Savings: Myth or Reality?

Transcription

1 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

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 My community has had significant problems (cost overruns, poor project delivery etc.) with a DBB project in the past. A. Strongly Agree 42% B. Agree C. Neutral D. Disagree 31% 22% E. Strongly Disagree 3% 3% Findings of an informal poll of session participants at Stanford Executive Education program on public-private partnerships in the water sector. October 28, Strongly Agree Agree Neutral Disagree Strongly Disagree

5 What percentage of future P3s will be based on financial considerations versus other considerations (political, technical capacity, risk sharing, labor relations..) A. 10% B. 20% C. 50% D. Greater than 50% 11% 19% 44% 25% Findings of an informal poll of session participants at Stanford Executive Education program on public-private partnerships in the water sector. October 28, % 20% 50% Greater than 50%

6 ndings of an informal poll of industry leaders at the 2015

7 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

8 P3s reduce costs A. Strongly Agree B. Agree C. Neutral 25% 36% 31% D. Disagree E. Strongly Disagree 8% 0% Findings of an informal poll of session participants at Stanford Executive Education program on public-private partnerships in the water sector. October 28, Strongly Agree Agree Neutral Disagree Strongly Disagree

9 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.

10 Rumsfeldian Analysis of Costs Known Knowns Cost of capital Annual payments Debt service O&M Agreement Unknowns Likely risks Costs for the road not taken Unknown?????? Acts of God Technology Political Change Unknown risks

11 Qualitative Presentation of Risk Allocation

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

13 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!)

14 Cost metric(s) that you think most accurately portrays project impact 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 Findings of an informal poll of session participants at Stanford Executive Education program on public-private partnerships in the water sector. October 28, % 19% 19% 3% Cost per account/bill Total savings over life of pro... NPV over life of project First 5 years of cash flow (e...

15 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 Findings of an informal poll of session participants at Stanford Executive Education program on public-private partnerships in the water sector. October 28, Cost per account/bill 36% Total savings over life of pro... 45% NPV over life of project 9% First 5 years of cash flow (e... 9%

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

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

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19 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

20 Woodland Davis Development & Construction Costs Service Provided: Raw water withdrawal, transport, and treatment Service Delivery Mechanism: Design, build, operate

21 Woodland Davis Savings & Tradeoffs Savings Project cost Regulatory risk Permitting costs Tradeoffs Project preparation Contract management

22 Woodland Davis Model Output

23 Continue the Discussion Subscribe to our Environmental Finance Blog efc.web.unc.edu Follow us on

24 We are likely to use a service delivery mechanism other than Design Bid Build within the next 5 years? A. Strongly Agree 35% B. Agree C. Neutral 31% 27% D. Disagree E. Strongly Disagree 8% 0% Findings of an informal poll of session participants at Stanford Executive Education program on public-private partnerships in the water sector. October 28, Strongly Agree Agree Neutral Disagree Strongly Disagree

25 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 0% 0% 0% 0% 0% Response Counter Strongly Agree Agree Neutral Disagree Strongly Disagree

26 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

27 Example of Value for Money Options Comparison: VFM of DBFOM VFM of $79.6 million (NPV), 15.5%

28 Comparing an Estimate to a Bid Source: Slide Presented by Chris Baisley, Deloitte Seattle 11/19/14

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

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

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

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

33 Example of Summarizing Costs: Regina City: Award of RFP pg.5

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