The Alliance for Affordable Energy, a consumer advocacy group based in New Orleans, on April 5 urged credit ratings agencies to review the details of the sale of regulated public utility Cleco Power that was passed in a special meeting held by the Louisiana Public Service Commission (Docket No. U-33434) on March 28. Several deal points that will likely increase risk to Louisiana ratepayers were made during the special meeting, the group claimed.
“The deal negotiated in the last 20 minutes of the six-hour special meeting included commitments that will likely affect Cleco’s credit rating. A downgraded credit rating from Moody’s or Standard and Poor’s (S&P) would significantly impact Cleco’s financial standing, especially in light of the fact that Cleco will already be taking on $2.8 billion of debt to $2.9 billion worth of assets,” said Casey DeMoss, CEO of Alliance for Affordable Energy. “It is simply prudent to know what Cleco’s future outlook will be when we’re talking about billions of dollars of debt carried on the shoulders of Cleco’s customers.”
In late January, both Moody’s and S&P issued a revised credit rating assessments that Cleco Corporation, Cleco Power’s parent, would be downgraded to the lowest investment-grade status as a result of the transaction. However, according to DeMoss, some new stipulations attached to the approved deal as part of an enhanced commitments package would almost certainly have a negative impact on that outlook – among them:
- Increased rate credits, which equate to $136 million of immediate rate relief and provide rate credits of $500 on average to every Cleco residential and small business customer. These credits replace the previous $100 million of immediate rate credits recently announced.
- A $7 million contribution to Louisiana’s economic development efforts, to be administered by state economic development agencies in Cleco’s service territory.
- An extended commitment to Cleco employees and retirees from five to 10 years for headcount, salaries and benefits for employees and health benefits for retirees.
- A provision for investment by Louisiana governmental pension plans in up to 10 percent of Cleco’s equity.
- An increased investment of $3 million in Cleco’s community contribution foundation, which doubles the funding to $6 million.
Cleco and the investor group issued the following statement regarding the improved commitments package: “The state regulators have made their concerns for increased rate relief clear, and the investor group has adjusted their commitments in response. The $500 customer rate credit now included in the commitments package represents approximately a 14 percent reduction in customers’ bills from closing of the transaction to the expiration of the current formula rate plan in June 2018.
“This is an exceptional value for Cleco’s customers,” they stated, adding, “We believe the additional customer rate credits and the existing commitments make a compelling offer and create a transaction that is in the public interest.”
However, the Alliance did not agree: “Other stipulations were added during the March 28 hearing that could further negatively impact Cleco’s credit rating status. The prior credit assessment did not contemplate a utilities rate freeze through 2020,” said DeMoss.
“Furthermore,” she said, “their latest promise is to return $0.50 on the dollar for money charged customers for taxes the company never intend to pay — intended as a short term sweetener to the commission and customers, it is expected to directly result in the loss of any Cleco tax payments to the state of Louisiana, while the state is struggling with the worst budget crisis in its history. While these schemes would directly enrich foreign investors, they will financially weaken the company, increase risk for customers and further imperil Louisiana’s crumbling state budget.
DeMoss concluded, “The Alliance is formally calling on the commission to solicit new ratings from credit agencies. This is a matter of due diligence. The rating agencies must review all of the details of the new deal and provide a new ratings assessment. Louisiana cannot afford to be blindsided by a downgraded credit rating