HomeMy WebLinkAboutResolution 4258-11-2013 A Resolution
NO. 4258-11-2013
ADOPTING THE RECOMMENDATIONS OF THE
WATER UTILITY TASK FORCE
REGARDING THE CITY'S OPTIONS FOR PUBLIC/PRIVATE PARTNERSHIPS
TO DELIVER WATER AND WASTEWATER SERVICES
AND DISSOLVING THE WATER UTILITY TASK FORCE
WHEREAS, the City of Fort Worth Water Department provides drinking water,
reclaimed water, and wastewater services to more than 1 . 1 million residents of the City
of Fort Worth and surrounding communities;
WHEREAS, the City Council has an interest in optimizing utility operations,
thereby reducing the costs paid by ratepayers for water and wastewater services,
WHEREAS, on March 5, 2013, the City Council appointed a Water Utility Task
Force (Task Force) of community and industry leaders to advise the City Council on the
City's options for the management of the utility by Resolution No. 4185-03-2013;
WHEREAS, on or about March 12, 2013, the City entered into City Secretary
Contract No. 44271 with FMA, Inc. to develop and manage a solicitation process to
evaluate options for public/private partnerships involving the management and operation
of the City's water and wastewater utility (later assigned to Brio Consulting, L.L.C.);
WHEREAS, the Task Force met oil April 3, May 8, May 20, August 21,
September I I and October 16, 2013 to evaluate public/private partnership models for the
delivery of municipal water and wastewater services to residential and commercial
consumers;
WHEREAS, on June 5, 2013, the City issued a Request for Information for
public/private partnerships for the management of the utility; and the Task Force
carefully reviewed the proposals the City received;
WHEREAS, the Task Force conducted one public meeting oil September 24, 2013
to receive comments from the citizens of Fort Worth regarding a public/private
partnership to deliver municipal water and wastewater services;
WHEREAS, upon review of the submittals, the evaluation of certain financial and
legal analysis, and the receiving of public comment, the Task Force determined oil
October 16, that entering into a public/private partnership to deliver water and
wastewater services is not in the City's best interests and that the City should conclude
its investigation and continue to operate the water and wastewater utility;
RTWORT
Resolution No. 4258-11-2013
WHEREAS, in addition to determination that the City Council should not
consider entering into a public/private partnership any longer, the Task Force made
certain findings and recommendations regarding the City's option for a public/private
partnership to deliver water and wastewater services as attached as Exhibit A of this
resolution for the City Council's consideration; and
WHEREAS, Brio Consulting, L,L.C. has provided an overview of the City's P3
Evaluation attached as Exhibit B.
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE
CITY OF FORT WORTH, TEXAS:
Section 1.
The City Council hereby adopts the findings, determination and recommendations
of the Water Utility Task Force regarding the City's option for entering into a
public/private partnership to deliver water and wastewater services as described in
Exhibit A.
Section 2.
The City Council hereby directs the City Manager to take the following action:
1. Close the investigation on the City's option for entering into a public private
partnership to deliver water and wastewater services;
2. Explore the new revenue stream suggestions submitted by the Water Utility Task
Force;
3. Expand the Water Department's existing continuous improvement program and
coordinate with the City's Lean Six Sigma Program;
4. Consider opportunities for the Water Department to partner with other departments
to optimize interdepartmental business processes; and
5. Continue internal departmental evaluation of strategic outsourcing opportunities for
specific services,
Section 3.
The City Council declares that the Water Utility Task Force is hereby dissolved
upon adoption of this resolution.
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Resolution No. 4258-11-2013
Adopted this 12`h day of November, 2013.
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EXHIBIT A
CITY OF FORT WORTH WATER UTILITY TASK FORCE
FINDINGS AND RECOMMENDATIONS
City Council resolution 4185-03-2013 established a Water Utility Task Force for the purpose of
evaluating public/private partnership models. The Task Force has completed its investigation.
The following table lists each of the Mayor and Council's charges to the Task Force and
summarizes its findings with respect to each charge.
Determine the feasibility and desirabOity of 0 Rates would very likely be higher under
pursuing puhfic/pnvate partnerships that may large scale private operation with no
result in lower costs for utility customers and additional Value to ratepayers or the City,
that may add value for City ratepayers and 0 No interest in P3 expressed by the public
municipal government.
