Author: Christiaan Mader

Crucial council votes could quicken or prolong a resolution to the LUS private management affair 

The gist: Depending on a pair of council votes next week, NextGEN Utility Systems could walk away from Lafayette or find itself in a potentially lengthy open competition for the right to run LUS.

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NextGEN could ride on to the next town pending the result of a City-Parish Council resolution, authored by Councilman William Theriot, officially opposing “for now” the sale, lease or private management of LUS. While non-binding, the resolution would signal to NextGEN — and any other interested party, for that matter — that the current council isn’t interested in monetizing LUS. NextGEN Managing Director Jeff Baudier, a former Cleco executive who joined NextGEN in April of this year, says the firm is spending too much money to face the futility of a dead deal (Jim Bernhard told the council the company had already spent $1 million), should the council resolve to oppose private management.

“We can’t keep beating our head against the wall,” Baudier tells me. Despite mostly negative press, he says, the firm has received interest from beleaguered and indebted cities across the Southeast, where the company hopes to one day operate 50 utilities.

Meanwhile, NextGEN could face other bidders if Councilman Kenneth Boudreaux’s resolution calling for a request for proposals succeeds by vote of the LPUA next week. And those bidders, Baudier points out, would have a look at all of NextGEN’s cards.

“Now our competition can come in and copy our structure,” Baudier tells me, noting that the company’s public proposal and presentations expose NextGEN’s pricing. NextGEN, by way of parent private equity firm Bernhard Capital Partners, has been in talks with the Robideaux administration since at least late 2016. Robideaux signed a non-disclosure agreement with BCP in April 2017 and supplied the company with LUS financial and operational information before the group’s formal due diligence study began in April 2018. Baudier says an NDA is a normal course of business for the firm.

Should the conversation continue? That’s the question at the heart of both resolutions. There’s virtually universal recognition now that NextGEN’s proposal is tainted by an early lack of transparency. Even Robideaux called for a reset and admitted that his unilateral approach was a “misstep.” But some argue that the administration’s failure to disclose the talks shouldn’t derail an important conversation about the future of LUS. Boudreaux believes the RFP process conducted by LUS’s contracted consultant — confusingly, NewGen Strategies and Solutions — can air it all out.

“I’m convinced this is going to give us the best snapshot of LUS we’ve ever had,” Boudreaux tells me. “But the process doesn’t guarantee anything happening … and this is at someone else’s cost, by the way.”

An RFP could be long and painful. Boudreaux pegged the end of January 2019 as the deadline for LCG to arrange its part of the RFP, a process that could be tricky in and of itself. Some estimate a fully vetted bidding process could take 18 months, lingering this issue into next year’s elections. Meanwhile, per a resolution passed earlier this month, LUS would remain without a permanent director until the private management pursuit is exhausted. That means progress at a crucial inflection point for LUS would remain stalled.

What to watch for. Whether and how NextGEN wins enough favor to get a second act. Early indications would stack the odds against the company. Both resolutions will be considered on Nov. 5, but Theriot’s outright opposition measure is the trump card; the full council will take it up after Boudreaux’s RFP proposal is heard at the LPUA, which meets before Monday’s council meeting. (Ordinarily on Tuesdays, the council meeting was rescheduled to accommodate Election Day.) NextGEN has a short window to show there’s enough public support for considering its bid. To that end, Baudier will hit the airwaves in the next few days. Conventional wisdom holds that the public is by and large opposed to the deal, but Baudier pushes back on that sentiment.

“There is no way that 160,000 residents know about every part of this deal,” he says.

Where’s the vision? NextGEN’s offer puts $324 million in financing on the table for use by a tax-averse community. Baudier says the firm’s management concept is commonplace internationally as a means of raising money without raising taxes. Communities tend to get behind these deals, he offers, when they see an identified use for the cash windfall. Lafayette has yet to put an idea forward, potentially tamping down enthusiasm. He says it’s not NextGEN’s role to provide one.

Speaking of votes. Baudier reaffirmed to me that the firm has no intention of structuring a deal to avoid a public vote.

