Water Infrastructure
Comprehensive Asset Management Has Potential to Help Utilities Better Identify Needs and Plan Future Investments Gao ID: GAO-04-461 March 19, 2004Having invested billions of dollars in drinking water and wastewater infrastructure, the federal government has a major interest in protecting its investment and in ensuring that future assistance goes to utilities that are built and managed to meet key regulatory requirements. The Congress has been considering, among other things, requiring utilities to develop comprehensive asset management plans. Some utilities are already implementing asset management voluntarily. The asset management approach minimizes the total cost of buying, operating, maintaining, replacing, and disposing of capital assets during their life cycles, while achieving service goals. This report discusses (1) the benefits and challenges for water utilities in implementing comprehensive asset management and (2) the federal government's potential role in encouraging utilities to use it.
Drinking water and wastewater utilities that GAO reviewed reported benefiting from comprehensive asset management but also finding certain challenges. The benefits include (1) improved decision making about their capital assets and (2) more productive relationships with governing authorities, rate payers, and others. For example, utilities reported that collecting accurate data about their assets provides a better understanding of their maintenance, rehabilitation, and replacement needs and thus helps utility managers make better investment decisions. Among the challenges to implementing asset management, utilities cited collecting and managing needed data and making the cultural changes necessary to integrate information and decision making across departments. Utilities also reported that the shorter-term focus of their governing bodies can hamper long-term planning efforts. EPA currently sponsors initiatives to promote the use of asset management, including educational materials, technical assistance, and research. While this is a good first step, GAO found that EPA could better coordinate some activities. For example, EPA has no central repository to facilitate information sharing within and across its drinking water and wastewater programs, which would help avoid duplication of effort. Water industry officials see a role for EPA in promoting asset management as a tool to help utilities meet infrastructure-related regulatory requirements; they also noted that establishing an EPA Web site would be useful for disseminating asset management information to utilities. The officials raised concerns, however, about the implications of mandating asset management, citing challenges in defining an adequate asset management plan and in the ability of states to oversee and enforce compliance.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
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Report to the Ranking Minority Member, Committee on Environment and
Public Works, U.S. Senate:
March 2004:
WATER INFRASTRUCTURE:
Comprehensive Asset Management Has Potential to Help Utilities Better
Identify Needs and Plan Future Investments:
GAO-04-461:
GAO Highlights:
Highlights of GAO-04-461, a report to the Ranking Minority Member,
Committee on Environment and Public Works, U.S. Senate
Why GAO Did This Study:
Having invested billions of dollars in drinking water and wastewater
infrastructure, the federal government has a major interest in
protecting its investment and in ensuring that future assistance goes
to utilities that are built and managed to meet key regulatory
requirements. The Congress has been considering, among other things,
requiring utilities to develop comprehensive asset management plans.
Some utilities are already implementing asset management voluntarily.
The asset management approach minimizes the total cost of buying,
operating, maintaining, replacing, and disposing of capital assets
during their life cycles, while achieving service goals. This report
discusses (1) the benefits and challenges for water utilities in
implementing comprehensive asset management and (2) the federal
government‘s potential role in encouraging utilities to use it.
What GAO Found:
Drinking water and wastewater utilities that GAO reviewed reported
benefiting from comprehensive asset management but also finding certain
challenges. The benefits include (1) improved decision making about
their capital assets and (2) more productive relationships with
governing authorities, rate payers, and others. For example, utilities
reported that collecting accurate data about their assets provides a
better understanding of their maintenance, rehabilitation, and
replacement needs and thus helps utility managers make better
investment decisions. Among the challenges to implementing asset
management, utilities cited collecting and managing needed data and
making the cultural changes necessary to integrate information and
decision making across departments. Utilities also reported that the
shorter-term focus of their governing bodies can hamper long-term
planning efforts.
EPA currently sponsors initiatives to promote the use of asset
management, including educational materials, technical assistance, and
research. While this is a good first step, GAO found that EPA could
better coordinate some activities. For example, EPA has no central
repository to facilitate information sharing within and across its
drinking water and wastewater programs, which would help avoid
duplication of effort. Water industry officials see a role for EPA in
promoting asset management as a tool to help utilities meet
infrastructure-related regulatory requirements; they also noted that
establishing an EPA Web site would be useful for disseminating asset
management information to utilities. The officials raised concerns,
however, about the implications of mandating asset management, citing
challenges in defining an adequate asset management plan and in the
ability of states to oversee and enforce compliance.
What GAO Recommends:
Among other things, GAO is recommending that the Environmental
Protection Agency (EPA) (1) better coordinate its own activities to
facilitate information sharing and reduce the potential for duplication
and (2) ensure that water utilities have access to information they can
use by establishing a Web site focused on asset management. In
commenting on a draft of this report, EPA generally agreed with the
report and its recommendations.
www.gao.gov/cgi-bin/getrpt?GAO-04-461.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact John B. Stephenson (202)
512-3841 or stephensonj@gao.gov.
[End of section]
Contents:
Letter:
Executive Summary:
Purpose:
Background:
Results in Brief:
Principal Findings:
Recommendations for Executive Action:
Agency Comments:
Chapter 1: Introduction:
The Federal Government Has Played a Major Role in Funding and Setting
Requirements for Water Infrastructure:
Projected Drinking Water and Wastewater Infrastructure Needs Are
Significant:
Many Factors Have Contributed to Deteriorating Utility Infrastructure:
Comprehensive Asset Management Focuses on Efficiently Managing Capital
Assets:
Strategy for Adopting and Progress toward Implementing Comprehensive
Asset Management Varies:
Objectives, Scope, and Methodology:
Comments from the Environmental Protection Agency:
Chapter 2: Water Industry Officials Report Many Benefits from Asset
Management Despite Implementation Challenges:
Utilities Cite Many Benefits from Asset Management and Some Cautions
About Reported Savings:
Utilities Face Challenges in Successfully Implementing Comprehensive
Asset Management:
Chapter 3: EPA Can Encourage Water Utilities to Use Asset Management by
Strengthening Existing Initiatives:
EPA Sponsors Several Initiatives to Promote Utilities' Use of Asset
Management:
EPA's Efforts to Promote Asset Management Could Be Strengthened by
Leveraging Ongoing Efforts Within and Outside the Agency:
Water Industry Officials Favor an Expanded Role for EPA in Promoting
Asset Management, but Raised Concerns About Additional Regulatory
Requirements:
Conclusions:
Recommendations for Executive Action:
Appendixes:
Appendix I: Utilities Selected for Structured Interviews:
Appendix II: GAO Contacts in Australia and New Zealand:
Appendix III: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Staff Acknowledgments:
Tables:
Table 1: Recent Estimates of the Cost of Meeting Infrastructure Needs
at Drinking Water and Wastewater Utilities:
Table 2: Typical Sources of Data for a Central Asset Inventory:
Figure:
Figure 1: Elements of Comprehensive Asset Management:
Abbreviations:
EPA: Environmental Protection Agency:
GAO: General Accounting Office:
Letter March 19, 2004:
The Honorable James M. Jeffords:
Ranking Minority Member:
Committee on Environment and Public Works:
United States Senate:
Dear Senator Jeffords:
In response to your request, this report examines (1) the potential
benefits of comprehensive asset management for drinking water and
wastewater utilities and the challenges that could hinder its
implementation and (2) the role that the federal government might play
in encouraging utilities to implement asset management.
Unless you publicly announce its contents earlier, we plan no further
distribution of this report until 30 days from the date of this letter.
At that time, we will send copies to appropriate congressional
committees, the Administrator of the Environmental Protection Agency,
and the Director of the Office of Management and Budget. We will also
make copies available to others upon request. In addition, the report
will be available at no charge on the GAO Web site at [Hyperlink,
http://www.gao.gov].
Please call me at (202) 512-3841 if you or your staff have any
questions. Major contributors to this report are listed in appendix
III.
Sincerely yours,
Signed by:
John B. Stephenson:
Director, Natural Resources and Environment:
[End of section]
Executive Summary:
Purpose:
Mounting evidence suggests that the integrity of the nation's drinking
water and wastewater infrastructure is at risk without a concerted
effort to improve the management of key assets--pipelines, treatment
plants, and other facilities--and a significant investment in
maintaining, rehabilitating, and replacing these assets. According to
recent studies by the Environmental Protection Agency (EPA) and other
organizations, drinking water and wastewater utilities will need to
invest hundreds of billions of dollars in their capital infrastructure
over the next two decades. However, if utilities maintain current
spending levels, financing the needed investments could be problematic.
Based on a survey of several thousand drinking water and wastewater
utilities, GAO reported in August 2002 that a significant percentage of
the utilities--29 percent of the drinking water utilities and 41
percent of the wastewater utilities--were not generating enough revenue
from user rates and other local sources to cover their full cost of
service.[Footnote 1] Furthermore, roughly one-third of the utilities
(1) deferred maintenance because of insufficient funding, (2) had 20
percent or more of their pipelines nearing the end of their useful
life, and (3) lacked basic plans for managing their capital assets.
Each year, the federal government makes available billions of dollars
to help local communities finance drinking water and wastewater
infrastructure projects. However, concerns about the condition of
existing infrastructure have prompted calls to increase this financial
assistance and, at the same time, ensure that the federal government's
investment is protected. The Congress has been considering a number of
infrastructure-related proposals, including requirements for local
utilities to have asset management plans. Some utilities have turned to
comprehensive asset management on their own initiative. This approach
to managing capital infrastructure focuses on minimizing the total cost
of acquiring, operating, maintaining, replacing, and disposing of
capital assets over their life cycle and doing so in a way that
achieves the level of service customers desire. Among other things,
comprehensive asset management allows utility managers to obtain better
information on the age and condition of existing assets, determine the
level of maintenance needed to optimize asset performance and useful
life, assess the risks associated with the failure of various assets
and set priorities for their maintenance and replacement, understand
the trade-offs and implications of management decisions about the
assets, and use better information to justify proposed rate increases
or capital investments. Water industry officials agree that by making
informed decisions about investments in capital assets, drinking water
and wastewater utilities can better justify the rate increases
associated with making needed improvements to their infrastructure.
The Ranking Minority Member of the Senate Committee on Environment and
Public Works asked GAO to examine (1) the potential benefits of
comprehensive asset management for drinking water and wastewater
utilities and the challenges that could hinder its implementation and
(2) the role that the federal government might play in encouraging
utilities to implement asset management.
To address the first issue, GAO conducted initial interviews with 46
U.S. drinking water and wastewater utilities identified by
knowledgeable government and water industry officials as implementing
comprehensive asset management. To obtain more detailed information on
the benefits and challenges associated with implementing asset
management, GAO conducted structured interviews with 15 of these
utilities, selected because they (1) reported or anticipated achieving
quantitative benefits from asset management or (2) represented smaller
entities. Our results are not generalizable to the larger universe of
domestic drinking water and wastewater utilities. Because asset
management is a relatively new concept for domestic water utilities,
GAO supplemented the structured interviews by obtaining information
from 6 utilities and five government agencies in Australia and New
Zealand--two countries that have taken the lead in implementing
comprehensive asset management in their drinking water and wastewater
utilities--and two private companies with long-standing experience in
using comprehensive asset management in their respective fields, which
provided additional information on benefits and challenges.
To address the second issue, GAO discussed options for a federal role
in promoting asset management with the 15 utilities selected for
structured interviews, water industry associations, and EPA. In
addition, based on contacts with a variety of organizations and
officials experienced in asset management, GAO identified the U.S.
Department of Transportation as being at the forefront of federal
involvement in this issue. GAO obtained information about the
department's initiatives from the Office of Asset Management, within
the Federal Highway Administration.
We conducted our work between March 2003 and March 2004 in accordance
with generally accepted government auditing standards.
Background:
At its most basic level, comprehensive asset management involves the
systematic collection of key data and the application of analytical
tools such as life-cycle cost analysis and risk assessment. Asset
management thus provides information that managers can use to make
sound decisions about their capital assets and allows decision makers
to better identify and manage needed investments in their
organization's infrastructure. By following this approach,
organizations also change the process they use to make decisions,
including the types of information they bring to bear and which
segments of the organization participate in the decision-making
process. Using a fully integrated decision process, many segments of an
organization, including accounting, engineering, finance, maintenance,
and operations, are expected to exchange relevant information, share in
the decision making, and take an organizationwide view when setting
goals and priorities. For drinking water and wastewater utilities, an
integral part of a comprehensive asset management program is ensuring
that adequate funds are available through user rates or other means so
that asset management decisions can be implemented (e.g., ensuring that
planned maintenance can be conducted and capital assets can be
repaired, replaced, or upgraded on schedule).
Comprehensive asset management is a relatively new concept for drinking
water and wastewater utilities in the United States. Domestic utilities
implementing asset management are generally large and vary considerably
in terms of their approach. For example, some are applying the concepts
of asset management on a utilitywide basis and others are beginning in
specific departments or facilities. In implementing asset management,
domestic utility managers have drawn from the experiences of
international utilities that are considered to be at the forefront of
asset management for drinking water and wastewater infrastructure. For
example, in Australia and New Zealand, where the concept has been
strongly endorsed by the national governments, water utilities have
used comprehensive asset management for about 10 years. In each
country, a key impetus for the move toward asset management was
legislation that called for water utilities to improve their financial
management, requiring utilities to recover the full cost of service in
Australia and, in New Zealand, to annually depreciate their assets and
use cost-benefit analysis.
In the United States, the Congress has been considering proposals to
require utilities to adopt key components of asset management, such as
inventorying critical assets, evaluating their condition and
performance, and developing plans to (1) maintain, repair, and replace
assets and (2) fund such activities. These proposals typically link the
use of asset management to a utility's eligibility for federal
financial assistance in making infrastructure improvements.
The universe of drinking water and wastewater utilities indicates that
efforts to adopt asset management may vary considerably because of the
utilities' sizes and their ability to marshal resources for the effort.
