Louisiana is moving toward entering a complex deal with a company controlled partly by Baton Rouge-based Bernhard Energy Solutions that could lead to the widespread privatization of energy systems at state buildings.
The Edwards administration revived the long-discussed idea of privatizing some state energy systems in early 2017, and on Thursday the administration unveiled the fruits of “intensive negotiations,” a cooperative endeavor agreement with LA Energy Partners, LLC.
The agreement would see LA Energy Partners take over the chiller systems at the Shaw Center for the Arts in downtown Baton Rouge, as well as make a host of energy upgrades at 31 state buildings.
If approved, the deal would set the state for any state entity to “opt in” to a similar agreement with the company, which is a joint venture between Bernhard Energy Solutions and Johnson Controls Inc.
Commissioner of Administration Jay Dardenne said several universities--including the University of Louisiana-Lafayette--are interested in taking part in a similar arrangement. Dardenne told lawmakers Thursday the deal would have a net public benefit of $18.8 million to the state over the life of the 20-year deal.
“This is a unique arrangement that has been created,” Dardenne said at a Joint Legislative Committee on the Budget hearing. “We’ve negotiated extremely intensively over the last couple of years.”
Bernhard Energy is controlled by Bernhard Capital Partners, a private equity firm founded by Jim Bernhard, who co-founded and ran the energy services giant Shaw Group before its $3 billion sale to CB&I in 2013. Bernhard, a former Democratic party official, was floated as a possible candidate for governor this year before he ruled it out.
Another Bernhard Capital Partners firm, NextGen Utility Systems, tried to take over the Lafayette Utilities System last year before withdrawing its offer amid pushback from residents.
Bernhard Energy Solutions partnered with the HVAC firm Johnson Controls at the behest of the Edwards administration after both companies submitted proposals to land the state energy deal.
The new arrangement with the state involves several components.
If approved, likely sometime in August, it would let the company lease the chiller systems at the Shaw Center from the state for $3 million over 20 years. The state would then buy back the chilled water--which is used to cool the building--for $6 million.
LA Energy Partners would make its money by selling off the extra chilled water to other companies who need chilled water to cool their commercial buildings in downtown Baton Rouge. It would also be responsible for the maintenance and replacement costs of the chiller systems at the Shaw Center, which is a multi-use museum and arts complex with several restaurants, including Tsunami.
Meanwhile, the state would pay $54.3 million to the company to install a host of energy efficiency projects--lighting upgrades, water conservations and replacing boilers, among other things--at 31 state-owned buildings. Those include the State Capitol, governor’s mansion and state Supreme Court building.
The efficiencies the state gets would more than offset the costs, officials involved in the deal said.
“The big dollar savings comes from the improvements to the state buildings,” Dardenne said.
If other state agencies wanted to opt in to the deal and privatize their energy systems under a similar arrangement, they would not have to go through a request for proposals to find a suitable company. Instead, they could contract with LA Energy Partners under similar terms as the state deal.
“This is a very significant contract that’s before us,” said House Appropriations Chairman Cameron Henry, R-Metairie. “At the end of the day, you could have every state building, every university, every prison, every building the state touches under your umbrella.”
Henry questioned whether the legislative auditor would have adequate ability to review the deal to make sure the state was receiving the benefit it is owed. He also asked why the state structured the deal so universities and other agencies can simply opt in without a new contract, though the administration suggested a new CEA may be needed for each new entity.
Former Gov. Bobby Jindal’s administration “got the ball rolling” with the idea to privatize some state-owned chiller systems several years ago, Dardenne said.
When the Edwards administration took office, it revived the idea and turned its attention to the Shaw Center, which is controlled by LSU, the Baton Rouge Area Foundation and the state, which is responsible for the utilities at the center.