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Report to the Ranking Minority Member, Committee on Environment and 
Public Works, U.S. Senate:

March 2004:

WATER INFRASTRUCTURE:

Comprehensive Asset Management Has Potential to Help Utilities Better 
Identify Needs and Plan Future Investments:

GAO-04-461:

GAO Highlights:

Highlights of GAO-04-461, a report to the Ranking Minority Member, 
Committee on Environment and Public Works, U.S. Senate 

Why GAO Did This Study:

Having invested billions of dollars in drinking water and wastewater 
infrastructure, the federal government has a major interest in 
protecting its investment and in ensuring that future assistance goes 
to utilities that are built and managed to meet key regulatory 
requirements. The Congress has been considering, among other things, 
requiring utilities to develop comprehensive asset management plans. 
Some utilities are already implementing asset management voluntarily. 
The asset management approach minimizes the total cost of buying, 
operating, maintaining, replacing, and disposing of capital assets 
during their life cycles, while achieving service goals. This report 
discusses (1) the benefits and challenges for water utilities in 
implementing comprehensive asset management and (2) the federal 
governments potential role in encouraging utilities to use it. 

What GAO Found:

Drinking water and wastewater utilities that GAO reviewed reported 
benefiting from comprehensive asset management but also finding certain 
challenges. The benefits include (1) improved decision making about 
their capital assets and (2) more productive relationships with 
governing authorities, rate payers, and others. For example, utilities 
reported that collecting accurate data about their assets provides a 
better understanding of their maintenance, rehabilitation, and 
replacement needs and thus helps utility managers make better 
investment decisions. Among the challenges to implementing asset 
management, utilities cited collecting and managing needed data and 
making the cultural changes necessary to integrate information and 
decision making across departments. Utilities also reported that the 
shorter-term focus of their governing bodies can hamper long-term 
planning efforts.

EPA currently sponsors initiatives to promote the use of asset 
management, including educational materials, technical assistance, and 
research. While this is a good first step, GAO found that EPA could 
better coordinate some activities. For example, EPA has no central 
repository to facilitate information sharing within and across its 
drinking water and wastewater programs, which would help avoid 
duplication of effort. Water industry officials see a role for EPA in 
promoting asset management as a tool to help utilities meet 
infrastructure-related regulatory requirements; they also noted that 
establishing an EPA Web site would be useful for disseminating asset 
management information to utilities. The officials raised concerns, 
however, about the implications of mandating asset management, citing 
challenges in defining an adequate asset management plan and in the 
ability of states to oversee and enforce compliance. 

What GAO Recommends:

Among other things, GAO is recommending that the Environmental 
Protection Agency (EPA) (1) better coordinate its own activities to 
facilitate information sharing and reduce the potential for duplication 
and (2) ensure that water utilities have access to information they can 
use by establishing a Web site focused on asset management. In 
commenting on a draft of this report, EPA generally agreed with the 
report and its recommendations. 

www.gao.gov/cgi-bin/getrpt?GAO-04-461.

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact John B. Stephenson (202) 
512-3841 or stephensonj@gao.gov.

[End of section]

Contents:

Letter: 

Executive Summary:

Purpose: 

Background: 

Results in Brief: 

Principal Findings: 

Recommendations for Executive Action: 

Agency Comments: 

Chapter 1: Introduction: 

The Federal Government Has Played a Major Role in Funding and Setting 
Requirements for Water Infrastructure: 

Projected Drinking Water and Wastewater Infrastructure Needs Are 
Significant: 

Many Factors Have Contributed to Deteriorating Utility Infrastructure: 

Comprehensive Asset Management Focuses on Efficiently Managing Capital 
Assets: 

Strategy for Adopting and Progress toward Implementing Comprehensive 
Asset Management Varies: 

Objectives, Scope, and Methodology: 

Comments from the Environmental Protection Agency: 

Chapter 2: Water Industry Officials Report Many Benefits from Asset 
Management Despite Implementation Challenges: 

Utilities Cite Many Benefits from Asset Management and Some Cautions 
About Reported Savings: 

Utilities Face Challenges in Successfully Implementing Comprehensive 
Asset Management: 

Chapter 3: EPA Can Encourage Water Utilities to Use Asset Management by 
Strengthening Existing Initiatives: 

EPA Sponsors Several Initiatives to Promote Utilities' Use of Asset 
Management: 

EPA's Efforts to Promote Asset Management Could Be Strengthened by 
Leveraging Ongoing Efforts Within and Outside the Agency: 

Water Industry Officials Favor an Expanded Role for EPA in Promoting 
Asset Management, but Raised Concerns About Additional Regulatory 
Requirements: 

Conclusions: 

Recommendations for Executive Action: 

Appendixes:

Appendix I: Utilities Selected for Structured Interviews: 

Appendix II: GAO Contacts in Australia and New Zealand: 

Appendix III: GAO Contacts and Staff Acknowledgments: 

GAO Contacts: 

Staff Acknowledgments: 

Tables: 

Table 1: Recent Estimates of the Cost of Meeting Infrastructure Needs 
at Drinking Water and Wastewater Utilities: 

Table 2: Typical Sources of Data for a Central Asset Inventory: 

Figure: 

Figure 1: Elements of Comprehensive Asset Management: 

Abbreviations: 

EPA: Environmental Protection Agency:

GAO: General Accounting Office:

Letter March 19, 2004:

The Honorable James M. Jeffords: 
Ranking Minority Member: 
Committee on Environment and Public Works: 
United States Senate:

Dear Senator Jeffords:

In response to your request, this report examines (1) the potential 
benefits of comprehensive asset management for drinking water and 
wastewater utilities and the challenges that could hinder its 
implementation and (2) the role that the federal government might play 
in encouraging utilities to implement asset management.

Unless you publicly announce its contents earlier, we plan no further 
distribution of this report until 30 days from the date of this letter. 
At that time, we will send copies to appropriate congressional 
committees, the Administrator of the Environmental Protection Agency, 
and the Director of the Office of Management and Budget. We will also 
make copies available to others upon request. In addition, the report 
will be available at no charge on the GAO Web site at [Hyperlink, 
http://www.gao.gov].

Please call me at (202) 512-3841 if you or your staff have any 
questions. Major contributors to this report are listed in appendix 
III.

Sincerely yours,

Signed by: 

John B. Stephenson: 
Director, Natural Resources and Environment:

[End of section]

Executive Summary:

Purpose:

Mounting evidence suggests that the integrity of the nation's drinking 
water and wastewater infrastructure is at risk without a concerted 
effort to improve the management of key assets--pipelines, treatment 
plants, and other facilities--and a significant investment in 
maintaining, rehabilitating, and replacing these assets. According to 
recent studies by the Environmental Protection Agency (EPA) and other 
organizations, drinking water and wastewater utilities will need to 
invest hundreds of billions of dollars in their capital infrastructure 
over the next two decades. However, if utilities maintain current 
spending levels, financing the needed investments could be problematic. 
Based on a survey of several thousand drinking water and wastewater 
utilities, GAO reported in August 2002 that a significant percentage of 
the utilities--29 percent of the drinking water utilities and 41 
percent of the wastewater utilities--were not generating enough revenue 
from user rates and other local sources to cover their full cost of 
service.[Footnote 1] Furthermore, roughly one-third of the utilities 
(1) deferred maintenance because of insufficient funding, (2) had 20 
percent or more of their pipelines nearing the end of their useful 
life, and (3) lacked basic plans for managing their capital assets.

Each year, the federal government makes available billions of dollars 
to help local communities finance drinking water and wastewater 
infrastructure projects. However, concerns about the condition of 
existing infrastructure have prompted calls to increase this financial 
assistance and, at the same time, ensure that the federal government's 
investment is protected. The Congress has been considering a number of 
infrastructure-related proposals, including requirements for local 
utilities to have asset management plans. Some utilities have turned to 
comprehensive asset management on their own initiative. This approach 
to managing capital infrastructure focuses on minimizing the total cost 
of acquiring, operating, maintaining, replacing, and disposing of 
capital assets over their life cycle and doing so in a way that 
achieves the level of service customers desire. Among other things, 
comprehensive asset management allows utility managers to obtain better 
information on the age and condition of existing assets, determine the 
level of maintenance needed to optimize asset performance and useful 
life, assess the risks associated with the failure of various assets 
and set priorities for their maintenance and replacement, understand 
the trade-offs and implications of management decisions about the 
assets, and use better information to justify proposed rate increases 
or capital investments. Water industry officials agree that by making 
informed decisions about investments in capital assets, drinking water 
and wastewater utilities can better justify the rate increases 
associated with making needed improvements to their infrastructure.

The Ranking Minority Member of the Senate Committee on Environment and 
Public Works asked GAO to examine (1) the potential benefits of 
comprehensive asset management for drinking water and wastewater 
utilities and the challenges that could hinder its implementation and 
(2) the role that the federal government might play in encouraging 
utilities to implement asset management.

To address the first issue, GAO conducted initial interviews with 46 
U.S. drinking water and wastewater utilities identified by 
knowledgeable government and water industry officials as implementing 
comprehensive asset management. To obtain more detailed information on 
the benefits and challenges associated with implementing asset 
management, GAO conducted structured interviews with 15 of these 
utilities, selected because they (1) reported or anticipated achieving 
quantitative benefits from asset management or (2) represented smaller 
entities. Our results are not generalizable to the larger universe of 
domestic drinking water and wastewater utilities. Because asset 
management is a relatively new concept for domestic water utilities, 
GAO supplemented the structured interviews by obtaining information 
from 6 utilities and five government agencies in Australia and New 
Zealand--two countries that have taken the lead in implementing 
comprehensive asset management in their drinking water and wastewater 
utilities--and two private companies with long-standing experience in 
using comprehensive asset management in their respective fields, which 
provided additional information on benefits and challenges.

To address the second issue, GAO discussed options for a federal role 
in promoting asset management with the 15 utilities selected for 
structured interviews, water industry associations, and EPA. In 
addition, based on contacts with a variety of organizations and 
officials experienced in asset management, GAO identified the U.S. 
Department of Transportation as being at the forefront of federal 
involvement in this issue. GAO obtained information about the 
department's initiatives from the Office of Asset Management, within 
the Federal Highway Administration.

We conducted our work between March 2003 and March 2004 in accordance 
with generally accepted government auditing standards.

Background:

At its most basic level, comprehensive asset management involves the 
systematic collection of key data and the application of analytical 
tools such as life-cycle cost analysis and risk assessment. Asset 
management thus provides information that managers can use to make 
sound decisions about their capital assets and allows decision makers 
to better identify and manage needed investments in their 
organization's infrastructure. By following this approach, 
organizations also change the process they use to make decisions, 
including the types of information they bring to bear and which 
segments of the organization participate in the decision-making 
process. Using a fully integrated decision process, many segments of an 
organization, including accounting, engineering, finance, maintenance, 
and operations, are expected to exchange relevant information, share in 
the decision making, and take an organizationwide view when setting 
goals and priorities. For drinking water and wastewater utilities, an 
integral part of a comprehensive asset management program is ensuring 
that adequate funds are available through user rates or other means so 
that asset management decisions can be implemented (e.g., ensuring that 
planned maintenance can be conducted and capital assets can be 
repaired, replaced, or upgraded on schedule).

Comprehensive asset management is a relatively new concept for drinking 
water and wastewater utilities in the United States. Domestic utilities 
implementing asset management are generally large and vary considerably 
in terms of their approach. For example, some are applying the concepts 
of asset management on a utilitywide basis and others are beginning in 
specific departments or facilities. In implementing asset management, 
domestic utility managers have drawn from the experiences of 
international utilities that are considered to be at the forefront of 
asset management for drinking water and wastewater infrastructure. For 
example, in Australia and New Zealand, where the concept has been 
strongly endorsed by the national governments, water utilities have 
used comprehensive asset management for about 10 years. In each 
country, a key impetus for the move toward asset management was 
legislation that called for water utilities to improve their financial 
management, requiring utilities to recover the full cost of service in 
Australia and, in New Zealand, to annually depreciate their assets and 
use cost-benefit analysis.

In the United States, the Congress has been considering proposals to 
require utilities to adopt key components of asset management, such as 
inventorying critical assets, evaluating their condition and 
performance, and developing plans to (1) maintain, repair, and replace 
assets and (2) fund such activities. These proposals typically link the 
use of asset management to a utility's eligibility for federal 
financial assistance in making infrastructure improvements.

The universe of drinking water and wastewater utilities indicates that 
efforts to adopt asset management may vary considerably because of the 
utilities' sizes and their ability to marshal resources for the effort. 
In the United States, about 54,000 community water systems supply most 
of the nation's drinking water and about 16,000 wastewater treatment 
systems provide sewer service. Larger utilities account for much of the 
projected infrastructure needs; for example, drinking water systems 
serving more than 10,000 people account for approximately 65 percent of 
the estimated needs for such utilities. However, most utilities are 
small, with 93 percent of community drinking water systems and 71 
percent of wastewater systems serving 10,000 people or fewer. EPA has 
found that smaller utilities are less likely to have the financial, 
managerial, and technical capacity to meet regulatory requirements and 
are less likely to cover their full cost of providing services.

Results in Brief:

U.S. drinking water and wastewater utilities that GAO contacted 
reported benefiting from applying the concepts of asset management to 
their operations but have also encountered certain challenges. 
Utilities are seeing benefits from (1) improved decision making because 
they have more accurate and integrated information about their capital 
assets and (2) more productive relationships with governing 
authorities, ratepayers, and other stakeholders because they can 
provide better information in a more transparent way. For example, 
utilities reported that collecting accurate data about their assets 
provides a better understanding of their maintenance, rehabilitation, 
and replacement needs, which helps utility managers make better 
investment decisions. While water industry officials identified 
financial and other benefits from using asset management, reported 
savings should be interpreted carefully. According to the utilities 
that GAO contacted, the challenges associated with implementing asset 
management included collecting and managing needed data and making the 
cultural changes necessary to integrate information and decision making 
across departments. Utilities also reported that the shorter-term focus 
of their governing bodies can hamper long-term planning efforts. 
Although smaller utilities face more obstacles to implementing asset 
management, largely as a result of limited resources, such utilities 
can also benefit from applying asset management concepts.

