3/18/2014
LIQUID ASSETS: NEW
TOOLS FOR WATER
INDUSTRY INNOVATION,
The Bayonne Example
Government & Private Sector
Innovation in the ABA Section on
Environment, Energy & Resources
Webinar
March 19, 2014
Dan Sugarman
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World Wide Tendencies for Water Partnerships
Challenges facing Cities today
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Modernization of water systems and
capacity to attract needed talent
Multiple stakeholders and citizens
awareness. Demand for greater
transparency and accountability
Complex technology to meet new
regulations
Demand for better Environmental
Performance
Private operators value added
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Ability to manage complex situations
based on broad range of experience
Cost-effective solutions
Knowhow of advanced technologies
Cost efficient OPEX/CAPEX approach
Ability to attract private financing
Water Partnership Models
 Specialized Service Delivery:
– Billing & Customer Service
– Smart Metering
– Non-Revenue Water
Improvement
– CSO Management and Control
– Energy Management
– IT Solutions for Smart Cities
 Public-Private O&M Outsourcing &
Alliance Partnering Contracts
 BOT/DBO’s for greenfield Water,
Wastewater and Biosolid projects
 Concessions and Leases
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Choosing a Contract Model to Meet a City’s Objectives
You want world-class know-how
provided in an integrated manner
to solve your operational needs
You want to keep responsibility
for operation AND benefit from
expertise of the private sector
You want to share responsibility
for managing your utility and pay
a fixed fee, combined with an
incentive for performance
You want to delegate full
responsibility for operation &
maintenance (O&M)
You want reliable operation
coupled with funding of future
capital needs & refinancing of
City’s debt to improve credit
Specialized Services
Management Contract
Alliance Partnering
Contract
O&M Outsourcing
Contract
Concession / Lease
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After decades of neglect, investment can no
longer be deferred in many U.S. cities….
WATER INFRASTRUCTURE RATED
$1.3 trillion to upgrade our
water & waste water systems
over the next 25 years
…. municipalities need creative alternatives
to meet America’s water challenge!
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3/18/2014
Suez Environnement North America (SENA):
Organized to meet Market Needs
Utilities
(Transfer
Ownership)
Concessions /
Leases
(Upfront Pmt +
CAPEX)
Value Provided
Design
Build Operate
Management
Services
Capital
Improvement
Delivery
Outsource
Operations
&/or CPM
Packaged
Asset
Services
&/or
Tank
Management
Equipment
Purchases
Do Nothing
Political Difficulty
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Tailoring contractual services to meet market needs
Adding private capital
Economic
Development
& Job
Creation
Rate/ Tariff
Predictability
& Stability
Asset
Management
& Protection
Employee
Training &
Operational
Best
Practices
Community
Relations &
Customer
Care
Compliance
Expertise &
Environmental
Stewardship
Debt
Reduction &
Credit
Enhancement
Operational
Efficiencies
& Technical
Capability
O & M related
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3/18/2014
All these elements together
create our SOLUTION
SM
Adding private capital
Economic
Development
& Job
Creation
Rate/ Tariff
Predictability
& Stability
Asset
Management
& Protection
Employee
Training &
Operational
Best
Practices
Community
Relations &
Customer
Care
Compliance
Expertise &
Environmental
Stewardship
Debt
Reduction &
Credit
Enhancement
Operational
Efficiencies
& Technical
Capability
O & M related
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Our Solution
is an innovation in the U.S. water sector.
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The City of Bayonne
The City of Bayonne lies
in the heart of the Port
of New York and New
Jersey
Traditional distribution,
manufacturing,
healthcare and port
activities remain
important to the city’s
economy
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Bayonne’s water system
More than 96 miles of
mains including valves,
fire hydrants etc.
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Reservoir
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NJDWSC
Aqueduct
Water supplied from the
North Jersey District
Water Supply
Commission’s Wanaque
and Monksville reservoirs
Kearny
Pipeline
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4
PVSC
Facility
Authority
Aqueduct
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Force Main
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Total system capacity is
17.6 MGD and on average
uses 8.5 MGD
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Monksville Reservoir
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Kearny Water Distribution System
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Wanaque Reservoir
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City of Bayonne
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Belleville
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PVSC Water Pollution Control Facility (Newark)
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Bayonne’s sewer system
Oak Street Pumping
Station pumps flows to
the Passaic Valley
Sewerage Commission by
a force main
Total system capacity is
17.6 MGD; average daily
dry weather flow 8.3 MGD
Capacity to pump 40MGD
during wet weather
events caused by
combined sewers
PVSC
Facility
Force Main
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1
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City of Bayonne
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PVSC Water Pollution Control Facility (Newark)
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Bayonne’s challenges and objectives
Challenges
 Deeply leveraged – beyond
underlying value of assets
 History of deferred investment
in system assets
 Credit quality problems: city
needs funds for other services
Objectives
 Mechanisms for guaranteed
capital improvements
 Improve asset condition and
customer service
 Strengthen balance sheet and
leave the Bayonne Municipal
Utility Authority (BMUA) debt
free
 Steady and predictable rate
rises for consumers
 Difficulty attracting qualified
staff to manage the utility
 Maintain utility jobs and
improve staff training
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Public officials in Bayonne had some questions…
CONCERNS
RESOLUTIONS
Who owns system
City retains system
ownership
Vague operational and
technical standards
Governance and
operational standard
setting
Lose control over rates
Rates set by formula
Maintains authority jobs
Impact on jobs
Investment creates new
local job opportunities
Oversight of funding
‘Windfall’ to concessionaire
No excess revenues
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BMUA Transaction Overview
Organizational Structure – 4 Key Agreements are Foundation of Transaction
Bayonne Municipal Utilities Authority
NJDWSC (Water
Supply)
Direct Agreement
1. Concession
Agreement
Upfront Payment
PVSC (Wastewater
Treatment)
Senior Secured Notes due
2037
3.NPA* Bayonne Water Joint Venture, LLC
4. Joint Venture Agreement
Revolving Credit Facility
(2)
Equity
2. O&M
Agreement
O&M Fee
United Water Operations Contracts,
Inc
Consortium
Bayonne Energy
Center Supply
Utilities (Wind Turbine
O&M)
Pass Through
Contracts
*Note Purchase Agreement
requiring 3rd Party Due Diligence
to support Debt Rating
Capital Projects (as
required)
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It took bold champions in Bayonne to take
these first steps in using private capital to
invest in America’s water infrastructure.
