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P3 VALUE 2.0 Webinars
Session 3a: Project Delivery Benefit-Cost Analysis Exercise Review

February 29, 2016
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  • Presentation: PDF  |  HTML
  • Transcript: HTML
  • Exercise Assignment Answers: Word
  • Webinar recording: Audio


Jordan Wainer: On behalf of the Federal Highway Administration Office of Innovative Programs and Delivery, I'd like to welcome everyone to today's webinar on Project Delivery, Benefit/Cost Analysis. And today we're doing an exercise review. My name is Jordan Wainer. I'm with the U.S. DOT's Volpe Center in Cambridge Massachusetts and I'll be moderating the webinar and facilitating Q&A period. I'd like to point out a few key features of our webinar room. On the top left side of your screen, you will find the audio call-in information. If you are disconnected from our webinar at any time, please use the call-in information to reconnect to the audio. Below the audio information is a list of attendees. Below the list of attendees is a box titled "Materials for Download," where you may access a pdf copy of today's presentation. Simply select the file, click "download file," and follow the prompts on your screen. In the lower left corner is a chat box where you can submit questions to our presenters throughout the webinar. Our webinar is scheduled to run until two o'clock today Eastern and we're recording today's webinar for anyone who is unable to join us. All lines are muted for now but we'll provide instructions for how to ask your questions over the phone at a later time. And, with that, I will turn it over to Patrick DeCorla-Souza.

Patrick DeCorla-Souza: All right, thanks, Jordan. And welcome to this webinar which is a follow-up to the webinar we held a week ago on Monday last week on project delivery benefit cost analysis. So this is the exercise and we are going to review the exercise that we assigned at that webinar. These are the instructors: myself Patrick DeCorla-Souza, and Wim Verdouw from IMG Rebel. So this is, as I indicated, one of several webinars that we have been presenting since January 25. The first one provided an overview of the P3 evaluation process. The next one was on value for money analysis along with an exercise that followed a week later. And last week, as I indicated, we had the Project Delivery Benefit/Cost Analysis webinar, and today we are reviewing the assignment exercise that we provided at the last webinar. There will be two more webinars on topics, first of risk evaluation and then on financial liability assessment. And the risk webinar will be held a week from today. The financial liability assessment webinar will follow two weeks after that. The purpose of the exercise is to learn how to enhance value for money analysis using benefit/cost analysis procedures which take a societal perspective. And we are going to do this using P3 Value. We will also use P3 Value to test the impacts of alternative travel growth assumptions on net benefits. As you may be aware, travel growth is one of the most unpredictable or most uncertain aspects of a P3 or any project that involves tolling. And so, in this test, we will test whether alternative travel growth projection still provides sufficient benefits to make the project worthwhile and if P3 is still worthwhile under those scenarios. Finally, we will test the impacts of assumptions that you might make in your initial evaluation, relating to the quality of service that a P3 might provide. And these might include pavement ride quality, for example, or incident response time, and other benefits of a P3 that might exceed those that are provided with conventional delivery by the public agency. So we will go through several parts during this webinar. The first would be an introduction which will describe the project that we will be using in this exercise. Part A will simply review the project delivery benefit/cost analysis process and results. Part B, we will test the alternative travel growth assumptions. And, finally, in Part C, we will test the impacts of the P3 quality of service assumptions made in the initial project evaluation. And, finally, we will end with a recap of the webinar. So, with regard to project background, it's the same as what we had used for the value for money exercise a couple of weeks ago. Included in the spreadsheet is an evaluation by a state DOT to estimate the social benefits and costs of P3 delivery for a specific highway project. So all the inputs for that project are already in the spreadsheet and all we will be doing in this exercise-- we'll be using those inputs to first interpret the outputs that come from the initial evaluation by the state DOT. And then, to test alternative assumptions that the state DOT may have made. Or alternatives to the assumptions that the state DOT may have made with regard to travel growth and to the potential benefits in terms of quality of service that might be provided by a P3. The project is a 20 mile long expansion. Existing are three lanes, which are general purpose lanes. The improved project will include those three general purpose lanes, which will remain free but also would add two managed lanes which would be tolled and this would be in both directions. The costs of the project are a total of $425 million. Routine O&M costs are $4 million a year and every eight years there is major maintenance of $10 million. The projected start date of construction was 2015 and it would be two years long. That's when the design and other right away acquisition and other preliminary activities would be completed. And construction would start in 2017 and would take four years under the conventional delivery approach. Now, with the P3 approach, we-- the inputs provided by the state DOT indicated that it would be only three years. That is one year shorter than under conventional delivery. And, finally, the operations would start after completion of construction in 2021 for the conventional delivery and in 2020 for the P3 delivery. However, what the end of the term of the concession would still remain 40 years after 2021. So there would be an extra year of operations under the P3 project. Let's stop and see if there are any questions and, again, feel free to-- I think