MDOT to enter a P3 to upgrade freeway lighting in Metro Detroit
- 24 Aug. 2015
- By: Elizabeth Cousins and Corey Boock
The first freeway lighting system public-private-partnership (P3) in the U.S. closed on August 24, 2015, with the Michigan Department of Transportation (MDOT) and Freeway Lighting Partners, LLC, (FLP) reaching simultaneous commercial and financial close. The FLP team consists of Star America Infrastructure and Aldridge Electric, Inc. as equity owners with Aldridge Electric, Inc. also acting as the design-build contractor, Parsons Brinkerhoff, Inc. as the designer, and Cofely Services, Inc. acting as operations and maintenance provider. The innovative street lighting project will improve the existing systems operability and see approximately 15,000 lights across bridges, tunnels and roadway within the Detroit Metro Region’ Freeway System replaced with newer, more energy efficient LED lights over the next two years. The annual cost to Michigan taxpayers is anticipated to be lower than the cost that MDOT would incur to upgrade the system and meet the required performance levels.
Some key features of the deal include the following:
- Financing was provided through a private placement with Allianz Life Insurance of North America (a Blackrock Capital entity) with Star America and Aldridge Electric contributing equity to the deal. The concession and contract term is 15 years, including the two year construction period.
- FLP will audit and prepare an inventory of the existing lighting system during the first 90 days of the contract to establish the condition of the system and identify defects which have a critical impact on safety.
- As part of its obligations, FLP will:
- replace or rehabilitate the freeway lighting system during the two year construction period to ensure the system meets MDOT’s standards for lighting illumination and condition; and
- operate and maintain the freeway lighting system for the remainder of the two year construction period to ensure further significant defects or outages do not occur (i.e. so as to ensure that the condition of the existing system does no deteriorate).
- Following the two year construction period and once upgrades are complete, FLP will operate and maintain the improved lighting system over the remaining 13 years of the 15 year contract term.
- During the construction period, two milestone payments are payable by MDOT to FLP once agreed progress milestones have been achieved.
- FLP must hand back the lighting system to MDOT at the end of the contract term (unless terminated earlier). At the time of hand back, each element of the lighting system must have the desired remaining residual life stated in the contract.
- During the 13 year operating period, MDOT will make service payments to FLP quarterly in exchange for performance of services with a component of such payment subject to FLP’s actual energy consumption being less than MDOT’s theoretical energy consumption. If FLP is late in achieving completion, then the period during which the service payment is paid will be reduced.
- All payments made to FLP are subject to deductions where MDOT’s required service levels and reporting requirements are not met.
- MDOT remains responsible for payment of utilities associated with operating the lighting system.
The project is a great result for Michigan with Governor Rick Snyder saying, “Keeping our busy highways well-lit is vitally important for safety, this innovative arrangement ensures that we have better, more efficient lights, improving the service for the residents and businesses using these roads every day.”