NextGen Utility Systems will end its attempts to take over management of Lafayette city utilities if a proposed council resolution opposing such an arrangement succeeds on Nov. 5, a company representative told The Advocate editorial board on Monday.
Councilman William Theriot’s proposed resolution expresses council opposition to any sale, lease or private management agreement for the Lafayette Utilities System “at this time.” Jeff Baudier, a NextGen director, said he doubts the resolution would legally prohibit the city from proceeding with the 40-year deal the company is proposing, but noted that any future contract would need City-Parish Council approval.
“If the council effectively votes by a majority to say we don’t really want to talk about LUS anymore, we are going to get on our horse and ride to the next town,” Baudier said. “It just seems like a futile effort at that point.”
NextGen is proposing to pay a $140 million lump sum and annual payments of about $23 million for control of the city’s utilities. The company is also promising 10 percent rate reductions in the first three years.
The proposal has stoked controversy since news of NextGen’s private talks with Mayor-President Joel Robideaux leaked in July. Robideaux said last week he should have engaged in a competitive solicitation process from the outset.
Mayor-President Joel Robideaux on Wednesday admitted to some missteps in his handling of proposed changes to the Lafayette Utilities System.
Baudier expanded beyond NextGen’s written proposal to commit to financing all needed capital investments, which would remain city property.
“If there is a building and we invest in it, and it becomes more valuable, it’s the city’s building,” Baudier said. “Instead of the city having to issue new bonds, we take responsibility of getting the financing.”
The company isn’t proposing specific investments at this point, beyond those already contained in a five-year capital improvement plan. Future investments could include digital upgrades to sewer lift stations, distributed solar generation and repurposing of the defunct Curtis A. Rodemacher Generation Station, according to the NextGen proposal.
NextGen has already spent about $1 million conducting due diligence, including an evaluation based on exclusive access to LUS facilities and information. Competitors Cleco and Entergy have requested the same access that was afforded to NextGen.
While Robideaux seems to be moving toward issuing a request for proposals, or RFP, he said he first wants to meet with the other two companies. In addition to Theriot’s resolution, the council will consider another one from Councilman Kenneth Boudreaux declaring the council will not consider any privatization arrangement without an RFP solicitation.
Baudier said NextGen has no qualms with the city moving forward with an RFP, even though the company could be disadvantaged because its assessment and offer are already public.
“Contrary to the way a normal sealed public bid would work, we are exposed to the world, and we are fine with that in this circumstance,” Baudier said.
That said, Baudier said NextGen’s proposal could change, depending on the conditions of any RFP. Cleco CEO Bill Fontenot said in an interview last week that he expects his company would respond to any RFP involving LUS management, regardless of the city’s conditions.
“It could be everything from ownership in the assets to partnering with them on commercial areas, or even operating areas to complement their staff to the benefit of both parties,” Fontenot said.
Robideaux has said on multiple occasions that talks with Cleco and Entergy died last year because they were interested only in a sale. Asked if Robideaux’s characterization is accurate, Fontenot said he wasn’t privy to those discussions. An Entergy spokeswoman said the company would not comment.
NextGen is owned by Bernhard Capital Partners, a Baton Rouge-based private equity firm founded by Jim Bernhard. Bernhard is the former head of the energy services behemoth Shaw Group, which sold for $3 billion to Chicago Bridge and Iron in 2013.
Bernhard, along with former Shaw executive Jeff Jenkins, founded Bernhard Capital Partners shortly after that sale, and set out to cash in on their expertise, and that of many other former Shaw executives, in the complicated energy and industrial services markets. The firm aimed to take advantage of an “energy renaissance” in North America, according to an analysis of the firm by investment consultant NEPC.
The firm has landed around $2 billion in investments from major pension funds and other institutional investors, including the Louisiana State Employees’ Retirement System and the Teachers Retirement System of Louisiana.
Bernhard Capital Partners relies heavily on a “proprietary” sourcing of acquisition opportunities, according investor presentations and filings with the U.S. Securities and Exchange Commission. That means the firm doesn’t have to go through public auctions or bids for its acquisitions, instead sourcing from “extensive existing network and newly created relationships,” BCP wrote in an investment pitch to the Teachers Retirement System.
Documents show the firm also relies on a “deep and broad” network of people in industry, capital markets and regulatory circles to target specific companies.
NextGen generally would not pursue a public utility if the owner sought bids “from the entire world,” Baudier said, especially if the firm thinks it would involve a complicated, years-long process.
But NextGen is willing to go through “whatever competitive process the city wants to have,” he said.
“We are not trying to avoid competition and we are not trying to avoid having a situation where the city goes out and seeks other proposals,” Baudier said.
NextGen is offering a “carrot” to the first city to sign onto a deal with the firm, Baudier said, within reasonable geographic parameters: a highly-touted 400-job headquarters of the firm that would serve as the epicenter of the 50-utility play.
Those jobs would be IT, tech, accounting, regulatory and legal jobs, Baudier said, along with other headquarters functions. Construction would take 12 to 15 months, according to an economic impact study of the deal. The 400 jobs would “drive $381 million in annual economic activity,” according to the study by LSU economist James Richardson.
Baudier said the company needs to build the headquarters in a city it serves as utilities manager, even if it could “theoretically make sense” to build the headquarters in Lafayette if the city doesn’t agree to a deal.
“If you can't serve the town of your headquarters, it is really hard to get other customers. Because they're like 'Wait a second. You don't even serve your own town and you want to serve us? I don't think so,’” Baudier said.
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