the lines are all unmuted, since we have just a few people ion the line. So feel free to ask any questions at this time. Okay, hearing none, let's move on. There was one question that remained from the webinar last week from David Luskin and David asked, "What is the basis for estimation of pavement roughness impacts on vehicle operating costs?" And we had a table that showed the impacts with regard to fuel cost reductions and non-fuel cost reductions. And these were based on a measure called an International Roughness Index. Now what we are-- the source of this information for the fuel cost adjustment was the "Surface Characteristics of Roadways International Research and Technologies," dated 1990 and "Vehicle Road Interaction" dated 1994. And the source for the non-fuel cost adjustment was "NCHRP Report 720," and both of these references are cited in the user guide in section 3.6.5. So let me move on and start off with Part A which is "Reviewing the Project Delivery Benefit Cost Analysis Process." So we are going to use the training module in P3 Value and the training module specifically on project delivery benefit/cost analysis. And we will review the inputs for the delayed conventional delivery or delayed PSC analysis and the outputs. Similarly review the conventional delivery or PSC inputs and the outputs from the analysis. We will review the P3 option inputs and the outputs from that analysis. And finally, based on these outputs, we will assess what the net benefits are with regard to the project itself, the extra benefits that might be obtained by accelerating project deliver, and finally any extra benefits that we might obtain from P3 delivery per se as against conventional delivery. So the first-- what we are going to cover momentarily showing you the Excel P3 Value model are first the PSC inputs, and the PSC is the conventional delivery in the same timeframe as the P3. And the costs and the timeline are exactly the same as what you would've seen under value for money analysis if you did that exercise. So there's build phase costs for construction and preconstruction and financing fees. And we don't implode financing in benefit costs, that is debt service and equity dividends or any other type of such financing which is considered a transfer in benefit cost analysis. But we do include financing feels. Because those are really cost for services, there are resources used in preparation of the debt documents and things of that type. And so financing fees are real resource costs and they're included in the PSC cost. Finally, the operations phase costs include operation and maintenance as well, which is routine operations and maintenance as well as periodic major maintenance that might occur maybe every eight or ten years. So that's all the costs and they're going to be similar to what we saw in the value for money analysis. There are risk inputs but we are going to cover that in the next webinar which would be next Monday. And then there are inputs relating to social benefits and user benefits are things such as travel time, vehicle operating costs and accident costs. And those inputs include things such as travel speeds and congested speeds, calculated from those input speeds. And in addition to user benefits, you have externalities and the one included in P3 Value is the cost of emissions. The delayed PSC inputs are basically the same as PSC inputs. The only difference is that, in the delayed PSC, they occur much later because of funding constraints. The project is delayed and so all of the costs occur and, of course, benefits are delayed. So the costs occur later on, depending on how soon funding can be obtained. The P3 option is based on adjusting the PSC costs. And, as we saw in the value for money analysis, we see we just simply take the same costs that we had estimated for the PSC and assume some percentage of efficiency and those are then used by the model to calculate the costs of the P3 option. Risks, again, we will cover in webinar four next Monday, and, finally, social benefits. In order to compute the user benefits and the externalities, we need to understand what are the differences with a P3 delivery that might affect those user benefits and externalities. So listed here you have timing of completion of construction. That would advance benefits, for example, so you'd have an extra year of benefits if completion of construction was one year earlier than under conventional delivery. If traffic ramps up faster onto the P3, you might have more users, and more users means that more benefits are accrued to society. Pavement ride quality, as I'd indicated, there are some adjustments to fuel costs and non-fuel costs based on the ride quality of the pavement. And those can be estimated. The differences in fuel and non-fuel costs can be estimated based on the difference in pavement ride quality. Work zone practices affect the amount of time that the facility is open, that is that all of the lanes are open for use. And, if you have operations and maintenance that takes longer on the conventional delivery than under P3 delivery, then there is a benefit to users in P3 delivery because they're delayed for a shorter duration of time. And that is an input. The duration of time that users might be delayed is an input in P3 Value. Finally, incident response. Because of better incident response management potentially under a P3, you might again have an incident cleared sooner than it might be under conventional delivery, simply because of the incentives in the P3 agreement. And that, if, of course, this incidents are cleared sooner, users are faced with less delay and that's a benefit that can be accounted for. And P3 value does use an adjustment that is made to speeds, to account for the reduction in the duration of time that the incident causes a blockage of a lane. Another important input in benefit/cost analysis is the discount rate and, in the case of the analysis in P3 Value, we have used a discount rate of 3 percent. And, of course, this discount rate can vary, depending on the state and other considerations. So it's important to test alternative discount rates to see if your analysis still holds under alternative discount rates. So now we will have Wim Verdouw show us the inputs in the P3 Value model.

