Just three years into the University of Iowa’s landmark 50-year deal for the private operation of its utility system as a way to raise money for education, cracks are emerging in the $1.165 billion agreement, with the operator accusing the UI of “breaching its obligations.”
In a federal lawsuit filed Thursday, the UI Energy Collaborative outlined four main ways the UI was reneging: refusing to pay money it owes; rescinding approval to repair the utility system; refusing to file casualty insurance claims; and demanding payment for “unplanned” utility outages “even though the university’s representatives participated in the very meetings and discussions planning for those events.”
UI spokesman Steve Schmadeke said the UI and its public-private partners “have a disagreement regarding some of the terms and conditions” of the deal.
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“The university has been working with its utilities partner to resolve these differences,” he said in a statement. “We are disappointed that our utilities partner has a different interpretation of the contract and felt the need to file a lawsuit against the university. We are eager for the court to provide us with a clear definition of the contract for both parties to adhere to.”
The agreement dates back four years, when the UI in 2019 announced plans to pursue a public-private partnership for the operation and improvement of its massive utility system — generating enough energy to power a town of 30,000 homes.
Mirroring similar deals at other campuses, like at Ohio State University, the public-private partnership — or P3 for short — involved the UI, a contracted “concessionaire” to develop the system, an operator contracted by the concessionaire to run the system and a group of banks to finance the deal.
The UI launched its pursuit by requesting proposals from prospective private operators, and the winning bid came from a group of foreign- and U.S.-based businesses and individuals — including Meridiam Infrastructure North America Corporation; ENGIE North America Inc.; and Hannon Armstrong Sustainable Infrastructure Capital Inc.
The UI in December 2019 announced plans to pick that group — the UI Energy Collaborative — and closed the deal in March 2020. The collaborative paid the UI an upfront $1.165 billion — of which the university pulled $158.4 million to pay off existing utility system debt; $12.1 million to pay consulting fees; and $8.6 million to cover other related expenses — according to a recent report from the State Auditor’s Office.
The UI deposited the remaining $985.9 million into an endowment administered by a new UI Strategic Initiative Fund — a nonprofit the university created to manage the investment; grant money to the UI “to support concessionaire payments”; and distribute proceeds across campus to advance its strategic plans and purposes.
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UI officials have said they expect to pay about $3.027 billion from the fund over the deal’s duration to cover annual operating costs and to fund up to $15 million annually in strategic initiatives.
In the lawsuit, the collaborative said it “was enthused to partner with the university, and remains fully committed to helping the university meet its sustainability goals and bring its utility system into the 21st century.” But, “for nearly three years now,” UI has “refused to recognize or perform its contractual obligations,” according to the lawsuit.
Payment issues started, according to the suit, when both sides were calculating the utility fee the UI owed for the 2021 budget year. The university, “with its billion dollars now in hand,” started looking for ways to “chip away” the collaborative’s rights.
Specifically, the UI refused to pay certain expenses that were supposed to be included under the definition of “operations and maintenance” costs — a category that covers employee compensation, administrative expenses and maintenance of the collaborative’s credit rating.
“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 lawsuit, pointing to a $1.5 million “operator fee.” That's how much the collaborative owes the private operator — ENGIE Generation North America LLC — for the “day-to-day operation and maintenance of the utility system.”
“The university knew about this operator fee before it accepted UIEC’s winning bid for the P3 concession,” the lawsuit asserts.
The lawsuit also accuses the UI of — among other things — refusing to include in its utility fee the collaborative’s compensation packages for its chief executive and chief financial officers, totaling about $600,000 in 2020 and escalating annually.
As stated in the State Auditor’s investigative report, the university was to pay for operating and maintenance costs — but the collaborative alleged the UI refused to cover expenses related to two utility system components that needed immediate repair.
“The university at first agreed to the repairs and to finance them, but when the components broke before the repairs could be completed … the university reneged on its promises,” according to the lawsuit.
One of those involved “roofs of the main power plant and domestic water production utility system buildings due to age degradation and loss of water tight integrity.”
The collaborative said the UI accepted a proposal and agreed to fund the repair, but before that happened the roofs were further damaged by the August 2020 derecho.
“In mid-December 2020, the university changed its position, and informed UIEC that it was not going to pay for any of the required repair/overhaul for either of the two casualty events or make an insurance claim for the damage,” according to the lawsuit. “In other words, after approving a plan and costs to fix these issues, the university turned around and sought to reverse its approval.”
Countering the collaborative’s demand the UI cover more of its costs, the university has “threatened UIEC with litigation,” according to the lawsuit.
“The university alleges, without merit, that it is entitled to potential key performance indicator compensation under the concession agreement due to alleged unplanned utility outages.” Those outages were actually planned, according to the collaborative, accusing the UI of sending it a notice in June 2021 that a chilled water outage was unplanned and entitled the university to $5 million in compensation.
“The chilled water outage, which occurred in March and April of 2021, was a planned outage,” according to the lawsuit. “The parties discussed the outage repeatedly before it happened, beginning as far back to December 2020. UIEC put the university on actual notice, in writing, of the outage, and the parties actively coordinated and prepared for the outage for months.”
In November 2021, the UI sent the collaborative another notice related to a performance standards another failure for an electrical outage at Spence Labs.
“Like the chilled water outage, the Spence Labs outage was planned,” the lawsuit asserts. “The planning efforts involved multiple meetings between the operator and the university, and are well documented in the correspondence between them.”
