Controversy over LUS payments underscores Fiber’s financial challenges ahead

The gist: Last week, the mayor-president alleged that LUS Fiber charged LUS millions in fraudulent payments for a power outage monitoring system that wasn’t useful. He asked for the Public Service Commission to investigate, swirling controversy around Fiber and its former director. Regardless of the episode’s outcome, it’s clear Fiber faces significant financial risk moving forward.

Get caught up, quickly: Lafayette Mayor-President Joel Robideaux notified the PSC that LUS spent $8 million on a system for monitoring power outages, in potential violation of state law. Further revelations reported by The Advertiser suggest that LUS paid for the system even after deploying 65,000 smart meters in with the same capability in 2013. 

While the debate rages over, it’s clear Fiber needs to generate more revenue. A June PSC audit found that Fiber needed more revenue to keep up with its annual debt payments, which rose to $11 million in the current budget year. 

• $105 million is the outstanding balance for the $106 million in revenue bonds LUS Fiber refinanced in 2015. This debt was used to build and expand the network.

• $26.5 million is the outstanding balance for the $27.8 million in loans LUS has made to LUS Fiber. This debt reflects Fiber’s purchase of LUS’s original fiber network as well as startup expenses, imputed taxes, and an operating loan during Fiber’s initial years.

• -$43.3 million is LUS Fiber’s net position when you combine its liabilities and its assets. While negative, this number has been shrinking since 2015 when it peaked at -$54.6 million.
  
  
• $4.9 million is LUS Fiber’s net income last fiscal year. 

For the time being, LUS Fiber is making enough money to cover its obligations. According to the audit, in 2017 it generated $4.5 million in net income, which included the controversial payments. 

Former LUS and LUS Fiber Director Terry Huval denies wrongdoing. He claims that the service helped lower the duration of outages and that his method of pricing the system was legitimate. Robideaux’s letter to the PSC argues pricing should have been based on cost, which was essentially negligible, suggesting the program was a covert way to prop up Fiber’s finances. 

The ball is in the PSC’s court now. The commission, which oversees LUS Fiber’s compliance with state law, released the June audit upon discovery of $1.5 million in improper payments made by LUS to Fiber for internet service to sewer lift stations that was never turned on. Huval repaid the charges before self-reporting the problem and requesting the audit, following a report in The Hayride. Now the PSC will investigate whether Robideaux has discovered another example of illegal subsidization by LUS for the benefit of LUS Fiber’s bottom line. 

The stakes are high. If LUS Fiber is ever unable to meet its debt service obligations, according to Huval, the system will be shut down, the assets of Fiber will be transferred over to LUS, and LUS’s electric rates will increase to cover the cost of debt service. But LUS would be unable to turn the network back on and start offering services because of the constraints of the Local Government Fair Competition Act, a state law passed to regulate municipal communications networks. So Lafayette would still be paying for the debt without the benefit and cash-flow of having the Fiber system offering service to the public.