Wim Verdouw: All right, thank you, Patrick. I'm opening the model right now and you should be able to see it now. And, as Patrick indicated, we're going to use a training navigator which allows us to carry out the exercise that was given to you. To open the relevant module, we just need to click on the bottom. In this case we're doing the Project Delivery Benefit Cost Analysis module. And, as I have pointed out before, here we see the relevant inputs sheets, and here below a sheet, relevant output sheets. We'll start with the input timing and costs and I'll very briefly show you those differences that Patrick mentioned earlier that may exist between the P3 and the PSC and what we call the delayed PSC. So, first, there was the timing affect that Patrick mentioned. We're saying that, if the project were to be implemented as originally planned under a financially constrained situation, we would start construction in 2020 with a construction time of four years. If we assume that budget is not an issue, we may be able to pull it forward and the construction period would start in 2017 for a construction period in total of four years. And now we're assuming here that the P3 can somehow start construction the same year. But, because it's perhaps slightly more efficient in its construction management, it may be able to complete it in three years. So that's the one big first difference that we see between the P3 and the PSC that we're suggesting here, that potentially it may have a different construction period. In this case, we're assuming one year shorter. The next difference is the lower or higher cost under the P3. So here, in Column J, we see the PSC costs. We also see the delayed PSC costs. Please know these are real costs. In other words, nominal costs for the delayed PSC would of course be higher, because inflation would be applied. But the inputs here are real costs before any inflation is applied. And in the benefit/cost analysis, we will not apply any inflation because we are doing an analysis of real cost and real benefits. And so, for P3, the question now is do we expect a higher or a lower cost or perhaps exactly the same. In this case, we've assumed that there is a 10 percent cost efficiency which leads to, for example here, the preconstruction cost one, 10 percent lower cost than under the PSC. So, as we've shown before, and this is exactly the same as what you would've seen under the value for money exercise, we've applied the 10 percent to the various cost components and we've also indicated how much of the cost is being transferred to the P3 concessionaire and how much is being retained by the government. So that's the most important elements here for the benefit/cost analysis is the timing effects and the potential cost efficiencies or inefficiencies of the P3. The next element I sent you here refers to the traffic end costs. As I've shown you during the presentation on benefit/cost analysis, there are many inputs here that are relevant to determine how many people are on the road. How it is split between weekends and weekdays, peak and off peak. And alternately, how can we det-- and with those inputs, we can determine how fast people can drive. In other words, what their travel cost is. So these are all provided in the IMP Traffic and Toll sheets. The next input sheet is the input series. Here we could include a differentiation between the PSC and the traffic ramp up here on row 39. You see the traffic ramp up for the PSC with a start of 50 percent after year one and it goes on to 100 percent in year five. And, in the current exercise, we have assumed exactly the same traffic ramp up for P3. So perhaps, if you were to be in a situation where P3 is expected to very aggressively promote the new project, for example a managed lane project, then perhaps people will change lanes faster from the general purpose lane to the managed lane. In this particular case, we have not assumed any differences. And then, lastly, what we want to show here, the inputs for the benefit/cost analysis. These are directly related to the benefits that Patrick mentioned earlier which is for example the pavement ride quality, the work zone practices, and the incident response. So to start off with the work zoning, here we see the effects, the duration of the work zone of an average construction day. In this case, we're saying the P3 may be slightly lower at seven and a half hours per day as opposed to eight hours for the PSC. And the same way for O&M. We're saying three hours versus 2.75. Another affect that we listed was the incident response. If we believe that P3, because the incentives included in the contract is more inclined to react quickly to an incident, then it may reduce overall incident delays. And then, as we explained last time, the incident delays are applied as a reduction in speed to overall traffic. So we're not trying to mimic individual delays of individual travelers but we tried to determine, based on existing research, how the speeds are reduced as a result of incidents. And so in this case, we're seeing at the no build, we have a very high reduction in speed. The reason being that, under no build, we expect a higher congestion. Under the build scenario here in the PSC and the P3 and delayed PSC, we expect the lower delays due to incidents. And, as I just explained, for the P3, it may or may not be slightly lower than the PSC. And here we've assumed that the overall speed reduction to P3 is a half percent lower than that of the PSC. And then the last point that we want to focus on here, how to explain differences between the P3 and the PSC is the quality of the road expressed as the IRI, International Roughness Index. And here, as you see, we have again those four models, the one being the no build, but we are assuming 150 inches per mile which is the unit of the IRI. For PSC, we're assuming 140. For the P3 we're assuming slightly lower which means slightly higher quality road. And, again, for delayed PSC, which is equal to the PSC in everything except for start of construction. We are, again, back to the PSC value. So those are the inputs and the differences in the inputs that may explain difference in benefits to society under a P3. I'll just briefly show you this page. This page summarizes the three delivery models, so delayed conventional delivery, or what we call delayed PSC, conventional delivery, and if I scroll down, the P3 delivery. And I will not go into the numbers right now because that is what is included in the presentation. So, Patrick, please present those numbers.