In the United States, about 54,000 community water systems supply most
of the nation's drinking water and about 16,000 wastewater treatment
systems provide sewer service. Larger utilities account for much of the
projected infrastructure needs; for example, drinking water systems
serving more than 10,000 people account for approximately 65 percent of
the estimated needs for such utilities. However, most utilities are
small, with 93 percent of community drinking water systems and 71
percent of wastewater systems serving 10,000 people or fewer. EPA has
found that smaller utilities are less likely to have the financial,
managerial, and technical capacity to meet regulatory requirements and
are less likely to cover their full cost of providing services.
Results in Brief:
U.S. drinking water and wastewater utilities that GAO contacted
reported benefiting from applying the concepts of asset management to
their operations but have also encountered certain challenges.
Utilities are seeing benefits from (1) improved decision making because
they have more accurate and integrated information about their capital
assets and (2) more productive relationships with governing
authorities, ratepayers, and other stakeholders because they can
provide better information in a more transparent way. For example,
utilities reported that collecting accurate data about their assets
provides a better understanding of their maintenance, rehabilitation,
and replacement needs, which helps utility managers make better
investment decisions. While water industry officials identified
financial and other benefits from using asset management, reported
savings should be interpreted carefully. According to the utilities
that GAO contacted, the challenges associated with implementing asset
management included collecting and managing needed data and making the
cultural changes necessary to integrate information and decision making
across departments. Utilities also reported that the shorter-term focus
of their governing bodies can hamper long-term planning efforts.
Although smaller utilities face more obstacles to implementing asset
management, largely as a result of limited resources, such utilities
can also benefit from applying asset management concepts.
EPA can play a stronger role in encouraging water utilities to use
asset management by leveraging ongoing efforts within and outside the
agency. EPA currently sponsors initiatives to promote the use of asset
management, such as developing educational materials; providing
technical assistance, particularly to smaller utilities; and funding
research related to asset management. Nevertheless, GAO found that some
activities could be better coordinated. For example, EPA's Office of
Ground Water and Drinking Water and Office of Wastewater Management
fund state and university-based training and technical assistance
centers that have developed guidance manuals, tools, and training
materials to assist small utilities with asset management. However, no
central repository exists to facilitate information sharing within and
across the drinking water and wastewater programs and thereby avoid
duplication of effort. GAO also found that opportunities exist for EPA
to coordinate with other federal agencies, such as the Department of
Transportation, that have already developed tools and training
materials on asset management. When asked for their views on a
potential federal role in asset management, water industry officials
said that EPA should assume a greater leadership role in promoting
asset management. For example, they see asset management as a tool to
help utilities meet regulatory requirements that depend on maintaining
an adequate infrastructure and believe that EPA should establish a Web
site to serve as a central repository of information on implementing
asset management. However, the officials raised concerns about the
implications of mandating asset management, citing challenges in
defining an adequate asset management plan and in the ability of states
to oversee and enforce compliance. GAO is making recommendations to
strengthen EPA's existing efforts to promote water utilities' use of
asset management.
Principal Findings:
Utilities See Benefits from Using Comprehensive Asset Management, but
Face Implementation Challenges:
Utilities that have started using comprehensive asset management report
benefits for several aspects of their operations. For example,
collecting, sharing, and analyzing data on capital assets has allowed
utilities to make more informed decisions about how best to manage the
assets. In particular, utilities are using the information they collect
to allocate their maintenance resources more effectively and make
better decisions about whether to rehabilitate or replace aging assets.
Utilities also report that asset management fosters information sharing
across departments as well as coordinated planning and decision making.
These improvements help utility managers reduce duplication of effort
and improve the allocation of staff time and other resources.
Utilities also report that comprehensive asset management benefits
their relations with external stakeholders, such as local governing
bodies, ratepayers, and credit rating agencies. For instance, several
utilities have used, or expect to use, the information collected
through comprehensive asset management to persuade elected officials to
increase user rates to help pay for needed improvements in drinking
water and wastewater infrastructure. Although water industry officials
identified financial and other benefits from using asset management,
reported savings should be viewed with caution because, for instance,
comprehensive asset management may be implemented concurrently with
other changes in management practices or operational savings may be
offset by increases in capital expenditures.
Despite the acknowledged benefits of comprehensive asset management,
utilities report several key challenges that can hinder efforts to
implement this approach. For example, collecting the appropriate data
on utility assets and managing the information efficiently can be
difficult when existing data are incomplete and inaccurate or the data
come from multiple departments and are maintained using different and
incompatible software programs. Utilities reported that another major
challenge is overcoming resistance to cultural change and fostering
more communication among departments that do not regularly exchange
information. Utility officials believe that it is essential to change
the management culture to encourage more interdepartmental coordination
and information sharing. Finally, although asset management provides
utilities with better information to justify needed rate increases,
their justifications may not be effective because of pressure to keep
rates low and competing priorities for local revenues. Utility and
water industry officials cited the difficulty of trying to implement
long-term capital improvement plans when governing bodies have a
shorter-term focus as a key challenge to asset management. Smaller
utilities may have more difficulty implementing asset management
because they typically have fewer financial, technological, and staff
resources. On the other hand, because such utilities have fewer capital
assets to manage, they can turn to low-cost management alternatives
that do not require expensive or sophisticated technology.
EPA Can Promote the Use of Asset Management By Strengthening Existing
Initiatives:
EPA currently sponsors initiatives to encourage the use of
comprehensive asset management through its partnerships with water
industry associations and state and university-based training and
technical assistance centers. These initiatives include developing
training and informational materials, providing technical assistance,
and funding research related to asset management. While this is a good
first step, GAO found that better coordination of these efforts within
and across the drinking water and wastewater programs could reduce the
potential for duplication of effort and help ensure that limited
resources are used effectively. GAO also found opportunities for EPA to
leverage its resources by adapting the asset management tools and
informational materials available from other federal agencies with
experience in asset management, such as the Federal Highway
Administration in the Department of Transportation.
When asked for their views on a potential federal role, water industry
and utility officials said that given the benefits of asset management,
it is in EPA's interest to assume a greater leadership role in
promoting its use. For example, the officials indicated that one useful
option would be educating utilities about the potential for asset
management to help them comply with certain regulatory requirements
that focus to some degree on the adequacy of utility infrastructure and
the management practices that affect it. As a case in point, the
officials cited requirements for ensuring that drinking water utilities
have the financial, managerial, and technical capacity they need to
provide safe drinking water over the long term. GAO also found support
for an EPA Web site that would serve as a central repository of
information on comprehensive asset management and provide drinking
water and wastewater utilities with direct and easy access to
implementation tools and training materials developed by EPA and
others. Water industry associations and individual utilities questioned
the feasibility of proposed requirements for asset management plans,
particularly as a condition of receiving federal financial assistance.
While the proposals are consistent with what GAO has found to be the
leading practices in capital decision making,[Footnote 2] the officials
expressed concerns about, among other things, (1) whether state
regulators have the resources to assess the adequacy of asset
management plans and oversee compliance and (2) the potential for a
mandate to limit the flexibility utilities need to tailor asset
management to their individual circumstances.
Recommendations for Executive Action:
Given the potential of comprehensive asset management to help water
utilities better identify and manage their infrastructure needs, the
Administrator, EPA, should take steps to strengthen the agency's
existing initiatives on asset management and ensure that relevant
information is accessible to those who need it. Specifically, the
Administrator should:
* better coordinate ongoing and planned initiatives to promote asset
management within and across the drinking water and wastewater programs
to leverage limited resources and reduce the potential for duplication;
* explore opportunities to take advantage of asset management tools and
informational materials developed by other federal agencies;
* strengthen efforts to educate utilities on how implementing asset
management can help them comply with certain regulatory requirements
that focus in whole or in part on the adequacy of utility
infrastructure and the management practices that affect it; and:
* establish a Web site to provide a central repository of information
on comprehensive asset management so that drinking water and wastewater
utilities have direct and easy access to information that will help
them better manage their infrastructure.
Agency Comments:
GAO provided a draft of this report to EPA for review and comment. GAO
received comments from officials within EPA's Office of Water and
Office of the Chief Financial Officer, who generally agreed with the
information presented in the report and GAO's recommendations. They
further noted that while EPA has played a major role in bringing asset
management practices to the water industry, significant additional
activity could be undertaken, and they have placed a high priority on
initiating activities similar to those suggested by GAO. The officials
also made technical comments, which GAO incorporated as appropriate.
[End of section]
Chapter 1: Introduction:
Drinking water and wastewater utilities are facing potentially
significant investments over the next 20 years to upgrade an aging and
deteriorated infrastructure, including underground pipelines,
treatment, and storage facilities; meet new regulatory requirements;
serve a growing population; and improve security. Adding to the problem
is that many utilities have not been generating enough revenues from
user charges and other local sources to cover their full cost of
service. As a result, utilities have deferred maintenance and postponed
needed capital improvements. To address these problems and help ensure
that utilities can manage their needs cost-effectively, some water
industry and government officials advocate the use of comprehensive
asset management. Asset management is a systematic approach to managing
capital assets in order to minimize costs over the useful life of the
assets while maintaining adequate service to customers. While the
approach is relatively new to the U.S. water industry, it has been used
by water utilities in other countries for as long as 10 years.
Each year, the federal government makes available billions of dollars
to help local communities finance drinking water and wastewater
infrastructure projects. Concerns about the condition of existing
infrastructure have prompted calls to increase financial assistance
and, at the same time, ensure that the federal government's investment
is protected. In recent years the Congress has been considering a
number of proposals that would promote the use of comprehensive asset
management by requiring utilities to develop and implement plans for
maintaining, rehabilitating, and replacing capital assets, often as a
condition of obtaining loans or other financial assistance.
The Federal Government Has Played a Major Role in Funding and Setting
Requirements for Water Infrastructure:
The federal government has had a significant impact on the nation's
drinking water and wastewater infrastructure by (1) providing financial
assistance to build new facilities and (2) establishing regulatory
requirements that affect the technology, maintenance, and operation of
utility infrastructure. As we reported in 2001, nine federal agencies
made available about $46.6 billion for capital improvements at water
utilities from fiscal years 1991 through 2000.[Footnote 3] The
Environmental Protection Agency (EPA) and the Department of Agriculture
alone accounted for over 85 percent of the assistance, providing $26.4
billion and $13.3 billion, respectively, during the 10-year period;
since then, the funding from these two agencies has totaled nearly $15
billion.[Footnote 4] EPA's financial assistance is primarily in the
form of grants to the states to capitalize the Drinking Water and Clean
Water State Revolving Funds, which are used to finance improvements at
local drinking water and wastewater treatment facilities,
respectively.[Footnote 5] As part of the Rural Community Advancement
Program, Agriculture's Rural Utilities Service provides direct loans,
loan guarantees, and grants to construct or improve drinking water,
sanitary sewer, solid waste, and storm drainage facilities in rural
communities.
In addition to its financial investment, EPA has promulgated
regulations to implement the Safe Drinking Water Act and Clean Water
Act, which have been key factors in shaping utilities' capital needs
and management practices. For example, under the Safe Drinking Water
Act, EPA has set standards for the quality of drinking water and
identified effective technologies for treating contaminated water.
Similarly, under the Clean Water Act, EPA has issued national minimum
technology requirements for municipal wastewater utilities and criteria
that states use to establish water quality standards that affect the
level of pollutants that such utilities are permitted to discharge.
Thus, the federal government has a major stake in protecting its
existing investment in water infrastructure and ensuring that future
investments go to utilities that are built and managed to meet key
regulatory requirements.
Projected Drinking Water and Wastewater Infrastructure Needs Are
Significant:
Drinking water and wastewater utilities will need to invest hundreds of
billions of dollars in their capital infrastructure over the next two
decades, according to EPA; the Congressional Budget Office; and the
Water Infrastructure Network, a consortium of industry, municipal,
state, and nonprofit associations. As table 1 shows, the projected
needs range from $485 billion to nearly $1.2 trillion. The estimates
vary considerably, depending on assumptions about the nature of
existing capital stock, replacement rates, and financing costs. Given
the magnitude of the projected needs, it is important that utilities
adopt a strategy to manage the repair and replacement of key assets as
cost-effectively as possible and to plan to sustain their
infrastructure over the long term.
Table 1: Recent Estimates of the Cost of Meeting Infrastructure Needs
at Drinking Water and Wastewater Utilities:
Dollars in billions.
Organization: Congressional Budget Office[A]--Low;
Estimate: Period covered: 2000-2019;
Estimate: Capital investment only: Drinking water: Not applicable;
Estimate: Capital investment only: Wastewater: Not applicable;
Estimate: Capital investment only: Total: Not applicable;
Estimate: Capital investment and financing: Drinking water: 232;
Estimate: Capital investment and financing: Wastewater: 260;
Estimate: Capital investment and financing: Total: 492.
Organization: Congressional Budget Office[A]--High;
Estimate: Period covered: 2000-2019;
Estimate: Capital investment only: Drinking water: Not applicable;
Estimate: Capital investment only: Wastewater: Not applicable;
Estimate: Capital investment only: Total: Not applicable;
Estimate: Capital investment and financing: Drinking water: 402;
Estimate: Capital investment and financing: Wastewater: 418;
Estimate: Capital investment and financing: Total: 820.
Organization: EPA[B]--Low;
Estimate: Period covered: 2000-2019;
Estimate: Capital investment only: Drinking water: 154;
Estimate: Capital investment only: Wastewater: 331;
Estimate: Capital investment only: Total: 485;
Estimate: Capital investment and financing: Drinking water: 178;
Estimate: Capital investment and financing: Wastewater: 402;
Estimate: Capital investment and financing: Total: 580.
Organization: EPA[B]--High;
Estimate: Period covered: 2000-2019;
Estimate: Capital investment only: Drinking water: 446;
Estimate: Capital investment only: Wastewater: 450;
Estimate: Capital investment only: Total: 896;
Estimate: Capital investment and financing: Drinking water: 475;
Estimate: Capital investment and financing: Wastewater: 719;
Estimate: Capital investment and financing: Total: 1,194.
