nassau sewer system rfi vf

7/31/2019 Nassau Sewer System RFI vF

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Nassau County Sewer System

Request for Information

June 18, 2012

Nassau CountyEdward Mangano - County ExecutiveRob Walker - Chief Deputy County ExecutiveTimothy Sullivan - Deputy County Executive for Finance

OM-Logo

Responses due on Wednesday, July 11, 2012


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TABLE OF CONTENTS

Page

I. Overview of Request for Information 3

II. System Description 3

III. Submission Contents 9

IV. Submission Instructions 9

Appendix ADraft Concession Agreement Term Sheet 11

Appendix BIllustrative Financial Projections 12

Appendix CMOU with United Water 13


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I. Overview of Request for Information (RFI)

Introduction

Nassau County, New York (the County) has engaged Morgan Stanley & Co. LLC (Morgan Stanley)as an advisor to assist in evaluating a potential concession, lease or other similar transaction (thePublic-Private Partnership or P3) involving the assets of the Countys sewer system (the System).The System is responsible for the collection, treatment and disposal of sewage in a large area of theCounty, with a current customer base of approximately 1.0 million.

This Request for Information (RFI) is being provided by the County to invite you to submitpreliminary thoughts regarding a potential P3 of the System. While your response is not binding in anyway, the County would appreciate your candid feedback as it continues to evaluate a potential P3transaction.

As you may be aware, the County formally started this evaluation process in September of last yearwhen it issued a Request for Operator Qualifications. Three qualified operators were allowed tocomplete detailed due diligence of the System and respond to a Request for Proposal ( Operator RFP)dated December 22, 2011. Based on responses to the Operator RFP, the County selected United Water,a subsidiary of Suez Environnement, (the Operator or United Water) as the preferred operator shouldthe County pursue a P3 transaction. Therefore, United Water would be the operator that each investorwould be assuming as part of a potential P3 of the System. The Memorandum of Understanding(MOU) that documents what has been negotiated between the County and United Water to date isincluded in Appendix C.

The County reserves the right to modify or terminate the solicitation at any stage if the Countydetermines such action to be in its best interests in its sole discretion. The receipt of responses to this

RFI will in no way obligate the County to enter into any contract of any kind with any party.

Nassau County is committed to a policy of equal opportunity and does not discriminate against vendorson the basis of age, sex, sexual orientation, race, color, creed, religion, ethnicity, national origin,disability, marital status, familial status, veteran status or any other basis protected under federal, stateand local laws, regulations and ordinances.

II. System Description

Nassau County Overview

Established in 1899, the County is the site of some of New York States earliest colonial settlements,some of which date to the 1640s. With a total land area of 287 square miles and a population of over 1.3million, the County is bordered to the west by the New York City borough of Queens, to the east bySuffolk County, to the north by Long Island Sound and to the south by the Atlantic Ocean. Together,the northern and southern boundaries of the County comprise nearly 188 miles of scenic coastline. TheCounty includes 3 towns, 2 cities, 64 incorporated villages, 56 school districts and various special


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districts that provide fire protection, water supply and other services. Land uses within the County arepredominantly single-family residential, commercial and industrial.

System Overview

The System is responsible for the collection, treatment and disposal of sewage in a large area of theCounty, with a current customer base of approximately 1.0 million. In 2003 the Countys prior 27sewage collection and three sewage disposal districts (the Prior Districts) were abolished, dissolvedand merged into the Nassau County Sewer and Storm Water Resources District (the District). At suchtime, all of the rights, privileges, duties, responsibilities and obligations of the Prior Districts became therights, privileges, duties, responsibilities and obligations of the District. The Nassau County Sewer andStorm Water Finance Authority (the Authority) receives all assessments for sewer services andtransfers funds to the District. The District is responsible for System operations via the Nassau CountyDepartment of Public Works. The Operator will not operate the Countys storm water resources system,whose infrastructure is independent of the System.

The System consists of facilities providing for the collection, treatment and disposal of sewage (each aSewerage Facility and collectively Sewerage Facilities, and the services provided thereby,Sewerage Services). A Sewerage Facility or Sewerage Facilities are defined herein as a Facility orcollectively Facilities. Sewerage Services are defined herein as Services.

The System serves approximately 1.0 million County residents and businesses, and serves as criticalinfrastructure supporting the regional economy and community. The System has unique access to suchcustomers and a piping infrastructure that cannot be replicated in a cost-effective manner. Significantcapital spending is required to establish a wastewater collection and treatment system and stringentapproval and regulatory processes are required to establish wastewater services in the area. Forexample, over the past 30 years, the County has spent in excess of $800 million (~$30 million/year) for

capital construction improvements to its sewer facilities (plants, pump stations and sewer pipes). As aresult, there are nearly insurmountable barriers to entry to construct a wastewater system with acomparable footprint.

In early 2008, the County signed inter-municipal agreements with each of the Village of Lawrence andthe Village of Cedarhurst to consolidate each villages sewer system into the Countys sewer system.Construction contracts were bid during the Summer of 2009 to implement the physical improvementsnecessary to consolidate the Village systems within the County system. Construction activitiescommenced as of December 2009 with completion of the work anticipated by October 2013. EffectiveJanuary 1, 2012, the County assumed responsibility for the operation and maintenance of both Villagewastewater treatment plants until such time as the construction activities are completed and the plants

can be decommissioned. Upon this same date (January 1, 2012), the County also assumed responsibilityfor the operation and maintenance of the Villages sewage collection systems.


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The below map further highlights the Systems facilities and presence within the County.

Exhibit 1: Nassau County Sewer Facilities nAS

Source County Information

Glen Cove

Cedar

CreekBay Park

Nassau County Plant

County Sewer / County Disposal

Village Sewer / County Disposal

Glen Cove

Cedar

CreekBay Park

Nassau County Plant

County Sewer / County Disposal

Village Sewer / County Disposal


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Sewerage Facilities

General

The Countys Department of Public Works (Department

or DPW) is currently responsible for the management,maintenance, operation, repair and replacement of theSewerage Facilities, which include three major wastewatertreatment plants in the County (Bay Park SewageTreatment Plant (Bay Park), the Cedar Creek WaterPollution Control Plant (Cedar Creek), and Glen CoveWater Pollution Control Plant (Glen Cove)), 53 sewagepump stations and approximately 3,000 miles of sewers.Please note that the assets listed for inclusion under the P3of the System may change at the discretion of the County. In addition, the County provides services toother areas by contract; the Operator would assume responsibility for these services.

Three Disposal Zones comprise the Countys sewage operations. Below are additional details on eachzone:

Sewage Disposal Zone of Assessment No. 1 (SD1) covers an area of approximately two square mileswith an estimated population of approximately 8,000. The sanitary sewage collected within SD1 waspreviously transported to and processed at a sewage treatment plant in Inwood, New York. However,the Inwood plant was decommissioned and converted to a sewage pump station, so since 1999 allsewage collected within SD1 has been pumped to Bay Park for processing.

Sewage Disposal Zone of Assessment No. 2 (SD2) spans approximately 70 square miles in thewestern portion of the County with an estimated population of approximately 524,000. The sanitarysewage collected within SD2 is transported to and processed at Bay Park. Approximately 75% of thetotal land area in SD2 is used for residential housing. Commercial establishments generate the majorityof the remaining contributory flow, with relatively insignificant flows from industrial enterprises.

Sewage Disposal Zone of Assessment No. 3 (SD3) encompasses an area of approximately 105 squaremiles in the eastern portion of the County. The sanitary sewage collected within SD3 is transported toand processed at Cedar Creek. The estimated population of SD3 is approximately 600,000, and similarto SD2, the majority of the influent flow is from residential and commercial areas, with minimalindustrial flows.

In addition to the sewage collection systems operated by the County, there are six village-owned andoperated collection systems in the County that discharge to the Countys sewage disposal system. Thevillages are: Freeport, Garden City, Hempstead, Mineola, Rockville Center and Roslyn. The residentswithin these areas (with the exception of Roslyn) pay assessments for County sewage disposal services.The Village of Roslyn pays a user fee based upon the volume of sewage discharged. The County has nooperation or maintenance responsibilities for these six collection systems, and as such, they are not apart of the System.

