Who are Bernhard Capital Partners and why do they want LUS?

Claire Taylor | The Daily Advertiser

Show Caption Hide Caption Jim Bernhard's LUS management pitch Jim Bernhard Jr. of Bernhard Capital Partners made his pitch to manage Lafayette Utilities System to the Lafayette Rotary Club Aug. 23, 218.

Jim Bernhard Jr. may not be a household name in Lafayette, but lots of people in Baton Rouge and around the globe know his former company, The Shaw Group, which he founded and grew into a Fortune 500 company.

A former chairman of the Louisiana Democratic State Central Committee who served on Gov. Kathleen Blanco's transition team, Bernhard built a pipe fabrication business into a $3 billion company awarded hundreds of millions in Defense Department contracts and no-bid contracts after Hurricane Katrina.

Bernhard was in the running for Energy Secretary under President Barack Obama and has toyed with the idea of running for governor on several occasions.

Since 2015, Bernhard and his new private equity firm, Bernhard Capital Partners, have been gathering investors and acquiring energy-related companies across the country. BCP recently raised more than $1 billion in investments after an initial $750 million offering in 2015-16.

Now Bernhard and a team of executives who followed him from The Shaw Group plan to invest $15 billion buying and managing municipal utilities in the Southeast, including Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, North Carolina, South Carolina and Tennessee.

BCP is interested in managing and operating Lafayette's city-owned electrical system, and possibly the sewer and water systems, too. They say they can operate LUS more efficiently than the city, invest in improvements and freeze rates until 2021.

RELATED: Bernhard says LUS management proposal two weeks away

In exchange, the company would give the city a one-time payout of about $246 million and assume more than $200 million of outstanding LUS debt while keeping most of the revenue LUS generates, according to a preliminary proposal.

A final proposal with more detail is expected to be presented to Lafayette Mayor-President Joel Robideaux in about two weeks.

BCP will create a new utility management company, NextGen, to oversee their new acquisitions. Two cities — Lafayette and one from another state — are in the running to host NextGen's headquarters where 1,000 people, most local, would be employed.

First, there was The Shaw Group

Bernhard, at a Lafayette Rotary Club presentation Aug. 23, said of the two cities being eyed for Next Gen's headquarters, he prefers Lafayette, where he has personal ties.

Although Bernhard lives in Baton Rouge, his parents and siblings call Lafayette home.

His grandfather started Bernhard Mechanical in Lafayette in 1919.

Bernhard was born in Baton Rouge, but his family moved to Lafayette when he was young. He attended Edgar Martin Middle School and graduated from Cathedral Carmel High School. He earned a bachelor's degree in construction management from LSU in 1976.

Bernhard became vice president and general manager of Sunland Services, a pipe fabrication and industrial construction company.

Around 1986 or 1987, he and two friends spent $50,000 to take over the assets of a bankrupt pipe fabricator when Louisiana's oilfield was struggling to recover from a major downturn.

He built the company into The Shaw Group largely by acquiring other companies, the first of which was B.F. Shaw, and by moving into the design, construction and operation of plants and energy companies, including nuclear.

In 1993, the company's common stock was first listed on the NASDAQ national market. Bernhard was president, CEO and chairman of the board.

The company continued to expand in the 1990s, acquiring fabrication and pipe companies, including companies in The Netherlands, Venezuela, the U.K. and Australia, and grew into the construction and engineering areas.

In 2000, Shaw ventured into the utility industry, partnering with Entergy to create EntergyShaw to build power plants.

Shaw continued to grow through the 2000s, entering joint ventures with construction companies in Iraq, Kuwait and Saudi Arabia.

Shaw's venture into nuclear construction

Shaw entered the nuclear power business in 2000 when it acquired Stone & Webster, an engineering, procurement and construction company.

Acquiring Stone & Webster gave The Shaw Group the credibility it lacked in the nuclear power construction business. As a result, Shaw — a minority owner of Westinghouse — won all of Westinghouse's contracts.

In 2008, The Shaw Group and Westinghouse, alongside Gov. Bobby Jindal, announced plans to build at the Port of Lake Charles a $120 million plant to manufacture prefabricated components for the AP1000 nuclear reactor. Components would be shipped and assembled at the nuclear plant site. It was an untested process in the United States.