Identify alternatives for the management and o Department is well rnanaged and already
operation of the City's water and wastewater operates efficiently. No c-ompelling
systems argurnent for large scale privatization,
Assess the legal and fiscal implications of 0 Fiscal impacts very like y include higher
public private partnerships costs and higher rates
• Large scale privatization would
contractually limit Council's options for
directing City's growth and economic
development,
1. The Task Force has determined that the City Council should continue public operation of the
utility and close the public private partnership investigation.
2. On the basis of these findings and determination, the Task Force offers the following
recommendations to the Mayor and Council:
A. Explore the new revenue stream suggestions submitted to the Task Force.
13. Continue and expand the Water Department's existing continuous improvement program
and coordinate with the City's Lean Six Sigma program.
C. Consider partnering the utility with other City departments to optimize interdepartmental
business processes.
D. Continue internal departmental evaluation of strategic outsourcing opportunities for
specific services.
The recommendations and findings of the Water Utility Task Force are voted and approved this
day, October 16, 2013, by the undersigned.
1 of 2
The Water Utility Task Force is prepared to discuss its findings and recommendations at the City
Council's request.
Bob Pence-Chair Marty Leon OU- Member
17 , UOIL-_
Laity�.6�sson - Member �arali Walls - Member
Raul Pena - Member Obbywa#n Member
Vernell Sturns - Membe?- Bob Riley- Membek
ZAJ, _ .,
fwf_\&Qtworth - member
Page 2 of 2
EXHIBIT B
EXECUTIVE SUMMARY
OVERVIEW OF FORT WORTH'S WATER UTILITY P3 EVALUATION
Background
In recent years, several private utility operations firms and financing companies have expressed
interest in leasing the utility's assets and/or operating the water and wastewater utilities.
The Water Utility Department underwent a detailed performance assessment in 2010. The study
concluded that the Department was extremely well run and that no significant changes in
practices were warranted. The study identified some specific opportunities for incremental
efficiency improvements, which the Utility subsequently pursued as part of a continuous
improvement program. In 2013, the City Council launched an investigation to determine whether
a public-private partnership (P3) could achieve even greater savings than those already
achieved by the Department.
Creation of Task Force and Retention of Consultant
The City Council established a Task Force of concerned, informed citizens to review P3 options
and make a set of recommendations to Council. The City Manager's Office and Water
Department identified a list of potential candidates for Task Force membership. The candidates'
backgrounds include engineering, banking, environmental law, and public administration.
Representatives of large water customers and regional water authorities were also identified.
The City Council reviewed the recommended candidates and appointed nine to serve.
Following is the text of resolution 4185-03-2013, which created the Task Force and authorized
the Department to retain the services of a consultant to support the Task Force
WHEREAS the City of Fort Worth Water Department provides drinking water,
reclaimed water, and wastewater services to more than 1.1 million residents of the City
of Fort Worth and surrounding communities;and
WHEREAS the City Council has an interest in optimizing utility operations,
thereby reducing the costs paid by ratepayers for water and wastewater services; and
WHEREAS the City Council wishes to evaluate public/private partnership models
for the delivery of municipal water and wastewater services to residential and commercial
consumers while providing for the public health and safety of its citizens;and
WHEREAS the City Council wishes to appoint an ad hoc task force of community
and industry leaders to advise the City Council about the City'S options for utility
management;
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY
OF FORT WORTH, TEXAS:
Brio
Consulting
Section 1. The City Council hereby appoints a Water Utility Task Force to be
comprised of nine members, as follows:
1. Bob Pence (Chair)
2. Lairy Johnson
3. Marty Leonard
4. Raul Pena
5. Bob Riley
6. Vernell Sturns
7. Sarah Walls
8. Libby Watson
9. Jeff Wentworth
Section 2. The City Council requests that the Water Utility Task Force determine
the feasibility and desirability of pursuing public/private partnerships that may result in
lower costs for utility customers and that may add value for City ratepayers and
municipal government, identify alternatives for the management and operation of the
City's water and wastewater systems; assess the legal and fiscal implications of
public/private partnerships; and provide the City Council with appropriate
recommendations.
Section 3, The City Council requests that the City Manager provide the Water
Utility Task Force with appropriate staff support and external consulting services to fulfill
its mission as set forth in Section 2.