Organization: Water Infrastructure Network[C];
Estimate: Period covered: 2000-2019;
Estimate: Capital investment only: Drinking water: 380;
Estimate: Capital investment only: Wastewater: 360;
Estimate: Capital investment only: Total: 740;
Estimate: Capital investment and financing: Drinking water: 480;
Estimate: Capital investment and financing: Wastewater: 460;
Estimate: Capital investment and financing: Total: 940.
Source: GAO summary of infrastructure estimates from the Congressional
Budget Office, EPA, and the Water Infrastructure Network.
Note: We did not assess the reliability of these data.
[A] See Congressional Budget Office, Future Investment in Drinking
Water and Wastewater Infrastructure, (Washington, D.C.: November 2002).
According to the report, the difference between the low and high
estimates is attributable primarily to assumptions about the rate at
which drinking water pipes are replaced, the savings associated with
improved efficiency, the costs of controlling combined sewer overflows,
and the length of the borrowing term. The estimates represent
infrastructure costs as financed and thus include the estimated debt
service paid from 2000 to 2019, whether for newly built projects or
projects built before 2000.
[B] See U.S. Environmental Protection Agency, The Clean Water and
Drinking Water Infrastructure Gap Analysis, EPA-816-R-02-020
(September 2002). According to the report, the difference between the
low and high estimates is attributable to differing assumptions about
infrastructure replacement rates.
[C] See Water Infrastructure Network, Clean & Safe Water for the 21st
Century (April 2000). The estimates for capital investment and
financing represent the capital costs associated with all investments
during the 2000-2019 period as well as the interest paid over time on
those investments. They differ from costs-as-financed estimates because
they include debt service (principal and interest) paid after 2019 on
investments during the two decades instead of debt service paid during
that time on pre-2000 investments.
[End of table]
Local drinking water and wastewater utilities rely primarily on
revenues from user rates to pay for infrastructure improvements.
According to EPA's gap analysis, maintaining utility spending at
current levels could result in a funding gap of up to $444 billion
between projected infrastructure needs and available
resources.[Footnote 6] However, EPA also estimates that if utilities'
infrastructure spending grows at a rate of 3 percent annually over and
above inflation, the gap will narrow considerably and may even
disappear. EPA's report concludes that utilities will need to use some
combination of increased spending and innovative management practices
to meet the projected needs.
The nation's largest utilities--those serving populations of at least
10,000--account for most of the projected infrastructure needs. For
example, according to EPA data, large drinking water systems represent
about 7 percent of the total number of community water systems, but
account for about 65 percent of the estimated infrastructure needs.
Similarly, about 29 percent of the wastewater treatment and collection
systems are estimated to serve populations of 10,000 or more, and such
systems account for approximately 89 percent of projected
infrastructure needs for wastewater utilities. Most of the U.S.
population is served by large drinking water and wastewater utilities;
for example, systems serving at least 10,000 people provide drinking
water to over 80 percent of the population.
Pipeline rehabilitation and replacement represents a significant
portion of the projected infrastructure needs. According to the
American Society of Civil Engineers, U.S. drinking water and wastewater
utilities are responsible for an estimated 800,000 miles of water
delivery pipelines and between 600,000 and 800,000 miles of sewer
pipelines, respectively. According to the most recent EPA needs
surveys, the investment needed for these pipelines from 1999 through
2019 could be as much as $137 billion.[Footnote 7]
Several recent studies have raised concerns about the condition of the
existing pipeline network. For example, in August 2002, we reported the
results of a nationwide survey of large drinking water and wastewater
utilities.[Footnote 8] Based on the survey, more than one-third of the
utilities had 20 percent or more of their pipelines nearing the end of
their useful life; and for 1 in 10 utilities, 50 percent or more of
their pipelines were nearing the end of their useful life. In 2001, a
major water industry association predicted that drinking water
utilities will face significant repair and replacement costs over the
next three decades, given the average life estimates for different
types of pipelines and the years since their original
installation.[Footnote 9] Other studies have made similar predictions
for the pipelines owned by wastewater utilities.
Many Factors Have Contributed to Deteriorating Utility Infrastructure:
EPA and water industry officials cite a variety of factors that have
played a role in the deterioration of utility infrastructure; most of
these factors are linked to the officials' belief that the level of
ongoing investment in the infrastructure has not been sufficient to
sustain it. For example, according to EPA's Assistant Administrator for
Water, the pipelines and plants that make up the nation's water
infrastructure are aging, and maintenance is too often deferred. He
predicted that consumers will face sharply rising costs to repair and
replace the infrastructure. Similarly, as the Water Environment
Research Foundation reported in 2000, "years of reactive maintenance
and minimal expenditures on sewers have left a huge backlog of repair
and renewal work."[Footnote 10]
Our nationwide survey of large drinking water and wastewater utilities
identified problems with the level of revenues generated from user
rates and decisions on investing these revenues.[Footnote 11] For
example:
* Many drinking water and wastewater utilities do not cover the full
cost of service--including needed capital investments and operation and
maintenance costs--through their user charges. Specifically, a
significant percentage of the utilities serving populations of 10,000
or more--29 percent of the drinking water utilities and 41 percent of
the wastewater utilities--were not generating enough revenue from user
charges and other local sources to cover their costs.
* Many drinking water and wastewater utilities defer maintenance and
needed capital improvements because of insufficient funding. About one-
third of the utilities deferred maintenance expenditures in their most
recent fiscal year;[Footnote 12] similar percentages of utilities
reported deferring minor capital improvements and major capital
improvements. About 20 percent of the utilities had deferred
expenditures in all three categories.
* For many utilities, a significant disparity exists between the actual
rehabilitation and replacement of their pipelines and the rate at which
utility managers believe rehabilitation and replacement should occur.
We found that only about 40 percent of the drinking water utilities and
35 percent of the wastewater utilities met or exceeded their desired
rate of pipeline rehabilitation and replacement. The remaining
utilities did not meet their desired rates. Roughly half of the
utilities actually rehabilitated or replaced 1 percent or less of their
pipelines annually.
Utility managers also lack the information they need to manage their
existing capital assets. According to our survey, many drinking water
and wastewater utilities either do not have plans for managing their
assets or have plans that may not be adequate in scope or content.
Specifically, nearly one-third of the utilities did not have plans for
managing their existing capital assets. Moreover, for the utilities
that did have such plans, the plans in many instances did not cover all
assets or did not contain one or more key elements, such as an
inventory of assets, assessment criteria, information on the assets'
condition, and the planned and actual expenditures to maintain the
assets.[Footnote 13]
Comprehensive Asset Management Focuses on Efficiently Managing Capital
Assets:
Comprehensive asset management has gained increasing recognition within
the water industry as an approach that could give utilities the
information and analytical tools they need to manage existing assets
more effectively and plan for future needs. Using asset management
concepts, utilities and other organizations responsible for managing
capital infrastructure can minimize the total cost of designing,
acquiring, operating, maintaining, replacing, and disposing of capital
assets over their useful lives, while achieving desired service levels.
Figure 1 shows some of the basic elements of comprehensive asset
management and how the elements build on and complement each other to
form an integrated management system.
Figure 1: Elements of Comprehensive Asset Management:
[See PDF for image]
[End of figure]
Experts within and outside the water industry have published manuals
and handbooks on asset management practices and how to apply
them.[Footnote 14] While the specific terminology differs, some
fundamental elements of implementing asset management appear
consistently in the literature.
* Collecting and organizing detailed information on assets. Collecting
basic information about capital assets helps managers identify their
infrastructure needs and make informed decisions about the assets. An
inventory of an organization's existing assets generally should include
(1) descriptive information about the assets, including their age,
size, construction materials, location, and installation date; (2) an
assessment of the assets' condition, along with key information on
operating, maintenance, and repair history, and the assets' expected
and remaining useful life; and (3) information on the assets' value,
including historical cost, depreciated value, and replacement cost.
* Analyzing data to set priorities and make better decisions about
assets. Under asset management, managers apply analytical techniques to
identify significant patterns or trends in the data they have collected
on capital assets; help assess risks and set priorities; and optimize
decisions on maintenance, repair, and replacement of the assets. For
example:
* Life-cycle cost analysis. Managers analyze life-cycle costs to decide
which assets to buy, considering total costs over an asset's life, not
just the initial purchase price. Thus, when evaluating investment
alternatives, managers also consider differences in installation cost,
operating efficiency, frequency of maintenance and repairs, and other
factors to get a cradle-to-grave picture of asset costs.
* Risk/criticality assessment. Managers use risk assessment to
determine how critical the assets are to their operations, considering
both the likelihood that an asset will fail and the consequences--in
terms of costs and impact on the organization's desired level of
service--if the asset does fail.[Footnote 15] Based on this analysis,
managers set priorities and target their resources accordingly.
* Integrating data and decision making across the organization.
Managers ensure that the information collected within an organization
is consistent and organized so that it is accessible to the people who
need it. Among other things, the organization's databases should be
fully integrated; for instance, financial and engineering data should
be compatible, and ideally each asset should have a unique identifier
that is used throughout the organization. Regarding decision making,
all appropriate units within an organization should participate in key
decisions, which ensures that all relevant information gets considered
and encourages managers to take an organizationwide view when setting
goals and priorities.
* Linking strategy for addressing infrastructure needs to service
goals, operating budgets, and capital improvement plans. An
organization's goals for its desired level of service--in terms of
product quality standards, frequency of service disruptions, customer
response time, or other measures--are a major consideration in the
organization's strategy for managing its assets. As managers identify
and rank their infrastructure needs, they determine the types and
amount of investments needed to meet the service goals. Decisions on
asset maintenance, rehabilitation, and replacement are, in turn, linked
to the organization's short-and long-term financial needs and are
reflected in the operating budget and capital improvement plan, as
appropriate.
Implementing the basic elements of asset management is an iterative
process that individual organizations may begin at different points.
Within the water industry, for example, some utilities may start out by
identifying their infrastructure needs, while other utilities may take
their first step by setting goals for the level of service they want to
provide. The interrelationship between the elements of asset management
can alter an organization's strategy for managing its assets. For
example, once an organization has completed a risk assessment, it may
scale back its efforts to compile a detailed inventory of assets to
focus initially on those assets determined to be critical. Similarly,
as information on infrastructure needs and priorities improves,
managers reexamine the level of planned investments, considering the
impact on both revenue requirements and the level of service that can
be achieved. According to advocates of asset management, while many
organizations are implementing certain aspects of the process, such as
maintaining an inventory of assets and tracking maintenance, these
organizations are not realizing the full potential of comprehensive
asset management unless all of the basic elements work together as an
integrated management system.
Strategy for Adopting and Progress toward Implementing Comprehensive
Asset Management Varies:
As the description of asset management indicates, implementing this
approach is not a step-by-step, linear process. Asset management is an
integrated system that utilities and other organizations can implement
in a number of different ways, depending on what makes sense for their
particular organization. In the United States, some drinking water and
wastewater utilities, for example, are taking a more strategic
approach, initially investing their resources in planning for asset
management. Other utilities are focusing initially on collecting data.
Another variation is that some utilities are adopting asset management
on a utilitywide basis, while others are piloting the approach at a
single facility or department or are targeting critical assets
utilitywide. The level of sophistication with which asset management
concepts are applied within a utility can also vary, depending on the
size and complexity of the operations and the resources that the
utility can devote to implementation.
Comprehensive asset management is a relatively new concept for drinking
water and wastewater utilities in the United States. According to EPA
and major water industry organizations, few utilities are implementing
comprehensive asset management, and those that have done so are almost
exclusively larger entities. In addition, for the most part, the
domestic utilities that have adopted asset management are in the early
stages of implementation. Few utilities have been involved in the
process for longer than 2 to 3 years.
Although relatively new to the U.S. water industry, comprehensive asset
management has been used for about 10 years by water utilities in
Australia and New Zealand, where the national governments have strongly
endorsed the concept. In each case, the driving force behind the use of
asset management was legislation that called for water utilities to
improve their financial management. In Australia, the law requires
utilities to recover the full cost of service, while in New Zealand the
law requires utilities to depreciate their assets annually and use
cost-benefit analysis, among other things. The national governments of
Australia and New Zealand each published guidebooks on asset
management, and engineering groups in the two countries jointly
developed a comprehensive manual on managing infrastructure
assets.[Footnote 16]
Asset management is seen as a means of improving utility infrastructure
elsewhere in the world. For example, in the United Kingdom, utilities
must develop asset management plans that identify the level of
investment required to maintain and improve capital assets every 5
years; annual audits help ensure that planned improvements are made.
Similarly, in 2002, the legislature in Ontario, Canada enacted a law
requiring municipalities to develop plans for recovering the full cost
of service to ensure that drinking water and wastewater systems are
adequately funded.
Objectives, Scope, and Methodology:
The Ranking Minority Member, Senate Committee on Environment and Public
Works, asked us to examine the use of comprehensive asset management at
drinking water and wastewater utilities in the United States. This
report examines (1) the potential benefits of asset management for
water utilities and the challenges that could hinder its implementation
and (2) the role that the federal government might play in encouraging
utilities to implement comprehensive asset management.
To conduct our work, we reviewed relevant studies, handbooks, training
materials, and other documents related to comprehensive asset
management and its implementation, particularly for managing the
infrastructure at drinking water and wastewater utilities. At the
federal level, we obtained information from EPA's Office of Ground
Water and Drinking Water and Office of Wastewater Management, the
offices that, along with the states, are responsible for overseeing
drinking water and wastewater utilities. We also obtained information
on other federal agencies with experience in asset management,
predominantly the Federal Highway Administration in the U.S. Department
of Transportation, and financial standards promulgated by the
Governmental Accounting Standards Board. For site-specific
information, our review included over 50 individual utilities from the
United States, Australia, and New Zealand--including 15 U.S. utilities
at which we conducted structured interviews.
