After a tumultuous year on LSU’s campus, an effort to modernize the energy systems that the university pays $32 million a year to power has become mired in controversy, with the LSU Board of Supervisors repeatedly postponing votes over which company should land the lucrative contract.
It’s been a rocky process from the start, one that has grown increasingly tense as the board has punted on two votes over the deal that it had planned to schedule before the end of the year. Neither ever became firm enough to be listed on a public meeting agenda.
An early irregularity that helped to sow the current turmoil happened months ago, when the Board of Supervisors voted against the recommendation of its staff, which had proposed a wide-open public bid process to get the best deal to heat and cool LSU’s campus. Instead, the board chose to negotiate directly with two companies with ties to LSU: one, a joint venture involving the wealthy Baton Rouge businessman Jim Bernhard; the other, a Canadian company that already provides energy services for the LSU Health Sciences Center in New Orleans.
Since then, the competition over the massive contract — which several board members described as having a value of $855 million over decades — has grown increasingly fierce. Five Board of Supervisors members told The Times-Picayune and The Advocate that LSU staffers have tried to steer them toward the Canadian company, Enwave, which offered a less expensive deal but may also lack a necessary license to do the work.
Bernhard, however, wields immense political power and ties to LSU and its football program, and board members said that’s made him a controversial choice for the contract. He seems to want the deal badly: In fact, he turned down an invitation from Gov. John Bel Edwards to serve on the Board of Supervisors that would have prevented him from getting the energy contract. Meanwhile, Bernhard Energy Solutions has partnered with Johnson Controls Inc. for similar projects, creating a new entity called LA Energy Partners. And they also formed a subsidiary called Tiger Energy Partners specifically to vie for the LSU contract.
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The new joint venture is trying to knock Enwave out of the ring with a complaint to the Louisiana State Licensing Board for Contractors over Enwave’s lack of a license — though the newly formed Tiger Energy Partners also lacks a license in the joint venture’s name. The history of Bernhard-connected companies with LSU, meanwhile, may also be cause for concern. LSU wound up in a yearslong legal dispute after signing a similar energy-efficiency contract in 2003 with Bernhard Mechanical, then run by Bernhard’s brother Kenneth. LSU argued that Bernhard Mechanical was overcharging the university through a controversial cost-savings formula.
While the Board of Supervisors now appears poised to make a decision in 2021, several members who spoke to The Advocate on the condition of anonymity said there are three options on the table: starting negotiations with one of the two competitors or simply starting the process all over again. Bernhard and Enwave did not return messages for this story.
In early March, before coronavirus cases exploded and upended the priorities of colleges everywhere, interim LSU President Tom Galligan said the energy deal was an important one for the university. He said LSU needed stability in its energy costs and that the consulting firm KPMG would help to chart the best path forward.
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“Bidding is usually not a bad thing,” Galligan said at the time.
Choosing an energy company
The infrastructure that heats, cools and provides power to campus has become increasingly expensive as it ages, and LSU’s frequent funding cuts from the Legislature have prevented the university from completing maintenance and upgrades along the way. That’s been costly at times, like when LSU in 2018 had to replace a cooling tower on short notice and rent temporary chillers, resulting in a surprise $4.5 million bill.
The KPMG consultants recommended that LSU use a public-private partnership involving the university, a foundation and a private company to help modernize campus energy systems. LSU would lease its central plant and other infrastructure to the LSU Real Estate and Facilities Foundation. The foundation would enter into an agreement with a company — like Bernhard or Enwave — that would help modernize and maintain the systems with private, upfront money, and LSU would pay them back later on.
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Bernhard has come to specialize in such energy-efficiency contracts with other state and local entities. The state struck a $54 million deal last year with the Bernhard-Johnson Controls joint venture, LA Energy Partners, for energy upgrades at 31 state buildings.
That agreement set up a framework for universities and other state agencies to opt into similar deals with LA Energy Partners without a public bid process. The original agreement was struck as multiple campuses within the University of Louisiana system were looking to upgrade their energy systems.
