Friday, May 25, 2012

"Durel – Huval Defend LUS Fiber Earnings"

 Yesterday morning, the day after a questionably crafted story:  Audit: LUS Fiber lost $45,000 a day ran in the Advertiser Durel and Huval got up early and went to KPEL's ‘Mornings With Ken & Bernie’ show to dispute the report.

The online recording shows Durel opening the segment by saying that the "headline was so misleading and distorted" that he felt compelled to clarify. The audit took place early in the new ventures life; when LUS Fiber was about 2 years old and long before there plan called for a break-even point. The audit was the 2010-2011 fiscal year starting  on November 1st so the data in was between 18 and 6 months old when it was presented to the council so things have changed. Even working with the old figure Durel and Huval point out that 2/3rds of the scary 45,000 dollars was in "basic depreciation." They explained it by analogy to new car depreciation— the value lost through depreciation is an accounting tool that deals with what you can sell the asset for; it does not mean that the actual assets are worth any less to the user or that that much real money is being poured into the business.

Part of what has changed is that LUS Fiber has continued to grow since the auditor closed his books. The new venture is now raking in 57% more revenue and has 50% more customers on its books than it did last year at this time. Those are the kind of growth figures that any start-up would be thrilled to have in year 3.  And that sort of growth has important consequences: without depreciation LUS Fiber has turned a very real corner and as of the April books is taking in in excess of 2 million dollars a month and can pay both debt service and operating expenses out of current revenues. Pause for a second: this is very big news.  It means that there is no further drain on borrowed money. From here on in they simply have to keep expanding and start saving for the inevitable periodic upgrades. Baring an unlikely contraction in the user-base the community can consider that their new utility has turned the corner. To quote Huval: "We did what we said we were going to do..." and LUS Fiber is "On the path of being a very self-sufficient business."

This whole process is not a new one for Lafayette. Huval, at one point in the interview, read from a 1901 newspaper article—6 years after LUS' electrical utility was launched—that bemoaned the constant drain on the city's coffers but offered encouragement about the services and savings from which the community benefited. Starting up a capital-intensive utility has always been a tough business.

In a short aside Huval also mentioned that of the 25 million dollar loan portion of the total debt that LUS Fiber took from the larger utility business that almost all of it was a cost forced on the utility by state law—it was a transfer of fiber already bought and paid for by LUS to the new division. Only 5.8 million was anything like what we conventionally mean by a loan and even a portion of that covered the same law's "imputed taxes"—a state-imposed injustice of which regular readers will be familiar. The Louisiana legislature's subservience to corporate interests was not a new feature developed during the current legislative session.

Durel wrapped up the discussion with his take on what drove some people to oppose the fiber plan: basically "ideology." He said: "There are people driving this that just want LUS Fiber to fail." But he claimed that not only was the fiber network going to pay for itself but it was going to make money, save customers money, and put money into the general fund. That's certainly been our experience with the electrical and water utilities.



*Do take the time to listen to the interview on KPEL. There's even a great radio pic of Durel and Huval. But be aware that the audio is locked up in a pretty nasty Adobe wrapper that will not let you access it directly or start and stop the feed. Just let it play; I went through several irritating restarts of the lead-in music when I tried to pause the download to take notes. Beware. Be patient.

** I'm going to take a moment to complain: today's good news that the utility is going cash flow positive is really, honestly, GOOD news. LUS Fiber has turned a very important corner and from here on out the chance of failure is vanishingly small. But the public is not getting the message that it should. LUS is simply not handling its PR very well. This should have been announced at press conference where the city and our utility could present it cleanly as the high point that it actually is. Having it come out in an early morning radio session under the shadow of an article like the Advertiser's is poor message management. Frankly I think that is mostly due to an excess of silence; those running the utility are engineers, not marketers (and thank heaven for that) but their instinct that not talking about the utilities successes or failures is always to be preferred simply leads to situations like this one.

***Early on I criticize about the Advertiser article that touched this off. You can find that article on the Advertiser site until it goes behind a paywall and you can find my longer critique on the blog.

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