Other sources of information included the following:
* state associations, including the Association of State Drinking Water
Administrators and the Association of State and Interstate Water
Pollution Control Administrators;
* major industry groups, including the American Public Works
Association, American Water Works Association, Association of
Metropolitan Sewerage Agencies, Association of Metropolitan Water
Agencies, National Association of Water Companies, National Rural Water
Association, Water Environment Federation, and Water Services
Association of Australia;
* engineering and consulting firms with experience in helping utilities
implement asset management, including Brown and Caldwell; CH2M Hill;
Metcalf and Eddy, Inc.; Municipal and Financial Services Group; PA
Consulting Group; and Parsons Corporation in the U.S.; GHD Pty. Ltd. in
Australia; and Meritec in New Zealand;
* several state and regional regulatory agencies in Australia and New
Zealand; and:
* EPA-funded state and university-based training and technical
assistance centers.
To obtain information on the benefits and challenges of asset
management, we conducted initial interviews with 46 domestic drinking
water and wastewater utilities that knowledgeable government and water
industry officials identified as implementing comprehensive asset
management. To obtain more detailed information, we conducted
structured interviews with officials from 15 of the 46 utilities. We
selected the 15 utilities based on two criteria: (1) they reported or
anticipated achieving quantitative benefits from asset management or
(2) they represented smaller entities.[Footnote 17] (See app. I for a
list of the 15 utilities we selected for structured interviews.) In
total, 12 of the 15 utilities were relatively large, serving
populations ranging from 300,000 to 2,500,000; the remaining three were
significantly smaller, serving populations ranging from 3,000 to
67,100. Because of the small number of utilities that we interviewed in
depth and the way in which they were selected, our results are not
generalizable to the larger universe of domestic drinking water and
wastewater utilities.
Because of the utilities' limited experience in implementing asset
management, we supplemented the information obtained from domestic
utilities with information from six utilities and five government
agencies in Australia and New Zealand, two countries that have taken
the lead in implementing comprehensive asset management. (See app. II
for a list of the utilities and government agencies we contacted in
Australia and New Zealand.) Outside the water industry, we consulted
with the Private Sector Council, which identified two companies--The
Gillette Company and SBC Communications, Inc.--with long-standing
experience in using comprehensive asset management in their respective
fields. We interviewed officials from these companies to obtain their
perspectives on the benefits and challenges of implementing asset
management.
For information on the potential federal role in promoting asset
management at water utilities, we obtained information from EPA's
Office of the Chief Financial Officer, Office of Ground Water and
Drinking Water, and Office of Wastewater Management on the activities
that EPA is currently sponsoring, including the development of
informational materials on asset management; activities by EPA-funded,
state and university-based training and technical assistance centers;
and various studies and research projects. We also discussed options
for a federal role in promoting asset management with officials from
water industry associations, EPA, and the 15 utilities selected for
structured interviews. In addition, with the help of organizations and
officials experienced in asset management, we identified the U.S.
Department of Transportation as being at the forefront of federal
involvement in this issue. We obtained and reviewed information about
the department's initiatives from the Office of Asset Management within
the Federal Highway Administration.
We conducted our work between March 2003 and March 2004 in accordance
with generally accepted government auditing standards.
Comments from the Environmental Protection Agency:
We provided a draft of this report to EPA for review and comment. We
received comments from officials within EPA's Office of Water and
Office of the Chief Financial Officer, who generally agreed with the
information presented in the report and our recommendations. They
further noted that while EPA has played a major role in bringing asset
management practices to the water industry, significant additional
activity could be undertaken, and they have placed a high priority on
initiating activities similar to those we suggested. The officials also
made technical comments, which we incorporated as appropriate.
[End of section]
Chapter 2 Water Industry Officials Report Many Benefits from Asset
Management Despite Implementation Challenges:
[End of section]
While comprehensive asset management is relatively new to most drinking
water and wastewater utilities in the United States, some utilities say
they have already benefited from this approach and have also
encountered certain challenges. The utilities reported benefiting from
(1) improved decision making because they have better information about
their capital assets and (2) improved relationships with governing
authorities, ratepayers, and other stakeholders because they are better
able to communicate information on infrastructure needs and improvement
plans. While water industry officials identified benefits associated
with comprehensive asset management, we found that reported savings
should be viewed with caution.
Among the challenges of implementing asset management, utility
officials cited the difficulty of (1) collecting the appropriate data
and managing it efficiently and (2) making the cultural changes
necessary to integrate information and decision making across
departments. In addition, the officials reported that the short-term
budget and election cycles typical of utility governing bodies make it
difficult to meet the long-term capital investment planning needs of
asset management. Although smaller utilities face more obstacles to
implementing asset management than larger utilities, principally
because of limited resources, they can also benefit from applying asset
management concepts.
Utilities Cite Many Benefits from Asset Management and Some Cautions
About Reported Savings:
U.S. utilities expect to reap significant benefits from the data they
collect, analyze, and share through an asset management approach. With
these data, utilities expect to make more informed decisions on
maintaining, rehabilitating, and replacing their assets, thereby making
their operations more efficient. Utilities can also use these data to
better communicate with their governing bodies and the public, which
should help them to make a sound case when seeking rate increases.
Although water industry officials identified financial and other
benefits from using asset management, reported savings should be viewed
with caution because, for instance, comprehensive asset management may
be implemented concurrently with other changes in management practices
or operational savings may be offset by increases in capital
expenditures.
Comprehensive Asset Management Can Improve Decisions about Maintaining,
Rehabilitating, and Replacing Capital Assets:
Collecting, sharing, and analyzing data through comprehensive asset
management can help utilities to make more informed decisions about
maintaining, rehabilitating, and replacing their assets. In particular,
utilities can use the information collected and analyzed to prevent
problems and allocate their maintenance resources more effectively. For
example:
* Better information enabled the Massachusetts Water Resources
Authority to improve its maintenance decisions and eliminate some
unneeded maintenance activities.[Footnote 18] For example, in an effort
to optimize maintenance practices in one of their treatment plants,
utility officials reassessed maintenance practices for 12 equipment
systems, such as different types of pumps. By using the assessment
results to improve maintenance planning for these assets, the utility
decreased the labor hours spent on preventive maintenance by 25 percent
from the hours recommended by the original equipment manufacturers,
according to utility officials. Similarly, in analyzing its maintenance
practices, the Massachusetts Water Resources Authority found it was
lubricating some equipment more often than necessary. By decreasing the
frequency of oil changes, the utility reported it saved approximately
$20,000 in oil purchase and disposal costs. In addition, the utility
extended the life of its assets by decreasing the lubrication--over-
lubrication can cause equipment parts to fail prematurely.
* Seattle Public Utilities used asset management to better target its
maintenance resources.[Footnote 19] As part of the utility's asset
management strategy, officials used a risk management approach,
calculating the likelihood and impact of a rupture for the utility's
sewer and drainage pipes. To determine the likelihood of rupture,
officials considered such factors as a pipe's age, material, and
proximity to a historical landfill or steep slope. To determine the
impact of a rupture, they examined factors such as a pipe's size,
location, and historical cost of repair. As a result of this analysis,
utility officials identified 15 percent of their pipes as high risk, or
"critical"--such as larger, older pipes located beneath downtown
Seattle. They shifted resources to maintain and rehabilitate these
pipes. The officials considered the remaining 85 percent of pipes as
noncritical, or, lower risk, because their failure was less likely or
because a breakage would affect a limited number of customers, be
repaired relatively quickly, and require minimal resources. For these
pipes, the utility decided not to perform any preventive maintenance
activities, only making repairs as needed. By taking this approach,
utility officials believe they are using their staff resources more
efficiently and that, over time, they will reduce their maintenance
costs.
Comprehensive asset management also helps managers to make more
informed decisions about whether to rehabilitate or replace assets, and
once they decide on replacement, to make better capital investment
decisions. For example:
* According to utility managers at the Louisville Water Company, the
utility developed its Pipe Evaluation Model in the early 1990s as a
tool for ranking its 3,300 miles of aging pipes and water mains for
rehabilitation and replacement.[Footnote 20] The pipe program includes
many of the key principles and practices of comprehensive asset
management: for instance, it integrated data about the age of the pipes
with data about their maintenance history. In analyzing this
information, managers discovered that two vintages of pipes--those
built between 1862 and 1865 and between 1926 and 1931--had the highest
number of breaks per 100 miles of pipeline. Consequently, they decided
to replace the pipes from those two periods. The model also showed that
pipes installed between 1866 and 1925 were fairly reliable, thus these
pipes were targeted for rehabilitation rather than replacement. The
utility is lining the interior of these pipes with cement, which is
expected to extend their life by about 40 years. Furthermore, utility
managers told us that their pipe model and other practices that use
asset management principles have helped reduce the frequency of water
main breaks from 26 to 22.7 per hundred miles and the frequency of
leaks from joints from 8.2 to 5.6 per hundred miles.
* In implementing its asset management approach, managers at the
Sacramento Regional County Sanitation District reassessed a proposed
investment in new wastewater treatment tanks and decided on a less
expensive option, thereby saving the utility approximately $12
million.[Footnote 21] During this reassessment, managers found that
increasing preventive maintenance on existing tanks would lower the
risk of shutdown more cost-effectively than adding a new set of tanks.
Utility officials commented that their implementation of asset
management helped change their decision-making process by, among other
things, bringing together staff from different departments to ensure
more complete information, and more effectively using the data to
understand investment options.
* As a part of its asset management strategy, Seattle Public Utilities
established an asset management committee, comprised of senior
management from various departments, to ensure appropriate decision
making about the utility's capital improvement projects. For every
capital improvement project with an expected cost over $250,000,
project managers must submit a plan to the committee that (1) defines
the problem to be solved, (2) examines project alternatives, (3)
estimates the life-cycle costs of the alternatives, (4) analyzes the
possible risks associated with the project, and (5) recommends an
alternative. According to utility officials, implementing this process
has led to deferring, eliminating, or altering several capital
improvement projects, and contributing to a reduction in the utility's
2004 capital improvement project budget for water of more than 8
percent. For instance, after drafting new water pressure standards, the
utility eliminated the need for some new water mains. It developed an
alternative plan to provide more localized solutions to increase water
pressure, resulting in expected savings of $3 million. In another case,
the utility reassessed alternatives to replacing a sewer line located
on a deteriorating trestle, ultimately opting to restore and maintain
the existing wood trestle and make spot repairs to the sewer line,
which resulted in an estimated savings of $1.3 million.
Finally, comprehensive asset management helps utilities share
information across departments and coordinate planning and decision
making. In this way, utility managers can reduce duplication of efforts
and improve the allocation of staff time and other resources. For
example, managers at Eastern Municipal Water District used asset
management to improve their business practices, which they saw as
compartmentalized and inefficient.[Footnote 22] In one instance, they
examined their decentralized maintenance activities. The utility had
two maintenance crews who worked throughout the system, in different
shifts and reported to managers at four different facilities. In
addition, the utility's work order system was inefficient; for example,
when different crew members independently reported the same maintenance
need, managers did not notice the duplication because the problem was
described in different terms (e.g., as a "breaker failure" by one crew
member and as a "pump failure" by another). Finally, in some instances,
work crews would arrive at a site only to find that needed maintenance
work had already been completed. To improve the system, utility
officials (1) centralized maintenance by making one person responsible
for scrutinizing and setting priorities for all work orders and (2)
established a standardized classification of assets, which helped
maintenance staff use the same terminology when preparing work orders.
Utility officials report that taking these steps allowed them to
identify and eliminate work orders that were unnecessary, already
completed, or duplicates, which ultimately reduced their maintenance
work backlog by 50 percent.
The private sector companies we visited agreed that using a
comprehensive asset management approach improved their decision making.
Specifically, by improving their data, analyzing these data, and
centralizing management decision making, managers at SBC
Communications, Inc., reported that they have made better capital
investment decisions and allocated resources more efficiently. Managers
at The Gillette Company reported that they consider life-cycle costs
and other factors to assess investment alternatives and, ultimately,
make better investment decisions.
Comprehensive Asset Management Can Help Utilities Justify Rate
Increases and Proposed Projects to Their Customers and Governing
Bodies:
The utilities we contacted reported that comprehensive asset management
also benefits their relations with external stakeholders by (1) making
a sound case for rate increases to local governing bodies and
ratepayers; (2) improving their bond rating with credit rating
agencies, and (3) better demonstrating compliance with federal and
state regulations.
Making a Sound Case for Rate Increases:
Some utilities have used, or expect to use, the information collected
through comprehensive asset management to persuade elected officials to
invest in drinking water and wastewater infrastructure through rate
increases. For example, the Louisville Water Company reported that in
the early 1990s it used the asset information it had gathered and
analyzed to convince its local governing board that its current rates
would not cover its expected costs and that the utility needed a rate
increase to cover its anticipated rehabilitation and replacement needs.
The board approved a set-aside of $600,000 for an infrastructure
rehabilitation and replacement fund as a part of the requested rate
increase in 1993, and, according to one utility official, has been
supportive of including funds for asset rehabilitation and replacement
as a part of rate requests since then. Furthermore, the utility manager
requested that the amount of the set-aside gradually increase to $3
million over the next 5 years. According to this official, the board
not only approved this request, it also increased the rates to support
the fund sooner than the utility manager had requested. According to
several other utilities that have begun to implement comprehensive
asset management, this approach should enable them to justify needed
rate increases from their governing bodies. Similarly, Australian and
New Zealand officials we interviewed stated that the data from asset
management helps utilities make a more credible case for rate increases
from their governing bodies.
Utility managers can also use the information they provide to their
governing boards as a basis for evaluating and deciding on trade-offs
between service levels and rates. For example, according to an official
at South Australian Water Corporation, using asset management
practices, he was able to suggest a range of funding alternatives to
the utility's governing body.[Footnote 23] The utility managers
conducted statistical modeling on the asset information they collected
(e.g., pipe performance history and financial information) and, using
this analysis, predicted the approximate number of pipe breaks at
various levels of funding. Understanding the trade-offs between lower
rates and higher numbers of pipe breaks, the governing body could make
an informed decision about what the appropriate level of service was
for their community.
