Louisiana will enter into a complex agreement that could lead to the widespread privatization of energy systems at state agencies and universities throughout the state, after lawmakers reviewed the deal for a final time Tuesday.
Gov. John Bel Edwards' administration struck the deal with LA Energy Partners, a joint venture between Johnson Controls Inc. and Bernhard Energy Solutions, one of several companies controlled by Baton Rouge businessman Jim Bernhard.
The company will lease chiller systems at the Shaw Center for the Arts, a state-owned building in downtown Baton Rouge, from the state for $3 million over 20 years. The state will then buy back the chilled water — used to cool the building — for $6 million. The firm will also make energy upgrades at 31 state buildings, including the State Capitol, Governor’s Mansion and state Supreme Court building, in exchange for $54 million.
Aside from the cash, LA Energy Partners will also make money selling the extra chilled water to other companies, who use it to cool their commercial buildings, in downtown Baton Rouge.
However, the deal is not limited to those buildings. The agreement lets state agencies and universities opt in to similar deals with LA Energy Partners, which sets the stage for the company to land contracts with potentially several other entities. If those schools or state entities want to privatize their energy systems, they would not have to go through a public bid process to find a company to hire. Instead, they could contract with LA Energy Partners using similar terms outlined in the state deal.
The contract calls for LA Energy Partners to make a 5% return on equity for the state deal, as well as an 8% return for subsequent deals with other entities.
“We're satisfied it's very much a positive for the state,” Commissioner of Administration Jay Dardenne said following a Joint Legislative Committee on the Budget hearing. “But it's a unique arrangement, and that's why it took so long to negotiate.”
Dardenne said the company has already reached out to Southern University and Northwestern University to pitch similar deals. The deal will be signed in the “very near future,” he said, after the budget committee reviewed it for the second time Tuesday. The administration made several changes at the behest of lawmakers, giving the legislative auditor oversight over the deal and clarifying the contract will end if lawmakers don’t appropriate the money.
State officials have said they believe energy savings from the improvements at state buildings will offset the millions in costs. The initial deal lasts 20 years. The total “net public benefit” to the state will be about $18.8 million, the Edwards administration estimates.
Bernhard Energy Solutions partnered with the HVAC company Johnson Controls at the request of the Edwards administration after both firms submitted proposals to the state. Bernhard Energy Solutions is one of several companies controlled by Bernhard Capital Partners, a private equity firm run by former Shaw Group chief executive and Democratic Party official Jim Bernhard, who was floated as a potential candidate for governor before ruling it out last year.
Another Bernhard Capital Partners firm, NextGen Utility Systems, tried to take over the Lafayette Utilities System last year before backing out amid a public outcry from residents.
Former Gov. Bobby Jindal’s administration initially proposed privatizing some state-owned chiller systems several years ago. The Edwards administration revived the idea shortly after the governor took office.
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