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.
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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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.
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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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.
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.
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.
The gist: If the Bernhard Capital Partners/NextGEN proposal to take over operations of LUS has any council support at this point, it was hard to see it at Tuesday night’s council meeting. In an encore performance, this time before the whole council, NextGEN’s management team attempted to make the case for how a private company can do a better job than government running Lafayette’s 120-year-old municipal utility company.
Council to Robideaux: It’s time to state your intentions. Councilman Bruce Conque was insistent Mayor-President Joel Robideaux — who left the meeting long before it was over — state his position on the proposal and whether the effort to privatize LUS will be opened up to other potential suitors (Entergy and CLECO are both interested). Absent Robideaux’s willingness to put his own political capital behind this new direction for LUS’s future, Conque said the administration should move forward on hiring a top-notch director, one who should be attracted with a highly competitive salary.
Right now, LUS is run by an interim director, following the early retirement of longtime Director Terry Huval. Conque’s language was added to a resolution formalizing an agreement between the council and the administration that a new director not be named until the smoke clears on the idea of outside management of LUS.
William Theriot put a pressure cooker time limit on the deal. After NextGEN’s presentation — which Councilman Jared Bellard asked for but requested be abbreviated to less than 20 minutes from the LPUA version — Councilman William Theriot turned to City Attorney Paul Escott and directed him to draft a resolution that would effectively wash the council’s hands of the NextGEN proposal or any others like it for the time being. That resolution, also aimed at easing anxiety the NextGEN proposal has caused for LUS employees, will state that LUS is not for sale, for lease or open to any takeover of its operations and management.
While non-binding, the resolution would ice potential suitors with a clear statement of the council’s position on monetizing LUS. Council members have complained that public criticism has been trained on them, despite not initiating LCG’s flirtation with NextGEN.
Theriot, a staunch and vocal conservative, put his foot down to defend a government-owned monopoly. After months talking with “the owners and consumers of LUS,” he tells The Current he was ready to nip this deal in the bud.
“This is not what the people want,” he said. “Then why are we going through the motions?”
What happens now? We’ll know in two weeks where Theriot’s eight fellow council members really stand on NextGEN’s proposal. He only needs four more votes to effectively kill the deal.
The gist: At last week’s presentation to the Lafayette Public Utilities Authority, NextGEN officials indicated with confidence that LUS’s hundreds of employees need not worry about their civil service protection if NextGEN takes over management of the public utility.
“We don’t have any specific intention to replace civil service employees with non-civil service employees,” said Jeff Baudier, who joined NextGEN’s parent company, Bernhard Capital Partners, in April after almost two years with CLECO.
And to make the company’s position perfectly clear, BCP founder Jim Bernhard chimed in: “We don’t want to weasel around it that the civil service employees that do their functions today will remain. And with some attrition we’ll hire another civil service employee. That’s not going to change. It’s not our intent. It’s what we’re committed to.”
Not so fast, says Adam Marcantel, municipal civil service director. “From what I’ve seen, it’s just not going to be permissible,” he says of continued civil service protection, like job security and equitable pay, for LUS employees under the proposed management contract with NextGEN. “That’s not to say a way doesn’t exist out there that I haven’t considered or thought of. But from what I’ve looked at and the ideas I’ve tossed around in my mind in trying to figure out how can we make this work, I don’t see that there’s going to be a resolution as long as the management structure is that the [civil service] employees would answer to an employee of NextGEN.”
Marcantel says civil service employees are able to perform their duties without political pressure. “Civil service positions exist to serve Lafayette Consolidated Government and by extension serve the public. That’s what we do, and that’s why we enjoy the protections that we have,” he explains. “To have civil service employees serving the interests of a private company is not compatible with that.”
What’s next? Marcantel plans to attend Tuesday’s council meeting, where NextGEN will again make its pitch — though email records show that Councilman Jared Bellard asked that the company cut the lengthy presentation it made before the LPUA to a summary of 20 minutes or less. Marcantel is prepared to explain his position to the council.
If the NextGEN proposal moves forward, the director says the municipal civil service board would get involved and likely seek a legal opinion from its attorney, George Armbruster. “I’m waiting to see what happens,” Marcantel says.
File this in the “curious” category: The retention of civil service classification doesn’t appear in NextGEN’s 35-page proposal to manage LUS, a deal that would give LCG $140 million in cash and relieve $184 million in LUS debt, along with providing $920 million in continued in-lieu-of-tax payments and up to $64 million in conditional payouts.
I emailed Baudier late Monday afternoon for clarification on this issue and haven’t heard back.
▸ 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:
- 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."