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UPDATE: Cleco piles on with interest in LUS

Posted: 4:40 PM, Oct 16, 2018
Updated: 2018-10-16 17:42:57-04

Cleco has thrown its hat in the ring today, asking the City-Parish go let them submit a proposal to manage LUS.

Last week, Entergy Louisiana has asked the Lafayette City-Parish Council to give them a shot at taking over LUS, too. Also last week, NextGEN, a Bernhard company based in Baton Rouge, made a sales pitch to the council.

“Cleco has a long history working with and alongside LUS, including joint ownership of Rodemacher Power Plant and transmission project partnerships that have supported and strengthened power reliability across Acadiana,” the letter states. “Cleco is a Louisiana-operated company with headquarters in Pineville, as well as operations, facilities and employees across Acadiana and Louisiana.

“For over 85 years, we have served the citizens of our state as a provider of safe, reliable power and as a premier Louisiana employer. Specifically, we serve parishes around Lafayette, including St. Martin, St. Landry, Iberia, Evangeline and Acadia, to name a few.”

The company also outlines its recent creation of a $7 million fund for infrastructure and economic development across its service area, and it’s $6 million charitable giving commitment.

The NextGEN proposal, which is outlined and included below if you’d like to read it, was released October 8  The same day the proposal was released, Entergy President and CEO Phillip May sent a letter to all council members, asking for a shot for his company, too.

“If the city is interested in considering alternatives that can lower costs and improve reliability, ELL request a reasonable opportunity to conduct due diligence and submit a proposal,” May wrote. “Alternatively, the city may want to consider issuing a formal request for proposal detailing the products and services desired by LUS and allow eligible bidders to conduct reasonable due diligence (similar to what was afforded to the current proposer).”

To see Dannielle Garcia’s story about the pitch to the council, click here .

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A Baton Rouge company will be making their sales pitch to take over LUS.

NextGEN, a Bernhard company, has been negotiating with Mayor-President Joel Robideaux for more than a year in secret. The City-Parish council learned of those negotiations this summer from a story that appeared in The Current. To read about that, as well as the company’s ties to Robideaux, click here .

Now, the company plans to make its pitch to the council at tomorrow’s 5:30 p.m. meeting. You can read their proposal by clicking here .

Under the terms of the city-parish charter, the asset that is LUS can’t be “disposed of” without a vote of the people. These are the exact words: A. The Lafayette Public Utilities Authority shall not sell, lease or in any manner dispose of the utility system or any substantial part thereof without approval by a majority vote of the qualified electors residing within the boundaries of the City of Lafayette voting in an election called for that purpose. 

Some argue that this means the assets of the utility can’t be given to anyone else without a vote of the people. Others say only a vote of the council is required to approve a management contract – which is how this deal is being framed.

The 52-page pitch includes an economic analysis of the deal itself by an LSU economist – but doesn’t include an analysis of the value of LUS now, or its economic impact on Lafayette now.

It also includes a carrot for Lafayette voters: NextGEN says it will reduce home electric rates by 10 percent for the first three years of the contract. The proposal does not address what increases might come after that – but it does state that the city only gets income from LUS, aside from yearly in-lieu-of-tax payments, if utility bill income grows more than 2.1 percent annually over a three-year period.

The proposal also states that rate increases will go to the council for approval – but would be needed to cover any capital spending by NextGEN.

The economic analysis predicts that, because NextGEN says it will build its corporate headquarters for municipal utility management in the Southeast United States here in Lafayette, more than $2.7 billion in economic growth and development will ensue. The company’s pitch states that the HQ will employ about 400 people with an average annual salary of $75,000. The combined impact of those new residents will be $2.7 billion, the analysis predicts. The report also predicts that the $140 million up-front payment, if invested in “innovation centers, cyber-security networks, health care initiatives, emerging technology centers” or other economic diversification activities, would add another $1.4 billion to Lafayette’s economy over the next 40 years. Broken down, that figure comes out to $35 million per year.

One interesting aspect of the pitch is that it estimates that the LUS payment (ILOT) to the city – which is critical to the city’s budget – will “average” about $23 million annually over the course of the 40-year deal. This year’s ILOT payment is estimated to be at $23.8 million, according to the city’s budget. Ten years ago, the ILOT payment was only $18 million. That’s a 32 percent increase over 10 years.

The proposal offers to “defease” all of LUS’s current bonds. That means the money that would be required to replace the bonds with government sureties is deposited into a bank for bond holders. That amounts to about $184 million, according to the figures in the proposal.

Obviously, the main difference between LUS continuing as a municipally-operated utility and converting to a business-operated utility is the need for profit to be realized.

The proposal presents several points along those lines including:

  • Outsourcing “key functions” to CLECO and other companies.
  • Moving away from electric generation and toward purchase of electricity from retail markets
  • Implementing distributed generation and microgriding – which both employ the concept of production near the end user.
  • Reducing general and administrative costs
  • Moving investment from “fossil” generation (coal and gas) and toward local distribute generation, including solar.

The proposal also mentions aggressive annexation several times. The chance to increase the city’s footprint is listed as a “missed opportunity” in the company’s analysis of LUS operations. It also specifically states that NextGEN would “pursue” a new agreement with SLEMCO governing how annexations are handled. This would seem to indicate that NextGEN would be negotiating an agreement for the city on behalf of the city.

The report does acknowledge that LUS has some of the lowest rates in the state, as well as good customer service and a strong customer relationship.  But it also says that NextGEN feels the utility isn’t doing enough to replace an aging workforce, and that salaries aren’t competitive. It also says on one page that LUS isn’t doing enough to plan and address aging infrastructure, but on another page acknowledges that LUS’s distribution system “is highly reliable with better performance than the national and regional averages on all four reported reliability metrics.”

The proposal includes a lengthy evaluation by NextGEN of LUS facilities and operations.

NextGEN identifies several areas where they believe money might first be spent, in terms of capital investment. They include:

  • Distributed solar generation with energy storage
  • Full fiber/digital upgrades to sewer  lift stations
  • Repurposing or refurbishing of the Rodemacher facility
  • Potentially converting key distribution lines (around hospitals and government facilities) to underground to provide better protection from outages

One interesting point of the proposal is the timing of NextGEN’s review of the system. It states that on-site visits were conducted between June 14 and June 22, and that NexGEN personnel interviewed LUS employees and administrators, including the Interim Utilities Director. Long-time LUS Director Terry Huval announced he was retiring in April, then abruptly left the city in July – several months earlier than he had said he would be leaving.