Creating a Long-Term Funding Plan

Although it’s difficult to see into the future with certainty, planning activities that address near-term needs while keeping an eye on potential long-term needs can lay the groundwork for a well planned capital improvements plan (CIP). When it comes to rate-setting, capital is often the primary driver. As a result, comprehensive capital planning that is updated … Read moreCreating a Long-Term Funding Plan

Asset Management for Sustainable Utility Operations

A cross-section of AE2S staff recently facilitated an Asset Management workshop geared toward regional water system operations. The forum provided a great venue for system managers, operators, and board members to interact and share information. It was also a good reminder that asset management is essentially taking a deliberately planned and consistent approach to doing things you already do: maintain assets, prioritize asset replacement, seek funding for asset replacement, and revise rates to ensure adequate revenue to operate and maintain the system.

The concept of Asset Management has been around for most of modern history. But after years of deferred maintenance and postponement of rate adjustments, the infrastructure crisis in the United States has forced the formalization of Asset Management into a practical tool to manage infrastructure. The U.S. Environmental Protection Agency (USEPA) defines it:

“Asset Management is maintaining desired level of service for what you want your assets to provide at the lowest life cycle cost. Lowest life cycle cost refers to the best appropriate cost for rehabilitating, repairing or replacing an asset…”

-EPA Asset Management: A Best Practice Guide

Today’s implementation of Asset Management generally centers on five core topics, shown in the graphic below:

Asset Management Graphic-01

Understanding the age and condition of the system is what most of us think of first when we hear the words “asset management.” This is generally the first step in developing an approach to asset management. If the system is new, you may make significant expenditures annually in terms of debt service principal payments. As debt on system components is retired, the system should continue to “invest” either through renewal/replacement or by contributing to a reserve fund for future replacements. A general rule of thumb is annual investment either through debt service, reserve contributions, or rate-funded capital should be at least equal to total annual depreciation on the system.

To address aging infrastructure and operational efficiency challenges, best practices and tools have been developed by the U.S. Environmental Protection Agency (USEPA) and industry stakeholders. Comprehensive resources for asset management can be accessed by clicking here.

A formalized approach to Asset Management has many benefits. Taking a planned and prioritized approach to maintaining and replacing a system’s assets will ultimately lead to long-term financial stability. If you have questions or would like more information on Asset Management, contact Jared Heller at Jared.Heller@ae2s.com or Shawn Gaddie at Shawn.Gaddie@ae2s.com.