Public Service Commission rejects sale of Cleco
Thu, 03/03/2016 - 05:00
In a unanimous vote, the Louisiana Public Service Commission rejected a $4.9 billion proposal by a Canadian-Australian group of investors to purchase Cleco Power -- formerly known as Central Louisiana Electric Co.
Herbert Thevenot of Avoyelles Parish felt the PSC decision to reject the deal is best for customers and employees because the company will remain publicly owned.
“I was against the sale even though I am a stockholder,” Thevenot said. Thevenot is also retired from Cleco, where he worked for 36 years. “I just felt the company should stay as an investor-owned company and not privately-owned.”
Thevenot said he expects another company will make a bid for Cleco in the future -- possibly CenterPoint Entergy, a natural gas company operating in central Louisiana. He believes a sale to CenterPoint would “sail” through the PSC because the company operates in the state.
“I do think the PSC made the right decision by not allowing the sale,” Thevenot added.
PSC members said their their decision would help the customers and employees of Cleco in the long-run. Most of Avoyelles Parish is served by Cleco and many of the employees either live or have connections to the parish.
Stock prices fall
The decision sent Cleco stock tumbling, falling from $49.59 before the PSC meeting to 47.15 within 15 minutes after the meeting and $45.22 within an hour after the 5-0 vote. The company’s stock price was at $46 when the offer by the group led by Macquarie Infrastructure and Real Assets made its bid to buy the Louisiana utility in 2014.
Although the meeting at the PSC offices in Baton Rouge lasted seven hours on Feb. 24, Andrew M. Chapman, the managing director of the Sydney-based investor group, complained that he was given only 30 minutes to present his argument in favor of the purchase.
Macquarie can appeal the PSC vote to the 19th Judicial District Court in Baton Rouge, but most observers consider the unanimous vote to be a death blow to the deal.
In a joint statement, Cleco and the Macquarie-led group said they “are disappointed with the LPSC’s decision, which we believe fails to acknowledge the benefits this transaction would have provided to all Cleco stakeholders. We will review our options regarding this decision.”
The state constitution requires the PSC to oversee many of the business decisions made by the privately owned utility companies. The companies operate as monopolies in their service territories and are allowed to include a profit — generally about 10 percent -- in the rates they charge.
Cleco Power LLC is based in Pineville but was started in Bunkie in 1906, sells electricity to most of Avoyelles Parish. The company has 286,000 customers throughout central Louisiana, south central Louisiana and the Northshore area of Lake Pontchartrain. The deal would have been good for Cleco shareholders, who would have sold their stock at about $55.37 per share -- a 15 percent premium — to the Macquarie-led group.
PSC Chairman Clyde Holloway of Forest Hill, who represents Cleco’s home territory -- including Avoyelles Parish -- argued that the proposed purchase endangered the monthly rates Cleco customers pay for their power. Cleco already has the highest rates in the state. Holloway also said he had serious questions about the “tax scheme” involved in the proposal.
Under the deal, the new owners would have been able to pocket taxes collected as part of the monthly rates, rather than turning the proceeds over to state and federal authorities.
Cleco President Darren Olagues testified that other utilities benefit from the tax break and said the PSC should not take different approaches to tax policy for different utilities.
Holloway said that in the week prior to the PSC meeting, he received about 750 customers complaining about the Cleco deal. Holloway was opposed to the idea of the locally-owned company being bought by Australian and Canadian investors who planned to sell it within eight to 10 years. He also questioned the “double leverage” financing of the deal, which would have allowed the investor group to use borrowed money to borrow more money. Holloway said that presented a possibility that Cleco customers could be held responsible for the debt.
Chapman pointed out that in many cases, locally-owned utilities are bought by big conglomerates, resulting in layoffs. He said that in other cases where Macquarie and its partners have bought American utility companies, the management remained local and there were no layoffs. It was also noted that the Macquarie-owned Cleco would have four Louisiana residents -- including three Cleco customers -- on its board of directors, compared to the current board which has only one Louisianian on the board.
The PSC began the hearing divided, 3-2, over whether to delay a decision.
Holloway was joined by Foster Campbell of Bossier Parish and Lambert Boissiere III of New Orleans to defeat that move. The other two commissioners, Scott Angelle of Breaux Bridge and Eric Skrmetta of Metairie, joined the other three in rejecting the deal.