In part, problems that have plagued the Texas Energy Center almost from inception appear to stem from its founders’ failure to take two old adages into consideration:
| Texas Energy Center – Final Part Of A Series |
| The Series: |
| Part 1 → Economic Engine Or Empty Promise? Part 2 → Ambitions Outpaced Its Pocketbook → Born Amid A Heap Of Hype Part 3 → Who Really Landed The Jobs? Part 4 → Sugar Land Quits TEC, Comes Back In 2 Weeks |
→ In creating a budget for itself, the non-profit Sugar Land energy center counted on chickens that never hatched.
→ By attempting to simultaneously capitalize on four major energy technology initiatives and at least a half-dozen other unrelated ventures, the TEC bit off more than it could chew.
As a result, the taxpayer-funded organization found itself in crisis management mode, forced to eject a highly paid professional staff and undergo a mission transformation after a confrontation with financial reality.
The ideas that eventually became the TEC were hatched five or six years ago at the University of Houston’s Cullen College of Engineering. Among others, Ron Oligney, then director of engineering research development, and College Dean Raymond Flumerfelt began brainstorming with Herb Appel, then president of the Greater Fort Bend Economic Development Council, and other local economic development officials.
If it were possible to capture government funding, so the reasoning went, an organization could be formed to manage a cluster of research institutes, energy companies and universities united in their efforts to solve the world’s most pressing energy problems.
Roll of the Dice
Officials involved in the discussion were aware that a national energy bill being prepared – hopefully for passage soon – might include significant funding for so-called deepwater technology, designed to allow for the extraction of significant oil reserves deep beneath the Gulf of Mexico, and for new technologies aimed at reducing the cost of extracting U.S. natural gas reserves on land.
A consortium of universities and research institutes – among them UH – already had begun assembling in an attempt to win a contract for that program. If the TEC could become host to such a project, it would gain credibility and become a worthy target for state and federal funding, so the thinking went.
Oligney and the EDC were able to find support from five founding members: UH contributed $200,000, the City of Sugar Land and Fort Bend County contributed $250,000 apiece, and the EDC itself pledged $300,000 in cash and in-kind contributions.
Bolstered by the new support and armed with an economic impact report commissioned from Austin’s AngelouEconomics, Oligney, Appel and others crafted a pitch for state officials. Calling for $6.1 million in start-up costs to fund the center for its first three years, Oligney pledged in a March 2003 presentation that in return for the money, the TEC would “House both the funding mechanism for deepwater research and the R&D companies that receive the funds.”
The TEC pitch went further, and promised that in return for the grant money, the center also would:
→ Create a “cluster” of energy companies and universities to collaborate on energy research and development;
→ “Pursue several areas of new energy technologies in addition to deepwater production: Clean energy, hydrogen infrastructure, natural gas;”
→ “House a teaching facility at which universities come together to conduct R&D and give students practical experience in the field;”
→ Become landlord to “technical laboratories, national research and energy policy groups, support businesses, analysts and industry associations.”
The scattergun pitch appeared to gain even more support than TEC’s founders had hoped for. Bills to fund the center were introduced in the 78th Texas Legislature by state Rep. Charlie Howard and then-state Sen. Ken Armbrister.
“This will allow the state to put funds toward attracting this energy center, which will mean millions, perhaps billions of dollars for our area,” Howard was quoted as saying at the time. “We have an appropriations rider that the governor will support. It’s well worth the effort. We think we can be successful with this.”
A state budget bill included TEC funding, and stated that the Texas Department of Economic Development or a successor, may transfer:
→ Up to $3.6 million in grants to the center by August 2005.
→ Up to $2.5 million for use as matching funds in attracting a federal program for ultra-deep and onshore unconventional natural gas research and development “to be administered by the Texas
Energy Center.”
→ Up to $15 million to develop a “multi-institutional, statewide fuel cell industry and infrastructure development program.”
→ And up to $10 million in matching funds for “a technology development team housed in the Texas Energy Center, in order to enhance its ability to compete for development of the federally funded FutureGen project and other federal hydrogen and Clean Coal technology development or demonstration projects.”
Counting the Chickens
TEC officials set about creating a budget for the fledgling center, based on all $31.1 million listed in the state budget document.
TEC fortunes got a boost when Research Partnership to Secure Energy for America – the consortium formed to chase the so-called deepwater funding – agreed to house its offices at the TEC in return for free rent, then at Sugar Land’s Fluor Building adjacent to the EDC.
The energy center hired a staff and set itself up as a kind of Swiss army knife business incubator for energy ventures, ready to provide tenants with free or subsidized office space, furniture, and telephone, Internet and copier services.
Oligney began approaching prospective corporate members with venture ideas, among them Boeing.
