Blowing Smoke

Could Valero empty the coffers of Texas schools?

But if the TCEQ winds up buying it, he says, "the floodgates will open because now this new rule will apply to any pollution control device that controls pollution anywhere, not just in Harris County."

He elaborates: "What about catalytic converters? Catalytic converters are no different than low-sulfur gas because they control pollution at the tailpipe. They don't control pollution where the catalytic converter is manufactured." Same for a company that manufactures air or water filters, he says.

Besides the "at the site" issue, Garcia and other officials argue, buying the hydrotreaters was purely a business decision, not an environmental one — an argument that appears to be supported by the self-congratulatory language in Valero's earlier financial report summaries.

HCAD lawyer Bernardo Garcia says Valero's case could set a dangerous precedent.
Chris Curry
HCAD lawyer Bernardo Garcia says Valero's case could set a dangerous precedent.

And arguing before the TCEQ commissioners last January, officials were trying to prove just that. Tony Brown, a lawyer representing the Galveston County Appraisal District, said bluntly of the hydrotreaters, "It is a business decision to put it in." Marathon Oil's Texas City refinery, he pointed out, does not have desulfurization equipment, opting instead to sell its product as an intermediate inside the Marathon system, as well as externally.

Amy Keith, a lawyer for the Jefferson County Appraisal District, suggested that Valero could have instead chosen to purchase crude that doesn't have such high sulfur levels to begin with. (To this, Bill Day says, "That's 100 percent false. And I question her expertise in refining.")

Siding with those lawyers, as well as with TCEQ's executive director, that hydrotreaters were purely an investment and not a burden, were the Texas Conference of Urban Counties, Harris County Commissioners Court and the Office of the Public Interest Counsel.

At the same meeting, Valero representative Jim Greenwood offered the counterpoint: Valero employs more than 10,000 Texans, and last year paid $174 million in taxes, $130 million of which were property taxes. Because Valero is not a drilling and exploration company, it buys crude at world market prices, making for an "extremely competitive business with razor-thin margins."

So, as Day points out, for a company like Valero, hydrotreaters are not simply an investment. "It was a cost that we had to bear in order to stay in business. And the alternative would not have been doing something cheaper. The alternative would have been — in very likely terms — shutting a refinery or two down and putting people out of work."

But while Day also says the company has never asked for a three-year refund, Garcia says taxing districts "have to issue a refund whether they like it or not. If Valero or any other company wants to give up that refund, they have to literally take that check and re-­endorse it back to the jurisdiction. However, they can't just say, 'Oh, don't issue us a refund.'"

Moreover, he adds, "Is that bait?...Are they trying to say, 'Look, we'll give you $25 million today, but we're going to end up making $100 million down the road in the future'? That's how jurisdictions are looking at it."

Of course, it's somewhat difficult to tell completely what jurisdictions are looking at, since there exists a giant question mark in the debate, namely: How much is a hydrotreater even worth?

The three approaches to appraisal are cost, income or market value. Unlike houses, which can be reasonably appraised using market values, complex technical equipment without a huge market is harder to appraise. In the absence of any other data, officials in the various taxing districts have relied on the cost Valero stated on its TCEQ applications. In the Houston refinery, for example, Valero listed its diesel hydrotreater at $238 million and its gas counterpart at $66 million, so presto, the Harris County Appraisal District says $304 million will drop off the tax roll.

The problem is, using those values yields some weird, seemingly improbable results — depending on whom you talk to. The Harris County Appraisal District appraised Valero's entire Houston refinery at roughly $305 million for 2009, suggesting the refinery was worth $1 million before the hydrotreaters. In 2007, the refinery was valued at $227 million, meaning the entire refinery was worth less than the diesel hydrotreater alone.

As Day says, "It defies logic to think that one piece of equipment in a refinery would have that type of appraised value." He says that appraisal districts have never accounted for depreciation. Moreover, he predicts the districts may be singing an entirely different tune if Valero gets the exemption and appraisers have to officially enter a value into the tax roll.

"It's impossible for anybody to say what the appraised value of this particular unit will be until Valero gets this exemption and then the appraisal districts take that hydrotreater off of the tax roll, and I guarantee you the value that they give it at that time [when] they take it off the tax roll will not bear any relation whatsoever to the things they're saying today..."

Yet one refinery appraiser told the Houston Press that, as illogical as these ratios may appear, they can still be accurate.

Asking that we not use his name, he explained that "A refinery may, if you look at the cost of the equipment in the refinery...easily top $1 billion. But if you...value that refinery based upon the income it produces, the value of the property may be substantially less than the cost of the individual components in the refinery."

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