Water Infrastructure: Comprehensive Asset Management Has
Potential to Help Utilities Better Identify Needs and Plan Future
Investments (19-MAR-04, GAO-04-461).
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.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-04-461
ACCNO: A09547
TITLE: Water Infrastructure: Comprehensive Asset Management Has
Potential to Help Utilities Better Identify Needs and Plan Future
Investments
DATE: 03/19/2004
SUBJECT: Assets
Facility management
Federal aid to localities
Potable water
Public utilities
Technical assistance
Wastewater treatment
Water pollution control
Water quality
Financial analysis
Financial management
Wastewater management
Asset management
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GAO-04-461
United States General Accounting Office
GAO 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
a
GAO-04-461
Highlights of GAO-04-461, a report to the Ranking Minority Member,
Committee on Environment and Public Works, U.S. Senate
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.
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 [email protected].
March 2004
WATER INFRASTRUCTURE
Comprehensive Asset Management Has Potential to Help Utilities Better Identify
Needs and Plan Future Investments
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.
Elements of Comprehensive Asset Management
Contents
Letter 1
Executive Summary 2
Purpose 2
Background 4
Results in Brief 5
Principal Findings 7
Recommendations for Executive Action 9
Agency Comments 9
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
11
12
13
15
17
21 22 25
Chapter 2
Water Industry
Officials Report Many
Benefits from Asset
Management Despite
Implementation
Challenges
26 Utilities Cite Many Benefits from Asset Management and Some Cautions
About Reported Savings 26 Utilities Face Challenges in Successfully
Implementing Comprehensive Asset Management 36
Contents
Chapter 3
EPA Can Encourage
Water Utilities to Use
Asset Management by
Strengthening Existing
Initiatives
47 EPA Sponsors Several Initiatives to Promote Utilities' Use of Asset
Management 47 EPA's Efforts to Promote Asset Management Could Be
Strengthened by Leveraging Ongoing Efforts Within and Outside the Agency
51
Water Industry Officials Favor an Expanded Role for EPA in Promoting Asset
Management, but Raised Concerns About Additional Regulatory Requirements
54
Conclusions 58 Recommendations for Executive Action 59
Appendixes
Appendix I: Utilities Selected for Structured Interviews 60
Appendix II: GAO Contacts in Australia and New Zealand 61
Appendix III: GAO Contacts and Staff Acknowledgments 62
GAO Contacts 62
Staff Acknowledgments 62
Table 1: Recent Estimates of the Cost of
Tables Meeting Infrastructure
Needs at Drinking Water and Wastewater 13
Utilities
Table 2: Typical Sources of Data for a Central 40
Asset Inventory
Figure Figure 1: Elements of Comprehensive Asset Management
Abbreviations
EPA Environmental Protection Agency GAO General Accounting Office
This is a work of the U.S. government and is not subject to copyright
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separately.
A
United States General Accounting Office Washington, D.C. 20548
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 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,
John B. Stephenson Director, Natural Resources and Environment
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.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
infrastructurerelated 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
1See U.S. General Accounting Office, Water Infrastructure: Information on
Financing, Capital Planning, and Privatization, GAO-02-764 (Washington,
D.C.: Aug. 16, 2002).
Executive Summary
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 longstanding
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.
Executive Summary
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.
Executive Summary
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.
Executive Summary
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.
Executive Summary
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
Executive Summary
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,
Executive Summary
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,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
o 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;
o explore opportunities to take advantage of asset management tools and
informational materials developed by other federal agencies;
o 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
o 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
2See U.S. General Accounting Office, Executive Guide: Leading Practices in
Capital Decision-Making, GAO/AIMD-99-32 (Washington, D.C.: December 1998).
Executive Summary
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.
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.
Chapter 1 Introduction
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 2000.1 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.2 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.3 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
1See 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.
2From fiscal year 2001 to fiscal year 2004, EPA provided $8.8 billion for
water infrastructure and Agriculture provided $6 billion, in constant 2003
dollars.
3The 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.
