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Project Profile: Metro Region Freeway Lighting P3 (Michigan)

Metro Region Freeway Lighting P3 (Michigan)

Source: Freeway Lighting Partners

Location

Detroit Tri-County Area

Project Sponsor / Borrower

Michigan Department of Transportation

Program Areas

Alternative Project Delivery

Mode

Highway - Ancillary Systems

Description

 

Prior to the Michigan Department of Transportation's innovative application of a DBFOM availability payment concession P3, only 70% of the freeway lights on major interstate corridors in the Detroit Metro Area (portions of I-75, I-94, I-96 I-375 and I-696) were functioning. Moreover, the vast majority of those lights were outdated high-pressure sodium or metal halide fixtures, which were costly to maintain.

In 2015, poor performance and ongoing incidents of copper theft prompted the Michigan Department of Transportation (MDOT) to enter into a first-of-its-kind P3 to improve the lighting systems along these freeways. The project bundled the replacement, upgrade and maintenance of approximately 15,000 lights on the five corridors for a period of 15 years. The project has improved freeway visibility, safety, and personal security, all while achieving energy savings by using efficient LED lights. The state's innovative procurement approach also expedited these improvements otherwise stalled by state and local funding challenges.

The 15-year P3 contract includes design, construction, finance, maintenance, and operations of the freeway lighting system. In addition, key maintenance performance requirements ensure that this arrangement will maximize the value of public funds committed to the project. The private partner received two milestone completion payments during the construction period and will receive quarterly service payments (availability payments) during the 13-year operations and maintenance period, backed in part by $79 million in federal funding. Together these payments will compensate the private partner for upfront design and construction costs and ongoing operations, maintenance and debt service expenditures. The service payments are a function of performance (e.g. correct roadway illumination), energy costs savings, and maintenance activities.

Cost

$172 million (15-year life cycle cost)

  • Design and Construction - $49 million
Funding Sources

Capital Market Financing - $44 million

Equity - $5 million

Project Delivery / Contract Method

Design-build-finance-operate-maintain (DBFOM) Availability Payment Concession (15 years)

Private Partner

Freeway Lighting Partners, LLC

  • Star America Fund GP, LLC (85% equity partner)
  • Aldridge Electric Company (15% equity partner)

Design and Construction Contractor, O&M Manager - Aldridge Electric Company

  • WSP - Lighting Design

O&M Performance and Asset Management - Engie Services Group

Project Advisors / Consultants

To the Sponsor (MDOT)

  • KPMG - Financial Advisor
  • Nossaman LLP - Legal Advisor
  • AECOM - Technical Advisor

To the Borrower (Freeway Lighting Partners)

  • Star America Infrastructure Fund - Financial Advisor
  • Hunton & Williams; Norton Rose Fulbright - Legal Advisors
  • Aon - Insurance
  • Mazars - Model Auditor
Lenders

Allianz Life Insurance of North America (a Blackrock Capital entity)

Duration / Status

Commercial close achieved on August 24, 2015.

The 15-year contract has two phases: a 2-year design and construction phase and a 13-year operation and maintenance phase. Design and construction took place between August 2015 and August 2017. The contract expires in August 2030.

Financial Status/Financial Performance

Financial close achieved on August 24, 2015. MDOT milestone payments made during construction totaled $12 million ($6 million at 90% and at 100% completion). Quarterly service payments (availability payments) of approximately $2.1 million are being made during the 13-year O&M period, backed in part from $79 million in federal funds.

Innovations
  • The project is the nation's first freeway lighting project executed as a P3.
  • According to the MDOT's Transportation Director, the project saves Michigan taxpayers $1.5 million annually in energy costs, or $13 million over the duration of the contract.
  • The new lighting systems features several design innovations.
    • An astronomical clock is used for light control, in lieu of photocells, for more precise, reliable lighting control and improved energy savings.
    • LED tunnel lights operate with 25 percent more lumen output reducing the actual number of tunnel lighting fixtures required by 20 percent.
  • Several theft deterrents include tamperproof covers on handholes, heavy concrete lids on pull boxes, continuous steel collars around frangible bases, and the use of aluminum cabling instead of more valuable metals.
Related Links / Articles

Freeway Lighting Partners

Michigan DOT Project Documents

Contacts

Gregory M. Losch, PE
Innovative Contracting Manager
Michigan Department of Transportation loschg@michigan.gov

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