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Education

University of Iowa has received 'a lot of interest' from outside companies for private-public utilities partnership

'Literally more than 100 teams will come after us for this worldwide'

Steam rises from the University of Iowa Power Plant in Iowa City on Friday, Feb. 8, 2019. (Liz Martin/The Gazette)
Steam rises from the University of Iowa Power Plant in Iowa City on Friday, Feb. 8, 2019. (Liz Martin/The Gazette)

IOWA CITY — When the University of Iowa in February went public with its pursuit of a private partner to operate its utilities system, campus phones started ringing.

“I got 30 to 40 phone calls from companies all over the world interested in learning more about this opportunity,” UI Chief Financial Officer and Treasurer Terry Johnson told dozens of campus constituents Wednesday during an informational session on the potential public-private partnership.

One of the interested entities was Engie, a French multinational electric utility company that two years ago partnered with Ohio State University to operate its utilities system. That’s a collaboration UI officials have cited frequently as a potential model and map for its path forward.

“They reached out to me as one of those firms early on,” Johnson said. “There is a lot of interest — a lot of interest from American companies as well.”

The public-private partnership the UI is exploring would task an outside company to operate its power system for 50 years, securing for the private company decades of reliable revenue — and afford it tax benefits.

In exchange, the entity would pay a large upfront sum that the UI could put into an endowment. The university — which would maintain ownership of its system, along with decision-making power — could pull from the endowment annually to support its core missions of academics and research.

UI officials have kept vague the potential value of that lump sum — although they have noted Ohio State’s partnership with Engie North America and Axium Infrastructure was valued at $1.165 billion, including a $1.015 billion upfront payment and a $150 million commitment toward academics.

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“The key really is the large upfront payment,” Johnson said Wednesday. He emphasized the administration’s message that outsourcing its utilities operation would not save money over the contract’s duration.

Opining on what the UI could expect from an initial lump sum, Johnson projected $350 million on the low end and $1 billion on the high end.

“It’s going to be probably somewhere in the middle,” he said. “Ohio State was over $1 billion, and we are roughly half their size. So is it $500 million?

“Whatever the upfront value is, it has to be significant enough for us to want to take the plunge.”

And UI President Bruce Harreld, who attended Wednesday’s meeting and chimed in throughout, said right now administrators are erring on the side of caution — projecting the deal won’t happen.

“Our operating assumption should be, from this day forward, that we are not going to get this deal done,” Harreld said. “Let’s continue on the path we’re on. So, if we have upgrades, don’t delay.”

Hesitation, he said, could negatively affect the university’s utilities operation and cost more in the long run.

“The mistake we’ll make is that we’ll take this year, pause, and this thing will be a mess and we don’t get it done, and then we’ve got a real problem because we delayed,” he said.

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Senior Vice President for Finance and Operations Rod Lehnertz echoed that sentiment from the academic and research perspective — urging faculty and campus administrators not to expect or include potential endowment revenue in their planning yet.

Still, Lehnertz said, the deal won’t fall through for lack of interest.

“Literally more than 100 teams will come after us for this worldwide,” Lehnertz said. “Those that are at the top of their game, through the (request for proposal), will come into view and be that final eight or final 10 teams that we would engage in the RFP process.”

The university’s forward thinking and best practices in efficiency, sustainability and other areas will make it an appealing partner, according to Lehnertz. And it might tap more than one company for its utilities collaboration, although Johnson said it could be just one.

“One firm approached me a month ago now that basically can do everything,” Johnson said. “They have financial resources, they have operating expertise to do a full-scale utilities system. And the third thing that they said is they also have a construction arm.

“This firm does it all,” he said. “And they are big.”

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

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