Table 1: Key Sewerage Facilities Statistics

Main Wastewater Treatment Plants 3

Treatment Plant Capacity (MGD) 147.5

Sewage Pump Stations 53

Miles of Sewers 3,000

Number of Manholes 64,000

Individual service connections 300,000

Source Department of Public Works


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Sewage Treatment Plants

Bay Park was originally constructed in the late 1940s, and was placed into operation in 1950. It wasinitially capable of processing 27 million gallons per day (MGD) of municipal sanitary waste andmeeting secondary treatment levels through the utilization of an activated sludge process. The plant was

first expanded in 1960 to provide secondary treatment and increase its capacity to 60 MGD. Beginningin the mid-1980s, the plant was expanded again to increase its capacity to achieve secondary treatmentof an average daily flow of 70 MGD. The plant discharges its treated effluent into Reynolds Channelvia an 84-inch diameter outfall pipe, which is approximately 2.3 miles long.

Cedar Creek was originally constructed in the early 1970s and was placed into operation in 1974. It wascapable of processing 56 MGD of municipal sanitary waste and meeting secondary treatment levelsthrough the utilization of an activated sludge process. The plant was expanded as part of a capitalimprovements program in the mid-1980s through the early 1990s to achieve secondary treatment of anaverage daily flow of 72 MGD. The plant discharges its treated effluent into the Atlantic Ocean via an84-inch outfall pipe approximately 2.5 miles off the shore of Jones Beach.

Glen Cove was originally constructed in the 1920s, when the plant provided only primary treatment withchlorine disinfection. In the 1950s, the plant was upgraded to include secondary treatment usingtrickling filters, secondary clarifiers and anaerobic digestors (for sludge). In 1980, the new biologicalnitrification plant (BNR) was opened to replace the old trickling filter plant. The completion of the BNRretrofit in 1999 de-rated the facilitys design capacity 8.0 MGD to 5.5 MGD, its current capacity. Theplant has performed particularly well in removing BOD, TSS and nitrogen; in fact, Glen Cove achievesthe greatest amount of nitrogen reduction of all wastewater treatment facilities that discharge into Zone10 of Long Island Sound. The facilitys effluent travels to Long Island Sound through Glen Cove Creek.

Improvements to Bay Park, Cedar Creek and Glen Cove were initiated in the mid-1980s and continuedthrough the 1990s with plans for additional projects currently in progress.

The sewage treatment plants operations are regulated by the Clean Water Act under the direction of theUnited States Environmental Protection Agency (the EPA). The EPA has delegated permittingauthority to the State Department of Environmental Conservation, which administers the State PollutionDischarge Elimination System (SPDES). The current SPDES permits for Bay Park and Cedar Creekare due to expire on July 31, 2016 and April 30, 2016, respectively. The Glen Cove SPDES permit isdue to expire on December 31, 2012.

Service Pump Stations

The County operates and maintains 53 sewage pump stations, which transport sanitary wastewaterwhere gravity is not a viable transport option. There are 22 pump stations serving the collection systemthat deliver sanitary wastewater to Bay Park, 15 pump stations that help deliver sanitary wastewater toCedar Creek and 16 pump stations that help deliver sanitary wastes to Glen Cove. A dedicated pumpstation maintenance group at each sewage treatment plant operates and maintains the pump stationstructures and equipment.

Sewage Collection System

The System operated by the County comprises 3,000 miles of sanitary sewers (ranging in size from 8 to108 inches in diameter), 64,000 manholes and 300,000 individual service connections. Each year, the


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Department implements a sewer maintenance program designed to inspect and clean the sewers andmanholes within its jurisdiction. This program includes visual inspection, remote video inspection,power flushing, biological treatments (grease control) and herbicide treatments (root control). The sewermaintenance activities are scheduled, monitored and logged using a computerized sewer maintenance

program. The use of the computerized sewer maintenance program provides the Department withhistorical maintenance information for a pipe segment or manhole, generates work orders for scheduledroutine maintenance and generates work orders for repetitive maintenance of known problem areas.

System Usage and Financial Performance

The System has exclusive access to a large customer base of approximately 1.0 million. The Systemsunique position as the local monopoly providing treatment and collection services of wastewater in alarge portion of Nassau County has allowed it to enjoy highly consistent historical revenues. Theincreased efficiency of the Operator will help to improve the Systems annual cash flows. In addition,the System is well positioned to increase revenues by potentially sharing excess capacity to neighboringcommunities. The following exhibits detail historical System collections; financial projections areincluded as Appendix B.

Currently, taxable properties within the District pay for the use of Services from the Facilitiesmaintained by the District by an ad valorem tax (assessment). The County intends to include other usersof the System through a revised rate structure that will be devised by using usage data, assessments, basefees or other relevant factors. Examples of such users are certain real property owners within theCounty who use the Services of Sewerage Facilities without charge because their real property is exemptby law from the ad valorem tax (also referred to as assessments). Additionally, certain owners oroccupants of real property within the County use the services of Sewerage Facilities maintained by theDistrict to a greater extent than others (High Water Users), such that assessments imposed upon ownersare disproportionately low when compared with such owners or occupants actual use of Services ofsaid Sewerage Facilities. The projected revenues detailed in Appendix B reflect the revisions to usercharges described above.

Exhibit 2: Sewage Collection Exhibit 3: Historical System Revenues(1)

% of County Sewage Processed $MM

Nassau County Facilities

85%

Independent Facilities

15%$110 $116$104

$119

0

50

100

150

2007 2008 2009 2010

Source Department Website

1.

Source Nassau County Comprehensive Annual Financial Reports

1

Notes:1) FYE 2007-2010 data comprised of assessments received by the Nassau County Sewer and Storm Water Finance Authority


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Following the proposed imposition of charges to users described in the preceding paragraph, the Countyis also considering moving from levying an ad valorem tax (assessment) on taxable properties toimposing user charges on all such properties. As part of a P3 transaction, the timing and process forsuch a change would be carefully coordinated with a potential investor.

III. Submission Contents

Respondents to this RFI are encouraged to provide each of the following:

1. Name and contact information (address, phone, fax and email) for the individual who will act asthe respondents principal contact throughout the RFI process and description of the individualmembers of the respondents team with experience related to the objectives of the County asdescribed in this RFI.

2. A description of the respondents experience with comparable arrangements that demonstratesthe respondents ability to advance the objectives of the County.

3. An overview of the respondents financing capability to fund all payments due under theproposed P3 and the ability to secure such financing without any contingencies.

4. Comments on the proposed P3 structure set forth in Appendix A and specific thoughts on howany changes to the proposed structure would impact value generated or the level of serviceprovided to customers of the System. To the extent relevant, provide a description of thebenefits and considerations of various transaction structure(s).

5. A discussion of whether the respondent believes it is viable, based on the financial informationset forth in Appendix B, for the County to generate in excess of $700 million in gross proceedsfrom a P3 of the System. In addition, please highlight the key elements of the arrangement thatwould impact value for the County from a P3 of the System.

IV. Submission Instructions

Submission Deadline

Request for Information responses should be submitted by the close of business on Wednesday, July11, 2012.

Schedule

The County will review submissions, and, at its sole discretion, may contact respondents for additionalinformation. The County reserves the right to issue additional solicitations in the future related tostrategic alternatives for the System.


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Submission Requirements

An electronic copy of your response should be submitted to the following individuals.

Mr. Tim Sullivan Mr. Perry Offutt

Deputy County Executive for Finance Managing DirectorNassau County, New York Morgan [email protected] [email protected]

Inquiries

All questions related to this RFI should be directed to Perry Offutt at (212) 761-5135 [email protected].


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Appendix A: Draft Concession Agreement Term Sheet

Illustrative Closing Date 1/1/13

Term 50-year lease and concession

Included Assets (as defined in SectionII of the RFI)

Sewage treatment plants, service pump stations and sewagecollection and disposal system

Excluded Assets and Liabilities Storm water system and any existing environmentalliabilities

Operator United Water. Concessionaire will enter into an operatingagreement with United Water based on the MOU, but theoperating agreement can be customized

Other Key Concession Terms Concessionaire will have the exclusive rights to operateand collect all revenues associated with the entire Systemover the life of the contract

Concessionaire would be responsible for maintaining theSystem in accordance with the operating standardsincluded in the United Water MOU, including assumingall the required operating and capital expenditures

Billing based on monthly usage will not likely occur for afew years. Unless mutually agreed, the County willcontinue to collect the revenue and pay theConcessionaire directly. This will eliminate any risk ofbad debt expense

Base rates/tariffs for all users would be frozen for the firsttwo years and then would increase at CPI (assumed 3%).

