Education

Updated: University of Iowa closes $1.2 billion utilities deal

Private operator now managing system

Steam rises from the University of Iowa Power Plant last year in Iowa City. The UI this week handed over operation of th
Steam rises from the University of Iowa Power Plant last year in Iowa City. The UI this week handed over operation of the utility system to ENGIE North America in a 50-year, $1.165 billion deal. The public-private relationship is expected to yield additional money for campus initiatives. (Liz Martin/The Gazette)

This article has been updated to include more details provided by the university about the transaction and endowment investment:

IOWA CITY — About 90 days after the University of Iowa signed a $1.165 billion agreement to let a private operator manage its utility system for the next 50 years, the UI this week transferred the system into ENGIE North America’s care.

The UI earlier this month announced most of its utility system employees — 127 of 150 workers — accepted offers to work for the new private provider.

Of the 23 who declined to transition to ENGIE, 17 rejected the offers and six didn’t respond. All those who declined offers will be reassigned to other UI positions or keep their current posts.

The 50-year deal with ENGIE and investor Meridiam will allow the university to invest about $999 million into an endowment,

Interest from that endowment will help pay for initiatives in the UI strategic plan, plus the annual $35 million fee to the operator — which will increase over the years — to cover fuel, facilities and employee expenses.

The university said it had paid off $153 million in existing utility system bonds and $13 million in consulting fees. And it said it has invested the remaining money for the endowment.

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A UI spokeswoman said 70 percent of the money was invested in money market accounts, “which are not subject to the volatility of the investment markets” being seen now amid fears of the effects of the novel coronavirus on the world economy. The other 30 percent was invested in fixed-income accounts.

“Over the next year, the Strategic Initiatives Fund is using a thoughtful and measured approach by allocating capital slowly and systematically from the money market fund into a diverse basket of asset classes,” the university said.

When the deal was unveiled the deal in December, the UI projected pulling more than $3 billion from the endowment over the life of the contract.

That total was a “conservative risk-tolerance” estimate, UI President Bruce Harreld said at the time.

“At the end of the day, if we go through a period of 2007, ’08 and ’09 where we had a credit lockup … we wouldn’t spend the money,” Harreld said then. “That capital can stay in the 501(c)3. And so actually we’ve been planning on $15 million a year on average to come to the university — that would go to zero during that period.”

Should the 50-year partnership allow the university to pull $15 million a year for strategic initiatives, as expected, it would be distributed via grants for teaching, research and other scholarship pursuits.

A copy of the final agreement wasn’t immediately available Friday.

UI officials have said the agreement aims to get the university coal-free by Jan. 1, 2025, if not sooner; explore sources of renewable fuels and incorporate sustainable, lower-cost fuel options into the existing utility systems; and provide a seamless transition for the UI utility system employees.

Students, faculty and staff, per the deal, also will have opportunities to “benefit from experiential learning and innovation via internships, projects and research opportunities in energy and other areas.”

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

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