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MANAGING RISKS AND PRESERVING ASSETS: MEETING THE CHALLENGE

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Wastewater utility managers are faced with regulations and financial reporting expectations that will place new demands on their utilities. These include the maximum utilization of their facilities and collection systems, a structured and documented practice for preserving asset life and function, and the documentation and disclosure of asset preservation needs and expenditures. In addition, utility managers continue to be faced with competitive pressures and the demand for good management practices. These pressures require them to set priorities for limited resources, plan further into the future, and optimize operations and maintenance costs. In the future, the use by a utility of a systematic and ongoing asset management program is expected to heavily influence evaluations by bond rating agencies, budget allocations by funding decision-makers, decisions by enforcement authorities, and acceptance of rate increases by the public.

Asset management is the integration of a number of activities related to a utility's infrastructure and other physical assets. Many of these activities are traditional and long-practiced, such as maintenance management, fixed asset registers, and capital planning. However, most utilities focus on short-term planning, as with maintenance management (weekly, monthly and annual schedules) and capital planning (two- or five-year planning horizons), and do not have systematic procedures in place to keep their records accurate and up-to-date, such as their fixed asset registers. Traditional financial reporting of depreciation also misrepresents the intent of the utilities to maintain assets in good operating condition throughout their useful life. For those utilities that maintain replacement funds, the amounts set aside are usually arbitrary and far less than will be required for future replacement needs. Recent attention on deteriorating infrastructure, less-than-optimal operating performance, less-than-competitive financial performance, and impending needs for rehabilitation and replacement have revealed the need for more comprehensive asset management. This improved approach will incorporate life-cycle analysis, longer planning horizons and more intensive tracking of asset condition. The Capacity, Management, Operations and Maintenance (CMOM) program expected to be part of the EPA's SSO rule includes a heavy emphasis on asset management. Of the nine primary program components, most are related directly or indirectly to asset management activities. Many wastewater utilities are not mandated to follow GASB Statement 34 because they are set up as enterprise accounting institutions. However, many believe that EPA, bond rating institutions, oversight agencies, and the public will increasingly expect utilities to voluntarily comply and use the asset preservation approach to asset management set forth in GASB 34.

Collection systems are long-lived and out-of-sight, yet generally provide good service. These factors often result in limited and sporadic attention to the need for rehabilitation, renewal and replacement. Practicalities limit the frequency and extent of detailed inspections that can give routine information on a collection system's condition. Because failures are few and infrequent, scant historical experience is available on which to plan rehabilitation and renewal. Even when funding can be obtained, managers have little information on which to prioritize renewal projects. However, the impacts of a collection system failure can be great, resulting in health threats, property damage, compliance failures, service disruptions, and major inconvenience to the public. As a result of all this, wastewater utility managers need a systematic approach to determining deficiencies, projecting resource requirements, and understanding and communicating risks associated with collection system deterioration.

This presentation will discuss the application of an integrated and comprehensive approach for managing infrastructure assets to a 56-mile system of collectors, interceptors and pumping stations. This asset management program was implemented to determine anticipated future capital renewal needs and quantify the effect on the future condition of the collection system components under alternative funding assumptions. The quantified assessment results were compared to internal and external benchmarks, allowing the utility to target a future condition level and to control current and future risks associated with system deficiencies. This information was linked to financial projection tools to evaluate various funding strategies and the resulting rate impacts.
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Document Type: Research Article

Publication date: 2001-01-01

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