University of Iowa countersues its private utilities operator

IOWA CITY — On the same day University of Iowa officials asked a federal judge to dismiss a January lawsuit in which its new private utilities partner accused UI of shirking obligations just three years into their 50-year $1.165 billion deal, the university filed its own counter lawsuit against the utilities partner.

The UI lawsuit filed March 31 in Johnson County District Court accused its utilities partner — the “University of Iowa Energy Collaborative” or UIEC — of withholding “critical financial information,” failing to properly perform duties, and inflating fees.

“This dispute concerns UIEC’s refusal to provide critical financial information regarding various aspects of its performance necessary to the accurate calculation of the utility fee, the scope of purported costs eligible for reimbursement … and two performance breach events occurring in the first year of UIEC’s operation of the utility system,” according to the UI lawsuit.

Because the new utilities partner has inflated fees and withheld information, according to the UI lawsuit, administrators have excluded disputed costs — like an unapproved “operator fee” and portions of the collaborative’s CEO and CFO compensation — recalculated amounts due, and made payments “only on the recalculated amount.”

Those university actions, in part, compelled the UI Energy Collaborative on Jan. 26 to sue UI in federal court — accusing the institution of refusing to make payments, rescinding approvals for utility system repairs, refusing to file insurance claims, and wrongfully demanding payment for utility outages.

“UIEC has tried to help the university understand that its position is unsupportable, but after extensive discussions and exchanges of correspondence, the university has wrongfully refused to pay amounts clearly due,” according to the UI Energy Collaborative lawsuit, which UI in March sought to dismiss — arguing it was wrongfully filed in federal court.

The UIEC last week voluntarily dismissed the federal case so it could refile claims in district court. The collaborative has until June 13 to answer the university’s counter suit, which comes three years after UI in December 2019 executed its 50-year arrangement with UIEC.

$1.5 million operator fee in dispute

The collaborative is made up of Meridiam Infrastructure North America Corporation; Hannon Armstrong Sustainable Infrastructure Capital, Inc.; and ENGIE North America, Inc., which agreed to perform day-to-day operations and maintenance of the UI utility system as its “operator.”

In bidding for the project, according to the UI lawsuit, the collaborative “proclaimed that throughout the concession period UIEC would reduce operating costs, improve system efficiency and performance, and reduce emissions.”

“UIEC promised to meet its performance standards in a transparent and partnership-driven fashion,” according to the UI lawsuit.

Among the money in dispute is a $1.5 million “annual operator fee” the collaborative agreed to pay ENGIE. The collaborative argued in its lawsuit that UI should cover that cost, in addition to a $35 million annual “fixed fee,” while UI said the $1.5 million should be included in the larger fixed rate.

“UIEC represented in its RFP response that Engie would perform those functions ‘in exchange for an operator fee,’ which ‘will be $1.5 million annually,’” according to the UI lawsuit. “UIEC did not indicate that it intended to separately charge that sum to the university as an operation and maintenance cost.”

The collaborative, in its lawsuit, argued UI “knew about this operator fee before it accepted UIEC’s winning bid for the P3 concession.”

“UIEC’s response to the university’s request for proposal for the P3 deal expressly stated that the operator would be paid a $1.5 million fee for the ‘day-to-day operation and maintenance of the utility system,’”

The university in its lawsuit said it can’t dig further into the collaborative’s arrangement with ENGIE because it won’t share with UI its agreement with the operator.

'The university has been damaged’

In addition to the operator agreement, UI has accused the collaborative of withholding other financial details and documents and of passing through additional unauthorized expenses — like portions of its CEO and CFO’s compensation packages and relocation costs.

Their agreement, according to UI, limited payment of CEO and CFO costs to those tied to utility system operations.

“A significant component of the duties of each UIEC executive officer relate not to operation of the utility system, but to the operation of UIEC itself as a going concern,” according to the UI lawsuit. “That portion of the employment costs of UIEC’s CEO and CFO is outside the scope of recoverable capped … costs.”

Among its allegations, the university accused the collaborative of inflating capital expenses — adding in things like a “project management fee,” “development fee,” and “risk fee.”

“Given UIEC’s refusal to supply financial details on this issue, though requested by the university … the university is currently uncertain whether it has paid capital expenditure reimbursements that include such improper items,” according to the lawsuit.

The university accused the collaborative and its operator of breaching performance standards twice — including an electrical outage in October 2021 at Spence Labs. Although the operator said the university helped plan the outages, UI in its lawsuit said ENGIE failed to plan with building operators and ignored meeting requests from UI administrators, among other failures.

“UIEC’s failure to properly coordinate the outage reflects a fundamental disregard of the university’s function as a dedicated research institution,” according to the lawsuit. “University personnel conduct experiments at facilities like Spence Labs around the clock, some of which are supported by grants from the National Institutes of Health and other federal and state agencies.

“Adequate advance notice and planning for electrical outages in such a setting is essential.”

Among its requests, UI wants the court to order the private utilities partner to provide all the information it has requested; to find more than $3 million in charges are not eligible add-ons to the fixed fee; and to pay more than $5 million for its performance failures.

“As a result of UIEC’s breaches of the concession agreement, the university has been damaged in an amount to be proven at trial,” according to the lawsuit.

Vanessa Miller covers higher education for The Gazette.

Comments: (319) 339-3158; vanessa.miller@thegazette.com