Section 4. The Water Utility Task Force shall be dissolved upon the completion
of its duties as set forth in Section 2, but not later than December 31, 2013.
External consulting support was provided by a team that includes Brio Consulting, EMA, and
SAIC.
Project Methodology
The City's consultants conducted one-on-one interviews with the Mayor and members of Council
to identify their individual expectations and concerns related to the P3 evaluation. The
consultant consolidated these perspectives to provide an overview for Department staff and Task
Force members,
Department staff compiled detailed information on 97 discrete utility functions, including current
service levels and costs. The consultants prepared case studies of different types of P3 models.
Staff and consultants presented the Council perspectives, utility background material, and case
studies to the Task Force over the course of several public workshops. The outcome of these
sessions was a decision by the Task Force to focus its evaluation on a specific set of P3
business models:
• Lease Concession. Under this model, the City grants a partner the rights to its utility
rate revenue stream in exchange for an upfront concession payment and annual lease
payments. The concessionaire engages a private firm to take over all or a significant
Overview of P3 Evaluation
Fort Worth Water Utility Task Force Page 2 of 8
portion of utility operations and the direction of the capital investment program. These
are typically long term contracts (20 or more years), and a significant portion of the
concession must be used to pay off the utility's debt prior to transferring the rights to the
revenue stream hV the concessionaire. This model is typically pursued when mlocal
government lacks the skills or expertise to operate the utility efficiently or when the local
government lacks adequate access tocapital.
• Contract Operations and Maintenance mt an Enterprise Level. This involves
selecting a private company to operate all or substantially all of the utility. Contracts are
typically awarded to one of handful of large corporations that specialize in this field.
Contracts are no more than five years in |enQth, and the City retains the rights to the
revenue stream. The contracts are very complex and involve multiple measures of
service and detailed methodologies for determining which ousts should be home by the
contract operator and which should be passed through to the City. This nnVdm1 is typically
pursued when a local government lacks the skills or expertise to run the utility efficiently.
• Contract Operations and Maintenance for Specific Services. This instrategic
outsourcing of specific functions that can be provided more cost-effectively by the private
sector, including large corporations ea well an smaller local firms. The Fort Worth Water
Department strategically outsources over$20M in services annually, including biosolids
handling, meter reading, and vvanto-ha-energyconversion.
• New Revenue Stream. Under this nnmdm/, a private partner designs, bui|dw, operates,
and potentially finances the development of new infrastructure that enhance revenues
and/or reduce operating costs. This model combines a private partnership for
infrastructure development with a contract for operations and maintenance of that new
infrmnhuoture, comparable ho the strategic outsourcing described eadier. This model in
pursued by utilities that lack the skills and expertise to develop and run the new
infrastructure. Private financing models may also appeal to utilities that prefer hn
dedicate their available capital to renewal and replacement and/or growth of existing
capacity rather than venturing into new services Vrtechnologies.
The Task Force worked with consultants and staff from the Water, Purchasing and Legal
Departments to prepare o detailed Request for Information /RF|\. The RF| invited respondents
to suggest partnerships based on any or all of the four P3 models described above. The RFI
included details onthe 97 discrete utility functions, including current service levm|s, work|Vod,
staff size, regulatory considerations, and annual costs. The RF/ instructed respondents to
identify which services would be provided under their suggested P3 model(s), to describe
specific steps they would take to reduce the costs of each function if cost savings were
anticipated, and to quantify the impact of these measures on costs, personnel, and service
levels. RF| respondents were required to provide other details, including:
• Experience with water and wastewater public private partnerships;
• Experience with regulated water utilities:
• Management nf capital deployment programs for large water utilities;
• History of operational work in the region;
Overview ofP3Evaluation
Fort Worth Water Utility Task Force Page 3 of 8
• Detailed description of the proposed P3 business model and overall impact of their
proposed solution on all stakeholders, including ratepayers, current utility employees,
regulatory agencies and the City.
The RFI explained that the purpose of this initial investigation was to evaluate the
appropriateness of particular P3 models for the City. Respondents were advised that the City
had the option of proceeding with a procurement process for a lease concession or enterprise
operations contract should the City find a compelling business reason to pursue one of these
models, and the City would limit the solicitation to those firms that responded to the RFI.