Westinghouse, a subsidiary of Toshiba, selected The Shaw Group in 2008 to build nuclear reactors in Georgia and South Carolina.

The projects encountered many problems, including Westinghouse's design, Nuclear Regulatory Commission regulations and required design changes, even with the soil at the Georgia site.

The NRC requested an internal review of the Lake Charles facility just seven months after it began producing components for the nuclear plants, Reuters reported.

A Shaw executive wrote in response, "The level and effectiveness of management oversight of daily activities was determined to be inadequate based on the quality of work."

Deficiencies the Shaw executive listed ranged from the company being unable to separate improperly made parts to incorrectly storing construction materials, Reuters reported.

"Over the next four years, regulatory and internal inspections at Lake Charles would reveal a slew of problems associated with the effort to construct modular parts to fit the new Westinghouse design," Reuters wrote.

In September 2011, Shaw announced it would sell its 20 percent share in Westinghouse back to Toshiba.

Bernhard said the company exited the nuclear field after the Fukushima, Japan, disaster in March 2011.

"After Fukushima," he said, "we didn't think nuclear would be acceptable to people in the United States."

Bernhard also claimed he left the nuclear construction business before problems surfaced at the Georgia and South Carolina companies.

Connections between Bernhard and Gov. Kathleen Blanco

During the 2003 Louisiana gubernatorial race, Bernhard supported Louisiana Attorney General Richard Ieyoub. When Ieyoub failed to make the run-off, Bernhard and his family donated at least $35,000 to Kathleen Blanco, and the Lafayette Democrat won. She took office in January 2004.

Bernhard co-chaired Blanco's transition team and, according to a Jan. 24, 2005, Gambit story, "hired her campaign manager and political protégé, attorney Jeff Jenkins" to work at Shaw.

Jenkins is now co-founder of Bernhard Capital Partners, the company interested in LUS. He tells The Daily Advertiser his grandmother grew up in Lafayette. His wife and his wife's parents are from Lafayette and his father previously lived here.

Under Blanco's administration in 2004, Louisiana lured a Union Tank Car manufacturing facility away from Texas with a $30 million state subsidy. The company awarded The Shaw Group the contract to design and build the facility, drawing criticism from Shaw competitors who weren't allowed to bid. All parties denied Blanco influenced the selection of Shaw, according to published reports.

In January 2005, Bernhard was elected chairman of the Louisiana Democratic State Central Committee with Blanco's support. He had never held an elected office or Democratic party position, The Advertiser reported at the time.

Blanco's husband, Raymond, in January 2005, stirred controversy when he flew to the Capital One Bowl in Orlando, Florida, on The Shaw Group's private jet. He was accompanied by an executive of Shintech, which was planning a $1 billion PVC plant in Louisiana, a construction contract Shaw was interested in winning.

At the time, Blanco denied any political favors were involved.

"It's no secret the governor and I have a relationship," Bernhard told the Advertiser at the time. "It appears bad, but it's not unethical."

The Shaw Group, Bernhard said, was an aggressive company and he wouldn't apologize for that.

In August and September of 2005, tragedy struck Louisiana in the form of Hurricanes Katrina and Rita.

Blanco was governor at the time. Shaw cashed in.

The company secured no-bid contracts from the U.S. Army Corps of Engineers and FEMA worth more than $200 million to repair the breached levees that flooded much of New Orleans, pump water out of the city and to help with emergency housing and cleanup.

At the time, The Shaw Group employed as a lobbyist Joe Albaugh, a former FEMA director and former national campaign manager for the 2000 Bush-Cheney campaign, according to The Washington Post and Newsweek. Albaugh said at the time he was not involved in securing the contracts for Shaw.

Jim Bernhard sells Shaw

After building The Shaw Group into a $3 billion company, Bernhard brokered its sale to Chicago Bridge & Iron, a Dutch company. The sale was finalized in February 2013.

Motley Fool Blogger Benjamin Ra, in March 2015, called Shaw "a hodgepodge mix of substandard companies clobbered together by an ambitious management." The company at the time of the sale, he added, "was saddled by a portfolio of money-losing nuclear contracts."

Bernhard departed the company with more than $20 million in cash, $15 million in equity, more than $18 million from a senior executive retirement plan and, according to several sources, use of a private plane for 10 years.

