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PSC rejects Cleco sale by 3-2 vote

The Louisiana Public Service Commission Wednesday rejected a $4.9 billion bid by a consortium of international investors to buy Cleco Power LLC.
Cleco, which is based in Pineville, currently sells elctricity to about 286,000 customers — including the city of Crowley — throughout Louisiana.
By a 3-2 vote, the five-elected members of the Louisiana Public Service Commission agreed with the administrative law judge they had charged with vetting the deal and who had found that the sale would not be in the best interest of the utility company’s customers.
Wednesday’s vote basically kills the transaction that has been negotiated, mostly behind closed doors, for the past 17 months.
Public Service Commissioner Clyde Holloway, R-Forest Hill, has been against the sale from the outset.
“I do not like the tax scheme,” said Holloway, “If there is an issue you don’t want the public to hear, it is this issue.”
His district includes the most Cleco customers.
The new owners of the 80-year-old Cleco Power LLC, under the deal, would have been able to keep taxes collected as part of the monthly rates, rather than turning the proceeds over to state and federal authorities.
Holloway also said he didn’t like that the locally owned company would be bought by Australian and Canadian investors who planned to sell the utility in eight to 10 years.
The “double leverage” method of financing the $4.85 billion transaction would allow the buyers to use borrowed money to borrow more money, leaving the possibility that Cleco customers could be held responsible for the debt.
The deal would have been good for Cleco shareholders, who would have sold 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.
The stock was about $46 a share when the transaction was announced in 2014. It now sells for about $53 a share.
Both Democratic PSC Commissioners Lambert Boissiere II, of New Orleans, and Foster Campbell, of Bossier Parish, joined Holloway in opposing the sale.
PSC Commissioner Eric Skrmetta, the Metairie Republican representing the North Shore of Lake Pontchartrain, the second largest pool of Cleco customers, pointed out that ratepayers weren’t asked to pay for the transaction.
In fact, Skrmetta argued, had the transaction taken place, rates would have been lowered – both from a $125 million cash credit the buyers would have given Cleco customers and from additional efficiencies.
Holloway said $125 million sounds like a lot of money, but it would have been spread over 15 years, meaning the typical residential customer using 1,250 kilowatt hour of electricity would have seen only a $1.58 decrease in their monthly bill.
“It is $8.3 million a year that we don’t have the wherewithal to beat out of Cleco before,” said PSC Commissioner Scott Angelle, a Breaux Bridge Republican who also is a Cleco customer.
Angelle said nothing else is available that would immediately lower Cleco’s rates, which are the highest in the state. But he wanted to assured that the give-aways today will end up costing Cleco customers in the future.
Holloway said the long-term risk could be much greater because the new owners planned to resell Cleco in eight to 12 years.
The investors planned on borrowing more money and if interest rates rose, it would put pressure on what they would be paid for Cleco in the future, which could end up costing ratepayers.
The state constitution requires the PSC to oversee many of the business decisions made by the privately owned companies because the utilities operate as monopolies in their service territories and are allowed to include a profit – generally about 10 percent – in the rates they charge.
Darren Olagues, president of Cleco Power LLC, testified that other utilities benefit from the tax break that some of the commissioners faulted. He said the PSC should not take different approaches to tax policy for different utilities.
In addition to benefitting shareholders, Olagues said the transaction would allow the company to stay headquartered in Pineville and would strengthen the company’s finances.
Olagues said about 12 percent of the company’s stock is owned by Louisiana residents and about 80 percent is owned by institutional investors. “When offers come in, we can’t just ignore them,” Olagues said.
“Y’all are a big cash cow that’s why this whole thing is so inviting,” said PSC Commissioner Foster Campbell, D-Bossier Parish.
Campbell said Cleco was doing so well financially that it attracted significant buyers; perhaps the utility could decrease its rates.
Many in the crowded hearing room applauded.

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