Chapter 1 Introduction
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
Estimate Capital investment only Capital investment and financing
Period Drinking Drinking
Organization covered water Wastewater Total water Wastewater Total
Congressional
Budget
Officea 2000-2019
--Low 232 260
--High 402 418
EPAb 2000-2019
--Low 154 331 485 178 402
--High 446 450 896 475 719 1,194
Water
Infrastructure
Networkc 2000-2019 380 360 740 480 460 940
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.
aSee 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.
Chapter 1 Introduction
bSee 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.
cSee 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.
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.4 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
4Simply stated, the funding gap is equal to the estimated infrastructure
needs less projected spending.
Chapter 1 Introduction
for these pipelines from 1999 through 2019 could be as much as $137
billion.5
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.6 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.7 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
5U.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).
6See 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.
7American Water Works Association Water Industry Technical Action Fund,
Dawn of the Replacement Era: Reinvesting in Drinking Water Infrastructure
(Denver, Colo.: May 2001).
Chapter 1 Introduction
maintenance and minimal expenditures on sewers have left a huge backlog of
repair and renewal work."8
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.9 For example:
o 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.
o 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;10 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.
o 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
8Water Environment Research Foundation, New Pipes for Old: A Study of
Recent Advances in Sewer Pipe Materials and Technology (2000), 4-1.
9GAO-02-764, 7, 35, 42.
10We do not have specific information on the fiscal years covered in
utilities' responses; however, we sent our survey out during September
2001.
Chapter 1 Introduction
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.11
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.
11For 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.
Chapter 1 Introduction
Figure 1: Elements of Comprehensive Asset Management
Source: GAO.
Chapter 1 Introduction
Experts within and outside the water industry have published manuals and
handbooks on asset management practices and how to apply them.12 While the
specific terminology differs, some fundamental elements of implementing
asset management appear consistently in the literature.
o 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.
o 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:
o 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.
o 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
12For 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).
Chapter 1 Introduction
terms of costs and impact on the organization's desired level of
service-if the asset does fail.13 Based on this analysis, managers set
priorities and target their resources accordingly.
o 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.
o 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
13For 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.
Chapter 1 Introduction
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
Chapter 1 Introduction
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.14
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
14See 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).
Chapter 1 Introduction
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:
o state associations, including the Association of State Drinking Water
Administrators and the Association of State and Interstate Water Pollution
Control Administrators;
o 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;
o 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;
o several state and regional regulatory agencies in Australia and New
Zealand; and
o 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.15
(See
15We 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.
Chapter 1 Introduction
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.
Chapter 1 Introduction
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.
Chapter 2
Water Industry Officials Report Many Benefits from Asset Management Despite
Implementation Challenges
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.
Chapter 2
Water Industry Officials Report Many
Benefits from Asset Management Despite
Implementation Challenges
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:
o Better information enabled the Massachusetts Water Resources Authority
to improve its maintenance decisions and eliminate some unneeded
maintenance activities.1 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.
o Seattle Public Utilities used asset management to better target its
maintenance resources.2 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
1The Massachusetts Water Resources Authority provides water and sewer
services to approximately 2.5 million people.
2Seattle Public Utilities is a utility serving approximately 1.3 million
drinking water customers and about 500,000 wastewater customers.
Chapter 2
Water Industry Officials Report Many
Benefits from Asset Management Despite
Implementation Challenges
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:
o 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.3 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.
o In implementing its asset management approach, managers at the
Sacramento Regional County Sanitation District reassessed a proposed
3 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.
Chapter 2
Water Industry Officials Report Many
Benefits from Asset Management Despite
Implementation Challenges
investment in new wastewater treatment tanks and decided on a less
expensive option, thereby saving the utility approximately $12 million.4
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.
o 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
4The Sacramento Regional County Sanitation District is a California
wastewater utility serving approximately 482,000 customers in the
Sacramento area.
Chapter 2
Water Industry Officials Report Many
Benefits from Asset Management Despite
Implementation Challenges
business practices, which they saw as compartmentalized and inefficient.5
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.
5Eastern Municipal Water District is a water and wastewater utility
serving approximately 501,000 customers in Southern California.
Chapter 2
Water Industry Officials Report Many
Benefits from Asset Management Despite
Implementation Challenges
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. 6 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.
6The 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.
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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.7 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.
7Saco, 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.