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An over-simplified guide to the 2018 constitutional amendments

If PAR’s too lengthy and haiku’s too short, this guide’s for you.

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NextGEN sets up headquarters Downtown in campaign to court Lafayette on LUS deal

The gist: Swimming upstream of public opinion, the firm making a play to manage LUS is widening the reach of its pitch. Bernhard Capital Partners/NextGEN Utility Systems hung up a banner, so-to-speak, with a temporary outreach center in Downtown Lafayette.

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The outreach center puts boots on the ground for a growing PR campaign. This week, NextGEN also created a Facebook page and launched a phone campaign to go along with its digital billboards billing a $1.3 billion offer. Talking points from the phone campaign emphasize the $140 million in up front cash included in the deal, rate reductions and the company’s intention to site its headquarters in Lafayette. NextGEN is renting space in the Omni Center on Jefferson Street for the next two and half weeks, according to Omni Center owner Robert Guercio.

Could environmental progressives be a base of support? In a phone interview, Guercio, a Downtown entrepreneur and sustainability advocate affiliated with Bayou Electric Vehicles, bubbled with enthusiasm about the possibilities NextGEN offers, particularly in modernizing LUS. Guercio said he fought LUS for two years to get LED lighting Downtown and that the utility dragged its feet on renewable energy.

“Why is it so hard for us to do innovative things? Government is kind of clunky sometimes,” Guercio said. “This is their [NextGEN's] specialty. We’re in business to rent the facility, but I’m also supportive of an effort to modernize LUS.”

LUS announced a $7 million LED streetlight program in 2017. The city owns its 18,000 streetlights, and the Public Works Department pays LUS for electricity and maintenance (replacing bulbs and poles, etc.). In what could be argued was an innovative approach, LUS agreed to fund the program up front because Public Works could not afford to do so. Because LEDs are cheaper to run than the city's existing lamps, LUS will continue to charge Public Works the contract price for the more expensive conventional lighting until it recoups its $7 million investment.

Bayou Electric Vehicles team has twice unsuccessfully sought funding for Lafayette's first EV charging station via local pitch competition 24 Hour Citizen Project. Jeff LeBlanc, who made the pitch at the event this year, said that NextGEN will give $3,000 to an upcoming fundraiser, enough for BEV to finally get Lafayette's first EV charging station placed in front of The Wurst Biergarten on Jefferson St., another Guercio-owned operation.

LeBlanc said BEV's sole issue is proliferating electric vehicle infrastructure in Lafayette, and it won't be making any sort of formal statement on third party management of LUS. Speaking for himself, LeBlanc said he's skeptical of the terms of NextGEN's proposal, particularly the 40-year contract, though he shares some of Guercio's frustration.

"LUS had every opportunity to get [Lafayette's first EV charger] this done over the past two years," he said.

NextGEN’s critiques of LUS echo others from renewable energy advocates. And that could be why the company might find common ground there. 

Who, what, when and how. It’s really unclear what NextGEN’s path to success is. Even if it successfully courts progressives, who else will carry water for the controversial proposal is yet to be seen. Mayor-President Joel Robideaux took an earful for suggesting that public opposition is uninformed, yet he has not voiced dedicated support for an offer he courted. What details a potential contract would include, beyond the exchange of money, are yet to be seen. When and how this moves past the hot air stage, either by vote of the public, vote of the council or a contract with the administration, is unknown.

What to watch for: Whether any part of Lafayette’s political class joins the campaign. Given the toxicity of the topic from the time NextGEN’s communications with the administration were revealed, there’s been no local political capital spent promoting it, outside of the mayor-president’s call to explore options.

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The Buchanan garage problem

It’s a microcosm of the state of our current affairs — a parish asset, that’s really a liability, decaying from neglect with no solution in sight.

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Robideaux says the public doesn’t have all the facts on the NextGEN/LUS deal. He’s not helping.

If the public doesn’t have all the facts, it’s in part because he’s not providing them. The bottom line is Robideaux’s account raises some red flags. Here are a few of the big ones.

