Going on two years without permanent directors and headed for uncertainty, LUS and LUS Fiber could risk their financial health without permanent and steady leadership, the systems’ consulting engineer warns in an annual report issued last month. The engineer has raised flags about vacancies atop the city-owned enterprises since late last year with no movement by the previous administration or Mayor-President Josh Guillory.
In its 2019 Annual Report on the two systems’ operations, Texas-based NewGen Strategies and Solutions urges Guillory to begin a formal selection process to fill vacant positions at LUS and Fiber, which were split up by his predecessor.
“While historical financial performance has remained strong and adequate to meet outstanding debt requirements, NewGen is concerned that without highly qualified, permanent Directors with pertinent experience specific to their respective utility systems, it will erode the operational effectiveness, strong financial performance, high reliability, and competitive retail rates seen with the Utilities and Communications Systems,” the engineering consultants write. “This concern is heightened given the recent attrition of experienced senior employees, critical to the ongoing and successful operations of the [systems].”
LUS and Fiber have been without permanent directors since July 2018, when longtime Director Terry Huval retired early in the midst of the Robideaux administration’s efforts to privatize the system’s management. This is not the first time NewGen has registered concern over lingering vacancies at LUS and Fiber, but the annual report sends a more public signal on that issue, which could reach bondholders already skittish about the financial health of municipalities across the country.
“Having leadership turmoil can have an impact on bond ratings. We’ve seen that in other utilities as well,” says Ursula Schryver, vice president of education and customer programs at the American Public Power Association. She explains that it’s common for utility systems to have consulting engineers like NewGen evaluate their operations annually or periodically. Copies of the April report are on file at LCG, LUS and Fiber, and must be open to inspection by any bondholders or other interested parties.
“It’s definitely a risk to a utility to not have permanent leadership in place. It makes sense that they would raise that in a report reviewing the status of the utility and things that need to be done to improve it,” Schryver says.
As recently as February, Jacksonville, Fla.’s community-owned utility saw its credit rating downgraded by Standard & Poors on the heels of the dismissal of top executives and mass board resignations, all of which came after an attempt to seek private buyers fell apart. The turnover there, however, reflects a much bigger hole in leadership.
Such downgrades can lead to higher borrowing costs that are ultimately paid by a utility system’s customers.
Tony Georgis, NewGen’s managing director, did not return a phone call or email seeking comment for this story.
NewGen is required by bond ordinance to advise and approve the appointment of LUS’s director and provide LCG with continuous engineering counsel on both systems. Last year, NewGen criticized former Mayor-President Joel Robideaux’s appointment of Lowell Duhon and Kayla Miles Brooks over LUS and Fiber, respectively, saying neither is qualified to run those agencies.
“Based on our review of each Interim Director’s work history, experience, qualifications and available information, we find both Directors lacking in direct applicable managerial, operational, and business experience required to manage complex electric, water, wastewater, and communications utilities operated by LUS and LUS Fiber,” Georgis wrote in a November letter to Robideaux. NewGen recommended that the interim directors delegate the day-to-day operations and critical decisions to more experienced staff until the new administration hired permanent replacements. In a Feb. 1 email, NewGen reminded Guillory of the extended period LUS has been without a permanent director, suggesting ongoing discomfort with the lack of permanent leadership.
Under the pretext of a Public Service Commission investigation into questionable transactions between the two systems, Robideaux had replaced Jeff Stewart and Teles Fremin, two longtime employees who’d been serving as interim directors since Terry Huval retired in mid-2018. Huval had headed both systems. In a surprising move, Robideaux named his then-CAO, Duhon, to replace Stewart at LUS and moved Brooks, who had worked as Fiber’s business administrator, into Fremin’s role at Fiber. NewGen’s objections to not having been consulted and its opinion about Duhon’s and Brooks’ lack of experience has been largely ignored, in part by LCG’s legal department merely arguing that the bond covenant oversight doesn’t apply to interim directors.
In the 228-page report, NewGen notes the ongoing process for reviewing LUS’s and the city’s credit rating: “If the City or LUS has not recently issued debt (e.g. within a two‐year period) the agencies will perform a review and surveillance of the City and LUS’ performance to update their credit ratings.”
Late last year, at the urging of the then-consolidated council, the Robideaux administration left the search for permanent leadership to the Guillory administration. The new administration not only hasn’t made any notable attempts to fill the key positions but also took the extraordinary measure of putting Stewart, Fremin and two other senior managers on administrative leave in early February — a development NewGen referenced in describing the leadership void. Although their names were redacted in a complaint filed to state police, the administration accused the four current employees and Huval (the only person named in the complaint) of having information about an attempt to cover up a crime involving the alleged destruction of public records, specifically thousands of Terry Huval’s emails from 2011. Stewart and Fremin were cleared of any wrongdoing and reinstated the week of March 4, the very week NewGen was in town for its site visit as part of the annual review. The other two unnamed employees have since resigned from their positions, according to multiple sources.
The Guillory administration has previously maintained that Duhon, a Robideaux holdover, was kept in place to oversee ongoing inquiries into alleged overpayments by LUS and LCG to Fiber. In February, Guillory contracted a CPA firm to perform a forensic audit, on top of kicking over the criminal allegations to the state police for the sake of removing the air of local bias. State police, however, declined to open an investigation.
Rather, the matter of Huval’s allegedly missing emails has since February been in the hands of District Attorney Keith Stutes, who earlier this month told The Current he’s yet to receive from LCG all of the documents he requested; as the NewGen report notes, the DA has not determined if he will proceed with a formal investigation. “We’re in full compliance,” Guillory said at his May 15 coronavirus briefing about turning over documents to Stutes, vowing to call the DA to resolve the issue. On Tuesday morning, Guillory’s spokesman, Jamie Angelle, said Stutes’ request for more documentation would be fulfilled this week. Angelle said City-Parish Attorney Greg Logan is still in the process of gathering information for the DA.
“I have all the confidence in this man,” Mayor-President Josh Guillory said in a May 8 coronavirus press conference, gesturing to Duhon, “and he’s doing a great job.” When our reporter asked the mayor if Duhon would be in the job permanently, Guillory responded: “We’re still technically in a search for a new director.” Angelle later explained that the mayor simply meant to communicate the difficulty of filling such a position in the midst of a pandemic.
“That’s always a possibility,” Guillory said at his briefing the following week, responding to a question about whether the NewGen report could trigger downgrades from ratings agencies, which would increase borrowing costs ultimately borne by ratepayers. Guillory did emphasize the breadth of decisions that have to be made about the future of LUS and Fiber, which, according to NewGen, includes capital and operating decisions to ensure the long-term operation and financial performance of both systems. For example, LUS’s Integrated Resource Plan calls for capital improvements ranging from $200 million to $300 million for the electric system’s power supply strategy.
“This is an objective report that we want to take into consideration in our decisions,” Guillory said at the mid-May briefing.
Though he did not dismiss NewGen’s concerns outright, Guillory downplayed them. “There’s not as much of a concern as the report initially said in my opinion,” he added, without being specific.
“I’m happy where we are,” Guillory continued. “I’ll tell you what I’m happy with — Director Lowell Duhon keeping LUS afloat during this world pandemic.”
The report does not address leadership issues as they relate to the pandemic, and in fact coronavirus did not even make its way into the report, which covers the 2019 fiscal year. Already, electric delinquencies from the pandemic are mounting, totaling $1.2 million as of last week, all while an active hurricane season looms in the coming weeks. That combination of difficult circumstances makes experienced leadership even more critical, suggests APPA’s Schryver.
“LUS has been a very well-run utility by APPA standards for years,” she says. “Institutional knowledge is particularly important now as we go into a crisis, having somebody and just staff in general that know the industry, know how to do their jobs and can adjust as necessary,” she suggests. “Particularly now, it’s challenging and you need to make sure that whoever is leading the utility has the experience and the ability to do that.”
LUS and Fiber are facing other challenges, according to NewGen. The report questions the communications system’s flat organizational structure and points out that it doesn’t have enough engineers for its customer base because of pay limitations; on the LUS side, NewGen further emphasizes the importance of a succession plan/recruiting activities as they relate to the impending retirement of Craig Gautreaux, who heads the water and wastewater system. The report further notes the potential implications of the administration’s plan to consolidate or reorganize some operations of the two systems’ staff with LCG staff.
“The electric utility industry is a complicated industry,” Schryver says. “There’s a lot of changes going on. It’s an evolving industry. You need a utility director who has experience in the industry who can motivate staff. Having a lot of turnover within a utility in general is not a good thing.”