Public Private Partnership (P3) FAQs

P3 is shorthand for public-private partnership. In this case, the partnership involves a long-term lease for operation of the University of Idaho steam plant and utility systems.

This is the university’s partner; a financial backer and world-class operator with whom the university signs a long-term lease.

It is a wise business decision that will benefit the university for years to come. The P3 includes an up-front payment to the university that will allow U of I to invest in its strategic initiatives of student success, research and telling our story. That payment will pay programmatic and financial returns for 50 years. A portion will go to student scholarships that will create additional tuition revenue and improve the go-on rate in the state. The P3 investment in research has the potential to increase our competitiveness for research funding as well. In addition, the project provides an opportunity and incentive to maximize the efficiency and effectiveness of a key element of the university’s infrastructure that has long suffered from a lack of funding and deferred maintenance.

The concessionaire will pay $225 million up-front to the university. Of this:

• Some will be used to develop a capital plan;
• Some will be used to retire old debt;
• The remainder will be invested with the U of I Foundation and will be drawn from to invest in strategic initiatives, purchase power and cover other fees of the deal for the next 50 years.

The transaction is a complex financial instrument. However, once all the fees are paid, U of I will have an additional $6 million per year to invest in strategic initiatives.

Allocated by the President in consultation with the Cabinet, the P3 revenue will fund student success initiatives such as need-based scholarships and an expanded online education infrastructure to improve access to higher education and the go-on rate in Idaho, shoring up an educated workforce for the state. Return on that investment will come back to the university in the form of tuition and fee revenue and auxiliary revenue (housing, dining, bookstore, parking, etc.) In addition, P3 revenue will help pay for investments in research grant writing and economic development. That money will come back to the university in the form of increased grant revenue and industry partnerships.

We expect to invest:

• $3 million in graduate student success and research, including increasing the number of graduate student and post-doctoral positions
• $1 million in telling our story to recruit new students
• $2 million in student success initiatives such as scholarships to help students close the gap in the cost of attendance and grow our online education system.

Each of these investments will generate revenue for the institution.

Funds from the one-time, up-front payment will be invested by the University of Idaho Foundation to provide a reliable source of funding for strategic initiatives. The investments will be designed to provide distributions over the life of the 50-year lease; they will be exhausted at the same time the lease expires. And because the university retains ownership of the steam plant and utility systems, there will be an opportunity to enter a new P3 agreement when this one expires.

Absolutely, because it makes good business sense. This kind of investment is a business move even the financially healthiest institutions would undertake. In fact, public-private partnerships are forged at colleges and universities across the country to benefit institutions and their students. It is the responsible thing to do as stewards of taxpayer dollars.

The P3 is structured so the university’s utility system – including chilled water, steam and condensate, electrical distribution, domestic water, compressed air, stormwater, sanitary sewer and reclaimed water – is leased to a private third party (the concessionaire) for 50 years, and the concessionaire is obligated to operate the utility system for those 50 years.

A 50-year term is standard for P3 leases at universities across the country. The long-term investment provides stability and consistency for investors, management and the university.

The concessionaire makes a one-time, up-front payment to the university at the beginning of the lease. Over the course of the lease, the university pays an annual utility fee to the concessionaire. That annual fee is made up of 1) a fixed fee that the university sets as part of the bid process that increases annually by an agreed upon amount, 2) a variable fee component, which provides the concessionaire a return on and return of the capital it funds for improvements to the utility system and 3) an operations and maintenance fee, which provides the concessionaire compensation for the costs it incurs in operating the utility system and is based on a rolling three-year index and roughly equal to our current operating costs.

They are similar, however, under the P3 agreement, the concessionaire is responsible for funding and constructing capital improvements to the central system, including system upgrades. The fee structure includes funding from the university to amortize those capital improvements over an agreed term of years. With only a narrow exception, the university must approve all capital improvements before the concessionaire can proceed. The agreement also provides for creation of a long-term plan to address deferred maintenance in the utility system, which currently does not exist, reducing the need to approach the state’s Permanent Building Fund for maintenance funding.

The benefit will be felt at the state level. The University of Idaho and all other Idaho educational institutions have millions of dollars of deferred maintenance that the state is unable to fund. By using the P3 transaction to fund a 50-year capital plan, the steam plant (opened in 1912 and in significant need of investment), will be removed from our requests to the Permanent Building Fund for maintenance dollars. Therefore, this is a benefit to the state and better stewardship of taxpayer dollars. There is also a benefit in that the up-front payment will be used to help grow enrollment and research funding over the next 50 years.

The University of Iowa and The Ohio State University have entered into these same kinds of agreements for their utility systems. Ohio State and Eastern Michigan have similar agreements for their parking assets, and the University of Georgia system and Purdue have monetized their student housing assets. According to a survey last year from The Chronicle of Higher Education and George Mason University, 83% of college leaders said P3 use is increasing on their campuses.

Outsourcing agreements are designed to save universities money over time through efficiency initiatives alone. A P3 is a much more complex, and mutually beneficial partnership agreement than strict outsourcing. The university not only brings on a world-class utility operator as a partner that can bring best practices, but also provides a career path for our steam plant employees that the university cannot offer in addition to the up-front concession payment to the university to fund the 50-year capital plan and strategic initiatives. Outsourcing agreements do not provide these additional benefits.

While we are constantly evaluating the efficiency and effectiveness of all our business operations, we are not currently considering any others for P3.

Higher education institutions are known for long-term economic stability. That is attractive for concessionaires who make their business of investing in assets and bringing large-scale optimization tactics to bear on those assets. The investors in such companies benefit from this security. By improving efficiencies and processes, the concessionaire will be able to share in the savings from improving efficiencies and processes.

In the event of a utility failure on a local, state or national level, by being self-reliant, the concessionaire could provide energy to the university, city, state or beyond in time of crisis.

The university has signed an agreement with Sacyr Infrastructure USA and Plenary. They, in turn, have hired McKinstry to manage and operate the plant.

• Plenary Americas USA Ltd. is one of the most experienced developers and long-term investors in public infrastructure in North America, with a portfolio of 52 projects worth over $14 billion. Their team always takes a long-term view of projects and has never exited a project. This long-term focus and hands-on approach can provide the university with confidence that the project will be well-managed for the full concession term.
• Sacyr Infrastructure USA LLC is the American brand under which Sacyr Concesiones, S.L. operates in North America. Sacyr Concesiones, S.L. is the P3 division of Sacyr Group, boasting extensive experience in developing and maintaining P3 projects worldwide and a track record of more than 70 successfully completed P3 projects over the past 22 years. The company currently manages a global concession portfolio of 45 assets with a 28-year average remaining life and committed global investment amounting to $14 billion.
• For over 60 years, McKinstry has earned a reputation for designing and delivering innovative energy efficiency solutions across 130 higher education institutions. McKinstry brings a strong team of industry experts ensuring the University of Idaho receives a holistic strategy and approach to meet the goals and objectives for long-term facility planning and management.