The gist: Flattening energy demand has taken a toll on LUS sales. While electric revenues are growing, they are falling short of budgeted projections each year. For the upcoming fiscal year, LUS cut $10 million from last year’s projected revenue, a belt-tightening figure when compared to historic estimates.
Electrical demand has been sluggish. And that accounts for most of the diminished outlook. In the proposed 2019/2020 budget, LUS projects $101 million in base rate revenue — retail sales, excluding fuel — on $253 million in revenues for the entire utilities system, including wastewater and water services. This year’s adopted budget, reflecting fiscal year 2019, projected $108 million in electric sales on $241 million in total utilities operating revenue.
LUS revenues missed on budget projections each of the last three years. While electric sales have increased year-over-year, they’ve fallen as much as $10 million short of estimated revenues in each of the last three budgets. To an extent, next year’s diminished projections hew closer to the system’s actual performance but still reflect an expectation of growth, albeit slower:
|Year||Total Projected||Total Actual||Elec. Sales Proj.||Elec. Sales Act.|
|2016||$240 million||$220 million||$92 million||$84 million|
|2017||$244 million||$225 million||$97 million||$87 million|
|2018||$246 million||$232 million||$107 million||$95 million|
|2019*||$253 million||n/a||$108 million||n/a|
|2020*||$241 million||n/a||$101 million||n/a|
*Only projected revenues are available.
Interim LUS Director Jeff Stewart says the trend is concerning, but notes the system is still adding customers. But these new customers, he says, are using less energy per person. That means diminishing returns as LUS grows its customer base through city annexations, franchise agreements with Broussard and Youngsville, and an acquisition deal with Slemco.
“We’re adding customers, but they’re more efficient customers,” Stewart tells me.
LUS raised electric rates in 2016. A 9% total increase was phased in over the last few years to pay for a $240 million bond package that included $120 million for a new natural gas power generator. The plan was scuttled after public pushback, and LUS reduced its bond request to $70 million, throwing out plans for the new generator. The rate increases have remained in place. LUS moved forward with work on new wastewater treatment facilities, sewer line upgrades in the urban core, and has submitted work orders to outfit 18,000 city lights with LEDs, a $7 million project.
Energy efficient appliances and consumer habits have taken a bite out of power company revenues nationwide. The U.S. Energy Information Agency forecasts that trend to continue, projecting flattened electricity demand decades into the foreseeable future
If you can’t sell more of it, what do you do? Stewart tells me LUS is exploring EV charging as a potential revenue stream. Air conditioners, he says, were the 20th century innovation that drove electric revenues. Some 10 million electric vehicles are expected to hit American streets by 2025, offering one consumer sector that could increase electric demand and, in turn, drive sales for power companies.
Why this matters: LUS has major upgrades in the not-so-distant future. Remember that whole business with Jim Bernhard? Paying for those upgrades was a big part of his sales pitch. Most of Lafayette’s power capacity comes from a coal plant, which is routinely on the cusp of regulatory shutdown, depending on who occupies the White House. (Most of the time, LUS buys the power you use in your house from a grid market.) Outside of the looming need for investing in power generation, the system is a capital-intensive enterprise. Historically, the electric system has subsidized water and wastewater operation. A budget crunch on the electric side presents a major challenge for the system’s long-term financial health and could even put its contribution to the city’s budget, roughly $23 million every year, at risk.
LUS Fiber has recently been accused of receiving millions in illegal subsidies from LUS. This is a complex issue with a lot at stake. An explainer is in order.
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.
The gist: LUS will contract Burns & McDonnell to run its integrated resource plan, the process the utility uses to determine its future energy needs and how it will power them. The choice of consultant met immediate criticism among local green energy advocates. The contract is worth $500,000 and was approved Tuesday by the professional services committee.
Burns & Mac guided LUS on two controversial decisions. In 2011, the company recommended LUS continue burning coal in central Louisiana, instead of switching to natural gas, a decision critics maintain was a costly mistake in hindsight. And in 2016, LUS developed a $100 million plan to build new natural gas generators, at the consultant’s suggestion, even raising electric rates to finance the plan. That decision triggered a backlash that ultimately shelved the plan and in part led to last year’s privatization controversy.
