Editor s Note: In the original version of this story, KHOU-TV reported that the low-sulfur gasoline and diesel that Valero produces in Texas was not sold in Texas. The company has since provided documents which indicate that some of that cleaner fuel has, in fact, been sold in Texas. Valero declined to provide figures indicating the amounts sold in the state or the amounts shipped elsewhere.

HOUSTON Taxes and pollution.

Apparently it s a touchy subject. When 11 News tried talking to the Texas Commission for Environmental Quality about it:

TCEQ Security: Please let me close this door.

11 News: No you re not going to close the doors on us sir this is a public meeting.

But the head of the agency s security did in fact shut the door.

So what s going on? It begins with Texas homeowners like Lonnie Holton, whose neighbor is the Valero refinery in the 9700 Block of Manchester Street in Southeast Houston.

The pollution it creates has Holton concerned for his family.

I worry about their health, I worry about their safety, he said.

But something else is bothersome. Valero is asking the state for a multi-million dollar tax break, for something that ultimately could make the air his family breathes dirtier.

Plain layman s terms, that s crazy, Holton said.

At its Texas refineries, Valero claims it installed an expensive piece of equipment, called a hydrotreater, to meet stricter gasoline and diesel fuel emissions standards. The hydrotreater strips sulfur out of crude oil and helps make a cleaner gasoline and diesel. So, citing a section of the Texas Tax Code that rewards businesses for improving our local environment, Valero now wants the hydrotreater, valued at $250 million, 100 percent tax exempt.

But state environmental regulatorssay that doesn t satisfy their interpretation of the law that allows for those tax breaks. They claim the environmental benefit occurs not at the refinery site, but rather wherever cars burn the fuel. And they claim, much of that low-sulfur fuel is shipped out of state, to places like California and New Jersey, where it helps improve their air quality. But what about back in Texas, where Valero wants those breaks?

Hydrotreaters do not provide an environmental benefit to the site, said Tim Reidy, an attorney representing the TCEQ Executive Director, at a January 13 hearing on the case.

In fact, the TCEQ staff claimed, they do just the opposite.

They hydrotreaters themselves, which they (Valero) are calling pollution control equipment, actually increase pollution, said TCEQ Engineer Minor Hibbs, citing a sulfur impact analysis by the Environmental Protection Agency.

It s why the stat regulatory agency denied Valero s big for a tax break three years ago. Just a few months ago, TCEQ staff recommended the same.

Deny Valero s appeal, said Garrett Arthur with the TCEQ Office of Public Interest Counsel.

Despite that, the three presiding environmental commissioners decided otherwise, remanding Valero s appeal application back to the TCEQ staff, to consider a way to give Valero at least a partial tax break.

It just seems that this warrants looking at further, said TCEQ Chairman Bryan Shaw.

It makes no sense to people like Bernardo Garcia, with the Harris County Appraisal District.

It doesn t benefit Harris County, it increases pollution, said Garcia.

He said he believes the law is clear on what qualifies for a tax break.

The widget (hydrotreater) is to control pollution at the site, and it simply does not, Garcia said.

At stake, Garcia said, is approximately $5 million dollars a year in taxes in Harris County alone. That is money Valero has already paid and money school districts and local governments have already used. But it would have to be refunded to Valero.

The potential consequence for average homeowners?

Increase taxes or cut services to make up the refund that they re going to give Valero, Garcia said.

You know, there s really no logical reason why this is in the best interest of Texas, said Matthew Tejada of GHASP, the Greater Houston Association for Smog Prevention. He believes something else is going on with the TCEQ s actions marching orders from above.

I absolutely think that these are coming from the governor s office, those commissioners are hand-picked by the governor, Tejada said.

Hand-picked to carry out a mission pro-business, pro-business, Tejada said.

Valero, the largest refinery in North America, is annually one of the biggest campaign contributors to Governor Rick Perry, according to the non-profit watchdog group Texans for Public Justice.

That brings us back to that TCEQ hearing in Austin. Before security closed the doors on 11 News cameras, we tracked down TCEQ commissioner Carolos Rubinstein.

11 News: Are you protecting big business over protecting the environment?

Rubinstein: Again, I take issue with the question because I think you re mischaracterizing what the intent of the discussion was.

But when we wanted to talk to Bryan Shaw, the Chairman of the TCEQ:

TCEQ Security: Please conduct your meeting out here, please let me close this door.

11 News: No, you re not going to close the doors on us sir, this is a public meeting, we have every right to be in here and question public officials about public business.

TCEQ Security: I understand.

11 News: Well then keep the door open.

And when we later approached Chairman Shaw during a recess in the hearing, we were blocked again. Andrea Morrow, TCEQ Spokesperson, grabbed this reporter s arm while Chairman Shaw slipped out a side door.

The commissioners may take weeks or months to ultimately rule on the Valero case, but tax appraisers warn of what even a partial tax break could bring.

Then that opens up Pandora s box and the other refineries will say, well, we have similar widgets, give us our exemption, said HCAD s Garcia.

They ll line up at the door, absolutely, he added.

Allison Castle, spokesperson for Governor Rick Perry offered the following comment: The governor appoints qualified individuals to oversee TCEQ and does not micromanage them. He expects TCEQ to follow the law in every circumstance.

Bill Day, Executive Director for Media Relations for the Valero Energy Corporation, made the following points:

Valero s Tier-II hydrotreaters are EPA-mandated pollution control property and are therefore not subject to taxation under a 1994 Texas law and constitutional amendment approved by the citizens of Texas.

Valero s Tier-II hydrotreaters represent an unwanted expenditure for Valero and are not an investment. They are neither productive for the company nor are they income-generating. Their sole function is to remove sulfur from fuels for environmental purposes.

Residents of Harris, Galveston and Jefferson counties realize an environment benefit as a result of Valero s installation, operation, and maintenance of these Tier-II hydrotreaters.

Valero s Tier-II hydrotreaters, because they are mandated pollution control property, should never have been added to county tax rolls, and any taxes paid on them have been paid under protest.

Valero is working through the normal appeal process to defend its plants from an improper and unfair tax appraisal just as any homeowner in Texas is able to do.

After our initial story, Valero spokesman Bill Day added this statement:

In response to questions about whether Valero s Tier II hydrotreaters provide an environmental benefit at the site, Valero has shown both that there is an environmental benefit literally within the refinery fence line and more broadly throughout the regions where the refineries are located. We have also demonstrated that the statements about Valero not selling fuel made at its Texas refineries in Texas are completely false. We believe we have shown convincingly that our applications for property tax exemptions on our Tier II hydrotreaters are valid.

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