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City of East ProvidenceWastewater System DBO ProcurementJanuary 19, 2010City Council Presentation

Agenda Project BackgroundOverview of DBO ProcessStatus and ScheduleProposal EvaluationFinancial Results Overview 2City AdvisorsMalcolm Pirnie, Inc. owners agent and technical/financial assistanceSusan Landon, PE, BCEEJohn Mastracchio, PEBurns & Levinson LLP legal advisorsSean Coffey, Esq.Richard Coen, Esq.3BackgroundConsent Order between East Providence and RIDEM signed April 2007Consent Order required certain actions:WWTP to meet RIPDES permit for effluent total nitrogen (TN) limits Prepare a Facility Plan to address capital improvement requirements to meet TN limitsReduce collection system overflows with new pump station capacity Draft Facility Plan submitted December 2007RIDEM approved Facility Plan in March 20094Facility Plan SummaryWWTP capital improvementsBiological nitrogen removal systemElectrical and instrumentation upgradesOdor control upgrades New Watchemoket Pump Station & related forcemains and sewersfour new small pump stationsPump station upgrade work to provide reliability

5Facility Plan Cost Estimate History$65.86 million Facility Plan revised estimateUpdated collection system costsExcludes Watchemoket Pump Station storage tankExcludes Waterfront Development Costs$52.5* million Actual cost based on the lowest evaluated DBO bid$13.3 million savings realized with DBO Contractor

*Potential additional reduction of $6.85M depending on feasibility of Plant and Collection System alternatives6Consent Order ScheduleFacility Plan approval sets certain datesMarch 1, 2010: submit application for Order of Approval to RIDEM (final design)September 1, 2012: Plant construction work completion and initiation of operationAugust 2013: Watchemoket Cove Pump Station and associated piping constructed and operational 7Design-Build-Operate Procurement BenefitsCompetition on D and O not just BOne company provides for aggregation of services under one full service contractCost savingsOptimized balance between capital and operating costsFull innovation risk transfer /single-source responsibilityRate stabilization fixed and predictable short and long term costsCity maintains ownership and sets rates

8DBO Agreement Scope10 yr term for WWTP and Collection System operations & management plus 10 yr renewal at City optionIndustrial Pretreatment Program managementDesign, permitting, construction and acceptance testing of capital improvementsWWTP improvementsNew Watchemoket Cove Pump Station and related pipes and pump stationsExisting employees offered employment at comparable compensation9Traditional Risk if City Does the ProjectRisk CityDBOConstruction Costs Exceed BudgetSubsurface conditions (after vendor completes due diligence)Subsurface Conditions identified during due diligence (ex. Ledge, hazardous materials)

Permitting Risk (delay, non-issuance, new terms)Schedule Risk (fines for not meeting consent order dates)Design Risk (Facility will work)Disputes Among Designer, Builder, Operator Electricity Rates (maximum WWTP usage guaranteed)Regulatory Compliance (fines for violation)Capital Risk (no deferred maintenance)Change in LawInflation (Service Fee escalates based on CPI and ECI)Uncontrollable circumstances10Shifting of Risk with DBO Contractor Risk CityDBOConstruction Costs Exceed BudgetSubsurface conditions (after vendor completes due diligence)Subsurface Conditions identified during due diligence (ex. Ledge, hazardous materials)

Permitting Risk (delay, non-issuance, new terms)Schedule Risk (fines for not meeting consent order dates)Design Risk (Facility will work)Disputes Among Designer, Builder, Operator Electricity Rates (maximum WWTP usage guaranteed)Regulatory Compliance (fines for violation)Capital Risk (no deferred maintenance)Change in LawInflation (Service Fee escalates based on CPI and ECI)Uncontrollable circumstances11Security for PerformanceOperations: Company provides O&M performance bondLetter of credit required if Guarantor rating drops below City thresholdConstruction: Performance bond and payment bondGuarantor: Parent company will guarantee all of the Companys obligations up to a determined liability limitMinimum insurance must be retained