Patrick DeCorla-Souza: All right, thank you, Wim. And let's go back to the PowerPoint presentation. Okay, so what I'm going to do is show how those outputs that Wim just showed you can be used to figure out whether the project itself is worthwhile, whether accelerating the project is worthwhile, and whether P3 delivery is worthwhile. So, in order to do the first, project benefits are compared to project costs under conventional delivery. So these are the increments of cost and the increments of benefits above the no build. Benefit/cost analysis is always an incremental analysis in the sense that you're always comparing the case that you want to evaluate against an alternative case, which is doing nothing or the no build situation. So we're going to look at comparisons, first of delayed conventional delivery to the no build, and that'll tell us if the project is worthwhile. We will then look at the accelerated conventional delivery and compare it with the no build again, to find out if any additional benefits from accelerating the project would be worthwhile. And, finally, in step three, we will look at the difference between P3 delivery and no build delivery. We'll calculate the net benefits of a project under P3 delivery then look at the increment of benefits of P3 delivery, increment of net benefits of P3 compared with the accelerated conventional delivery to find out if P3 delivery is worthwhile. So the first step is to look at the delayed PSC, delayed conventional delivery, in comparison to the no build situation. So what you see here, in this-- these are the outputs from P3 Value that Wim just very quickly showed you. I'm going to go through each of the rows and each of the line items to show you whether or not they make sense, so for you to evaluate whether or not they make sense. So travel time cost, as you can see, is basically the biggest component of the benefits. Of all of these benefits, it's the largest number. Very close behind is the change in delay due to incidents. So basically, since the two are related, when you have high congestion, you also have-- if there's an incident, you have a high amount of delay. And, if it's the middle of the night for example, and there is no congestion, and if there is an incident, you might still be able to get by without much delay. So the no build has a lot of delay, both under the base condition with just three lanes, and then under an incident situation it also has a lot of delay. And that accounts for why these are really pretty large in terms of the benefits. You also see that the benefits are much smaller when you look at the net present value. And the reason is we are looking at a period of about 40 years of operations. And, of course, the further out you go, the net present value of those numbers discounted at 3 percent reduces those far out year numbers significantly. And so it really only comes down to about a billion dollars in this case, a billion and $252,000. In the case of the next line, which is construction costs-- I'm sorry. Not construction cost but delays due to construction. These are delays that are caused during the four year construction period and since they're simply very-- in the early years, there's not much discounting that occurs and so they're almost close to what the real values are. In the case of O&M activities, the delays you have are spread out over the entire 40-year period and so the present value is less than half of what it would be if you just looked at the real values. We talked about the incidents. The non-fuel costs-- and these are benefits in this case. They are non-fuel vehicle operating costs. So these are vehicle operating costs that are reduced and so that's why they are positive or they are benefits. All right, when you see fuel costs, on the other hand, are negative and that might be puzzling. Why are-- that are benefits due to non-fuel costs. Because if they may be better ride quality or things-- faster speeds, less congestion. But then why does that not translate to lower fuel costs? And what you see is the effect of two things here. One is, as speeds go up above a certain level, you actually have more fuel consumption. But, by and large, the larger effect is the effect of new travelers that arrive and decide to use the facility because the facility is providing better service. So, when they use the facility, they are burning more fuel, and so that extra fuel cost is accounted for in these numbers here. Accident costs, again the assumption is that there will be fewer accident costs with a better facility and so that is accounted for in the benefits in that line. Emissions, again, are a negative so they are a cost. They don't reduce. With the improvements to the facility, again, it is mainly due to the fact that we have more users and more users mean there are more emissions on the facilities than under the no build case. There is also a slight effect of higher emissions with faster speeds that are included in that higher emissions cost. The next three line items-- so you have the no build O&M cost savings, and these are actually positive. So, because now, if you build a facility you no longer have to pay for maintaining the no build facility, you do have costs to maintain the new facility which are included here in the third line. But you see here that the savings are from not having to maintain the no build facility are much higher than the cost to maintain the new facility. And the reason, of course, is that you have a better, a newer, facility which costs less to maintain. Construction costs, that is the $425 million which we provided as an input. But, since these costs occur over several years-- Years three, four, five and six of the project life basically you have some discounting here that occurs. Now, we will discuss base variability, pure risk and life-cycle performance risk in the next webinar, but what you see is that in the case of life-cycle performance risk there is a much smaller amount when you discount simply because that's a life-cycle risk, which occur over the 40-year period, whereas the others are mainly related to design-build, and so they do not reduce much from the real cost estimate. So the final number here, a billion 817, is the total net benefits from the project, so the way we got this number is we looked at all of these social benefits here. These are the benefits to users and externalities. Then we subtracted the costs and the risks, and so most of these numbers are negative because they are costs, except for the no-build, because it's a saving. So by subtracting the costs from the benefits we got $1.8 billion, so what that means is the benefits exceed the costs by $1.8 billion, and comparing that amount to the social cost of operating and maintaining