Chapter 2
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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:
o 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 2003.8
o At the Charleston Commissioners of Public Works,9 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.10 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.
8Western 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.
9The Charleston Commissioners of Public Works provides water and
wastewater services to more than 400,000 customers in the Charleston,
South Carolina, area.
10These 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.
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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.11 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;12 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.13 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
11The Orange County Sanitation District provides wastewater services for
approximately 2.3 million people living in central and northwest Orange
County, California.
12The operating cost reductions were measured per property, or for each
residential or community property connected to the water and sewer supply.
13Hunter Water Corporation is an Australian utility that provides water
and wastewater services to almost 500,000 people in parts of New South
Wales.
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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.14
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.15 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.16 As we have already noted, operating costs reductions
alone do not provide enough information to determine the net benefit of
implementing asset management.
14Hunter 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.
15An environmental management system is a management tool to help an
organization improve its environmental performance, prevent pollution, and
meet regulatory requirements.
16EPA 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.
Chapter 2
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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
Existing Data May Be Incomplete and Inaccurate
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.
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:
o age, condition, and location of the assets;
o asset size and/or capacity;
o valuation data (e.g., original and replacement cost);
o installation date and expected service life;
Chapter 2
Water Industry Officials Report Many
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o maintenance and performance history; and
o 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:
o 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.17 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.
o 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.18
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:
17Augusta County Service Authority serves a population of approximately
67,000 people in Virginia.
18East 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.
Chapter 2
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o 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.19 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.
o 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.20
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:
o 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.21 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.
o Similarly, an official at East Bay Municipal Utility District noted a
significant difference between the manufacturer's recommended
19Tacoma Water serves approximately 300,000 customers in the city of
Tacoma, Washington, and portions of Pierce and South King counties.
20The Department of Public Works in Billerica, Massachusetts, serves a
population of approximately 10,000 people.
21Des Moines Water Works distributes water to a population of
approximately 300,000 in Des Moines, Iowa, and its surrounding
communities.
Chapter 2
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Implementation Challenges
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 datagathering 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 According to utility officials, coordinating data
can be difficult because the
Departments May Be Difficult 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.22
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.
22See Managing Public Infrastructure Assets to Minimize Cost and Maximize
Performance, 57.
Chapter 2
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Table 2: Typical Sources of Data for a Central Asset Inventory Department
maintaining Types of data that may be
data Source of data available
Operations and
Operations and Location, size, manufacturer,
Maintenance
maintenance manuals
and materials of construction
Maintenance management Location, size, manufacturer,
system materials of construction, performance history, maintenance
history, and original cost
Records of original asset Location, size, manufacturer,
drawings and materials of construction
Engineering Geographic information Location, size, and materials
system of construction
Records of original asset Location, size, manufacturer,
drawings and materials of
construction
Finance Fixed asset inventory 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.
Utility managers told us it was challenging to develop a standard data
format for their central asset inventories. For example:
o 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.
o 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.
Chapter 2
Water Industry Officials Report Many
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Implementation Challenges
o 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 The utility officials we spoke to also had
to address problems in
Their Technology 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:
o 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.23 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.
o 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.24 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.
23Greater Cincinnati Water Works provides water to approximately 1.2
million customers.
24Melbourne 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.
Chapter 2
Water Industry Officials Report Many
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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.25 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 As utilities continue to obtain and integrate
data, they still face the
Maintaining Complete and challenge of maintaining complete and accurate
data about their assets.
Accurate Data 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
25St. Paul Regional Water Services provides drinking water to
approximately 415,000 residents of St. Paul, Minnesota, and its
surrounding communities.
Chapter 2
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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
middlemanagement 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.
Chapter 2
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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 shortterm, 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.
Chapter 2
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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,26 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.27 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
26As 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.
27Somersworth 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.
Chapter 2
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Implementation Challenges
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.
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.1 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 longterm, 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.2 In addition, to help entities such as
1The 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.
2U.S. Environmental Protection Agency, Asset Management: A Handbook for
Small Water Systems, EPA 816-R-03-016 (Washington, D.C.: September 2003).