EPA can play a stronger role in encouraging water utilities to use 
asset management by leveraging ongoing efforts within and outside the 
agency. EPA currently sponsors initiatives to promote the use of asset 
management, such as developing educational materials; providing 
technical assistance, particularly to smaller utilities; and funding 
research related to asset management. Nevertheless, GAO found that some 
activities could be better coordinated. For example, EPA's Office of 
Ground Water and Drinking Water and Office of Wastewater Management 
fund state and university-based training and technical assistance 
centers that have developed guidance manuals, tools, and training 
materials to assist small utilities with asset management. However, no 
central repository exists to facilitate information sharing within and 
across the drinking water and wastewater programs and thereby avoid 
duplication of effort. GAO also found that opportunities exist for EPA 
to coordinate with other federal agencies, such as the Department of 
Transportation, that have already developed tools and training 
materials on asset management. When asked for their views on a 
potential federal role in asset management, water industry officials 
said that EPA should assume a greater leadership role in promoting 
asset management. For example, they see asset management as a tool to 
help utilities meet regulatory requirements that depend on maintaining 
an adequate infrastructure and believe that EPA should establish a Web 
site to serve as a central repository of information on implementing 
asset management. However, the officials raised concerns about the 
implications of mandating asset management, citing challenges in 
defining an adequate asset management plan and in the ability of states 
to oversee and enforce compliance. GAO is making recommendations to 
strengthen EPA's existing efforts to promote water utilities' use of 
asset management.

Principal Findings:

Utilities See Benefits from Using Comprehensive Asset Management, but 
Face Implementation Challenges:

Utilities that have started using comprehensive asset management report 
benefits for several aspects of their operations. For example, 
collecting, sharing, and analyzing data on capital assets has allowed 
utilities to make more informed decisions about how best to manage the 
assets. In particular, utilities are using the information they collect 
to allocate their maintenance resources more effectively and make 
better decisions about whether to rehabilitate or replace aging assets. 
Utilities also report that asset management fosters information sharing 
across departments as well as coordinated planning and decision making. 
These improvements help utility managers reduce duplication of effort 
and improve the allocation of staff time and other resources.

Utilities also report that comprehensive asset management benefits 
their relations with external stakeholders, such as local governing 
bodies, ratepayers, and credit rating agencies. For instance, several 
utilities have used, or expect to use, the information collected 
through comprehensive asset management to persuade elected officials to 
increase user rates to help pay for needed improvements in drinking 
water and wastewater infrastructure. Although water industry officials 
identified financial and other benefits from using asset management, 
reported savings should be viewed with caution because, for instance, 
comprehensive asset management may be implemented concurrently with 
other changes in management practices or operational savings may be 
offset by increases in capital expenditures.

Despite the acknowledged benefits of comprehensive asset management, 
utilities report several key challenges that can hinder efforts to 
implement this approach. For example, collecting the appropriate data 
on utility assets and managing the information efficiently can be 
difficult when existing data are incomplete and inaccurate or the data 
come from multiple departments and are maintained using different and 
incompatible software programs. Utilities reported that another major 
challenge is overcoming resistance to cultural change and fostering 
more communication among departments that do not regularly exchange 
information. Utility officials believe that it is essential to change 
the management culture to encourage more interdepartmental coordination 
and information sharing. Finally, although asset management provides 
utilities with better information to justify needed rate increases, 
their justifications may not be effective because of pressure to keep 
rates low and competing priorities for local revenues. Utility and 
water industry officials cited the difficulty of trying to implement 
long-term capital improvement plans when governing bodies have a 
shorter-term focus as a key challenge to asset management. Smaller 
utilities may have more difficulty implementing asset management 
because they typically have fewer financial, technological, and staff 
resources. On the other hand, because such utilities have fewer capital 
assets to manage, they can turn to low-cost management alternatives 
that do not require expensive or sophisticated technology.

EPA Can Promote the Use of Asset Management By Strengthening Existing 
Initiatives:

EPA currently sponsors initiatives to encourage the use of 
comprehensive asset management through its partnerships with water 
industry associations and state and university-based training and 
technical assistance centers. These initiatives include developing 
training and informational materials, providing technical assistance, 
and funding research related to asset management. While this is a good 
first step, GAO found that better coordination of these efforts within 
and across the drinking water and wastewater programs could reduce the 
potential for duplication of effort and help ensure that limited 
resources are used effectively. GAO also found opportunities for EPA to 
leverage its resources by adapting the asset management tools and 
informational materials available from other federal agencies with 
experience in asset management, such as the Federal Highway 
Administration in the Department of Transportation.

When asked for their views on a potential federal role, water industry 
and utility officials said that given the benefits of asset management, 
it is in EPA's interest to assume a greater leadership role in 
promoting its use. For example, the officials indicated that one useful 
option would be educating utilities about the potential for asset 
management to help them comply with certain regulatory requirements 
that focus to some degree on the adequacy of utility infrastructure and 
the management practices that affect it. As a case in point, the 
officials cited requirements for ensuring that drinking water utilities 
have the financial, managerial, and technical capacity they need to 
provide safe drinking water over the long term. GAO also found support 
for an EPA Web site that would serve as a central repository of 
information on comprehensive asset management and provide drinking 
water and wastewater utilities with direct and easy access to 
implementation tools and training materials developed by EPA and 
others. Water industry associations and individual utilities questioned 
the feasibility of proposed requirements for asset management plans, 
particularly as a condition of receiving federal financial assistance. 
While the proposals are consistent with what GAO has found to be the 
leading practices in capital decision making,[Footnote 2] the officials 
expressed concerns about, among other things, (1) whether state 
regulators have the resources to assess the adequacy of asset 
management plans and oversee compliance and (2) the potential for a 
mandate to limit the flexibility utilities need to tailor asset 
management to their individual circumstances.

Recommendations for Executive Action:

Given the potential of comprehensive asset management to help water 
utilities better identify and manage their infrastructure needs, the 
Administrator, EPA, should take steps to strengthen the agency's 
existing initiatives on asset management and ensure that relevant 
information is accessible to those who need it. Specifically, the 
Administrator should:

* better coordinate ongoing and planned initiatives to promote asset 
management within and across the drinking water and wastewater programs 
to leverage limited resources and reduce the potential for duplication;

* explore opportunities to take advantage of asset management tools and 
informational materials developed by other federal agencies;

* strengthen efforts to educate utilities on how implementing asset 
management can help them comply with certain regulatory requirements 
that focus in whole or in part on the adequacy of utility 
infrastructure and the management practices that affect it; and:

* establish a Web site to provide a central repository of information 
on comprehensive asset management so that drinking water and wastewater 
utilities have direct and easy access to information that will help 
them better manage their infrastructure.

Agency Comments:

GAO provided a draft of this report to EPA for review and comment. GAO 
received comments from officials within EPA's Office of Water and 
Office of the Chief Financial Officer, who generally agreed with the 
information presented in the report and GAO's recommendations. They 
further noted that while EPA has played a major role in bringing asset 
management practices to the water industry, significant additional 
activity could be undertaken, and they have placed a high priority on 
initiating activities similar to those suggested by GAO. The officials 
also made technical comments, which GAO incorporated as appropriate.

[End of section]

Chapter 1: Introduction:

Drinking water and wastewater utilities are facing potentially 
significant investments over the next 20 years to upgrade an aging and 
deteriorated infrastructure, including underground pipelines, 
treatment, and storage facilities; meet new regulatory requirements; 
serve a growing population; and improve security. Adding to the problem 
is that many utilities have not been generating enough revenues from 
user charges and other local sources to cover their full cost of 
service. As a result, utilities have deferred maintenance and postponed 
needed capital improvements. To address these problems and help ensure 
that utilities can manage their needs cost-effectively, some water 
industry and government officials advocate the use of comprehensive 
asset management. Asset management is a systematic approach to managing 
capital assets in order to minimize costs over the useful life of the 
assets while maintaining adequate service to customers. While the 
approach is relatively new to the U.S. water industry, it has been used 
by water utilities in other countries for as long as 10 years.

Each year, the federal government makes available billions of dollars 
to help local communities finance drinking water and wastewater 
infrastructure projects. Concerns about the condition of existing 
infrastructure have prompted calls to increase financial assistance 
and, at the same time, ensure that the federal government's investment 
is protected. In recent years the Congress has been considering a 
number of proposals that would promote the use of comprehensive asset 
management by requiring utilities to develop and implement plans for 
maintaining, rehabilitating, and replacing capital assets, often as a 
condition of obtaining loans or other financial assistance.

The Federal Government Has Played a Major Role in Funding and Setting 
Requirements for Water Infrastructure:

The federal government has had a significant impact on the nation's 
drinking water and wastewater infrastructure by (1) providing financial 
assistance to build new facilities and (2) establishing regulatory 
requirements that affect the technology, maintenance, and operation of 
utility infrastructure. As we reported in 2001, nine federal agencies 
made available about $46.6 billion for capital improvements at water 
utilities from fiscal years 1991 through 2000.[Footnote 3] The 
Environmental Protection Agency (EPA) and the Department of Agriculture 
alone accounted for over 85 percent of the assistance, providing $26.4 
billion and $13.3 billion, respectively, during the 10-year period; 
since then, the funding from these two agencies has totaled nearly $15 
billion.[Footnote 4] EPA's financial assistance is primarily in the 
form of grants to the states to capitalize the Drinking Water and Clean 
Water State Revolving Funds, which are used to finance improvements at 
local drinking water and wastewater treatment facilities, 
respectively.[Footnote 5] As part of the Rural Community Advancement 
Program, Agriculture's Rural Utilities Service provides direct loans, 
loan guarantees, and grants to construct or improve drinking water, 
sanitary sewer, solid waste, and storm drainage facilities in rural 
communities.

In addition to its financial investment, EPA has promulgated 
regulations to implement the Safe Drinking Water Act and Clean Water 
Act, which have been key factors in shaping utilities' capital needs 
and management practices. For example, under the Safe Drinking Water 
Act, EPA has set standards for the quality of drinking water and 
identified effective technologies for treating contaminated water. 
Similarly, under the Clean Water Act, EPA has issued national minimum 
technology requirements for municipal wastewater utilities and criteria 
that states use to establish water quality standards that affect the 
level of pollutants that such utilities are permitted to discharge. 
Thus, the federal government has a major stake in protecting its 
existing investment in water infrastructure and ensuring that future 
investments go to utilities that are built and managed to meet key 
regulatory requirements.

Projected Drinking Water and Wastewater Infrastructure Needs Are 
Significant:

Drinking water and wastewater utilities will need to invest hundreds of 
billions of dollars in their capital infrastructure over the next two 
decades, according to EPA; the Congressional Budget Office; and the 
Water Infrastructure Network, a consortium of industry, municipal, 
state, and nonprofit associations. As table 1 shows, the projected 
needs range from $485 billion to nearly $1.2 trillion. The estimates 
vary considerably, depending on assumptions about the nature of 
existing capital stock, replacement rates, and financing costs. Given 
the magnitude of the projected needs, it is important that utilities 
adopt a strategy to manage the repair and replacement of key assets as 
cost-effectively as possible and to plan to sustain their 
infrastructure over the long term.

Table 1: Recent Estimates of the Cost of Meeting Infrastructure Needs 
at Drinking Water and Wastewater Utilities:

Dollars in billions.

Organization: Congressional Budget Office[A]--Low; 
Estimate: Period covered: 2000-2019; 
Estimate: Capital investment only: Drinking water: Not applicable; 
Estimate: Capital investment only: Wastewater: Not applicable; 
Estimate: Capital investment only: Total: Not applicable; 
Estimate: Capital investment and financing: Drinking water: 232; 
Estimate: Capital investment and financing: Wastewater: 260; 
Estimate: Capital investment and financing: Total: 492.

Organization: Congressional Budget Office[A]--High; 
Estimate: Period covered: 2000-2019; 
Estimate: Capital investment only: Drinking water: Not applicable; 
Estimate: Capital investment only: Wastewater: Not applicable; 
Estimate: Capital investment only: Total: Not applicable; 
Estimate: Capital investment and financing: Drinking water: 402; 
Estimate: Capital investment and financing: Wastewater: 418; 
Estimate: Capital investment and financing: Total: 820.

Organization: EPA[B]--Low; 
Estimate: Period covered: 2000-2019; 
Estimate: Capital investment only: Drinking water: 154; 
Estimate: Capital investment only: Wastewater: 331; 
Estimate: Capital investment only: Total: 485; 
Estimate: Capital investment and financing: Drinking water: 178; 
Estimate: Capital investment and financing: Wastewater: 402; 
Estimate: Capital investment and financing: Total: 580.

Organization: EPA[B]--High; 
Estimate: Period covered: 2000-2019; 
Estimate: Capital investment only: Drinking water: 446; 
Estimate: Capital investment only: Wastewater: 450; 
Estimate: Capital investment only: Total: 896; 
Estimate: Capital investment and financing: Drinking water: 475; 
Estimate: Capital investment and financing: Wastewater: 719; 
Estimate: Capital investment and financing: Total: 1,194.

