0. Deloitte Consulting LLP August 2012
Positioning P3 for Success and Applications for Energy Sustainable Energy Workshop 2012
Deloitte Consulting LLP
August 2012

1. Audit and Enterprise Risk
About Deloitte
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2. Contents Positioning P3 for Success Definition of P3
A Case Study and Lessons Learned
Applications for Energy
Strategic Considerations
P3 Execution Challenges
Solutions

3. Positioning P3 for Success

4. Definition of P3 I P3 enables an overall energy and sustainability strategy and the definitions are broad
A public-private partnership, or P3, refers to a contractual agreement formed between a government agency and a private sector entity that allows for greater private sector participation in the delivery of public projects. Compared with traditional procurement models, the private sector assumes a greater role in the planning, financing, design, construction, operation, and/or maintenance of public facilities.

5. Definition of P3 II At the Federal level, there are lesser-known tools in the P3 toolbox that can be used to great affect
Government | Commercial
Partnership Description
Alliance Agreement
Alliance Agreements are legal documents between one or more parties, for the purpose of competitive intelligence, drafting documents or to get information about transactions within a particular industry or sector.
Public-Private Ventures
A special-purpose public/private venture refers to a business entity that is created by public and private parties for a single specified purpose and whose activities are predetermined by the contracts and other arrangements.
Enhanced Use Lease for R&D Test-bed
An EUL is a contract calling for the lessee (user) to pay the lesser (owner) for use of an asset.
Patent License Agreement
A license to commercial companies to utilize patented government-developed technology commercially. The government retains the rights to use the technology for government purposes.
Government | Non-profit
Partnership Description
Memorandum of Understanding (MOU)
A bilateral agreement between parties, indicating an intended coordination and collaboration between agencies, rather than a legal commitment.
Memorandum of Agreement (MOA)
Document written between parties to cooperatively work together on an agreed upon project or meet an agreed objective (Can also be a legal document that is binding).

6. A Case Study and Lessons Learned I A successful P3 can come together through many different types of transacting mechanisms
Deloitte served as strategic advisors to the Government of Bulgaria on the long-term concession of Bulgaria’s Black Sea Coast airports. We performed an options analysis in close consultation with the Government, proposed amendments to the enabling environment for P3, assisted the Government to create a core base of stakeholder support, managed interactions with strategic investors, assisted in the conduct of the competitive tender, and built the capacity of the Civil Aviation Authority to be a strong partner for this P3.
The Government received 4 proposals from leading airport development groups, and accepted the proposal from Fraport, the international arm of the Frankfurt International Airport, with an estimated total value in excess of $500M USD, while securing the long-term development of these strategic assets.

7. A Case Study and Lessons Learned II Establishing governance up-front helps to ensure a successful transaction and subsequent operate environment
Project Development and Implementation: Pre-feasibility activities
Due Diligence: legal, environmental, technical and social
Developed capital expenditure plan for 10-years
Identified problem with Civil Aviation Act
Financial Analysis
Developed traffic forecast and financial modeling
Clear projections on key issues: future costs /returns to public sector and user charges
International Market Study
At the macro-level by sector
Detailed review of individual aviation projects
Options Analysis
Public vs. private operation
Issue: To bundle the airports to make more attractive

8. A Case Study and Lessons Learned III Selecting the optimal framework is a first step to a functioning governance model for the P3
Selecting a Model

9. Applications for Energy

10. Strategic Considerations I ERCOT faces some difficult supply challenges in the near-term future
According to the most recent ERCOT capacity report, reserve margins are forecast at less than 10 percent by next year
ERCOT, May 2012
Coal and natural gas make up the largest share of generating capacity in Texas with more reliance on gas expected in the future
ERCOT, May 2012

11. P3 Execution Challenges I Breaking down barriers to P3 execution requires tenacious problem solving
Future Energy Prices
Developing a strategic view of future prices is critical to success
Above or Behind the Meter
Direct interaction with the grid will be one of the larges and most tangible sources of value for the P3. The P3 should be structured to optimize the strategic objectives of both parties in the transaction.
Own or Lease
Asset ownership comes with risk and will greatly impact pricing considerations
Risk Management
Establishing a governance model that can last the duration of the lifecycle
Contracting
The federal government has an array of available tools but their use is complex
Mandates versus Value
Selecting the optimal balance of mandates versus value will drive tactical considerations such as the type of contracting vehicle used.
$.05 per kwh price electric
$50M annual energy cost
3% annual energy goal
1055 GWh annual energy consumption
Raising Capital
New funding sources require networked outreach to stakeholders
727,485 metric tons of carbon emitted per year

12. P3 Execution Challenges II NIST Supplemental 135 has serious analytical shortcomings, which can lead to faulty P3 pricing
Measures of future prices are based on census zone, which has little direct applicability to electric markets
South Region
According to NIST forecasts, electricity escalators are flat out to 2022, excluding general inflation

13. P3 Solutions II Even before considering spot prices and DR opportunities, long-term energy economics in Texas yield potential
Our analysis shows that TRE South could see significant price increases by 2030 with more than a doubling of prices from today’s level in nominal terms. With large generating capacity needed in the region, a number of pricing assumptions should be evaluated to determine future strategy.

14. P3 Solutions III Although energy prices are local, energy markets are integrated and have global reach
In today’s world, local decisions quickly bump up against international factors. Long-lived P3 assets will be impacted by these factors well into the future.

15. P3 Solutions IV International markets could be knocking at America’s door; what are the scenarios to consider?
A recent Deloitte analysis forecasts a marginal affect on domestic gas prices as a result of LNG imports. Despite varying worldviews, strategic flexibility enables strong organizations.
Impact of LNG Exports on Average US Citygate Gas Prices
Price Impact by Region
As compared to the NIST 135 census regions, local markets and regions are a key factor in forecasting future prices.
Source: Deloitte MarketPoint

16. P3 Solutions V With a compelling and targeted value proposition, sources of capital reach beyond traditional buckets
Tried and true P3 tools for energy will be a major source of project funding with ARRA funds expended
While not typically a source of outsized returns, energy project financing can go a long way to solving the asset / liability mismatch facing the U.S. and other developed economies

17. Solutions V Structured processes help drive execution through the transaction phase and beyond
Sample Level 0 Process Steps for PPA and EUL
Select Agent
Issue Info Request
Issue Quals Request
Develop RFP
Issue RFP
Administer RFP
Evaluate Proposals
Award
Design Project
Construct Project
Commission System
M&V Performance
End Oversight
Level 0
Process
Steps 13
PPA
Develop scope
Notice of Opp.
Issue Notice of Opp.
Evaluate Proposals
Select Contractor
Lease and Mgmt. Plan
Issue Lease
Design Project
Construct Project
Commission Project
M&V Project
End Oversight
Level 0
Process
Steps 12
EUL
Source: Federal Energy Management Program

18. Conclusion Energy and sustainability strategy drives capital budgeting decisions and P3s support and enable execution
After designing a project that best meets an organization’s strategic goals and objectives there are many P3 options that can support successful implementation and operations.
Careful consideration is required to ensure that both parties achieve the maximum risk-adjusted value from the projects while ensuring the transaction gets done and service is maintained.

19. Thank You

20. For more information Alexander Kasuya Manager, Deloitte Consulting