Bernhard, a friend and a top donor to the governor and other Democratic politicians, has long argued that Louisiana businesses like his should get preference in the awarding of major state contracts. A Bernhard Capital Partners official and several LSU Board of Supervisors members asked for an analysis of the LSU energy deal from Jim Richardson, an economist and LSU professor, with an eye toward how it might include indirect economic benefits for the state. Richardson, who has long conducted studies on state government contracts and tax incentives, sent a response on Christmas Eve, encouraging board members to focus on cost and on the project itself.
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“Any project on the LSU campus will have some indirect economic impacts (some good such as employment opportunities and some bad such as additional expense for LSU students and their families), but, in focusing on the choice, the focus should be on the project, the project, the project,” Richardson wrote.
He wrote broadly that any work done within Louisiana, including engineering, environmental and other professional services would have ripple effects, and that every $1 million spent in the state leads to an estimated 15 net jobs being supported through the state’s economy. But his assessment did not lay out a specific benefit from using a Baton Rouge company.
"Both firms, they have to give the best product," Richardson said. "What we're buying is an energy system. It's got to be the best one to buy."
A long shadow over LSU
Edwards tried to appoint Bernhard to a coveted seat on the 16-member LSU Board of Supervisors this summer, but Bernhard declined the offer without explanation. Had he taken it, his companies likely could not have made the energy systems pitch to LSU because of state ethics rules governing conflicts of interest.
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Even without serving on the board, Bernhard has cast a long shadow over LSU. As LSU police investigated allegations two years ago that LSU football wide receiver Drake Davis had abused his girlfriend, several witnesses in the case told police that they feared coming forward because they feared retribution from Davis’ powerful adoptive father — Bernhard. Bernhard has said he did not threaten any retaliation in the case.
Bernhard also touted in a 2015 news release that a cogeneration plant his companies built on LSU’s campus “continues to help reduce LSU’s energy expenses by millions of dollars annually.” But LSU attorneys said the opposite in 2006, when the university and Bernhard Mechanical sued one another over the plant.
LSU claimed the cogeneration system meant to save money actually increased the university’s utility bill by more than $2 million a year. LSU attorneys said then that Bernhard had promised energy savings totaling between $7 million and $44 million over 20 years.
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“Since the cogeneration system began operation in late December 2004, the cost of operating the system has exceeded by more than $2 million what the same energy would have cost LSU had the new system not been built,” LSU’s attorneys alleged.
Bernhard Mechanical argued at the time that its new plant had resulted in LSU using less fuel, but that the price of fuel had increased, which was beyond the company’s control. The company also claimed that LSU owed them more than $800,000 to pay for change orders during construction, based on an engineering panel’s review. And the company said it was entitled to nearly $5 million in energy savings costs.
The LSU-Bernhard lawsuit was settled in 2010, when LSU agreed to take ownership of the power plant to eliminate maintenance fees, and to pay Bernhard $9.6 million over four years, far less than the $24 million that LSU could have owed over 16 years had the contract remained in force.
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The imbroglio also spawned one of the state’s most notorious Ethics Board cases. Former state Sen. Rob Marionneaux, D-Grosse Tete, was accused of trying to steer public money toward a settlement that would have covered a contingency fee for himself that LSU’s lawyer pegged at $1 million. Marionneaux resolved the case 10 years later, copping to far less serious charges of failing to properly fill out forms disclosing his role in a case involving the state. Earlier this year, he updated those forms, and the Ethics Board dropped its case.
If Enwave’s lack of a state contractor’s license winds up shutting the firm out of the LSU energy deal — as appears likely — it still might not guarantee a contract for Bernhard’s Tiger Energy Partners. Board members could start negotiating with Tiger Energy Partners, or they could choose to start over.
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Tiger Energy Partners might also find itself a victim of its own strategy to sideline Enwave. While Bernhard LLC and Johnson Controls both separately have licenses from the Louisiana State Licensing Board for Contractors, their joint venture does not, according to the board’s online records. The issue now facing the supervisors is whether Tiger Energy Partners made the bid or whether the two firms, both of which has the proper licensing, made the bid.
If it’s the former, then both bidders — Enwave and Tiger — would lack the required license. If the latter, then the Bernhard-Johnson joint venture would have the licenses and be the only bidder that meets the criteria.