“Half a million dollars is a lot of money,” renewable energy advocate Simon Mahan tells me. Mahan developed a lengthy document criticizing the 2016 plan but has since departed Lafayette. “To use the same firm that got it wrong twice before is eyebrow raising.”
Interim Director Jeff Stewart says this contract is different. The 2011 and 2016 plans did not involve robust public engagement, and Stewart says that engagement is baked into this upcoming process.
“That’s why we shelved [the 2016 plan],” Stewart tells me. “I want as many people who want to get involved to get involved.” He expects to time the public facing process to PlanLafayette activities, with outreach beginning in September.
LUS’s open approach seems to be working. Mahan tells me he believes that Burns & Mac is capable of delivering. And he gives a lot of credit to Stewart’s leadership style.
“Frankly, I’ve been really impressed with what he’s been saying and the actions he’s taken. There’s a new wind at LUS to listen to the public a little bit more,” Mahan says. “That makes me feel good.”
Fighting climate change takes a global effort — one that we are simply choosing not to participate in.
The gist: LUS is in the early stages of pursuing a pilot program to add electric vehicle charging stations to its portfolio and buy electric forklifts for its warehouse.
If funded, the pilot could put chargers at the Target shopping center on Louisiana Avenue but isn’t limited to that location. Interim LUS Director Jeff Stewart says work is very much preliminary and not related to surveys underway for a Tesla supercharger at the same site. LUS is also researching EV policies and approaches in major regional markets to write a local one.
LUS applied for funding through Louisiana’s allotment of VW’s settlement program, which is paying billions in atonement money for the German automaker’s use of software to cheat emission standards tests on its diesel fleet. As part of its settlement with the EPA, VW established a $2.9 billion trust to pay for programs that reduce diesel emissions. Louisiana received around $20 million from the trust. It’s that pot of money LUS is after for the pilot.
This is the second time LUS applied for the VW money. The utility’s first attempt at funding through the trust wasn’t successful. A second round was opened this year, according to Stewart, and last week LUS turned its application, which asks for more than $150,000 in grants.
LUS is at the beginning stages of a major power planning process called an integrated resource plan. Stewart says LUS has shortlisted four consultants to assist LUS on the IRP and will bring those candidates in for staff presentations in the coming weeks. He’s hoping to have a contract in place by June. A big part of the IRP is projecting the future of power demand, i.e. how much electricity the city will need, and how to meet the demand. Stewart has positioned this iteration of the process to be more public than previous go-rounds, saying in recent interviews that he wants the public to help create a vision for the future of the electric utility.
Meanwhile, automakers are investing billions in EV fleets. Lafayette has been criticized for lagging behind national (and even regional) adoption of EV infrastructure. Industry movement is now difficult to ignore. VW itself plans to spend $80 billion over the next five years developing EVs and outfitting them with batteries, according to The Economist, ultimately producing 20 million electric cars in the next decade.
Why this matters. EVs are only one disruption the utility industry faces. Bernhard Capital Partners criticized LUS’s lack of innovation and flexibility when the private equity firm pursued purchasing the right to manage the utility. LUS has been more proactive in the last couple of years exploring renewable energy and other disruptive technologies, contracting wind power from the midwest last year, but nevertheless has been cautious to dive into a fast-moving space.
The gist: Robideaux has about $43,000 in his war chest, according to The Advocate. At this point during his 2015 bid for office, he had $335,000. He’s widely seen as vulnerable to a challenge, a somewhat rare occurrence for an incumbent mayor in Lafayette.
Robideaux says he’s been working, not campaigning. Side-stepping the implication that he can’t get the taps flowing. Indeed, it is somewhat early to draw anything conclusive from the numbers. We’ll see another report soon, and Robideaux told The Advocate’s Claire Taylor he expects to raise the money he needs in short order.
