Louisiana judge casts doubt on Cleco merger ahead of PSC vote

Dive Brief:

A Louisiana Administrative Law Judge is calling for a close inspection of a proposal to take Cleco private, casting doubt on customer benefits and a loan scheme that would move tax money into the pockets of investors, the New Orleans Advocate reports.
Cleco Corp. and a group of investors led by Macquarie Infrastructure and Real Assets (MIRA) are offering shareholders more than $55/share for their stock, a 15% premium to Cleco's closing price in October 2014, when the deal was announced.
But despite offers to almost double customer bill credits to win support, staff of the Louisiana Public Service Commission say the $125 million would only maintain the status quo and there is little benefit for ratepayers.

Dive Insight:

Louisiana regulators will vote on Wednesday on the proposed deal to take Cleco private, but an Administrative Law Judge's report last week could mean more scrutiny.

"The proposed transaction brings substantial financial risks to Cleco Power and its ratepayers that are not sufficiently mitigated by the regulatory commitment," Chief ALJ Valerie Seal Meiners wrote.

And staff of the PSC, she noted, believe the deal is specifically designed to "earn excess returns for Cleco Partners by double-leveraging debt." And many of the regulatory commitments "are designed to simply maintain the status quo," staff also said in its comments.

As the New Orleans Advocate reports, a major concern of Seal Meiners' is an intercompany loan which would create deductions and ultimately result in about $30 million in funds collected as taxes remaining with the company. The proposed deal is headed by a consortorium of international investors, including Canadian company British Columbia Investment Management Corporation.

Regulators at the PSC have been directed not to discuss their concerns ahead of the meeting this week, but PSC Chair Clyde Holloway told the Advocate, "Cleco is in great shape today. So why in the world do they need to sell? Wall Street greed."

In order to win support for the deal, the companies offered to increase customer rate credits above what staff suggested, to $125 million over 15 years. And customers will receive an estimated $1.2 million per year in cost-of-service savings from the transaction, which the investor group believes will bring total customer savings to approximately $143 million in the next decade and a half.

The PSC is scheduled to vote on the deal Wednesday.