Improving the Bond Rating:
Comprehensive asset management also has the potential to improve a
utility's bond rating, a benefit that translates into savings through
lower interest rates on loans and bonds. When deciding on a utility's
bond rating, credit rating agencies consider criteria related to
comprehensive asset management, such as the utility's management
strategies and its planning for asset replacement. For example,
according to a representative from one credit rating agency, asset
management shows that a utility is considering future costs. He would
therefore expect a utility with an asset management plan that looks at
future capital and operating costs and revenues to receive a higher
bond rating than a utility that does not sufficiently consider those
future needs, even if that utility has a better economy and a higher
tax base.
Some local officials believe that comprehensive asset management played
a role in the bond ratings they received, or will do so in the future.
For example, the finance director of the small northeastern city of
Saco, Maine, told us that she believes that the city's decision to use
asset management practices--such as maintaining an up-to-date asset
inventory, periodically assessing the condition of the assets, and
estimating the funds necessary to maintain the assets at an acceptable
level each year--contributed to the credit rating agencies' decision to
increase the city's bond rating, which resulted in an expected savings
of $2 million over a 20-year period.[Footnote 24] Similarly, a utility
official at Louisville Water Company told us that asset management
practices, such as strategically planning for the rehabilitation and
replacement of its aging assets, helps the utility maintain its strong
bond rating.
Better Demonstrating Compliance with Federal and State Regulations:
According to several utility managers we interviewed, comprehensive
asset management can be used to help comply with regulations. For
example:
* Comprehensive asset management practices played a role in improving
their utility's compliance with existing regulations. Specifically,
among other things, asset management practices such as identifying and
maintaining key assets led to fewer violations of pollutant discharge
limitations under the Clean Water Act. At Western Carolina Regional
Sewer Authority, for instance, the number of these violations decreased
from 327 in 1998 (about the time that the utility began implementing
asset management) to 32 violations in 2003.[Footnote 25]
* At the Charleston Commissioners of Public Works,[Footnote 26] utility
officials told us that if they had not had asset management in place it
would be difficult to meet the rehabilitation program and maintenance
program elements of EPA's draft capacity, management, operation, and
maintenance regulations for wastewater utilities.[Footnote 27] For
instance,the draft regulations would require that wastewater utilities
identify and implement rehabilitation actions to address structural
deficiencies. Because the utility has implemented asset management
practices, such as assessing the condition of its pipes and identifying
those most in need of rehabilitation, it can better target its
resources to rehabilitate pipes in the worst condition, and, in the
process, meet the proposed standards for rehabilitation.
Although Water Industry Officials Identified Financial and Other
Benefits from Asset Management, Reported Savings Should Be Viewed with
Caution:
Many of the U.S. utilities we interviewed were still in the early
stages of implementing asset management and most had not measured
financial savings. However, many water industry officials expect asset
management to result in overall cost savings. Specifically, several
officials told us they expect that asset management will slow the rate
of growth of utilities' capital, operations, and maintenance costs over
the coming years. Nevertheless, total costs will rise because of the
need to replace and rehabilitate aging infrastructure.
At least one U.S. utility has estimated the overall savings it will
achieve using comprehensive asset management. Specifically, an
engineering firm projected that asset management would reduce life-
cycle costs for the Orange County Sanitation District by about $350
million over a 25-year period.[Footnote 28] Among other data, the
engineering firm used the utility's available operating expenditure
information (operations, maintenance, administration, and depreciation
data) and capital improvement program expenditures (growth/capacity,
renewal/replacement, and level of support data) to model the projected
life-cycle cost savings.
Additionally, some of the Australian utilities we interviewed reported
financial savings. For example, officials at Hunter Water Corporation
reported significant savings in real terms between fiscal years 1990
and 2001: a 37 percent reduction in operating costs;[Footnote 29]
improved service standards for customers, as measured by such factors
as water quality and the number of sewer overflows; and a reduction of
more than 30 percent in water rates for customers.[Footnote 30] Hunter
Water officials believe that they achieved these efficiencies as a
result of asset management.
Though utility officials have made some attempts to quantify the impact
of asset management, they also cited reasons for exercising caution in
interpreting reported savings and other benefits. First, benefits such
as operating cost reductions should not be considered in isolation of
other utility costs. A utility cannot consider reductions in operating
costs a net benefit if, for instance, savings in operational costs are
offset by an increase in the utility's capital expenditures.
Furthermore, reductions in operating costs may be caused by increases
in capital expenditures because, for example, newer assets may require
less maintenance and fewer repairs. In the case of the Hunter Water
Corporation, the utility's capital expenditures were at about the same
level in 2001 as in 1991, despite some fluctuation over the
period.[Footnote 31]
Second, other factors might have contributed to financial and other
benefits. For example, a utility may be implementing other management
initiatives concurrently with asset management and may not be able to
distinguish the benefits of the various initiatives. In addition to
using an asset management approach, for instance, some U.S. utilities
we interviewed used an environmental management system, which shares
some of the same components as asset management.[Footnote 32] Some of
these utilities told us that they could not separate the benefits of
asset management from those achieved as a result of their environmental
management systems.
In addition, reported savings from asset management can be misleading
without complete information on how the savings estimates are derived.
For example, a widely distributed graph shows an estimated 15 percent
to 40 percent savings in life-cycle costs for 15 wastewater utilities
in Australia. EPA and others used the graph as a basis for projecting
savings for U.S. utilities. However, the graph was mislabeled at some
point--the reported reductions in life-cycle costs were actually
reductions in operating costs.[Footnote 33] As we have already noted,
operating costs reductions alone do not provide enough information to
determine the net benefit of implementing asset management.
Utilities Face Challenges in Successfully Implementing Comprehensive
Asset Management:
Despite the acknowledged benefits of comprehensive asset management,
utilities face three key challenges that may make implementing this
approach difficult. First, to determine the condition of current assets
and the need for future investment, utilities have to gather and
integrate complete and accurate data, which may require significant
resources. Second, successful implementation requires cultural change-
-departments long accustomed to working independently must be willing
to coordinate and share information. Finally, utilities may find that
their efforts to focus on long-term planning conflict with the short-
term priorities of their governing bodies. These three challenges may
be more difficult for smaller utilities because they have fewer
financial, staff, and technical resources.
Asset Management Requires Utilities to Collect Complete and Accurate
Data:
The difficulties utilities experience gathering data to implement asset
management depend on the (1) condition of their existing data, (2)
ability to coordinate existing data across departments, (3) need to
upgrade technology, and (4) ability to sustain complete and accurate
data. One industry official noted that larger utilities, in particular,
may have a more difficult time gathering and coordinating data because
they typically possess a substantial number of assets. Nevertheless,
utility officials and water association representatives agree that
utilities should not allow these data challenges to prevent them from
implementing asset management. These officials emphasized that
utilities should begin implementing asset management by using the data
they already possess, continuing data collection as they perform their
routine repair and maintenance activities, or focusing data collection
efforts on their most critical assets.
Existing Data May Be Incomplete and Inaccurate:
Domestic and international water officials emphasize the importance of
obtaining, integrating, and sustaining good data for decision making.
This is no small challenge. According to the Association of
Metropolitan Sewerage Agencies and the International Infrastructure
Management Manual, utilities generally need the following types of data
to begin implementing asset management:
* age, condition, and location of the assets;
* asset size and/or capacity;
* valuation data (e.g., original and replacement cost);
* installation date and expected service life;
* maintenance and performance history; and:
* construction materials and recommended maintenance practices.
According to utility officials and industry handbooks, utilities
sometimes have incomplete or inaccurate historical data about their
assets. For example:
* An official at the Augusta County Service Authority noted that the
utility did not possess a great deal of detailed historical data about
its assets.[Footnote 34] For example, its asset ledger would indicate
that "a pump station was installed at a particular location in 1967,"
but would not provide any additional information about the assets, such
as the individual components that make up this system. Similarly, the
official told us that the utility's prior billing system did not
maintain historical data about its customers' water usage rates. As a
result, the management team found it difficult to adequately forecast
their needed rate increases because they lacked historical information
about water consumption.
* According to an East Bay Municipal Utility District official, the
utility lacked detailed maintenance data on its assets before 1990
because maintenance workers had not consistently reported repairs to a
central office.[Footnote 35]
Given these problems, utility managers may have to invest a significant
amount of time and resources to gather necessary data, particularly
data about the condition of their thousands of miles of buried
pipelines. Understandably, utilities are unwilling to dig up their
pipelines to gather missing data. However, utilities may be able to
derive some information about the condition of these pipes to the
extent they have information on the pipes' age, construction material,
and maintenance history. In addition, utilities may choose to align
their data collection with their ongoing maintenance and replacement
activities. These approaches, however, may require new technology,
which may mean a financial investment. For example:
* Tacoma Water equipped its staff with laptop computers, which allows
them to access their geographic information system--software that can
track where assets are located--while they are in the field.[Footnote
36] As the staff perform their routine repair and rehabilitation
activities, they can record and update data about an asset's condition,
performance, and maintenance history.
* Similarly, the Department of Public Works in Billerica,
Massachusetts, provided its field staff with handheld electronic
devices programmed with a simple data collection template, which allows
its staff to more accurately record information about its assets and
their condition.[Footnote 37] Consequently, the field staff can enter
more accurate information about the utility's assets into its central
asset inventory.
Utilities also reported difficulty collecting and applying information
about the manufacturer's recommended techniques for optimizing their
maintenance practices for their assets. Since no central clearinghouse
of information on optimal maintenance practices is readily available,
these utilities have had to invest their own time and resources to
develop this information. For example:
* According to an official at Des Moines Water Works, the utility
discovered that the manufacturer's recommended maintenance practices
often conflicted with the utility's experience with the same
asset.[Footnote 38] This official pointed out that the manufacturer's
estimate for maintenance was always higher than the utility's
experience. Given these inconsistencies, the official noted, all
utilities would benefit from the development of a central industry
clearinghouse that provided information about the recommended
maintenance practices for certain assets.
* Similarly, an official at East Bay Municipal Utility District noted a
significant difference between the manufacturer's recommended
maintenance practices and the utility's experience with optimized
maintenance. As a result, the utility has invested a significant amount
of time in developing optimal maintenance practices for its assets and
minimizing the risk of asset failure.
While utilities need complete and accurate data for decision making,
they also need to balance data collection with data management.
Utilities may fall prey to data overload--collecting more data than
they have the capacity to manage. For example, according to an official
at the Augusta County Service Authority, while the utility has
collected extensive infrastructure data, it has not invested enough of
its resources into making these data useful for decision making. This
official told us that utilities need to develop a data management
strategy that identifies the types of data they need and the uses of
these data for decision making. Without such a strategy, utilities
gathering data will reach a point of diminishing returns. According to
an official at the National Asset Management Steering Group in New
Zealand, utilities should begin to implement asset management by
identifying their critical assets and targeting their data-gathering
activities toward the critical information they need in order to make
decisions about these assets. An official also recommended that
utilities begin implementation by using their existing data--even
though the data may not be completely accurate--and refine this
information as they improve and standardize their data collection
processes.
Coordinating Data Across Departments May Be Difficult:
According to utility officials, coordinating data can be difficult
because the data come from several different departments and from
different sources within the departments. Furthermore, one industry
handbook notes that a utility's departments typically maintain
different types of data about the same assets, which are formatted and
categorized to meet each department's individual needs and
objectives.[Footnote 39] For example, the finance department may record
an asset's size in terms of square footage, while the engineering
department may define an asset's size in terms of pipeline diameter.
Utilities adopting asset management need to coordinate these data to
develop a central asset inventory. Table 2 shows the typical sources of
data for a central inventory.
Table 2: Typical Sources of Data for a Central Asset Inventory:
Department maintaining data: Operations and Maintenance;
Source of data: Operations and maintenance manuals;
Types of data that may be available: Location, size, manufacturer, and
materials of construction.
Department maintaining data: Operations and Maintenance;
Source of data: Maintenance management system;
Types of data that may be available: Location, size, manufacturer,
materials of construction, performance history, maintenance history,
and original cost.
Department maintaining data: Operations and Maintenance;
Source of data: Records of original asset drawings;
Types of data that may be available: Location, size, manufacturer, and
materials of construction.
Department maintaining data: Engineering;
Source of data: Geographic information system;
Types of data that may be available: Location, size, and materials of
construction.
Department maintaining data: Engineering;
Source of data: Records of original asset drawings;
Types of data that may be available: Location, size, manufacturer, and
materials of construction.
Department maintaining data: Finance;
Source of data: Fixed asset inventory;
Types of data that may be available: Size (e.g., square footage or
acreage), installation date, and estimated value.
Source: GAO.
Note: Summary of material from two industry handbooks, Managing Public
Infrastructure Assets to Minimize Cost and Maximize Performance and the
International Infrastructure Management Manual.
[End of table]
Utility managers told us it was challenging to develop a standard data
format for their central asset inventories. For example:
* As previously noted, Eastern Municipal Water District's work order
system was inefficient because crew members from different facilities
did not use the same terms in describing maintenance problems. To
eliminate these inefficiencies, the utility invested a great deal of
time and resources to standardize its terms and asset classification
and implement a computerized maintenance management system.
* According to a Louisville Water Company official, improving and
validating the utility's data was a challenge. Over the years, the
utility has acquired between 12 and 20 smaller utilities. Each of these
smaller utilities maintained its own asset data, which were not always
reliable or maintained in the same format. The utility invested a great
deal of time to validate these data and coordinate them into its
central asset inventory.
* Similarly, according to an official at the South Australian Water
Corporation, developing a central asset inventory was particularly
difficult because each of the utility's departments used different
terms to refer to the same asset. The utility refined its data
collection practices by training its employees on how to record data in
a standard format.
Utilities May Need to Upgrade Their Technology:
The utility officials we spoke to also had to address problems in
coordinating data maintained in different and incompatible software
programs. A Water Environment Research Foundation survey of utility
managers, regulators, and industry consultants cited developing an
asset information management system that meets the needs of all users
as the most difficult element of asset management to implement. Without
an integrated information management system, utilities found it
difficult to develop data for decision making, and they found that they
had to invest time and money to enter these data into a central
database. For example:
* According to a Greater Cincinnati Water Works official, the utility
wanted to integrate information about its assets' location and
maintenance history to efficiently dispatch staff to repair
sites.[Footnote 40] However, the data for this report were stored in
two separate and incompatible computer systems. To produce this
information, the utility needed to re-enter the relevant data from each
of these systems into a central asset database.
