Contacts:

Tony Stephens, ext 6938 email: [email protected]

Trevor Wallis, tel 02392 834347 email: [email protected]

1. Summary

1.1 The following decisions are sought:

(i) That the Director of Environment be authorised to prepare and return an Expression of Interest to the Department for Transport based upon Scenarios 2 and 4.

(ii) That the Director of Environment shall consult with District, Town and Parish Councils and other authorities, possibly outside Hampshire, to develop a joint bid if this would be beneficial to the County Council and the residents of Hampshire.

(iii) That the Director of Environment be authorised to seek tenders for the employment of consultants, as required, in support of the project, in the event that Government funding is provided.

1.2 The Environment Policy Review Committee considered these proposals on 18 January 2006. Members' comments will be reported orally at the meeting.

2. Reason

2.1 This decision supports the following aims of the Corporate Strategy:

(i) Aim 2 (Stewardship of the Environment) - as the new lighting will reduce light pollution and increase the efficiency of energy use;

(ii) Aim 4 (Building Strong and Safe Communities) - as the new lighting columns will reduce the risk of injury from defective columns collapsing and ensure a minimum standard of lighting on all roads that are deemed to require lighting; and

(iii) Aim 5 (Improving Services) - as the level of investment in a new system of lighting will improve the level of service the County Council provides to its residents. This service level will then be maintained for the length of the contract and not be affected by Government funding to local authorities.

3. Other Options Considered and Rejected

3.1 Other options considered and rejected:

(i) Funding from Revenue is not a viable option due to the level of investment required and the availability of funding.

(ii) Prudential Borrowing would not provide the level of funding required and would incur a high level of debt charges which would appear in the Council Tax.

(iii) Funding from the Local Transport Plan is unlikely to be sufficient for a scheme of the size being contemplated, even if spread over the next 15 to 20 years.

4. Conflicts of Interest Declared by the Decision Maker or Other Executive Member Consulted - None.

5. Dispensation granted by the Standards Committee - Not applicable.

6. Reason(s) for the Matter being dealt with if Urgent - Not applicable.

Approved by: ..................................... Date: ...................................

Councillor T K Thornber

753Decn/ALS

Contacts:

Tony Stephens, ext 6938 email: [email protected]

Trevor Wallis, tel 02392 834347 email: [email protected]

1. Summary

Purpose of Report

1.1 To report on the backlog of street lighting column replacement and to consider options for addressing any backlog. The report examines the background to the current situation and sets out the findings of a technical study and the results of a financial feasibility study.

2. Background

2.1 A column replacement programme has been in place within Hampshire since the mid-1990s but the level of funding has been insufficient to maintain a replacement of the whole stock over even a 50 year period. A consequence of this restriction in funding has been that the percentage of columns over 30 years old is now assessed at 42%, whilst the national backlog of columns is quoted at approximately 32%. (This information was obtained following completion of a Department for Transport (DfT) inventory.) It is acknowledged at national level that there is a significant backlog in the timely replacement of street lighting stock and the DfT has been seeking to address this issue by providing direct funding to some local authorities through the Private Finance Initiative (PFI).

2.2 This paper sets out the results of a technical desktop study of Hampshire street lighting data to assess whether the County Council has a significant problem and whether it should seek DfT funding support.

3. Stock Condition Data

3.1 The key to this assessment and to any potential project of this type is to have robust and reliable stock age and condition data.

3.2 The street lighting management system - Deadsure - provides the basic street lighting inventory of all items of illuminated street furniture, excluding traffic signals and solar powered signs. This database holds a record of the visual structural inspections, repeated every two years, of all the street lighting columns held on the inventory and this information is used to formulate the column replacement programme.

3.3 To provide additional confidence to this data an external consultant, David Coatham, was appointed to undertake a review of the existing road lighting and illuminated traffic sign inventories. This technical assessment would determine the accuracy of the data and provide estimates, for various scenarios under consideration, of the increase in quantity and type of apparatus needed to bring the network up to DfT standards.

