Public Private Partnerships. Mark Wehmeyer and Neil Callahan

Transcription

1 Public Private Partnerships Mark Wehmeyer and Neil Callahan

2 Utilities Outsource and Enter into P3 Contracts for Various Reasons Less expensive Requires expertise and/or equipment not available Functions not needed continuously Not core to business objectives Shift O&M risk Shift design and O&M risk Shift functional risk 2

3 Fort Worth Strategically Outsources $20M/Year for these Business Reasons Less expensive to outsource than to use internal staff and equipment Bill production and mailing Residential meter reading Less expensive Requires expertise and/or equipment not available Functions not needed continuously Not core to business objectives Shift O&M risk Shift design and O&M risk Shift functional risk 3

4 Fort Worth Strategically Outsources $20M/Year for these Business Reasons Utility lacks expertise or equipment and/or the function is not needed continuously Large diameter pipe cleaning/assessment Water use audits Root eradication Hydraulic modeling Pipeline and Plant design Pump & motor maintenance Street Cuts Less expensive Requires expertise and/or equipment not available Functions not needed continuously Not core to business objectives Shift O&M risk Shift design and O&M risk Shift functional risk 4

5 Fort Worth Strategically Outsources $20M/Year for these Business Reasons Function is not core to utility business objectives Janitorial services Landscape management Less expensive Requires expertise and/or equipment not available Functions not needed continuously Not core to business objectives Shift O&M risk Shift design and O&M risk Shift functional risk 5

6 Fort Worth Strategically Outsources $20M/Year for these Business Reasons Utility chooses to shift the O&M risk TRA treatment plants Biosolids dewatering Energy generation Less expensive Requires expertise and/or equipment not available Functions not needed continuously Not core to business objectives Shift O&M risk Shift design and O&M risk Shift functional risk 6

7 Characteristics of Strategic, Targeted Outsourcing Agreements Performance-based specifications Combination of unit cost plus modifiers for undefined circumstances Generally short term contracts 1-5 years Contractor rarely makes upfront payment Simple, low risk and relatively easy to exit Less expensive Requires expertise and/or equipment not available Functions not needed continuously Not core to business objectives Shift O&M risk Shift design and O&M risk Shift functional risk 7

8 Characteristics of P3 Agreements Significant opportunity for private sector innovation in design construction, service delivery or use of the asset Clearly definable and measurable outputs that relate to payment for services Shifting of financial, design, construction, operation (regulatory), or maintenance risks to a private company Less expensive in exchange for a future Requires expertise and/or equipment not available revenue stream Functions not needed continuously Not core to business objectives Generally long term contracts 20+ years Shift O&M risk Shift design and O&M risk Occasionally includes Shift functional risk 8 monetization or concession

9 The Scale of Public Private Partnerships Risk Transfer & Private Sector Involvement Privatization Risk Transfer Concession Design-Build- Finance-Maintain- Operate Operate & Maintain Build & Finance Design-Build Private Sector Involvement 9

10 The Scale of Public Private Partnerships Risk Transfer & Private Sector Involvement Privatization - United Water - San Jose Water Risk Transfer -Tampa Bay Water -Seattle Tolt - San Diego RO - Atlanta - Rialto - Allentown Operate & Maintain Concession Design-Build- Finance-Maintain- Operate - Vancouver WA - Laredo - Chicago Parking -Bayonne NJ -Indianapolis - Village Creek Energy Recovery - Village Creek Biosolids Build & Finance - Developer-contributed assets Design-Build - Standard for new plants and facilities Private Sector Involvement 10

11 P3 is a Polarizing Issue Private Perspective Private sector more efficient Shift (financial, operational, regulatory) risk from local government Broad experience unavailable to local utilities Better access to financial markets Plenty of accountability through local government oversight It s our core business Public Perspective Public sector has built in cost advantage Environmental & health stewardship belongs apart from profit motives Higher level of transparency and public accountability It s our core business 11

12 So Why Do Cities Privatize? City can t borrow City can t operate or maintain City can t tolerate the risk City doesn t have (or want to acquire) specialized skills

13 What Typically Happens to Rates? Usually flat for the first few years For 12 largest mature concessions: Average years since sale 12 Average inflation adjusted increase 116% Average annual inflation adjusted increase 10%