Mayor Jeff Hall Dispatches Cleco’s Former Top Lawyer to Secret Meeting with NextGEN

More than two months before Alexandria Mayor Jeff Hall publicly asserted that he was awaiting a study prior to considering any proposal to privatize the City’s 126-year-old nonprofit municipal utility system, he dispatched Mark D. Pearce, Sr., the former general counsel of Cleco, to Baton Rouge in order to secretly meet with executives at Bernhard/NextGEN, a company that intends to spend more than $15 billion over the next several years to acquire leases and management agreements with public utility operators, during which they discussed a “possible deal structure,” according to invoices obtained through a public records request by the Bayou Brief.

Copies of the invoices can be downloaded here: Part One, Part Two, Part Three, and Part Four.

Bernhard/NextGEN is the same company that unsuccessfully sought a 40-year management agreement over Lafayette’s public utility, igniting a contentious debate among residents and ultimately spurring the City-Parish Council to pass a resolution that made it clear: Lafayette’s system, known as LUS, was not for sale.

A representative of Bernhard/NextGEN did not respond to the Bayou Brief’s request for comment.

Pearce’s invoices reveal he has been working on plans related to the future of the municipal utility since at least June of 2019, only seven months after Hall took office, and that Hall and at least one other mayoral staffer are already actively contemplating the sale or lease of the city-owned system to a private-sector operator, directly contradicting the claims Hall has recently made to members of the media and the City Council.

“We are committed to being transparent with this process,” Hall stated in a press release on Jan. 17^th.

The invoices also undermine statements made by John Kyte, the Ruston-based crisis communications consultant who was officially hired last week to assist the Mayor’s Office in recruiting and selecting of a “third-party” firm tasked with evaluating “options” for the city-owned utility. Kyte has adamantly insisted that he would not have agreed to work for the City of Alexandria if he had believed its plans were “predetermined,” and to be sure, there is no indication that he was ever made aware of the full extent of the work that had been underway months before he began discussions with Hall’s office.

Four days after I published the first part of the Bayou Brief’s ongoing series “An Exercise in (f)Utility,” I exchanged a series of emails with Kyte in which I expressed my concern that the proposed process for “evaluating options” was nothing more than smoke and mirrors, suggesting that the mayor already had a implicitly desired outcome. Indeed, as recently noted by the Town Talk, there were widespread rumors that Hall intended to pursue the privatization of the city’s utility system throughout the 2018 mayoral election season. Similar speculation followed Hall’s unsuccessful 2014 campaign as well.

“There is no factual evidence that supports your theory,” Kyte told me. “I have to believe that if you had a smoking gun, you’d use it.”  

The following day, I published a confidential memo Kyte had sent Mayor Hall in late October of 2019, in which he specifically referred to three possible options for the system: leasing it, franchising it, or “an outright sale of the assets.” Kyte submitted the memo to Mayor Hall on Oct. 28^th, ten days before Pearce met with Bernhard/NextGEN.

If that wasn’t a “smoking gun,” then the evidence of a City contract attorney being paid to discuss “a possible deal structure” with a private utility operator most certainly is. The details of Pearce’s work have not been previously reported or disclosed and were only provided to one member of the City Council and only after he asked for the same documents I had requested.

Pearce appears to be an architect for much of the City’s plans for the future of its utility system, and according to his invoices, Bernhard/NextGEN is the only company with which he discussed a deal.

When considered in totality, the work already conducted by Hall’s office may raise legal and ethical concerns about the ways in which they have approached a potential deal for the system, which is believed to be worth well in excess of $500 million and which generates over $100 million in annual revenue. Although it is not unusual for city staffers or legal counsel to consult with industry professionals prior to the issuance of a Request for Proposals, Pearce’s invoices indicate that Bernhard/NextGEN is also the only named firm with whom the City has met as it develops a selection criteria.

Pearce was hired as a contract attorney for the City of Alexandria in May of 2019. He stepped down from his job at Cleco after 17 years at the beginning of last January. As a lawyer for Cleco, Pearce was a part of the team that represented Cleco during negotiations for the renewal of a power supply agreement with Alexandria and was involved in defending the company against the City’s 2015 allegations of systematic fraud and in subsequent settlement negotiations.

“I currently work for entities that own and/or operate electrical utility systems and/or generating power stations, including municipalities,” he writes on his LinkedIn profile. “I recently retired as General Counsel for the utility operating entity Cleco Power LLC.”