Because the City already pursues strategic outsourcing and new revenue streams as part of the
Water Department's annual planning and budgeting process, the RFI explained that compelling
responses for these models would be referred to City staff for further investigation.
The City posted a substantial amount of operational data on-line for RFI holders, opened a data
room where potential respondents could review sensitive data such as master plans and maps,
and conducted tours of major facilities.
The RFI was download 67 times. The City received 12 responses from seven different firms, as
follows:
2M Hill X
Cintra/Aqualia X
Fort Worth Forward (Severn Trent) X
Fort Worth Water Works (IMG) X
_John_s,on Contro_Is ____
_National—Development C_ou'nci_I X
-b—scar Renda X
United e d Wa ie._r X X
_X X
Three firms formally declined to respond.
The Task Force assigned a subgroup to conduct detailed financial and operational analyses of
the responses, and the full Task Force considered the results at several public workshops.
Overview of P3 Evaluation
Fort Worth Water Utility Task Force Page 4 of 8
The Task Force also took comments nta Public Input Meeting. The consensus of those who
spoke was that the utility was already well managed and that the public's interests would be best
served by continued public operation. Representatives of the development community indicated
that control of water and wastewater was an important economic development tool, and they
expressed desire for the Mayor and City Council to retain control of the utility and to continue
to invest in uU||h/ infrastructure to support economic growth.
Analysis ofResponses and P3 Models
Following is a summary of the analyses prepared for each of the P3 models,
Lease Concession
This model gonnened the most interest among respondents. Of the seven responses received,
four provided enough detail tocomplete a financial analysis. These four suggested contract
terms ranging from 20 to 50 years. None of these respondents suggested specific measures that
would reduce the costs of any of the 97 utility functions described in the RFI. Two suggested the
private operator would cut costs but provided no operational detail, and two assumed no change
in operational costs, specifically noting that the utility is already run efficiently with appropriate
staffing levels.
The consultants calculated the present value of the baseline cost nf operating the utility for the
various contract terms suggested hv the respondents (20. J0 and 5Oyears). Identical
assumptions regarding inflation and capital investment levels were applied to each response,
and those responses that suggested reductions in capital or operating costs were given the
benefit of the doubt and were evaluated under the assumption that such reductions were
achieved. The consultants assumed a higher financing cost for the private companies because
of their need to finance the utility with taxable debt and equity as opposed to the tax free debt
available to the City.
Following is m summary of the present value (P\/)ona|yais, which shows the total baseline nos(
of operations for the entire term of the suggested contract stated in today's dollars. The costs for
continued operation by the City were compared tocosts of private operation byaconcessionaire
both before profit and taxes and then with a modest assumption of 7.5% profit. The analysis
includes all operating and capital cost reductions suggested by respondents. In all cases, the
City was found tobe the most cost-effective operator,
Overview ofP3Evaluation
FortkYhrthNa(o/Util//y7exkFo/co Page 5of8
Present Value of Baseline Cost of Operating the System
IMEMEME
Comparison of 20 Years, $6,68
j With no savings $7.6B $7.8B City
Comparison of 30 Years $9113
With no savings , $11.48 $11.6B ! City
4..
With moderate savings $10AB $10.7B City
Comparison of 50 Years $15,68.
With aggressive savings ; $15.68 $15.9B City
Among the reasons for the higher costs of the P3 are the following:
• The City would incur debt defeasance costs, including the costs associated with retiring
non-callable debt (i.e., cost of retiring bonds ahead of schedule). The City's bond
counsel advised the Task Force that the City would not only have to retire the utility's tax
free bonds but also the City's share (roughly 60%) of the tax free debt held by the
Tarrant Regional Water District(TRWD), and the Task Force concluded that the City
would likely have to bear the full administrative cost of retiring the current TRWD debt
and reissuing it as a combination of taxable debt for Fort Worth and tax free debt for the
remaining TRWD partners.
• The loss of access to tax-free debt would result in higher financing costs for the
concessionaire compared to those borne by the City.
• The amount of debt that would have to be defeased is substantial (over$1 B in current
City and TRWD bonds), and the cost of debt defeasance must be funded by the
concession, which is functionally a loan that must be repaid through utility rates.
The financial analysis concluded that the costs of operating the utility would be higher under a
lease concession model and that these higher costs would be passed on to the ratepayers.