* Similarly, an official at Melbourne Water Corporation said that as
his utility began to adopt asset management, it realized that it
maintained relevant data in different computer systems, such as its
computerized maintenance management system and its geographic
information system.[Footnote 41] To address this fragmentation, the
utility had to assign staff to consolidating its data into a central
database to allow for easy integration.
As utilities coordinate their data systems, they may need to upgrade
their existing technology, which can represent a significant financial
investment. For example, Augusta County Service Authority has requested
$100,000 to purchase data integration software, which would allow it to
coordinate information from several different computer systems.
However, as of September 2003, this request had not been approved, in
part because the software may not directly affect the utility's profits
or improve its service, making the governing body reluctant to finance
the purchase. Similarly, St. Paul Regional Water Services recognized
that it would need to purchase a geographic information system as the
basis for integrating all departments' data.[Footnote 42] However, the
official noted that the utility could not purchase this system for
another 4 years because it would cost several million dollars to
purchase the system, enter data, and train its staff to operate the new
system.
Utilities Face Challenges in Maintaining Complete and Accurate Data:
As utilities continue to obtain and integrate data, they still face the
challenge of maintaining complete and accurate data about their assets.
The International Infrastructure Management Manual notes that data
collection is a continuous process and that utilities need to remain
consistent in gathering data and updating their central asset inventory
as they repair, replace, or add infrastructure. Regular updating
ensures that the information remains useful over time. To sustain the
benefits garnered from its efforts to compile an accurate inventory,
the Eastern Municipal Water District adopted a policy whereby employees
must document changes to the inventory whenever assets are added,
repaired, or removed. The utility has also developed methods to enforce
its policy to make sure that the inventory is updated as required.
Interdepartmental Coordination and Information Sharing Present
Difficult Cultural Challenges:
According to industry officials, one of the major challenges to
implementing asset management is changing the way utilities typically
operate--in separate departments that do not regularly exchange
information. It is essential to change this management culture, these
officials believe, to encourage interdepartmental coordination and
information sharing.
To encourage interdepartmental communication, utilities may have to
train their employees in using the resources of other departments. For
example, at the Orange County Sanitation District, the management team
found it difficult to demonstrate to its employees that their job
responsibilities do indeed affect the functions of the other
departments. The utility's field staff possesses extensive information
about the condition and performance of assets because they maintain
these assets every day. However, these employees did not understand
that the engineering department needs feedback on how the assets that
the engineering department constructed are performing in the field.
Such feedback could change future designs for these assets to improve
their performance. As the utility implemented asset management, it
established a work group to examine the conditions of asset failure,
which provided a forum for the maintenance and engineering departments
to collaborate. While this work group is still ongoing, one utility
official noted that collaboration between these two departments will
result in more efficient maintenance schedules for the utility's
assets.
Similarly, the Eastern Municipal Water District reported that its
middle-management team resisted some of the asset management changes
because they believed these changes would limit their authority to
manage their staff and workload. Before asset management, the utility
maintained four different treatment facilities, each with its own
maintenance staff. The utility believed that it could optimize its
maintenance resources by combining all of the maintenance activities
and staff at the four plants under one department. However, the
managers at these treatment plants were reluctant to relinquish
managerial control over their maintenance staff and feared that their
equipment would be neglected. Once the new maintenance department was
formed, however, these plant managers realized that centralizing these
functions resulted in faster maintenance because the larger team could
more effectively allocate time among the four facilities.
In some instances, utility employees may be reluctant to accept
comprehensive asset management because it requires them to take on
additional responsibilities when they are already pressed for time in
their "day jobs." Additional time may indeed be necessary. According to
officials at different utilities we visited, asset management requires
staff throughout the organization to attend a variety of training
programs--introductory, refresher, and targeted training by function or
job--to ensure that they understand the value of asset management to
both their own jobs and the operation of the utility.
Utilities' Efforts to Increase Focus on Long-Term Planning Conflict
with Short-Term Priorities:
While asset management provides utilities with information to justify
needed rate increases, their justifications may not be effective
because their governing body and their customers want to keep rates
low. According to utility officials, governing bodies' reluctance to
increase rates may be linked to constituent pressure to hold down user
rates. In 2002, we reported that 29 percent of drinking water and 41
percent of wastewater utilities serving populations over 10,000 did not
cover their full cost of service through user rates in their most
recent fiscal year. Furthermore, about half of these utilities did not
regularly increase their user rates; rather, they raised their user
rates infrequently--once, twice, or not at all--from 1992 to 2001.
Utility officials and water industry organizations also note that
utilities may have to respond to governing bodies' interests rather
than to the long-term plan they developed using comprehensive asset
management. For instance, while the Orange County Sanitation District's
governing board has supported comprehensive asset management, it
overrode utility plans for some capital projects and instead funded a
$500 million secondary sewage treatment plant, which was not a utility
priority. The board took this action in response to public concerns
that the operating sewage plant was inadequate and had contaminated the
water. A subsequent report showed, however, that the contamination more
than likely did not result from an inadequate treatment plant. However,
the utility will probably have to defer other priorities in order to
design and build this new facility. In addition, the governing body may
shift funding originally budgeted to implement the next phase of Orange
County's asset management program to fund the new plant.
Several industry officials also pointed out that governing bodies for
municipally owned utilities tend to make financial decisions about
their drinking water and wastewater utilities in light of competing
local needs that may be a higher priority for the electorate. One
industry official also reported that locally elected officials tend to
focus their efforts on short-term, more visible projects, while utility
managers must focus on sustaining the utility's operation in the long
term. For example, a utility's governing body may decide to forgo
infrastructure repairs in order to build a new school or baseball
field.
Smaller Utilities Can Benefit from Asset Management Despite Challenges
Posed by Limited Resources:
Smaller utilities can also benefit from the improved data,
coordination, and informed decision making that result from asset
management. Although small utilities represent a substantial portion of
the water and wastewater industry,[Footnote 43] officials recognize
that these utilities may have more difficulty implementing asset
management because they typically have fewer financial, technological,
and staff resources. In addition, EPA has reported that small systems
are less likely to cover their full cost of providing services because
they have to spread their fixed infrastructure costs over a smaller
customer base. However, EPA believes that comprehensive asset
management will enable smaller systems to increase knowledge of their
system, make more informed financial decisions, reduce emergency
repairs, and set better priorities for rehabilitation and replacement.
Even the most rudimentary aspects of asset management can produce
immediate benefits for small communities. For example, the Somersworth,
New Hampshire, Department of Public Works and Utilities avoided a
ruptured sewer main because it had collected data through its asset
management initiative that mapped the location of critical
pipelines.[Footnote 44] As a result, when a resident applied for a
construction permit to build a garage, the utility determined that one
critical pipeline lay in the path of the proposed construction and
could rupture. Therefore, the city of Somersworth denied the permit.
Similarly, the Department of Public Works in Denton, Maryland, which
provides both drinking water and wastewater services, obtained positive
results from applying asset management concepts without having to
invest in sophisticated software or perform a complicated analysis. In
this case, Denton's city council was apprehensive about investing in
new trucks for the utility even though some of the existing trucks were
in poor condition. Council members believed that it would be less
expensive to continue repairing the existing fleet. However, using data
collected through their asset management initiative, utility managers
were able to track the maintenance and depreciation costs associated
with these vehicles. As a result, they could demonstrate to their
governing body that it was more cost-effective to purchase new vehicles
than to continue repairing the older trucks.
Because smaller utilities have fewer capital assets to manage, industry
officials noted that these utilities can implement asset management by
turning to low-cost alternatives that do not require expensive or
sophisticated technology. The small utilities can implement asset
management using their existing asset data and recording this
information in a central location that can be accessed by all of its
employees, such as a set of index cards or an Excel spreadsheet.
Similarly, the utility can adopt the practices of asset management
incrementally, by initially making asset decisions based on their
existing data.
[End of section]
Chapter 3: EPA Can Encourage Water Utilities to Use Asset Management
by Strengthening Existing Initiatives:
Opportunities exist for EPA to encourage water utilities' use of asset
management by strengthening existing initiatives. Currently, EPA
sponsors several initiatives to promote the use of asset management,
such as training and informational materials, technical assistance, and
research. While this is a good first step, the entities involved in
these initiatives are not systematically sharing information within and
across the drinking water and wastewater programs. With better
coordination, however, EPA could leverage limited resources and reduce
the potential for duplication within the agency. EPA could supplement
its own efforts to disseminate information on asset management by
taking advantage of similar efforts by other federal agencies, such as
the Department of Transportation. Water industry officials also see a
role for EPA in educating utility managers about how asset management
can be a tool to help them meet regulatory requirements related to
utility management. However, the officials raised concerns about the
implications of mandating asset management as proposed in legislation
being considered by the Congress.
EPA Sponsors Several Initiatives to Promote Utilities' Use of Asset
Management:
Through partnerships with water industry associations and universities,
EPA has supported the development of training and informational
materials to help drinking water and wastewater utilities implement
asset management. In particular, EPA contributed funding toward the
development of a comprehensive industry handbook on asset management,
which was published in 2002 under a cooperative agreement with the
Association of Metropolitan Sewerage Agencies.[Footnote 45] The
handbook lays out the principles of asset management and describes how
utilities can use this approach to improve decision making, reduce
costs, and ensure the long-term, high-level performance of their
assets.
EPA has also sponsored materials specifically directed at small
utilities. For small drinking water systems, EPA's Office of Ground
Water and Drinking Water published a handbook in 2003 that describes
the basic concepts of asset management and provides information on how
to develop an asset management plan.[Footnote 46] In addition, to help
entities such as mobile home parks and homeowners' associations that
own and operate their own water systems, the office is developing a
booklet on preparing a simple inventory of the systems' assets and
assessing their condition.[Footnote 47] EPA's Office of Wastewater
Management is funding the development of a "toolkit" by a university-
based training center to help small wastewater utilities implement
asset management. The toolkit is currently being field tested and is
scheduled for release in 2006. Among other things, it includes self-
audit instruments to help utility managers to analyze their systems'
needs, training materials, and a summary of lessons learned in the
field.
In addition to various informational materials on asset management, EPA
has sponsored a number of training and technical assistance programs.
For example, the Office of Wastewater Management, along with
representatives from a major utility and an engineering firm, developed
a 2-day seminar on asset management, which will be held at several
locations around the country during fiscal year 2004. For smaller
drinking water and wastewater utilities, EPA funds state and
university-based centers that provide training and technical assistance
to small utilities on a variety of matters, including asset management.
Specifically:
* EPA's Office of the Chief Financial Officer funds nine university-
based "environmental finance centers" that assist local communities in
seeking financing for environmental facilities, including municipal
drinking water and wastewater utilities. In fiscal year 2003, the nine
centers shared a total of $2 million in funding from the Office of the
Chief Financial Officer; some centers also receive funds from EPA
program offices for specific projects. According to an official in
EPA's Office of Ground Water and Drinking Water, at least three of the
finance centers have efforts related to asset management planned or
underway to benefit drinking water utilities. For example, the centers
at Boise State University and the University of Maryland provide on-
site and classroom training on establishing an asset inventory;
collecting data on the age, useful life, and value of capital assets;
recordkeeping; financing; and setting rates high enough to cover the
full cost of service. Regarding the latter topic, Boise State's finance
center developed a simplified software program, called CAPFinance,
which can help smaller systems collect and analyze the data they need
in order to set adequate user rates; much of this information can be
used to create a rudimentary asset management program.
* Another eight university-based technical assistance centers receive
funding under the Safe Drinking Water Act to help ensure that small
drinking water systems have the capacity they need to meet regulatory
requirements and provide safe drinking water. In fiscal year 2003, the
eight centers shared about $3.6 million in funding from the Office of
Ground Water and Drinking Water. According to an official from that
office, three of the centers are holding workshops or developing
guidance manuals that focus on sustaining the financial viability of
small systems in some way; the official believes that much of this
material is relevant to implementing asset management.
* The Office of Wastewater Management funds 46 state and university-
based environmental training centers under the Clean Water Act to train
wastewater utility officials on financial management, operations and
maintenance, and other topics. According to an official with EPA's
wastewater program, one of the 46 centers is developing a series of six
training courses to help small wastewater utilities implement some of
the basic elements of asset management, such as inventorying system
assets and assessing their condition.[Footnote 48] Once this effort is
completed, the center will disseminate the course materials to the
remaining 45 centers so that staff from the other centers will be able
to teach the asset management courses to operators of small wastewater
utilities across the country.
EPA has also funded research projects related to asset management. For
example, one project--sponsored by EPA, the Water Environment
Federation, and the Association of Metropolitan Sewerage Agencies--
examined the interrelationship between asset management and other
management initiatives, such as environmental management systems, that
have received some attention within the water industry.[Footnote 49]
The project found that to varying degrees, the initiatives share a
common focus on continuous improvement through self-assessment,
benchmarking, and the use of best practices and performance measures.
The final report, issued in September 2002, concluded that while the
initiatives overlap substantially, they are generally
compatible.[Footnote 50]
EPA also contributed $75,000 toward a 2002 report by the Water
Environment Research Foundation, which summarized the results of a 2-
day workshop held to develop a research agenda for asset
management.[Footnote 51] Workshop participants, who included utility
managers, regulators, and industry consultants, identified areas in
which they need improved tools and technical approaches, established
criteria for evaluating asset management research needs, and identified
and set priorities for specific research projects. According to the
foundation's report, the workshop ultimately recommended 11 research
projects, 2 of which will get underway in 2004. EPA is contributing
$200,000 to one of these projects, which will develop protocols for
assessing the condition and performance of infrastructure assets and
predictive models for correlating the two. The foundation will fund the
second project, which is scheduled to begin in March 2004, and will
develop guidance on strategic planning for asset management. According
to EPA, the second project will also develop a Web-based collection of
best practices on asset management; utilities will be able to purchase
licenses to gain access to the materials.
