LUS, Lafayette’s biggest asset, is facing more threats and uncertainty than ever. In the next couple of years, LUS has to make a series of huge decisions. That includes investing hundreds of millions of dollars in infrastructure that powers our city and economy, while navigating a changing regulatory environment and rapidly evolving marketplace, and replacing a number of long-term leaders, including finding a new permanent director.
Meanwhile, for two years and counting, LUS has been without permanent leadership. Now LUS’s bottom line is further threatened by Lafayette’s faltering economy.
These existential issues have garnered little public scrutiny. Instead, most of our community’s attention and energy has been glued to the ongoing political scandal ignited by the last mayor-president over alleged improper payments from LUS to LUS Fiber that has since been escalated by the current mayor-president into accusations of criminal behavior among LUS’s ranks.
The goose that laid the golden egg, as LUS has long been known for returning millions to the city’s general fund annually, is now awash in scandal and controversy. And that’s a very serious problem. These matters warrant scrutiny, but they’re distracting us from more critical issues.
Why these scandals are relatively inconsequential
It may sound extreme to describe a potential multimillion dollar scam as relatively inconsequential, but it is when you take into consideration its size relative to the whole of LUS. In total, former Mayor-President Joel Robideaux claimed to have found approximately $2 million per year in overpayments from LUS to Fiber over an eight-year period. Annually, that’s less than 1% of LUS’s revenue, which came in at $230 million last year. Even if the whole of Robideaux’s accusations prove true and all of that money is refunded, it would have minimal impact on LUS’s overall financial position.
It could, however, have a significant impact on Fiber’s finances. Fiber had $41 million in revenue and almost $6 million in net income last year. Losing $2 million in revenue would hurt, reducing Fiber’s growth capital and making it more financially vulnerable to competition and the tremendous uncertainty in Lafayette’s economy. Fiber should, however, be able to weather this impact. Paying back years’ worth of overpayments is manageable, as Fiber can just add it to the debt it already owes LUS.
The only reason these potential overpayments are problematic at all is because of the Local Government Fair Competition Act. This Louisiana law was pushed by and designed to protect incumbent telecommunications giants like Cox and AT&T from having to face government-subsidized competition. The gist of the FCA is that Fiber has to operate without any subsidies from LUS or LCG. As a result, Fiber can’t work like a normal department of LUS. If there were no FCA, it wouldn’t be illegal for LUS to subsidize Fiber’s operations. So the only law potentially broken is one designed to protect multi-billion dollar private companies, not one designed to protect the citizens of Lafayette. The law is the law, of course, and it has to be followed, but that context changes the narrative around whose rights are being trampled if any of these payments are found to violate the FCA.
Making a mountain out of a molehill
Utilities are typically pretty boring stuff. Outside of outages and rate increases, not much garners significant public attention unless things go very wrong. By those standards, LUS has been a veritable soap opera the last two years.
It all started back in 2018, when Mayor-President Joel Robideaux tried to cut a secret deal to sell management rights of LUS to Bernhard Capital, prompting longtime LUS Director Terry Huval’s protest resignation and ultimate retirement. After Huval publicly criticized the move, Robideaux made a series of allegations, with apparent leaks to the press, about LUS overpaying for LUS Fiber’s services, accusing Huval et al of illegal backdoor subsidies. He used these accusations as an excuse to replace interim LUS Director Jeff Stewart with his CAO, Lowell Duhon, ignoring protests from LUS’s consulting engineer that Duhon wasn’t qualified. According to LUS’s bond covenants, the consulting’s engineer is supposed to approve whoever is appointed as LUS director.
Enter Mayor-President Josh Guillory, who has thrown even more fuel on the political fire. First by continuing to ignore that consultant, NewGen Strategies and Solutions, and keeping Duhon on as interim director. Guillory has since escalated Robideaux’s accounting inquisition into a criminal investigation, citing a “raid” that never happened to surface accusations of a cover-up of the “illegal” payments under Huval’s watch. Guillory put four senior managers at LUS and Fiber on administrative leave; two were cleared of wrongdoing and reinstated and the other two have since resigned. NewGen has continued to urge LCG to appoint a qualified permanent director. Instead of heeding that guidance, Guillory is pushing NewGen out of the way, scapegoating the consultant for missing the payment scandal, even going so far as to insinuate that NewGen might be party to the alleged cover-up. For its part, NewGen says that any blame for missing these payments rests with LCG, not with its firm.
