School Land Board is set to invest $100 million of public school endowment funds in a controversial company that privatizes public assets of cash-strapped cities and states that need billions of dollars to support aging infrastructures. The company, Macquarie Infrastructure II LP US, hopes to build private toll roads in Texas and across the United States. Its Australian parent, Macquarie Group Ltd., already owns private toll roads, airports, and other infrastructure assets around the globe.

So far, Macquarie has made a handful of unsuccessful bids on toll roads in Texas, including State Highway 121 and U.S. 281-Loop 1604 in San Antonio. It is still waiting on the results of an offer for Interstate 635 in Dallas. Recently, Macquarie also entered negotiations to lease Austin-Bergstrom International Airport. Another subsidiary of the Macquarie Group owns several small-town newspapers in Texas.

General Land Office Commissioner Jerry Patterson, who oversees the School Land Board, said he sees nothing wrong with investing public funds in private toll roads. “With a 15 to 16 percent annual rate of return, I don’t see a problem,” he said. “My duty is to make money for the Permanent School Fund.

Patterson said the fund would invest nationwide and not necessarily contribute to toll roads in Texas. “This is a bluechip fund that is not just limited to toll roads,” he said.

Dallas Republican state Sen. John Carona, chair of the Transportation and Homeland Security Committee, takes a more cautious view on the investment. He said this summer his committee will look closely at the policy implications of public pension fund and endowment investment in companies like Macquarie that privatize publicly owned properties.

“The state needs to invest very carefully and with significant due diligence,” Carona said. “We need to keep a close eye on this.”

Carona is concerned about reports in business publications charging that Macquarie has overpaid for projects and engaged in risky financial schemes. In a 2007 Fortune article, the magazine was critical of what it termed the “Macquarie Model,” whereby the company buys the rights to run toll roads from cash-strapped governments and then sells the roads back to the public via a stock offering.

Last April, an independent New York-based corporate governance service, RiskMetrics Group Inc., slammed the Macquarie Group for elevated debt levels, high fees, inadequate disclosure, and poor corporate governance.

Macquarie defended the performance of its funds in the 2007 Fortune article. The firm pointed out that its funds have returned an average of 19.8 percent annually and sold assets for more than twice their purchase price.

“It’s risky,” said Carona of the land board’s investment in Macquarie. “But then, with higher risk, there is a higher return.”

Low Wattage Regulators

Soaring fuel costs recently forced three small electric companies in Texas out of business. Experts worry that other electricity retailers may soon follow. Consumer advocate Randy Chapman, executive director of Texas Legal Services, blames lax service requirements by the Texas Public Utility Commission. “Anyone with $100,000 can become an electricity retailer,” Chapman said.

In a rare act of regulatory muscle, the PUC recently rejected a retail-electricity applicant because its CEO, Darwin Lau, had been involved with two other electric companies that failed. Yet even as Lau’s PUC application was pending, his Dallas-based PowerOne (a unit of Consulting Groups Network LLC) was selling prepaid electricity accounts to some of the state’s most vulnerable consumers. “It would appear that PowerOne was operating as a retailer without a license,” said Patricia Dolese, a former head of the PUC’s Consumer Protection Division who now runs the Austin-based consulting firm Regulatory Compliance Services.

Unlicensed electricity retailers can be banned from the industry, referred to the attorney general for deceptive trade practices, or fined up to $25,000 a day, according to Dolese and current PUC Consumer Protection Director Mike Renfro. Nonetheless, Renfro said unlicensed retailers openly advertise prepaid electric service through The Greensheet and “enforcement hasn’t caught up with them.”

Consumer advocates are concerned about prepaid accounts. “Since deregulation has removed the obligation on electric companies to serve all customers, they can deny service to customers they see as less desirable,” said Tim Morstad, who tracks the industry for the Texas office of AARP. “These customers may find themselves with few or no options other than a prepaid provider that can rip them off.”

PowerOne CEO Lau told the Observer that Morstad has it backward. Traditional power companies demand good credit and a substantial deposit, he said. Prepaid accounts “evolved out of necessity,” Lau said, for “customers who had been shut out of the market.”

Unlicensed PowerOne operated through a “marketing agreement” with licensed provider W Power & Light of Midland. Dolese recently analyzed consumer complaints investigated by the PUC last year, finding that 28 electricity retailers generated at least 10 consumer complaints. Of these, W Power ranked third in the percentage of its complaints (four out of 10) that involved rule violations, according to PUC investigators. Significantly, the four involved Hispanic customers who bought prepaid electric accounts from W Power marketing partner PowerOne. Three of the customers complained that W Power shut off their electricity during the heat of summer.

Lau said PowerOne’s marketing agreement with W Power ended in May for reasons unrelated to consumer complaints or the PUC’s denial of PowerOne’s license. W Power did not return calls by press time seeking comment.

Sinking in It

An Astrodome-sized sinkhole is undermining the tiny East Texas town of Daisetta. The burg of approximately 1,000 people is literally collapsing on itself, tumbling into a chasm 250 feet deep and several football fields across that first appeared in early May. Some residents and environmentalists blame the sinkhole on erosion caused by oil field waste pumped into deep underground wells. The town has been featured on network television news and in The New York Times and Wall Street Journal. Unnoticed by most media, residents 45 miles to the west, in rural Montgomery County east of Conroe, are fighting to block an underground injection site for oil field waste that could create environmental and health problems worse than the Daisetta sinkhole.

TexCom Gulf Disposal, a Houston-based waste company, is seeking a permit to sink waste injection wells on a 27-acre site in an increasingly residential section of Montgomery County. As the Observer has reported (see “What Lies Beneath,” May 19, 2006), waste injection wells funnel sludge and waste produced in oil drilling and other industrial processes, mixed with water, deep underground. Injection wells litter the state; in 2006, nearly 7 billion barrels of waste were injected under Texas soil. Waste from injection wells can bubble to the surface, pollute ground water, or, as in Daisetta, cause sinkholes.