The collaborator is asking a judge to not only award it the money it argues the UI owes, but to set the record straight about what its payment should include going forward.
www.thegazette.com
In a federal lawsuit filed Thursday, the UI Energy Collaborative outlined four main ways the UI was reneging: refusing to pay money it owes; rescinding approval to repair the utility system; refusing to file casualty insurance claims; and demanding payment for “unplanned” utility outages “even though the university’s representatives participated in the very meetings and discussions planning for those events.”
UI spokesman Steve Schmadeke said the UI and its public-private partners “have a disagreement regarding some of the terms and conditions” of the deal.
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“The university has been working with its utilities partner to resolve these differences,” he said in a statement. “We are disappointed that our utilities partner has a different interpretation of the contract and felt the need to file a lawsuit against the university. We are eager for the court to provide us with a clear definition of the contract for both parties to adhere to.”
The deal
The agreement dates back four years, when the UI in 2019 announced plans to pursue a public-private partnership for the operation and improvement of its massive utility system — generating enough energy to power a town of 30,000 homes.
Mirroring similar deals at other campuses, like at Ohio State University, the public-private partnership — or P3 for short — involved the UI, a contracted “concessionaire” to develop the system, an operator contracted by the concessionaire to run the system and a group of banks to finance the deal.
The UI launched its pursuit by requesting proposals from prospective private operators, and the winning bid came from a group of foreign- and U.S.-based businesses and individuals — including Meridiam Infrastructure North America Corporation; ENGIE North America Inc.; and Hannon Armstrong Sustainable Infrastructure Capital Inc.
The UI in December 2019 announced plans to pick that group — the UI Energy Collaborative — and closed the deal in March 2020. The collaborative paid the UI an upfront $1.165 billion — of which the university pulled $158.4 million to pay off existing utility system debt; $12.1 million to pay consulting fees; and $8.6 million to cover other related expenses — according to a recent report from the State Auditor’s Office.
The UI deposited the remaining $985.9 million into an endowment administered by a new UI Strategic Initiative Fund — a nonprofit the university created to manage the investment; grant money to the UI “to support concessionaire payments”; and distribute proceeds across campus to advance its strategic plans and purposes.
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UI officials have said they expect to pay about $3.027 billion from the fund over the deal’s duration to cover annual operating costs and to fund up to $15 million annually in strategic initiatives.
In the lawsuit, the collaborative said it “was enthused to partner with the university, and remains fully committed to helping the university meet its sustainability goals and bring its utility system into the 21st century.” But, “for nearly three years now,” UI has “refused to recognize or perform its contractual obligations,” according to the lawsuit.
'Refused to pay’
Payment issues started, according to the suit, when both sides were calculating the utility fee the UI owed for the 2021 budget year. The university, “with its billion dollars now in hand,” started looking for ways to “chip away” the collaborative’s rights.
Specifically, the UI refused to pay certain expenses that were supposed to be included under the definition of “operations and maintenance” costs — a category that covers employee compensation, administrative expenses and maintenance of the collaborative’s credit rating.
“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 lawsuit, pointing to a $1.5 million “operator fee.” That's how much the collaborative owes the private operator — ENGIE Generation North America LLC — for the “day-to-day operation and maintenance of the utility system.”
“The university knew about this operator fee before it accepted UIEC’s winning bid for the P3 concession,” the lawsuit asserts.
The lawsuit also accuses the UI of — among other things — refusing to include in its utility fee the collaborative’s compensation packages for its chief executive and chief financial officers, totaling about $600,000 in 2020 and escalating annually.
'Reneged on its promises’
As stated in the State Auditor’s investigative report, the university was to pay for operating and maintenance costs — but the collaborative alleged the UI refused to cover expenses related to two utility system components that needed immediate repair.
“The university at first agreed to the repairs and to finance them, but when the components broke before the repairs could be completed … the university reneged on its promises,” according to the lawsuit.
One of those involved “roofs of the main power plant and domestic water production utility system buildings due to age degradation and loss of water tight integrity.”
The collaborative said the UI accepted a proposal and agreed to fund the repair, but before that happened the roofs were further damaged by the August 2020 derecho.
“In mid-December 2020, the university changed its position, and informed UIEC that it was not going to pay for any of the required repair/overhaul for either of the two casualty events or make an insurance claim for the damage,” according to the lawsuit. “In other words, after approving a plan and costs to fix these issues, the university turned around and sought to reverse its approval.”
Threatened with litigation
Countering the collaborative’s demand the UI cover more of its costs, the university has “threatened UIEC with litigation,” according to the lawsuit.
“The university alleges, without merit, that it is entitled to potential key performance indicator compensation under the concession agreement due to alleged unplanned utility outages.” Those outages were actually planned, according to the collaborative, accusing the UI of sending it a notice in June 2021 that a chilled water outage was unplanned and entitled the university to $5 million in compensation.
“The chilled water outage, which occurred in March and April of 2021, was a planned outage,” according to the lawsuit. “The parties discussed the outage repeatedly before it happened, beginning as far back to December 2020. UIEC put the university on actual notice, in writing, of the outage, and the parties actively coordinated and prepared for the outage for months.”
In November 2021, the UI sent the collaborative another notice related to a performance standards another failure for an electrical outage at Spence Labs.
“Like the chilled water outage, the Spence Labs outage was planned,” the lawsuit asserts. “The planning efforts involved multiple meetings between the operator and the university, and are well documented in the correspondence between them.”
The collaborator is asking a judge to not only award it the money it argues the UI owes, but to set the record straight about what its payment should include going forward.
UI sued by private utility system operator, alleging contract breach
Just three years into the University of Iowa’s landmark 50-year deal for the private operation of its utility system, cracks are emerging in the $1.165 billion agreement through a lawsuit the private operator filed last week accusing UI of “breaching its obligations.”
www.thegazette.com