Organization: Water Infrastructure Network[C]; 
Estimate: Period covered: 2000-2019; 
Estimate: Capital investment only: Drinking water: 380; 
Estimate: Capital investment only: Wastewater: 360; 
Estimate: Capital investment only: Total: 740; 
Estimate: Capital investment and financing: Drinking water: 480; 
Estimate: Capital investment and financing: Wastewater: 460; 
Estimate: Capital investment and financing: Total: 940. 

Source: GAO summary of infrastructure estimates from the Congressional 
Budget Office, EPA, and the Water Infrastructure Network.

Note: We did not assess the reliability of these data.

[A] See Congressional Budget Office, Future Investment in Drinking 
Water and Wastewater Infrastructure, (Washington, D.C.: November 2002). 
According to the report, the difference between the low and high 
estimates is attributable primarily to assumptions about the rate at 
which drinking water pipes are replaced, the savings associated with 
improved efficiency, the costs of controlling combined sewer overflows, 
and the length of the borrowing term. The estimates represent 
infrastructure costs as financed and thus include the estimated debt 
service paid from 2000 to 2019, whether for newly built projects or 
projects built before 2000.

[B] See U.S. Environmental Protection Agency, The Clean Water and 
Drinking Water Infrastructure Gap Analysis, EPA-816-R-02-020 
(September 2002). According to the report, the difference between the 
low and high estimates is attributable to differing assumptions about 
infrastructure replacement rates.

[C] See Water Infrastructure Network, Clean & Safe Water for the 21st 
Century (April 2000). The estimates for capital investment and 
financing represent the capital costs associated with all investments 
during the 2000-2019 period as well as the interest paid over time on 
those investments. They differ from costs-as-financed estimates because 
they include debt service (principal and interest) paid after 2019 on 
investments during the two decades instead of debt service paid during 
that time on pre-2000 investments.

[End of table]

Local drinking water and wastewater utilities rely primarily on 
revenues from user rates to pay for infrastructure improvements. 
According to EPA's gap analysis, maintaining utility spending at 
current levels could result in a funding gap of up to $444 billion 
between projected infrastructure needs and available 
resources.[Footnote 6] However, EPA also estimates that if utilities' 
infrastructure spending grows at a rate of 3 percent annually over and 
above inflation, the gap will narrow considerably and may even 
disappear. EPA's report concludes that utilities will need to use some 
combination of increased spending and innovative management practices 
to meet the projected needs.

The nation's largest utilities--those serving populations of at least 
10,000--account for most of the projected infrastructure needs. For 
example, according to EPA data, large drinking water systems represent 
about 7 percent of the total number of community water systems, but 
account for about 65 percent of the estimated infrastructure needs. 
Similarly, about 29 percent of the wastewater treatment and collection 
systems are estimated to serve populations of 10,000 or more, and such 
systems account for approximately 89 percent of projected 
infrastructure needs for wastewater utilities. Most of the U.S. 
population is served by large drinking water and wastewater utilities; 
for example, systems serving at least 10,000 people provide drinking 
water to over 80 percent of the population.

Pipeline rehabilitation and replacement represents a significant 
portion of the projected infrastructure needs. According to the 
American Society of Civil Engineers, U.S. drinking water and wastewater 
utilities are responsible for an estimated 800,000 miles of water 
delivery pipelines and between 600,000 and 800,000 miles of sewer 
pipelines, respectively. According to the most recent EPA needs 
surveys, the investment needed for these pipelines from 1999 through 
2019 could be as much as $137 billion.[Footnote 7]

Several recent studies have raised concerns about the condition of the 
existing pipeline network. For example, in August 2002, we reported the 
results of a nationwide survey of large drinking water and wastewater 
utilities.[Footnote 8] Based on the survey, more than one-third of the 
utilities had 20 percent or more of their pipelines nearing the end of 
their useful life; and for 1 in 10 utilities, 50 percent or more of 
their pipelines were nearing the end of their useful life. In 2001, a 
major water industry association predicted that drinking water 
utilities will face significant repair and replacement costs over the 
next three decades, given the average life estimates for different 
types of pipelines and the years since their original 
installation.[Footnote 9] Other studies have made similar predictions 
for the pipelines owned by wastewater utilities.

Many Factors Have Contributed to Deteriorating Utility Infrastructure:

EPA and water industry officials cite a variety of factors that have 
played a role in the deterioration of utility infrastructure; most of 
these factors are linked to the officials' belief that the level of 
ongoing investment in the infrastructure has not been sufficient to 
sustain it. For example, according to EPA's Assistant Administrator for 
Water, the pipelines and plants that make up the nation's water 
infrastructure are aging, and maintenance is too often deferred. He 
predicted that consumers will face sharply rising costs to repair and 
replace the infrastructure. Similarly, as the Water Environment 
Research Foundation reported in 2000, "years of reactive maintenance 
and minimal expenditures on sewers have left a huge backlog of repair 
and renewal work."[Footnote 10]

Our nationwide survey of large drinking water and wastewater utilities 
identified problems with the level of revenues generated from user 
rates and decisions on investing these revenues.[Footnote 11] For 
example:

* Many drinking water and wastewater utilities do not cover the full 
cost of service--including needed capital investments and operation and 
maintenance costs--through their user charges. Specifically, a 
significant percentage of the utilities serving populations of 10,000 
or more--29 percent of the drinking water utilities and 41 percent of 
the wastewater utilities--were not generating enough revenue from user 
charges and other local sources to cover their costs.

* Many drinking water and wastewater utilities defer maintenance and 
needed capital improvements because of insufficient funding. About one-
third of the utilities deferred maintenance expenditures in their most 
recent fiscal year;[Footnote 12] similar percentages of utilities 
reported deferring minor capital improvements and major capital 
improvements. About 20 percent of the utilities had deferred 
expenditures in all three categories.

* For many utilities, a significant disparity exists between the actual 
rehabilitation and replacement of their pipelines and the rate at which 
utility managers believe rehabilitation and replacement should occur. 
We found that only about 40 percent of the drinking water utilities and 
35 percent of the wastewater utilities met or exceeded their desired 
rate of pipeline rehabilitation and replacement. The remaining 
utilities did not meet their desired rates. Roughly half of the 
utilities actually rehabilitated or replaced 1 percent or less of their 
pipelines annually.

Utility managers also lack the information they need to manage their 
existing capital assets. According to our survey, many drinking water 
and wastewater utilities either do not have plans for managing their 
assets or have plans that may not be adequate in scope or content. 
Specifically, nearly one-third of the utilities did not have plans for 
managing their existing capital assets. Moreover, for the utilities 
that did have such plans, the plans in many instances did not cover all 
assets or did not contain one or more key elements, such as an 
inventory of assets, assessment criteria, information on the assets' 
condition, and the planned and actual expenditures to maintain the 
assets.[Footnote 13]

Comprehensive Asset Management Focuses on Efficiently Managing Capital 
Assets:

Comprehensive asset management has gained increasing recognition within 
the water industry as an approach that could give utilities the 
information and analytical tools they need to manage existing assets 
more effectively and plan for future needs. Using asset management 
concepts, utilities and other organizations responsible for managing 
capital infrastructure can minimize the total cost of designing, 
acquiring, operating, maintaining, replacing, and disposing of capital 
assets over their useful lives, while achieving desired service levels. 
Figure 1 shows some of the basic elements of comprehensive asset 
management and how the elements build on and complement each other to 
form an integrated management system.

Figure 1: Elements of Comprehensive Asset Management:

[See PDF for image]

[End of figure]

Experts within and outside the water industry have published manuals 
and handbooks on asset management practices and how to apply 
them.[Footnote 14] While the specific terminology differs, some 
fundamental elements of implementing asset management appear 
consistently in the literature.

* Collecting and organizing detailed information on assets. Collecting 
basic information about capital assets helps managers identify their 
infrastructure needs and make informed decisions about the assets. An 
inventory of an organization's existing assets generally should include 
(1) descriptive information about the assets, including their age, 
size, construction materials, location, and installation date; (2) an 
assessment of the assets' condition, along with key information on 
operating, maintenance, and repair history, and the assets' expected 
and remaining useful life; and (3) information on the assets' value, 
including historical cost, depreciated value, and replacement cost.

* Analyzing data to set priorities and make better decisions about 
assets. Under asset management, managers apply analytical techniques to 
identify significant patterns or trends in the data they have collected 
on capital assets; help assess risks and set priorities; and optimize 
decisions on maintenance, repair, and replacement of the assets. For 
example:

* Life-cycle cost analysis. Managers analyze life-cycle costs to decide 
which assets to buy, considering total costs over an asset's life, not 
just the initial purchase price. Thus, when evaluating investment 
alternatives, managers also consider differences in installation cost, 
operating efficiency, frequency of maintenance and repairs, and other 
factors to get a cradle-to-grave picture of asset costs.

* Risk/criticality assessment. Managers use risk assessment to 
determine how critical the assets are to their operations, considering 
both the likelihood that an asset will fail and the consequences--in 
terms of costs and impact on the organization's desired level of 
service--if the asset does fail.[Footnote 15] Based on this analysis, 
managers set priorities and target their resources accordingly.

* Integrating data and decision making across the organization. 
Managers ensure that the information collected within an organization 
is consistent and organized so that it is accessible to the people who 
need it. Among other things, the organization's databases should be 
fully integrated; for instance, financial and engineering data should 
be compatible, and ideally each asset should have a unique identifier 
that is used throughout the organization. Regarding decision making, 
all appropriate units within an organization should participate in key 
decisions, which ensures that all relevant information gets considered 
and encourages managers to take an organizationwide view when setting 
goals and priorities.

* Linking strategy for addressing infrastructure needs to service 
goals, operating budgets, and capital improvement plans. An 
organization's goals for its desired level of service--in terms of 
product quality standards, frequency of service disruptions, customer 
response time, or other measures--are a major consideration in the 
organization's strategy for managing its assets. As managers identify 
and rank their infrastructure needs, they determine the types and 
amount of investments needed to meet the service goals. Decisions on 
asset maintenance, rehabilitation, and replacement are, in turn, linked 
to the organization's short-and long-term financial needs and are 
reflected in the operating budget and capital improvement plan, as 
appropriate.

Implementing the basic elements of asset management is an iterative 
process that individual organizations may begin at different points. 
Within the water industry, for example, some utilities may start out by 
identifying their infrastructure needs, while other utilities may take 
their first step by setting goals for the level of service they want to 
provide. The interrelationship between the elements of asset management 
can alter an organization's strategy for managing its assets. For 
example, once an organization has completed a risk assessment, it may 
scale back its efforts to compile a detailed inventory of assets to 
focus initially on those assets determined to be critical. Similarly, 
as information on infrastructure needs and priorities improves, 
managers reexamine the level of planned investments, considering the 
impact on both revenue requirements and the level of service that can 
be achieved. According to advocates of asset management, while many 
organizations are implementing certain aspects of the process, such as 
maintaining an inventory of assets and tracking maintenance, these 
organizations are not realizing the full potential of comprehensive 
asset management unless all of the basic elements work together as an 
integrated management system.

Strategy for Adopting and Progress toward Implementing Comprehensive 
Asset Management Varies:

As the description of asset management indicates, implementing this 
approach is not a step-by-step, linear process. Asset management is an 
integrated system that utilities and other organizations can implement 
in a number of different ways, depending on what makes sense for their 
particular organization. In the United States, some drinking water and 
wastewater utilities, for example, are taking a more strategic 
approach, initially investing their resources in planning for asset 
management. Other utilities are focusing initially on collecting data. 
Another variation is that some utilities are adopting asset management 
on a utilitywide basis, while others are piloting the approach at a 
single facility or department or are targeting critical assets 
utilitywide. The level of sophistication with which asset management 
concepts are applied within a utility can also vary, depending on the 
size and complexity of the operations and the resources that the 
utility can devote to implementation.

Comprehensive asset management is a relatively new concept for drinking 
water and wastewater utilities in the United States. According to EPA 
and major water industry organizations, few utilities are implementing 
comprehensive asset management, and those that have done so are almost 
exclusively larger entities. In addition, for the most part, the 
domestic utilities that have adopted asset management are in the early 
stages of implementation. Few utilities have been involved in the 
process for longer than 2 to 3 years.

Although relatively new to the U.S. water industry, comprehensive asset 
management has been used for about 10 years by water utilities in 
Australia and New Zealand, where the national governments have strongly 
endorsed the concept. In each case, the driving force behind the use of 
asset management was legislation that called for water utilities to 
improve their financial management. In Australia, the law requires 
utilities to recover the full cost of service, while in New Zealand the 
law requires utilities to depreciate their assets annually and use 
cost-benefit analysis, among other things. The national governments of 
Australia and New Zealand each published guidebooks on asset 
management, and engineering groups in the two countries jointly 
developed a comprehensive manual on managing infrastructure 
assets.[Footnote 16]

Asset management is seen as a means of improving utility infrastructure 
elsewhere in the world. For example, in the United Kingdom, utilities 
must develop asset management plans that identify the level of 
investment required to maintain and improve capital assets every 5 
years; annual audits help ensure that planned improvements are made. 
Similarly, in 2002, the legislature in Ontario, Canada enacted a law 
requiring municipalities to develop plans for recovering the full cost 
of service to ensure that drinking water and wastewater systems are 
adequately funded.

Objectives, Scope, and Methodology:

The Ranking Minority Member, Senate Committee on Environment and Public 
Works, asked us to examine the use of comprehensive asset management at 
drinking water and wastewater utilities in the United States. This 
report examines (1) the potential benefits of asset management for 
water utilities and the challenges that could hinder its implementation 
and (2) the role that the federal government might play in encouraging 
utilities to implement comprehensive asset management.

