Introduction to Peer Performance Solutions

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Creative Solutionsfor our Environment

Your NameVeolia Water North America

June 2010

Introduction to PeerPerformance Solutions

Presentation to:Asian Development BankFebruary 5, 2014Mark SANDERSON


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Introduction & Agenda

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Agenda

Introduction

Veolia & Public-Private Partnership Experience

What is Peer Performance Solutions (PPS)

Key Success Factors (Client/Veolia)

Successful Implementation

Compensation ModelPaid for Performance

Contractual Considerations

Case StudiesImplementation Results

Ideas to Move PPS Concept Forward

Summary & ConclusionsQ&A


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Veolia & Public-PrivatePartnerships

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Veolia EnvironnementWater & Waste Activities inAsia

5

Urumqi

Lanzhou

Kunming

Weinan

Baoji

Chengdu

Haikou

Liuzhou

Changle

Zhuhai

Shenzhen

Shanghai PudongTongling Tonghua

Anhui JACChangzhou

Handan

Hohhot

Sinopec Yanshan

Chengde HBIS

Dalian Tagal

Beijing

Tianjin

Qingdao

IISc Bangalore

IIkal

Bijapur

Nagpur

KUWASIP

Niloth

i

Grameen Veolia Water

Showa Denko

Hong Kong

SK Hynix (Icheon, Cheongju, Gumi)

KKPC Resin

KKPC Rubber (Ulsan & Yeosu)

KPCLG/HONAM

Dongbu Steel (Asan & Icheon)

Incheon (Mansu & Songdo)

Saitama

Tokyo

Chiba

Ichihara (Showa Denko)Yamato

Kahoku

Kizugawa

Osaka

Hiroshima

Matsuyama

Oita

Isahaya (Tarami)

China

India Taiwan

Japan

Singapore

Hong Kong Pinglin, New Taipei CityChutung, HsinchuWurih, Taichung

Gangshan, Kaohsiung

Dashu, Kaohsiung

Hengchun, Pingtung

Nangloi

Kanhan

Pench 4

Full-cityMihan

5

Beijing

Tianjin

Cangzhou

Hangzhou

NanjingJiujiang

Changsh

a

Xian

HuizhouGuangzhou

FoshanJiangmen

EcoCycle

Hong Kong

Clementi-Bukit Merah

Paris-Ris Tampiness Sector

Tanglin-Bukit Merah Sector

South Western Singapore

Central & North Western

SingaporeJurong & Jurong Island

New Taipei City

Yilan

Taichung

Chaiyi

Tainan

Daliao Dist. Kaohsiung City

Suzhou

Wyeth

South

Korea


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Consulting/ServiceContracts

Design/BuildManagement

ContractsContract

OperationsDesign/Build

/Operate

Build OwnOperateTransfer

ConcessionDesign Own

Operate

Increasing Private Sector Involvement and Control

Veolia & Public-Private Partnerships

Veolia Environnement has experience in all models of public-private

partnerships.

Common in all projects is an approach tailored to meet the clients

objectives and needs.

Depending on client and project needs models can evolve from onetype to anotherPPS ideal to evolve to increasing private sector

involvement


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Veolias technical and operational know-how isthe basis for our ability to create value

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Operating

Functions

Service &

Support

Functions

Strategic

Functions


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What is Peer PerformanceSolutions (PPS)

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Accountabilityof service

provision

Public Sector

Model

Consultingmodel

Privateoperator

model

PPS

Ease to implement

Traditional Veolia model

(O&M, concessions)

Long-term contracts

Assets and / or

employees managed

by Veolia

Veolia in control with full

accountability

Technical or business

consulting projects

Short-term contracts,

usually without

implementation

support No outsourcing of

assets / management /

employees

Peer Performance Solutions

Flexible term contracts (short to long term will work) No outsourcing of assets / management / employees

Joint implementation with shared benefits

Client in control of assets/staff; Veolia drives

performance & change

The type of client relationship sets the boundaryconditions for how value is created

