How you pay for it matters http://efc.sog.unc.edu @EFCatUNC 2 - - PowerPoint PPT Presentation

http://efc.sog.unc.edu @EFCatUNC

Savings: Myth or Reality?

Partnership-Based Water Service Delivery Models Preliminary Findings Jeff Hughes Carol Rosenfeld

Environmental Finance Center at the University of North Carolina October 28, 2015 Palo Alto, CA

http://efc.sog.unc.edu

@EFCatUNC

2

How you pay for it matters

Supporting the fair, effective, and financially sustainable delivery of environmental programs through:

• Applied Research
• Teaching and Outreach
• Program Design and Evaluation

3

Acknowledgements

Environmental Protection Agency

The EPA Water Infrastructure and Resiliency Finance Center provides financial expertise to communities that are financing drinking water, wastewater, and stormwater infrastructure. www2.epa.gov/waterfinancecenter The West Coast Infrastructure Exchange (WCX) promotes the type of new thinking necessary to solve our infrastructure crisis. WCX is a unique regional platform designed to spur infrastructure innovation and accelerate a pipeline of innovative infrastructure projects in California, Oregon and Washington. westcoastx.com

My community has had significant problems (cost overruns, poor project delivery etc.) with a DBB project in the past.

• A. Strongly Agree
• B. Agree
• C. Neutral
• D. Disagree
• E. Strongly Disagree

Strongly Agree Agree Neutral Disagree Strongly Disagree

42% 31% 3% 3% 22%

Findings of an informal poll of session participants at Stanford Executive Education program on public-private partnerships in the water sector. October 28, 2015.

What percentage of future P3s will be based

• n financial considerations versus other

considerations (political, technical capacity, risk sharing, labor relations..)

• A. 10%
• B. 20%
• C. 50%
• D. Greater than 50%

10% 20% 50% Greater than 50%

11% 25% 44% 19%

Findings of an informal poll of session participants at Stanford Executive Education program on public-private partnerships in the water sector. October 28, 2015.

http://efc.sog.unc.edu

@EFCatUNC

Findings of an informal poll of industry leaders at the 2015 American Water Summit in Denver Colorado. 10/21/2015

Assessing Cost Impacts of Alternative Service Delivery Partnerships

• 10 to 15 Financial Impact Assessments

– Base case vs. alternative paths – Mix of models – Greenfield and upgrades – Geographic diversity

• Simplified financial impact model
• Findings, conclusions, lessons learned
• Education materials

P3s reduce costs

• A. Strongly Agree
• B. Agree
• C. Neutral
• D. Disagree
• E. Strongly Disagree

Strongly Agree Agree Neutral Disagree Strongly Disagree

25% 36% 0% 8% 31%

Findings of an informal poll of session participants at Stanford Executive Education program on public-private partnerships in the water sector. October 28, 2015.

The Many Faces of Costs

• Project development

costs(legal, staff etc.)

• Design costs
• Finance costs
• Construction costs
• Out of pocket costs

(access to grants

• O&M costs
• On-going capital

refurbishment costs

• Utility costs
• Risk transfer costs
• Contract

management

• Non-monetized

costs/externalities

• …….

Rumsfeldian Analysis of Costs

Knowns Unknowns Known

• Cost of capital
• Annual payments
• Debt service
• O&M Agreement
• Likely risks
• Costs for the road not

taken Unknown

• ??????
• Acts of God
• Technology
• Political Change
• Unknown risks…

Qualitative Presentation of Risk Allocation

Example of display of variable Risk Cost: Source Deloitte Analysis submitted in report to Regina

Representation of Costs and Savings

• Cash flows
• Present value
• Range of risk costs
• Most likely risk costs
• Life cycle costs
• Annualized costs
• Cost per customer
• Costs per service unit
• Aggregated nominal costs (BAD!)

Cost metric(s) that you think most accurately portrays project impact

• A. Cost per account/bill
• B. Total savings over life
• f project
• C. NPV over life of project
• D. First 5 years of cash

flow (expenses and revenues

Cost per account/bill Total savings over life of pro... NPV over life of project First 5 years of cash flow (e...

