CLECO, the state’s third-largest power utility, received permission from the PSC to be acquired by a consortium of mainly foreign pension investors. The consortium will pay a 15 percent premium to the equity’s price on Oct. 17, 2014, the day of the initial announcement of the deal. The original offer also promised minimal changes to management and none to staffing levels or to employees’ compensation, an increased Louisiana representation including customers on its board, no rate hikes, and a contribution to economic development funding. Shareholders overwhelmingly approved the deal over a year ago.
But wary of the PSC – it had forced rate reductions on the company prior to the deal that resulted in reduced earnings afterwards – the investors also came up with additional concessions, including a credit of $125 million credit over 15 years to customers. CLECO’s rates exceed typical statewide rates by around 20 percent, because of its smaller and relatively rural base that drives up costs.
One politically upwardly mobile member of the PSC, recent gubernatorial candidate Republican Scott Angelle who last month announced a bid for the U.S. House of Representatives and a CLECO ratepayer, seemed satisfied with that deal and voted for it earlier this year. But a majority of his colleagues dissented and rejected the deal, including Democrat Foster Campbell, then on the cusp of announcing his own campaign for the U.S. Senate.
Another, Republican Clyde Holloway, complained that the deal allowed the partners to pocket favorable tax treatments and use that to refinance debt in a way that could increase future rates because of adverse interest rate movements (CLECO has roughly a capitalization of 60 percent equity/40 percent debt). He said they wanted to flip CLECO prior to those potential consequences. The remaining member of the majority, Lambert Boissiere, thought it too good of deal for the buyers and said any modifications were months away and not guaranteed.
However, Bossiere’s attitude changed once fellow Democrat Gov. John Bel Edwards began backing the deal, followed by Campbell dickering with conditions to change his vote. At first Campbell said he wanted a 21 percent rate reduction over five years, and the group offered a free couple of months or so in the first year, or an average of $370 in the range of a 17 percent reduction for that year, along with guaranteeing employee staffing and compensation for a decade and doubling the economic development donation to $15 million.
An enthused Bossiere, who previously had foreseen protracted and even futile negotiations, showed who was the overseer to him on the panel, saying he could vote for whatever Campbell did. Eventually, at the PSC’s latest meeting and one called for this purpose, a majority struck a bargain, leaving Holloway as the sole dissenter. It called for the buyers to rebate an average $500 deduction in whatever time frame the PSC wanted, which over five years would parcel out to around 5 percent lower rates, without the new owners asking for an increase effectively until 2020.
Then days later, in an unusual move, Edwards publicly backed in front of state Democrats Campbell’s candidacy for the Senate over that of former lieutenant governor candidate Caroline Fayard and another lesser-known Democrat. Edwards had quietly stumped for Campbell’s entrance into the contest, but the symbolic gesture of telling party leaders now gives Campbell a boost in a race where two major Democrats running could deny each a spot in the inevitable general election runoff. Perhaps Campbell, who attached himself early to Edwards in the latter’s gubernatorial run when other Democrats shied away, might have gone with approving the bid regardless of Edwards’ giving it the nod, but ensuring Edwards went and front and center to those who may help the most in his run for the Senate cannot hurt.
Not that Campbell did much of anything. CLECO and the buyers already had confected much of the deal, and the PSC does not have to give any rate increases at any time. In fact, it can make rates go lower, so even the pledged reduction could have happened outside of the request to change ownership. And, as Holloway noted, the deal contains some troubling aspects; besides the debt refinancing, the freeze on employee levels and compensation for a decade limits managerial discretion where it might argue successfully for a rate increase if in the next 10 years the company finds itself with too many employees making more than the market would bear.
However, the political optics from the incident look great for Campbell, who now on the campaign trail can emphasize to Democrats he has Edwards’ endorsement and claim to the public he brought rates down for CLECO customers (whereas these seem not so good for Angelle, who looks like he got rolled). In reality, nothing that happened could not otherwise have happened, but Campbell will want voters distracted from that truth while he arrogates some credit for it.