Citing a financial scheme that allows private foreign buyers to pocket taxes collected by customers, an administrative judge questioned whether state regulators should allow the $4.9 billion sale of a Louisiana-based utility to an international consortium of investors.
The deal may be good for Cleco Power LLC shareholders, but not so much for the 286,000 customers on the North Shore of Lake Pontchartrain, Acadiana and central Louisiana, Chief Administrative Law Judge Valerie Seal Meiners stated in her 69-page recommendation to the five elected members of the Louisiana Public Service Commission. Meiners has been vetting the deal behind closed doors for the past 18 months, with all the parties ordered to keep their mouths shut about the details.
The PSC’s vote, which is scheduled for Wednesday, will decide if the sale goes through.
Cleco shareholders would sell their stock at a 15 percent premium — about $55.37 per share — to a consortium of investors led by Macquarie Infrastructure and Real Assets, based in Sydney, Australia. Once the sale is complete the 80-year-old utility, now privately owned, would be pulled off the stock market.
Part of the business plan is for Australian and Canadian owners to sell Cleco in the next eight to 10 years.
“Cleco is in great shape today. So why in the world do they need to sell? Wall Street greed,” PSC Chairman Clyde Holloway, R-Forest Hill, said Thursday. “We’ve been under a gag order and we haven’t been able to talk about our concerns.”
Holloway’s district has the largest share of Cleco customers, including himself. He hopes to use the administrative law judge’s recommendations to help persuade at least two other commissioners to join him in opposing the sale. Three votes on the five-member panel are needed to prevail.
Commissioner Eric Skrmetta, a Republican whose district includes Cleco’s customers on the North Shore, said he hasn’t decided. “It is my understanding we will have all that presented and dealt with by the meeting but until then, I’m going to wait and see what happens,” he said.
Macquarie wouldn’t comment, but Cleco’s spokeswoman pointed out that the utility’s customers would receive $125 million in breaks on their electric bills over the next 15 years, which amounts to a reduction of less than $1 on typical monthly residential bills that now run at about $170.
“This transaction allows Cleco to pursue its strategy and focus on the long-term without the scrutiny and pressures that come with being a publicly traded company, including quarterly earnings and demanding short-term market expectations,” spokeswoman Robbyn Cooper wrote in an email Thursday.
“This foreign-owned entity is only in Louisiana to make a buck,” said Casey DeMoss, who heads the Alliance for Affordable Energy, a New Orleans-based consumer group. “They’re taking out more debt to pay investors higher dividends. And that’s fine, but who is looking after Cleco’s customers?”
The investors made 77 concessions, such as maintaining staffing levels at Cleco.
But two of the issues on which the buyers and regulators could not agree are grave enough for Judge Meiners to find that the entire transaction is not in the public interest. If the regulators went ahead, regardless of her recommendation, Meiners said the PSC should find a way to deal with a tax scheme that would allow investors to pocket monies collected as taxes and to add some protections from the “double leverage” financing, which would allow the buyers to use one loan as a way to acquire a second loan to help pay for dividends.
The way the deal is set up, the new owners would collect about $30 million in taxes through the basic retail rates charged customers. They would create an intercompany loan for tax purposes, which would create deductions not available for everyday investments.
The result, Meiners determined, is that Cleco customers would pay taxes that wouldn’t go to state and federal authorities. But that money would go to the owners.
Cleco and Macquarie countered that the scheme was allowed under tax laws.
Meiners also found fault with how the consortium would acquire Cleco. The cost is about $4.9 billion, with buyers needing $3.53 billion to complete the deal, plus the assumption of about $1.3 billion of Cleco’s outstanding debt.
A company controlled by the buyers will borrow more than $1 billion that and the debts will be placed on Cleco’s books. While a common financial mechanism for large takeovers involving numerous buyers, the PSC staff voiced concern that should anything go wrong, Cleco’s customers will have to pay.
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