4. Findings and Comments

4.1 The review confirmed that there are in excess of 135,000 items of illuminated street furniture currently owned and maintained by the County Council.

4.2 An analysis showed details of column materials, lamp types and the age and residual life of the apparatus. This analysis indicated that there is a significant maintenance backlog and identified a number of potential scenarios for bringing the network up to national standards.

4.3 In the worst case (Scenario 1) only 18% of the existing stock is `deemed to comply' to current standards. This would require replacement of nearly 98,000 columns and another 27,000 columns added to the network. Existing levels of funding are insufficient to deal with this backlog within a reasonable timeframe and the risk to the County Council will increase as the stock continues to deteriorate. The increased risk of claims and column failure could lead to high profile claims and loss of integrity for the County Council. Even the best option of funding by the County Council, if available from within its own resources, would require 15 years of high level investment. Throughout this period the County Council would still be taking the `risk' and not recovering the whole savings from the reductions in crime and night-time accidents that would accrue from a PFI project.

4.4 The technical assessment has been summarised into four basic scenarios as follows:

Scenario 1:

The replacement of all lighting units older than 15 years or not currently providing `white light'. This would require the replacement/addition of 125,000 columns. The majority of new columns would be provided at a five metre height. This would involve replacing some relatively new columns.

Scenario 2:

Similar to Scenario 1, but converting 29,000 existing columns to current standards by changing the lantern instead of full column replacement. This would avoid replacing relatively new columns.

Scenario 3:

This option is similar to Scenario 1, except that the majority of new columns would be replaced at a six metre height.

Scenario 4:

This option is similar to Scenario 2, except that the majority of new columns would be replaced at a six metre height.

4.5 The capital cost of six metre columns is slightly higher than for five metre columns but there will be fewer of them. In addition the total maintenance costs for six metre columns are slightly lower than for five metre columns by virtue of the reduction in unit numbers.

4.6 All new columns will provide better light and consequently use more energy although they are more efficient in terms of the light provided for each kilowatt of electricity. A comparison of costs is set out in the attached appendix.

4.7 The current county standard is to provide five metre columns in most residential streets (Scenarios 1 and 2); however the DfT and various consultants advising contractors on other PFI contracts appear to regard a six metre column as the standard as it offers the best value for money from their perspective (Scenarios 3 and 4).

5. Financial Options

5.1 Financial consultants, Price Waterhouse Coopers, were appointed to run various options on how such a replacement backlog could be funded.

5.2 In headline terms the condition data indicated that capital investment between £67 million and £110 million would need to be provided over a five to ten year period to address the backlog.

5.3 The County Council could consider providing this sum from within its own capital resources by using capital receipts or by borrowing, but realistically these amounts are beyond the County Council's affordability at the present time. Borrowing (say) £10 million per annum would typically add £1 million per annum to debt servicing costs.

5.4 In October 2004 the County Council received a proposal from Scottish and Southern Energy plc and the Royal Bank of Scotland to enter into an `operating hire agreement' to advance capital funds to be repaid over a 15/20 year period. The Bank would `own' the assets and the County Council would effectively `hire' them back until the end of the contract when the assets would be acquired by a capital payment. This type of arrangement represents unsupported borrowing and is not recommended at this time on value for money grounds.

5.5 The conclusion was therefore that the most beneficial form of funding would be to apply to the DfT for grant. This could either be through the Local Transport Plan (LTP) bidding process or by seeking PFI credits.

5.6 The County Council LTP for 2006/11 reiterates the problem of deteriorating street lighting stock and seeks an investment of £5 million over five years to add to the current annual investment figure of £1.8 million, to address some of the column replacement backlog. The technical assessment suggests that this level of investment would have little impact on the backlog and it is considered unlikely that the DfT will finance a major scheme in excess of £5 million through the LTP.

5.7 On 9 November 2005 the DfT announced another tranche of funding for street lighting PFI schemes. The total sum available is £600 million and new bids are being invited from all street lighting authorities, including those that have previously bid unsuccessfully.