These base rates will be determined for the life ofthe contract

Unexpected, imperative capital expenditures (i.e., not inthe base model agreed to with the County) would befunded by the Concessionaire. In return, theConcessionaire would be contractually allowed to chargea surcharge to customers to allow for an adequateregulated return similar to other regulated utilities in thestate of New York.


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Appendix C: MOU with United Water


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FOR DISCUSSION PURPOSES ONLY

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NASSAU COUNTY, NEW YORK

MEMORANDUM OF UNDERSTANDING

FOR OPERATION OF THE SEWER SYSTEM

January 25, 2012


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NASSAU COUNTY, NEW YORK

MEMORANDUM OF UNDERSTANDING

FOR OPERATION OF THE SEWER SYSTEM

January 25, 2012

It is understood that no party has agreed to, nor is any party, by virtue of negotiating this

Memorandum of Understanding undertaking any obligation to enter into the Transaction

Documents or any other agreements or instruments in respect of the transaction describedherein or any other transactions. No party is obligated to enter into any agreement with any

other party with respect to these transactions or the Transaction Documents described hereinuntil such time as the Transaction Documents have been approved and executed by theparties. Any actions taken by a party in reliance on the non-binding terms expressed herein or

on statements made during negotiations in respect of this Memorandum of Understanding

shall be at that partys own risk. This Memorandum of Understanding shall not be the basisfor a contract by estoppel, implied contract or any other legal theory of liability.


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A. DEFINITIONS Capitalized terms used but not defined in this MOU are used as defined in AnnexA hereto.

B. P3TRANSACTION

BACKGROUND

The County is evaluating a public-private partnership transaction (the P3Transaction) involving certain assets of the Countys Sewer System (theSystem). The System is responsible for the collection, treatment, and disposaof sewage throughout a substantial portion of the County, with a currentcustomer base of approximately 1.0 million.

The P3 Transaction will consist of the concession, lease, or other similararrangement involving the System, including but not limited to a public-privatepartnership.

Under the P3 Transaction, the County will receive an upfront payment from aspecial purpose entity (the Concessionaire) formed by a private investor, as

compensation for transferring operations of the System to the Concessionaire. Inreturn, the Concessionaire will be compensated by the fees and/or assessmentspaid by the System customers for System usage, as well as assume responsibilityfor all System operations, maintenance and, subject to Section F below, CapitalImprovements. The County shall reserve certain necessary powers andauthorities to ensure the quality, safety and public purposes of the System.

The County plans to select a private operator to direct the day-to-day operationsof the System under the P3 Transaction (the Operator) prior to identifying theConcessionaire. This Memorandum of Understanding (this MOU) has beendeveloped to provide a summary of the major terms and conditions for the

contract operation, maintenance, and management of the System. This MOUshall be used by the prospective Operators to assess the responsibilities andcorresponding costs associated with providing the services as a subcontractor toa Concessionaire on behalf of the County.

C. MOU SUBJECTTO CONCESSION

In 2012, the County will conduct an RFP process (the P3 Transaction RFP) toselect the Concessionaire. The proposal with the best value will be awarded theP3 Concession. The County and the Concessionaire will enter into aConcession Agreement (the Concession Agreement), which is anticipated tobe substantially in the form attached to the P3 Transaction RFP. TheConcession Agreement and related documents, as applicable, will set forth all of

the terms of the P3 Transaction, including the operation and maintenanceresponsibilities, term and termination provisions, compensation to theConcessionaire, and the rights of the Concessionaires lenders (i.e., the partiesproviding a portion of the upfront payment to the County, if any). Under theConcession Agreement, the Concessionaire will be primarily responsible to theCounty for the operations and maintenance of the System during the term of theConcession Agreement. The initial draft of the Concession Agreement iscurrently being prepared by the County and its advisers. The County will use


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its best efforts to avoid any conflict between the corresponding provisions of theinitial draft of the Concession Agreement and this MOU. However, it isexpected that the initial draft of the Concession Agreement will be furthermodified during the P3 Transaction RFP process based upon the comments andinquiries from, and meetings and other interactions with, the prospective

proposers for the P3 Transaction.

Concurrently with the execution of the Concession Agreement, theConcessionaire will enter into a subcontract with the Operator (the OperationsContract), on terms reasonably acceptable to the Operator, subcontracting itsoperations and maintenance responsibilities under the Concession Agreement.It is intended that this MOU will serve as the basis of the Operations Contract;however, to the extent of any conflict between the terms of the ConcessionAgreement and this MOU relating to the operations and maintenancerequirements and related covenants, defaults, remedies and other provisions thatare intended to be passed down by the Concessionaire to the Operator, the finalOperations Contract will reflect the provisions of the Concession Agreementrather than this MOU.

In addition, the Operations Contract shall contain customary representations andwarranties, indemnities and other customary terms, in addition to those set forthin this MOU, as well as suitable Operator-specific information and the results ofnegotiations between the County and the selected Operator.

Upon execution, the Operations Contract will supersede this MOU in itsentirety.

The County reserves the right to abandon the P3 Transaction RFP process at

any time. If the P3 Transaction does not close for any reason, the County shallbe under no obligation to enter into an operations contract with the Operator.

D. CONTRACTINGPARTIES AND

RELATIONSHIPS

The operator submitting the best proposal in response to the RFP for this MOU(the Operator RFP) will be selected as the Operator. The selection criteriaare specified in the Operator RFP.

A number of pre-qualified entities will be invited to participate in the P3Transaction RFP. The entity submitting the best value proposal in response tothe P3 Transaction RFP will become the Concessionaire. The Concessionairewill be obligated to use the selected Operator as its subcontractor for the

operations and maintenance of the system, on terms substantially similar to theterms of this MOU or, if modification of such terms is required by thecorresponding provisions of the Concession Agreement, on the mutually agreedmodified terms, as described above. The Operator will not be precluded fromacquiring an equity interest in the Concessionaire.

The County will enter into the Concession Agreement with the Concessionaire,who will, in turn, enter into the Operations Contract with the Operator. The


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County does not intend to enter into any direct agreement with the Operator inconnection with the transactions described herein.

The Authority is the owner of certain Managed Assets constituting personalproperty, and will assign, lease or license such Managed Assets to the

Concessionaire in connection with the execution of the Concession Agreement.

The obligations of the Operator under the Operations Contract will beguaranteed by a credit-worthy entity (the Guarantor), pursuant to a guarantyin form and substance reasonably satisfactory to the Concessionaire and theCounty (the Guaranty).

All agreements and transactions described herein are subject to the requisiteapprovals of the County, the Authority, the Concessionaire, the Operator, andother parties and regulatory bodies, respectively, as may be applicable

E. CONTRACTTERM (DURATION)

It is anticipated that the Term of the Operations Contract will be 20 years,

whereas the Concession Agreement may be up to 50 years. The OperationsContract will be extended or re-procured after the initial 20-year Term, asneeded, to coincide with the term of the Concession Agreement. The terms ofthe Operations Contract and the Concession Agreement will be subject tocertain early termination provisions. The Concession Agreement will containcustomary terms for termination compensation in the case of early terminationother than for the Concessionaires default.

F. GENERALSCOPE OF SERVICES

The Operator will have full responsibility for the operation, maintenance andmanagement of the System. Services include all maintenance of grounds,landscaping, buildings, and equipment comprising the System. The Operatorshall operate, maintain and manage the System in accordance with Applicable

Laws. The Operator shall provide uninterrupted operation of the System. TheOperator shall operate the System on a continuous basis, 24 hours a day, sevendays a week throughout the Operation Period. The Operator shall providecustomer service, to the extent set forth in Section O.2 hereof. Specificresponsibilities, without limitation, are further identified and described in thisMOU.

The Operator shall, at all times, keep the System in good repair and workingorder and shall operate, maintain and manage the System in a professional,efficient and economical manner. Operational decision making shall always bebased on the following overall objectives:

Protection of health and welfare of the public Protection of the health and safety of the System operating staff Preservation of the long-term capability to supply wastewater treatmentservices Protection of the environment Protection and preservation of the System equipment and facilities Maximization of System operational efficiency


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the System.

