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Ohio State Snags $1 billion in Mammoth Energy Management Deal

Ohio State University will turn its energy management for the next five decades over to ENGIE North America in what may the largest such deal ever in America - a harbinger of sweeping changes coming to the electric power business.

Energy costs claim a significant slice of the spending at education institutions, and administrators looking to squeeze more value out of their limited budgets frequently turn to programs promising to use energy more efficiently. As concern about climate issues has taken root among students, employees and the public at large, the importance of conserving energy at schools and universities has become even more significant.

The dilemma for education institutions is that many of them cannot afford the upfront costs of improving the energy systems on their campuses. That’s why many schools and universities enter into performance contracts, in which outside firms identify and cover the expense of carrying out energy-saving initiatives in school facilities. The firms are paid with the savings that the schools realize through efficiency improvements.

Ohio State University has taken the pursuit of energy improvements to another level. The school has entered into a 50-year agreement with a French-based energy company that will provide the school more than $1 billion immediately and give the private company control of the heating and cooling systems in the 485 facilities on the Columbus campus.

University trustees approved a public-private partnership with Ohio State Energy Partners, which consists of energy company ENGIE North America and Axium Infrastructure, an investment firm. The agreement states that the Energy Partners are required to improve energy efficiency on the Columbus campus by 25 percent within 10 years. The university will pay the partnership annual fees over the 50-year agreement.

“This partnership would position us as an international leader in energy and sustainability and further strengthen Ohio State as a national flagship public research university,” says Ohio State President Michael V. Drake.

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Ohio State is believed to be the largest institution nationwide to hire private companies to manage its energy systems on a long-term lease, officials say.

Here are the financial benefits the partnership has promised the university:

  • A $1.015 billion upfront payment to Ohio State. Officials say the school initially will invest the payment into its endowment and target priorities such as enhanced compensation for faculty and staff to support improvements such as more effective teaching strategies; improved classrooms, labs, performance and arts spaces. The payment will result in a more-than-25 percent boost to Ohio State’s $3.9 billion endowment.
  • A $150 million commitment to support specific academic areas, including a $50 million Energy Advancement and Innovation Center, “where faculty members, students, alumni, ENGIE researchers, local entrepreneurs and industry experts work together on the next generation of smart energy systems, renewable energy and green mobility solutions,” the university says.

Also included in the $150 million commitment are $25 million for financial aid; $5 million for internships; $15 million to support sustainability initiatives outside the scope of the main project; $5 million for development of sustainable curriculum; $9.5 million to support five faculty positions; and $40.5 million for university-related philanthropic organizations.

“In total these enhancements would position Ohio State to take immediate and substantial steps forward in faculty excellence, quality of our physical space and as a hub of applied research on energy and sustainability,” OSU Executive Vice President and Provost Bruce McPheron said in an announcement to the campus. “Within 10 years, conservation measures would improve our energy efficiency by 25 percent, reducing our carbon footprint.”

Creating the energy partnership means energy improvements can be carried out on campus facilities without competing with academic and other priorities for scarce funds. Officials estimated that a campuswide conservation project would cost more than $250 million.

“Partnering with companies that have the technical, environmental and financial resources to oversee this work would allow us to focus our capital investments on other priorities,” Ohio State says.

The 50-year length of the contract was important, university officials say, because utility infrastructure upgrades typically have a life span of 30 years ore more.  A 50-year agreement allows the partnership “to take on larger-scale capital projects that would take longer to realize the environmental and financial benefits.”

In return for the funds and improvements that Ohio State will receive, the university will pay the energy partnership a fixed fee that starts at $45 million a year and increases by 1.5 percent per year to account for inflation. It also will pay an operating fee initially pegged at $9.2 million a year, which is a reflection of average operating and maintenance costs on the Columbus campus for the past three years. “This will be adjusted…based on actual costs of the operation,” the university says.

The partnership also will be paid a variable fee based on approved capital investments that it carries out at Ohio State.

The proposal drew some opposition on the Columbus campus from those concerned that the arrangement would eliminate union-represented jobs and create positions created by the outside partners.

Ohio State says that as part of the agreement, the partnership has stated its willingness to hire all 52 affected employees, and some of those could continue to be represented by unions.

“Those who prefer to instead remain employees of the university will be offered alternative positions at Ohio State at their current compensation levels,” the university says.

Mike Kennedy, staff writer, can be reached at [email protected]. This article originally appeared in American School & University, a sister publication of the Energy Times, published by Penton.

 

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