Despite the noise, we don’t actually know that these payments violate the FCA and are thus “illegal” as Guillory continues to claim. A forthcoming forensic audit has yet to be produced, so we don’t even know if LUS paid too much for these services. And we don’t even know yet if there will be a formal criminal inquiry, as LCG didn’t turn over much of its findings and documentation the DA had been asking for until late May. “I have not reviewed thoroughly all of the information that was provided to me at the end of May,” District Attorney Keith Stutes told The Current this week.
The only reason this scandal has dominated public mindshare is because Robideaux and Guillory — who share political consultant Joe Castille — have chosen to make it that way.
The more important issues to address at LUS
Meanwhile, LUS has moved quietly closer to a much bigger inflection point with lasting implications.
Costs to comply with regulations will force LUS to shut down and replace a coal plant responsible for half of its generating capacity. Hundreds of millions of dollars in investment and millions more in ongoing expenses are on the line, which dwarf what’s at stake in Robideaux’s witch hunt. If we don’t make the best decision on what to do next in this area, it could cost our community dearly for decades to come. And we have no one at the helm who is qualified to lead us through the process of making the best decisions.
LUS is still paying off $88 million in bonds it sold nearly a decade ago to keep that coal plant operating. It dodged a bullet on a $120 million plan to build a new natural gas power generator that was shelved after some public opposition and just before the Bernhard deal surfaced. A report by consultants running the current long-term power plan process suggests that decision would have been a costly mistake in hindsight, unnecessarily increasing LUS’s expenses by $85 million over the next 20 years. Rates were raised to pay for that plan that never went forward. (It’s worth noting LUS electricity rates remain among the lowest in the state.)
In NewGen’s annual report about LUS, the firm pointed out that there has been, and will continue to be, significant turnover in LUS’s managerial positions. Most important, Lafayette has to decide who to replace Huval as permanent director. This position is so vitally important as it’s the person who’s going to be charged with hiring the next generation of leaders, with navigating these enormous investment decisions and executing effectively whatever decisions are made. It’d be one thing if everything was stable at LUS and we just needed a caretaker to keep the lights on. But the reality is LUS is facing its most transformative period in decades, so it desperately needs proven, experienced, permanent leadership at the helm to ensure Lafayette has the best odds to make the right decisions.
Raising the stakes even further is the tremendous uncertainty LUS is facing on multiple fronts. Everything from navigating new regulations to the rapidly evolving marketplace for power generation to the significant headwinds facing our local economy to the changes in power consumption patterns. Not to mention having to raise money in an unsteady bond market while embroiled in a political scandal. The sands are shifting under LUS’s feet, and it needs steady leadership to ensure it doesn’t lose its footing.
While pretty much all recent attention has been on LUS, the sands are shifting even more aggressively under the feet of Fiber, which is facing significant new competition in the form of 5G wireless networks and low earth orbiting satellites. While Fiber’s margin for error is much smaller than LUS’s, its problems matter a great deal to LUS’s financial position. LUS is on the hook for Fiber’s $100 million in debt to bondholders if it should default — not to mention the $20+ million Fiber owes LUS for past support. While Fiber’s financials are in decent shape at the moment, there are no guarantees of its continued financial viability, and its failure could have a significant impact on LUS and the people who own it: the citizens of Lafayette.
It’s time to get our priorities straight
The continued stable operation of LUS is vitally important to our local economy; Lafayette can’t afford to make suboptimal decisions during this period of tremendous change and uncertainty.
LUS is going on two years of interim leadership and counting, at the precise time it most needs qualified permanent leadership.
While we absolutely do need to continue to explore allegations of financial mismanagement within LUS, we can’t allow that to detract from our focus on the much bigger issues we face. And they are arriving — now.
Politics needs to be put aside and a renewed focus placed on the issues that matter most to ensure LUS continues to be an asset on which Lafayette can build the next 100 years of its economy.