University of Iowa picks French companies for utility lease

IOWA CITY, Iowa (AP) — The University of Iowa’s board on Tuesday awarded a consortium of French companies with a 50-year contract to operate its utility system in exchange for a $1.165 billion upfront payment that it hopes will help improve its middling national rankings.

The Iowa Board of Regents selected a venture jointly owned by global energy company ENGIE and asset manager Meridiam for the school’s utility system lease, which could bring the new company more than $6.8 billion in payments over 50 years.

The venture, called the Hawkeye Energy Collaborative, will pay the school $1.165 billion upfront that will be invested in an endowment. It beat out three other investment groups that made bids that proposed smaller upfront payments.

“This is an historic day for higher education in Iowa,” Gov. Kim Reynolds told the regents before the vote. “The University of Iowa has a bold strategic plan and this initiative will provide supplementary revenue to support it.”

Reynolds had challenged the regents and the universities they govern last year to find ways to “leverage their assets” to finance their operations. She said that similar partnerships with private companies should be considered across state government.

Critics of the plan, including Democratic state Sen. Joe Bolkcom of Iowa City, have called it a risky approach that is necessary only because the Republican-controlled Legislature has failed to fund higher education adequately.

They also attacked the university for withholding details from the public, including the winning bidder’s identity and an 1,800-page lease agreement, until minutes before Tuesday’s vote.

The secrecy continued even after the vote. The university said that it would not release the identities of Iowa-based investors who are expected to put in 21.5 percent of the private financing for the venture, saying the bidders considered those details confidential trade secrets.

Rebutting criticism, Reynolds and the regents praised University of Iowa President Bruce Harreld and his staff for the due diligence and campus discussions that went into the deal.

“It was a massive undertaking and they did a remarkable job,” Board President Michael Richards said.

He said the companies had a solid track record of experience, noting that ENGIE is involved in a similar partnership at Ohio State University.

ENGIE CEO Isabelle Kocher said her company would work to improve the system’s “efficiency, cost, and performance, both operationally and environmentally” in coming decades. Meridiam CEO Thierry Deau said the university would become a “landmark clean energy campus community for future generations.”

Richards said the agreement will allow all 120 university utilities employees to get jobs with the new operator or elsewhere in the university and potentially move up the university’s pledge to stop burning coal at its power plant from 2025 to 2023. In addition, the new partner will support internships in Belgium and France and on the university campus.

The arrangement will be successful if the university can show “discipline” in managing the windfall, he said.

The regents voted Tuesday to use part of the upfront payment to pay off the university’s outstanding $153 million utility system debt. After paying roughly $13 million to consultants that helped put the deal together, the university will put the remaining $1 billion into an endowment controlled by a new nonprofit group.

That group will use about $15 million of the money annually to award grants to projects that advance the university’s strategic goals, including improving its student retention and graduation rates and increasing faculty research. Harreld has blamed a lack of progress in those areas for harming its national standing.

The endowment will also be used to subsidize payments to the new utility operator so that campus users do not face price increases.

The new nonprofit will also oversee the strategy for investing the funds in the market. Over 50 years, the university projects that the endowment needs to generate $3 billion in cash flow in order for the plan to be successful.

Given historical market trends, Regent David Barker of Iowa City said the risk that the investment will not create enough money was small while the likelihood of having more for academic programs was high.

“Doing nothing is also a risk,” he said, noting the university’s funding and competitive challenges.

The university will pay Hawkeye Energy Collaborative a fixed fee that begins at $35 million annually and begins rising by 1.5 percent in 2026. The university will also pay for its employees to run the plants, the cost of buying fuel and other maintenance and operations expenses. In addition, it will reimburse the company for the costs of capital improvements. A university slide shown last week that the payments could exceed $6.8 billion over the life of the deal.

The operator will be responsible for running plants and infrastructure that distribute electricity, water, steam and compressed air to campus buildings.