zone 3
Post on 14-Sep-2014
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Using Private Capital to retrofit PCWA Zone 3 water related infrastructure
By Yavapai Regional Capital – a regional infrastructure merchant bank
Working Draft for comments
Background
2March 2010
2005 LAFCO Municipal Service Review identified serious deficiencies in water infrastructure in Zone 3
Wells in fractured rock supply most of the well water
Sewage and water can interact in Zone 3Zone 3 is a potential “Katrina Fire”Upper canal flumes are fragile needing
investmentA fire chute containing I-80, UP Rail and fuel
pipelinesZone 3 historically has been the garden of
Placer County– potentially some of the most valuable real estate in
North America from Auburn to Lake Tahoe
Yavapai Regional Capital
3
PCWA Zones
Placer County is approximately the size of Rhode Island
District 5 corresponds closely to PCWA Zone 3
4
PCWA Zone 3 = District 5 I-80, Union
Pacific Railroad and
fuel line
5
Zone 1•$100mm COP debt•100,400 aft/pa•Renegotiate in 2013•Subj. to curtailment
Middle Fork•$100mm claim•License in 2013•Unregulated market•Est. value $1Bn•Based on 10x FCF
Zone 3•25,000 af/pa•Essentially free•For ever•Est value $500mm•No curtailment[?]
PCWA
Joint Powers Authority[Grantor
Trust]
50/50 County/PCWASponsorship
Profits after debt service split 50/50
$1.3 Bn County Managed Fund
[Special Districts]
$100 mm
30-yr Loan
• $100mm Advance Sales/Production Payment•Fair value of “scrap” if no FERC license as 2nd way
out
Individual entities are “ring fenced” as statutory entities subject to “fair consideration
rules
Background
6March 2010
With a new District 5 PCWA Director, Zone 3 now benefits from its own Zone Advisory Council
Zone 3 is a separate statutory entity within PCWA
Benefits from its own dedicated 25,000 acre ft/pa “almost free” water contract – for ever
Essentially equivalent to free gasoline for ever for residents for use within Zone 3
Water is worth more than gasolineYavapai Regional Capital
Background
7March 2010
Comparable transactions equate value of free perpetual [renewable] water at $500million
This is equity belonging to Zone 3 residentsIt’s a real crown jewelUnlike the Middle Fork it does not depend on
A future licensePrior debt service claimsUnregulated power markets
This equity can be leveraged with intelligent debt
Yavapai Regional Capital
The Zone 3 contract
8March 2010
Dated November 17th 1982Not just a sales contract but also conveys
propertyWater goes with the landPotentially immune from statewide cut-backs 25,000 acre feet/p.a.1st 13,000 acre feet/p.a. is freeComplex rebate system after thatAt certain volumes – PG&E pays PCWAPrice can be NEGATIVE
Yavapai Regional Capital
The Zone 3 ambition
9March 2010
Key is to define plan and inherent business risk
Engineer CIP without financial constraintsDesign the project of your dreams
Balance complementary needs of Drinking water & sewage maximizing
technology Fire safety needs for water along I-80 corridor Biomass as fuel load controller
CIP and financial plan will determine financial leverage of $500mm equity
Yavapai Regional Capital
10
The Zone 3 ambition
2-3 x believed achievable = $2BillionWith MF completion guarantee 5x
possibleUp to $3bn - or moreSee letter to Brian Martin 12/7/05Bigger bank for the buck because of
no prevailing wages with MHAAA structure
Key issues
11March 2010
How to optimally ring fence Zone 3Interaction of Zone 1&3 systems means
mutuality must be factored in – physical redundancy has value!
This is NOT secessionHow to allocate costs of canal rebuilds
between Zones 1/3 – particularly upper stretches
Zone 3 could rent new infrastructure to Zone 1
Credit-worthiness of other PCWA counterparties
Yavapai Regional Capital
Key Issues
12March 2010
Zone 3 is analogous to a publicly held corporation with substantial minority interests
These must be protected by arms-length dealings
No big deal - a balanced negotiationExperienced advisers on both sides is normalFairness opinions will be neededIntegrating PCWA engineering
Yavapai Regional Capital
Key Issues
13March 2010
Environmental and anti-growth issues to be dealt with
Except PCWA District 5 voters spoke in November 2008 We want water!!!
Take positive aggressive stance on environmental issues with good engineering
Convince populace it’s good long term business
As is integrated regional planningDon’t create “islands” of poor infrastructureYavapai Regional Capital
Action Plan
14March 2010
Public PolicyMust not be seen as privatizationSee following slide for new hybrid public-
privateRetains electoral control
Legal analysis is key Define engineering plan together with PCWAFinancial plan and credit analysisAttract equity investors and debtOrganize “buy-in”
Yavapai Regional Capital
15
Action Plan - Time frame2010 – Continue building grass roots base in
Zone 3Persuade PCWAZone 3 appoints adviser before year-end2011 – Legal, Financial and Engineering Due
Diligence2011 – Target CIP and Financial Plan by year-
end2012 – Implement Financial Plan & Financial
Close2012 – Financial Close by year-end2013-2018 - IMPLEMENT IN 5
MODULES[say]
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Public Policy
Public Agency
Investor owned utility
[Cost plus]Electors CPUC
MHAAA & Zone 3 model – True Public Private Partnership
Public AgencyElectors
Design, Build,
Finance & OperateVehicle
Contract
OR
Traditional U.S. Water Model
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Financing Structure
DesignBuild
FinanceOperateVehicle
$1.3 Bn County Managed Fund
[Special Districts]
Zone 3 Commercial Bank Project
Finance Loan
2013Middle Fork
Zone 3 Project Finance Loan secured •Charge over Zone 3 project assets•Counter guaranteed by MF assets•Until completion
Refinance at completion
Sponsors include private
investors
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Why YRC?YRC was inspired by MHAAAWorld-class team who understand local coffee
shopsTransparencyPublic PolicyEngineeringFinanceComplex Transaction ManagementBuy-in expertise – selling complex “toothpaste”
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What it takesEngineering must drive the projectFinancial engineering comes secondAn ambitious Zone 3 CIPAmbition – rewards are enormousA new model for regional developmentJobs and property values the potential
prizeA “P3” win for California – after SR125!
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Some key playersHomeland Security & Fire ChiefsFire insurers – invest now rather than pay
later!Schwarzenegger/David CraneTom McClintoch/Karin GlennUnion Pacific RailroadJet Fuel pipeline ownersLead equity investorsSquaw Valley Olympic sponsors potentially