To conduct our work, we reviewed relevant studies, handbooks, training 
materials, and other documents related to comprehensive asset 
management and its implementation, particularly for managing the 
infrastructure at drinking water and wastewater utilities. At the 
federal level, we obtained information from EPA's Office of Ground 
Water and Drinking Water and Office of Wastewater Management, the 
offices that, along with the states, are responsible for overseeing 
drinking water and wastewater utilities. We also obtained information 
on other federal agencies with experience in asset management, 
predominantly the Federal Highway Administration in the U.S. Department 
of Transportation, and financial standards promulgated by the 
Governmental Accounting Standards Board. For site-specific 
information, our review included over 50 individual utilities from the 
United States, Australia, and New Zealand--including 15 U.S. utilities 
at which we conducted structured interviews.

Other sources of information included the following:

* state associations, including the Association of State Drinking Water 
Administrators and the Association of State and Interstate Water 
Pollution Control Administrators;

* major industry groups, including the American Public Works 
Association, American Water Works Association, Association of 
Metropolitan Sewerage Agencies, Association of Metropolitan Water 
Agencies, National Association of Water Companies, National Rural Water 
Association, Water Environment Federation, and Water Services 
Association of Australia;

* engineering and consulting firms with experience in helping utilities 
implement asset management, including Brown and Caldwell; CH2M Hill; 
Metcalf and Eddy, Inc.; Municipal and Financial Services Group; PA 
Consulting Group; and Parsons Corporation in the U.S.; GHD Pty. Ltd. in 
Australia; and Meritec in New Zealand;

* several state and regional regulatory agencies in Australia and New 
Zealand; and:

* EPA-funded state and university-based training and technical 
assistance centers.

To obtain information on the benefits and challenges of asset 
management, we conducted initial interviews with 46 domestic drinking 
water and wastewater utilities that knowledgeable government and water 
industry officials identified as implementing comprehensive asset 
management. To obtain more detailed information, we conducted 
structured interviews with officials from 15 of the 46 utilities. We 
selected the 15 utilities based on two criteria: (1) they reported or 
anticipated achieving quantitative benefits from asset management or 
(2) they represented smaller entities.[Footnote 17] (See app. I for a 
list of the 15 utilities we selected for structured interviews.) In 
total, 12 of the 15 utilities were relatively large, serving 
populations ranging from 300,000 to 2,500,000; the remaining three were 
significantly smaller, serving populations ranging from 3,000 to 
67,100. Because of the small number of utilities that we interviewed in 
depth and the way in which they were selected, our results are not 
generalizable to the larger universe of domestic drinking water and 
wastewater utilities.

Because of the utilities' limited experience in implementing asset 
management, we supplemented the information obtained from domestic 
utilities with information from six utilities and five government 
agencies in Australia and New Zealand, two countries that have taken 
the lead in implementing comprehensive asset management. (See app. II 
for a list of the utilities and government agencies we contacted in 
Australia and New Zealand.) Outside the water industry, we consulted 
with the Private Sector Council, which identified two companies--The 
Gillette Company and SBC Communications, Inc.--with long-standing 
experience in using comprehensive asset management in their respective 
fields. We interviewed officials from these companies to obtain their 
perspectives on the benefits and challenges of implementing asset 
management.

For information on the potential federal role in promoting asset 
management at water utilities, we obtained information from EPA's 
Office of the Chief Financial Officer, Office of Ground Water and 
Drinking Water, and Office of Wastewater Management on the activities 
that EPA is currently sponsoring, including the development of 
informational materials on asset management; activities by EPA-funded, 
state and university-based training and technical assistance centers; 
and various studies and research projects. We also discussed options 
for a federal role in promoting asset management with officials from 
water industry associations, EPA, and the 15 utilities selected for 
structured interviews. In addition, with the help of organizations and 
officials experienced in asset management, we identified the U.S. 
Department of Transportation as being at the forefront of federal 
involvement in this issue. We obtained and reviewed information about 
the department's initiatives from the Office of Asset Management within 
the Federal Highway Administration.

We conducted our work between March 2003 and March 2004 in accordance 
with generally accepted government auditing standards.

Comments from the Environmental Protection Agency:

We provided a draft of this report to EPA for review and comment. We 
received comments from officials within EPA's Office of Water and 
Office of the Chief Financial Officer, who generally agreed with the 
information presented in the report and our recommendations. They 
further noted that while EPA has played a major role in bringing asset 
management practices to the water industry, significant additional 
activity could be undertaken, and they have placed a high priority on 
initiating activities similar to those we suggested. The officials also 
made technical comments, which we incorporated as appropriate.

[End of section]

Chapter 2 Water Industry Officials Report Many Benefits from Asset 
Management Despite Implementation Challenges:

[End of section]

While comprehensive asset management is relatively new to most drinking 
water and wastewater utilities in the United States, some utilities say 
they have already benefited from this approach and have also 
encountered certain challenges. The utilities reported benefiting from 
(1) improved decision making because they have better information about 
their capital assets and (2) improved relationships with governing 
authorities, ratepayers, and other stakeholders because they are better 
able to communicate information on infrastructure needs and improvement 
plans. While water industry officials identified benefits associated 
with comprehensive asset management, we found that reported savings 
should be viewed with caution.

Among the challenges of implementing asset management, utility 
officials cited the difficulty of (1) collecting the appropriate data 
and managing it efficiently and (2) making the cultural changes 
necessary to integrate information and decision making across 
departments. In addition, the officials reported that the short-term 
budget and election cycles typical of utility governing bodies make it 
difficult to meet the long-term capital investment planning needs of 
asset management. Although smaller utilities face more obstacles to 
implementing asset management than larger utilities, principally 
because of limited resources, they can also benefit from applying asset 
management concepts.

Utilities Cite Many Benefits from Asset Management and Some Cautions 
About Reported Savings:

U.S. utilities expect to reap significant benefits from the data they 
collect, analyze, and share through an asset management approach. With 
these data, utilities expect to make more informed decisions on 
maintaining, rehabilitating, and replacing their assets, thereby making 
their operations more efficient. Utilities can also use these data to 
better communicate with their governing bodies and the public, which 
should help them to make a sound case when seeking rate increases. 
Although water industry officials identified financial and other 
benefits from using asset management, reported savings should be viewed 
with caution because, for instance, comprehensive asset management may 
be implemented concurrently with other changes in management practices 
or operational savings may be offset by increases in capital 
expenditures.

Comprehensive Asset Management Can Improve Decisions about Maintaining, 
Rehabilitating, and Replacing Capital Assets:

Collecting, sharing, and analyzing data through comprehensive asset 
management can help utilities to make more informed decisions about 
maintaining, rehabilitating, and replacing their assets. In particular, 
utilities can use the information collected and analyzed to prevent 
problems and allocate their maintenance resources more effectively. For 
example:

* Better information enabled the Massachusetts Water Resources 
Authority to improve its maintenance decisions and eliminate some 
unneeded maintenance activities.[Footnote 18] For example, in an effort 
to optimize maintenance practices in one of their treatment plants, 
utility officials reassessed maintenance practices for 12 equipment 
systems, such as different types of pumps. By using the assessment 
results to improve maintenance planning for these assets, the utility 
decreased the labor hours spent on preventive maintenance by 25 percent 
from the hours recommended by the original equipment manufacturers, 
according to utility officials. Similarly, in analyzing its maintenance 
practices, the Massachusetts Water Resources Authority found it was 
lubricating some equipment more often than necessary. By decreasing the 
frequency of oil changes, the utility reported it saved approximately 
$20,000 in oil purchase and disposal costs. In addition, the utility 
extended the life of its assets by decreasing the lubrication--over-
lubrication can cause equipment parts to fail prematurely.

* Seattle Public Utilities used asset management to better target its 
maintenance resources.[Footnote 19] As part of the utility's asset 
management strategy, officials used a risk management approach, 
calculating the likelihood and impact of a rupture for the utility's 
sewer and drainage pipes. To determine the likelihood of rupture, 
officials considered such factors as a pipe's age, material, and 
proximity to a historical landfill or steep slope. To determine the 
impact of a rupture, they examined factors such as a pipe's size, 
location, and historical cost of repair. As a result of this analysis, 
utility officials identified 15 percent of their pipes as high risk, or 
"critical"--such as larger, older pipes located beneath downtown 
Seattle. They shifted resources to maintain and rehabilitate these 
pipes. The officials considered the remaining 85 percent of pipes as 
noncritical, or, lower risk, because their failure was less likely or 
because a breakage would affect a limited number of customers, be 
repaired relatively quickly, and require minimal resources. For these 
pipes, the utility decided not to perform any preventive maintenance 
activities, only making repairs as needed. By taking this approach, 
utility officials believe they are using their staff resources more 
efficiently and that, over time, they will reduce their maintenance 
costs.

Comprehensive asset management also helps managers to make more 
informed decisions about whether to rehabilitate or replace assets, and 
once they decide on replacement, to make better capital investment 
decisions. For example:

* According to utility managers at the Louisville Water Company, the 
utility developed its Pipe Evaluation Model in the early 1990s as a 
tool for ranking its 3,300 miles of aging pipes and water mains for 
rehabilitation and replacement.[Footnote 20] The pipe program includes 
many of the key principles and practices of comprehensive asset 
management: for instance, it integrated data about the age of the pipes 
with data about their maintenance history. In analyzing this 
information, managers discovered that two vintages of pipes--those 
built between 1862 and 1865 and between 1926 and 1931--had the highest 
number of breaks per 100 miles of pipeline. Consequently, they decided 
to replace the pipes from those two periods. The model also showed that 
pipes installed between 1866 and 1925 were fairly reliable, thus these 
pipes were targeted for rehabilitation rather than replacement. The 
utility is lining the interior of these pipes with cement, which is 
expected to extend their life by about 40 years. Furthermore, utility 
managers told us that their pipe model and other practices that use 
asset management principles have helped reduce the frequency of water 
main breaks from 26 to 22.7 per hundred miles and the frequency of 
leaks from joints from 8.2 to 5.6 per hundred miles.

* In implementing its asset management approach, managers at the 
Sacramento Regional County Sanitation District reassessed a proposed 
investment in new wastewater treatment tanks and decided on a less 
expensive option, thereby saving the utility approximately $12 
million.[Footnote 21] During this reassessment, managers found that 
increasing preventive maintenance on existing tanks would lower the 
risk of shutdown more cost-effectively than adding a new set of tanks. 
Utility officials commented that their implementation of asset 
management helped change their decision-making process by, among other 
things, bringing together staff from different departments to ensure 
more complete information, and more effectively using the data to 
understand investment options.

* As a part of its asset management strategy, Seattle Public Utilities 
established an asset management committee, comprised of senior 
management from various departments, to ensure appropriate decision 
making about the utility's capital improvement projects. For every 
capital improvement project with an expected cost over $250,000, 
project managers must submit a plan to the committee that (1) defines 
the problem to be solved, (2) examines project alternatives, (3) 
estimates the life-cycle costs of the alternatives, (4) analyzes the 
possible risks associated with the project, and (5) recommends an 
alternative. According to utility officials, implementing this process 
has led to deferring, eliminating, or altering several capital 
improvement projects, and contributing to a reduction in the utility's 
2004 capital improvement project budget for water of more than 8 
percent. For instance, after drafting new water pressure standards, the 
utility eliminated the need for some new water mains. It developed an 
alternative plan to provide more localized solutions to increase water 
pressure, resulting in expected savings of $3 million. In another case, 
the utility reassessed alternatives to replacing a sewer line located 
on a deteriorating trestle, ultimately opting to restore and maintain 
the existing wood trestle and make spot repairs to the sewer line, 
which resulted in an estimated savings of $1.3 million.

Finally, comprehensive asset management helps utilities share 
information across departments and coordinate planning and decision 
making. In this way, utility managers can reduce duplication of efforts 
and improve the allocation of staff time and other resources. For 
example, managers at Eastern Municipal Water District used asset 
management to improve their business practices, which they saw as 
compartmentalized and inefficient.[Footnote 22] In one instance, they 
examined their decentralized maintenance activities. The utility had 
two maintenance crews who worked throughout the system, in different 
shifts and reported to managers at four different facilities. In 
addition, the utility's work order system was inefficient; for example, 
when different crew members independently reported the same maintenance 
need, managers did not notice the duplication because the problem was 
described in different terms (e.g., as a "breaker failure" by one crew 
member and as a "pump failure" by another). Finally, in some instances, 
work crews would arrive at a site only to find that needed maintenance 
work had already been completed. To improve the system, utility 
officials (1) centralized maintenance by making one person responsible 
for scrutinizing and setting priorities for all work orders and (2) 
established a standardized classification of assets, which helped 
maintenance staff use the same terminology when preparing work orders. 
Utility officials report that taking these steps allowed them to 
identify and eliminate work orders that were unnecessary, already 
completed, or duplicates, which ultimately reduced their maintenance 
work backlog by 50 percent.

The private sector companies we visited agreed that using a 
comprehensive asset management approach improved their decision making. 
Specifically, by improving their data, analyzing these data, and 
centralizing management decision making, managers at SBC 
Communications, Inc., reported that they have made better capital 
investment decisions and allocated resources more efficiently. Managers 
at The Gillette Company reported that they consider life-cycle costs 
and other factors to assess investment alternatives and, ultimately, 
make better investment decisions.

Comprehensive Asset Management Can Help Utilities Justify Rate 
Increases and Proposed Projects to Their Customers and Governing 
Bodies:

The utilities we contacted reported that comprehensive asset management 
also benefits their relations with external stakeholders by (1) making 
a sound case for rate increases to local governing bodies and 
ratepayers; (2) improving their bond rating with credit rating 
agencies, and (3) better demonstrating compliance with federal and 
state regulations.

