Sarpy County Wastewater Project Summary financial and commercial - - PowerPoint PPT Presentation

Sarpy County Wastewater Project

Summary financial and commercial analysis

January 2019

Page 2

Underpinning financial and commercial structure

Traditional Delivery DBFOM P3

Agency pays contractor on a milestone basis for construction phase Agency pays pre-agreed monthly payment over the life of the contract Separate contracts for design and construction with Agency holding interface risk P3 Developer delivers fixed price / date certain construction and holds interface risks Agency performs itself or contracts out to 3rd party Delivered by P3 developer, potentially through subcontract supported by guarantees Municipal debt Combination of public/private debt and private equity

O&M Design & Construction Financing Payment

HART/City P3 Developer O&M Provider Debt and Equity Providers

Debt Service and Equity Return Funding

DB Contractor

Construction Progress Payments Payments Operating Payments

County Agency Cities Service users

Payments P3 agreement

A concession type structure appears to

• ffer the most appropriate balance of

lower transaction costs, risk pricing and competition for subsequent phases’ Capexand (potentially)O&M.

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Summary

• Est. required revenue

Profile

• Est. revenue from users
• Est. Agency contribution
• =

A B C A B C

• A ‘required revenue’ profile was developed based on the capital and O&M assumptions provided by HDR. The projected $240 million in

capital costs in 2018$’s ($475 million in cash terms) was used to develop a financing structure using debt and equity. The annual required revenue profile was developed on a basis consistent with the required return under a DBFOM P3 commercial structure.

• Omaha+2%: Assumes a rate comparable to Omaha’s in 2015

(~$50) and grows at of inflation (3%) plus 2%, which remains below Omaha’s projected rate profile in the near future

• Omaha+: Assumes a rate comparable to Omaha’s in 2015 (~$50)

and grows at inflation (3%)

• The project is financially viable in the medium to long term, but analysis suggests that revenue from rate payers will not

cover the required revenue for the first 7-8 years of Phase 1A. The cumulative shortfall is estimated to be between $12.5 million and $18.5 million, where the Agency is likely to be required to pay the P3 Developer more than is earned from system users.

Avg.Monthly Bill (7,500 Gallons) 2015 2019 2024 Sarpy (O+2%) $49.37 $60.01 $76.59 Omaha $50.28 $66.23 $85.54

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Estimate of required vs user revenues

• 10,000

20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 100,000 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050 2052 2054 2056 2058 2060 2062 2064 2066 2068 2070 2072 2074 O&M (Fixed) O&M (Variable) Debt Service & Equity Return Required Revenue Projected Revenue (Omaha +) Projected Revenue (Omaha +2%) ($000)

B

P1A Open P1B Open P2 Open P3 Open

Capacity Met

A

For the user growth profile underpinning the analysis, increases in user rates of approximately 5% per year until the early 2040’s are required to create an economicallyviable system

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• 2,000

4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 Omaha+ Omaha+ 2%

Estimated shortfall between required and user revenues

P1A Open P1B Open P2 Open P3 Open

Capacity Met

($000)

C

Omaha+2% case requires $18.5 million in total support in the early years (approximately $2.3 million/year).

Estimated shortfalls in revenue occur during the majority of Phase 1A, and thereafter in the years immediately following Phase 2 becoming

• perational

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C

Estimated cash balances and impact of demand risk

(40,000) (20,000)

• 20,000

40,000 60,000 80,000 100,000 120,000 140,000 160,000 Omaha +2% Omaha +2% (10% Decrease)

P1A Open P1B Open P2 Open

($000)

Estimated shortfalls in revenue translate into cash deficits during Phase 1A. The project becomes cumulative cash positive by the time Phase1B opens, and remainspositive thereafter providing user growth and rate increasesare as projected.

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• 500

1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 Omaha + 2% (P1A SRF) Omaha + 2% Total Shortfall ~ $18.5 million over 8 years ~ $12.5 million over 7 years

A

Other Considerations: SRF Funding’s Impact on Early Year Shortfalls

($000)

P1A Open

The analysis below shows the potential to reduce estimated required revenue shortfalls by approximately $6m connected to the financing

• f Phase1A. The analysisassumesthat the loan is signed in [2021], and repaymentcommencesin [2024].

Notes: Analysis assumes SRF loan signed in 2021 for Phase 1A with repayment commencing in 2024. Financing of ROW and other costs incurred prior to 2021 excluded from the analysis.