Several of Shaw's senior executives left with Bernhard. Despite a two year non-compete agreement with CB&I, they formed two venture capital businesses in Delaware: Shaw Capital LLC and Shaw Capital LP.

The Shaw Group sued, alleging the Bernhard group was trying to capitalize on the Shaw name, The Advocate reported. The Bernhard players agreed not to use the Shaw name.

New equity firm raises more than $1 billion

BCP's Energy Services Fund closed its initial equity sale in Spring 2016 having raised more than $750 million in capital commitments, SEC filings show.

BCP Fund II LP in 2017 filed a notice of intent with the SEC to sell $1 billion in equity. According to The Baton Rouge Business Report, the company raised $1.2 billion in less than a year.

The company manages several billion dollars, making it the largest private equity firm in Louisiana, Bernhard said.

The company's investors include some of the world's largest pension plans, Harvard Endowment, University of Michigan, Mayo Clinic, United Auto Workers and Electronics International.

"They invest money with us and we in turn invest it into companies, as well as businesses like LUS," he said.

BCP had four portfolio companies by June 2016. They included Epic Piping, ATC Associates headquartered in Lafayette, Bernhard LLC and Brown and Root.

ATC Associates is an environmental consulting and engineering firm whose national business headquarters is in Lafayette, Jenkins said. The company employs about 100 people in Lafayette and 2,500 across the country.

Bernhard LLC includes Bernhard Mechanical, the company Jim Bernhard Jr.'s grandfather created nearly 100 years ago, and E.P. Breaux Electrical, based in New Iberia, Jenkins said, which has a significant presence in Lafayette, as well.

Today, BCP has seven portfolio companies in the energy services sector, according to The Business Report. The company took one of its companies, Charah Solutions, public on the New York Stock Exchange in June.

Moving into the electric power business

Bernhard and Jenkins now are turning their attention to the electric power sector, with plans to invest $15 billion in coming years to purchase or manage utility companies such as LUS throughout the Southeast.

“In the last several years we’ve been investing in energy services companies, heavily on power and environmental and energy service,” Jenkins told The Advertiser.

Earlier this year, Bernhard Capital Partners acquired electrical contractor W.A. Chester from Exelon. W.A. Chester installs, maintains and repairs underground high voltage electric transmission lines and distribution systems.

RELATED: What would Lafayette get for LUS?

While BCP does not manage any city-owned electric systems, its management team is experienced in the regulated utility sector, including Cleco and Exelon, Jenkins said. LUS is not regulated by the Public Service Commission because it is owned by the city.

Bernhard said BCP is the largest builder of power plants in the world and is the largest maintenance contractor — from nuclear to coal plants — in the United States.

"We're not in the utility business," Bernhard said. "But at the end of five years, we'd be larger than Entergy."

Off to a rocky start in Lafayette

When news leaked in July about the possible sale or management of LUS, it caused a stir in the city and among City-Parish Council members, who were left out of the conversation.

Residents: Don't give up management of LUS

In April, Robideaux signed a letter of intent with BCP, allowing the company to review internal information about LUS with the ultimate goal of a proposal to manage the electric division. Since then, the company also is reviewing the water and sewer operations, too.

Since July, Bernhard and Jenkins have been meeting with movers and shakers in town, including at least two meetings with OneAcadiana leaders.

They haven't attended a council meeting, where they would have to answer questions in public, and Robideaux said last week it was decided it would be best to present to the council when the final proposal is complete. That may not be until September or later.

Bernhard's ties to Robideaux have raised questions about the motive behind entertaining an offer to enter into a long-term — at least 20-30 years — contract to manage LUS, which is considered the golden goose of city operations.

Long-time LUS Director Terry Huval, upon his retirement in July, questioned the wisdom of selling, leasing or outsourcing management of the city-owned utility.

Bernhard and its affiliates donated at least $7,500 to Robideaux's campaign since 2015, according to campaign finance filings with the Louisiana Ethics Administration.

An affiliate of the company, Bernhard Capital Partners, is a client of lobbyist Tyron Picard who owns The Picard Group in Lafayette.

Former state Sen. Mike Michot of Lafayette, a long-time friend of Robideaux who served in the state legislature with the mayor-president, works at The Picard Group. Michot also served on Robideaux's transition team.

Robideaux, in a November 2015 news release announcing his transition team, said neither Michot nor The Picard Group would be awarded any contracts with Lafayette Consolidated Government.