The remaining research projects identified in the workshop highlight
the need for practical tools to help utilities implement the most
fundamental aspects of asset management. They include projects to:
* establish methodologies for determining asset value, compiling
inventories, and capturing and compiling information on the assets'
attributes;
* develop methodologies for calculating life-cycle costs for
infrastructure assets;
* construct predictive models for infrastructure assets that project
life-cycle costs and risks;
* identify best practices for operating and maintaining infrastructure
assets by asset category, condition, and performance requirements; and:
* identify best practices for integrating water and wastewater utility
databases.
In addition, workshop participants recommended a project to assess the
feasibility of establishing an Asset Management Standards Board for the
drinking water and wastewater industry.
EPA's Efforts to Promote Asset Management Could Be Strengthened by
Leveraging Ongoing Efforts Within and Outside the Agency:
EPA could build on its efforts to promote asset management at drinking
water and wastewater utilities by better coordinating ongoing and
planned initiatives in the agency's drinking water and wastewater
programs. In addition, EPA could leverage the efforts of other federal
agencies, such as the Department of Transportation, that have more
experience in promoting asset management as well as informational
materials and tools that could potentially be useful as EPA and the
water industry develop similar materials.
Improving Coordination Within and Across Drinking Water and Wastewater
Programs Could Help Maximize Limited Resources:
While some of EPA's efforts to promote the use of asset management,
such as sponsoring the comprehensive industry handbook, have involved
both the drinking water and wastewater communities, it appears that
other efforts are occurring with little coordination between the
drinking water and wastewater programs or other offices within EPA. For
example, the Office of the Chief Financial Officer, the Office of
Ground Water and Drinking Water, and the Office of Wastewater
Management have funded parallel but separate efforts to develop
handbooks, software, or other training materials to help small drinking
water and wastewater utilities implement asset management or related
activities such as improving financial viability. According to our
interviews with EPA officials and representatives of the university-
based training and technical assistance centers, no central repository
exists for EPA to track what the university-based centers are doing and
ensure that they have the information they need to avoid duplication
and take advantage of related work done by others. The centers that
share information do so primarily within their own network, as in the
case of the environmental finance centers, or share information on an
ad hoc basis. As a result, the centers are likely to miss some
opportunities to exchange information. Similarly, the drinking water
and wastewater program offices do not regularly exchange information on
what they or their centers are doing to develop informational
materials, training, or technical assistance on asset management.
EPA officials explained that, to some extent, the organizational
framework within which the centers operate contributes to limited
information sharing and duplication of effort. As a result, EPA is not
maximizing the resources it devotes to encouraging utilities' use of
asset management. In the case of the environmental finance centers, for
example, each one negotiates a work plan with the EPA regional office
it serves. Although EPA headquarters also has some influence over what
the centers work on, the centers primarily focus on regional priorities
and work with the states within the regional office's jurisdiction.
Occasionally, EPA's drinking water and wastewater program offices fund
projects at the environmental finance centers that are independent of
their regional work plans. For example, the drinking water program
provided some funds to the center at Boise State to develop an
evaluation tool that states can use to assess utilities' qualifications
for obtaining financial assistance from state revolving loan funds. For
the most part, however, the training and technical assistance centers
operate autonomously and do not have a formal mechanism for regularly
exchanging information among the different center networks or between
the drinking water and wastewater programs.
EPA Could Supplement Its Efforts to Promote Asset Management by Using
Information Available from Other Federal Agencies:
EPA has not taken advantage of the guidance, training, and
implementation tools available from other federal agencies, which would
help EPA leverage its resources. For the purposes of our review, we
focused on the Department of Transportation's Federal Highway
Administration because it has been involved in promoting asset
management for about a decade and has been at the forefront of
developing useful tools and training materials. In 1999, the Federal
Highway Administration established an Office of Asset Management to
develop tools and other materials on asset management and encourage
state transportation agencies to adopt asset management programs and
practices.
According to officials within the Office of Asset Management, the basic
elements of asset management are the same regardless of the type of
entity responsible for managing the assets or the type of assets being
managed. Simply put, every organization needs to know the assets it
has, their condition, how they are performing, and the costs and
benefits of alternatives for managing the assets. Over the years, the
Office of Asset Management has published several guidance documents on
asset management and its basic elements. While the purpose of the
guidance was to assist state transportation agencies, Transportation
officials believe that the general principles contained in their
publications are universally applicable. The office's guidance
includes, for example,
* a general primer on the fundamental concepts of asset management;
* a primer on data integration that lays out the benefits of and tools
for integrating data, the steps to follow in linking or combining large
data files, potential obstacles to data integration and ways to
overcome them, and experiences of agencies that have integrated their
data;[Footnote 52] and:
* a primer on life-cycle cost analysis that provides information on how
to apply this methodology for comparing investment alternatives and
describes uncertainties regarding when and how to use life-cycle cost
analysis and what assumptions should be made during the course of the
analysis.[Footnote 53]
Transportation's Office of Asset Management has also developed a
software program to assist states in estimating how different levels of
investment in highway maintenance will affect both user costs and the
highways' future condition and performance. In addition, to disseminate
information on asset management, the office established a Web site that
includes its most recent tools and guidance and links to external Web
sites with related asset management information, including a link to an
asset management Web site jointly sponsored with the American
Association of State Highway and Transportation Officials.
As EPA began its efforts to explore the potential of comprehensive
asset management to help address utility infrastructure needs,
officials from the Office of Water met with staff from Transportation's
Office of Asset Management and obtained a detailed briefing on its
asset management program. Although EPA officials expressed concerns
about having relatively limited resources to promote asset management,
they have so far not pursued a closer relationship with Transportation
or other federal agencies with experience in the field. For example,
EPA may find opportunities to adapt Transportation's guidance materials
or use other efforts, such as a Web site that brings together asset
management information from diverse sources, as a model for its own
initiatives.
Water Industry Officials Favor an Expanded Role for EPA in Promoting
Asset Management, but Raised Concerns About Additional Regulatory
Requirements:
Water industry officials support a greater role for EPA in promoting
asset management, both as a tool for better managing infrastructure and
for helping drinking water and wastewater utilities meet existing or
proposed regulatory requirements. However, they stopped short of
endorsing legislative proposals that would require utilities to develop
and implement plans for maintaining, rehabilitating, and replacing
capital assets, often as a condition of obtaining loans or other
financial assistance.
Water Industry Officials See Role for EPA in Linking Asset Management
to Regulatory Requirements and Other Initiatives Aimed at Improving
Utility Management:
To obtain views on the role that EPA might play in encouraging the use
of asset management, we talked with officials from water industry
associations and the 15 utilities that we selected for structured
interviews. With few exceptions, the officials agreed that EPA should
be promoting asset management in some way, although opinions varied on
what activities would be most appropriate. One of the options that
garnered the support of many was a greater leadership role for EPA in
promoting the use of asset management. For example, 11 of the 15
utilities indicated that based on their own experience, asset
management can help utilities comply with certain regulatory
requirements that focus in whole or in part on the adequacy of utility
infrastructure and the management practices that affect it. While EPA
recognizes the link between asset management and regulatory compliance-
-and has noted the connection in some agency publications and training-
-some utility officials believe that EPA should increase its efforts in
this regard. As examples of regulatory requirements for which asset
management is particularly germane, officials from industry
associations and individual utilities cited both the existing "capacity
development" requirements under EPA's drinking water program and
regulations for capacity, management, operation, and maintenance under
consideration in the wastewater program, as follows:
* Capacity development requirements for drinking water utilities. To be
eligible for full funding under the Safe Drinking Water Act's State
Revolving Fund program, state regulatory agencies are required to have
strategies to assist drinking water utilities in acquiring and
maintaining the financial, managerial, and technical capacity to
consistently provide safe drinking water. To assess capacity, states
evaluate, among other things, the condition of the utilities'
infrastructure, the adequacy of maintenance and capital improvement
programs, and the adequacy of revenues from user rates to cover the
full cost of service. Drinking water utilities that are determined to
lack capacity are not eligible for financial assistance from the
revolving loan fund.[Footnote 54]
* Capacity, management, operation, and maintenance requirements for
wastewater utilities. As part of its wastewater management program
under the Clean Water Act, EPA is considering regulations designed to
improve the performance of treatment facilities and protect the
nation's collection system infrastructure by enhancing and maintaining
system capacity (i.e., peak wastewater flows), reducing equipment and
operational failures, and extending the life of sewage treatment
equipment. Among other things, wastewater utilities would be required
to prepare capacity, management, operation, and maintenance plans for
their operations. The regulations would also require utilities to
assess the condition of their physical infrastructure and determine
which components need to be repaired or replaced.
According to industry officials, implementing asset management is
consistent with meeting these requirements, and it enhances utilities'
ability to comply with them. For the requirements being considered for
wastewater utilities, for example, EPA has concluded that three basic
components are a facility inventory, a condition assessment, and asset
valuation--all of which are important elements of asset management.
Consequently, the officials believe that it makes sense for EPA to
place more emphasis on the use of comprehensive asset management.
Some water industry officials also told us that EPA should use the
relationship between asset management practices and the financial
reporting requirements under Governmental Accounting Standards Board
Statement 34 as a means of promoting the use of asset management. Under
these new requirements, state and local governments are required to
report information about public infrastructure assets, including their
drinking water and wastewater facilities. Specifically, the governments
must either report depreciation of their capital assets or implement an
asset management system.[Footnote 55]
Given the infrastructure-related regulatory requirements and
utilities' other concerns about the condition of their assets, it is
not surprising that 11 of the 15 utilities we interviewed in depth saw
a need for EPA to set up a clearinghouse of information on
comprehensive asset management. Several utilities suggested that EPA
establish a Web site that would serve as a central repository of such
information. This site could provide drinking water and wastewater
utilities with direct and easy access to information that would help
them better manage their infrastructure. For example, the Web site
could gather in one place the guidance manuals, tools, and training
materials developed by EPA or funded through research grants and its
training and technical assistance centers. The site could also contain
links to asset management tools and guidance developed by domestic and
international water associations or other federal agencies, such as
Transportation's Office of Asset Management. Several officials also
commented that it might be useful to have a site where drinking water
and wastewater utilities could share lessons learned from implementing
asset management. Other utilities also supported the idea of a Web
site, but were uncertain about whether EPA was the appropriate place
for it. In commenting on a draft of this report, EPA generally agreed
that an EPA Web site devoted to asset management would be worthwhile
and is considering developing such a site.
Water Industry Officials Cite Implementation Challenges if Asset
Management Were to Be Mandated:
In recent years, the Congress has considered several legislative
proposals that would, in part, promote the use of asset management in
some way. These proposals generally call for an inventory of existing
capital assets; some type of plan for maintaining, repairing, and
replacing the assets; and a plan for funding such activities. All but
one of the proposals made having the plans a condition of obtaining
federal financial assistance. The proposals are consistent with what we
have found to be the leading practices in capital decision making. As
we reported in 1998, for example, routinely assessing the condition of
assets allows managers to evaluate the capabilities of existing assets,
plan for future replacements, and calculate the cost of deferred
maintenance.[Footnote 56] However, according to key stakeholders,
implementing and enforcing requirements for asset management could be
problematic at this time.
We asked water industry groups, associations of state regulators, and
individual utilities for their views on the proposed mandate of asset
management plans. While most of them endorse asset management, they
raised several concerns about a statutory requirement. For example:
* Officials from water industry associations believe that drinking
water and wastewater utilities are already overburdened by existing
regulatory requirements and that many utilities lack the resources to
meet an additional requirement for developing asset management plans.
* The Association of State Drinking Water Administrators and the
Association of State and Interstate Water Pollution Control
Administrators both said that the states lack the resources to oversee
compliance and determine the adequacy of asset management plans. Both
the state and industry associations questioned the feasibility of
defining what would constitute an adequate plan.
* Officials at 12 of the 15 utilities where we conducted in-depth
interviews had serious reservations about a requirement. For example,
some utility managers were concerned that EPA and the states would
attempt to standardize asset management and limit the flexibility that
utilities need to tailor asset management to their own circumstances.
Another concern was that the states lack financial and technical
resources and thus are ill equipped to determine whether utilities'
asset management plans are adequate. Finally, some utility officials
also questioned the burden that such a requirement would place on small
utilities.
Other utility officials either support a requirement or support the
concept of asset management but question whether mandating such a
requirement is an appropriate role for the federal government. One of
the officials commented that whether or not asset management is
required, utilities should manage their infrastructure responsibly and
charge rates sufficient to cover the full cost of service. The National
Association of Water Companies, which represents investor-owned
utilities, supports a requirement for asset management to ensure that
public water and wastewater utilities are operating efficiently and are
charging rates that cover the full cost of service.
Conclusions:
Comprehensive asset management shows real promise as a tool to help
drinking water and wastewater utilities better identify and manage
their infrastructure needs. Even with their limited experience to date,
water utilities reported that they are already achieving significant
benefits from asset management. EPA clearly recognizes the potential of
this management tool to help ensure a sustainable water infrastructure
and has sponsored a number of initiatives to support the development of
informational materials and encourage the use of asset management.
However, in an era of limited resources, it is particularly important
for EPA to get the most out of its investments by coordinating all of
the asset management-related activities sponsored by the agency and
taking advantage of tools and training materials developed by others--
including domestic and international industry associations and other
federal agencies with experience in asset management.
Establishing a central repository of all asset management-related
activities could not only foster more systematic information sharing
but also help minimize the potential for duplication and allow EPA-
sponsored training and technical assistance centers to build on each
other's efforts. As EPA has recognized, improving utilities' ability to
manage their infrastructure cannot help but improve their ability to
meet regulatory requirements that focus on the adequacy of utility
infrastructure and management practices. Consequently, it is in the
agency's best interest to disseminate information on asset management
and promote its use. Establishing a Web site, perhaps as part of the
repository, would help ensure that such information is accessible to
water utilities and that EPA is getting the most use out of the
materials whose development it funded. Moreover, EPA could use the site
as a means of strengthening its efforts to educate utility managers on
the connection between effectively managing capital assets and the
ability to comply with relevant requirements under the Safe Drinking
Water Act and Clean Water Act.
Recommendations for Executive Action:
Given the potential of comprehensive asset management to help water
utilities better identify and manage their infrastructure needs, the
Administrator, EPA, should take steps to strengthen the agency's
existing initiatives on asset management and ensure that relevant
information is accessible to those who need it. Specifically, the
Administrator should:
* better coordinate ongoing and planned initiatives to promote
comprehensive asset management within and across the drinking water and
wastewater programs to leverage limited resources and reduce the
potential for duplication;
* explore opportunities to take advantage of asset management tools and
informational materials developed by other federal agencies;
* strengthen efforts to educate utilities on how implementing asset
management can help them comply with certain regulatory requirements
that focus in whole or in part on the adequacy of utility
infrastructure and the management practices that affect it; and:
* establish a Web site to provide a central repository of information
on comprehensive asset management so that drinking water and wastewater
utilities have direct and easy access to information that will help
them better manage their infrastructure.
[End of section]
Appendixes:
Appendix I: Utilities Selected for Structured Interviews:
Augusta County Service Authority, Verona, Virginia:
Charleston Commissioners of Public Works, Charleston, South Carolina:
Greater Cincinnati Water Works, Cincinnati, Ohio:
Denton Department of Public Works, Denton, Maryland:
Des Moines Water Works, Des Moines, Iowa:
East Bay Municipal Utility District, Oakland, California:
Eastern Municipal Water District, Perris, California:
Louisville Water Company, Louisville, Kentucky:
Massachusetts Water Resources Authority, Boston, Massachusetts:
Orange County Sanitation District, Fountain Valley, California:
Sacramento Regional County Sanitation District, Mather, California:
Seattle Public Utilities, Seattle, Washington:
Somersworth Department of Public Works and Utilities, Somersworth, New
Hampshire:
Tacoma Water, Tacoma, Washington:
Western Carolina Regional Sewer Authority, Greenville, South Carolina:
[End of section]
Appendix II: GAO Contacts in Australia and New Zealand:
Government agency: Department of Treasury and Finance;
State or region: Victoria;
Country: Australia.
Government agency: Essential Services Commission;
State or region: Victoria;
Country: Australia.
Government agency: Independent Pricing and Regulatory Tribunal;
State or region: New South Wales;
Country: Australia.
Government agency: Manawatu District Council;
State or region: Manawatu-Wanganui;
Country: New Zealand.
Government agency: Queensland Audit Office;
State or region: Queensland;
Country: Australia.
Utility: Citiwater;
State or region: Queensland;
Country: Australia.
Utility: Hunter Water Corporation;
State or region: New South Wales;
Country: Australia.
Utility: Melbourne Water Corporation;
State or region: Victoria;
Country: Australia.
Utility: South Australian Water Corporation;
State or region: South Australia;
Country: Australia.
Utility: Sydney Water Corporation;
State or region: New South Wales;
Country: Australia.
Utility: Watercare Services Limited;
State or region: Auckland;
Country: New Zealand.
[End of table]
[End of section]
Appendix III: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Ellen Crocker, (617) 788-0580 Maureen Driscoll, (617) 788-0540:
Staff Acknowledgments:
In addition to the individuals named above, Ramona Burton, Cory
Claussen, Robert Crystal, Teresa Dee, Janet McKelvey, Melissa Mink,
Lynn Musser, Mehrzad Nadji, and Carol Herrnstadt Shulman made key
contributions to this report.
(360305):
FOOTNOTES
[1] See U.S. General Accounting Office, Water Infrastructure:
Information on Financing, Capital Planning, and Privatization, GAO-02-
764 (Washington, D.C.: Aug. 16, 2002).
[2] See U.S. General Accounting Office, Executive Guide: Leading
Practices in Capital Decision-Making, GAO/AIMD-99-32 (Washington,
D.C.: December 1998).
[3] See U.S. General Accounting Office, Water Infrastructure:
Information on Federal and State Financial Assistance, GAO-02-134
(Washington, D.C.: Nov. 30, 2001). We adjusted the dollar amounts from
the report to constant 2003 dollars.
[4] From fiscal year 2001 to fiscal year 2004, EPA provided $8.8
billion for water infrastructure and Agriculture provided $6 billion,
in constant 2003 dollars.
[5] The Clean Water State Revolving Fund may also be used for other
water quality improvement projects, such as nonpoint source pollution
control and estuary management, in addition to wastewater treatment
facilities.
[6] Simply stated, the funding gap is equal to the estimated
infrastructure needs less projected spending.
[7] U.S. Environmental Protection Agency, Drinking Water Infrastructure
Needs Survey: Second Report to Congress, EPA 816-R-01-004 (Washington,
D.C.: February 2001) and U.S. Environmental Protection Agency, Clean
Watersheds Needs Survey 2000: Report to Congress, EPA 832-R-03-001
(Washington, D.C.: August 2003).
[8] See GAO-02-764, 3. We sent questionnaires to 1,425 drinking water
systems and 2,391 wastewater systems serving more than 10,000 people.
In our analysis, utilities were weighted to account statistically for
all utilities serving populations greater than 10,000, including those
not selected for our sample.
[9] American Water Works Association Water Industry Technical Action
Fund, Dawn of the Replacement Era: Reinvesting in Drinking Water
Infrastructure (Denver, Colo.: May 2001).
[10] Water Environment Research Foundation, New Pipes for Old: A Study
of Recent Advances in Sewer Pipe Materials and Technology (2000), 4-1.
[11] GAO-02-764, 7, 35, 42.
[12] We do not have specific information on the fiscal years covered in
utilities' responses; however, we sent our survey out during September
2001.
[13] For the purposes of our survey, we focused on the asset planning
elements identified by the Governmental Accounting Standards Board in a
June 30, 1999, statement that made comprehensive changes in state and
local governments' financial reporting requirements. Among other
things, it requires, for the first time, the governments to report
information about public infrastructure assets, including their
drinking water and wastewater facilities. Specifically, the governments
must begin reporting depreciation of their capital assets or implement
an asset management system. See Governmental Accounting Standards Board
Statement No. 34, Basic Financial Statements--and Management's
Discussion and Analysis--for State and Local Governments.
[14] For example, see (1) Managing Public Infrastructure Assets to
Minimize Cost and Maximize Performance, developed by the Association of
Metropolitan Sewerage Agencies in partnership with the American Water
Works Association, the Association of Metropolitan Water Agencies, and
the Water Environment Federation (2002); (2) International
Infrastructure Management Manual, published jointly by the Association
of Local Government Engineering New Zealand, Inc., and the Institute of
Public Works Engineering of Australia (2002); (3) Asset Management
Primer, published by the U.S. Department of Transportation (December
1999); and (4) Executive Guide: Leading Practices in Capital Decision-
Making, published by GAO (GAO/AIMD-99-32; December 1998).
[15] For example, in the case of a drinking water utility, a water main
serving the local hospital might be identified as a critical asset
because the consequences of a water main break could be significant.
[16] See International Infrastructure Management Manual, published
jointly by the Association of Local Government Engineering New Zealand,
Inc., and the Institute of Public Works Engineering of Australia
(2002).
[17] We were interested in learning about the applicability of asset
management at small utilities because they represent the vast majority
of the regulated systems, with 93 percent of community drinking water
utilities and 71 percent of wastewater utilities serving 10,000 people
or fewer.
[18] The Massachusetts Water Resources Authority provides water and
sewer services to approximately 2.5 million people.
[19] Seattle Public Utilities is a utility serving approximately 1.3
million drinking water customers and about 500,000 wastewater
customers.
[20] The Louisville Water Company provides water services to
approximately 800,000 people in the Louisville, Kentucky, area and in
parts of Oldham and Bullitt counties.
[21] The Sacramento Regional County Sanitation District is a California
wastewater utility serving approximately 482,000 customers in the
Sacramento area.
[22] Eastern Municipal Water District is a water and wastewater utility
serving approximately 501,000 customers in Southern California.
[23] The South Australian Water Corporation, an Australian utility
located in the state of South Australia, provides water and wastewater
services for approximately 1.4 million people.
[24] Saco, Maine, is a city of approximately 16,800 people. Among other
services, the city government is responsible for providing wastewater
treatment. The city asked to have its bond rating reassessed before
beginning a school renovation project.
[25] Western Carolina Regional Sewer Authority provides wastewater
treatment services to approximately 360,000 customers in Greenville
County, South Carolina, and portions of Spartanburg, Laurens, and
Anderson counties.
[26] The Charleston Commissioners of Public Works provides water and
wastewater services to more than 400,000 customers in the Charleston,
South Carolina, area.
[27] These regulations are under consideration. EPA proposed the
regulations in January 2001, but in accordance with the incoming
administration's regulatory review plan, withdrew the proposal to give
the administration an opportunity to review it.
[28] The Orange County Sanitation District provides wastewater services
for approximately 2.3 million people living in central and northwest
Orange County, California.
[29] The operating cost reductions were measured per property, or for
each residential or community property connected to the water and sewer
supply.
[30] Hunter Water Corporation is an Australian utility that provides
water and wastewater services to almost 500,000 people in parts of New
South Wales.
[31] Hunter Water's capital expenditures fluctuated during the 10-year
period, decreasing from about $40 million in 1990/1991 to about $10
million in 1997/1998, then spiking to about $62 million in 2000/2001,
then decreasing to about $40 million again. Utility officials attribute
the spike in capital expenditures to growth and a regulatory upgrade of
the utility's wastewater treatment system and transport system.
[32] An environmental management system is a management tool to help an
organization improve its environmental performance, prevent pollution,
and meet regulatory requirements.
[33] EPA used these mislabeled Australian estimates as a basis for
projecting life-cycle cost savings of 20 to 30 percent for U.S.
utilities using asset management. Additionally, it appears that the
engineering firm that predicted about $350 million in life-cycle cost
savings for Orange County Sanitation District used the same estimates
in its model.
[34] Augusta County Service Authority serves a population of
approximately 67,000 people in Virginia.
[35] East Bay Municipal Utility District supplies water and provides
wastewater treatment to approximately 1.3 million drinking water
customers and 640,000 wastewater customers in parts of Alameda and
Contra Costa counties in northern California.
[36] Tacoma Water serves approximately 300,000 customers in the city of
Tacoma, Washington, and portions of Pierce and South King counties.
[37] The Department of Public Works in Billerica, Massachusetts, serves
a population of approximately 10,000 people.
[38] Des Moines Water Works distributes water to a population of
approximately 300,000 in Des Moines, Iowa, and its surrounding
communities.
[39] See Managing Public Infrastructure Assets to Minimize Cost and
Maximize Performance, 57.
[40] Greater Cincinnati Water Works provides water to approximately 1.2
million customers.
[41] Melbourne Water Corporation manages the city of Melbourne's water
catchments and major distribution system. The utility supplies
approximately 500,000 megaliters of water annually to its three retail
water companies.
[42] St. Paul Regional Water Services provides drinking water to
approximately 415,000 residents of St. Paul, Minnesota, and its
surrounding communities.
[43] As noted earlier, most U.S. utilities are small, with 93 percent
of the 54,000 community drinking water systems and 71 percent of the
16,000 wastewater systems serving 10,000 people or fewer.
[44] Somersworth is a New Hampshire city with approximately 11,000
residents. Somersworth's Department of Public Works and Utilities is
responsible for water and wastewater services for the city.
[45] The Association of Metropolitan Sewerage Agencies developed the
handbook, Managing Public Infrastructure Assets to Minimize Cost and
Maximize Performance, in partnership with the American Water Works
Association, the Association of Metropolitan Water Agencies, and the
Water Environment Federation.
[46] U.S. Environmental Protection Agency, Asset Management: A Handbook
for Small Water Systems, EPA 816-R-03-016 (Washington, D.C.: September
2003).
[47] EPA has drafted the booklet, Taking Stock of Your Water System,
and expects to publish the final version sometime in 2004.
[48] The training courses are being developed by the environmental
training center located at the College of Southern Maryland, which is
also responsible for the asset management toolkit for small wastewater
utilities. To fund this work, EPA awarded the center a 3-year grant
totaling $450,000, covering the period from August 2002 to August 2005.
[49] An environmental management system is a management tool to help an
organization improve its environmental performance, prevent pollution,
and meet regulatory requirements.
[50] Water Environment Federation and Association of Metropolitan
Sewerage Agencies, Moving Toward Comprehensive Utility Management
Systems: Report of the Environmental Management Systems (EMS) for
Public Utilities Integration Project (Alexandria, Va.; Washington,
D.C.: September 2002). EPA provided a grant of $256,888 for this
project.
[51] See Water Environment Research Foundation, Research Priorities for
Successful Asset Management: A Workshop (Alexandria, Va.: 2002).
[52] U.S. Department of Transportation, Federal Highway Administration,
Office of Asset Management, Data Integration Primer (Washington, D.C.:
August 2001).
[53] U.S. Department of Transportation, Federal Highway Administration,
Office of Asset Management, Life-Cycle Cost Analysis Primer
(Washington, D.C.: August 2002).
[54] States may nevertheless provide financial assistance if the use of
such assistance will ensure compliance with regulatory requirements and
the water utility has agreed to make the necessary changes in
operations to ensure that it has the financial, managerial, and
technical capacity to comply over the long term.
[55] Privately owned utilities are not required to comply with
financial reporting requirements from the Governmental Accounting
Standards Board. About half of the nation's drinking water systems and
an estimated 20 percent of the wastewater systems are privately owned,
according to EPA and industry sources.
[56] GAO/AIMD-99-32, 26.
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Web site: www.gao.gov/fraudnet/fraudnet.htm E-mail: fraudnet@gao.gov
Automated answering system: (800) 424-5454 or (202) 512-7470:
Public Affairs:
Jeff Nelligan, managing director, NelliganJ@gao.gov (202) 512-4800 U.S.
General Accounting Office, 441 G Street NW, Room 7149 Washington, D.C.
20548:
