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Newsmakers

Ohio State University Endowment Reaps $1 Billion for 50-Year Energy Contract

Deal provides OSU fund with its single-largest investment.

By Michael Katz

Ohio State University’s board of trustees has approved a 50-year agreement with Ohio State Energy Partners that will contribute an upfront payment of $1.015 billion to the university’s endowment. It is the largest single investment to date toward Ohio State’s academic mission.

Ohio State Energy Partners, which is comprised of energy company ENGIE North America and investment firm Axium Infrastructure, will operate the systems that power, heat, and cool the university’s Columbus campus. It will also install energy conservation measures throughout the campus to meet the university’s sustainability goals.

“This partnership would position us as an international leader in energy and sustainability and further strengthen us as a national flagship public research university,” said Ohio State University President Michael Drake.

The university’s Comprehensive Energy Management Project is valued at $1.165 billion, including the $1.015 billion upfront payment and a $150 million commitment to support academics through – among other things – financial aid and compensation for faculty and staff.  The proceeds of the upfront payment will initially be invested in Ohio State’s endowment, the university said.

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Key elements of the Comprehensive Energy Management Project include operation and optimization of the university’s utility system, including energy conservation management services.

“Within 10 years, conservation measures would improve our energy efficiency by 25%, reducing our carbon footprint,” said Ohio State University Provost Bruce McPheron.

The project also includes construction of a $50 million energy advancement and innovation center for energy research and commercialization. The center will allow faculty, students, alumni, entrepreneurs, industry experts, and ENGIE researchers to collaborate on smart energy systems, renewable energy, and green mobility.

Under the terms of the deal, Ohio State will pay Ohio State Energy Partners a fixed fee, an operating fee, and a variable fee every year. The fixed fee will start at $45 million a year and escalate by 1.5 percent per year to cover inflation. The operating fee will start at approximately $9.2 million, which reflects the university’s average operating and maintenance costs for the past three years. The variable fee will be directly tied to approved capital investments that Ohio State Energy Partners will make on the Ohio State campus.

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Home > News > Corporate Moves > More Corporate Pension Plans Transferring Risk, Milliman reports
Corporate Moves

More Corporate Pension Plans Transferring Risk, Milliman reports

Despite fluctuations, the largest pension plans ended 2016 with their funded ratios little changed.

By Poonkulali Thangavelu

The 100 largest US corporate pension plans saw their funded status drop to 81.2% for 2016, from 81.9% a year earlier, according to actuarial firm Milliman. The $21.7 billion drop in funding resulted from a rise in projected benefit obligations, partially balanced by a rise in the market value of plan assets.

The 100 plans also witnessed quite a bit of volatility in 2016, Seattle-based Milliman reported. “Investment performance exceeded expectations, with the 100 largest US pensions experiencing returns of 8.4%—compare that to 0.8% the year prior,” said Zorast Wadia, an actuary and co-author of the pension funding study, “but the volatile interest rate environment saw the discount rate plummet by 30 basis points. In 2016, these dynamics resulted in a funded ratio that oscillated back and forth for most of the year before the post-election bump. The end result was a funded ratio of 81.2%—not that far off from where we’ve been at the end of 2015 and 2014.”

Three factors buoyed the 100 largest corporate plans. One was an investment return of 8.4% for 2016, outperforming expectations. Another was employer contributions, which rose 38% from 2015 levels. A third was a decline in estimated life expectancies for the second year in a row, which helped cut projected benefit obligations at several of these companies.

Some companies are planning to adopt an accounting change to cut their pension expenses for fiscal year 2017. This entails moving to spot interest rates that are based on the yield curves of high-quality corporate bonds. For 2017, 46 companies in the Milliman study said they intended to adopt this practice, compared to 37 companies for 2016.

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Plan sponsors also boosted their engagement in strategies to transfer pension risk to insurance companies. Pension risk transfers, together with pension risk settlement payments to former plan participants who are not yet retired, rose to $13.6 billion in 2016, from $11.6 billion in 2015 and included such companies as Westrock, United Technologies, PepsiCo, Hewlett-Packard, International Paper, and Verizon. By doing so, plan sponsors also cut down on their required premium payments to the Pension Benefit Guaranty Corporation.

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