the facility you get a benefit-cost ratio of 4.5. So that basically explains the output. Let's go ahead and look at a summary here. So here are all the social benefits on the first row there, and that's the total, $2.3 billion. Then we have the savings in no-build cost and all of the costs, the social costs of building the project, and the net, the 2.3 minus all of these costs, is $1.8 billion. Now let's look at the PSC, and the only difference in the PSC relative to the delayed PSC is the fact that it begins implementation in the same timeframe as the P3, so you have several more years of operations in the PSC option. You see again the same thoughts apply to the various line items, except we have much bigger numbers. The much bigger numbers are due to the fact that we have more years of operations, and so that translates to more real benefits as well as the discounted benefits or present values of those benefits are higher. Now, you do have one anomaly. The 52 is a cost. That is delays due to construction, and you might ask why in the delayed PSC going back here we had a cost of $55 million, but then if you look at the base when we are advancing the project it's about $3 million less, and you might wonder "Why is that?" We didn't change anything. All we did was change the timeline, and, if anything, the present value should be higher you might think, or at least the real value could be higher. So the reason this is happening is because, if you remember, delays are dependent on traffic, and in the earlier years you have less traffic than you would in later years because of the traffic growth assumption, so if there's less traffic there's less delay, and so you have a smaller number here. The rest of the numbers pretty much follow along the previous table on delayed PSC, except they're all higher, so I won't go into them in detail here. I just want to show you again the O&M no-build cost savings are a little higher compared to previously, and again that is because if you go back we see that about $50 million less in no-build cost savings, and the simple reason is that we have more years of operations under the PSC, and the no-build is not in service for those years, so we have more savings. The rest of the numbers pretty much follow along, so we won't go into details except to show you here that the net present value of the benefits, so the benefits minus the costs, are over $2.1 billion, and let's go and look at the summary again, and you see that in comparison this is the PSC today that is built in the same timeframe as the P3. In the second column you have the delayed PSC. This was the number we had calculated before in social benefits, so the next extra social benefits we are getting from advancing the project is $387 million. We have no-build cost savings amounting to $39 billion in present value. We have construction costs that are actually increasing, so you look at this. That's a negative, so it's $386 million in costs versus only $333 million under the delayed PSC, and the reason for that is simple discounting. Because it's a delayed PSC the costs are occurring far into the future, several years into the future, and when you discount those costs you get a much smaller number, so the PSC is higher in present value of costs because of the difference due to discounting. Now, in the case of operations costs we not only have the discounting, but the more important factor here is the fact that we have more years of operations since we are beginning the project operations in the same timeframe as the P3, so we have more costs, and so net we have more O&M costs, risks likewise due to discounting and more years, we have higher risks. So the net effect of all of these-- so we have more in benefits, but we have also higher costs, so you need to add up these benefits and subtract these costs, and the number you get would be 294, so $294 million, which is also the difference between the total net present value of benefits and the total net present value of benefits under delayed PSC. That $294 million is the benefit of accelerating the project, because it's the difference between the PSC and the delayed PSC. We have not introduced the P3 delivery project yet. We have simply taken the same delivery method and compared the delayed PSC to the PSC, and what we find is we have a net benefit. The excess of benefits exceed the higher costs by $294 million, and therefore accelerating the project would be worthwhile. So now let's look at what the effect of the P3 delivery itself might be, and to do that we first make a comparison with no-build and produce all of the social benefits and costs like we did before. Now, again, you might notice that you actually have slightly more benefits for travel time and many of the other social benefits, and the reason again is that if you recall we had an extra year of operations, so we have an extra year of benefits. Now, included in some of these are the effects of the reduction in duration of O&M and construction activities, so some of these costs, for example, delays might be smaller than you had under the conventional delivery, and benefits might be larger because maybe work zone practices or incident response is faster, so you have less delays to users, so that's all included in the relevant rows. So delays to incidents, for example, would include the effect of the faster incident response, making this number much higher than the PSC number. So likewise we have similar effects due to the extra year of operations. You have a little more in no-build cost savings. You have reductions in these real costs simply because we assumed that there was a 10 percent reduction in the costs relative to conventional delivery, and so that's what you're seeing here. It's based on our assumption, and then the present value would also be smaller. So the net effect of all these social benefits, subtracting the social cost, brings us to $2.29 billion in benefits, so this is again even more than the prior case. And if we look at the summary what we see-- this is now comparing the P3 with the PSC, so we see the P3 has a little more in social benefits, so a net of $140 million more, net present value. It has more no-build cost savings due to the extra year that it is in operation, and therefore no-build costs are not incurred in that extra year. Construction costs are lower primarily due to the efficiencies we assumed. Similarly, operations costs are lower due to the efficiencies we assumed, and similarly risks, which we will talk about later next Monday, are lower because of some efficiencies that we assumed under the P3 option. So the net effect of all of this is $184 million in net benefits, and this is a comparison of P3 with $2.29 billion in benefits relative to the