Utilities Committee ReviewIllinois 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?

Reported Utility Spends Illinois Public Universities

$0

$20,000,000

$40,000,000

$60,000,000

$80,000,000

$100,000,000

$120,000,000

$140,000,000

$160,000,000

2001 2002 2003 2004 2005

Why is there a Utility Committee?

Risk Equivalent Positions

$40.00 $42.04 $60.54$169.17 $172.44

$1,766.16

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

Heating Oil Natural Gas Crude Oil USD/EURSpot

JPY/USDSpot

3m USDLIBOR

Exp

osu

re (

in m

illio

ns

of

US

D)

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 60607-7054

mpruitt@uic.edu