Pearce does not list the names of any of his corporate or governmental clients, though thus far the City of Alexandria is the only public entity that has approved a professional services contract directly with his law practice. From May to December of 2019, he earned approximately $17,900 from Alexandria.

During those seven months, Pearce, who lives in the New Orleans area, attended a total of 12 meetings in his capacity as an attorney for the City of Alexandria, including his meeting with Bernhard/NextGEN and at least two meetings of the Louisiana Energy and Power Authority, better known as LEPA.

Curiously, in the 11 pages of itemized invoices he submitted for payment, there is not a single mention of Pearce discussing or meeting with officials or staffers of the city’s Finance or Utilities Departments, suggesting that, despite Mayor Hall’s public claims to the contrary, these efforts are not informed by those with subject-matter expertise and institutional knowledge of the city utility’s finances or operations.

In addition to his discussions and research involving Bernhard/NextGEN, Pearce has also spent a significant amount of time studying the possibility of refinancing municipal bond debt. The Alexandria City Council will consider- for the first time- the issuance of up to $140 million in “Taxable Utilities Revenue Refunding Bonds,” which, as I will explain later, is fraught with risk and has nothing to do with a desire to save money.

During its most recent meeting, Gerber M. Porter, who represents Alexandria’s second district, strongly criticized the previous administration for entering into bond obligations with interest rates that are now higher than today’s market. (Porter mistakenly claimed the interest rates were currently as high as 5%, and while 5% is listed as the maximum rate that could apply to one of the City’s current bond obligations, the actual rate fluctuates closer to 4%). Porter’s criticism was repeated by one of his colleagues, Councilman-at-large Joe Fuller.

Both Fuller and Porter were either deliberately ignoring or unaware of the fact the City’s existing municipal bonds are tax-exempt and that, as a consequence of a series of regulatory and tax law changes signed into law by President Trump, municipalities no longer have the same abilities they once enjoyed in refinancing or refunding their debt.

Among other things, as a consequence of the Tax Cuts and Jobs Act of 2017 (TJCA), there are limited situations in which refinancing municipal debt is even feasible, because typically any savings that could be realized by a lower interest rate are offset by the concomitant tax liability and the more volatile taxable bond market. Prior to the changes signed into law by President Trump, whenever a state or municipal government wanted to take advantage of better market conditions to refinance its existing bond debt, they would authorize the issuance of tax-exempt advance refunding bonds, which were relatively low risk and reliable.

“The (TJCA) prohibited the issuance of tax-exempt advance refunding bonds after December 31, 2017,” explains the American Public Power Association. “This provision was never debated, never publicly championed by any member of Congress, and never subjected to a vote. As a result, issuers must either wait to issue a current refunding bond or issue an advance refunding bond as taxable debt. Likewise, newly issued bonds are being issued with shorter call dates—closer to seven rather than ten years. This hurts bondholders, who are guaranteed a steady stream of interest payments for less time. Bondholders are demanding a higher rate of return on bonds with these shorter maturities, driving up borrowing costs.”

The Government Finance Officers Association is also sharply critical of the elimination of tax-exempt refunding bonds and its effects on municipal and state governments. “The elimination of advance refundings in the TCJA as a cost-savings tool for state and local governments has limited the options to refinance debt,” it explains, “especially since interest rates will certainly fluctuate over the lifetime of outstanding governmental bonds (which in many cases is 30 years). As a result, state and local governments are now paying more in interest, a cost that must be paid by state and local residents.”

Several months ago, around the time Pearce first began his research, municipalities across the nation were taking advantage of record-low interest rates in the issuance of new tax-exempt bonds, primarily in order to fund infrastructure projects and capital improvements. While this trend is expected to continue throughout 2020, Mayor Hall isn’t advocating for the issuance of new tax-exempt bonds; rather, as agenda item #9 for the upcoming Alexandria City Council meeting reveals, he hopes to refinance the $140 million in existing utility bond debt in the taxable bond market.

Importantly, the City’s utility system has consistently and easily met all of its debt obligations, even when natural gas prices plummeted (which also had the effect of allowing the City to provide cheaper-cost electricity to its customers).

Again, the opportunity to avail itself to better conditions in the bond market isn’t the reason Pearce began researching debt refinancing, and despite the mischaracterizations of doom and gloom from Councilmen Fuller and Porter, the impetus for refinancing has almost nothing to do with an exigent need to save money or even a desire to utilize potential savings on infrastructure projects. Both men were also critical of the total amount of existing utility bond debt, which could either remain the same or increase, depending on how it ultimately pursues refinancing, and which, regardless, has not constrained the utility system’s delivery of services or its operations.

