Tangled web of deceit ‘Chuy’ cuts loose about energy-savings contracts
Ed. note: With this much money floating around in just this one story — a $44 million loan to La Joya for energy savings, $17.3 million to the city of Mission, $11.5 million to Agua SUD (special utilities district) — and the number of people pleading guilty to bribery almost by the day, not to mention the number of unidentified players mentioned in the two “Criminal Information” filings submitted by the U.S. Attorney’s Office last month, and it’s clear that this so-called “energy savings” gravy train is just getting started.
In one criminal information filed Jan. 21, 2022, it reads like a puzzle map: Company A and the Person A it employed; Persons B and C (were elected officials with Mission CISD); Persons D, E, and F (were elected officials for the city of Mission); Persons G, H, and I (were elected officials for Agua SUD); Persons J, K, and L (were elected officials for the La Joya ISD); and Persons M and N (were elected officials for the city of Peñitas).
Attorney Rick Salinas, who filed a lawsuit in state district court last year on his father’s behalf (former mayor “Beto”) to get the Mission contract temporarily suspended, says it’s not that hard to lay names to the letters.
Salinas has claimed since last summer that state procurement laws were violated, and he was successful in gaining a temporary injunction in a state district court last week to suspend payments to the company, Performance Services Inc (PSI), which performed the work thus far.
According to Salinas, the idea of saving energy is fine, but when it involves, for example, ripping out brand new water meters in some new city subdivisions just to replace them with smart meters that cost approximately $500 each, questions start to surface.
“People said last summer that this lawsuit was all about politics,” Salinas said, “just because my dad lost (Mission’s 2018 mayoral race). But it’s never been about politics. It’s been about doing the right thing, getting bids for the work. Now all of this is coming out (people pleading guilty to bribery related to energy savings performance contracts), and I think that helped us get the temporary injunction. I took the criminal information and presented it to the judge (Noe Gonzalez), and it was pretty easy to connect the dots, because some of the people who have already pled guilty clearly did some work in Mission and with the school district (Mission).”
The city’s longtime mayor, Beto Salinas, has announced that he’s going to run for mayor this year, a repeat performance, against incumbent Armando O’Caña.
Question is, how many other political subdivisions (public entities) across the RGV have entered into these so-called energy savings performance contracts since the requirement to bid out the work was stripped from state law back in 2003?
Meanwhile, state Sen. Juan “Chuy” Hinojosa recently released a press release that centered around this same issue, titled: “Ending misuse of energy savings performance contracts.”
Since Hinojosa’s office sent out this press release, yet another person has pled guilty to accepting bribes. Monday, former La Joya ISD assistant superintendent Jose Luis Morin pled guilty in federal court (McAllen) to accepting $28,000 in bribes in exchange for recommending PSI as the district’s new “energy saving provider.”
Look for more indictments, arrests, guilty pleas to follow tied to so-called energy savings. Too much money floating around. Enough for many more players; many more entities to turn up dirty.
Here’s Chuy: An ongoing federal investigation has recently revealed that energy savings performance contracts were being used to make kickback and bribe payments to local elected officials in western Hidalgo County.
The wide-ranging investigation involves Performance Services Inc., an Indiana-based company that convinced these local governments to borrow millions for “energy savings” projects. The investigation came to light after five local governments and more than a dozen public officials or companies affiliated with them received federal grand jury subpoenas in May 2021. As the FBI continues its investigation, federal prosecutors already secured the conviction of a La Joya ISD trustee who admitted to receiving more than $234,000 in kickbacks.
ESPCs have been abused in other ways. This past session, I passed House Bill 3583 that begins to address the misuse of ESPCs. Recently, there have been instances where local governments used ESPCs as a back door for no-bid contracts to circumvent procurement statutes related to public works projects. ESPCs were being inappropriately expanded beyond their original scope to build unrelated facilities and structures.
Understanding this type of procurement misuse requires some background of how ESPCs are formed. Oftentimes, the idea of using an ESPC comes from construction contractors or service companies with the pitch to local officials that they are losing thousands of dollars in energy costs and that the solution is an ESPC. Although ESPCs are often thought of as a financing mechanism, they are more accurately characterized as a construction procurement method for energy, water, renewables and resilient capital improvement projects that are paid for using money saved from improved energy efficiency and reduced operating expenses.
Local governments obtain the services of companies like PSI using the same procurement method for the professional services of architects and engineers. State law prohibits the use of the more comprehensive procurement method used for construction projects, which provides more regulation of bidding and transparency. This law, as it relates to ESPCs, needs to be changed.
The cost of ESPCs can be increased by millions of dollars by simply executing a “change order” proposed by the contractor. What starts out as a defined, narrowly focused ESPC project to address certain facilities may soon grow into a proposal through a change order to overhaul heating, ventila tion, and air conditioning systems, lighting, plumbing and water systems. Expanded project scope increases will result in an even larger financial burden to taxpayers if the promised savings fail to materialize.
HB 3583 partially addresses this problem. It prohibits certain change orders to ESPCs and specifies that ESPCs do not include the design or new construction of certain water projects. The new prohibitions apply to counties, cities and other political subdivisions of this state, but not to school districts. ESPCs were never intended to open the door to accruing massive public debt under the auspices of energy savings and undermining transparency and competition.
In practice, ESPCs may be based on “too good to be true” guarantees that fail to deliver the promised savings, leaving taxpayers on the hook for expensive construction-related projects. Government entities commonly enter into lease purchase agreements with the service company to finance the upfront costs of the ESPC. LPAs create a problem because they also are a debt instrument that does not require an election seeking taxpayer approval.
Entities can often avoid voter referendums by treating LPAs as “off-balance sheet” transactions if the LPA includes the right clauses. PSI has contracts with the city of Mission in 2021, La Joya ISD in 2017, and Agua SUD in 2018. La Joya agreed to borrow a total of $44 million for its twophase project, Mission agreed to borrow nearly $17.3 million for its project, and Agua SUD’s ESPC project reached $11.5 million.
Considering the FBI’s ongoing investigation, I will continue to study the procurement method of ESPCs and the lack of oversight of local governments and school districts using ESPCs. Unlike ESPCs for state agencies and institutions of higher education, there is no state agency providing guidelines and approving contracts to verify that ESPCs contain the required amount of guaranteed savings. I will also look into extending the change order limitations established under HB 3583 to school districts.
Eliminating this loophole, which poses significant financial and operational risk, should be applicable to all governmental entities.
Juan “Chuy” Hinojosa represents Texas State Senate District 20, which extends from Hidalgo County to Nueces County. He writes for The Monitor’s Board of Contributors.
Ed. note: Ten bucks says that during the next session (2023), the state legislature won’t change this state law back to the way it was in 1997, when bids were required for these types of services. Money talks.