Lafayette Mayor-President Joel Robideaux has signed a nonbinding letter of intent to pursue a possible deal with an affiliate of Baton Rouge-based Bernhard Capital Partners to manage and operate the city-owned Lafayette Utilities System electric division.
The letter contemplates a transaction worth an estimated $526 million, with more than half that amount being paid to Lafayette Consolidated Government in the form of a lump-sum payment.
NextGen, the Bernhard affiliate, would also assume outstanding indebtedness of $216 million while assuming responsibility for maintenance, upgrades and repairs.
Additionally, NextGen would contribute “earn-out payments” of up to $64 million if the electric system achieves base rate revenue growth of 2.1 percent. The parties would evenly split proceeds from any growth above that level. Ownership of the system remains with Lafayette Utility System, which is owned by the City of Lafayette.
The earn-out payments and revenue growth split would be calculated and paid every three years for an undetermined amount of time. The April 9 letter signed by Robideaux and Bernhard partner and co-founder James Bernhard, Jr. lays out financial terms of a management for a unspecified number of years, to be agreed upon later.
The letter states Bernhard’s intent to “initiate an assessment and evaluation” of the entire utility system, including access to accounting records, property conditions, the transmission and distribution network, operations and maintenance processes, customer services and other information.
The letter states the terms “are not enforceable or binding on any party,” and that “any work product” resulting from the assessment shall remain property of Lafayette Consolidated Government.
Although Robideaux’s signature merely acknowledges receipt, the letter calls for NextGen and city-parish government to “work toward” a cooperative endeavor agreement based on the terms in the letter.
The Current, an online news publication, first reported on Friday afternoon that some type of utility privatization deal was in the works. The Robideaux administration shared a copy of the letter with The Advocate after an interview in which the mayor-president said he could not recall all that it contained.
City-Parish Council members have scrambled to respond since the news broke, with Councilman Bruce Conque and Councilwoman Liz Hebert telling a town hall meeting audience on Monday evening they first learned of any privatization proposal from the initial news article.
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Robideaux said the information being shared with Bernhard is “really all public anyway” but said that he’s not certain it does not contain anything proprietary. He said he will share the same package of information and sign a similar agreement with any other private entity that wants to negotiate for management of the electric system.
“My guess will be that after the due diligence, I will have other suitors that will want to come in and look, and I will have to decide which of these seems to be the best conversation to pursue,” Robideaux said.
Former City Councilwoman Nancy Mounce said in an interview that Robideaux may have overstepped his authority by confecting an agreement without permission of the Lafayette Public Utilities Authority, even if the agreement is in only in principle. The authority, the governing body of the utilities system, is composed of City-Parish Council members in districts where city residents make 60 percent or more of the population.
“I’m concerned about any proprietary information being passed on to a private entity,” Mounce said. “I certainly hope it is nothing that would be damaging to the utility system.”
Robideaux said he wasn’t obligated to consult the council on the letter of intent because it doesn’t obligate the parties to take any additional steps.
“All it is saying is we are agreeing to continue having conversations,” Robideaux said. “I agree it seems odd, but it seemed odd when I signed it because I’m signing nothing.”
Robideaux said an agreement like the one outlined in the letter of intent would shift the burden of hundreds of million of dollars in needed capital improvements away from ratepayers. Noting that he hadn’t looked at the agreement recently, Robideaux said he believed “it talks about their willingness to consider freezing rates.”
However, the letter makes no mention of freezing rates.
“When I have to think about all the things that are coming up, I’m not shutting the door on any options,” Robideaux said, referring to future burdens on the system. “I want the public to have all the same information I have. We’re all going to digest it together, and we will see where it ends up, if it’s a good deal.”