“To my friends in the media, thanks for the advice. I’ll get right on it,” Robideaux replied in a clapback posted to his Facebook page. (Campaign staffers often post on his behalf; it’s unclear if Robideaux authored the statement himself.) The mayor-president has been in a spat with the media lately, freezing out reporters who have been hard on him. He pushed back at the “criticism” and spun it as proof positive of his efforts as mayor-president. “The simple fact is (and a lot of people don’t get this about me) — I’m not a politician at heart,” the statement reads.
Lack of money doesn’t necessarily indicate a lack of support, a local political operative tells me, rather a lack of campaigning. That backs up Robideaux’s defense. But the operative says it is indeed odd for an incumbent to have spent so little time fundraising. Articles like The Advocate’s, he says, raise reasonable questions of political strength. Put simply, whatever the reason, having no money in the bank shows a weakness that could tantalize opposition.
“He has not had an incident-free tenure,” UL political scientist Pearson Cross told The Advocate. He’s pointing out that Robideaux’s lack of ground game is odd given his recent controversies.
Saying his tenure is not “incident-free” is something of an understatement. In the last two years, Robideaux has found a way to alienate voters of all stripes. Progressives are angry about his escalation of the drama around Drag Queen Story Time and then trying to raid the library’s fund balance while accusing its directors of deception. Conservatives remain skeptical of CREATE, an initiative they characterize as a slush fund, and the cynical tactics Robideaux used to pass it. Outrage was community-wide upon discovery of his backchannel pursuit of privatizing management of LUS. Now his administration is mired in questions of ethics and transparency related to a suspect loan obtained by one of his aides.
In short, Robideaux has built a platform for his eventual challenger. And most believe he will draw one.
The gist: For the past year or so, LCG has honed policy for the dawn of 5G networks. Tired of waiting, Councilman Kenneth Boudreaux short-circuited the deliberation, introducing his own policy ahead of the administration’s schedule.
Stop. What’s 5G? A quick oversimplification: 5G is the next (fifth) generation of cellular networks projected to supplant 4G and LTE service in the coming years. 5G networks use dense clusters of small wireless transmitter boxes, attached to existing utility poles or mounted on short towers, to broadcast connections comparable to fiber speeds and reliability. Phones have not yet been developed to use 5G — AT&T’s 5G E is not 5G; it’s LTE plus marketing — but the event horizon is only a couple of years away. Cities are now grappling with policies to deal with fleets of transmitter boxes — i.e. “small wireless facilities” — in public rights of way. It’s progress, but also a nuisance.
Boudreaux compiled a policy to regulate deployment of 5G transmitters in the city and unincorporated areas of the parish. He introduced it as an ordinance, which governs “small wireless facilities,” at Tuesday’s City-Parish Council meeting. It defines things like fees and permitting and defines aesthetic restrictions. Over the past year or so, Boudreaux tells me, he talked with some of the major telecoms developing the technology — like Cox, Verizon and AT&T — but pulled from policies adopted in other Louisiana cities to craft his ordinance. His draft resembles one passed in Baton Rouge in 2017 and shares some of the same exact language. He says the administration should have acted a while ago.
He forced the administration to move. Boudreaux allowed LCG’s legal team to sub in its own draft ordinance as an amendment to his. The legal department and administration worked for the last year or so on the policy with a D.C. law firm specializing in communications. The administration’s draft policy is more detailed and applies stricter guidelines for how the boxes look and where they can be placed. Fees are different too: Boudreaux’s ordinance charges $270 annually per device to add them to city-owned utility poles; while the administration’s policy bills $220. You can view Boudreaux’s original ordinance here. And the administration’s ordinance here.
“My God, Crowley has adopted theirs already,” Boudreaux tells me. His decision to put forth an ordinance ahead of legal was spurred by watching small communities like Carencro adopt policies while Lafayette had yet to do so. (My family is from Crowley, for the record.) In pushing an ordinance, one he admits was not quite ready for prime time, Boudreaux intended to force a public conversation and position himself to lead it. “I gotta govern in a way other people don’t have to,” he explains. One primary concern, he expressed Tuesday night, is that poles could clutter the neighborhoods in his district. He showed the council a picture of a squat, unsightly tower pimpled with grey boxes in McComb-Veazey. It’s not clear where the tower came from. (Maybe it’s a ghost tower.)
Rapidly adopted policies have caused problems in other markets. Baton Rouge rushed an industry-friendly ordinance in July 2017 only to circle back to close loopholes later that year. Still, downtowners there fussed when AT&T began planting 80 5G towers, sometimes in the middle of sidewalks.
5G could pressure LUS Fiber. Some observers say the technology could one day challenge fiber-to-the-home internet service. 5G networks are cheaper to build in neighborhoods that don’t currently have fiber-to-the-home in place (like many of the areas Boudreaux represents) and can be used to add fixed internet service wirelessly. Others say it’s not likely to supplant fiber service altogether, but it could muscle fiber-based internet providers around in the market.
What to watch for: How the council approaches the policy discussion going forward. Boudreaux’s move appears to have pushed the administration into the conversation ahead of schedule, and the draft ordinance swapped in is now subject to council debate at final adoption in a couple of weeks. Other communities have haggled over how much to charge telecoms for the use of public space. Baton Rouge charges $250 per device. Other cities charge thousands. Money will play a big factor in the discussion here.
The gist: Lafayette’s future utilities director could make $250,000, close to the salary retired LUS Director Terry Huval earned to run both LUS and LUS Fiber. The council introduced a measure to bump the budgeted salary to that figure for the newly independent position.
It was originally budgeted at $150,000 when Robideaux moved to split LUS and LUS Fiber into separate departments during last fall’s budget process. He pegged the Fiber director’s salary then at $115,000. Huval was far and away the highest paid public employee in Lafayette Consolidated Government, a distinction that drew some criticism from budget hawks like Robideaux. (Robideaux, according to some, once bragged that no one in his administration would make $250,000.) Some council members pushed back on Robideaux’s original budget, saying good talent couldn’t be had at those prices.
“If we know these numbers are too low, what are we doing?” Kenneth Boudreaux pressed Robideaux at the time.
“I don’t think it’s enough if that’s what you’re asking me,” Robideaux replied.
So why $250,000 and why now? By law, Robideaux must get approval from a contract engineer to fill the position. That consultant, NewGen Strategies & Solutions (no affiliation with NextGEN Utility Systems, the failed LUS suitor), advised the administration that a new director for a utility the size of LUS (a $300 million enterprise) should cost around $250,000.
We still don’t know how much a Fiber director will cost. That’s a separate issue, not managed by NewGen. Boudreaux, who clamored Tuesday night about the new salary, produced an estimate from 2013 that a Fiber director should cost $200,000. If that figure is close to right, new directors of LUS and LUS Fiber combined would cost $450,000.
“That’s $450,000 without even blinking,” Boudreaux told me ahead of the meeting, frustrated with the hurdles jumped to raise LCG employee salaries 2 percent last year, including an override of Robideaux’s veto.
What to watch for: How quickly a new director is recruited and installed. Current interim Director Jeff Stewart, a Huval lieutenant, says he’s interested in the gig. Stewart is already spearheading a public process for the electric system’s integrated resource plan — essentially a long-term planning process that determines how much power is needed and where it will come from — a first for LUS. Stewart tells me that process should be underway in June and could take a year or more. That means the new director could come on board in the middle of a transformative time.
The gist: Fiber and LUS have been formally split since the budget was adopted last year, but the search for new directors to run the now independent agencies was punted until the NextGEN affair was resolved.
Mayor-President Joel Robideaux intends to fill four vacant director positions this year. Fiber and LUS directorships have been vacant since the fall, when the council approved reorganizing Fiber into its own department. It’s an election year, which could complicate the job search, and Robideaux has been slow to fill other director level positions. LCG also currently has interim directors running the IT and planning departments. LCG Communications Director Cydra Wingerter says the search for an new IT director is starting this week.
Some background: LUS Fiber was created as a division of LUS, not a separate department of LCG. The two shared a director — until mid-last year, longtime LUS Director Terry Huval, one of Fiber’s founders — and shared some administrative staff. As Fiber’s operations have gotten off the ground, it’s built out its own support team. After the split, Fiber became its own department, not unlike public works or planning, and is separate from LUS. Since Huval retired last year, it’s been overseen by Interim Fiber Director Teles Fremin. Jeff Stewart serves as interim utilities director.