Making a Sound Case for Rate Increases:

Some utilities have used, or expect to use, the information collected 
through comprehensive asset management to persuade elected officials to 
invest in drinking water and wastewater infrastructure through rate 
increases. For example, the Louisville Water Company reported that in 
the early 1990s it used the asset information it had gathered and 
analyzed to convince its local governing board that its current rates 
would not cover its expected costs and that the utility needed a rate 
increase to cover its anticipated rehabilitation and replacement needs. 
The board approved a set-aside of $600,000 for an infrastructure 
rehabilitation and replacement fund as a part of the requested rate 
increase in 1993, and, according to one utility official, has been 
supportive of including funds for asset rehabilitation and replacement 
as a part of rate requests since then. Furthermore, the utility manager 
requested that the amount of the set-aside gradually increase to $3 
million over the next 5 years. According to this official, the board 
not only approved this request, it also increased the rates to support 
the fund sooner than the utility manager had requested. According to 
several other utilities that have begun to implement comprehensive 
asset management, this approach should enable them to justify needed 
rate increases from their governing bodies. Similarly, Australian and 
New Zealand officials we interviewed stated that the data from asset 
management helps utilities make a more credible case for rate increases 
from their governing bodies.

Utility managers can also use the information they provide to their 
governing boards as a basis for evaluating and deciding on trade-offs 
between service levels and rates. For example, according to an official 
at South Australian Water Corporation, using asset management 
practices, he was able to suggest a range of funding alternatives to 
the utility's governing body.[Footnote 23] The utility managers 
conducted statistical modeling on the asset information they collected 
(e.g., pipe performance history and financial information) and, using 
this analysis, predicted the approximate number of pipe breaks at 
various levels of funding. Understanding the trade-offs between lower 
rates and higher numbers of pipe breaks, the governing body could make 
an informed decision about what the appropriate level of service was 
for their community.

Improving the Bond Rating:

Comprehensive asset management also has the potential to improve a 
utility's bond rating, a benefit that translates into savings through 
lower interest rates on loans and bonds. When deciding on a utility's 
bond rating, credit rating agencies consider criteria related to 
comprehensive asset management, such as the utility's management 
strategies and its planning for asset replacement. For example, 
according to a representative from one credit rating agency, asset 
management shows that a utility is considering future costs. He would 
therefore expect a utility with an asset management plan that looks at 
future capital and operating costs and revenues to receive a higher 
bond rating than a utility that does not sufficiently consider those 
future needs, even if that utility has a better economy and a higher 
tax base.

Some local officials believe that comprehensive asset management played 
a role in the bond ratings they received, or will do so in the future. 
For example, the finance director of the small northeastern city of 
Saco, Maine, told us that she believes that the city's decision to use 
asset management practices--such as maintaining an up-to-date asset 
inventory, periodically assessing the condition of the assets, and 
estimating the funds necessary to maintain the assets at an acceptable 
level each year--contributed to the credit rating agencies' decision to 
increase the city's bond rating, which resulted in an expected savings 
of $2 million over a 20-year period.[Footnote 24] Similarly, a utility 
official at Louisville Water Company told us that asset management 
practices, such as strategically planning for the rehabilitation and 
replacement of its aging assets, helps the utility maintain its strong 
bond rating.

Better Demonstrating Compliance with Federal and State Regulations:

According to several utility managers we interviewed, comprehensive 
asset management can be used to help comply with regulations. For 
example:

* Comprehensive asset management practices played a role in improving 
their utility's compliance with existing regulations. Specifically, 
among other things, asset management practices such as identifying and 
maintaining key assets led to fewer violations of pollutant discharge 
limitations under the Clean Water Act. At Western Carolina Regional 
Sewer Authority, for instance, the number of these violations decreased 
from 327 in 1998 (about the time that the utility began implementing 
asset management) to 32 violations in 2003.[Footnote 25]

* At the Charleston Commissioners of Public Works,[Footnote 26] utility 
officials told us that if they had not had asset management in place it 
would be difficult to meet the rehabilitation program and maintenance 
program elements of EPA's draft capacity, management, operation, and 
maintenance regulations for wastewater utilities.[Footnote 27] For 
instance,the draft regulations would require that wastewater utilities 
identify and implement rehabilitation actions to address structural 
deficiencies. Because the utility has implemented asset management 
practices, such as assessing the condition of its pipes and identifying 
those most in need of rehabilitation, it can better target its 
resources to rehabilitate pipes in the worst condition, and, in the 
process, meet the proposed standards for rehabilitation.

Although Water Industry Officials Identified Financial and Other 
Benefits from Asset Management, Reported Savings Should Be Viewed with 
Caution:

Many of the U.S. utilities we interviewed were still in the early 
stages of implementing asset management and most had not measured 
financial savings. However, many water industry officials expect asset 
management to result in overall cost savings. Specifically, several 
officials told us they expect that asset management will slow the rate 
of growth of utilities' capital, operations, and maintenance costs over 
the coming years. Nevertheless, total costs will rise because of the 
need to replace and rehabilitate aging infrastructure.

At least one U.S. utility has estimated the overall savings it will 
achieve using comprehensive asset management. Specifically, an 
engineering firm projected that asset management would reduce life-
cycle costs for the Orange County Sanitation District by about $350 
million over a 25-year period.[Footnote 28] Among other data, the 
engineering firm used the utility's available operating expenditure 
information (operations, maintenance, administration, and depreciation 
data) and capital improvement program expenditures (growth/capacity, 
renewal/replacement, and level of support data) to model the projected 
life-cycle cost savings.

Additionally, some of the Australian utilities we interviewed reported 
financial savings. For example, officials at Hunter Water Corporation 
reported significant savings in real terms between fiscal years 1990 
and 2001: a 37 percent reduction in operating costs;[Footnote 29] 
improved service standards for customers, as measured by such factors 
as water quality and the number of sewer overflows; and a reduction of 
more than 30 percent in water rates for customers.[Footnote 30] Hunter 
Water officials believe that they achieved these efficiencies as a 
result of asset management.

Though utility officials have made some attempts to quantify the impact 
of asset management, they also cited reasons for exercising caution in 
interpreting reported savings and other benefits. First, benefits such 
as operating cost reductions should not be considered in isolation of 
other utility costs. A utility cannot consider reductions in operating 
costs a net benefit if, for instance, savings in operational costs are 
offset by an increase in the utility's capital expenditures. 
Furthermore, reductions in operating costs may be caused by increases 
in capital expenditures because, for example, newer assets may require 
less maintenance and fewer repairs. In the case of the Hunter Water 
Corporation, the utility's capital expenditures were at about the same 
level in 2001 as in 1991, despite some fluctuation over the 
period.[Footnote 31]

Second, other factors might have contributed to financial and other 
benefits. For example, a utility may be implementing other management 
initiatives concurrently with asset management and may not be able to 
distinguish the benefits of the various initiatives. In addition to 
using an asset management approach, for instance, some U.S. utilities 
we interviewed used an environmental management system, which shares 
some of the same components as asset management.[Footnote 32] Some of 
these utilities told us that they could not separate the benefits of 
asset management from those achieved as a result of their environmental 
management systems.

In addition, reported savings from asset management can be misleading 
without complete information on how the savings estimates are derived. 
For example, a widely distributed graph shows an estimated 15 percent 
to 40 percent savings in life-cycle costs for 15 wastewater utilities 
in Australia. EPA and others used the graph as a basis for projecting 
savings for U.S. utilities. However, the graph was mislabeled at some 
point--the reported reductions in life-cycle costs were actually 
reductions in operating costs.[Footnote 33] As we have already noted, 
operating costs reductions alone do not provide enough information to 
determine the net benefit of implementing asset management.

Utilities Face Challenges in Successfully Implementing Comprehensive 
Asset Management:

Despite the acknowledged benefits of comprehensive asset management, 
utilities face three key challenges that may make implementing this 
approach difficult. First, to determine the condition of current assets 
and the need for future investment, utilities have to gather and 
integrate complete and accurate data, which may require significant 
resources. Second, successful implementation requires cultural change-
-departments long accustomed to working independently must be willing 
to coordinate and share information. Finally, utilities may find that 
their efforts to focus on long-term planning conflict with the short-
term priorities of their governing bodies. These three challenges may 
be more difficult for smaller utilities because they have fewer 
financial, staff, and technical resources.

Asset Management Requires Utilities to Collect Complete and Accurate 
Data:

The difficulties utilities experience gathering data to implement asset 
management depend on the (1) condition of their existing data, (2) 
ability to coordinate existing data across departments, (3) need to 
upgrade technology, and (4) ability to sustain complete and accurate 
data. One industry official noted that larger utilities, in particular, 
may have a more difficult time gathering and coordinating data because 
they typically possess a substantial number of assets. Nevertheless, 
utility officials and water association representatives agree that 
utilities should not allow these data challenges to prevent them from 
implementing asset management. These officials emphasized that 
utilities should begin implementing asset management by using the data 
they already possess, continuing data collection as they perform their 
routine repair and maintenance activities, or focusing data collection 
efforts on their most critical assets.

Existing Data May Be Incomplete and Inaccurate:

Domestic and international water officials emphasize the importance of 
obtaining, integrating, and sustaining good data for decision making. 
This is no small challenge. According to the Association of 
Metropolitan Sewerage Agencies and the International Infrastructure 
Management Manual, utilities generally need the following types of data 
to begin implementing asset management:

* age, condition, and location of the assets;

* asset size and/or capacity;

* valuation data (e.g., original and replacement cost);

* installation date and expected service life;

* maintenance and performance history; and:

* construction materials and recommended maintenance practices.

According to utility officials and industry handbooks, utilities 
sometimes have incomplete or inaccurate historical data about their 
assets. For example:

* An official at the Augusta County Service Authority noted that the 
utility did not possess a great deal of detailed historical data about 
its assets.[Footnote 34] For example, its asset ledger would indicate 
that "a pump station was installed at a particular location in 1967," 
but would not provide any additional information about the assets, such 
as the individual components that make up this system. Similarly, the 
official told us that the utility's prior billing system did not 
maintain historical data about its customers' water usage rates. As a 
result, the management team found it difficult to adequately forecast 
their needed rate increases because they lacked historical information 
about water consumption.

* According to an East Bay Municipal Utility District official, the 
utility lacked detailed maintenance data on its assets before 1990 
because maintenance workers had not consistently reported repairs to a 
central office.[Footnote 35]

Given these problems, utility managers may have to invest a significant 
amount of time and resources to gather necessary data, particularly 
data about the condition of their thousands of miles of buried 
pipelines. Understandably, utilities are unwilling to dig up their 
pipelines to gather missing data. However, utilities may be able to 
derive some information about the condition of these pipes to the 
extent they have information on the pipes' age, construction material, 
and maintenance history. In addition, utilities may choose to align 
their data collection with their ongoing maintenance and replacement 
activities. These approaches, however, may require new technology, 
which may mean a financial investment. For example:

* Tacoma Water equipped its staff with laptop computers, which allows 
them to access their geographic information system--software that can 
track where assets are located--while they are in the field.[Footnote 
36] As the staff perform their routine repair and rehabilitation 
activities, they can record and update data about an asset's condition, 
performance, and maintenance history.

* Similarly, the Department of Public Works in Billerica, 
Massachusetts, provided its field staff with handheld electronic 
devices programmed with a simple data collection template, which allows 
its staff to more accurately record information about its assets and 
their condition.[Footnote 37] Consequently, the field staff can enter 
more accurate information about the utility's assets into its central 
asset inventory.

Utilities also reported difficulty collecting and applying information 
about the manufacturer's recommended techniques for optimizing their 
maintenance practices for their assets. Since no central clearinghouse 
of information on optimal maintenance practices is readily available, 
these utilities have had to invest their own time and resources to 
develop this information. For example:

* According to an official at Des Moines Water Works, the utility 
discovered that the manufacturer's recommended maintenance practices 
often conflicted with the utility's experience with the same 
asset.[Footnote 38] This official pointed out that the manufacturer's 
estimate for maintenance was always higher than the utility's 
experience. Given these inconsistencies, the official noted, all 
utilities would benefit from the development of a central industry 
clearinghouse that provided information about the recommended 
maintenance practices for certain assets.

* Similarly, an official at East Bay Municipal Utility District noted a 
significant difference between the manufacturer's recommended 
maintenance practices and the utility's experience with optimized 
maintenance. As a result, the utility has invested a significant amount 
of time in developing optimal maintenance practices for its assets and 
minimizing the risk of asset failure.

While utilities need complete and accurate data for decision making, 
they also need to balance data collection with data management. 
Utilities may fall prey to data overload--collecting more data than 
they have the capacity to manage. For example, according to an official 
at the Augusta County Service Authority, while the utility has 
collected extensive infrastructure data, it has not invested enough of 
its resources into making these data useful for decision making. This 
official told us that utilities need to develop a data management 
strategy that identifies the types of data they need and the uses of 
these data for decision making. Without such a strategy, utilities 
gathering data will reach a point of diminishing returns. According to 
an official at the National Asset Management Steering Group in New 
Zealand, utilities should begin to implement asset management by 
identifying their critical assets and targeting their data-gathering 
activities toward the critical information they need in order to make 
decisions about these assets. An official also recommended that 
utilities begin implementation by using their existing data--even 
though the data may not be completely accurate--and refine this 
information as they improve and standardize their data collection 
processes.

Coordinating Data Across Departments May Be Difficult:

According to utility officials, coordinating data can be difficult 
because the data come from several different departments and from 
different sources within the departments. Furthermore, one industry 
handbook notes that a utility's departments typically maintain 
different types of data about the same assets, which are formatted and 
categorized to meet each department's individual needs and 
objectives.[Footnote 39] For example, the finance department may record 
an asset's size in terms of square footage, while the engineering 
department may define an asset's size in terms of pipeline diameter. 
Utilities adopting asset management need to coordinate these data to 
develop a central asset inventory. Table 2 shows the typical sources of 
data for a central inventory.