Chapter 3
EPA Can Encourage Water Utilities to Use
Asset Management by Strengthening
Existing Initiatives
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.3
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
o 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
3EPA has drafted the booklet, Taking Stock of Your Water System, and
expects to publish the final version sometime in 2004.
Chapter 3
EPA Can Encourage Water Utilities to Use
Asset Management by Strengthening
Existing Initiatives
adequate user rates; much of this information can be used to create a
rudimentary asset management program.
o 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.
o The Office of Wastewater Management funds 46 state and universitybased
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.4 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.5 The project found
4The 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.
5An environmental management system is a management tool to help an
organization improve its environmental performance, prevent pollution, and
meet regulatory requirements.
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EPA Can Encourage Water Utilities to Use
Asset Management by Strengthening
Existing Initiatives
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.6
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.7 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
o establish methodologies for determining asset value, compiling
inventories, and capturing and compiling information on the assets'
attributes;
6Water 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.
7See Water Environment Research Foundation, Research Priorities for
Successful Asset Management: A Workshop (Alexandria, Va.: 2002).
Chapter 3
EPA Can Encourage Water Utilities to Use
Asset Management by Strengthening
Existing Initiatives
o develop methodologies for calculating life-cycle costs for
infrastructure assets;
o construct predictive models for infrastructure assets that project
lifecycle costs and risks;
o identify best practices for operating and maintaining infrastructure
assets by asset category, condition, and performance requirements; and
o 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-
Chapter 3
EPA Can Encourage Water Utilities to Use
Asset Management by Strengthening
Existing Initiatives
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.
Chapter 3
EPA Can Encourage Water Utilities to Use
Asset Management by Strengthening
Existing Initiatives
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,
o a general primer on the fundamental concepts of asset management;
o 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;8 and
o 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.9
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.
8U.S. Department of Transportation, Federal Highway Administration, Office
of Asset Management, Data Integration Primer (Washington, D.C.: August
2001).
9U.S. Department of Transportation, Federal Highway Administration, Office
of Asset Management, Life-Cycle Cost Analysis Primer (Washington, D.C.:
August 2002).
Chapter 3
EPA Can Encourage Water Utilities to Use
Asset Management by Strengthening
Existing Initiatives
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
Chapter 3
EPA Can Encourage Water Utilities to Use
Asset Management by Strengthening
Existing Initiatives
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:
o 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.10
o 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
10States 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.
Chapter 3
EPA Can Encourage Water Utilities to Use
Asset Management by Strengthening
Existing Initiatives
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.11
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.
11Privately 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.
Chapter 3
EPA Can Encourage Water Utilities to Use
Asset Management by Strengthening
Existing Initiatives
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.12 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:
o 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.
o 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.
o 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
12GAO/AIMD-99-32, 26.
Chapter 3
EPA Can Encourage Water Utilities to Use
Asset Management by Strengthening
Existing Initiatives
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
Chapter 3
EPA Can Encourage Water Utilities to Use
Asset Management by Strengthening
Existing Initiatives
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
o 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;
o explore opportunities to take advantage of asset management tools and
informational materials developed by other federal agencies;
o 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
o 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.
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
Appendix II
GAO Contacts in Australia and New Zealand
Government agency State or region Country
Department of Treasury and Finance Victoria Australia
Essential Services Commission Victoria Australia
Independent Pricing and Regulatory New South Wales Australia
Tribunal
Queensland Audit Office Queensland Australia
Utility State or region Country
Citiwater Queensland Australia
Hunter Water Corporation New South Wales Australia
Melbourne Water Corporation Victoria Australia
South Australian Water Corporation South Australia Australia
Sydney Water Corporation New South Wales Australia
Watercare Services Limited Auckland New Zealand
Manawatu District Council Manawatu-Wanganui New Zealand
Appendix III
GAO Contacts and Staff Acknowledgments
GAO Contacts Ellen Crocker, (617) 788-0580 Maureen Driscoll, (617)
788-0540
Staff In addition to the individuals named above, Ramona Burton, Cory
Claussen, Robert Crystal, Teresa Dee, Janet McKelvey, Melissa Mink, Lynn
Acknowledgments Musser, Mehrzad Nadji, and Carol Herrnstadt Shulman made
key contributions to this report.
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