19% 3% 58% 19%

Findings of an informal poll of session participants at Stanford Executive Education program on public-private partnerships in the water sector. October 28, 2015.

Cost metric(s) most likely to be understood and appreciated by your governing board

• A. Cost per account/bill
• B. Total savings over

life of project

• C. NPV over life of

project

• D. First 5 years of cash

flow (expenses and revenues

Cost per account/bill Total savings over life of pro... NPV over life of project First 5 years of cash flow (e...

36% 9% 9% 45%

Findings of an informal poll of session participants at Stanford Executive Education program on public-private partnerships in the water sector. October 28, 2015.

Name Service Procured Type of Contract An$cipated Type of Savings Rialto (CA) Full service water and wastewater Concession ????, Project cost, O&M, retained risk Bayonne (NJ) water/wastewater collection/ distribution and customer service Concession O&M, capital plan Woodland Davis (CA) Water withdrawal, treatment, and bulk transfer Design - Build - Operate Project cost Regina (Canada) Wastewater treatment Design - Build - Finance - Operate

• Maintain

Retained risk, out of pocket funds, design/construc$on Santa Paula (CA) Wastewater treatment Design - Build – Operate Finance Own Project Cost, Capital Plan, O&M San Diego/ Carlsbad (CA) Desalinated drinking water Water purchase agreement Technology Risk San Antonio (TX) Water rights, withdrawal, treatment, transmission Design - Build - Finance - Operate

• Maintain

Risk, Hedging Long Term Costs Middletown (PA) Full service water and wastewater Concession Capital Plan, O&M

What’s Included in Project Cost? Example from Rialto Concession

Going Beyond Savings

• Higher quality of asset management or

service delivery (contractually required)

– Woodland Davis – Santa Paula

• Tapping into Public Entity Equity (for water
• r other benefits)

– Rialto – Bayonne – Middletown

Woodland Davis Development & Construction Costs

• Service Provided: Raw water withdrawal,

transport, and treatment

• Service Delivery Mechanism: Design,

build, operate

Woodland Davis Savings & Tradeoffs

Savings

• Project cost
• Regulatory

risk

• Permitting

costs Tradeoffs

• Project

preparation

• Contract

management

Woodland Davis Model Output

Continue the Discussion

Subscribe to our Environmental Finance Blog efc.web.unc.edu Follow us on Twitter: @EFCatUNC

We are likely to use a service delivery mechanism

• ther than Design Bid Build within the next 5 years?
• A. Strongly Agree
• B. Agree
• C. Neutral
• D. Disagree
• E. Strongly Disagree

Strongly Agree Agree Neutral Disagree Strongly Disagree

31% 35% 8% 0% 27%

Findings of an informal poll of session participants at Stanford Executive Education program on public-private partnerships in the water sector. October 28, 2015.

I am more open to alternative delivery mechanisms than I was before this course?

• A. Strongly Agree
• B. Agree
• C. Neutral
• D. Disagree
• E. Strongly Disagree

Strongly Agree Agree Neutral Disagree Strongly Disagree

0% 0% 0% 0% 0%

Response Counter

http://efc.sog.unc.edu @EFCatUNC

Savings: Myth or Reality?

Partnership-Based Water Service Delivery Models Preliminary Findings Jeff Hughes Carol Rosenfeld

Environmental Finance Center at the University of North Carolina October 28, 2015 Palo Alto, CA

VFM of $79.6 million (NPV), 15.5%

Example of Value for Money Options Comparison:

VFM of DBFOM

Comparing an “Estimate” to a Bid

Source: Slide Presented by Chris Baisley, Deloitte Seattle 11/19/14

Example of showing trade offs Source: TRC Slide Show CASA 2014

Example of showing impacts of different models on Construction Costs: Source: Memo to Miami-Dade Sewer Department from PRAG 11/14/14

Example comparing financing costs: Source: Memo to Miami-Dade Sewer Department from PRAG 11/14/14

Example of Summary Sheet for Two Options: Source: Memo to Miami-Dade Sewer Department from PRAG 11/14/14

Example of Summarizing Costs:

Regina City: Award of RFP pg.5