“Over half of the funds will go directly to provide space subsidies for organizations relocating to the Texas Energy Center,” the TEC said in a July 2003 report it provided to Texas Gov. Rick Perry’s office on how its grant money would be spent. “The Boeing Company is targeted as the first major tenant and is expected to take occupancy of 45,000 square feet on Oct. 1, 2003.”
Oligney said Boeing would join the center to work on a hydrogen project called FutureGen, also involving technology for “zero-emission power plants.” But the company was slow in arriving. By October 2003, the TEC said it had paid $50,000 to reserve 50,000 square feet of space that Boeing would move into by the beginning of January 2004.
January came, but Boeing did not.
By the end of May 2004, Boeing still had not arrived. In a letter to the governor’s office, Oligney said the TEC had moved out of the Fluor Building and into “an attractive 43,000-square-foot space in the Kensington II professional building just across Highway 6.” After build-out, Boeing would show up to occupy most of that space, he said. Again, it didn’t happen.
People familiar with the efforts say hoped-for funding commitments from the state for bringing FutureGen to the TEC never came through, and neither did Boeing.
Other energy initiatives the center had hoped for also came apart. Sources familiar with TEC operations at the time say Oligney isolated and irritated some center members when they learned that funding he had promised them for a particular venture also had been pledged to another member.
Corporations that had been persuaded to become TEC members, including Boeing, Air Liquide, Dow Chemical, Schlumberger and Fluor all left, save one. The Gas Technology Institute, which also is a member of the RPSEA consortium, still remains on the TEC board.
Oligney was said to be adept at turning his attention to new potential targets as prior deals fell through. At one point, several sources involved in the energy center’s operations recalled, Oligney proposed that the TEC buy and operate a natural gas power plant now owned by NRG Energy Inc. as part of its W.A. Parish operations near Thompsons. Energy center board members, however, had no interest in entering the power generation business.
Puff of Smoke
Meanwhile, as the TEC struggled to assemble an “energy cluster” in Sugar Land, the financial landscape changed in Austin.
Through another act of the 78th Legislature and at the urging of Gov. Perry, the Texas Enterprise Fund had been born.
Late in 2003, The Enterprise Fund was given control of the money the state budget had said “may” be granted to the TEC. However, rules governing the Enterprise Fund’s awarding of grants included provisions for which the TEC couldn’t qualify.
Thus, a Feb. 10, 2004, letter from Gov. Perry became a classic case of good news and bad news.
“We are excited that Texas Energy Center is committed to making investments and creating jobs that will impact the next generation of energy industries in Texas,” Perry wrote.
The good news? “We welcome your investment in our state and are prepared to allocate $3.6 million to the Texas Energy Center, contingent upon execution of the formal Economic Development Agreement under negotiation,” the governor said.
The bad news? The $3.6 million represented about one-tenth of the amount of state funding the TEC had hoped for. And in return for accepting even that amount, the TEC wound up agreeing just days later to at least two contractual obligations it would not be able to meet:
→ Making a capital investment in a new building of more than $20 million, not counting the $3.6 million from the state. Under terms of the contract, that building was to have been finished a few days ago – on Jan. 1, 2007.
→ And creating 1,500 jobs with an average annual gross compensation of at least $70,000 – by Jan. 1, 2009.
A few months after receiving the governor’s letter and signing a contract for the state grant, it had become clear to board members that the TEC could not continue operating as it had been, in anticipation of more than $30 million in state funding, most of which had evaporated along with its corporate membership.
By July 2004, Oligney and another top TEC official, Chief Operating Officer Phil Lewis, were gone. The rest of the staff was put on month-to-month contracts at reduced pay and benefits, and left shortly thereafter.
By December 2004, more than half of the $1.6 million initial payment from the Enterprise Fund grant had been spent, along with much of the membership fees. Much of it had gone to pay for empty office space; financial records from the time show monthly rent payments averaging about $54,500.
After a wild ride, the TEC still had a promising tenant in RPSEA, but otherwise was almost back where it started by the end of 2004: Without a staff, and reduced to its four founding board members, plus GTI.
“When we created the budget over a year ago everything was rosy. We budgeted and staffed accordingly,” the EDC’s Appel told the Houston Business Journal in July 2004. “But when those sources of money didn’t come through, we had to retrench.”
Next: Spinning Straw Into Jobs
→ In creating a budget for itself, the non-profit Sugar Land energy center counted on chickens that never hatched.
→ By attempting to simultaneously capitalize on four major energy technology initiatives and at least a half-dozen other unrelated ventures, the TEC bit off more than it could chew.
As a result, the taxpayer-funded organization found itself in crisis management mode, forced to eject a highly paid professional staff and undergo a mission transformation after a confrontation with financial reality.
