Utilities Committee Review Illinois Board of Higher Education June 5, 2007 The Energy Resources Center College of Engineering University of Illinois at Chicago

The Energy Resources Center A non-profit energy policy research group established in 1973 as an IBHE accredited Research Center. Special expertise in the following areas: –Energy efficient technologies and practices –Combined Heat and Power –Economic Benefits Analysis –Indoor Environmental Quality –Energy Commodity Procurement Manager for the State of Illinois Bulk Natural Gas and Electricity Procurement Program for 26 State Agencies and 16 local municipalities. Energy and operating cost analyst for Capital Budgets OMB

Why is there a Utility Committee?

Utility Committee Scope Procurement –Is there a way to save on buying electricity, natural gas, coal, propane, etc.? Demand Management –How much would be saved if we used less energy? Alternative Capital Resources –Are there others ways to gather capital for investment in energy efficiency? Risk Management –How can we be good stewards and mitigate our individual and collective risks?

Commodity Purchasing Concept: –Joint Purchasing of Energy commodities would capture efficiencies of scale Study Results: –Joint Purchasing could yield marginal benefits to all Universities (~$1mm/annum) –Primary benefits would be the ability to negotiate flexible terms and conditions Developments: –Five downstate Universities did issue and enter an electricity contract via joint solicitation in Fall 2006

Commodity Purchasing Concept: –Prepayment of Natural Gas Supplies to capture supplier discount –Partnership with MHEC Study Results: –Arbitrage definition by IRS makes prepayment discounting arrangements not longer viable for Universities –Universities could only participate if they become recognized municipal utilities Developments: –Abandoned

Demand Management Concept: –Establish an Energy Center of Expertise within the IBHE structure to encourage and provide technical support to Universities seeking to enhance energy operations. Results: –Developed program outline and discussed grant funding from Illinois Clean Energy Community Foundation and generated. Developments: –Decision made to hold request until later date.

Alternative Capital Concept: –Seek changes in state law to allow universities to enter into longer term performance contracts Results: –Reducing energy consumption levels would reduce total costs to Illinois Universities by $ million/annum –State law changed to raise maximum term of performance contracts from 10 to 20 years Developments: –Two University investigating whether longer contract periods can be used to facilitate central plant development

Alternative Capital Concept: –Establish a revolving loan fund or bundled bond issues to support investments in energy efficiency Results: –Several such programs exist in other states –Requires seed capital ($20-50 million) –Requires a minimum level of participation to generate benefits Developments: –Still under development

Risk Management Concept: –Structure a system that allows Universities to purchase price insurance on energy commodities Results: –System is feasible –Some legislative issues must be addresses –Requires a minimum level of participation Developments: –Illinois Finance Authority has committed resources to investigate the procurement code issues –Analysis still underway

Moving Forward Observations: –Energy prices will be high and volatile for another 8-10 years –Significant energy project funding for energy appears remote –Higher education has internal and practical energy expertise –Universities prefer plans that meet individual needs –Investments in energy management and efficiency are hindered by lack of access to expertise and capital rationing –There is an appetite for “sustainability”, “efficiency”, and “green” initiatives among students and policy makers

Moving Forward Recommendations for IBHE: –Recognize that energy is a priority for the Board –Minimize the risks and costs associated with undertaking energy projects at the University level –Avoid a cookie cutter approach –Three core requirements of a successful program: Leadership Incentives Commitment

Thank You Please forward comments and questions to: Mark Pruitt Energy Resources Center 1309 South Halsted Street (M/C 156) Chicago, Illinois