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Redevelopment of the old federal courthouse hits the skids

The gist: For a couple of months, it seemed Lafayette’s “monument to indecision” was finally about to come unstuck. A deal to sell the old federal courthouse Downtown for private redevelopment was presented to the City-Parish Council Tuesday night, and the council tabled it until Nov. 20, sending the deal back to the administration for wholesale revision. The proposition now seems in jeopardy.

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Some background: While we usually single out the old federal courthouse, the 2-acre site along Jefferson Street is really three structures owned by the city — a former library, a police substation and the old AOC facility. The property is generally considered a blight on Downtown’s main drag and has sat unused for the past decade while leaders argued whether to put it into private commerce or use it to site a new parish courthouse. Mayor-President Joel Robideaux moved the ball farther than any previous effort, negotiating a deal to sell the property for $1.4 million to a group fronted by Downtown developer Jim Poche and financially backed by E.J. Krampe. The group, selected unilaterally by Robideaux from five respondents, proposes a 68-unit mixed residential and commercial development. The deal came before the council for final vote and was expected to pass at long and laborious last. Then things went awry. Now you’re caught up.

Council members have three basic problems with the contract:

  • Asbestos cleanup and some electrical work would be paid by the city out of the $1.4 million it earned on the deal
  • Those costs could go up unchecked, and the council won’t have any say in it
  • The city would pay for sewer upgrades, guesstimated at $400,000, to accommodate the development while other developers are often required to pay for their own upgrades.

I’ve heard a lot about those dreams over the past 11 years,” Councilman Jay Castille said of the vision for the redevelopment. “I don’t see any of that in these documents.”

CARLEE. IF YOU’RE WATCHING. PLEASE ANSWER. Seemingly no one, save Assistant City-Parish Attorney Steve Oats, was there to speak for the deal or offer definitive answers to the council’s inquisition. Oats summoned former LCG Planning Director Carlee Alm-LaBar, not in attendance, to answer some questions from the council, at one point asking aloud, as if to the heavens, “Carlee, if you’re watching, please answer.” Robideaux was conspicuously absent from the proceeding, leaving the measure without a real champion. Council members were clearly concerned that the contract offered power to the mayor-president to approve cost overages without their input, yet Robideaux was not there to settle their stomachs on the issue. Communication between the council and administration is a festering problem.

If you can’t flush a toilet you can’t do development. That’s the way a local architect explained the Downtown sewer problem to me. “The Romans figured that out over 2,000 years ago,” he added. The urban core’s lack of sewer capacity is a key variable in this deal, and Robideaux has sought to leverage a public asset to address what’s become a sticky problem for Downtown development. As I’ve reported previously, 100-year-old sewer lines are nearly maxed out and unable to accommodate more residential development in the urban core. Developers have walked away from projects after LUS sewer officials told them the lines can’t handle the stress. Robideaux’s idea here is to flip the old federal courthouse and use the proceeds to invest in badly needed sewer infrastructure. Oats told the council the improvements tentatively planned would expand capacity beyond Downtown. In principle, that seems to make a lot of sense. Council members said that was unfair.

The vote count was always going to be tight. In hindsight, it shouldn’t come as a surprise that discussion didn’t go smoothly. Clearly, council members felt unequipped to move forward with information presented to them, and more or less the same block that has always opposed redevelopment of the site remains, led by Jay Castille and Kenneth Boudreaux. But even members most likely to support the deal in principle raised eyebrows. “I love the idea of this, but I have some concerns about how it’s written now,” Liz Hebert said. That’s a communication problem — and it appears to be on Robideaux.

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Bernhard’s pitch: LUS is fine. We can make it better.

▸ The gist: At long last, the public got to see NextGEN Utility Systems/Bernhard Capital Partners’ proposal to run LUS on full display. NextGEN representatives discussed the findings of the startup firm’s months-long assessment of LUS at a briefing Tuesday, arguing that the system is stuck in the 20th century but primed to make technological leaps. Here are some big takeaways:

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  • It’s a 40-year contract
  • There’s $140 million in cash and $184 million in debt relief on the table, plus $920 million in continued in-lieu-of-tax (ILOT) payments and $64 million in conditional payouts. Total compensation here is $1.3 billion.
  • LUS employees would remain in civil service.
  • NextGEN intends to headquarter its operations here and grow it to run 50 utilities. Lafayette would be the first.
  • Jim Bernhard was born in Lafayette and used to eat at Judice Inn.
  • Cleco, Slemco and Entergy are sniffing around now.
  • NextGEN thinks LUS is reliable and affordable but stuck in the 20th century. 