PSC, which has $2.11 million, and so $184 million in net benefits by going the P3 route, which means that using a P3 delivery process is a good idea and would be economically efficient for this particular case. This summarizes again for you the two key factors we are trying to calculate from this process, so we looked at the benefits under the PSC or conventional delivery. We looked at benefits under the delayed PSC, and the difference is the benefit of acceleration of $294 million. So accelerating the project itself and doing conventional delivery would still bring us a net extra benefit of $294 million, so even if you didn't do P3 it would be a good idea to accelerate the project. Now, in addition, if we went the P3 route we would get benefits of $2.29 billion, and we need to subtract from that the benefits we would've gotten if we went the conventional route, and that's the same $2.1 billion you had up here, and so the net benefit of going the P3 route is $184 million. So what it means is that using P3 would be cost-efficient for this particular project. So let's stop and see if there are any questions, and, again, the lines are not muted, so feel free to pick up your phone and ask your question. Okay, hearing none, let's move on and look at part B, where we are going to test whether our decision that the project and accelerating the project and doing a P3-- whether those decisions that we made in part A-- whether they would still hold if there were different traffic growth assumptions. We know that one of the most uncertain assumptions in any evaluation of a project is the assumption of growth in traffic, so we're going to look at several alternative growth scenarios and see if we still get net benefits from accelerating the project and from P3 delivery. So what we are going to do is look at three alternative scenarios. First we will look at a situation where there would be 20 percent lower growth than the traffic that we originally forecasted, so the DOT had certain assumptions with regard to growth of traffic. We'll assume that they're going to be 20 percent lower, so, in other words, only 80 percent of the growth in traffic above the no-build case would be considered in this step one. Step two we're going to look at what if we actually got more traffic than assumed, and if you have more traffic it doesn't automatically mean that you're going to get more benefits, because we know when you get more traffic you can get more congestion, and you can get more emissions, so it's not necessarily true that more traffic means more benefits, so we need to make sure that if we had really exorbitant growth in traffic exceeding our expectations the congestion wouldn't defeat or make null the decision that we made previously with the base assumptions. And finally we'll look at an extreme case-- you might call it a stress case-- where the city is in stress and is not growing at all, and so there is no growth in traffic, so there's a zero percent growth. Traffic stays the same as it has been originally estimated in the base case. I mean, that's existing traffic today, and we'll make an assumption that it's not going to grow at all simply because the city isn't growing, and we'll check and see if our results are still defensible in terms of the decision we are making to build the project using a P3. So I will let Wim now show you using the P3 value tool how to change these inputs.

Wim Verdouw: Right. Thank you, Patrick. So really there is only one input we have to look at, which is the input-- oh, I'm going the wrong direction. Sorry. The traffic sensitive effects of a PDBCA. As Patrick already explained, of course the sensitivity only applies to traffic beyond the traffic in the base case or in the first year. As a default of course the value is set to 100 percent, which means that the same traffic used for the value for money analysis is used in the PDBCA. Now, the three sensitivities that we're running here is trying to see what happens if the traffic growth is only 80 percent of what we anticipated. What happens if we take 120 percent, and what happens if we actually put it at zero percent? I'm just going to take the last one and quickly show the differences. So Patrick will show the detailed differences but you may already observe, that values in terms of benefits are lower which makes perfect sense because now we're saying is that traffic is flat. And you can also see in the graph that the benefits don't change over time and that reflects the fact that traffic remains constant. Patrick?

Patrick DeCorla-Souza: Ok, thanks Wim. Let's go back to the PowerPoint, Jordan. Ok, so this is gonna be quick. Basically what we're showing you n this table here is how to calculate the effects of project acceleration under all of the scenarios. So, in the first column, Net benefits under the base case, that base case is the zero percent growth that we just looked at, sorry not zero percent growth, 100% growth, that we had looked at in the previous part A, and if you recall we got $1.8 million in net benefits for the delayed PSC under the PSC, so advancing the project we got 2.1, and we got a net benefit of accelerating the project of $294 million. Under the P3 option the net benefits of the project went up to $2.29 billion, and subtracting the difference between this P3 option number and the PSC number of 2.1 we got 184. So now we can look at the results from these other alternatives with regard to growth that we assumed. So first we assumed 80 percent growth, and the results that you would have gotten if you did the exercise is much lower benefits. Obviously there's less traffic, there's less users, and so less users means less social benefits. And similarly for the PSC case you have lower benefits, but the difference is not much different than under the base case, so the 80 percent growth still holds. At least the decision to accelerate the project still holds. Now, would it hold for P3 delivery? And what we see is P3 delivery adds $1.9 billion in benefits more than the $1.8 billion under conventional delivery, which is a difference here showing up as $180 million, and, again, this is less than what we would have had under the base case but still a positive number. Since this number is positive it means that we are going to get net benefits from doing the project using P3 delivery. So what happens if you raise the growth to 120 percent? So that's 20 percent more than the base case, and we get more because there is the base case, and here we have the 120 percent case. We again have more benefits, as you might expect, because of more users. The difference means that acceleration actually brings more benefits than the base case here, and the P3 also brings in more net benefits than under the base case, not