Implementati

on

Know-How


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Typical contract length

3-12 months 5-30 years1-5+ years

PPS MODELCONSULTING MODEL PRIVATE OPERATOR MODEL

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Consultingmodel

Privateoperator

model

PPSmodel

Accountability ofservice provision

Ease to implement

The PPS model falls in between traditionalconsulting and traditional O&M


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Typical contract length

3-12 months 5-30 years1-5+ years

PPS MODELCONSULTING MODEL PRIVATE OPERATOR MODEL

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External advisor

Limited accountability

for implementation

Paid for advice

More billable hours =

higher cost

Integrated team

Shared accountability results

Compensation for

performance

Faster implementation =

greater efficiency and

effectiveness sooner

Owner or operator

Full accountability and management

control

Paid for actual service delivery

The PPS model is different from traditionalconsulting and traditional O&M


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Peer Performance SolutionsWhat does it mean?

Agency and Veolia are peers in the utilitymanagement business as are our managers andsubject matter experts

Integration of team differentiates PPS fromconsulting

Tailor performance improvements (efficiency oreffectiveness) to client objectives and needs

Compensation structure of pay forperformance ensures alignment of client andVeolia objectivesskin in the game

Technical, financial, & management solutionsare based on best practices utilizing resourcesand capability of Veolia

Implementation of solutions key to PPSmuchmore value added in implementation than in

development of ideas for improvements.Comprehensive and sustainable change

Peer:

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Performance:

Solutions:


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Key Success Factors

(Client/Veolia)

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Key Success Factors - Client

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Due diligence to determine applicability of model*vehicle toother model or improvements while building internal capability

Long term objectives determined for utility

Efficiency and Performance objectives

Tariff and funding analysisaffordability of investment may bekey to some efficiency and performance goals

Procurement itself will fall within normal practices of mostutilities and is more similar to consulting procurements thanPPP


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*Due diligence to determine applicability of model

Client cannot implement concession, O&M, DBO, etc.but wants/needs performance improvements

Stepping stone to other PPP model, i.e. improve theutility so it is ready for a concession, etc.

Leverage Veolia world class expertise, know-how and

best practicesDesire to partner with private entity that is fullycommitted but not losing as much control as withother PPP models

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Why?


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Key Success Factors - Veolia

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Due diligence to determine applicability (legal too) of model and longterm objectives for utility while determining efficiency andPerformance objectives that are possible

Tariff and funding analysisability to invest may be key to efficiencyand performance goals

Preparedness of client and personnel for integrated teamwin/winculture possible?

Change management issues

Conflict of interest issues, i.e. entering into PPS does not precludeother, larger opportunities

Overall business viabilitystandard to all models


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Successful Implementation

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Technical

Know-how

Deep technical knowledgeOperational experience

Utility management experience

Asset management experience

Proven tools, systems, and approaches

Project governance and management

Client interactions and communication

Mindsets and behaviors

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Reliable, safe, and compliant service

Efficient operations

Performance improvement

Client value

The key to successfully translating technicalknow-how into value lies in thepractice ofmanaging a project

Practice

Value


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Successfully delivering PPS is done over anumber of (iterative) phases

STEP

1

STEP

2

STEP 3

STEP4

STEP 5

STEP 6

ASSESS & PLAN IMPLEMENT & SUSTAIN TRACK

& VERIFY

6 months 5+ years

Rigorous tracking

and verification of

impact is a critical

part of a successful

PPS project; the

work required to do

it right is significant

Using quick-wins and pilots to

prove our ability to affect

change are often better tools

than analytical impact

assessments; the search for

opportunities continues during

the implementation phase

Enabling and

sustaining change has

to be embedded in the

implementation of all

improvement

initiatives


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Sustainable impact requires a comprehensiveapproach to change management

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OPERATIONALEXCELLENCE

OperatingSystem

Clear vision,

direction andcompelling purpose

Strong leadershipalignment and rolemodeling

Improved individualcapabilities andcontinuous-improvementmindset

ManagementInfrastructure

Mindsets

andCapabilities

Streamlinedprocesses, flows ofinformation andmaterials

Optimized tools andsystems

Standard operatingprocedures

Comprehensiveperformancemanagement

Stringent projectmanagement andgovernance

Optimalorganizationaldesign and clearroles andresponsibilities


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Successful pilots motivates team, which supportsfurther positive changes