This MOU sets forth general requirements for the operation, maintenance andmanagement of the major System components. The provisions included areintended to address the major activities required but all specific activities that are

necessary for meeting the performance requirements set forth in this MOU andsubsequent Operations Contract and preserving the System may not be includedin this MOU. The Operator shall be responsible for determining such specificactivities and performing all necessary operation, maintenance and managementactivities to preserve the System. The roles and responsibilities of the Countyand the Concessionaire will be further specified in the Concession Agreement.


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G. MANAGEDASSETS AND

SERVICE AREA

DESCRIPTION

a. Managed Assets

The Managed Assets shall include all assets that comprise the System asdescribed in the Engineers Report and related documents provided in the DataRoom and shall include all County sewer and customer services related assets in

the County's service territory, including land, structures, improvements, pipesequipment and other related assets, other than certain excluded System assetsAnnex C provides a list of other Managed Assets including but not limited tovehicles, property, and buildings.

b. Excluded Assets

The assets associated with the Countys stormwater management are excludedfrom the Operators services. The County will continue to operate and maintainthe stormwater assets. In addition, other County assets, to the extent not definedas the Managed Assets above, shall be deemed to constitute excluded assets.

H. REFERENCEDOCUMENTS AND

RELIANCE THEREOF

a. Accuracy of Reference Documents

The County assumes no responsibility for the completeness or the accuracy ofspecific technical and background information provided to the Operator orotherwise distributed or made available through the Data Room or otherwise.The Operator is responsible for performing its own due diligence to satisfy itselfregarding aspects of the Managed Assets.

b. Reference Documents Available

The County has compiled numerous reference documents for use in preparingresponses to the RFP. Such reference documents are available in the Data Room.

I. ACCEPTANCEOF MANAGED

ASSETS IN AS IS

CONDITION

Except as otherwise set forth in this Section I, the Operator accepts the Systemand System Sites (including the geotechnical, climatic, hydrological, ecological,environmental and general conditions of the System Sites, the nature of theground and subsoil, the form and nature of such System Sites, the risk of injuryor damage to property near to or affecting each such System Site and tooccupiers of such property, Utilities and other structures on or near the SystemSites) on an as is, where is basis. Except as otherwise set forth in this Section

I, the Operator shall not be excused from the performance of the Services for anyreason relating to the condition of the System or the System Sites except thatperformance relief may be granted on occurrence of defined UncontrollableCircumstances, pursuant to the terms of the Operations Contract, and to theextent such relief is provided to the Concessionaire in the ConcessionAgreement. As-is, where is risk shall not include: (a) pre-existingenvironmental conditions (hazardous materials), geotechnical or archaeologicalsubsurface conditions; (b) any existing code violations; or (c) any latent defects


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of the Managed Assets. The exceptions described in clauses (a) and (b) aboveand any failure of the Concessionaire to provide funding for CapitalImprovements in accordance with the Capital Improvement Plan, are to beincluded in the definition of Uncontrollable Circumstances; the ConcessionAgreement will contain a mechanism for risk allocation of the costs and relief

from performance requirements associated with the UncontrollableCircumstances or Change in Law, with any compensation received by theConcessionaire with respect thereto to be passed down to the Operator. Thelatent defects (described in clause (c) above) will be addressed in a 5-year capitalimprovement plan (the Capital Improvement Plan). The initial CapitalImprovement Plan will be attached to the execution version of the ConcessionAgreement and the Operations Contract, but will be subject to further adjustmentand development by the Operator and Concessionaire, and subject to approval bythe County, on the terms to be set forth in the Concession Agreement. TheConcession Agreement will provide a mechanism for funding of the CapitalImprovements set forth in the Capital Improvement Plan.

Neither the County nor Concessionaire has made or will make any express orimplied warranty to the Operator as to the accuracy and completeness of suchinformation, and neither County nor Concessionaire shall be liable to theOperator with respect to such information.

J. DUE DILIGENCE The Operator has concluded its preliminary due diligence prior to submitting itsproposal in response to the Operator RFP, and shall have a period of timefollowing such proposal submission (and up to the proposal submission date withrespect to the RFP for the Concession Agreement) to conduct confirmatory duediligence.

K.

COMPLIANCEWITH APPLICABLE

LAW

In performing the Services, Operator shall at all times comply (and shall causeany of its Subcontractors to comply) in all material respects with all ApplicableLaws.

L. O&M SECURITY As security for the full and timely performance of its obligations under theOperations Contract, the Operator shall provide to the Concessionaire aperformance security in the form of (a) an on-demand letter of credit issued by aQualifying Institution in the amount of the lesser of (i) $3,000,000 and (ii) 10%of one years base Service Fee, and (b) a performance bond issued by a suretyreasonably acceptable to the Concessionaire in the amount equal to 25% of oneyear's base Service Fee (as each such amount shall be adjusted annually duringeach year of the Term beginning in calendar year 2012, by the percentage changein the Inflation Index from that for the immediately preceding calendar year)(collectively, the O&M Security); provided that the Operations Contract mayspecify different amounts and/or form of the performance security.

M. PERSONNEL a. Workforce Management and CompensationThe Operator will develop its proposed organizational structure necessary to


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perform the services and will interview existing County employees to fill openpositions. The Operator has full discretion to hire County employees to filthese positions. The Operator shall offer employment to the selected Countyemployees with an overall package of wages and benefits comparable overall tothe Countys wages and benefits and in compliance with the Operators

recruitment policies and all applicable State and local wage laws. The Operatoris entitled to future changes to the organizational structure and to reduce theworkforce via severance and voluntary attrition. County employees not hired bythe Operator shall continue employment with the County.

b. Key Personnel

Key personnel shall include the Operators senior on-site representative, theoperations manager, and the customer service manager (to the extent applicable).The Operator may not change these key positions without prior approval of the

replacements by the Concessionaire and the County. Such approvals shall not beunreasonably withheld.

c. MWBE Requirements.

The Operations Contract provisions shall reflect, and the Operator shall complywith, the MWBE Requirements of the Concession Agreement (which wouldrequire using commercially reasonable efforts to reach specified goals of MWBEparticipation).

d. State Prevailing Wage Statutes.

This clause (d) is applicable to the extent State prevailing wage statutes apply tothe P3 Transaction and the Operations Contract. If required to do so, the Countywill prepare and file with the State Department of Labor the schedule ofprevailing wages, and will provide the Operator with a copy of such filing priorto the Operator RFP proposal date. Such schedule, as approved by the StateDepartment of Labor, will be incorporated into the final Operations Contract. Iffor any reason the approved schedule is different from the filed schedule, theproposal price submitted by the selected best value proposer will be subject toadjustment for any increases or decreases in the schedule. Increases to the rateschedule issued by the State Department of Labor subsequent to the date of theOperations Contract shall be reflected in the Inflation Index.

N. OPERATIONAND MAINTENANCE

REQUIREMENTS

The operations and maintenance requirements are set forth in Annex B.

O. LEGAL ANDBUSINESS

1. Rate Setting. The Concession Agreement shall provide the initial rates andrate structures agreed upon between the County and the Concessionaire. The


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REQUIREMENTS Concession Agreement shall also provide the rate setting procedures for allfuture rates. The rates shall be sufficient to support all management, operationsand maintenance costs of the System. In addition, the rates shall be sufficient tofinance all Capital Costs, including feasibility studies, planning and permitting,documents, engineering and design documents, construction activities, and repair

and replacement activities. The Operator shall seek approval from theConcessionaire and the County, as required, for all expenditures beyond the pre-established fees, as set forth in the Operations Contract, for managing, operating,and maintaining the System. Such additional expenditures shall be considered todetermine the required rates as per the periodic rate-setting procedures of theConcession Agreement. The Concessionaire and the Operator shall collectivelywork to maximize the efficiency of the System, including the development of theCapital Improvement Plan, so that the required rates, fees and charges are withinthe range of typical and comparably sized wastewater system rates, fees andcharges in the region. The Operator shall provide all information kept in thenormal course of operating and maintaining the Managed Assets, required by the

Concessionaire and the County in the rate-setting process.

