Lawrence University has signed a $5.5 million agreement with Johnson Controls Inc. to upgrade lighting, heating, ventilation, and air conditioning equipment on its campus, in the process lowering the school’s utility consumption and reducing its carbon footprint.
The agreement is part of a 20-year innovative payment contract with the Milwaukee-based Johnson Controls that allows the sustainability-focused work to be done now with no up-front capital costs to Lawrence. The savings in utility costs that will come from the energy efficiency upgrades, along with fewer repair and replacement costs, will pay for the project over the next two decades.
The project includes the installation of LED lighting in 17 buildings on campus, the replacement of chillers that serve the Music-Drama Center, Shattuck Hall, and Memorial Chapel, the replacement of inefficient steam traps campus wide, and upgrades to mechanical and fume hood systems in Steitz and Youngchild halls. Other targeted heating and air conditioning upgrades also will be completed across campus.
“The work will reduce Lawrence University’s utility costs and its carbon footprint while improving lighting quality and the comfort and safety of building occupants,” said Aaron Rittenhouse, Midwest program leader for Johnson Controls. “The project is expected to reduce the campus’ energy usage by more than 20 percent.”
Johnson Controls recently entered into similar contingent payment performance contracts with a handful of other private colleges and universities. It puts the onus on the company to guarantee that its work will provide the promised savings. Once the work is done, the company continues to monitor the upgrades and verify that expectations are being met. If the university is not seeing the agreed-upon efficiencies, it’s Johnson Controls’ responsibility to make the needed adjustments.
The payment program is an alternative to traditional debt financing, one that gives Lawrence advantages when it comes to managing its long-term debt, said Jenna Stone, Lawrence’s associate vice president of finance. By not taking on additional debt for these infrastructure projects, the University gives itself flexibility for future borrowing.
“Our partnership with Johnson Controls has allowed Lawrence to pursue important capital renewal that support Lawrence’s goal of decreasing our carbon footprint without limiting the University’s capacity to fund other capital projects,” Stone said.
Dane Lindholm, lead financial analyst for structured finance at Johnson Controls, said the company guarantees that energy and utility savings from the infrastructure upgrades will pay for the project over the 20-year life of the contract, providing a boost to the school’s sustainability efforts while not requiring it to take on added debt.
“If the projected savings don’t materialize, Johnson Controls will cover the difference up to the amount we have guaranteed,” Lindholm said. “The University has set-off rights, meaning Johnson Controls will provide a credit on its next quarterly invoice if the projected savings do not meet the utility savings we guaranteed. Essentially, Johnson Controls owns the risk of performance.”
The work will begin this summer and continue through spring. Lawrence officials will work with the Johnson Controls team to ensure that the work is scheduled around the school’s educational needs and is done with COVID-19 social distancing guidelines in place.
“There are safety protocols already in place as crews enter and exit the campus,” said Russell Garcia, director of higher education at Johnson Controls.
Private colleges and universities with strong endowments, good credit ratings, and consistent enrollment numbers are considered for this type of alternative financing agreement, Garcia said. Lawrence fit that bill.
“There’s much more transparency these days with campus operational costs versus the rate of student tuition,” Garcia said. “So, these projects demonstrate that in addition to positive environmental stewardship aligned with the University’s mission and goals, they are being fiscally responsible with those monies and how they’re being managed.”
Garcia called the expected savings that are factored into the agreement “pretty conservative.” If the efficiency goals are met, Lawrence makes its payments from those savings. If the goals are exceeded, Lawrence keeps the additional savings. And if the goals are not met, Johnson Controls will make the needed infrastructure adjustments.
“The company’s track record in projecting savings from facility upgrades gives it confidence to proceed with that route,” Lindholm said. “We’re willing to do this because we are fully assured in the work that we perform. Due to the company’s size and experience in higher education projects, creditors trust that we will live up to our performance guarantees.”