Why did Congress eliminate tax-exempt advance refunding bonds, without any debate and over the objections of nonpartisan, nonprofit municipal and state policy organizations? The reason is found in the answer to another question: Who benefits the most from the change in the law?

Clearly, for reasons I’ve explained above, it’s not the public. Rather, because taxable bonds do not carry the same private use restrictions as tax-exempt bonds, the prime beneficiaries are real estate investors, who hope to take advantage of a municipal or state government’s sizable debt capacity to leverage large-scale development projects, and companies like Bernhard/NextGEN, who would have previously needed to pay off a municipality’s utility bond debt prior to entering into a purchase or lease agreement and can now simply assume that debt into its business model.

In other words, Mayor Hall isn’t seeking up to $140 million in “Taxable Utilities Revenue Refunding Bonds” because the terms of its existing bonds are overly burdensome or onerous. He’s simply hoping to make the city’s nonprofit municipal utility system more attractive to private operators.

Bernhard/NextGEN is a division of Bernhard Capital Partners, the company founded by Jim Bernhard following the $3 billion sale of the Shaw Group in 2013. Bernhard/NextGEN, which specializes in utility systems operations and management, is currently led by Jeff Baudier, who joined the company in April of 2018 after working as Cleco’s Chief Development Officer.

Prior to its sale, the Shaw Group, which Bernhard co-founded in 1986, was one of only two Fortune 500 companies headquartered in Louisiana, with $6 billion in annual revenue and more than 25,000 employees. Bernhard also previously served as the Chairman of the Louisiana Democratic State Central Committee, and in recent years, has occasionally expressed interest in a bid for governor.

NextGEN, a subsidiary of Bernhard Capital Partners, is the same company that had submitted a controversial $1.3 billion bid for the management of LUS, Lafayette’s municipal utility, in 2018, which will be the subject of an upcoming report on the Bayou Brief.

Like Pearce and Baudier, Mayor Hall is also a former executive with Cleco, as is his Chief of Staff, Susan Broussard, who had served as the company’s HR Manager before departing for City Hall, and his Internal Auditor, Ken Nolley, who once worked as Cleco’s Assistant Treasurer.

It is worth noting that Hall, as a candidate, raised more money for his campaign from current and former Cleco employees than from anyone else. Those donors included his neighbor, Cleco CEO Bill Fontenot. At the time, Hall defended himself against his allegations that he was too cozy with the company, telling a local talk radio host that he receives “two checks” every month and that he was proud of the work he had done to earn them.

As a result of Cleco’s $4.6 billion sale in 2016, Hall made approximately $2.9 million from the stock buyout, according to documents he filed with the Securities and Exchange Commission and the company’s report that shareholders received $55.37 per share. (Those who speculate about Hall’s future stock earnings do not seem to realize that Cleco’s stock no longer exists). In addition, as a Cleco retiree, Hall likely continues to benefit from a retirement investment account, which he is not required to include in his annual personal financial disclosures.

Given the prominent roles that these former employees now have in Alexandria’s inchoate plans for privatization, it’s understandable that some are already suspicious about Cleco’s potential involvement, but there are several reasons to believe those concerns are largely misplaced, even if it’s likely Cleco could be interested in pursuing a deal with Alexandria, just as it had been in 1987. (Two years ago, Cleco also publicly expressed interest in competing with Bernhard/NextGEN for the management of Lafayette’s utility system).

Currently, however, there is every indication that while the push for privatization may be informed by Hall’s experience with Cleco, it is being driven by Bernhard/NextGEN’s stated desire to aggressively pursue its plan to spend as much as $15 billion on similar deals across the nation. Indeed, Baudier only joined NextGEN after losing out on the job of Cleco CEO to Hall’s neighbor, Bill Fontenot. Those who had supported Baudier for CEO, like Hall’s Chief of Staff, Susan Broussard, suddenly found themselves on the outs.

But lingering resentments and bad blood aren’t the real reason to discount speculation about Cleco’s machinations. Even though the company is expected to make a 13-14% return in the upcoming year, there are widespread concerns that Cleco saddled itself with too much debt when it spent $1 billion to acquire nine power plants from NRG last year, something that both Jeff Hall and the team at Bernhard/NextGEN well understand.

Read other installments of our series “An Exercise in (f)Utility” here: