Hydrogen Plant Idea Gets Chilly Reception at a Public Hearing

Six Texas Sites

Monarch Energy didn’t exactly get a warm welcome at the La Grange School Board meeting Monday night, which included a public hearing over the company’s request for tax incentives.

More than a dozen citizens spoke against the Californiabased company’s proposal to build a hydrogen fuel generation plant powered by renewable power.

“Why are we even looking at subsidizing green energy?” asked Lee Fritsch, one of the citizens who spoke against the project at the hearing. “I invest in oil wells and if we drill a well, we get no tax abatement. Money goes to landowners in the community. They all profit off the oil well, and they in-turn reinvest in the community by buying new vehicles, buying tractors or what have you. This, it looks like all the money is going right back to California and not staying here in the County.”

Considered

Monarch is looking at a site east of La Grange along with five other locations across Texas to locate the plant. The company is seeking property tax incentives from each of the school districts that cover those sites. They include La Grange I.S.D., Brazosport I.S.D. (Freeport area), Corpus Christi I.S.D., Hardin-Jefferson I.S.D. (west of Beaumont), Orange Grove I.S.D. (in South Texas), and Panhandle I.S.D. (east of Amarillo). Aaron Smith, Vice President of Development for Monarch Energy, appeared at the meeting via teleconference and gave a presentation about the project. Smith said the project would require approximately 20 acres of land. The plant would use electrolysis to separate water molecules into hydrogen fuel and oxygen. Monarch would then transport the fuel, likely via pipeline, to sell on the open market. Construction would begin in mid-2024 and finish in 2027. The tax abatement period would be for 10 years. Monarch’s application to the school district states that the company would also seek similar tax incentives from Fayette County through a separate program in Chapter 312 of the State Tax Code. Monarch has not yet applied for any incentives from the County.

The technology to produce green hydrogen is fairly new. The first green hydrogen plant in the nation is currently under construction in Utah. The $1 billion Advanced Clean Energy Storage (ACES) project near Delta, Utah, will produce hydrogen for fuel that will be used in a coal power plant that was converted to burn hydrogen.

Smith said Monarch has not yet determined the end use of the hydrogen it plans to produce, but he said potential uses include fuel for power plants, fertilizer production or use in refinery operations.

Monarch is seeking tax incentives from the school district under Chapter 313 of the Texas Tax Code.

That program authorizes school districts to give tax breaks to certain qualified companies in the form of property value limitations and tax credits, somewhat like a tax abatement. The Texas Legislature established the program in the 1990s as a way of promoting business in the state. The Legislature did not renew Chapter 313 during its last session and the law is set to expire at the end of this year. As a result, many companies across Texas are seeking Chapter 313 deals before the program goes away.

“We’re coming to you much earlier than we would normally come to a school district for a Chapter 313 communication,” Smith said. “Obviously, the program is sunsetting, which has driven the schedule much earlier than we would normally be in it.”

LGISD’s Incentive

If La Grange I.S.D. approves the deal, Monarch would pay the district about $4.2 million over the next 15 years in lieu of regular taxes. Superintendent Andy McHazlett said those funds would not be subject to “recapture” by the State of Texas.

Recapture, sometimes known as “Robin Hood,” allows the State of Texas to take local property tax dollars from wealthy public school districts and transfer them to poorer districts.

“The State of Texas determines how much money each school district gets,” McHazlett said. “Let’s say they say each kid has to be funded at $6,000 to be educated for the year. If we raise our local taxes and collect $4,000 of the $6,000, the State gives us $2,000. But let’s say Samsung or some big plant comes in here, and now all of a sudden we’re collecting $8,000 per student, then we have to give that $2,000 over back to the State of Texas.”

McHazlett said some school districts have to give the State tens of millions of dollars every year through the recapture program. He said funds raised through a Chapter 313 deal cannot be taken by the State through recapture.

“That’s what made it attractive to us,” McHazlett said. “But it’s not going to be attractive to us if it’s not the right thing to do.”

McHazlett said the district could use the money to attract and retain teachers.

“Receiving extra revenue is awesome,” McHazlett said. “We would use to make sure we’re paying teachers so we don’t lose them. There’s a shortage of teachers in the United States, there’s a shortage of teachers in Texas and there’s a shortage of teachers in Fayette County. More teachers are retiring and fewer are getting into the business.

“There’s a need for the money, but we don’t have to have it,” McHazlett said. “We would do a whole lot better with it, but not at the expense of doing something we don’t feel comfortable with.”

“Local business owners are not getting any tax abatements for their businesses to succeed,” said citizen Ken Dernehl. “Why are we considering a tax abatement for a California company? Taxpayers have had enough with government agencies giving tax breaks to companies in order for them to be profitable. If you can’t succeed on your own merits, don’t be asking the hard-working taxpayers to bail you out.”

Some citizens questioned the large reinvestment zone outlined in Monarch’s application. The zone stretches across a large swath of the County from the Fayette Power Project east of La Grange to West Point. McHazlett said the Chapter 313 program requires the developer to identify a reinvestment zone where the project would be located. In this case, Monarch identified a large reinvestment zone to ensure they could find 20 acres somewhere within it to buy or purchase. The project will not take up the entire zone. This caused some confusion among the public, however, especially since Smith said the plant would take up only 20 acres.

Before the meeting, one citizen asked whether there would be solar panels and electric windmills “stretching from one end of the County to the other.”