much more but still more, so it means that under the 120 percent growth scenario we can still keep our decision to go the P3 route, and we can still hold our decision to accelerate the project, because we would get net benefits. Now, under an extreme case if there was zero percent growth what would happen? You have significant drop. Look at that drop. It's almost half of the base case where we have 100 percent growth, so zero percent growth brings in less than half the benefits under the delayed PSC, similarly half of the benefits relative to the base case for the PSC situation, but advancing the project still provides net benefits. So the important thing is because these numbers are all positive, so 785 is plus, so this is the excess of social benefits over social costs, and it's a positive number, so if you built the project you would still get $785 million in benefits. I mean, it's still of course less than what you would get under the base case, but it's still worthwhile to build the project even with zero percent growth. Accelerating the project even with zero percent growth brings you more benefits than under the delayed scenario, so accelerating the project is still beneficial in this particular case. And finally, if you were to do it with a P3 you still have positive benefits, but are they larger than the PSC is the question, and, yes, they are, by $162 million, so it would still be beneficial to go ahead and procure the project as a P3 project. So that is the interpretation of the results under alternative growth scenarios, and let's open it up for any questions. Not hearing any questions, let's just move on and go to part C. And if you recall when we were showing you the inputs we made a lot of assumptions with regard to the quality of service that might be obtainable under a P3, and what we're going to try and do in this part is find out how much those changes that we made or in the inputs-- how much do they contribute to that $184 million or whatever we had in improvements in net benefits under a P3 delivery. If you recall going back, we're going to take this scenario here, okay, where we had $162 million, so we'll take the zero percent growth scenario. We had $162 million in net benefits under the P3 in that scenario, so we will try to find out how much of that may be attributable to various assumptions we made with regard to P3 delivery. So one of the assumptions we made was early completion of construction. We said it would be completed one year earlier, so we would have one extra year of operations. We said that pavement ride quality would be a little better. We said the work zone practices would be a little better so that there would be fewer delays in the operations and maintenance activities caused to travelers. And finally we said incident response might be faster so that there would be fewer delays to travelers because of lanes being closed. So we're going to see how much each of these factors-- and of course we made assumptions. We didn't have any data, or at least the state probably just made some assumptions as to how much better the P3 might deliver in terms of quality of service. We're going to check and see how much each one contributes to that $162 million in total net benefits from P3 delivery. So we are going to-- and Wim will show you this-- we are going to take that four years that was the time to complete construction under PSC and assume that would be the same amount of time to complete construction under the P3, so we can then identify how much of the social benefits are due to the one-year extra year of benefits that we are assuming under the P3. You're going to look at pavement ride quality and see how much that improvement that we assumed under the P3 contributes to the social benefits. Then we are going to look at the travel delays relating to construction and O&M, so we're going to look at the duration of construction that we assumed and the duration of O&M activities, and we're going to change them so that they're exactly equal to what we had assumed for the PSC. And finally we will look at the assumed reduction in speed adjustment, so we had assumed, if you recall, about a half a percent difference with regard to speed change under a P3 to PSC. They're going to now make that the same, and we're going to eliminate that half-percent advantage and see how much that has contributed to our $162 million. So I'll hand it over to Wim.

Wim Verdouw: Thank you, Patrick. All right. So we're gonna go back to the inputs and one-by-one eliminate the those differences that Patrick just listed, starting with the early construction completion, which the IMP timing and cost sheet. So the only difference here is that there's a three year construction period under the P3. We are saying that we are no longer expecting the P3 to be faster than the PSC. So we're going to make it 4 years and we're going to reallocate the costs associated with that. So that means in the P3 construction expenses, which is here in line 66 and line 73, we are going to say that every year we are now 25% and we make sure that applies to all the development cost item, there we go. And you may have seen here on the top that there are some errors checked and alerts that have appeared here. And that means I should re-optimize the model because we've changed the draw-down schedule, we've changed the implementation schedule, and that means the financing structure needs to be updated. I'm not going to do it right now, I'm going to make the other three changes, but for the first change you would be expected to re-optimize the model, which takes about a minute or two, to get to the outputs. The next difference that Patrick listed was the pavement ride quality. As you may remember, we had 130 versus 140 under the PSC. The difference between the PSC and the no-build can continue to exist, but now we eliminate the difference between the P3 and the PSC, so we're saying here as well we have 140, so there's no longer any difference between the PSC and the P3. The next distinction is the travel delays related to construction and operations, and those can be found at the top of the sheet. As you may remember, we mentioned here seven and a half hours instead of eight hours, and here we made this eight hours for the P3, and similarly for the O&M we make it three hours as opposed to two hours and 75 for O&M days. And then lastly it is the incidence adjustments, incidence speed adjustments, which was assumed half a percent lower under the P3, and now we're going to set that to nine percent. Again, I should now optimize the model. We've already done this of course, and the output that Patrick is about to present we expect is the updated model. In the interest of time I won't do that right now. Patrick?