▸ Stuck in the 20th century? Is that right? Sure. The critique that LUS is slow to adopt innovation and is handcuffed to aging power generation is not new. In fact, some local electrical nerds (I say that with both love and self-loathing)  —Lafayette's Electrical Discussion, well worth the Facebook follow — last year circulated its "State of LUS" with many similar findings. I’ve actually reported on this a little myself. LUS was nearly burned in the last decade on decisions to reinvest in a coal plant the utility co-owns with Cleco. Cleco runs the plant on LUS’s behalf, even though it’s a minority owner. 

Jim Bernhard, the BCP principal, hammered the point that LUS already contracts out for the bulk of its power generation, which is certainly true. In doing so, he implied Lafayette precariously lacks local generation capacity. Yes, only 40 percent of power used by LUS customers comes from generation that LUS owns, and virtually all of that comes from LUS’s coal plant. But to be clear, LUS owns plants capable of generating most of its peak demand should the need arise, like a hurricane. The plants are just so old and inefficient that they generally aren’t called upon to be used. Instead, LUS buys most of its generation very cheaply at market, the result of a strategic decision made in 2013.   

In its defense, LUS upped its renewable portfolio this year through a purchase agreement to buy wind energy from the Midwest. The utility has installed smart meters, which Bernhard’s team say are underutilized, and has pursued plans to build new natural gas generation, although Bernhard and others say the type of plant considered is too expensive and outdated. There’s a legitimate policy debate to be had about LUS’s approach to new technology. LUS could become a "utility of the future," to borrow NextGEN’s buzz phrase, but the bigger question is whether LUS needs NextGEN to get there. 

"There’s nothing in this proposal that can’t be accomplished by hiring a highly skilled and experienced director," Councilman Bruce Conque tells me. "Everything in there is about management." 

 Gee, $1.3 billion seems like ILOT of money. It is! But there’s some contention here. Most of the $1.3 billion (71 percent!) is achieved by $920 million in ILOT payments, which LUS already pays to make up for the fact that it doesn’t pay taxes. NextGEN projects its ILOT substitute willl average $23 million per year over the contract’s lifetime. That’s about what the ILOT currently pays. But some argue LUS’s ILOT payments would outgrow the projected average offered by NextGEN, even as utility revenue has more or less flatlined in the last few years. It’s unclear how NextGEN would calculate the payments year-to-year. Even if NextGEN’s version of the ILOT grows, however, it’s hard to call it a net gain. It’s probably best to think of this as a $324 million deal — the cash payment ($140 million) plus the debt relief ($184 million). 

▸ NextGEN may need us more than we need NextGEN. Even presenting a management team in place with extensive experience, Bernhard acknowledged that Lafayette would be the first utility managed by NextGEN on its quest to Fortune 500 status and acquisition of 50 utilities. Julius Bedford, an associate with Bernhard Capital Partners, marveled at LUS’s customer service reputation, workforce and revenue stability. "It’s not every day that you come across an asset or company like LUS,"he said. An investor-backed startup like NextGEN needs a win to signal to investors and other utilities that its model works. That means Mayor-President Joel Robideaux ought to have a lot of leverage to negotiate better terms if he chooses to go forward with the proposal. 

▸ What to watch for. Whether and how this progresses. The council sent a clear signal on Tuesday that it won’t take the initiative on Bernhard’s bid to run LUS, although NextGEN will reprise its performance at an Oct. 16 council meeting. The ball appears be in Robideaux’s court if he wants to get a deal done. The next step would be a contract brought to the City-Parish Council in the form of an ordinance. But bear in mind there are now other interested parties. Representatives from Cleco, Entergy and Slemco were in attendance, and Entergy reps confirmed they want a shot at the action. Both Cleco and Entergy have broached the topic with Robideaux before, though he says they pursued full buyouts of LUS, not management agreements. 

