1. Public/Private Partnerships for Water & Wastewater Systems 2006 ACMA Summer Conference Loews Ventana Canyon Resort Tucson, Arizona

2. 2 Overview  Background & Introduction Joseph Graziose, Vice President Business Development, Severn Trent Services  Understanding Public/Private Partnerships  Benefits/Challenges of a Public/Private Partnership  Procurement Approaches  Key to a Successful Partnership  Public/Private Partnership Structures/Models  Case Studies  Questions & Answers

3. 3 Options for Public/Private Partnerships  Public ownership Private operations Private design construction –Improvements –New facilities Public or private funding  Private ownership & provision of services by private company or utility  Lease/sale facilities & provision of services by private company or utility

4. 4 Why Consider a Public/Private Partnership?  Potential cost savings Design/construction of capital improvements Operations  Risk reduction  Improved performance  Need for alternative financing

5. 5 Benefits of a Public/Private Partnership  Single point of contact/accountability  Improved levels of customer service  Regulatory compliance  Availability of technical resources  Access to the latest technology  Cost control  Volume purchase discounts  Availability of capital  Maintenance management systems  Streamlined procurement

6. 6 Challenges  Loss of control  Loss of public accountability  Personnel impacts/employee concerns  Complexity of the transaction

7. 7 Procurement Approaches & Strategy  Request for Qualifications (RFQ)  Request for Proposals (RFP)  RFQ/RFP (Two Step)  Hybrid approaches Request for Qualifications & Expressions of Interest (RFQEI) Draft RFP (for Comment)/Final RFP Expanded RFP – Menu Approach

8. 8 Procurement Process  Setting objectives  Selecting a procurement strategy  Defining service & key terms & conditions for business arrangements  Preparing the request for proposals  Interacting with prospective proposers  Evaluation of proposals  Selection & contract negotiations

9. 9 Service Agreement $$$ Fee Effluent River Existing Clean Water Wastewater Collection & Pumping Distribution & Transmission Equity $$$ Loan Agreement $$ Billing Service Well Description of the Municipal Water & Wastewater Services Market Engineering Firms Financial Advisors Law Firms OperateStart UpConstructDesign Performance Guarantees Customers Water System Tax-Exempt and/or Taxable Bonds Debt and Equity Financing Bonds Existing Wastewater Plant With Capital Improvements & Sludge Disposal Municipality State & Federal Regulations Public/Private Partnership

10. 10 Public/Private Partnership Structures OwnershipOperationAgreementModel IPublicPrivate5 to 20 yearsO&M of system constructed through traditional design/ bid/build delivery method IIPublicPrivate10 to 25 yearsDesign/Build/Operate (DBO) IIIPrivate 25+ yearsDesign, Build, Own, Operate and Maintain (DBOOM) There are three basic structuring approaches based on project ownership, construction and operation:

11. 11 Service Agreement $$$ Fee $$ Service Customers Engineering Potential Scope of Services Legal Financial Private Contractor Regulatory Compliance QA/QC O&M of Plants Distribution & Collection Customer Service Capital Improvements Pretreatment Programs Municipality

12. 12 Advantages  Maintain Control Over Process  Change-Orders Easily Accommodated  Well-Tested/Universally Accepted  Competitive Bidding at All Levels Disadvantages  Generally More Costly  Can Take Longer  Poor Incentive Structure/Risk Allocation  Limited Recourse if Things Go Wrong Traditional Project Delivery Approach (Design/Bid/Build) Government Grants Operations Design Engineer EquipmentConstruction Financing General Contractor Municipality

13. 13 Advantages  Single Point of Accountability  Risk Assumption by Developer  Shorter Project Schedule  Reduced Costs Disadvantages  Project scope defined by Performance rather than by Design Specs  Legal and Procurement Barriers Financing Alternative Delivery Structures: DB/DBO/DBOOM EquipmentConstruction Project Developer Municipality OperationDesign Performance Guarantee

14. 14 Key to a Successful Partnership  Equitable risk allocation  Reasonable financial security  Attainable & objective performance standards  Well defined work scope & division of responsibilities  Mechanism to monitor performance  Communications & reporting

15. 15 Public/Private Partnership Case Study: Pasadena, Texas 3 WWTPs – 10 MGD, 4 MGD, 7 MGD Background:  History of non-compliance  Costs continued to rise, year after year  Non-existent maintenance programs  Overstaffed  Lack of leadership & management

16. 16 Pasadena, Texas City’s Approach  Procurement through an RFP  Standard O&M contract  Maintenance cap fixed by City  O&M of the City’s 3 wastewater treatment plants  Guaranteed compliance  No layoffs

17. 17 Pasadena, Texas Selection & Negotiation Process  City selected Severn Trent  Severn Trent hired all existing personnel Better salaries & benefits Recognized seniority  Severn Trent began detailed transition process  Severn Trent began immediate process changes & achieved compliance

18. 18 Pasadena, Texas Summary  The City achieved immediate savings of over $800,000 per year.  Within 3 months, 2 consent orders were lifted.  Flow restrictions were lifted at 2 of the plants, allowing for an increase in capacity.  The partnership between Severn Trent and the City has continued from the initial 5-year term in 1994 through today.

19. 19 Public/Private Partnership Case Study: Boyertown, Pennsylvania Water & Wastewater Systems Background:  Retirement of key operations personnel  Challenge of finding qualified staff  Compliance & operational issues at WWTP

20. 20 Boyertown, Pennsylvania Borough’s Approach  Procurement through an RFP  Standard O&M contract  Maintenance cap fixed by Borough  O&M of the Borough’s: 0.75-MGD wastewater treatment plant 1.6-MGD water treatment plant 5 pump stations  Guaranteed compliance  No layoffs

21. 21 Boyertown, Pennsylvania Selection & Negotiation Process  Borough selected Severn Trent  Severn Trent hired all existing personnel Leased Water Superintendent for four months until his retirement Recognized seniority Better salaries & benefits  Severn Trent began detailed transition process  Severn Trent began immediate process changes & achieved compliance

22. 22 Boyertown, Pennsylvania Summary  The Borough saved nearly $500,000 by eliminating unnecessary capital improvements; additional savings of $60,000 per year due to process changes.  Severn Trent operations in Boyertown have been recognized: Safety awards from Eastern Pennsylvania WPCOA and Pennsylvania WEA Commendation from the Department of Environmental Protection  Scope expanded to include collection and distribution systems and meter reading in 1999.  The partnership between Severn Trent and the Borough has continued – and grown – from the initial 5 year term in 1994 through today.