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|MATEP's stack. Photograph by Stephen Sherman|
Harvard's expensive experiment in energy independence is ending, with the planned sale of the Medical Area Total Energy Plant (MATEP) to a subsidiary of Commonwealth Energy System.
The University is close to completing a sale agreement with Commonwealth's Advanced Energy Systems Inc. subsidiary. Although he would not disclose the sale price, Thomas Vautin, a Harvard associate vice president, says it will not cover the plant's $329.6-million debt. But he adds, "We are pleased with the price that we're receiving.'' Moreover, the sale will free Harvard from the need to make future investments in MATEP.
Harvard built the 62-megawatt power plant, finished in 1980, to supply electricity, steam, and chilled water to the Medical School and six affiliated hospitals in the Longwood Medical Area.
Conceived during the oil price shocks of the 1970s, MATEP was supposed to save money and fuel--and give the University some degree of control over the volatile energy market. Although the plant's boilers and steam generators have worked well, its financial performance has lagged. Delays caused by community and state environmental concerns stalled the plant's start-up for six years as interest rates rose. The delays and cost overruns pushed MATEP's price from an estimated $50 million when it was first proposed to $350 million.
University administrators began mulling MATEP's future nearly two years ago. With the hospitals' energy needs growing significantly, Harvard wanted to find alternate sources of capital for the plant, which Vautin says will eventually need additional maintenance and equipment replacement.
|In the control room at MATEP. Photograph by Stephen Sherman|
Harvard now uses only 20 percent of the power that the plant produces, yet is responsible for 100 percent of its capital funding. "That raised a question for me about whether this was the best use of Harvard's capital funds,'' Vautin continues. "The obvious answer is no. [The money] really belongs in the teaching and research program and not in this facility.''
Meanwhile, pending competition in the electric industry promises to allow large customers like Harvard to shop around for better power deals (see "Power Play," March-April, page 61). The University therefore began to consider options: finding investors or a partner for MATEP, or selling the plant outright. After an informal bidding process, Harvard announced in mid September that it was in discussions with Commonwealth Energy System, whose subsidiaries already supply steam and electricity to the school's Cambridge campus.
Commonwealth Energy was apparently attracted to the plant because of its mix of energy products. The utility already sells steam, gas, and electricity to customers in central Massachusetts, Cambridge, and Cape Cod. MATEP, which provides air conditioning, electricity, and steam, "is the model we intend to duplicate for other customers,'' says Leonard Devanna, president of Commonwealth's Advanced Energy Systems Inc.
For Harvard, a key point in the negotiations was making sure that the new owner supplies the hospitals and the medical school with the same degree of reliability and service that MATEP now provides. Vautin says contracts negotiated between the users and Commonwealth will include language providing guarantees for plant capacity, service quality, reliability, and planning for future needs.
"We developed very strong amendments to the utility agreement that will provide the users with significant enhancements in performance standards,'' Vautin says. "These amendments provide contractual assurance to the users that does not rely on the affiliation relationship that the users and Harvard have had over the years.''
~ John Dillon
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