Patrick DeCorla-Souza: All right. Let's go back to the PowerPoint. Okay, so now you will review the outputs. Basically we had to optimize the model and run it. After about two minutes we would get the results that we are showing here, so column A is the net present value of the PSC, column B is the net present value of the P3 option, and we are only looking at the PSC relative to the P3. At this point we are not worried about the delayed PSC, because we're simply trying to evaluate the benefits of the P3 option in comparison to the PSC. Acceleration of the project is not the issue here. It is "What is the contribution of the P3 assumptions to the benefits relative to the PSC?" So we are going to compare-- let me see what happened. Here's my arrow. Okay, so in the first case we are going to look at the base case assumption, and, if you recall, this is exactly the same, the 162 is exactly the same as what we got when we had the zero percent traffic growth scenario. So that is simply copied from the previous Part B. And what we're going to do now is look at the four assumptions with the P3. The first was early completion, completion 1 year earlier than under the PSC. So we look at the PSC net benefits of 1007, and look at the P3 option benefits of 81, I'm sorry that is the net benefit of 81. Now, what this is saying is if we have four years of construction in both cases, we would basically lose, we would lose 81, it's just a coincidence that this number is the same as this, but 162 minus 81 is $81 million. So you would lose $81 million in benefits, which means that the early completion is contributing $81 million or half of the benefits that a P3 brings to the social benefits analysis, is really related to the fact that it can complete construction a year earlier than the conventional delivery. So this gives you sort of an understanding of where the biggest benefits of a P3 might lay. So if a state assumes that they can get the project completed a year earlier under the P3 but they could not do it under their conventional delivery method, that's half of the benefits of a P3 right there. So now let's look at the assumption of improved ride quality under the P3. So we assume slightly better international roughness index and we said that the P3 has to maintain certain standards, if it doesn't it is assessed non-compliance point, so it is gonna be more diligent in making sure the ride quality is up to snuff. Unlike in conventional delivery where the state is not necessarily going to get any such non-compliance points. So, that effect causes it to keep the pavement in better shape. And so what we see is even under better ride quality conditions, there is no change in the net benefits. And this is simply a function of the amount of improvements. So even if the P3 has slightly better ride quality, it doesn't have a lot of impact on the factors we are considering in the model. You recall the factors we considered in ride quality improvement, or estimating ride quality improvement, were the costs of fuel and the cost of vehicle operation, that is a non-fuel cost. It so happens in the model that the small difference in the ride quality does not effect that particular relationship with regard to fuel use and wear and tear on the automobile. So we actually get no net impact from that particular assumption of improved ride quality. But of course if we assume much worse ride quality under the PSC, under its own management so to speak, then we might get a bigger impact here. But the State assumed that it could manage the project and its ride quality in pretty good condition relative to what it would have expected the P3 to produce. And the net effect is essentially zero contribution under the P3. So the next test was, what if we assumed no reduction in construction and O&M duration, and by this we mean the duration of work zone activities where there might be lanes closed causing delays to the travelers. And what we find is that we did get a drop in net benefits under the P3. So from 81 it dropped to 77, which means we lost $4 million in net benefits. So this is over the entire concession period. The better work zone practices of the P3 is gonna bring us a net present value of $4 million. Finally the last test we did was assuming no reduction in incident response time. So in this case, we are assuming that the state DOT can respond to incidents in exactly the same fashion with the same effects as under a P3. And what we find is that causes a big drop in the net benefits from the P3 delivery, which amounts to $31 million, a pretty big effect. So, that assumption we made has a big effect and we need to make sure that assumption is really something we can defend since we are placing so much of the, we are sort of making our decision based on these net benefits, we need to make sure that they're using fair assumptions are estimating the impact of incident response, and that's what that means. So now if you look at what's left is we find $46 million in net benefits still remaining. And the question is, where is that coming from? We've eliminated all of the P3 differences relating to quality of service and also the P3 differences related to timing in the no early completion test there. So where is this $46 million worth of benefits coming from? Well P3 differences include not just quality of service and earlier completion, but also assumptions with regards to cost: costs of construction, costs of operations, and cost of the impact of risks. So that $46 million represents the effect of all of those remaining assumptions we made regarding the difference that the P3 might have with respect to cost and risks. So with that let me stop and see if there are any questions.

Patrick DeCorla-Souza: Well hearing none, let's move forward and wrap this up. Here's the webinar summary. We presented the project background of the managed lanes project, we introduced you to the various outputs for the comparisons between delayed conventional delivery, conventional delivery and P3. We showed you how to test alternative travel growth assumptions and finally we showed you how to test the quality of service assumptions. We invite you to continue to test the spreadsheets with your project and get more familiar with it. We have a user guide available on our website that will give you a lot more information on how to provide inputs and the concepts behind P3-VALUE. And for basic understanding of concepts, we also have several primers and guides that are available on our website. On March 7th, a week from today, we will have the webinar on risk valuation and we invite you to attend. On March 21st, two weeks after that, we will review how to do financial viability assessment, not just for P3s but also for conventional delivery. Here, if you don't already have it, is our website URL and the specific one for the P3 Toolkit. And at this time I'll open it up for any questions and leave you with my contact information if you'd like to talk to me directly. And with that, please pick up the phone and ask your questions, we have just five minutes left before we close this webinar. Well hearing no questions, I invite you to send me any further questions as they arise later to the email address I have on this slide. And I want to thank you for your interest and participation in this webinar. And what we have, in the materials for download right now are all the answers to the webinar, I mean to the exercise that we issued last week. And feel free to download it, as well as the PowerPoint slides which are on the left in the materials for download box. So with that, thank you and have a great afternoon.

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