TexCom has applied to the Texas Commission on Environmental Quality to establish a class-one injection well, which would allow the company to store wastewater from small industrial sources such as dry cleaners and restaurants.

Community associations, city councils, and county commissions representing a combined 250,000 residents, including the cities of The Woodlands and Conroe, have passed resolutions against the permit.

“I’m a mom on a mission,” said Jennifer Real, a 39-year-old mother of two who lives a mile and a half from the proposed site. She said the injection wells could contaminate the underlying aquifer and leak to the surface through hundreds of abandoned oil wells in the area.

Geologists working for the county have studied TexCom’s plan and concluded it could pollute drinking water for hundreds of thousands. The county’s groundwater conservation district said in a release opposing the permit that the plan poses “an unreasonable risk of contamination of the aquifers that make up the water supply of a significant number of people in Montgomery County.”

The company maintains that waste won’t end up in the drinking water. “TexCom’s proposal applies proven deep well injection practices that will completely isolate wastewaters from drinking water sources and therefore represents the safest disposal option,” said company spokesman Justin Keener.

Area lawmakers, including Republican state Sen. Tommy Williams of The Woodlands, have written letters to the TCEQ opposing the permit. Still, in late April, two administrative law judges recommended that TCEQ approve it. TCEQ commissioners will hold a final hearing on the case in the next several weeks. At press time, no date had been set.

Abbott’s Ballot Crusade

Election fraud never seemed an appropriate term for what Willie Ray did. The 69-year-old former Texarkana City Council member didn’t stuff a ballot box, vote three or four times, or fill out ballots with the names of dead people. Ray simply mailed ballots for elderly voters who couldn’t do it themselves. But because she neglected to sign the envelope-a technical violation of an arcane section of the election code-Texas Attorney General Greg Abbott convicted Ray of voter fraud. As the Observer has reported (see “Vote by Mail, Go to Jail,” April 18, 2008), Ray and five others, including her granddaughter, believe their prosecutions were discriminatory. They filed suit against Abbott’s office in federal court in 2006.

The case was settled last month. Attorneys and advocates hope the resolution will allow the attorney general to prosecute voter fraud and spare others from suffering Ray’s fate.

Ray and co-defendants, including the Texas Democratic Party, claimed the prosecution was politically motivated. They accused the AG’s office of investigating only Democrats-mainly African-Americans and Latinos-while ignoring evidence of voting irregularities by Anglo Republicans. Democratic activists speculated that Abbott, a Republican, hoped to minimize minority turnout in swing districts.

The AG’s office long denied the accusations and asserted that the plaintiffs clearly broke the law.

After several days of negotiations, the plaintiffs reached a settlement with the AG’s office on the morning the case was scheduled for trial in federal court in Marshall.

The AG’s office agreed, in most cases, not to prosecute individuals who simply carry mail-in ballots for other people, where there is no additional evidence of fraud. “People like Willie Ray and her granddaughter-and the people we represent who were investigated-would not have been investigated if this policy had been followed,” said Gerald Hebert, who represented plaintiffs in the case, “because there was no allegation and no proof that they engaged in any fraud.”

Hebert noted that while the AG’s office changed its prosecution procedures, the law is still on the books. The attorney general still has the authority to prosecute absentee voting fraud even though Abbott’s office has vowed not to pursue those who simply fail to sign the ballots.

The settlement also stipulates that the Texas Secretary of State will make greater efforts to inform voters of the legal requirements for mail-in ballots.

Abbott’s office declared victory after the settlement. Indeed, the AG’s prosecutions of Ray and others, in which no jail time was served, will stand. But the office pledged to refrain generally from such investigations in the future. In short, they conceded that helping old folks vote shouldn’t be treated as a crime.

Political Intelligence

Approaching the Brink

The Texas Commission on Environmental Quality has issued a draft permit to Uranium Energy Corp., bringing the Austin-based company one step closer to its goal of mining for uranium in Goliad County.

The TCEQ decision follows nine months of deliberation, during which citizens of Goliad County have mobilized against the prospective mining operation, organizing well-attended public meetings and otherwise vocally opposing Uranium Energy’s intentions. In March, the county filed a federal lawsuit under the Safe Drinking Water Act seeking to prevent the company from further uranium exploration in the county. That lawsuit is pending.

Harry Anthony, Uranium Energy’s chief operations officer, hailed the TCEQ’s decision in a written statement, saying it “validates the detailed technical understanding that company staff are developing about the project area.”

But Jim Blackburn, the county’s attorney, said nothing has been validated just yet. The county has already said it will request a contested-case hearing to argue against the permit before an administrative law judge. Blackburn said he was optimistic such a hearing would be granted: “I believe Goliad County meets the requirements,” he said.

Even without the hearing, before a final permit can be issued, a 30-day public comment period is required, followed by a formal response to the comments by the TCEQ. The permit must then be favored by at least two of the three TCEQ commissioners to be authorized. If a contested-case hearing is granted, it could be months before a decision on whether Uranium Energy is granted a permit to mine, Blackburn said. “That final decision will likely be reached well after the first of the year, although no schedule is currently set.”

Feds Won’t Deport Abused

On April 11, the Bureau of U.S. Citizenship and Immigration Services sent a memo to its offices nationwide directing agents not to deport battered women and children.

The agency had been doing just that, despite a provision in the Violence Against Women Act that allows battered women and children to file for legal residency to escape their abusers.

The memo comes after several months of congressional inquiries into why the agency was not following the law.

A recent Observer story (see “

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Published at 12:00 am CST