Positioning P3 for Success and Applications for Energy Sustainable Energy Workshop 2012

1. Positioning P3 for Success and Applications for EnergySustainable Energy Workshop 2012 Deloitte Consulting LLP August 2012

2. About Deloitte Deloitte is a leading professional services firm with a commitment to energy and sustainability Industries Services Consulting Audit and Enterprise Risk Financial Advisory Tax • Strategy & Operations • Human Capital • Technology • Finance Operations and Controls Transformation • Financial Instrument Valuation & Securitization • Governance, Regulatory & Risk Strategies • Corporate Finance Advisory • Capital Projects • Business Valuation • Global Business Tax Services • Multistate Tax • Indirect Tax Sustainability

3. Contents Positioning P3 for Success Applications for Energy • Definition of P3 • A Case Study and Lessons Learned • Strategic Considerations • P3 Execution Challenges • Solutions

4. Positioning P3 for Success

5. Definition of P3 IP3 enables an overall energy and sustainability strategy and the definitions are broad A public-private partnership, or P3, refers to a contractual agreement formed between a government agency and a private sector entity that allows for greater private sector participation in the delivery of public projects. Compared with traditional procurement models, the private sector assumes a greater role in the planning, financing, design, construction, operation, and/or maintenance of public facilities.

6. Definition of P3 IIAt the Federal level, there are lesser-known tools in the P3 toolbox that can be used to great affect

7. A Case Study and Lessons Learned IA successful P3 can come together through many different types of transacting mechanisms Deloitte served as strategic advisors to the Government of Bulgaria on the long-term concession of Bulgaria’s Black Sea Coast airports. We performed an options analysis in close consultation with the Government, proposed amendments to the enabling environment for P3, assisted the Government to create a core base of stakeholder support, managed interactions with strategic investors, assisted in the conduct of the competitive tender, and built the capacity of the Civil Aviation Authority to be a strong partner for this P3. The Government received 4 proposals from leading airport development groups, and accepted the proposal from Fraport, the international arm of the Frankfurt International Airport, with an estimated total value in excess of $500M USD, while securing the long-term development of these strategic assets.

8. A Case Study and Lessons Learned IIEstablishing governance up-front helps to ensure a successful transaction and subsequent operate environment Project Development and Implementation: Pre-feasibility activities Due Diligence: legal, environmental, technical and social • Developed capital expenditure plan for 10-years • Identified problem with Civil Aviation Act Financial Analysis • Developed traffic forecast and financial modeling • Clear projections on key issues: future costs /returns to public sector and user charges International Market Study • At the macro-level by sector • Detailed review of individual aviation projects Options Analysis • Public vs. private operation • Issue: To bundle the airports to make more attractive

9. A Case Study and Lessons Learned IIISelecting the optimal framework is a first step to a functioning governance model for the P3 Selecting a Model

10. Applications for Energy

11. Strategic Considerations IERCOT faces some difficult supply challenges in the near-term future According to the most recent ERCOT capacity report, reserve margins are forecast at less than 10 percent by next year ERCOT, May 2012 Coal and natural gas make up the largest share of generating capacity in Texas with more reliance on gas expected in the future ERCOT, May 2012

12. P3 Execution Challenges IBreaking down barriers to P3 execution requires tenacious problem solving Above or Behind the Meter Direct interaction with the grid will be one of the larges and most tangible sources of value for the P3. The P3 should be structured to optimize the strategic objectives of both parties in the transaction. Own or Lease Asset ownership comes with risk and will greatly impact pricing considerations Risk Management Establishing a governance model that can last the duration of the lifecycle Future Energy Prices Developing a strategic view of future prices is critical to success Contracting The federal government has an array of available tools but their use is complex Mandates versus Value Selecting the optimal balance of mandates versus value will drive tactical considerations such as the type of contracting vehicle used. $.05per kwh price electric $50M annual energy cost 3% annual energy goal 1055 GWh annual energy consumption Raising Capital New funding sources require networked outreach to stakeholders 727,485 metric tons of carbon emitted per year

13. P3 Execution Challenges IINIST Supplemental 135 has serious analytical shortcomings, which can lead to faulty P3 pricing Measures of future prices are based on census zone, which has little direct applicability to electric markets South Region According to NIST forecasts, electricity escalators are flat out to 2022, excluding general inflation

14. P3 Solutions IIEven before considering spot prices and DR opportunities, long-term energy economics in Texas yield potential Our analysis shows that TRE South could see significant price increases by 2030 with more than a doubling of prices from today’s level in nominal terms. With large generating capacity needed in the region, a number of pricing assumptions should be evaluated to determine future strategy.

15. P3 Solutions IIIAlthough energy prices are local, energy markets are integrated and have global reach In today’s world, local decisions quickly bump up against international factors. Long-lived P3 assets will be impacted by these factors well into the future.

16. P3 Solutions IVInternational markets could be knocking at America’s door; what are the scenarios to consider? Impact of LNG Exports on Average US Citygate Gas Prices A recent Deloitte analysis forecasts a marginal affect on domestic gas prices as a result of LNG imports. Despite varying worldviews, strategic flexibility enables strong organizations. Price Impact by Region As compared to the NIST 135 census regions, local markets and regions are a key factor in forecasting future prices. Source: Deloitte MarketPoint

17. P3 Solutions VWith a compelling and targeted value proposition, sources of capital reach beyond traditional buckets Tried and true P3 tools for energy will be a major source of project funding with ARRA funds expended While not typically a source of outsized returns, energy project financing can go a long way to solving the asset / liability mismatch facing the U.S. and other developed economies

18. Solutions VStructured processes help drive execution through the transaction phase and beyond Sample Level 0 Process Steps for PPA and EUL Level 0 Process Steps Select Agent Issue Info Request Issue Quals Request Develop RFP Issue RFP Administer RFP Evaluate Proposals Award Design Project Construct Project Commission System M&V Performance End Oversight 13 PPA Level 0 Process Steps Develop scope Notice of Opp. Issue Notice of Opp. Evaluate Proposals Select Contractor Lease and Mgmt. Plan Issue Lease Design Project Construct Project Commission Project M&V Project End Oversight 12 EUL Source: Federal Energy Management Program

19. ConclusionEnergy and sustainability strategy drives capital budgeting decisions and P3s support and enable execution • After designing a project that best meets an organization’s strategic goals and objectives there are many P3 options that can support successful implementation and operations. • Careful consideration is required to ensure that both parties achieve the maximum risk-adjusted value from the projects while ensuring the transaction gets done and service is maintained.

20. Thank You

21. For more information Alexander Kasuya Manager, Deloitte Consulting akasuya@deloitte.com www.deloitte.com www.deloittemarketpoint.com