- The University of Iowa has entered into a 50-year agreement with two French companies to operate and maintain its utility systems.
- Under the plan, which the state's board of regents approved this week, the university will receive an upfront payment of $1.165 billion from the partners and pay them an annual fee starting at $35 million that increases 1.5% each year after the first five years. It is expected to generate $15 million a year to be used toward the university's strategic priorities.
- The deal is similar to a utility management arrangement struck by Ohio State University in 2017, and it comes as colleges weigh the merits of working with outside partners to manage campus infrastructure.
One of U of Iowa's new partners, Engie North America, is also working with Ohio State on its 50-year energy management program. In 2017, Ohio State transferred the operation of its heating, cooling and electricity utilities to a joint venture that includes Engie. The university received $1.015 billion upfront, as well as $150 million to spend on academics. Like Iowa, it pays its partner an annual fee that increases with inflation.
The setup lets Ohio State prioritize spending on academics while still working toward its sustainability goals with the help of a partner's expertise.
"Instead of spending (our capital) on infrastructure, we do pay it back in terms of annual fees but not in terms of our upfront capital costs," Rob Messinger, a university spokesperson, told Education Dive earlier this year.
The partnership aims to help Ohio State improve its energy efficiency by 25% in a decade and become carbon-neutral by 2050. Similarly, Iowa expects its partnership will allow it to implement cleaner, lower-cost energy sources and turn its energy production coal-free by 2025.
Yet U of Iowa's and Ohio State's partnerships are outliers among the ways colleges and universities are working with outside firms to manage campus utilities and other infrastructure, analysts told Education Dive in our review of the trend earlier this fall.
More commonly, institutions work with a partner to develop or redevelop a single utility. Dartmouth College, for instance, is soliciting help to replace its campus heating system with a more efficient alternative, helping it toward its goal of getting all of its energy from renewable sources by 2050.
Campus facilities and infrastructure are among the top interests for colleges considering such a partnership, according to one recent survey. And they are expected to "proliferate" in the coming years as colleges upgrade their utility infrastructure, analysts from Moody's Investors Service wrote in a recent report.
But large deals like Ohio State's and Iowa's also show how colleges are looking at ways to monetize noncore assets.
Of the $1.165 billion U of Iowa receives, $153 million will be used to pay off existing debt, and $13 million will cover consulting fees. The rest, around $999 million, will be put into an endowment. The anticipated proceeds of the endowment are expected to be about $15 million per year and will be available for projects that support the university's strategic priorities. The university will pay the partners $35 million annually, though it will continue to own the utility infrastructure.
Iowa City Press-Citizen reported that an endowment of this size could yield more than $3 billion over the contract's 50-year duration.