CWEA Asset Management SeminarCWEA Asset Management SeminarBerkeley, CA, September 17, 2003Berkeley, CA, September 17, 2003

Ken Harlow, Brown and Caldwell

Planning for and FundingAsset Replacements and Refurbishments:

“Making Do” with Limited Asset Knowledge

What Can I Do with my Existing Asset Knowledge?

Using Class-based Knowledge to Forecast R&R Costs

The RPM: Establishing Funding Policies for Sustainability

How does the RPM Help?

Demonstration of the RPM

Outline of PresentationOutline of Presentation

Your Board/Council Your Board/Council DoesDoes Care about the Infrastructure!Care about the Infrastructure!

“What is our system worth in today’s dollars?”

“How much should we be spending on R&R?”

“How much will we be spending twenty years from now?”

“What should our R&R reserve levels be?”

“How much should we contribute each year?”

Perfect Asset Knowledge – Perfect Asset Knowledge – When???When???

Many agencies can’t answer these questions because of poor asset knowledge

Remedying this is a lot of work – improving asset knowledge is usually a task of many years (but worth it, of course…)

Question: What can you do with the asset knowledge you have now?

With only a moderate effort, you can:

Establish long-term replacement funding policy to assure infrastructure integrity

Calculate the value your infrastructure assets

Especially in California: Protect needed reserves from possible expropriation

What Can I Do with the Asset What Can I Do with the Asset Knowledge I have Now?Knowledge I have Now?

Using Class-based Knowledge Using Class-based Knowledge to forecast R&R Coststo forecast R&R Costs

Two Kinds of Asset KnowledgeTwo Kinds of Asset Knowledge

Asset specific knowledge: Age, condition, value, likely replacement and refurbishment (R&R) needs

• This level of knowledge is required to make dependable R&R decisions on specific assets

Asset class knowledge: Typical useful life, pricing formulas, model refurbishment programs

• If you can develop class-based knowledge, you can forecast aggregate R&R needs and support long-term funding policies to sustain your infrastructure

An asset class is a group of assets with:• Similar form and function• Similar useful lives and refurbishment programs• Similar replacement pricing formulas

Key: Prepare a master asset listing and assign each asset to a class (usually 20-25 classes)

Each asset class has a useful life, pricing formula, and typical refurbishment program

A refurbishment is a capital expenditure required to achieve useful life — it is not an O&M cost

What is an Asset Class?What is an Asset Class?

Typical R&R Life Cycle: Steel Typical R&R Life Cycle: Steel TankTank

Build ReplaceA. Exterior painting (7.5 years)

B: Interior coating / Floor repair (15 years)

C. Floor replacement (30 years)

$

Refurbishment types:

A A A A

A+B

A+B+C

Time

A+B

0 7.5 15 22.5 30 37.5 45 52.5 60

You Still Need You Still Need SomeSome Asset- Asset-specific Knowledgespecific Knowledge

Year in service

Asset class

Physical attributes (length, diameter, material, horsepower, etc.)

• Physical attributes are used to generate replacement costs of assets using formulas or look-up tables

And that’s all you need (if that’s all you have)

Using Class-based Knowledge Using Class-based Knowledge to Generate R&R Coststo Generate R&R Costs Once class-based knowledge is defined, you can

simulate infrastructure performance: Asset-by-asset replacements and refurbishments over many years

Key is the cyclical nature of these “R&R” activities

Each “transaction” is costed to create a schedule of expenditures well into the future

Finally, funding policies can be tested against future expenditures to create a funding plan

All this is done easily using the Replacement Planning Model (RPM)

Mesa Consolidated Water District

Orange County Water District

Irvine Ranch Water District

Maui Board of Water Supply

Orange County Sanitation District

Asheville, North Carolina

City of Roseville

City of Oxnard

Dublin San Ramon Services District

Montecito Sanitary District

MWD of Southern California

Moulton Niguel Water District

Who has Used This Approach?Who has Used This Approach?

The RPM: Establishing The RPM: Establishing Funding Policies for Funding Policies for

SustainabilitySustainability

RPM R&R costsby year

Usefullives

AssetinventoryYears in

service

Replacementcosts

Refurbishmentprograms

Annualcontributions

Earnings rate Inflation rate

Fundbalances

Elements of the Funding Elements of the Funding AnalysisAnalysis

Replacement/Refurbishment (R&R) Fund is the fundamental tool for accumulating and disbursing R&R money

Fund performance is modeled using the RPM

The R&R FundThe R&R Fund

R&R Fund balances are based on:• Beginning balance

• Fund contribution policies

• R&R needs by year

• Interest earnings

• Various other policy decisions

The RPM “builds” funding policy by varying these and other parameters while observing results of the simulation

Modeling R&R Fund Modeling R&R Fund PerformancePerformance

How does the RPM Help?How does the RPM Help?

Clear delineation of R&R costs over various timeframes

Easy-to-use, friendly interface

Detailed logs of transactions; many graphical reports

Ideal for exploring policy options and recommendations with the board

The RPM Shows Clearly the The RPM Shows Clearly the Patterns of Future R&R Patterns of Future R&R ExpendituresExpenditures

Helps develop true asset-based funding policies

Provides an entry to asset management

Proven track record delivers confidence to your client

The RPM Provides Clear, Effective The RPM Provides Clear, Effective Answers to Funding QuestionsAnswers to Funding Questions

RPM supplies the replacement value of all assets

Current asset value is of great interest and usefulness to:• Staff• Board• Customers

The RPM Also Shows what the The RPM Also Shows what the Infrastructure is WorthInfrastructure is Worth

RPM DemonstrationRPM Demonstration

Questions and AnswersQuestions and Answers