Earlier this month, the Ohio State Board of Trustees voted unanimously to approve the Comprehensive Energy Management privatization plan, despite the financial details of the plan not being fully revealed to the public.
As details become public, some people are disputing the merits of that deal.
Bruce Weide, professor emeritus in the Department of Computer and Science Engineering, filed a lawsuit for the records relating to the deal with the Ohio Supreme Court on the Tuesday before the Friday vote. He and his lawyers received a 2,268 page-long, heavily redacted PDF of the agreement from OSU via email on Wednesday evening.
Weide and his lawyers characterized the deal essentially as a loan, and called into question the intended practice of using the money from the deal for noncapital projects — such as student financial aid — that a traditional loan couldn’t be used for.
“It looks like OSU is basically just giving a billion dollars to this foreign consortium just for the privilege of being able to borrow this money without putting it on their books as a loan.” — Jeff Vardaro, lawyer for Bruce Weide
The deal results in the university receiving an upfront amount of $1 billion from ENGIE-Axium — the new energy partners — as well as $150 million to put toward academics, such as financial aid for students and compensatory enhancements for faculty.
OSU, in turn, is set to pay ENGIE-Axium $45 million each year, which will increase annually 1.5 percent to cover inflation, as well as an operating fee starting at about $9.2 million to cover the cost of maintenance and a variable fee tied to unknown capital investments.
According to Weide’s lawyers’ calculations, over the contract’s 50 years, the rates on the annual payments will compound to reach between 6 and 7 percent, which Weide asserts is far higher than OSU would pay on a loan obtained in a more conventional fashion.
Due to the agreed upon interest rate, OSU will end up paying an additional $1 billion on top of repaying the principal $1.1 billion, the lawyers said.
“It looks like OSU is basically just giving a billion dollars to this foreign consortium just for the privilege of being able to borrow this money without putting it on their books as a loan,” said Jeff Vardaro, one of Weide’s lawyers.
OSU officials disputed Weide’s loan characterization, highlighting the performance standards that OSU can hold ENGIE-Axium to as part of the deal.
“This is not a loan,” OSU spokesman Chris Davey said in an email. “This project includes significant operating responsibilities for the partner, which must meet our high performance standards or face significant financial penalties.”
Public access to records
After receiving the documents, Weide and his lawyers discovered nearly half of it was redacted. A copy of the documents obtained by The Lantern via a public records request was delivered unredacted. That request was submitted before the vote on the deal, but was delivered after the deal had been approved.
“The No. 1 issue is this: Why did this all happen secretly?” said Fred Gittes, one of Weide’s lawyers. “If this was an honest, fair, arm’s-length deal, why did they prevent the faculty, students, staff, taxpayers, news reports, general public from knowing the details months, if not years ago? It puts a cloud over all of it. Sending out a 2,200-page contract with half of it redacted doesn’t remove the cloud.”
Davey said much of the details of the deal were unable to be shared before the vote in an effort to protect trade secrets.
Weide and his lawyers also disputed the manner in which the redacted documents were distributed. They said that the documents were not published anywhere else.
“I think it’s pretty easy to say it was sent only to us as a direct result of us filing the lawsuit,” Vardaro said. “It was a courtesy.”
When asked why the records Weide received weren’t proactively available on a university website before the vote, Davey said, “That is false.”
Davey said that multiple documents were available on the project website associated with the deal, and said that they did not release the documents given to Weide because of the lawsuit, saying any delays were due to necessary reviews before release. However, Davey declined to answer multiple requests asking to provide The Lantern with the link to those documents, clarify where they were on the website, or how the public would have accessed them.
Davey also originally said there were “dozens” of public meetings regarding the deal. But during a special session of the University Senate — called in response to the announcement that the deal would go before the Board of Trustees — Vice President and Executive Provost Bruce McPheron said there had been only three meetings.
Davey later clarified that public input was sought through multiple committee and organizational meetings with various stakeholders, though McPheron was correct in that truly public meetings only occurred three times.
After having nearly 24 hours to review the agreement, Weide sent a letter to the Board of Trustees outlining his concerns with the agreement.
“From the stuff that wasn’t redacted, it was possible to find the essence of the deal,” Weide said. “It just strikes me as what looks like an act of desperation from the OSU financial folks to borrow money from a private entity for operations at predatory interest rates compared to what OSU can get on capital markets. I’m at a loss to understand why they did it.”
Weide’s letter pointed out what he saw as several red flags with the agreement. He took issue with OSU selling public assets to the private for-profit energy consortium known as Ohio State Energy Partners — the name under which ENGIE-Axium is operating in the deal — in return for the energy consortium to pay OSU $1.1 billion.
The financial structure of the deal outlines three separate streams of annual payments that OSU will pay to OSEP to repay the $1.1 billion over the next 50 years.
“A preliminary analysis of each stream shows that this is a terrible financial deal (for OSU) in which OSU is borrowing massive amounts of money from a foreign consortium rather than borrowing via the usual bond markets,” Weide’s letter to the Board of Trustees states.
Despite the repayment process, Davey insisted that “there is no borrowed money.”
Weide’s letter to the Board of Trustees emphasized that OSEP does not appear to take any financial risk on the deal, but will collect a tremendous, well-above-market return on its investment.
“OSU may believe that suffering through this arrangement will somehow protect its credit rating, so it can borrow even more for other projects in the future,” Weide’s letter states. “But can the bond-rating agencies really fail to notice that OSU is incurring 50-year commitments here to pay off over $1.25 billion in loans that just happen to fall outside the usual credit markets?”
Weide’s letter was not mentioned during the Board of Trustees meeting when the vote on the energy deal occurred. Davey said that OSU did not have enough time to add Weide’s concerns to the agenda, despite saying the release of the redacted documents to the public and Weide was “made at the appropriate time.”
“We don’t know what the trustees knew when they voted, we don’t know what they were told, we don’t know whether they actually read the entire agreement, but they certainly have not gone out of their way to invite or encourage other viewpoints because they kept it secret,” Gittes said. “How can they expect to be well-informed if they want to hide from anybody raising questions?”