Stave Lake Water Supply and Treatment Project Business

Stave Lake Water Supply and Treatment Project Business Case for P 3 Canada Funding Request AMWSC April 04 2011

Purpose of business case • Determine if the Project may qualify for financial support from the P 3 Canada Fund – Must be a P 3 delivery model including design & construction plus one or more of operations, maintenance, financing – Must provide public benefit – Must provide “value for money” according to accepted CDN practice – Project structure and procurement process must follow best practice • Level of support: up to 25% of eligible costs • Form of support: repayable, non-repayable, interest-free loan, other • Business case contents guided by P 3 Canada Fund submission guide • Methodology guided by Partnerships BC practices 1 © Deloitte & Touche LLP and affiliated entities.

Recommended procurement option: Hybrid DBFO+DBO DBFO for “Bundle A” • Intake & Pump Station • Water Treatment Plant • Reservoir Expansion • Partial public, partial private financing • Long term warranty benefit from the private financing DBO for “Bundle B” • Transmission Mains • No private financing 2 © Deloitte & Touche LLP and affiliated entities.

Recommended procurement option: Hybrid DBFO+DBO Basis for recommendation: • Maximizes construction time and cost certainty (on-time, on-budget) • Maximizes long term cost certainty • Reduces AMWSC’s retained risk and transfers considerable risk to the contractor • Provides long term performance guarantee appropriate for each Bundle • Estimated project “value for money 1” of $33. 2 M or 10. 6% NPV of Costs Value for Money Traditional DBB $ 313. 1 M - - Hybrid DBFO+DBO $ 279. 8 M $ 33. 2 M 10. 6 % • Estimated “value for money” to AMWSC of up to: – $83. 5 M or 26. 7% … depending on level of P 3 Canada Fund contribution 1 3 Net present value of cost savings over the design, construction, and operating period (approx 29 years in total), as compared to traditional design-bid-build procurement. © Deloitte & Touche LLP and affiliated entities.

Recommended procurement option: Hybrid DBFO+DBO Key Features • AMWSC sets water quality standards and capacity of the system • One contractor is selected through a competitive process for the combined DBFO+DBO • The contractor designs and builds, and then operates and maintains, Bundle A and Bundle B for 25 years – for a fixed price • AMWSC pays for approximately 35% of the construction costs of Bundle A during construction, the balance is financed by the contractor • AMWSC pays for 100% of the construction costs of Bundle B during construction • AMWSC makes annual payments for operations and maintenance • AMWSC makes annual payments to repay the contractor’s financing on Bundle A • Payments to the contractor are at risk: penalties are applied if the contractor does meet the terms of the contract 4 © Deloitte & Touche LLP and affiliated entities.

Comparison of procurement models Project Responsibility Planning Municipality Design Consultant selected on qualifications and price Construction Qualified general contractor selected by tender Operation Municipal staff or short-term tendered contracts Maintenance 5 Design-Build Municipal staff or short-term tendered contracts Rehabilitation Municipal staff or individual contracts Financing Municipal Finance Authority BC (MFABC) Design-Build-Operate Design-Build-Finance-Operate Municipality Qualified special-purpose P 3 contractor selected on design, long term plan, and price. Typically a consortium of firms. MFABC Portion: contractor Portion: MFABC Funding Municipality Asset Ownership Municipality CONFIDENTIAL © Deloitte & Touche LLP and affiliated entities.

Risk allocation 6 Retained by AMWSC Transferred to P 3 Contractor Planning Design Environmental approvals Construction cost & schedule Rights to raw water Operations - water quantity Land assembly Operations - water quality Sizing of facilities Operations – power/chemical usage Changes in regulation Minor maintenance Operations - power price Rehabilitation (major maintenance) Operations - chemical price Handback condition of infrastructure at end of operating period Raw water quality outside defined “window” Raw water quality inside defined “window” © Deloitte & Touche LLP and affiliated entities.

Funding request from P 3 Canada Fund • Funding request for 25% of eligible costs in the form of a non-refundable contribution Estimated P 3 Canada Fund Contribution for 25% of Eligible Costs ($millions, nominal “as-spent” dollars) DBFO Bundle A DBO Bundle B Total Contribution $ 49. 3 M $ 21. 9 M $ 71. 2 M • Contribution would be received during the construction period and used to offset the AMWSC’s milestone payments to the contractor • P 3 Canada Fund investment offers incremental value for money and a resultant incremental reduction in AMWSC’s costs of water provision Value for Money Without P 3 Canada Fund Investment (1) $ 33. 3 M 10. 6% With 25% P 3 Canada Fund Investment (2) $ 83. 5 M 26. 7% (2)-(1) $ 50. 2 M 16. 1% Incremental VFM From 25% P 3 Canada Fund Investment 7 © Deloitte & Touche LLP and affiliated entities.