"If [Robideaux]’s gonna pursue this, he’s going to have to state it," Conque says. "And open up the process to anyone that may be interested."

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Entergy wants a shot at LUS

Robideaux said through his spokeswoman that conversations with Entergy have continued intermittently since at least June of this year.

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Here are five big questions the council needs to ask about Bernhard’s LUS bid

Chief among them: Can we get out of it?

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Bernhard delivers $1.3 billion bid for LUS

Billed as a $4.1 billion deal, the offer is heavy on assumed indirect economic impacts.

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Vetoes, parish budget flare tensions between mayor-president and council

▸ The gist: Discussing vetoes and a crunched parish budget, council members criticized the Robideaux administration’s policies and complained about a lack of communication, revealing some tension between the two branches of local government.

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▸ Disorder of business: The council took up a dense docket of pressing and contentious issues on Tuesday, including three budget amendment vetoes issued by the mayor-president. Robideaux had previously vetoed measures to give LCG employees a cost of living raise and to add 10 new firefighters, and a maneuver to effectively table his appointment of new directors for LUS and LUS Fiber by defunding the salaries for those positions. The council voted to override the mayor-president’s pay raise veto, while his firefighter veto was sustained. The two bodies reached an informal compromise to defer filling the open director positions until the smoke clears on Bernhard Capital Partners' proposal to privatize management of LUS. At Robideaux’s request, the council will take up a resolution pinning the compromise down in November.

“I wish we would have this discussion during the budget hearing,” Robideaux said, defending his position on the LUS director salaries. “I certainly would have conceded to the council.” Robideaux complained that the defunding amendment, Bruce Conque’s procedural brainchild, caught him off guard. Conque’s amendment reduced the budget salary of each position to $1, sparking a miniature constitutional crisis that pitted the council’s power to appropriate money against the mayor-president’s power to set salaries for his directors. City-Parish Attorney Paul Escott argued Conque’s defunding move was illegal and the the mayor-president’s powers would win out per common legal practice.

“With all due respect, I sent you a memo on Aug. 23,” Conque replied, noting that he asked the mayor-president to delay interviewing for the open positions until a decision is reached on Bernhard Capital Partners' proposal. “I have had no response.”  

Conque has made similar complaints about the administration’s responsiveness, or lack thereof, on its move to sell a parish parking garage to the city to shore up the parish budget.

“I don’t like being placed in a political position, painted into a political corner,”
 Conque said about the transaction, describing the move as late-coming.“This should have happened months ago. That is not fair to this council.” 

“We alerted you to the fact that this was an issue,”
 Robideaux countered, saying that his office had supplied the council via email with options on the garage transaction in August.

▸ Irreconcilable differences:
 The tension boiling here is a difference of opinion on how to address the parish budget crunch. Council members insisted the 2-percent pay raises Robideaux vetoed were manageable in the current budget, even as they criticized the mayor-president’s garage proposal as a papering over of the parish’s dire financial situation. Conque was the most pointed in his remarks generally — he has previously criticized the administration publicly for leaving the council out of the loop on the Bernhard deal and issues with the Lafayette Police Department — but other council members chimed in with similar discontentment.

“You’re boxing a parish guy in that if we don’t sell the building, we got to find $770,000 to cut,” 
Council Chairman Kevin Naquin, who represents a majority parish district, said of the garage deal. Naquin argued that administration should have reconciled the parish budget without assuming the sale would go through, saying that the reality of the cuts needed to be felt.

“I made the cuts. And then it’s like, but we should have cut more. You can’t have your cake and eat it too,” 
Robideaux responded, referring to the deep cuts his administration made in the adopted budget, in some cases 25 percent reductions.

Robideaux has been notably silent on several tax proposals promoted by Naquin, Conque, Jay Castille and Kenneth Boudreaux. He argued Tuesday night that he believes the public elected him to find solutions outside of new taxes.