Table 2: Typical Sources of Data for a Central Asset Inventory:

Department maintaining data: Operations and Maintenance; 
Source of data: Operations and maintenance manuals; 
Types of data that may be available: Location, size, manufacturer, and 
materials of construction.

Department maintaining data: Operations and Maintenance; 
Source of data: Maintenance management system; 
Types of data that may be available: Location, size, manufacturer, 
materials of construction, performance history, maintenance history, 
and original cost.

Department maintaining data: Operations and Maintenance; 
Source of data: Records of original asset drawings; 
Types of data that may be available: Location, size, manufacturer, and 
materials of construction.

Department maintaining data: Engineering; 
Source of data: Geographic information system; 
Types of data that may be available: Location, size, and materials of 
construction.

Department maintaining data: Engineering; 
Source of data: Records of original asset drawings; 
Types of data that may be available: Location, size, manufacturer, and 
materials of construction.

Department maintaining data: Finance; 
Source of data: Fixed asset inventory; 
Types of data that may be available: Size (e.g., square footage or 
acreage), installation date, and estimated value. 

Source: GAO.

Note: Summary of material from two industry handbooks, Managing Public 
Infrastructure Assets to Minimize Cost and Maximize Performance and the 
International Infrastructure Management Manual.

[End of table]

Utility managers told us it was challenging to develop a standard data 
format for their central asset inventories. For example:

* As previously noted, Eastern Municipal Water District's work order 
system was inefficient because crew members from different facilities 
did not use the same terms in describing maintenance problems. To 
eliminate these inefficiencies, the utility invested a great deal of 
time and resources to standardize its terms and asset classification 
and implement a computerized maintenance management system.

* According to a Louisville Water Company official, improving and 
validating the utility's data was a challenge. Over the years, the 
utility has acquired between 12 and 20 smaller utilities. Each of these 
smaller utilities maintained its own asset data, which were not always 
reliable or maintained in the same format. The utility invested a great 
deal of time to validate these data and coordinate them into its 
central asset inventory.

* Similarly, according to an official at the South Australian Water 
Corporation, developing a central asset inventory was particularly 
difficult because each of the utility's departments used different 
terms to refer to the same asset. The utility refined its data 
collection practices by training its employees on how to record data in 
a standard format.

Utilities May Need to Upgrade Their Technology:

The utility officials we spoke to also had to address problems in 
coordinating data maintained in different and incompatible software 
programs. A Water Environment Research Foundation survey of utility 
managers, regulators, and industry consultants cited developing an 
asset information management system that meets the needs of all users 
as the most difficult element of asset management to implement. Without 
an integrated information management system, utilities found it 
difficult to develop data for decision making, and they found that they 
had to invest time and money to enter these data into a central 
database. For example:

* According to a Greater Cincinnati Water Works official, the utility 
wanted to integrate information about its assets' location and 
maintenance history to efficiently dispatch staff to repair 
sites.[Footnote 40] However, the data for this report were stored in 
two separate and incompatible computer systems. To produce this 
information, the utility needed to re-enter the relevant data from each 
of these systems into a central asset database.

* Similarly, an official at Melbourne Water Corporation said that as 
his utility began to adopt asset management, it realized that it 
maintained relevant data in different computer systems, such as its 
computerized maintenance management system and its geographic 
information system.[Footnote 41] To address this fragmentation, the 
utility had to assign staff to consolidating its data into a central 
database to allow for easy integration.

As utilities coordinate their data systems, they may need to upgrade 
their existing technology, which can represent a significant financial 
investment. For example, Augusta County Service Authority has requested 
$100,000 to purchase data integration software, which would allow it to 
coordinate information from several different computer systems. 
However, as of September 2003, this request had not been approved, in 
part because the software may not directly affect the utility's profits 
or improve its service, making the governing body reluctant to finance 
the purchase. Similarly, St. Paul Regional Water Services recognized 
that it would need to purchase a geographic information system as the 
basis for integrating all departments' data.[Footnote 42] However, the 
official noted that the utility could not purchase this system for 
another 4 years because it would cost several million dollars to 
purchase the system, enter data, and train its staff to operate the new 
system.

Utilities Face Challenges in Maintaining Complete and Accurate Data:

As utilities continue to obtain and integrate data, they still face the 
challenge of maintaining complete and accurate data about their assets. 
The International Infrastructure Management Manual notes that data 
collection is a continuous process and that utilities need to remain 
consistent in gathering data and updating their central asset inventory 
as they repair, replace, or add infrastructure. Regular updating 
ensures that the information remains useful over time. To sustain the 
benefits garnered from its efforts to compile an accurate inventory, 
the Eastern Municipal Water District adopted a policy whereby employees 
must document changes to the inventory whenever assets are added, 
repaired, or removed. The utility has also developed methods to enforce 
its policy to make sure that the inventory is updated as required.

Interdepartmental Coordination and Information Sharing Present 
Difficult Cultural Challenges:

According to industry officials, one of the major challenges to 
implementing asset management is changing the way utilities typically 
operate--in separate departments that do not regularly exchange 
information. It is essential to change this management culture, these 
officials believe, to encourage interdepartmental coordination and 
information sharing.

To encourage interdepartmental communication, utilities may have to 
train their employees in using the resources of other departments. For 
example, at the Orange County Sanitation District, the management team 
found it difficult to demonstrate to its employees that their job 
responsibilities do indeed affect the functions of the other 
departments. The utility's field staff possesses extensive information 
about the condition and performance of assets because they maintain 
these assets every day. However, these employees did not understand 
that the engineering department needs feedback on how the assets that 
the engineering department constructed are performing in the field. 
Such feedback could change future designs for these assets to improve 
their performance. As the utility implemented asset management, it 
established a work group to examine the conditions of asset failure, 
which provided a forum for the maintenance and engineering departments 
to collaborate. While this work group is still ongoing, one utility 
official noted that collaboration between these two departments will 
result in more efficient maintenance schedules for the utility's 
assets.

Similarly, the Eastern Municipal Water District reported that its 
middle-management team resisted some of the asset management changes 
because they believed these changes would limit their authority to 
manage their staff and workload. Before asset management, the utility 
maintained four different treatment facilities, each with its own 
maintenance staff. The utility believed that it could optimize its 
maintenance resources by combining all of the maintenance activities 
and staff at the four plants under one department. However, the 
managers at these treatment plants were reluctant to relinquish 
managerial control over their maintenance staff and feared that their 
equipment would be neglected. Once the new maintenance department was 
formed, however, these plant managers realized that centralizing these 
functions resulted in faster maintenance because the larger team could 
more effectively allocate time among the four facilities.

In some instances, utility employees may be reluctant to accept 
comprehensive asset management because it requires them to take on 
additional responsibilities when they are already pressed for time in 
their "day jobs." Additional time may indeed be necessary. According to 
officials at different utilities we visited, asset management requires 
staff throughout the organization to attend a variety of training 
programs--introductory, refresher, and targeted training by function or 
job--to ensure that they understand the value of asset management to 
both their own jobs and the operation of the utility.

Utilities' Efforts to Increase Focus on Long-Term Planning Conflict 
with Short-Term Priorities:

While asset management provides utilities with information to justify 
needed rate increases, their justifications may not be effective 
because their governing body and their customers want to keep rates 
low. According to utility officials, governing bodies' reluctance to 
increase rates may be linked to constituent pressure to hold down user 
rates. In 2002, we reported that 29 percent of drinking water and 41 
percent of wastewater utilities serving populations over 10,000 did not 
cover their full cost of service through user rates in their most 
recent fiscal year. Furthermore, about half of these utilities did not 
regularly increase their user rates; rather, they raised their user 
rates infrequently--once, twice, or not at all--from 1992 to 2001.

Utility officials and water industry organizations also note that 
utilities may have to respond to governing bodies' interests rather 
than to the long-term plan they developed using comprehensive asset 
management. For instance, while the Orange County Sanitation District's 
governing board has supported comprehensive asset management, it 
overrode utility plans for some capital projects and instead funded a 
$500 million secondary sewage treatment plant, which was not a utility 
priority. The board took this action in response to public concerns 
that the operating sewage plant was inadequate and had contaminated the 
water. A subsequent report showed, however, that the contamination more 
than likely did not result from an inadequate treatment plant. However, 
the utility will probably have to defer other priorities in order to 
design and build this new facility. In addition, the governing body may 
shift funding originally budgeted to implement the next phase of Orange 
County's asset management program to fund the new plant.

Several industry officials also pointed out that governing bodies for 
municipally owned utilities tend to make financial decisions about 
their drinking water and wastewater utilities in light of competing 
local needs that may be a higher priority for the electorate. One 
industry official also reported that locally elected officials tend to 
focus their efforts on short-term, more visible projects, while utility 
managers must focus on sustaining the utility's operation in the long 
term. For example, a utility's governing body may decide to forgo 
infrastructure repairs in order to build a new school or baseball 
field.

Smaller Utilities Can Benefit from Asset Management Despite Challenges 
Posed by Limited Resources:

Smaller utilities can also benefit from the improved data, 
coordination, and informed decision making that result from asset 
management. Although small utilities represent a substantial portion of 
the water and wastewater industry,[Footnote 43] officials recognize 
that these utilities may have more difficulty implementing asset 
management because they typically have fewer financial, technological, 
and staff resources. In addition, EPA has reported that small systems 
are less likely to cover their full cost of providing services because 
they have to spread their fixed infrastructure costs over a smaller 
customer base. However, EPA believes that comprehensive asset 
management will enable smaller systems to increase knowledge of their 
system, make more informed financial decisions, reduce emergency 
repairs, and set better priorities for rehabilitation and replacement.

Even the most rudimentary aspects of asset management can produce 
immediate benefits for small communities. For example, the Somersworth, 
New Hampshire, Department of Public Works and Utilities avoided a 
ruptured sewer main because it had collected data through its asset 
management initiative that mapped the location of critical 
pipelines.[Footnote 44] As a result, when a resident applied for a 
construction permit to build a garage, the utility determined that one 
critical pipeline lay in the path of the proposed construction and 
could rupture. Therefore, the city of Somersworth denied the permit.

Similarly, the Department of Public Works in Denton, Maryland, which 
provides both drinking water and wastewater services, obtained positive 
results from applying asset management concepts without having to 
invest in sophisticated software or perform a complicated analysis. In 
this case, Denton's city council was apprehensive about investing in 
new trucks for the utility even though some of the existing trucks were 
in poor condition. Council members believed that it would be less 
expensive to continue repairing the existing fleet. However, using data 
collected through their asset management initiative, utility managers 
were able to track the maintenance and depreciation costs associated 
with these vehicles. As a result, they could demonstrate to their 
governing body that it was more cost-effective to purchase new vehicles 
than to continue repairing the older trucks.

Because smaller utilities have fewer capital assets to manage, industry 
officials noted that these utilities can implement asset management by 
turning to low-cost alternatives that do not require expensive or 
sophisticated technology. The small utilities can implement asset 
management using their existing asset data and recording this 
information in a central location that can be accessed by all of its 
employees, such as a set of index cards or an Excel spreadsheet. 
Similarly, the utility can adopt the practices of asset management 
incrementally, by initially making asset decisions based on their 
existing data.

[End of section]

Chapter 3: EPA Can Encourage Water Utilities to Use Asset Management 
by Strengthening Existing Initiatives:

Opportunities exist for EPA to encourage water utilities' use of asset 
management by strengthening existing initiatives. Currently, EPA 
sponsors several initiatives to promote the use of asset management, 
such as training and informational materials, technical assistance, and 
research. While this is a good first step, the entities involved in 
these initiatives are not systematically sharing information within and 
across the drinking water and wastewater programs. With better 
coordination, however, EPA could leverage limited resources and reduce 
the potential for duplication within the agency. EPA could supplement 
its own efforts to disseminate information on asset management by 
taking advantage of similar efforts by other federal agencies, such as 
the Department of Transportation. Water industry officials also see a 
role for EPA in educating utility managers about how asset management 
can be a tool to help them meet regulatory requirements related to 
utility management. However, the officials raised concerns about the 
implications of mandating asset management as proposed in legislation 
being considered by the Congress.

EPA Sponsors Several Initiatives to Promote Utilities' Use of Asset 
Management:

Through partnerships with water industry associations and universities, 
EPA has supported the development of training and informational 
materials to help drinking water and wastewater utilities implement 
asset management. In particular, EPA contributed funding toward the 
development of a comprehensive industry handbook on asset management, 
which was published in 2002 under a cooperative agreement with the 
Association of Metropolitan Sewerage Agencies.[Footnote 45] The 
handbook lays out the principles of asset management and describes how 
utilities can use this approach to improve decision making, reduce 
costs, and ensure the long-term, high-level performance of their 
assets.

EPA has also sponsored materials specifically directed at small 
utilities. For small drinking water systems, EPA's Office of Ground 
Water and Drinking Water published a handbook in 2003 that describes 
the basic concepts of asset management and provides information on how 
to develop an asset management plan.[Footnote 46] In addition, to help 
entities such as mobile home parks and homeowners' associations that 
own and operate their own water systems, the office is developing a 
booklet on preparing a simple inventory of the systems' assets and 
assessing their condition.[Footnote 47] EPA's Office of Wastewater 
Management is funding the development of a "toolkit" by a university-
based training center to help small wastewater utilities implement 
asset management. The toolkit is currently being field tested and is 
scheduled for release in 2006. Among other things, it includes self-
audit instruments to help utility managers to analyze their systems' 
needs, training materials, and a summary of lessons learned in the 
field.

