State Revolving Fund Conference Tampa, Florida. Jeff Hughes Environmental Finance Center at the University of North Carolina November 2, 2015

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1 YES SRFs can Participate in Financing Alternative Project Delivery Models (P3 s, DBO, DBOT), but its not always easy State Revolving Fund Conference Tampa, Florida Jeff Hughes Environmental Finance Center at the University of North Carolina November 2, 2015

2 Supporting the fair, effective, and financially sustainable delivery of environmental programs through: Applied Research Teaching and Outreach Program Design and Evaluation How you pay for it matters 2

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 3

4 Topics Terminology basics Traditional vs. Alternative Project Delivery Mechanisms Water Finance Center Alternative Service Delivery Project SRF Opportunities and Obstacles California Experience

5 Alphabet Soup DBB DB DBO DBOM DBOF Concession CMAR PPP P3 Design Bid Build Design Build Design Build Operate Design, Build, Operate, Maintain Design, Build, Operate, Finance Giving up something Construction Manager at Risk Private Public Partnership Private Public Partnership

6 What is a P3? Design (D) Traditional Procurement Manage Project Build (B) Public Sector Operate (O) Finance Project (F) Own Project Own Land Private Sector Maintain (M) SLIDE SOURCE: Jonathan TruG, West Coast Exchange 6

7 My SRF program has had significant problems (cost overruns, poor project delivery etc.) with a DBB project in the past. A. Strongly Agree 43% B. Agree C. Neutral D. Disagree E. Strongly Disagree 9% 18% 16% 14% Strongly Agree Agree Neutral Disagree Strongly Disagree

8 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 42% 31% 22% 3% 3% Strongly Agree Agree Neutral Informal poll of approximately 30 utilities in California in October 2015 Disagree Strongly Disagree

9 What is a P3? Alternative Delivery Method Options Design (D) Manage Project Build (B) Public Sector Operate (O) Finance Project (F) Own Project Own Land Private Sector Maintain (M) SLIDE SOURCE: Jonathan TruG, West Coast Exchange 9

10 Alternative delivery mechanisms reduce costs A. Strongly Agree B. Agree C. Neutral D. Disagree E. Strongly Disagree 6% 40% 28% 26% 0% Strongly Agree Agree Neutral Informal poll of approximately 30 utilities in California in October 2015 Disagree Strongly Disagree

11 P3s reduce costs A. Strongly Agree 36% B. Agree C. Neutral 25% 31% D. Disagree E. Strongly Disagree 8% 0% Strongly Agree Agree Neutral Disagree Strongly Disagree Informal poll of approximately 30 utilities in California in October 2015

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

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

14 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

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16 Name Service Procured Type of Contract AnLcipated Type of Savings Rialto (CA) Bayonne (NJ) Woodland Davis (CA) Regina (Canada) Santa Paula (CA) San Diego/ Carlsbad (CA) San Antonio (TX) Middletown (PA) Full service water and Concession wastewater water/wastewater collection/ Concession distribution and customer service Water withdrawal, treatment, Design - Build - and bulk transfer Operate Wastewater treatment Design - Build - Finance - Operate - Maintain Wastewater treatment Design - Build Operate Finance Own Desalinated drinking water Water purchase agreement Water rights, withdrawal, treatment, transmission Full service water and wastewater Design - Build - Finance - Operate - Maintain Concession????, Project cost, O&M, retained risk O&M, capital plan Project cost Retained risk, out of pocket funds, design/construclon Project Cost, Capital Plan, O&M Technology Risk Risk, Hedging Long Term Costs Capital Plan, O&M

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18 For Information on this Project Subscribe to our Environmental Finance Blog efc.web.unc.edu Follow us on

19 Advantages of SRF Financing Alternative Delivery Mechanisms Potential reduced project cost Potential reduced risks falling on public sector and eventually SRF Lower cost of capital Lower life cycle costs Reduced segmentation

20 Going Beyond Savings Higher quality of asset management or service delivery (contractually required) Woodland Davis Santa Paula Tapping into Public Entity Equity (for water or other benefits) Rialto Bayonne Middletown

21 We have funded a service delivery mechanism other than Design Bid Build within the last 5 years? A. Yes B. No C. Don t Know 49% 41% 11% Informal poll of approximately 30 utilities in California in October 2015 Yes No Don t Know

22 We have participated in a DB DBO CMAR P/3Concession Private owned utility debt

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24 Davis Woodland Project Service Provided: Raw water withdrawal, transport, and treatment Service Delivery Mechanism: Design, build, operate Estimated capital cost savings: 10 to 20%

25 30 mgd Project Costs Presented at April Board Meeting (Apr 2013 million dollars) Construction Costs (a) Capital Costs, Project Component Cost Cost Category Total Joint Intake (Agency Portion) (b) Raw Water Pipeline Regional Water Treatment Facility (RWTF) 96.7 Woodland Treated Water Pipeline 5.70 Davis Treated Water Pipelines Permit Fees & Construction Counsel 2.89 TOTAL Agency Administration 3.56 Program Management 3.47 Water Supply 1.71 Environmental & Permitting 1.59 Land/ROW Acquisition 4.30 Pre-Design 6.18 Construction Capital Contingency 7.79 (a) Includes DBO contract design and construction costs, design-bid-build Joint Intake construction costs, and Agency design review, construction quality assurance and contract compliance, engineering services during construction, environmental construction monitoring, environmental mitigation, permitting, and incidental costs. (b) Costs currently under discussions with RD Woodland and Davis Local Facilities Costs Expended TOTAL CAPITAL COSTS Slide Source: Woodland Davis Clean Water Agency 25

26 SRF DBO Loans Borrower: Woodland Davis Clean Water Agency DBO Lead: CH2M City of Davis/UC Davis $95.5 Million CWSRF Loan 1.7% over 30 years City of Woodland $111.4 Million DWSRF % for 20 years

27 Making it Happen Proposition 218 rate process Changes to state law ( ) Project development services

28 We can t fund a Design, Build, and Operate because Finish the sentence..

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

30 Can you? Co-fund a project that has private equity funding part of the project? Include concession payments in SRF funding?

31 We are likely to fund a service delivery mechanism other than Design Bid Build within the next 5 years? A. Strongly Agree B. Agree C. Neutral D. Disagree E. Strongly Disagree 29% 45% 13% 11% 3% Strongly Agree Agree Neutral Informal poll of approximately 30 utilities in California in October 2015 Disagree Strongly Disagree

32 We are likely to use a service delivery mechanism other than Design Bid Build within the next 5 years? A. Strongly Agree B. Agree C. Neutral D. Disagree E. Strongly Disagree Informal poll of approximately 30 utilities in California in October 2015

33 I am more open to alternative delivery mechanisms than I was before this session? A. Strongly Agree B. Agree 44% 36% C. Neutral D. Disagree 17% E. Strongly Disagree 3% 0% Strongly Agree Agree Neutral Disagree Strongly Disagree Informal poll of approximately 30 utilities in California in October 2015