2. Billings, Collections, and Customer Services. Other than during an initialperiod reasonably sufficient to accomplish the transition of payment for theservices from the current property-tax based approach to the metered usage-based fee,the Operator will be responsible for billing and collection services forall current and future accounts of the System in accordance with the user feesystem and established charges by the Concessionaire and the County andincluded in the Concession Agreement;providedthat, to the extent permitted byApplicable Law, the County shall provide assistance to the billing services of theOperator by adding amounts (to the extent timely submitted by the Operator) as

part of the annual levy by the County for taxes and similar assessments. TheOperator shall (a) provide all administrative offices along with all requiredfacilities, equipment, systems, and related items for performing all billingscollections, and customer service functions, including, as appropriate, obtainingwater meter reading data on a periodic basis from water Utilities in the Systemservice area; (b) process the sewer billing statements, process all user feesconnection fees, sewer use and benefit assessments and provide acceptedaccounting practices to all monies and billings (in compliance with theConcession Agreement); and (c) provide a monthly review of all outstandingaccounts receivable and a summary of the bad debt reserves to theConcessionaire and the County.

Unless directed otherwise by the County or the Concessionaire, the Operatorshall (i) organize, publicize and participate in regularly scheduled quarterlycommunity meetings with the customers of the System; and (ii) implement asystem of regular updates by e-mail or similar means to the customers on thestatus of the System and other customer services matters.


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3. Compensation to Operator. The Concessionaire shall pay the OperatorService Fee (adjusted by the Inflation Factor and other customary adjustments),plus the compensation for the services as the program manager with respect toany Capital Improvement of the System requested by the Concessionaire), plusan incentive fee, to be based on performance incentive criteria. The terms for the

payment of the Operator Service Fee will be set forth in the Operations Contract.

4. Taxes. The Operator shall administer and pay all sales and use taxes, andother taxes and contributions imposed by any taxing authority upon the sale,purchase or use of materials, supplies, equipment, software, services or laborincorporated in the Managed Assets or used in the Services (collectivelyTaxes), including but not limited to all applicable NY state sales tax associatedwith operators sewer services (including to the extent applicable under 20NYCRR 527.7 (a) and (d)). The Concessionaire will be responsible for thepayment of all applicable property taxes with respect to the System.

5. Insurance. The Operator shall at its own cost provide and maintain (orcause to be maintained), the insurance coverages to be agreed upon in theOperations Contract applicable to the operation and maintenance of the ManagedAssets. If the Operator fails to procure and maintain the required insurance, orany portion thereof, the Concessionaire or the County shall have the right, butnot the obligation, to procure and maintain the required insurance for and in thename of the Concessionaire or the County, as applicable. If the Concessionaireor the County procures any such insurance, the Operator shall promptly pay thecost thereof and shall furnish all information necessary to acquire and maintainsuch insurance. Neither party shall violate or knowingly permit any violation ofthe coverage terms and conditions of any such insurance. The required

insurance, where applicable, shall include a severability of interest clause. Allsuch insurance shall add the County, the Concessionaire and, if applicable, theConcessionaire creditors, as additional insureds. The Operations Contract shallcontain other customary insurance provisions.

6. Change in Scope of Services/Adjustment. The Operator shall be entitled toan adjustment to its operations fee as a result of an expansion of the scope ofservices, a Change in Law or an Uncontrollable Circumstance (including achange in Managed Assets), which materially changes its costs to manageoperate, and maintain the System. Such change or changes shall be consideredmaterial if it or they, on a cumulative basis, involve more than a certain annual

threshold amount (to be specified in the Operations Contract) in increased costsas adjusted.

Any adjustments to the compensation to Operator shall be pre-approved by theCounty, which includes consideration of such adjustments in the rate-settingprocedures. In case of an adjustment exceeding certain thresholds (to be setforth in the Concession Agreement), the County shall have the right to terminatethe Concession Agreement and cause the Concessionaire to terminate the


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Operations Contract.

7. Default. The Operations Contract shall contain customary OperatorEvents of Default, including the following:

(i) a voluntary or involuntary bankruptcy or similar proceedings, which, incase of involuntary proceedings, remain undismissed and unstayed after ninety(90) days;

(ii) the Operator fails to make payment of any undisputed amounts owed bythe Operator to the Concessionaire under the Operations Contract, and suchpayment is not made in full within thirty (30) days following written noticethereof from the Concessionaire;

(iii) the Operator fails to comply in any material respect with any Operationsor Maintenance Requirements in the performance of the Services and such

failure is not remedied within fifteen (15) days following written notice thereoffrom the Concessionaire or, if such failure is not capable of being remediedwithin such time, if the Operator has not (a) provided to the Concessionaire aremedial plan with respect to such failure within such fifteen (15) days, insubstance reasonably acceptable to the Concessionaire, and (b) commenced acure and diligently pursued the same in accordance with such remedial plan;

(iv) the Operator abandons the Services;

(v) the Operator fails to provide or maintain in effect the O&M Security in theamount and terms required hereunder, and such failure is not remedied within

five (5) days following written notice thereof from the Concessionaire;

(vi) any Guarantor fails to provide or maintain in effect the Guaranty asrequired hereunder, and such failure is not remedied within five (5) daysfollowing written notice thereof from the Concessionaire;

(vii) the Operator fails to comply with any material insurance-relatedrequirement of the Operations Contract (provided the relevant requiredcoverage is available on commercially reasonable terms, as further specified inthe Operations Contract); and such failure is not remedied within twenty (20)days following written notice thereof from the Concessionaire;

(viii) the Operator operates the Managed Assets in a manner creating animmediate public safety hazard;

(ix) the Operator operates the Managed Assets in a manner violatingApplicable Law and/or endangering public safety (other than as provided inclause (viii) above), and such failure is not remedied within fifteen (15) daysfollowing receipt of a written notice from the Concessionaire or the County


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outlining such concerns or, if such failure is not capable of being remediedwithin such time, if the Operator has not (a) provided to the Concessionaire aremedial plan with respect to such failure within such fifteen (15) days, insubstance reasonably acceptable to the Concessionaire, and (b) commenced acure and diligently pursued the same in accordance with such remedial plan;

(x) the Operator breaches its obligations under the Operations Contract inrespect of assignment or change of control;

(x) the Operator breaches its obligations under the Operations Contract inrespect of subcontracting as defined in the Agreement, and such failure is notremedied within forty-five (45) days following written notice from theConcessionaire; provided that such cure period does not apply to any failurecreating an immediate public safety hazard;

(xi) Any of the Operators representations or warranties contained in the

Operations Contract prove to have been materially untrue or incorrect whenmade to the extent that such breach of representation or warranty has a materialadverse effect on the Services or the System as a whole or the interests of theConcessionaire, and such failure is not remedied within thirty (30) daysfollowing written notice thereof from the Concessionaire; and

(xii) the Operator otherwise is in material default of any other provision of orhas materially failed to perform obligations under the Transaction Documentsthat is not separately specified as an Operator Event of Default in clauses aboveand such failure continues for thirty (30) days after written notice from theConcessionaire or, if such failure is not capable of being remedied within such

time, if the Operator has not commenced a cure within such time and thereafterdiligently pursued the same until a cure is effected, not to exceed an additionalthirty (30) days.

It is acknowledged and agreed by the Operator that none of the cure periodsallocated to the Operator for an Operator Event of Default shall exceed the cureperiod for the corresponding Concessionaire Termination Event under theConcession Agreement.

If an Operator Event of Default has occurred and is continuing, theConcessionaire shall have customary remedies, including termination of theOperations Contract and /or replacement of the Operator.

Events of Default by Concessionaire. The Operations Contract shall containcustomary Concessionaire Events of Default, including the following:

(i) Failure of the Concessionaire to comply in any material respect with any oits obligations (other than payment obligations) under the Operations Contracwhere such failure is not remedied within thirty (30) days following writte


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notice thereof from the Concessionaire or, if such failure is not capable of beinremedied within such time, if the Concessionaire has not commenced a curwithin such time and thereafter diligently pursued the same until a cure ieffected, not to exceed an additional sixty (60) days;

(ii) Failure of the Concessionaire to pay undisputed amounts owed to thOperator under the Operations Contract within thirty (30) days following thtime they become due and payable; and

(iii) A voluntary or involuntary bankruptcy or similar proceedings, which, icase of involuntary proceedings, remain undismissed and unstayed after ninet(90) days.

A notice of default by either party shall be in writing and shall detail thespecific circumstances that constitute the alleged event of default.

If a Concessionaire Event of Default has occurred and is continuing, theOperator shall have customary remedies, including termination of theOperations Contract [and recovery by Operator of reasonable start-up anddemobilization costs].

