The gist: The Daily Advertiser broke a story late Monday that Lafayette Mayor-President Joel Robideaux has self-reported a second potential violation of state law regulating LUS Fiber. In his Monday letter to the Louisiana Public Service Commission, Robideaux claims LUS may have made illegal payments totaling $8 million to LUS Fiber over an eight-year period. If the PSC agrees, this could create a significant financial burden for LUS Fiber’s operations moving forward.
ICYMI: LUS Fiber had already been audited by the PSC over the past year for $1.5 million in erroneous payments made by LUS to LUS Fiber for internet service to sewage lift stations that were never turned on. To resolve what LUS Fiber referred to as an oversight, Robideaux decided that Fiber should pay back the money plus interest earlier this year, just as the audit got underway.
The additional $8 million in payments were made for a Power Outage Monitoring System designed to leverage the Fiber system to allow LUS to better track and respond to outages, thus reducing downtime. For example, an hour-long outage could be cut to 40 minutes, which would save LUS money and be good for customers.
The primary point of contention is how pricing for these services was determined. Robideaux argues the Local Government Fair Competition Act, a state law passed to prevent subsidization, dictates that services being sold from LUS Fiber to LUS be based solely on the costs to deliver them. But those costs were much lower than $8 million, since the service didn’t require any new physical infrastructure to be built or maintained. All that was needed to provide the service is software LUS itself developed, according to Robideaux’s letter.
However, former LUS and LUS Fiber Director Terry Huval also cites state law in claiming the costs should be based on market rates. So he based the price that LUS Fiber charged LUS on the value LUS would realize by using these services to shorten outages. There appears to be at least some question of legal interpretation.
The value of these services was determined by two mysterious reports generated by the Lafayette Economic Development Authority. It’s not yet clear why LEDA was given this task, and the mystery comes from the fact that LEDA generated two reports with two different estimated savings figures — the first in 2010 suggesting $300,000 a year in cost savings and the second a year later that bumped the estimate to more than $2 million. Robideaux’s letter to the PSC indicates that his staff was unable to locate comprehensive versions of the estimates LEDA produced.
Huval claims the service saved LUS more than $14 million per year, but Robideaux questions the service’s value. Neither argument has been backed up yet by documentation.
Either way, payments for the service are ending in this year’s budget. But the fallout could have a significant impact on Fiber:
- If LUS Fiber were to pay back the $8 million plus interest, it could be in serious trouble. Fiber ended the last fiscal year in October with a balance of just $9 million. So if it had to pay back all that money plus interest it may be severely constrained financially moving forward.
- Last year Fiber generated a net income of $4.86 million. So paying back this amount would wipe out all of last year’s “profits” and then some.
- LUS Fiber spent just over $9 million on the purchase and construction of capital assets last year. So this amount of alleged overcharging is roughly equivalent to an entire year’s worth of capital investment.
- LUS Fiber is already in debt to LUS by $26.5 million. These loans were made early in LUS Fiber’s development to help pay for startup costs. And LUS Fiber is still carrying $105 million in debt from the revenue bonds sold to build the network 14 years ago.
What to watch for: Answers to lots of questions. Were these payments actually in violation of state law? If so, will there be any ramifications beyond having to pay back the money? If the money has to be paid back, how will this affect LUS Fiber’s ability to operate financially moving forward? Did Huval intentionally charge LUS too much as a backdoor subsidy to keep LUS Fiber afloat? Why has Robideaux repeatedly gone so public with these LUS Fiber audits? Are there any other ways that LUS has been illegally subsidizing LUS Fiber?