Potentialimprovements

discussed

Inclusion atall levels

New innovativeideas piloted

Customersatisfaction

Sustainablesolutions


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Example of diagnostic: Analyzing process to buildbusiness cases for client savings

Current state

Proposed changes

Benefits

Solids

content

(DS)

Pilot to confirm % dry solids

which can be achieved and

potential benefit

of $4-7 millionFrom

liquid

streamSludge

thickeners

4-5%

Digesters

26-28%

Dewatering To

disposal

Change height

of sludge blanket

Longer retention time results inhigher volatile solids destruction

Solidscontent

(DS)

From

liquidstream

Sludgethickeners

2.6%

Digesters

26%

Dewatering Todisposal

USD million

Reduce solids disposalvolume

Reduce energy neededfor heating sludge in

digester

Increase digester gasproduction (Capexrequired)

0.34-0.63

0.15-0.27

0.09-0.13

0.08-0.16

0.03-0.07 Reduce polymer forsludge dewatering

2.4-2.6%

1.7%

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A PPS will require robust process managementsystems and tools

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Example NYC


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Compensation ModelPaid forPerformance

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Promotes

transparency

Cost recoverywithout

allowance for

profit

Promotes

identification of

efficiencies

Incentive to go

beyond low-

hanging fruits

Promotes best

implementation

of practices

Incentivizes

sustainable

improvements

Fixed Fees Shared Savings Key PerformanceIndicators (KPIs)

Compensation based on transformation: Pay-for-performance aligns interests and delivers results

Both entities haveskin in the game

We jointly benefit from programs success

We only succeed when client succeeds

+ +

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Assessment

study

1

Assessment

& quick-wins

2

Implemen-

tation project

3

Co-

management

4

O&M

project

5

Full

concession

6

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Delivery model

Recommended commercial model

Time and

material

Flat fee (value pricing)

KPI-based performance

payments

Shared savings

Co-manage-

ment fee

A

B

C

E

D

What are the payment models?


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Assessment

study

1

Assessment

& quick-wins

2

Implemen-

tation project

3

Co-

management

4

O&M

project

5

Full

concession

6

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Time and

material

Flat fee (value pricing)

KPI-based performance

payments

Shared savings

Co-manage-

ment fee

A

B

C

E

D

For example, the

Pittsburgh PPS project

combines a management

fee with KPI-based

performance payments

and shared savings

Delivery model

Recommended commercial model

In some cases, a combination of commercialmodels may yield the best value


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Contractual Considerations

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Our approach provides a structured projectgovernance to facilitate communication

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Steering Committee

Program Manager

PMO

Sponsor: CustomerService Sponsor: FieldOperationsUtility/Veolia TeamSponsor: Customer Service

Utility/Veolia Team

Subject Matter ExpertsSpecialist support : Veolia Excellence Group and

Technical Direction Group

Biweekly/Monthly meetings toreview progress, resolve issues

and agree on priorities

Weekly progress review and

problem solving sessions

In-situ

observations,

data

collection,

interviews andfrequent

Our Local Partners


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Performance review Tracking mechanism

Operations

Managers

Department Head

Utility Executives

Implementation

Team

Level

Frequency

Team perfor-mance

board &

action log

Performance Board

& Feedback

Collection

Steerco Deck &Impact Tracker

Program Forecast

Initiative Scorecard

&

Action Log

Bi-weekly QuarterlyWeeklyDailyReal tie

Daily handoverbriefing and

problem solving

SteeringCommittee

MeetingSteerco

Client/Veolia Team

Weekly Meeting

Mayor / Deputy

Mayors OperationsQuarterly Project

ReviewDownward

communication around

action planning and

corrective measures

Joint and high frequency project governance


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Contractual Considerations - examples