OK, so what difference does that make? Many have argued that Fiber has long needed its own dedicated director. The thinking is, it’s a $40 million a year operation that needs full-time attention to grow. That was Robideaux’s rationale when he proposed the split last year, and the council has come on board.
Fiber and LUS are financially intertwined, but the split shouldn’t change that. Fiber owes LUS $28 million for loans fronted by LUS in the system’s early days. Fiber has paid virtually only interest on that debt, but is scheduled to make big payments in the next few years, starting with a $1.5 million payment in 2019. Also, Fiber owes $110 million on bonds that are backstopped by LUS. In other words, if Fiber defaults on its bonds, LUS would be on the hook. Robideaux assured the council that LCG is ultimately responsible for Fiber’s debts, and nothing about the split changes the obligations.
Speaking of the council, the new city council will oversee Fiber once the charter amendments take effect in 2020. There was some question at Tuesday’s council meeting whether the split would swap out regulators. LUS is regulated by the Lafayette Public Utilities Authority, a council subset made up of the five city-majority council members. Establishing a city council negates the need for an extra body. Insofar as the LPUA governed LUS, Fiber was under its purview. But, by state law, Fiber is audited by the state’s Public Service Commission. The PSC, for instance, is reviewing the $1.8 million Fiber billed LUS for service to sewer lift stations that were hooked up but never turned on.
What to watch for: Salaries for the new fiber and utilities directors. Last year, council members Bruce Conque, now LPUA chair, and Kenneth Boudreaux argued Robideaux set the salaries too low: $150,000 for the utilities director and $115,000 for the Fiber director. Qualifications and salary for the utilities director will be set in consultation with LUS’s consultant of record, NewGen Strategies and Solutions (no relationship to NextGEN). But the Fiber director’s salary is up to the administration, subject to approval of the city-parish council this year and the city council in the future. Wingerter tells me the $100,000 salary is not set in stone and could rise depending on candidate interest.
Lafayette faces existential challenges that, mishandled, could derail it for a generation.
The gist: The LPUA deferred indefinitely a pair of proposals to reduce utility rates and return money raised for a $240 million bond sale that never happened.
Some background. Rates were raised 8 percent beginning in 2016 with a $240 million bond issuance in mind. That package included a controversial power plant, and after some pushback, the bond ask was reduced to $70 million in February 2018. At the last minute — literally the day of the bond commission meeting in April — Robideaux pulled the $70 million bond request, orphaning the rates. That was days before he signed a letter of intent with NextGEN Utility Systems to consider privatizing manage of LUS. Settling the issue was delayed during the ensuing controversy.
LUS says the money has been put to good use. In a bond scenario, the money raised would go to pay the interest on the bond. Since there’s no bond, LUS has essentially used the money on a pay-as-you-go basis, moving forward on projects included in the $70 million package. Some major projects include $48 million for electric system upgrades and $41 million in sewer treatment work. Interim LUS Director Jeff Stewart tells me about $15 million was diverted to those work orders.
“The last thing I want to do is scale back a rate and then come back to raise the rate to meet unexpected needs,” Councilman Bruce Conque says.
Word is bond. Councilman Kenneth Boudreaux, who authored the ordinances, argues that good use doesn’t matter. The money was raised for bonds, and the ratepayers should expect that the money be used for that purpose. “I personally believe we have misled the people, and we’re gaining from it,” he said at the council meeting Tuesday night.
LUS disconnects 1,900 customers each month for delinquent payment. Boudreaux brought that figure forward to warn that even a small rate increase can have dramatic effects on low-income families.
“We boast about how good our rates are, but we still have a large population that struggles to pay those rates each month,” Boudreaux tells me.
What to watch for: If and when a bond is ultimately issued. The administration intends to go forward with a $70 million bond sale, now that the NextGEN episode is over. With cash in hand, LUS can continue ongoing projects but can’t necessarily complete them without the added capital.