8. Termination. Either party may elect, at its discretion, to terminate theOperations Contract upon an occurrence of certain events of default by the otherparty. In the case of such termination by the Concessionaire, the Operator shallbe liable to the Concessionaire for all direct damages suffered or incurred by theConcessionaire as a result of such termination and the Operator Event ofDefault leading to such termination, including all costs reasonably incurred by

the Concessionaire in replacing the Operator to perform the services; providedthat Operators responsibility with respect to reprocurement costs shall notexceed One Million Dollars ($1,000,000).

9. Disputes. The Operations Contract will contain customary disputeresolution provisions, which may include senior executive discussion, mediationand or technical panel arbitration. To the extent not resolved pursuant to suchprocedures, any claim or controversy between the Concessionaire and theOperator not exceeding One Million Dollars ($1,000,000) in value shall besubmitted to alternative dispute resolution by JAMS or its successor inaccordance with its Streamlined Arbitration Rules, or other alternative dispute

resolution provider mutually acceptable to the Concessionaire and Operator, inall cases in accordance with the Federal Arbitration Act. Unless the partiesotherwise agree, all arbitration proceedings shall be held in Nassau County, NewYork. If the arbitrators determine that the claim or defense of either party wasfrivolous (i.e., without justifiable merit), they may require that the party at faultpay or reimburse the other party for costs of the arbitration in whole or in part.

The parties submit to the exclusive jurisdiction of the federal and State courts in


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Nassau County, New York, with respect to all claims exceeding One MillionDollars ($1,000,000) in value. The parties waive trial by jury.

If any issue in dispute between the parties to the Operations Contract is also thesubject of, or relates to, a dispute subject to the dispute resolution procedures of

the Concession Agreement, the parties shall seek to cause the dispute under theOperations Contract to be consolidated with the dispute resolution processoccurring under the Concession Agreement.

10. Third Party Contracts.

The County shall assign to the Operator or the Concessionaire, and the Operatoror the Concessionaire, as applicable, shall assume, all third party contractsrelating to the operation of the System (to the extent such contracts areassignable, and to the extent they have been made available to the Operator forreview prior to the deadline for the proposal submission in response to the P3

Transaction RFP).

11. Liability. The total liability of the Operator in contract, tort, equity orotherwise (including negligence, warranty, strict liability or otherwise) relativeto or arising out of the Operations Contract shall be limited to an aggregateamount not to exceed 100% of the aggregate annual base compensation of theOperator, as such sum shall be adjusted annually during each year of the Termby the percentage change in the Inflation Index from that for the immediatelypreceding calendar year; provided that the foregoing limitation shall not applyto or include:

(i) the proceeds of insurance received by the Operator;

(ii) costs, liabilities or obligations that arise from gross negligence, willfulmisconduct or actual fraud of the Operator;

(iii) the Operators breach of its no liens or encumbrances on the managedAssets covenant; or

(iv) the Operators indemnity obligations solely in respect of third partyclaims (which, for the sake of clarity, shall not include claims by the County orany other governmental authority, the assets of which are included in the

System).

The Operations Contract shall contain standard mutual disclaimers ofconsequential and punitive damages.

With respect to any indemnifiable claim covered by insurance, the Operator'sindemnification obligation shall be capped by the greater of: (i) the insuranceproceeds available to the Operator with respect to its liability for such claim,


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and (ii) the cap on the Operator's liability specified above.

If agreed by the Concessionaire and the Operator, the Operations Contract maycontact a higher cap on Operators liability.

12. Indemnification.

The Operator will, to the fullest extent permitted by law, fully and effectivelyindemnify and hold harmless the County and Concessionaire Indemnitees fromand against all Damages (excluding any Losses of, or Claims for, consequentialor punitive damages) asserted by any third party, to the extent arising out of orresulting from any breach by the Operator or its subcontractors, agents, servants,consultants or employees of the Operations Contract or any other TransactionDocument, any willful misconduct of the Operator or its subcontractors, agentsservants, consultants or employees, but only to the extent that such Loss and/orClaim does not arise as a result of the grossly negligent acts or omissions or

willful misconduct of the relevant County and Concessionaire Indemnitee.

Operators aforesaid indemnity is for the exclusive benefit of the County andConcessionaire Indemnitees and in no event shall inure to the benefit of anyother Person.

The Concessionaire will provide similar indemnities in favor of the Operator.

P. PERIODICAUDIT/REVIEW

1. Periodic Audits. The Operator or its designated independent engineershall conduct periodic audits and inspections approximately every year asrequested by the Concessionaire or the County, to show that all necessarymaintenance, repairs and replacements, including major repairs and

replacements, have been undertaken, and that the System is operating incompliance with Applicable Law and the performance standards specified in theOperations Contract. Such inspection and audit will include a walk-throughinspection, and engineering audit of the machinery, equipment, vehicles, andstructures constituting the System, as well as actual performance tests. TheOperator shall provide written audit reports to the Concessionaire.

The Operator will be responsible for all costs associated with the annual review.Any deficiencies discovered as a result of the audits shall be corrected by theOperator, subject to (i) the Operators right to contest the findings in accordancewith the dispute resolution provisions of the Operations Contract, and (ii) if such

correction requires a Capital Improvement, the provisions of funds for suchCapital Improvement by the Concessionaire.

Exit Test:

Prior to the expiration of the Operation Period, the Operator shall be required todemonstrate the ability of the System to meet the requirements of an exit testdesigned to demonstrate that all reasonably necessary maintenance, repairs and


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replacements have been undertaken, and that the System is operating incompliance with Applicable Law and meeting all the performance standardsspecified in the Operations Contract (as such performance standards may bemodified from time to time). If any aspect of the exit test is not successfullypassed, the Operator shall, at its cost and expense, make all necessary repairs and

replacements and the exit test shall be re-performed at the Operators sole cost.

At the end of the Operation Period, the Operator is expected to leave the Systemwith the same or equivalent value of equipment, supplies and materials, takinginto account normal wear and tear and obsolescence. If there is a greater amounof equipment, supplies and material after the end of the Operation Period, theOperator shall be compensated for the amount of overage in accordance with theterms of the Operations Contract, subject to an agreed-upon cap. The Operatorshall be responsible for all Major Maintenance of the Managed Assets (whichshall be financed with the Capital Operating Costs) throughout the OperationPeriod, but shall not be responsible for making replacements constituting Capital

Improvements, unless (a) requested by the Concessionaire and (b) fundstherefore have been provided by the Concessionaire.

2. Budget; Annual Operating Reports. The Operator will assist thedesignated auditor in its annual audit of the Systems operations. The Operatorwill also be responsible for preparation, or assisting the Concessionaire inpreparing, periodic budgets and annual operating reports, as required by theConcessionaire.

3. Financial Statements. The Operator shall provide or cause to beprovided, annual audited (if applicable) or unaudited and quarterly unaudited

financial statements of the Guarantor and, to the extent available, the Operator,in each case within the customary time periods.

Q. TRANSITIONREQUIREMENTS

During a reasonable transition period (the Transition Period), the County andthe Operator shall cooperate to provide transition services to allow the Operatorto smoothly take over the operation of the System from the County in accordancewith the transition plan submitted by the Operator with its proposal (theTransition Plan). Such transition includes the recruitment of Countyemployees consistent with the requirements of this MOU. During the transitionperiod, as part of its obligations under the Operations Contract, the Operatorshall complete an inventory of System equipment, supplies and materials that areon hand when the Operation Period begins.


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Guaranty is defined in Section D of this MOU.

Inflation Index means the annual change in the blended index which is comprised of 50% theU.S. Department of Labor, Consumer Price Index (CPI) for all urban consumers in the Northeast

Area, ID CUUR0100SA0 and 50% the U.S. Department of Labor, Bureau of Labor Statistics,Employee Cost Index (ECI), Series D CIU20100000000001, Compensation TotalCompensation, Northeast Sector Private Industry, Industry Occupation All Workers.

Losses means any losses, damages, costs, expenses, charges, fees, fines or liabilities.

Major Maintenance means all reasonably necessary major overhaul and repair (and excludingany maintenance or repair of a routine or ordinary course nature) of the elements of the System,categorized as a capital expenditure according to GAAP.

Managed Assets means all assets of the System, including all ancillary and support equipment

(i.e., tools, rolling stock, vehicles) that the Operator is required to manage, operate, and maintainpursuant to this MOU.

O&M Security -- is defined in Section L of this MOU.

Operation Date -- means the day that the Operator assumes the responsibility for themanagement, operation and maintenance of the System.

