Harvard Sells Controversial $350 Million Energy Plant, Takes Loss on Deal
Officials say deregulation of electricity industry is reason for sale
After 20 years, the controversial MATEP saga will soon be over.
Harvard has signed an agreement opt sell its Medical Area Total Energy Plant (MATEP) at the Longwood Campus in Boston to Commonwealth Energy System, based in Cambridge, for $147 million.
MATEP was completed at Harvard's expense in 1985 at a cost of $350 million--almost $150 million over budget, due to cost overruns and delays spurred by community protests.
Adjusting for inflation, the selling price of $147 million is roughly one-fourth of the plant's construction costs. In today's dollars, the loss would be equivalent to approximately half a billion dollars--not counting the returns the University could have earned had the money been invested rather than sunk into construction costs.
The 62-megawatt power plant provides "total energy"--steam, electricity, and chilled water--to the Harvard Medical School, the Dental School, the School of Public Health and six affiliated hospitals. Only 20 percent of its output is used by Harvard schools.
Under the agreement, Commonwealth Energy System will continue to supply MATEP's current customers with "total energy" service.
University officials cited the deregulation of the electricity industry in Massachusetts, prompted by Electric Restructuring Act of 1997 that took effect on March 1, as a key factor in deciding to spin off the energy plant to Commonwealth Energy.
"Whatever our capacities are as a University, they do not really extend to great sophistication to running energy plants in a highly deregulated environment," said President Neil L. Rudenstine in an interview on March 6.
Under deregulation, most observers expect Harvard to be able to buy electricity at much lower prices than before.
"We were able to get a very good price," Rudenstine said. "The last thing we need to do is be worrying about energy regulations every day, or what would be competitors."
The sale will allow the University "to focus more fully on its core mission--teaching and research," said N. Sally Zeckhauser, vice president for administration in a press release.
She said Commonwealth Energy was chosen as a buyer in part because Harvard has done business with the firm for decades.
"Our intent is to ensure the continued provision of thigh-quality, reliable service to the institutions of the Long-wood Medical Area," Zeckhauser said.
Commonwealth Energy subsidiaries also supply power to Cambridge, Cape Cod, Martha's Vineyard and New Bedford.
Conceived during the oil crisis of the 1970s, construction of MATEP was proposed in 1977. Administration officials had hoped that, in the event of an energy crisis, a plant of Harvard's own would help the University hold down fuel costs. The plant did not become fully operational until 1985.
Harvard had not planned to own the plant in the long run, but cost excesses forced the University to hold on to MATEP, according to Thomas E. Vautin, Harvard's associate vice president for facilities and environmental services.
The plant has been the subject of considerable controversy both at Harvard and in the larger Boston community.
Some administrators complained about the cost of the project, financed completely with central administration funding, while others said that Harvard should not be in the business of running a power plant.
At the same time, Boston resident raised safety concerns about MATEP. Harvard was forced to redesign the plant multiple times during the late 1970s, adding millions to construction costs.
The plant is now considered one of the most environmentally sound power plants in New England. The plant uses energy wasted from one conversion process to produce another form of energy. This was a critical part of the design for MATEP that made it energy efficient.
"The overall efficiency of MATEP is at least double that of a conventional power plant," said Vautin.
The final sale is still pending government approval at the city, state and federal levels, but Vautin is optimistic the deal will be finalized by early May.