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Hidden value of Bayonne’s asset is unlocked
 Upfront payment, eliminated
$125M of BMUA debt
 Capital investment to modernize
water, sewer and storm water
system of $107M over 40 years
 Just 3 months after closing,
Moody’s Investors Service
upgraded City’s credit outlook.
‘The stable outlook reflects the city's
recent progress in reducing its debt
burden through the lease-sale of the
MUA operations…’
Bayonne Mayor Mark A. Smith
Bayonne’s mayor said that this transaction helped
the city earn its first credit upgrade in 5 years
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Long-term contract provisions provide
customers greater reliability and stability
‘Revenue path’ approach limits rate increases, prevents
windfall profits, and provides flexibility to guarantee
ongoing investment
Improved system
efficiency reduces
operating costs
Capital investment
reduces risk of
service disruption
and protects the
environment
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Major Operational Progress Over the First Year
 Full GIS of Water and Sewer Systems
 Fixed Network AMI System installed
 Asset Management System installed
 Cleaned >28,900 feet of sewer main
 Cleaned & flushed >10,300 of water main
 1,500+ hydrants inspected, 400+ valves
exercised
 >2,500 hours of employee training
 Operational & safety improvements to CSO
netting chambers – 75 tons collected
 New protective equipment including hard
hats, boots, gloves & other safety essentials
 Office improvements & new vehicles to
meet health & safety standards
 Comprehensive study of City’s water
infrastructure system underway to develop
long-term asset management plan
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Before
Optimization of Capital Investments:
First Year Accomplishments
Before
Before
After
After
After
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Concession Agreement – Risk Allocation
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Concession Agreement – Risk Allocation
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United Water’s Solution Saves BMUA ~ $35M
(1) Value
for Money Analysis Submitted by BMUA to BPU
UW/KKR Option
Projected Revenue Requirement
Cost - United Water’s Solution
i.e. Without Contract)
Net Upfront Payment (after Debt Defeasance)
(Approx. 6%)
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Projected Rate Increases are Sustainable
Relative Water & Sewer Rates
The risk of rates being considered too high is
unlikely for the following reasons:
 Water rates for United Water New Jersey have grown at a
CAGR of 5.0% since 1970 which is well above the rate
increases that are stipulated in the Concession Agreement
$8
Water
$6
Rates ($ / 100 cF)
 Average monthly water and sewer bill for users in
Bayonne is ~$44 and $31, respectively. Water rates are in
line with other municipalities and the sewer rates are much
lower
3.50
3.70
3.58
3.39
$3
n/a
$0
Bayonne
Historical Rate Increases in New Jersey
Ramsey
Relative Water
Jersey City
Mahwah
North Hudson
Expenditure(1)
40%
$800
759
CAGR: 5.0%
575
$600
575
593
493
$400
348
241
108
149
% of Average Annual Expenditure
$1,000
Avg. Annual Bil
4.73
4.29
$2
 Water is an essential service but still represents a very low
percentage of total annual expenditures (1.0% of total)
$200
5.31
4.88
$5
Sewer
5.53
32.9%
30%
20%
16.4%
12.7%
10%
2.8%
2.3%
Electricity
Telephone
1.0%
0%
$0
1970
1975
1980
1985
1990
1995
2000
2005
2010
Housing
Transportation
Food
Water
(1) Bureau of Labor Statistics, Consumer Expenditure Survey
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Key Transaction Take-Aways
 Set Realistic Goals
–
–
–
–
Risk Allocation
Rate Increases
Capital Needs
Avoid Trying to Solve
Unrelated Problems
 Prepare Extensive
Due Diligence
– Quality Due Diligence
Package
– Tie Up Loose Ends
 Engage Experienced
Professional Team
– Engineering, Financial &
Legal
 Engage Stakeholders
– Employees, Users, Officials
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3/18/2014
is gaining recognition
Received New Jersey Alliance for
Action Distinguished Engineering
Award, May 2013
Voted by peers as ‘Partnership of the
Year’ at the American Water Summit
2012 for having delivered “the most
dramatic improvement in service and
customer value in the three most
recent years”
Earned Distinction in Global Water
Intelligence’s Project of the Year
Award Category in 2013
Featured at the 2012 Clinton Global
Initiative as an “innovative
partnership which meets one of the
world’s most pressing challenges”
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Dan Sugarman
VP – Marketing & Strategy
United Water
(201) 784-7078
[email protected]
Thank You
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