Operation Period means the period commencing on the Operation Date and ending uponexpiration of the Term or earlier termination of the Operations Contract pursuant to the termsthereof.

Operations and Maintenance Manual to be defined in the Operations Contract.

Operations and Maintenance Plan to be defined in the Operations Contract.

Operations and Maintenance Requirements means the requirements set forth on Annex Bhereto.

Operations Contract means the contract between the Concessionaire and the Operator.

Operator means the entity that is responsible for management, operation and maintenance ofthe System as a subcontractor to the Concessionaire.

Operator Event of Default is defined in section O.7 of this MOU.

Operator RFP -- is defined in Section D of this MOU.

P3 Transaction is defined in Section B of this MOU.


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P3 Transaction RFP -- is defined in Section C of this MOU.

Qualifying Institution -- means any insurance company or financial institution lawfullyoperating in the State of New York with a minimum credit rating of A- from Standard &Poors Rating Services, A3 from Moodys Investors Service, Inc. and/or A- from Fitch

Ratings, Inc.

Relevant Authority means the government of the United States of America, the State, theCounty, the municipalities within or forming part of the County and any other agency, orsubdivision of any of the foregoing, including any federal, state, or municipal government, andany court, agency, special district, commission or other authority exercising executive,legislative, judicial, regulatory, administrative or taxing functions of, or pertaining to, thegovernment of the United States of America, the State of New York, the County or themunicipalities within or forming part of the County.

State means the State of New York.

System means the Nassau County, New York Sewer System.

System Sites means the real property (inclusive of the estates and interests in real property, tothe extent so transferred by the County) used in the operation of the System.

Term means the 20-year period commencing on the Operation Date.

Transaction Documents means the Concession Agreement, the Operations Contract, theagreement pursuant to which the Finance Authority assigns its Managed Assets to theConcessionaire or the Operator, the third-party contracts assigned to the Operator, and all otherdocuments entered into by the County, the Concessionaire and/or the Operator relating to thetransactions contemplated by this MOU.

Transition Period is defined in Section Q of this MOU.

Transition Plan is defined in Section Q of this MOU.

Uncontrollable Circumstance -- means any act, event or condition that is beyond thereasonable control of the party relying thereon as justification for not performing an obligation orcomplying with any condition required of such party under the Transaction Documents, and thatmaterially interferes with or materially increases the cost of performing its obligations thereunder(other than payment obligations, including (i) any payment obligations the County may have to

compensate the Concessionaire for an Uncontrollable Circumstance, or (ii) subject to receipt ofthe corresponding payment from the County, any payment obligations the Concessionaire mayhave to compensate the Operator for an Uncontrollable Circumstance), to the extent that suchact, event or condition is not the result of the willful or negligent act, error or omission, failure toexercise reasonable diligence, or breach of the Transaction Documents on the part of such party.

Utility -- means any public or private utility and facility, including any facility relating toelectrical energy, telephone and telecommunications, radio, television and public transit


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installations and the conveyance, distribution and supply of water, heat, gas, chemicals, steam,petroleum products and all piped installations, but excluding the System.


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Annex B

OPERATION AND MAINTENANCE REQUIREMENTS

The Operator shall operate, maintain and manage the System in accordance with the Operations

Contract and Applicable Law. The Operator shall be responsible for reviewing all availableinformation about the System and should not solely rely on the information presented in thisMOU, the Operations Contract, and reference documents.

The Operator shall operate, maintain and manage the System in good working order and repairand in a neat and orderly condition. The Operator shall perform maintenance of System facilitiesand operate the System to preserve long-term reliability and conservation of the System. TheOperator shall maintain the aesthetic quality of the System as originally constructed andsubsequently modified, with due allowance for reasonable wear and tear and depreciation. TheOperator shall perform all predictive, preventive and corrective maintenance procedures inaccordance with the Operations Contract, the Operators Operations and Maintenance Plan, and

generally accepted or recommended industry maintenance practices, procedures and standardsfor municipal wastewater collection and treatment facilities, but in no event less frequently andcomprehensively than that recommended or specified in manufacturers warranties, except wherewarranties have expired. The Operator shall maintain all manufacturers warranties onequipment, and shall fully cooperate and assist in enforcing existing equipment warranties andguaranties relative to the System. The Operator shall maintain documentation of all maintenanceactivities.

The Operator shall utilize a computerized maintenance management system (CMMS) to providepredictive, preventive and corrective maintenance for all components of the System, including,but not limited to:

Buildings, grounds, and structures Electrical systems and instrumentation Mechanical equipment Odor control systems Interceptor sewers and collection (lateral) sewers (except as those noted) Plant storm sewers, catch basins and outfalls Metering stations Pumping stations Vehicles and other related equipment Laboratory, monitoring and sampling equipment Heating, ventilation and air conditioning Communication equipment (i.e., telephones, facsimiles, etc.) Chemical feed systems Pumping systems Auxiliary power facilities Air pollution control devices

Main treatment plant outfalls Other facilities and systems contained within the System


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Other specialized tools and equipment

The Operator is responsible for maintenance including, but not limited to the following:

All equipment, both fixed and non-fixed shall be operated and maintained in accordance

with manufacturers recommendations and industry best practices Sound judgment shall be used in the operation and maintenance of non-mechanicalcomponents such as pipes, tanks, and vessels

Valves shall be exercised regularly in accordance with the Operators Operations andMaintenance Manual procedures and manufacturer recommendations

Instrumentation and control devices shall be calibrated based on industry standards,manufacturers recommendations, and System history

Surface damage and pitting of painted surfaces shall be properly prepared and touched upas soon as practical

Paint and coatings on all painted/coated surfaces, including all building interiors andexteriors, equipment, tanks, etc. shall be maintained in excellent condition and re-painted

as often as necessary to maintain a completely intact surface coat and to protect the itemas recommended by manufacturers and in accordance with industry best practices. All equipment, valve, pipe, and tank identifications and markings shall be provided,

maintained or replaced as applicable Mechanical equipment preventive maintenance shall include but not be limited to:

- Lubricating- Maintaining oil levels- Painting and maintaining applicable surface coatings- Draining condensate- Verifying proper operation- Inspecting and replacing normal wearing parts

- Performing planned overhauls as required by manufacturer or past history Tanks and vessels shall be drained and inspected periodically where possible to evaluatemechanical integrity, process performance, and determine accumulation of undesirablematerial. These inspections shall include but not be limited to the following minimumrequirements:- Grit, settling and thickening tanks, annually- Aeration tanks, every two years- Digesters, sludge storage tanks and wet wells, regularly in accordance with the

Operators Operations and Maintenance Manual procedures, but not less thanevery five years.

The tanks and vessels listed above shall be completely cleaned of sludge, grit and other

debris not less than once every five years or as necessary to maintain processperformance. Sludge and chemical pipelines shall be drained and flushed and/or cleaned periodically,

or when being removed from routine service, depending on the application, to preventaccumulation of material and restriction of the useable capacity of the line, and to reducecorrosion or degradation of the piping material itself.

Residuals handling equipment shall be operated and maintained consistent with goodhousekeeping practices. Spills shall be cleaned up promptly to maintain general


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cleanliness and reduce odor generation. Equipment shall be shut down in a mannerconsistent with manufacturers recommendations.

Turbine generators shall be tested monthly to ensure reliable operation. All maintenanceshall be performed in accordance with manufacturers recommendations and industrybest practices.

All of the inspection, operation and maintenance procedures, including anticipated frequency,shall be detailed in an Operator-developed operations and maintenance plan, which shall includea schedule of all maintenance activities.

a. Treatment Plants

The Operator is responsible for 100% of the operation and maintenance of the System. Specificitems include, without limitation: Operate, maintain and manage the System in accordance with all Applicable Laws, rules

and regulations and permits (including, but not limited to SPDES permits, consent

decrees, etc.) Provide, manage and maintain the workforce in accordance with NYSDEC requirementsand industry best practices, and provide all labor, administrative (related to the contractservices for the System) and financial functions

Provide operations staff for the Cedar Creek and Bay Park plants on a 24 hour per day/ 7day per week basis. To the extent not provided by the existing operator, provideoperations staff for the Glen Cove plant on a 5 day per week, 8 hours per day basis, withon-call staff at all other times in accordance with the existing operations agreement forthe Glen Cove plant.