The project near La Grange would not involve the construction of wind generators or solar panels. Instead, Smith said the plant would purchase green energy on the wholesale market, which would be delivered to the plant via the electric grid. The plant would need 500 megawatts of power, Smith said.

“We would be buying power,” Smith said. “Once electricity goes on the transmission grid, it’s fungible. When we talk about what’s powering our plant, technically, it’s most likely the nearest power plant from a physical perspective ... It’s really a financial perspective – who we are paying to provide us power.”

Smith said Monarch is interested in property near the power plant, Fayette Lake and the Colorado River due to the area’s close proximity to surface water sources and electric infrastructure.

Water Use

Questioned

Many of the citizens who spoke at the public hearing raised concerns about water use by the proposed plant. Smith said the plant would use a maximum of 1,500 acre-feet of water per year. Smith said about a third of that amount would be used for cooling and other processes in which the water could be recycled. The other twothirds, about 1,000 acre-feet per year, would be consumed by hydrogen electrolysis.

Smith said Monarch was in negotiations to purchase water from “counter-parties” that control surface water rights. He did not name those parties, however, he was almost certainly referring to the Lower Colorado River Authority, which controls the surface water rights on Fayette Lake and the Colorado River. If Monarch cannot obtain rights to surface water, Smith said the company may decide to drill a water well into the Queen City-Carrizo Aquifer more than 1,000 feet underground, far below nearly all existing water wells in the County.

“To drill a well, we would have to go through pretty extensive studies to make sure we don’t have an impact on existing water rights there,” Smith said.

Smith said Monarch has been in contact with the Fayette County Groundwater Conservation District about the possibility of using groundwater.

“It’s very clear that for anything that goes above 25,000 gallons of water a day, we have to have a drought contingency plan,” Smith said. “There has to be a hydrological report. There will be public hearings similar to this one related to water. That is something that will be sorted out separately. It will be a very rigorous process for us to obtain that water. We want to make it clear we are not committed to using groundwater. We are also evaluating the use of surface water.”

“I’m mainly concerned about the children – are they going to have water when they get older?” said citizen Billye Beth Baker. “I’m so old I can remember when we went with Judge Ed (Janecka) to San Antonio when they wanted to take our water. It wasn’t taken because the people in the community realized how important water is.”

Another citizen, Connie Sacco, asked Monarch whether the project would be viable without an abatement.

“As far as our solvency, we have the capital to develop this project,” Smith said. “The abatement doesn’t affect the cost of development of the project. It impacts the property tax we’re paying once it’s operational. Other school districts across the State of Texas are granting these tax abatements, so all it does is make this project uncompetitive versus other school districts if it is not granted.”

Monarch’s application to the district states the company would commit to just one fulltime job once the plant is operational. Some citizens took issue with the lack of new jobs associated with the project. Smith said the plant would likely employ more people than that.

“They’re going to have three or four employees,” said citizen Mark Sacco. “Where are the economic benefits? They’re unprepared. They’ve only got 15 to 20 percent of this project developed. Yet they want this major tax break.”

Smith said the company committed to just one job in order to keep the abatement in place in case the project gets put on hold due to some unforeseen circumstance. He said the plant could employ anywhere between eight and 50 employees, depending on the final design.

“I’ve managed hundred-million- dollar projects, and it takes all kinds of things before you go to the board,” Sacco said. “You have to have everything lined up – where the water is coming from, all of that. This whole thing is absurd. This company, how many people are in it? Two or three guys running it?”

Smith said Monarch Energy currently employs nine people.

“Our team members are responsible for well in excess of $5 billion in projects being built around the country,” Smith said. “This isn’t just some hairbrain idea we came up with.”

Smith responded to another question about the role of Monarch in the design and construction process.

“Monarch is a developer, so that includes some of the project management,” Smith said. “It doesn’t include construction and engineering. That would be a third party.”

Deborah Frank, chair of the Fayette County Republican Party, also addressed the Monarch representatives at the meeting. Frank asked whether Monarch was owned by Chinese investors. Smith said Monarch is not owned by any investors from China. He said Monarch is privately owned by employees of the company. He said the Texasbased company Lancium also owns a substantial interest in Monarch Energy.

Frank asked whether Monarch has ties to BlackRock, the multi-national investment firm. Smith replied that his company does not. Frank also asked whether Monarch would rely on federal subsidies for the project.

“Not currently, but there is potential that we will benefit from federal subsidies,” Smith said. “But we are not currently benefiting from any federal subsidies.”

School board member Calvin Mersiovsky addressed the tension in the room Monday night.

“I know a lot of you came in here tonight already upset,” said Mersiovsky. “Please remember that every one of us in this room lives where you live. We’re one of you. That’s what this is about. When somebody comes to us and there’s an opportunity for our school district to basically get $4 million over 15 years, we have to listen to that. That’s part of our job, or else we’re not being responsible. But we’re not going to do anything that’s harmful to our community. If we can make that $4 million, we would love to have it. But if we can’t do it the right way, we can do without it.”

Another Meeting

On Dec. 12

The La Grange I.S.D. Board of Trustees will meet again to discuss and possibly take action on the Monarch proposal on Monday, Dec. 12.

The meeting begins at 6:30 p.m. with another public hearing on the proposed tax incentives for Monarch. The meeting takes place at the La Grange I.S.D. Administration Office at 560 North Monroe.