HOUSTON -- A small warehouse in the bedroom community of Oak Ridge North was heralded as the first of it's kind in the country. A power generating site fueled entirely by clean, renewable "green" energy. The company that built the site was called Biofuels Power Corporation. A company news release in February 2007 spelled out how a separate company called Safe Renewables built a refinery nearby to fuel the generators with biodiesel made from vegetable oils and animals fats. The company's news release stated the plan was to power most of the homes in Oak Ridge North. Later Biofuels built a second site with a larger generator intended to power communities east of Oak Ridge North. Steve McGuire founded the parent company of both Biofuels and Safe Renewables.

"They would provide 100-percent green energy to both grids and ultimately the goal was to tie them together as an island of power that could weather a hurricane," said McGuire.

By all accounts, the plan was a success. Both sites started selling "green" energy to the power grid. Congressmen and state officials were given tours to showcase the accomplishment. That was in 2007 and 2008. Today the generators are silent and the company that owned the refinery producing fuel for the Oak Ridge North facility, Safe Renewables, was evicted from its property and the equipment seized by its lender. Both companies victims of an economic recession where the price of the feedstock needed to make the biodiesel was higher than the price of electricity. By this time McGuire had spun off both companies, acting now as only a consultant. The Mayor of Oak Ridge North, Fred O'Connor, had become CEO of Biofuels.

Local 2 paid O'Connor a visit not to ask about the current state of the company, but about an investigation into dealings between Biofuels and the city he was elected to lead.

"Look, let's not make a good thing bad," said O'Connor.

The questions began at city hall over why a lease agreement between Oak Ridge North and Biofuels for the piece of property where the first power generating site was built was not approved by council. Local 2 obtained an audio copy of that open meeting where Councilmember Steve Holcomb questioned City Manager Paul Mendes.

"Why was the lease agreement, the rent agreement with Biofuels and the lease agreement with Robinson Road, LLC not approved by the Oak Ridge North City Council?," Holcomb is heard asking Mendes. 

"Sir, I do not know," replied Mendes.

During the meeting O'Connor explained the situation was nothing more than an oversight.

"It was a procedural mistake two years ago," O'Connor is heard stating on the tape in response to Holcomb's question as to why the lease agreement was not put on the City Council agenda. "We operated correctly and, uh, that would have been corrected had I been advised to do so."

Local 2 Investigates also obtained a copy of an invoice showing Biofuel's now owes the city more than $20,000 in back rent.

"$20,000 is quite a bit of money to a city of your size?" asked Local 2 Investigative Reporter Robert Arnold during an interview with O'Connor . 

"Yes," O'Connor said.

"Don't you think that should be pursued?" Arnold asked. 

"That will be paid fully," O'Connor answered. 

"When?" Arnold asked. 

"Soon," O'Connor said.

More questions plagued the Mayor over the city's acquisition of two large generators and a fork lift.

"The two specific things were looking at is the improper conversion of some government property from city possession to Biofuels," said Oak Ridge North Police Chief, Andy Walters.

City records obtained by Local 2 show Oak Ridge North paid $45,000 to acquire two large generators and a fork lift from the Texas Building and Procurement Commission, which has since be renamed the Texas Facilities Commission. The Commission administers a federal program that allows cities and non-profits to acquire surplus items. According to the Commission's Chief Financial Officer, Luis Arellano, a city cannot sell or lease equipment it acquires for at least 18 months and that equipment has to be used by the city.

Given those rules, city council members then questioned O'Connor as to why receipts show Biofuels reimbursed the city for the cost of those generators and fork lift shortly after they were acquired in 2006.

"It was a really good intention for the city to be involved," said O'Connor during his interview with Local 2.

O'Connor said the generators were never sold or leased. O'Connor said the generators were necessary assets in an application for a federal grant to help Biofuels tie its two generators together to create a back-up to the main power grid in the event of natural disasters or black outs. O'Connor says Biofuels only reimbursed the city so it wouldn't be out the cost of acquiring the equipment, yet could still reap the economic benefits of the project.

"What's wrong with the city doing economic development and doing a cooperative effort in such a fantastic program," said O'Connor.

Biofuels did not get the federal grant and when Local 2 investigates searched for those generators, still considered city property, we didn't find them at the Biofuels facilities or in Oak Ridge North. Local 2 found those generators 100 miles away at a storage lot in Beaumont. O'Connor explained he loaned the generators to a company called Hardin Fuels because the company suffered a catastrophic fire.

"They had a fire, they're rebuilding the plant, they said if you're not using a generator, we could use some power," said O'Connor.

Except when Local 2 found the generators they were not at Hardin Fuels, the generators were on a lot owned by Daniels Construction. The Daniels are shareholders in Hardin. Local 2 spoke with the attorney who represents the Daniels and asked why the generators were on Daniels' property. 

"It is my understanding my clients came into possession of those generators through satisfaction of a debt," said attorney Mike Matthews.

"No, that's a lie," O'Connor said when asked whether the generators were used to settle a debt with Hardin.

O'Connor says Biofuels had bought fuel from Hardin in the past, but insisted the generators were only loaned to help a colleague in need, never to repay a debt.

"You'll have an affidavit by the president of the company that that's not true, nowhere true," said O'Connor.

Local 2 never received that affidavit and when we tried to contact the president of Hardin, Kent Batman, our calls were not returned.

There is also the matter of that fork-lift acquired by the city. The fork lift showed up on a list of mortgaged asset of the refinery owned by Safe Renewables. O'Connor says that is a clerical error that will quickly be corrected. For now police have seized that fork lift until the investigation is complete.

O'Connor originally decided to voluntarily step down as mayor until the investigation had run its course. O'Connor then rescinded that decision during a special council meeting last night. O'Connor's decision came just before city council was set consider whether it would act on O'Connor's request for a leave of absence. O'Connor maintains nothing was handled improperly. Prior to last night's meeting City Manager Paul Mendes had already been placed on administrative leave. Mendes' attorney told Local 2 his client has done nothing wrong and is fully cooperating with investigators. For now the Montgomery County District Attorney's Office tells Local 2 it has begun a preliminary investigation. Since those generators and fork lift were originally considered federal property when Oak Ridge North acquired them, an agent with the General Services Administration's Office of Inspector General is also investigating how those assets were handled by the city.

Biofuels is continuing to operate and recently purchased the old Houston Lighting and Power Plant in Southeast Houston. O'Connor said the company has investors and plans to produce clean, renewable energy from that site.