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Exploring Private Financing for Water Infrastructure Prescott Valley, Arizona. John Munderloh Water Resources Manager Prescott Valley, AZ. Town of Prescott Valley. Founded 1978 38,000+ people 44,000 in water service area
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Exploring Private Financingfor Water InfrastructurePrescott Valley, Arizona John Munderloh Water Resources Manager Prescott Valley, AZ
Town of Prescott Valley • Founded 1978 • 38,000+ people • 44,000 in water service area • 18,000 service connections • Provide municipal water to people, businesses and cattle • 5,100 feet above msl • 12” annual rainfall
Prescott Valley Water(circa 2005) • In water business for about 8 years • 2004 IGA with Prescott – Big Chino Water • Town needed $ to pay its share • Current customers did not want to pay for it • Rates and impact fees from future customers are years away • Water Supply (CAWS) for existing platted lots only • Supply of platted lots likely to be consumed by 2012 • Need water rights for planned development, money to pay for water infrastructure, and infrastructure to prove up the water right
Water Rights Catch-22
Breaking the Cycle • Explored if Big Chino water rights (ARS 45-555(E)) have value to pay for project. • ADWR concluded that uncertainties about pipeline construction would not meet qualifications for an assured water supply. • Town concluded that water rights not meeting AWS criteria have very little value
Effluent as an AWS Supply • Town asked ADWR to recognize credits for effluent that has not yet been recharged. • ADWR agreed that future effluent credits would meet AWS criteria based on: • Existing and platted lots based on CAWS (pre-declaration) • Existing infrastructure to capture and treat wastewater • Existing permitted capacity in the Town’s recharge facility • Demonstrated annual recharge credits
First Public Water Auction • Auction process used to sell other excess Gov’t properties • Transparent process – no backroom deals • Generate highest and best value for community • True market value for water resources (typically subsidized by governments)
Water Sale Requirements • Water must be used in Prescott Valley • Water rights can be re-sold • Must be used within 25 years or Town regains control of water rights • Town gets full payment at sale
Auction Day • Held auction in October, 2006 • Had no conforming bids, one non-conforming bid • We failed, but we made first contact with private water equities
Aqua Capital –Price Floor Agreement • Negotiated more favorable (flexible) terms to attract private investors • Developed a Price Floor Agreement • Aqua Capital agreed to take deal at a pre-negotiated price • Town can sell at a better price (but pays a breakup fee) • Price Floor Agreement and Auction Bid documents conformed in all aspects except unit price of the effluent.
Price Floor Agreement (cont.) • Price Floor established minimum opening bid (>$19,500 per ac-ft) • Town obtained an insurance policy - a guaranteed purchaser.
Auction Day – Round Two Qualified Bidders: • Aqua Capital Management • PV Developers Consortium • Water Property Investors • Winning Bid: • Water Property Investors, LLC • $24,650/acre-foot • 2,724 acre-foot total package • valued at $67 million www.waterinv.com
Awards • Recognized by Global Water Intelligence and the International Desalinization Association for “Water Deal of the Year” 2007 (second place).
Some lessons • Need a “Bridge” to fill time gap between loan repayment and revenue stream • In this case “Bridge” financing was based on existing infrastructure and water supplies (WWTP & Effluent) • Water rights have value only if AWS-eligible • As a water provider, we know water, not water markets • Private sector is better at structuring risks and terms of a deal
Exploring Private FinancingBig Chino Project • Expressions of Interest from 13 multi-national firms • Eight firms met to provide thoughts on how they might deliver the project • Common theme: • Financing package can be structured multiple ways • Risk is shared or allocated to party best suited to manage it • The public partner needs a P3 expert that can speak the language and be their advocate
Sample Finance Options – P3 • Duration of Equity Agreement (BOOT) • Graduated payment related to increased water demand • Take or Pay • Commodity marketing • Pledge user fees • Combine distribution utility and conveyance infrastructure to develop immediate revenue stream
Request for Qualifications • Finance, Law and technical services - 37 responses • Lesson – pick the financial expert first, then they will advise about the other fields of expertise