Justices question LUS parties
Issue of Fair Competition Act argued

By KEVIN BLANCHARD
Published: Nov 29, 2006


Justices of the Louisiana Supreme Court on Tuesday questioned attorneys on both sides of the fight over whether Lafayette Utility System should be allowed to fund its voter-approved phone, cable and high-speed Internet business.

At issue is whether LUS is complying with a law passed in 2004 — the so-called Local Government Fair Competition Act — which sets restrictions on government-owned communications businesses.

Lafayette resident Elizabeth Naquin sued, saying the mechanism LUS proposes to use to issue and repay up to $125 million in communications bonds to pay for the project, runs afoul of the Fair Competition Act.

Specifically, should LUS come up short on a bond debt repayment, its ordinance allows it to borrow money from any source — including its overall utilities or a bank — use that money to make the payment, then repay the loan source at market-rate interest.

The loan would be given under rules passed by the state Public Service Commission and subject to audit.

Naquin’s attorneys argued Tuesday that the system allows LUS to get revenue other than communications revenue to help the project, something they say violates the Fair Competition Act’s prohibition against the overall utilities system “cross-subsidizing” the communications system.

The Fair Competition Act does not allow for LUS to pay off the communications system’s debt with anything other than communications revenue, Naquin’s attorney Stan Baudin argued.

Justice Jeanette Theriot Knoll seemed taken aback by that interpretation of the law because it is normal for a start-up communications business to lose money in the initial years, waiting for enough subscribers to bring in revenue to cover the initial high-cost of building the needed network.

“Would they ever be successful then?” Knoll asked Baudin, who was making the argument supported by the 3rd Circuit Court of Appeal ruling in his client’s favor.
The “scheme” laid out in the Fair Competition Act — as interpreted by Baudin’s argument — is “self-defeating,” Knoll said.

LUS attorney Mike Hebert agreed, saying that when determining what the Legislature intended to accomplish with a law, the court should throw out possible interpretations that would be “absurd.”

The 3rd Circuit and Naquin’s interpretation of the law “creates an impossibility,” Hebert said.

Baudin said the law may be “poorly drafted,” but that’s not Naquin’s concern.

Chief Judge Pascal Calogero Jr. asked about a provision of the law that prohibits LUS from cross-subsidizing its communications business with tax revenue or “below market-rate” loans.

“Doesn’t that mean it’s OK?” Calogero asked Baudin. “If they’re not below market rate?”

Baudin said the law does not allow LUS’ communications system to get any funds from any other entity to pay the “cost of services,” whether “direct or indirect.”

Justice John Weimer asked what would keep the communications system from “spiraling out of control,” if it kept getting loans from overall utilities revenue to pay off bond debt, which is essentially also a loan — which Weimer called “robbing Peter to pay Paul.”

Hebert said while the Fair Competition Act doesn’t prohibit the practice, the PSC would have oversight over the transactions and will have the power to determine what is a permissible loan.

All those transactions would be scrutinized and open for further legal action — should LUS’ own operations be giving a flailing communications system terms on loans it would not be able to get on the open market, Hebert said.

“The fear of some future violation of the act is at best speculative,” Hebert said
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The Supreme Court could rule early next year.

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