Killer clause in Texas bill bans early termination refund based on future toll revenues

2007-05-02

TOLLROADSnews

There's a little noticed killer clause in concession freeze bills voted out of the Texas legislature Wednesday (May 2) - a ban on refund formulas based on estimates of future toll revenue in case of early termination by the state - so-called termination for convenience.

The concession freeze bill HB1892 has continued to yo-yo back and forth between the Texas senate and house with many amendments being thrown into the bill in the past week. Only Wednesday afternoon did the two houses get identical bills passed, when by 139 to 1 the House passed a senate bill.

It is not clear many legislators noticed what is being described as a killer clause because it will block even the toll concessions supposedly exempted from the two year freeze, and would prevent resumption of concessions after the freeze. Legislators from the Dallas area spent many hours arguing to allow concessions in their area to proceed and the bill as passed Wednesday allows SH121, SH161, and several others to proceed.

However they won't proceed because the bill contains a "Termination for convenience" clause which requires in the concession contract a formula for making an early termination payment to a concessionaire. That allows the compensation to be based on past investment expenditure by the concessionaire and an agreed rate of return on that investment, but prohibits the formula being related to prospective future toll revenues.

Prospective future revenues are the core value of a toll concession - at least the net revenues after operating costs. Concession bids are based on projected net revenues over the life of the concession so if a concession can be terminated at any time by the state without regard to future revenues lost by the termination there is no basis for a bid.

This is a killer clause.

Concessionaires won't bid in Texas if that clause becomes law.

In the vote today the pioneer of toll concessions in Texas, house transportation committee chair Mike Krusee was the lone representative voting against HB1892 though several representatives abstained or were absent.

TERMINOLOGY: Texas legislators don't use the term 'toll concession.' Instead they use the labored formulation of "a comprehensive development agreement under which a private participant receives the right to operate and collect revenue from a toll project." Concessionaires are described as "private participants."

HB1892 text including killer clause Sec 371.101 (b) (a):

SUBCHAPTER C.  CONTRACT PROVISIONS
Sec. 371.101.  TERMINATION FOR CONVENIENCE.  (a)  A toll project entity having rulemaking authority by rule and a toll project entity without rulemaking authority by official action shall develop a formula for making termination payments to terminate a comprehensive development agreement under which a private participant receives the right to operate and collect revenue from a toll project.  A formula must calculate an estimated amount of loss to the private participant as a result of the termination for convenience that is based on investments, expenditures, and rate of return associated with the project.
    (b)  A formula under Subsection (a) may not include an estimate of future revenue from the project.

The full bill as passed is not yet available in a single document.