12Procurement ScheduleRFP issued May 5, 2009Two Proposals submitted Sept. 30, 2009United WaterVeolia WaterNegotiations: Dec 2 to Jan 15, 2010January 19, 2010 Agreement presented to Council for approval and Project award Feb 17, 2010 Deadline for ARRA Funding DBO Agreement must be awarded and executed13Proposal Evaluation Evaluation Team composed of City staff supported by Citys advisorsBoth Proposers highly qualified; financially strong; and experienced to perform the required contract servicesBoth Proposers demonstrated a technically sound approach to the required contract scope:implementing the Plant and Collection System Design/Build WorkOperation, maintenance and management of the wastewater system14RecommendationEvaluation Team recommended United Water for negotiating a final AgreementUnited Water proposal provides significant greater total project savings and benefits to the CityAlternative cost savings approach to meet nitrogen limitsNew equipment not in Facility Plan to increase efficiency of operationsRobust repair and replacement plan

15Proposal Cost Comparison(millions of dollars)Base BidBaseline/ Facility PlanUnited WaterVeolia WaterPlant Improvements$33.21$23.90$35.38Collection System Improvements$32.65$28.62$28.10Total Capital Cost (Base)$65.861$52.52$63.48Plant/Collection System Potential Alternative Savings Not Applicable

( $6.85 )( $6.26) Cost to meet Odor Guarantee$0$50,000 - $2M Annual O&M/Service Fee 2$4.32$4.27$4.00Net Present Value (Capital +10 yr operations, excludes electricity)102.18

87.1895.071 Baseline reflects City CIP for Facility Plan costs and other related capital projects2 Proposed/current O&M cost plus increase following completion of capital work Financial Impact AssessmentThe financial impact of several scenarios were comparedBaseline Scenario Includes the Citys capital program based on the Wastewater Facility Plan, and the City continues to operate wastewater system facilities.DBO Scenario Includes the capital and O&M costs associated with the DBO procurement and the DBO contractor operates the wastewater system facilitiesNBC Scenario Consists of NBC taking over the City facilities and WWTP capital program, and City customers paying NBC rates.

17Baseline ScenarioCity procures capital projects using a traditional design, bid, build approach$65.8 million in capital costs (2010-2013) $10 million (15%) Funded with ARRA Capitalization Grant with $1.5 million principal forgiveness, interest rate of 2.5% over 20 years.$40 million (60%) Funded with RICWF loans at 4.5% interest over 20 years.$16 million (25%) Funded with municipal bonds at 6.5% interest over 20 years.Barrington pays its share (~20%) of O&M costs and Plant improvements18DBO ScenariosCity procures capital projects under the DBO approach and DBO contractor operates and maintains the WWTP and collection system.$52.5 million in capital costs (2010-2013), corresponding to $13 million savings (20%) over Baseline$10 million (20%) Funded with ARRA Capitalization Grant with $1.5 million principal forgiveness, interest rate of 2.5% over 20 years.$28 million (55%) Funded with RICWF loans at 4.5% interest over 20 years.$13 million (25%) Funded with municipal bonds at 7.0% interest over 30 years (wrap around).Barrington pays its share (~20%) of O&M costs and Plant improvements19Comparison of Scenarios(Typical Annual Sewer Bill Impact1,2)Scenario200920102011201220132014Baseline$315 $419 $518 $662 $703 $710 DBO$315 $341 $460 $557 $579 $584 NBC / E.P. $315 $490 $589 $736 $804 $848 NBC$427 $484 $545 $608 $661 $706 East Greenwich3$520?????Middletown3$818?????Warwick3$465?????1Rate impacts should be considered preliminary estimates. They are based on numerous cost, customer base, and financing assumptions that are subject to change.2Annual bill based on 70,000 gallons or 97.6 ccf of consumption per year.3Source: 2008 Narragansett Bay Commission Residential Sewer User Survey.20E. Providence (DBO) vs. NBC Sewer Bill Comparison21

City of East ProvidenceWastewater System DBO ProcurementQUESTIONS?

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