“The public is looking at me to say do everything in your power before you come to me for taxes,” 
Robideaux said. “I figure this is the kind of solution the people put me in office to come up with.” 

▸ All’s well that ends well:
This round of flare-ups resolved amicably with solutions identified. It’s perfectly normal for there to be differences of opinion in politics. On a discord scale of one to Washington D.C., this rates maybe a three. But Robideaux’s moves on LUS have clearly rattled the foundation of trust between the two bodies. That may not be irreversible as yet, but it could prove problematic for Robideaux’s agenda if the council continues to feel boxed out.

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Robideaux’s move to sell a parish parking garage to the city fails, sending next year’s parish budget into deficit

▸ The gist: Next year’s budget was balanced assuming the parish would successfully sell a Downtown parking garage to the city for $770,000. On Tuesday, the City-Parish Council voted down the mayor-president’s proposal. Opponents argued it was a bad deal for the city that amounted to a bailout for the cash-strapped parish.

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▸ In the red: The 2018/2019 fiscal year, which starts Nov. 1, was set to end with a $105,000 balance in the parish general fund.That figure assumed Mayor-President Joel Robideaux’s proposal to sell the garage went through in the current fiscal year, which ends Oct. 31. Consolidated government’s chief financial officer, Lorrie Toups, warned that the council will need to make deep cuts in general fund expenditures to square the parish’s finances. The council and administration will need to work quickly to find a fix. Consolidated government is required by law to present a balanced budget. 

▸ Bailout or buyout: That’s in the eye of the beholder. Council members opposed to the transaction argued the city’s purchase of the dilapidated Buchanan Street garage, which primarily serves parish courthouse employees and visitors, would saddle city taxpayers with a toxic asset needing potentially millions of dollars in repairs. No figure is yet confirmed, but council discussion suggested the needed repairs exceed $3.5 million. That the parish can’t afford to fix — or even demolish — the building is at least in part the administration’s motivation to sell it off. Robideaux argued, however, the deal would benefit both sides: Upon redevelopment or repair, the city would get a revenue generating asset (the garage earns about $90,000 a year in parking fees right now), and the parish would get a liability off its books. He floated the idea of replacing the garage with a larger parking structure that would feature leaseable retail space on the bottom floor. He also noted some interest from private parking companies. 

“Too many times we’ve gone to the rescue of the parish with city dollars,”said Councilman Bruce Conque in an often testy exchange with the mayor-president. Conque criticized the administration’s engagement on the issue, saying Robideaux brought the sale before the council at the “11th hour,” forcing the council into a corner: either approve the sale or adopt an unbalanced budget. Robideaux disputed that characterization. 

▸ The idea appears to have been in the works for some time. The $770,000 figure comes from an appraisal performed in 2017 and is now out of date. The administration withdrew an earlier attempt at the transaction in July of this year when it failed to produce the right legislation for council consideration and approval. Robideaux suggested the most recent proposal, including clawbacks for the city pending results of new appraisal, in an email to council members in late August. 

▸ This garage has been falling down for years. Whether it’s in immediate danger of collapse is unlikely but unclear. Water seeping through facade cracks have rusted some of the steel beams, according to the 2017 appraisal. Conque claimed he was told by the administration that the garage was given a 90-day window to close beginning in early August. When pressed, Robideaux walked back the urgency of the garage’s condition. Robideaux has not responded to a request to clarify that window. 

“It’s not a bailout. If I’m a parish guy, I’m gonna say the city screwed us,”Robideaux argued, making note of the inherent conflict of interest in his bifurcated role as parish president and mayor. He defended his solution as one that balanced the needs of both sides of the ledger. The $770,000 figure was the lower end of the 2017 appraised value, he said, and he couldn’t legally sell it for less. He contended that the structure would generate revenue for the city going forward and would accrue more value when the old federal courthouse is redeveloped. 

▸ What to watch for: Budget cuts. The council will take up how to reconcile the parish budget in early November. Missing $770,000 is a massive blow to an adopted $12.4 million operating budget. How they get to a balanced budget will figure into ongoing political discussions about how to solve a seemingly intractable budget problem on the parish general fund ledger. 

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