5.8 The amount of PFI credit required for each of the scenarios set out above is shown in the appendix, together with an estimate of the annual maintenance, energy costs and lifecycle payments.

5.9 The County Council should therefore consider making a bid for PFI funding through an Expression of Interest to the DfT by 24 February 2006.

6. The Private Finance Initiative

6.1 The PFI is one form of public/private partnership and is particularly relevant for capital-intensive services. The PFI transforms local authorities from being the owners and operators of assets, to purchasers of services. In a PFI transaction, a private sector Service Provider is given responsibility for designing, building, financing and operating assets, from which a public service is delivered.

6.2 Value for money is the overriding criteria and if the sponsoring Department (in this case the DfT), the Office of the Deputy Prime Minister and the DfT inter-departmental Project Review Group are satisfied that this criteria is fulfilled, then PFI credits will be awarded effectively financing the capital cost of the scheme.

6.3 Street lighting is one of the services with an established track record for PFI procurement, with a number of schemes already operational nationally and a number of others in procurement.

6.4 It is recognised that good street lighting can help deter criminal activity, enhance the night-time environment and reduce road accidents. Based on Hampshire's current road accident and crime statistics, a benefit cost ratio of road accidents and crime of between 3:1 and 4:1 can be predicted. This is in line with benefits forecast and demonstrated in other authorities.

6.5 PFI schemes are unsuitable for any scheme with a capital investment requirement of less than £20 million because of the high procurement costs.

7. Process and Timetable

7.1 If Members agree with the assessment of the technical and financial advisers that there is a significant maintenance backlog on street lighting replacement, and that the most cost-effective remedy is to apply for PFI credits, the next step would be to prepare an Expression of Interest for the DfT.

7.2 An Expression of Interest is typically an 8-10 page document setting out the service need, with an emphasis on what the proposals will achieve in terms of service outputs. In this case this would be bringing Hampshire's street lighting up to national standards, reducing road accidents, crime and fear of crime.

7.3 If the DfT approves the Expression of Interest it will then be necessary to prepare a detailed Outline Business Case (OBC) to seek formal approval for PFI credits from the DfT and the Project Review Group.

7.4 Preparation of the OBC will require its own project plan outlining the skills and resources needed to deliver the OBC, the timetable for the process and the approval arrangements to take the project forward. Generally local authorities allow at least three months for the development and approval of an OBC.

7.5 If the OBC is successful the ensuing procurement process is likely to take between 18 and 24 months from approval to contract signature.

7.6 Based on the recent DfT announcement the project timetable would be approximately:

- Submit Expression of Interest by 24 February 2006

- DfT decision by May 2006

- Development and approval of OBC by October 2006

- Approval of OBC by Central Government by March 2007

- Procurement, contract signature and service commencement by April 2009

Any delay in the DfT decisions would have a knock-on effect upon the timetable.

8. Financial Implications of a PFI Project

8.1 The development of PFI projects can be expensive. However, by streamlining processes and developing standard documentation, procurement costs are being reduced.

8.2 Submitting an Expression of Interest will cost approximately £25,000 in terms of external advisers' fees. Development of the OBC is likely to increase costs to approximately £100,000 and taking the project through to contract signature may increase costs to £350,000. The expectation would be that these costs would be contained within the Environment Directorate cash limit but spread over two to three years.

8.3 Most of these costs will be associated with using technical, financial and legal advisers. One of the key tests for project approval is for Central Government to have confidence that the local authority has robust project management and support from experienced advisers.

8.4 PFI contracts generally run for 25 years and clearly require a commitment from both parties to the contract. For the County Council this will mean pledging levels of funding throughout this period. Additional street lights will mean additional energy costs and the DfT will expect the County Council to accept full responsibility for maintenance when assessing the level of capital support. Preliminary cost estimates are included in the appendix but these figures will be clarified during the development of the Expression of Interest and fully disclosed in the decision making process.

