Lafayette Utilities System paid LUS Fiber almost $1.7 million over seven years for unused internet connections at some of its sewer and electric facilities, prompting a Public Service Commission audit to dig into what the chairman called a "gray area" of potential subsidization.
PSC Chairman Eric Skrmetta placed the issue on the body’s Wednesday meeting agenda, where the commissioners decided to move forward with an audit.
"There were some questions on cross-subsidization" that prompted complaints to the commission, Skrmetta said in a phone call after the meeting.
LUS Fiber’s proposed creation in the early 2000s triggered staunch opposition from the private sector and led to a state law that authorizes and regulates the municipal-owned telecommunications business. Among other provisions, the law prohibits any government subsidization of municipal telecommunications businesses and requires them to charge fair market rates across the board.
Called the Local Government Fair Competition Act, the law also allows the PSC to conduct periodic audits of municipal telecommunications businesses. LUS Fiber’s last audits were for the years 2008-10 and 2011-12.
"It looked like enough time had passed, so in an abundance of caution, we’re gonna go with a low-cost, contractual audit, a cursory audit, to see if there are any issues that need to be dealt with," Skrmetta said.
The commission on Wednesday hired Georgia-based Henderson Ridge Consulting for the job.
LUS Director Terry Huval said in a phone call Wednesday afternoon that within the last month, the utilities and fiber systems discovered that LUS had been paying for fiber services at some facilities that never put the connections to use.
The longer-standing issue involved some of the sewage system’s lift stations, which are small pumps throughout the city that help move wastewater to the treatment plant. Of the 100 stations that have been connected since 2011, only 63 stations put the service to use.
A more recent issue involved some of the utilities system’s capacitor banks, which help regulate electricity flow. Huval said that when some of the capacitor banks were relocated, the fiber connections at the original sites stayed online.
"Our position on it is that we are not sure if there’s a violation of the PSC rules for this circumstance. It’s not clear to our attorneys. We’ve heard arguments both ways. We’ve taken the more conservative approach and made the decision to refund LUS the amount of subscription fees that it paid for that period of time," Huval said, adding that the systems self-reported the problems to the commission.
Unused subscription services at all of the sites totaled around $1.7 million, a figure that also includes interest of about $35,000, and the payment has been authorized and should be forthcoming soon, Huval said.
"We looked very closely to make sure that we were doing this in the normal way that it would be done in this setting," Huval said.
Huval said the "complex" Louisiana law that governs municipal telecommunications systems is unique in the U.S., and that LUS Fiber has "worked very hard through the years to do this the right way."
"We have made it through that very well for so many years. So having something as comparatively simple as this come up is a big disappointment to us. We took it seriously from the beginning. And we’ve been as prudent as can be to be sure that we have handled this in the best way we can considering the circumstances that we find ourselves in," Huval said.
It could be months or years before the audit is completed. Huval said the last one took almost two years.