Enterprise Contract Operations and Maintenance
There was very little interest in this model. Only two firms responded, and both of these firms
also provided lease concession responses. There were no substantiated or credible
recommendations for cutting costs through the enterprise contract. However, both firms made
general claims that costs would be reduced and suggested that the cuts would be achieved by a
reduction in staffing levels over time. Although operational experts advised that service levels
would be negatively affected by such a significant reduction in headcount, the Task Force
explored whether an enterprise contract under such terms would be beneficial financially. The
Overview of P3 Evaluation
Fort Worth Water Utility Task Force Page 6 of 8
analysis concluded h was highly unlikely a private operator could provide the level and speed nf
cost cutting required b> offset the cost nf negotiating and administering am enterprise operations
and maintenance contract. Ana result, this model would increase the cost of operating the
utility, and these higher costs would bo borne byratepayers.
These findings were reinforced by statements submitted to the City by reputable finna who
evaluated the utility's current costs and service levels:
"The water and sewer departments are efficiently run, and no downsizing is anticipated as the
number of personnel seems appropriate for the size fani|ity.^
- C/ntralAqualie (stated/n lease concession submittal)
"SJW believes that Fort Worth's water utility is a well-managed system... well-managed and
efficient utilities seldom realize significant benefits from contracting operations, without possibly
compromising service, reliability, safety and/or incurring additional cost."
-San Jose Water(stated in letter declining to respond)
Contract Operations and Maintenance for Specific Services
The Water Department already outsources a number of functions, including meter reading,
biosoUdspruoeosing and disposal, was(e-bo+energyproduction, and large diameter pipe
inspections, among others. The total value of these contracts in approximately $2OK4 per year.
Utility personnel routinely evaluate service levels and costs a0 they determine which functions
should be performed by City personnel and which should beoutsnurced.
The City provided the opportunity for respondents in suggest strategic outsourcing of additional
functions beyond those already under contract. Respondents were invited hn suggest services
for any combination ofthe 97 utility functions described inthe RF|. Nn responses were
submitted.
New Revenue Stream
The City received one response in this category. The response included two suggestions. The
first was hn expand vvawha-to'energyproduction. The respondent provided sound financial
analysis based on the utility's current operations, and this suggestion was found tobein line with
utility's current plans. The second suggestion involved the introduction nf new meter reading
technology, and this suggestion appeared to warrant further investigation,
Task Force Findings
The following table lists each of the charges to the Task Force and summarizes its findings with
respect hn each charge.
Charge to Task Force Finding
Overview ofP3 Evaluation
Fort Worth Water Utility 7aohForce Page rof8
Determine the feasibility and des�rabildy of 0 Rates would very likely be higher under
pursuing pubi�c,,Jprivate partnerships that may large scale private oper,ation with no
result in lower costs for utility customers and additiona� Value to ratepayers or the City.
that may add value for City ratepayers and 0 No �nterest in P3 expressed by the public.
municipal government.
Identify alternatives for the management and * Department is well managed and already
operation of the City's water and wastewater operates efficiently, No compelling
systems. argument for large scale privatization.
Assess the legal and fiscal implications of 0
Fiscal impacts would very likely include
publi(:�private partnerships higher costs and higher rates
6 Large sruile privatization would
cc)ntractually limit Council's options for
directing City's economic growth and
The Task Force also learned that the City cannot issue new tax-free utility debt while
investigating the possibility of a lease concession, and TRWD may also be affected by this rule.
Taxable debt is considerably more expensive than tax free bonds. Therefore, it is important to for
the City to formally close its investigation if it chooses not to pursue a lease concession.
Determination and Recommendations
1. The Task Force has determined that the City Council should continue public operation of the
utility and close the public private partnership investigation.
2, C}n the basis of these findings and determination, the Task Force offers the following
recommendations to the Mayor and Council:
A. Explore the new revenue stream suggestions submitted to the Task Force,
B. Continue and expand the Water Department's existing continuous improvement program
and coordinate with the City's Lean Six Sigma program.
C. Consider partnering the utility with other City departments to optimize interdepartmental
business processes.
O. Continue internal departmental evaluation o[strategic outsourcing opportunities for
specific services.
Over-view ofP3 Evaluation
Fort Worth Water Utility Task Force Page 8o/8