In addition to various informational materials on asset management, EPA 
has sponsored a number of training and technical assistance programs. 
For example, the Office of Wastewater Management, along with 
representatives from a major utility and an engineering firm, developed 
a 2-day seminar on asset management, which will be held at several 
locations around the country during fiscal year 2004. For smaller 
drinking water and wastewater utilities, EPA funds state and 
university-based centers that provide training and technical assistance 
to small utilities on a variety of matters, including asset management. 
Specifically:

* EPA's Office of the Chief Financial Officer funds nine university-
based "environmental finance centers" that assist local communities in 
seeking financing for environmental facilities, including municipal 
drinking water and wastewater utilities. In fiscal year 2003, the nine 
centers shared a total of $2 million in funding from the Office of the 
Chief Financial Officer; some centers also receive funds from EPA 
program offices for specific projects. According to an official in 
EPA's Office of Ground Water and Drinking Water, at least three of the 
finance centers have efforts related to asset management planned or 
underway to benefit drinking water utilities. For example, the centers 
at Boise State University and the University of Maryland provide on-
site and classroom training on establishing an asset inventory; 
collecting data on the age, useful life, and value of capital assets; 
recordkeeping; financing; and setting rates high enough to cover the 
full cost of service. Regarding the latter topic, Boise State's finance 
center developed a simplified software program, called CAPFinance, 
which can help smaller systems collect and analyze the data they need 
in order to set adequate user rates; much of this information can be 
used to create a rudimentary asset management program.

* Another eight university-based technical assistance centers receive 
funding under the Safe Drinking Water Act to help ensure that small 
drinking water systems have the capacity they need to meet regulatory 
requirements and provide safe drinking water. In fiscal year 2003, the 
eight centers shared about $3.6 million in funding from the Office of 
Ground Water and Drinking Water. According to an official from that 
office, three of the centers are holding workshops or developing 
guidance manuals that focus on sustaining the financial viability of 
small systems in some way; the official believes that much of this 
material is relevant to implementing asset management.

* The Office of Wastewater Management funds 46 state and university-
based environmental training centers under the Clean Water Act to train 
wastewater utility officials on financial management, operations and 
maintenance, and other topics. According to an official with EPA's 
wastewater program, one of the 46 centers is developing a series of six 
training courses to help small wastewater utilities implement some of 
the basic elements of asset management, such as inventorying system 
assets and assessing their condition.[Footnote 48] Once this effort is 
completed, the center will disseminate the course materials to the 
remaining 45 centers so that staff from the other centers will be able 
to teach the asset management courses to operators of small wastewater 
utilities across the country.

EPA has also funded research projects related to asset management. For 
example, one project--sponsored by EPA, the Water Environment 
Federation, and the Association of Metropolitan Sewerage Agencies--
examined the interrelationship between asset management and other 
management initiatives, such as environmental management systems, that 
have received some attention within the water industry.[Footnote 49] 
The project found that to varying degrees, the initiatives share a 
common focus on continuous improvement through self-assessment, 
benchmarking, and the use of best practices and performance measures. 
The final report, issued in September 2002, concluded that while the 
initiatives overlap substantially, they are generally 
compatible.[Footnote 50]

EPA also contributed $75,000 toward a 2002 report by the Water 
Environment Research Foundation, which summarized the results of a 2-
day workshop held to develop a research agenda for asset 
management.[Footnote 51] Workshop participants, who included utility 
managers, regulators, and industry consultants, identified areas in 
which they need improved tools and technical approaches, established 
criteria for evaluating asset management research needs, and identified 
and set priorities for specific research projects. According to the 
foundation's report, the workshop ultimately recommended 11 research 
projects, 2 of which will get underway in 2004. EPA is contributing 
$200,000 to one of these projects, which will develop protocols for 
assessing the condition and performance of infrastructure assets and 
predictive models for correlating the two. The foundation will fund the 
second project, which is scheduled to begin in March 2004, and will 
develop guidance on strategic planning for asset management. According 
to EPA, the second project will also develop a Web-based collection of 
best practices on asset management; utilities will be able to purchase 
licenses to gain access to the materials.

The remaining research projects identified in the workshop highlight 
the need for practical tools to help utilities implement the most 
fundamental aspects of asset management. They include projects to:

* establish methodologies for determining asset value, compiling 
inventories, and capturing and compiling information on the assets' 
attributes;

* develop methodologies for calculating life-cycle costs for 
infrastructure assets;

* construct predictive models for infrastructure assets that project 
life-cycle costs and risks;

* identify best practices for operating and maintaining infrastructure 
assets by asset category, condition, and performance requirements; and:

* identify best practices for integrating water and wastewater utility 
databases.

In addition, workshop participants recommended a project to assess the 
feasibility of establishing an Asset Management Standards Board for the 
drinking water and wastewater industry.

EPA's Efforts to Promote Asset Management Could Be Strengthened by 
Leveraging Ongoing Efforts Within and Outside the Agency:

EPA could build on its efforts to promote asset management at drinking 
water and wastewater utilities by better coordinating ongoing and 
planned initiatives in the agency's drinking water and wastewater 
programs. In addition, EPA could leverage the efforts of other federal 
agencies, such as the Department of Transportation, that have more 
experience in promoting asset management as well as informational 
materials and tools that could potentially be useful as EPA and the 
water industry develop similar materials.

Improving Coordination Within and Across Drinking Water and Wastewater 
Programs Could Help Maximize Limited Resources:

While some of EPA's efforts to promote the use of asset management, 
such as sponsoring the comprehensive industry handbook, have involved 
both the drinking water and wastewater communities, it appears that 
other efforts are occurring with little coordination between the 
drinking water and wastewater programs or other offices within EPA. For 
example, the Office of the Chief Financial Officer, the Office of 
Ground Water and Drinking Water, and the Office of Wastewater 
Management have funded parallel but separate efforts to develop 
handbooks, software, or other training materials to help small drinking 
water and wastewater utilities implement asset management or related 
activities such as improving financial viability. According to our 
interviews with EPA officials and representatives of the university-
based training and technical assistance centers, no central repository 
exists for EPA to track what the university-based centers are doing and 
ensure that they have the information they need to avoid duplication 
and take advantage of related work done by others. The centers that 
share information do so primarily within their own network, as in the 
case of the environmental finance centers, or share information on an 
ad hoc basis. As a result, the centers are likely to miss some 
opportunities to exchange information. Similarly, the drinking water 
and wastewater program offices do not regularly exchange information on 
what they or their centers are doing to develop informational 
materials, training, or technical assistance on asset management.

EPA officials explained that, to some extent, the organizational 
framework within which the centers operate contributes to limited 
information sharing and duplication of effort. As a result, EPA is not 
maximizing the resources it devotes to encouraging utilities' use of 
asset management. In the case of the environmental finance centers, for 
example, each one negotiates a work plan with the EPA regional office 
it serves. Although EPA headquarters also has some influence over what 
the centers work on, the centers primarily focus on regional priorities 
and work with the states within the regional office's jurisdiction. 
Occasionally, EPA's drinking water and wastewater program offices fund 
projects at the environmental finance centers that are independent of 
their regional work plans. For example, the drinking water program 
provided some funds to the center at Boise State to develop an 
evaluation tool that states can use to assess utilities' qualifications 
for obtaining financial assistance from state revolving loan funds. For 
the most part, however, the training and technical assistance centers 
operate autonomously and do not have a formal mechanism for regularly 
exchanging information among the different center networks or between 
the drinking water and wastewater programs.

EPA Could Supplement Its Efforts to Promote Asset Management by Using 
Information Available from Other Federal Agencies:

EPA has not taken advantage of the guidance, training, and 
implementation tools available from other federal agencies, which would 
help EPA leverage its resources. For the purposes of our review, we 
focused on the Department of Transportation's Federal Highway 
Administration because it has been involved in promoting asset 
management for about a decade and has been at the forefront of 
developing useful tools and training materials. In 1999, the Federal 
Highway Administration established an Office of Asset Management to 
develop tools and other materials on asset management and encourage 
state transportation agencies to adopt asset management programs and 
practices.

According to officials within the Office of Asset Management, the basic 
elements of asset management are the same regardless of the type of 
entity responsible for managing the assets or the type of assets being 
managed. Simply put, every organization needs to know the assets it 
has, their condition, how they are performing, and the costs and 
benefits of alternatives for managing the assets. Over the years, the 
Office of Asset Management has published several guidance documents on 
asset management and its basic elements. While the purpose of the 
guidance was to assist state transportation agencies, Transportation 
officials believe that the general principles contained in their 
publications are universally applicable. The office's guidance 
includes, for example,

* a general primer on the fundamental concepts of asset management;

* a primer on data integration that lays out the benefits of and tools 
for integrating data, the steps to follow in linking or combining large 
data files, potential obstacles to data integration and ways to 
overcome them, and experiences of agencies that have integrated their 
data;[Footnote 52] and:

* a primer on life-cycle cost analysis that provides information on how 
to apply this methodology for comparing investment alternatives and 
describes uncertainties regarding when and how to use life-cycle cost 
analysis and what assumptions should be made during the course of the 
analysis.[Footnote 53]

Transportation's Office of Asset Management has also developed a 
software program to assist states in estimating how different levels of 
investment in highway maintenance will affect both user costs and the 
highways' future condition and performance. In addition, to disseminate 
information on asset management, the office established a Web site that 
includes its most recent tools and guidance and links to external Web 
sites with related asset management information, including a link to an 
asset management Web site jointly sponsored with the American 
Association of State Highway and Transportation Officials.

As EPA began its efforts to explore the potential of comprehensive 
asset management to help address utility infrastructure needs, 
officials from the Office of Water met with staff from Transportation's 
Office of Asset Management and obtained a detailed briefing on its 
asset management program. Although EPA officials expressed concerns 
about having relatively limited resources to promote asset management, 
they have so far not pursued a closer relationship with Transportation 
or other federal agencies with experience in the field. For example, 
EPA may find opportunities to adapt Transportation's guidance materials 
or use other efforts, such as a Web site that brings together asset 
management information from diverse sources, as a model for its own 
initiatives.

Water Industry Officials Favor an Expanded Role for EPA in Promoting 
Asset Management, but Raised Concerns About Additional Regulatory 
Requirements:

Water industry officials support a greater role for EPA in promoting 
asset management, both as a tool for better managing infrastructure and 
for helping drinking water and wastewater utilities meet existing or 
proposed regulatory requirements. However, they stopped short of 
endorsing legislative proposals that would require utilities to develop 
and implement plans for maintaining, rehabilitating, and replacing 
capital assets, often as a condition of obtaining loans or other 
financial assistance.

Water Industry Officials See Role for EPA in Linking Asset Management 
to Regulatory Requirements and Other Initiatives Aimed at Improving 
Utility Management:

To obtain views on the role that EPA might play in encouraging the use 
of asset management, we talked with officials from water industry 
associations and the 15 utilities that we selected for structured 
interviews. With few exceptions, the officials agreed that EPA should 
be promoting asset management in some way, although opinions varied on 
what activities would be most appropriate. One of the options that 
garnered the support of many was a greater leadership role for EPA in 
promoting the use of asset management. For example, 11 of the 15 
utilities indicated that based on their own experience, asset 
management can help utilities comply with certain regulatory 
requirements that focus in whole or in part on the adequacy of utility 
infrastructure and the management practices that affect it. While EPA 
recognizes the link between asset management and regulatory compliance-
-and has noted the connection in some agency publications and training-
-some utility officials believe that EPA should increase its efforts in 
this regard. As examples of regulatory requirements for which asset 
management is particularly germane, officials from industry 
associations and individual utilities cited both the existing "capacity 
development" requirements under EPA's drinking water program and 
regulations for capacity, management, operation, and maintenance under 
consideration in the wastewater program, as follows:

* Capacity development requirements for drinking water utilities. To be 
eligible for full funding under the Safe Drinking Water Act's State 
Revolving Fund program, state regulatory agencies are required to have 
strategies to assist drinking water utilities in acquiring and 
maintaining the financial, managerial, and technical capacity to 
consistently provide safe drinking water. To assess capacity, states 
evaluate, among other things, the condition of the utilities' 
infrastructure, the adequacy of maintenance and capital improvement 
programs, and the adequacy of revenues from user rates to cover the 
full cost of service. Drinking water utilities that are determined to 
lack capacity are not eligible for financial assistance from the 
revolving loan fund.[Footnote 54]

* Capacity, management, operation, and maintenance requirements for 
wastewater utilities. As part of its wastewater management program 
under the Clean Water Act, EPA is considering regulations designed to 
improve the performance of treatment facilities and protect the 
nation's collection system infrastructure by enhancing and maintaining 
system capacity (i.e., peak wastewater flows), reducing equipment and 
operational failures, and extending the life of sewage treatment 
equipment. Among other things, wastewater utilities would be required 
to prepare capacity, management, operation, and maintenance plans for 
their operations. The regulations would also require utilities to 
assess the condition of their physical infrastructure and determine 
which components need to be repaired or replaced.

According to industry officials, implementing asset management is 
consistent with meeting these requirements, and it enhances utilities' 
ability to comply with them. For the requirements being considered for 
wastewater utilities, for example, EPA has concluded that three basic 
components are a facility inventory, a condition assessment, and asset 
valuation--all of which are important elements of asset management. 
Consequently, the officials believe that it makes sense for EPA to 
place more emphasis on the use of comprehensive asset management.