Contract is legal in jurisdiction?Tariff/funding to support objectives

Governance very important as success depends on it to a greatextent

Standard terms, including term, termination, scope,

Objectives important and how they will be evaluated andupdated over time

Compensation for performance

Establishment of base line cost

Determination of savings / revenue enhancement

Elements of compensation

Longer term contracts are possible, even 30 years, but these willrequire additional considerations

Conflict of interest

Other terms to meet local objectives31


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Case Studies

Implementation Results

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PPSIndicative Impact: NYC example

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What we did in the

diagnostic phase

Main initiatives being addressed

in the four-year implementation

phase

Performed site assessment of

treatment plants, pump stations,

reservoirs, repair yards, etc. Observed ~800 person-hours of

work

Reviewed more than 35 contracts

Conducted negotiation training for

DEP and NYC procurement staff

Conducted interviews and

workshops with management,

supervisors, and field staff

Improve sludge thickness from gravity

thickeners of WWTP

Reduce energy consumption throughDO optimization

Improve procurement, renegotiate

main contracts, optimize central

functions

Improve work efficiency (maintenanceoptimization, work with mini-excavators,

leverage automation, insourcing, )

Improve revenues by replacing under-

recording old large meters

$5m

$3m

$14m

$18 m

$42m

-

Initiatives cluster

Financial Impact to Date $57.5m / Forecast Impact for the Program $108M

Est. impact


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PPSIndicative Impact: Pittsburgh example

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Performance compensation

Revenue enhancements:

- Key Customer Account Management

- Replace under-registering large meters

Cost reduction:

- Optimizing membrane plants retreating oftreated water

- Improve laboratory work efficiency

- Procurementstrategic sourcing

$1.1m

$0.3m

$1.4

$0.5m

$1.7m

Key Performance IndicatorsOne-time

earned fee

Financial Impact to Date $3.8m / Forecast Impact for Program $9.6m

Interim management services

Operational responsibility similar to

our traditional O&M project$0.15m/mth

Operational Performance ImprovementsEst. annual

savings

Set of 7 operational improvements (from

customer service to safety) $0.45m

What we did in the

diagnostic phase

Performed site assessment fromintake in Allegheny River to

reservoirs, treatment plants,

pumping stations, water distribution,

sewer lines, repair yards, etc.

Observed ~570 person-hours of

work

Reviewed more than 30 contracts

Conducted interviews and

workshops with management,

supervisors, and field staff


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Ideas to Move PPS ConceptForward

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Knowledge and Expertise to identify issues andapproaches to overcome them.

Identification of areas where efficiency andefficacy improvements can be made

Reference documentation, including contracttemplates, to aid in development of projectspecific procurement and implementation

documentsGovernance examples and experience

Change management issues identification andresolution

Client references and contacts

Resource to assist as issues come up

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Ideas to Move PPS Concept Forward

By bringing Veolias considerable technical expertise along with its culture

of innovation, we can tailor a PPS to a clients objectives


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Summary & Conclusions

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Know-how &Experience

Veolia as apeer providesextensivetechnicalknowledge, operationsexperience and utilitymanagement

Joint application of Veolia andclient know-how andexperience to identify thoseperformance improvement

initiatives bring the mostvalue to the client

ChangeManagement

Drive ambitious andsustainable performancetransformations using acomprehensive changemanagement approach

Prioritize initiatives in thecontext of the clientorganization andapproach implementation

to achieve improvementsooner

Doing the

right thing

PerformanceTransformation

TimeTime Time

Perform

ance Doing it the

right way

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PPS projects createsignificant value for theclient over relativelyshort periods of time andprepare client to sustainthe gains and to continueimproving

What do clients get out of a PPS project?


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Summary & Conclusions

The rapid and accelerating growth in the adoption of the PPS approach to

achieving sustainable performance improvement provides evidence of its

effectiveness in combining the benefits of private sector involvement

through a low-risk and relatively easy to implement commercial model.

The range and variation in scope and scale, and in tenure and commercial

arrangements, demonstrate the flexibility of the model to adapt, allowing

it to be aligned to the strategic plans and business imperatives of utilities.


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THANK YOU

Questions?

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Introduction to Peer Performance Solutions

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