Perform all sludge and other process residuals treatment, management, and disposalservices, including grit, screenings and any other process residuals

Deliver sludge in accordance with sludge management and disposal contractrequirements Maximize nitrogen removal within design capabilities; but no less than that required by

Applicable Law and permit(s) Perform all maintenance, repair and improvement activities, including all materials and

operating supplies, adjustments, calibrations, cleaning, servicing, painting, etc. Provide all laboratory sampling, testing, and analysis required for operations and permit

reporting. This includes providing all necessary staff, equipment, facilities andconsumables for laboratory analyses. Provide appropriate waste disposal from anylaboratories in accordance with all federal, State and local regulations

Maintain records in an electronic format and prepare reports necessary in accordancewith regulatory and County and Concessionaire requirements

Provide and manage customer services functions Cooperate with and provide access to County personnel, including any spaces to be

occupied by County sewer and highway maintenance staff located at the Cedar Creekplant.

Maintain inventory of consumable supplies required for operation and maintenance ofSystem, including consumable office supplies for County sewer and highwaymaintenance staff located at the Cedar Creek plant, and including all chemicals utilized at


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the treatment plants, and for odor control and other functions. Properly store andinventory all consumable supplies

Obtain, manage and maintain all insurance coverages Provide repair and replacement of facilities, systems, structures and equipment, etc.

associated with the System

In addition to the County equipment, provide any additional equipment as needed toperform services in accordance with the Concession Agreement Provide maintenance, repair, and insurance for all vehicles and provide any additional

vehicles required to perform the services in accordance with the Concession Agreement Perform collection system maintenance and repair, including removal and disposal of all

material cleaned Perform all landscaping, pest control, buildings and grounds maintenance, and janitorial

services, including any spaces to be occupied by County sewer and highway maintenancestaff located at the Cedar Creek plant

Provide all data, reports and any other documentation to support Concessionaire efforts toobtain, manage and maintain all permits necessary for the operations of the System

b. Pump Stations and Collection System

The Operator shall maintain all components of the collection system in good operating condition.The Operator shall perform collection system maintenance in accordance with prudent and bestindustry practices that shall include cleaning and TV inspection of all collection systemcomponents on a three-year minimum cycle (minimum 1,000 miles per year) or as agreed to bythe County, manhole/chamber inspection, marking of sewer lines on the surface as required bylaw, and collection system I/I inspection (completed within 1 year).

The Operator shall also support the Countys geographic information system (GIS) initiative byproviding the County with a report detailing the location (latitude/longitude) of any and allmaintenance, repair, cleaning and inspection activities conducted. This information will beprovided to the County in an electronic format to be developed by the County.

The Operator is responsible for all maintenance of the pump stations and collection system,including, without limitation, removal of grease from system components, marking of sewerlines for purposes of identification to Utilities and contractors in accordance with the Statescall before you dig requirements and providing emergency response services on the collectionsystem. The Operator is responsible for eliminating any sewer blockage in a collector sewer andinvestigating a report of a collapsed sewer pipe. The Operator shall also provide all maintenanceand inspection of the collection system in accordance with any consent agreements, consentdecrees and/or administrative orders and maintain all operating logs and maintenance records forreview and inspection by the Concessionaire, NYSDEC and the County. All maintenanceactivities shall be funded from the annual service fee payment. The collection system includesany and all pumps, pipes, appurtenances, and systems utilized for the conveyance of sanitarysewerage. The Operator at a minimum shall perform the following maintenance and inspectionservice of the collection system:

Catch Basin Inspection


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and Cleaning (TreatmentPlant sites only): Once per year; clean, remove and dispose of debris

Line Televising andCleaning: Minimum of 1,000 miles of sewer pipe per year based on annual

prioritization established in conjunction with County so that allsewer lines are cleaned on a three-year cycle basis; clean, removeand dispose of all debris

Siphon Inspection andCleaning: Twice per year

Pump Station Inspection: Daily

The Operator shall perform emergency repair services for the collection system, including but

not limited to repairs to broken, clogged, or damaged lines and repairs to damaged manholes,(CSOs, catch basins, regulators, siphons, etc.) including any required repair of streets, curbs andsidewalks.

The Operator shall operate and maintain the Countys pump stations (including ejector stations)to provide uninterrupted, economical flow of wastewater through the collection system. TheOperator shall be responsible for inspecting and conducting maintenance of the pump stations toensure their uninterrupted functioning. This pump station maintenance shall include, but not belimited to the following:

Perform all residuals treatment, management, and disposal services

Perform all maintenance, repair and improvement activities, including all materials andoperating supplies, adjustments, calibrations, cleaning, servicing, painting, etc. asrecommended by the Operators Operations and Maintenance Manual procedures andmanufacturer recommendations and in accordance with industry best practices

Maintain records in an electronic format and prepare reports necessary in accordance withregulatory and County and Concessionaire requirements

Maintain inventory of consumable supplies required for operation and maintenance of thepump stations, including all chemicals utilized for pump station operations, odor control andother functions

Obtain, manage and maintain all insurance coverages

Provide repair and replacement of facilities, systems, structures and equipment, etc.

associated with the pump stations In addition to the County equipment, provide any additional equipment as needed to perform

services in accordance with the Operations Contract

Perform all landscaping, pest control, buildings and grounds maintenance, and janitorialservices. Maintain the aesthetics of the pump stations

The Operator shall ensure the pump stations are up to full operating status, in compliance withall existing codes, and in accordance with prudent industry practices, equipment warranties, and


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Applicable Law to provide uninterrupted flow of wastewater through the collection system. If theOperator desires to modify existing equipment, operations procedures, or other aspects of thepump stations, the Operator will be required to submit the proposed alternative to the County forreview and approval prior to any modification activities. During emergencies due to powerfailure or equipment repair or replacement, the Operator shall provide temporary pumping and

other necessary services as needed. All HVAC and odor control equipment located at the pumpstations shall be maintained and operated in a manner consistent with the design intent and asrequired for the appropriate number of air changes, safety, and corrosion protection.

c. Biosolids (Sludge) Management

The Operator shall at all times maintain sludge in the System consistent with the intent of thedesign basis and at levels required for optimum System performance.

Sludge from the System shall be delivered to the sewage treatment plant sludge loadout facilitieson a daily basis. The Operator will be responsible for hauling and disposal of the grit and

screenings in accordance with the existing sludge disposal contract. The County or theConcessionaire will retain title to sludge generated by the System.

The existing sludge disposal contract shall be assigned to, and assumed by, the Operator. TheOperator may choose to extend the sludge disposal contract at the end of its term or enter into adifferent successor contract at its own discretion. Upon expiration of the existing contract, theOperator may extend or enter into a new sludge disposal contract. The Operator shall obtain atleast three proposals from qualified sludge disposal contractors. The Operator is required tocontinue to beneficially use the sludge from the System throughout the Term. The County shallhave the right to approve the selected disposal contractor, such approval not to be unreasonablywithheld or delayed.

d. Grit and Screenings

Grit and screenings from the System shall be collected, processed, hauled and disposed of by theOperator on a daily basis (7 days per week), except holidays, at its expense at disposal sitesidentified by the Operator and in compliance with Applicable Law. The County or theConcessionaire will retain title to grit and screenings from the System. The County shall havethe right to approve the selected disposal sites, such approval not to be unreasonably withheld ordelayed.

e. Utilities

As of the Operation Date, the Operator shall be responsible for supplying and paying for allUtilities required for operating and maintaining the System, including, but not limited to, naturalgas, heating, fuel oil, fuel for standby power generators, telephone, internet, electricity and water.

f. Chemicals


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n. Rolling Stock

The Operator shall assume responsibility for operating, maintaining, insuring, repairing, andreplacing all rolling stock transferred or leased to the Operator as part of the Managed Assets, if

any

o. Septage Waste

The Operator shall receive septage from County customers via licensed haulers at the Bay Parkand Glen Cove Treatment Plants. The Operator is responsible for receiving, accepting,controlling, monitoring and checking all septage trucks and recreational vehicles between thehours of 7:30 AM to 3:15 PM, Monday to Friday, excluding holidays, that utilize the System.The Operator shall check the quality of the incoming septage, insure that the septage receivingarea is kept neat and shall ensure that all septage haulers follow proper payment procedures.

p. Odor Control

The Operator shall operate and maintain the System in a manner that minimizes odors at the siteboundaries and so that odors carried off-site do not prompt public complaints. The Operatorsg