8.5 At present Scenarios 1 and 3 would increase annual maintenance and energy costs, but Scenarios 2 and 4 indicate that annual costs could be reduced. The reason for this is that increased running costs on these options are more than offset by savings on the existing annual column replacement programme.

9. Issues

Districts, Towns and Parishes

9.1 The figures within this report exclude all lighting points not owned by the County Council, ie District, Town and Parish lighting. This represents a total stock of about 11,000 items.

9.2 In theory this stock could be included within the scheme, but obtaining all the necessary consents, agreements and condition data is likely to add another layer of complexity to the project. In the past the County Council has also considered adopting all lighting located on the highway and owned by the Parish, Town and District Councils and decided that the cost - currently £400,000 per annum - was too high a price to consider adoption.

9.3 It is therefore proposed to deal with this issue in two ways:

(i) If District, Town and Parish Councils give a clear commitment to participate in a joint bid and to meet all costs associated with their element of the proposal then their stock will be included within the project specification. Preliminary discussions indicate that some of these authorities may be prepared to give this commitment.

(ii) Otherwise it is proposed that the service provider would be asked to provide competitive `call-off rates' to maintain the stock outside the scope of the contract. District, Town and Parish Councils could therefore benefit from the economies of scale without a long-term contractual obligation, but would not get their stock condition enhanced.

Joint Bids

9.4 The DfT is encouraging authorities to work together to produce a joint bid, but acknowledges that a greater number of partners will increase the complexity of the management of the project.

9.5 Joint bids would appear especially attractive to smaller authorities. The Hampshire bid is already a comparatively large scheme but savings could be achieved by leaving an option open to work with adjoining authorities. West Sussex County Council has previously submitted a bid and has indicated a willingness to consider a joint bid if this is considered to be of mutual benefit.

Specification

9.6 A 25 year contract needs to provide flexibility in terms of changes to the assets and the service over that period. However, the County Council will need to agree the basic Output Specification for service commencement, ie the standard that has to be achieved and maintained at the start of the contract. This is a key decision affecting the affordability of the project and should be at or close to nationally defined standards to receive DfT funding and support.

Existing Contracts

9.7 The County Council has an existing street lighting maintenance contract that is due to expire on 31 March 2007. There is a separate energy contract due to expire on 31 March 2006, but it is likely that a further energy contract will be awarded for two years through until 31 March 2008.

9.8 If a decision is made to bid for a PFI scheme, existing contracts will need to be managed to expire at the time the new contract starts.

Project Management and Resourcing the Project

9.9 Appointing an experienced Project Manager and external advisers will be critical to the success of the scheme. Procuring a PFI scheme is an intensive process and the DfT will be seeking evidence that if funding is granted the local authority has the experience and resources available to deliver a successful outcome. Early consideration will need to be given to project delivery.

10. Conclusions

10.1 The stock condition survey reveals a backlog of street lighting investment of between £67 million and £110 million. The only potential source of funding at that level is to bid for PFI credits from the DfT.

10.2 Scenarios 1 and 3 represent the highest amount of PFI credits, an increase in the annual cost to the County Council and the removal and relocation of a number of relatively new columns. Scenarios 2 and 4 in comparison require lower PFI credits, represent a potential annual cost saving and avert some column relocation.

10.3 District, Town and Parish Councils could participate in the proposed bid, subject to agreeing to meet any financial obligations.

10.4 A joint bid with another local authority may be mutually beneficial.

11. Impact Assessments

11.1 The bid will not compromise the County Council's policy on race and equalities.

Recommendations

1. That the Director of Environment be authorised to prepare and return an Expression of Interest to the Department for Transport based upon Scenarios 2 and 4.

2. That the Director of Environment shall consult with District, Town and Parish Councils and other authorities, possibly outside Hampshire, to develop a joint bid if this would be beneficial to the County Council and the residents of Hampshire.

3. That the Director of Environment be authorised to seek tenders for the employment of consultants, as required, in support of the project, in the event that Government funding is provided.

753Rpt/ALS