Some water industry officials also told us that EPA should use the 
relationship between asset management practices and the financial 
reporting requirements under Governmental Accounting Standards Board 
Statement 34 as a means of promoting the use of asset management. Under 
these new requirements, state and local governments are required to 
report information about public infrastructure assets, including their 
drinking water and wastewater facilities. Specifically, the governments 
must either report depreciation of their capital assets or implement an 
asset management system.[Footnote 55]

Given the infrastructure-related regulatory requirements and 
utilities' other concerns about the condition of their assets, it is 
not surprising that 11 of the 15 utilities we interviewed in depth saw 
a need for EPA to set up a clearinghouse of information on 
comprehensive asset management. Several utilities suggested that EPA 
establish a Web site that would serve as a central repository of such 
information. This site could provide drinking water and wastewater 
utilities with direct and easy access to information that would help 
them better manage their infrastructure. For example, the Web site 
could gather in one place the guidance manuals, tools, and training 
materials developed by EPA or funded through research grants and its 
training and technical assistance centers. The site could also contain 
links to asset management tools and guidance developed by domestic and 
international water associations or other federal agencies, such as 
Transportation's Office of Asset Management. Several officials also 
commented that it might be useful to have a site where drinking water 
and wastewater utilities could share lessons learned from implementing 
asset management. Other utilities also supported the idea of a Web 
site, but were uncertain about whether EPA was the appropriate place 
for it. In commenting on a draft of this report, EPA generally agreed 
that an EPA Web site devoted to asset management would be worthwhile 
and is considering developing such a site.

Water Industry Officials Cite Implementation Challenges if Asset 
Management Were to Be Mandated:

In recent years, the Congress has considered several legislative 
proposals that would, in part, promote the use of asset management in 
some way. These proposals generally call for an inventory of existing 
capital assets; some type of plan for maintaining, repairing, and 
replacing the assets; and a plan for funding such activities. All but 
one of the proposals made having the plans a condition of obtaining 
federal financial assistance. The proposals are consistent with what we 
have found to be the leading practices in capital decision making. As 
we reported in 1998, for example, routinely assessing the condition of 
assets allows managers to evaluate the capabilities of existing assets, 
plan for future replacements, and calculate the cost of deferred 
maintenance.[Footnote 56] However, according to key stakeholders, 
implementing and enforcing requirements for asset management could be 
problematic at this time.

We asked water industry groups, associations of state regulators, and 
individual utilities for their views on the proposed mandate of asset 
management plans. While most of them endorse asset management, they 
raised several concerns about a statutory requirement. For example:

* Officials from water industry associations believe that drinking 
water and wastewater utilities are already overburdened by existing 
regulatory requirements and that many utilities lack the resources to 
meet an additional requirement for developing asset management plans.

* The Association of State Drinking Water Administrators and the 
Association of State and Interstate Water Pollution Control 
Administrators both said that the states lack the resources to oversee 
compliance and determine the adequacy of asset management plans. Both 
the state and industry associations questioned the feasibility of 
defining what would constitute an adequate plan.

* Officials at 12 of the 15 utilities where we conducted in-depth 
interviews had serious reservations about a requirement. For example, 
some utility managers were concerned that EPA and the states would 
attempt to standardize asset management and limit the flexibility that 
utilities need to tailor asset management to their own circumstances. 
Another concern was that the states lack financial and technical 
resources and thus are ill equipped to determine whether utilities' 
asset management plans are adequate. Finally, some utility officials 
also questioned the burden that such a requirement would place on small 
utilities.

Other utility officials either support a requirement or support the 
concept of asset management but question whether mandating such a 
requirement is an appropriate role for the federal government. One of 
the officials commented that whether or not asset management is 
required, utilities should manage their infrastructure responsibly and 
charge rates sufficient to cover the full cost of service. The National 
Association of Water Companies, which represents investor-owned 
utilities, supports a requirement for asset management to ensure that 
public water and wastewater utilities are operating efficiently and are 
charging rates that cover the full cost of service.

Conclusions:

Comprehensive asset management shows real promise as a tool to help 
drinking water and wastewater utilities better identify and manage 
their infrastructure needs. Even with their limited experience to date, 
water utilities reported that they are already achieving significant 
benefits from asset management. EPA clearly recognizes the potential of 
this management tool to help ensure a sustainable water infrastructure 
and has sponsored a number of initiatives to support the development of 
informational materials and encourage the use of asset management. 
However, in an era of limited resources, it is particularly important 
for EPA to get the most out of its investments by coordinating all of 
the asset management-related activities sponsored by the agency and 
taking advantage of tools and training materials developed by others--
including domestic and international industry associations and other 
federal agencies with experience in asset management.

Establishing a central repository of all asset management-related 
activities could not only foster more systematic information sharing 
but also help minimize the potential for duplication and allow EPA-
sponsored training and technical assistance centers to build on each 
other's efforts. As EPA has recognized, improving utilities' ability to 
manage their infrastructure cannot help but improve their ability to 
meet regulatory requirements that focus on the adequacy of utility 
infrastructure and management practices. Consequently, it is in the 
agency's best interest to disseminate information on asset management 
and promote its use. Establishing a Web site, perhaps as part of the 
repository, would help ensure that such information is accessible to 
water utilities and that EPA is getting the most use out of the 
materials whose development it funded. Moreover, EPA could use the site 
as a means of strengthening its efforts to educate utility managers on 
the connection between effectively managing capital assets and the 
ability to comply with relevant requirements under the Safe Drinking 
Water Act and Clean Water Act.

Recommendations for Executive Action:

Given the potential of comprehensive asset management to help water 
utilities better identify and manage their infrastructure needs, the 
Administrator, EPA, should take steps to strengthen the agency's 
existing initiatives on asset management and ensure that relevant 
information is accessible to those who need it. Specifically, the 
Administrator should:

* better coordinate ongoing and planned initiatives to promote 
comprehensive asset management within and across the drinking water and 
wastewater programs to leverage limited resources and reduce the 
potential for duplication;

* explore opportunities to take advantage of asset management tools and 
informational materials developed by other federal agencies;

* strengthen efforts to educate utilities on how implementing asset 
management can help them comply with certain regulatory requirements 
that focus in whole or in part on the adequacy of utility 
infrastructure and the management practices that affect it; and:

* establish a Web site to provide a central repository of information 
on comprehensive asset management so that drinking water and wastewater 
utilities have direct and easy access to information that will help 
them better manage their infrastructure.

[End of section]

Appendixes: 

Appendix I: Utilities Selected for Structured Interviews:

Augusta County Service Authority, Verona, Virginia:
Charleston Commissioners of Public Works, Charleston, South Carolina:
Greater Cincinnati Water Works, Cincinnati, Ohio:
Denton Department of Public Works, Denton, Maryland:
Des Moines Water Works, Des Moines, Iowa:
East Bay Municipal Utility District, Oakland, California:
Eastern Municipal Water District, Perris, California:
Louisville Water Company, Louisville, Kentucky:
Massachusetts Water Resources Authority, Boston, Massachusetts:
Orange County Sanitation District, Fountain Valley, California:
Sacramento Regional County Sanitation District, Mather, California:
Seattle Public Utilities, Seattle, Washington:
Somersworth Department of Public Works and Utilities, Somersworth, New 
Hampshire:
Tacoma Water, Tacoma, Washington:
Western Carolina Regional Sewer Authority, Greenville, South Carolina:

[End of section]

Appendix II: GAO Contacts in Australia and New Zealand:

Government agency: Department of Treasury and Finance; 
State or region: Victoria; 
Country: Australia.

Government agency: Essential Services Commission; 
State or region: Victoria; 
Country: Australia.

Government agency: Independent Pricing and Regulatory Tribunal; 
State or region: New South Wales; 
Country: Australia.

Government agency: Manawatu District Council; 
State or region: Manawatu-Wanganui; 
Country: New Zealand.

Government agency: Queensland Audit Office; 
State or region: Queensland; 
Country: Australia.

Utility: Citiwater; 
State or region: Queensland; 
Country: Australia.

Utility: Hunter Water Corporation; 
State or region: New South Wales; 
Country: Australia.

Utility: Melbourne Water Corporation; 
State or region: Victoria; 
Country: Australia.

Utility: South Australian Water Corporation; 
State or region: South Australia; 
Country: Australia.

Utility: Sydney Water Corporation; 
State or region: New South Wales; 
Country: Australia.

Utility: Watercare Services Limited; 
State or region: Auckland; 
Country: New Zealand.

[End of table]

[End of section]

Appendix III: GAO Contacts and Staff Acknowledgments:

GAO Contacts:

Ellen Crocker, (617) 788-0580 Maureen Driscoll, (617) 788-0540:

Staff Acknowledgments:

In addition to the individuals named above, Ramona Burton, Cory 
Claussen, Robert Crystal, Teresa Dee, Janet McKelvey, Melissa Mink, 
Lynn Musser, Mehrzad Nadji, and Carol Herrnstadt Shulman made key 
contributions to this report.

(360305):

FOOTNOTES

[1] See U.S. General Accounting Office, Water Infrastructure: 
Information on Financing, Capital Planning, and Privatization, GAO-02-
764 (Washington, D.C.: Aug. 16, 2002).

[2] See U.S. General Accounting Office, Executive Guide: Leading 
Practices in Capital Decision-Making, GAO/AIMD-99-32 (Washington, 
D.C.: December 1998).

[3] See U.S. General Accounting Office, Water Infrastructure: 
Information on Federal and State Financial Assistance, GAO-02-134 
(Washington, D.C.: Nov. 30, 2001). We adjusted the dollar amounts from 
the report to constant 2003 dollars.

[4] From fiscal year 2001 to fiscal year 2004, EPA provided $8.8 
billion for water infrastructure and Agriculture provided $6 billion, 
in constant 2003 dollars.

[5] The Clean Water State Revolving Fund may also be used for other 
water quality improvement projects, such as nonpoint source pollution 
control and estuary management, in addition to wastewater treatment 
facilities.

[6] Simply stated, the funding gap is equal to the estimated 
infrastructure needs less projected spending.

[7] U.S. Environmental Protection Agency, Drinking Water Infrastructure 
Needs Survey: Second Report to Congress, EPA 816-R-01-004 (Washington, 
D.C.: February 2001) and U.S. Environmental Protection Agency, Clean 
Watersheds Needs Survey 2000: Report to Congress, EPA 832-R-03-001 
(Washington, D.C.: August 2003). 

[8] See GAO-02-764, 3. We sent questionnaires to 1,425 drinking water 
systems and 2,391 wastewater systems serving more than 10,000 people. 
In our analysis, utilities were weighted to account statistically for 
all utilities serving populations greater than 10,000, including those 
not selected for our sample. 

[9] American Water Works Association Water Industry Technical Action 
Fund, Dawn of the Replacement Era: Reinvesting in Drinking Water 
Infrastructure (Denver, Colo.: May 2001).

[10] Water Environment Research Foundation, New Pipes for Old: A Study 
of Recent Advances in Sewer Pipe Materials and Technology (2000), 4-1.

[11] GAO-02-764, 7, 35, 42. 

[12] We do not have specific information on the fiscal years covered in 
utilities' responses; however, we sent our survey out during September 
2001. 

[13] For the purposes of our survey, we focused on the asset planning 
elements identified by the Governmental Accounting Standards Board in a 
June 30, 1999, statement that made comprehensive changes in state and 
local governments' financial reporting requirements. Among other 
things, it requires, for the first time, the governments to report 
information about public infrastructure assets, including their 
drinking water and wastewater facilities. Specifically, the governments 
must begin reporting depreciation of their capital assets or implement 
an asset management system. See Governmental Accounting Standards Board 
Statement No. 34, Basic Financial Statements--and Management's 
Discussion and Analysis--for State and Local Governments.

[14] For example, see (1) Managing Public Infrastructure Assets to 
Minimize Cost and Maximize Performance, developed by the Association of 
Metropolitan Sewerage Agencies in partnership with the American Water 
Works Association, the Association of Metropolitan Water Agencies, and 
the Water Environment Federation (2002); (2) International 
Infrastructure Management Manual, published jointly by the Association 
of Local Government Engineering New Zealand, Inc., and the Institute of 
Public Works Engineering of Australia (2002); (3) Asset Management 
Primer, published by the U.S. Department of Transportation (December 
1999); and (4) Executive Guide: Leading Practices in Capital Decision-
Making, published by GAO (GAO/AIMD-99-32; December 1998).

[15] For example, in the case of a drinking water utility, a water main 
serving the local hospital might be identified as a critical asset 
because the consequences of a water main break could be significant.

[16] See International Infrastructure Management Manual, published 
jointly by the Association of Local Government Engineering New Zealand, 
Inc., and the Institute of Public Works Engineering of Australia 
(2002).

[17] We were interested in learning about the applicability of asset 
management at small utilities because they represent the vast majority 
of the regulated systems, with 93 percent of community drinking water 
utilities and 71 percent of wastewater utilities serving 10,000 people 
or fewer.

[18] The Massachusetts Water Resources Authority provides water and 
sewer services to approximately 2.5 million people.

[19] Seattle Public Utilities is a utility serving approximately 1.3 
million drinking water customers and about 500,000 wastewater 
customers.

[20] The Louisville Water Company provides water services to 
approximately 800,000 people in the Louisville, Kentucky, area and in 
parts of Oldham and Bullitt counties.

[21] The Sacramento Regional County Sanitation District is a California 
wastewater utility serving approximately 482,000 customers in the 
Sacramento area.

[22] Eastern Municipal Water District is a water and wastewater utility 
serving approximately 501,000 customers in Southern California.

[23] The South Australian Water Corporation, an Australian utility 
located in the state of South Australia, provides water and wastewater 
services for approximately 1.4 million people.

[24] Saco, Maine, is a city of approximately 16,800 people. Among other 
services, the city government is responsible for providing wastewater 
treatment. The city asked to have its bond rating reassessed before 
beginning a school renovation project. 

[25] Western Carolina Regional Sewer Authority provides wastewater 
treatment services to approximately 360,000 customers in Greenville 
County, South Carolina, and portions of Spartanburg, Laurens, and 
Anderson counties.

[26] The Charleston Commissioners of Public Works provides water and 
wastewater services to more than 400,000 customers in the Charleston, 
South Carolina, area.

[27] These regulations are under consideration. EPA proposed the 
regulations in January 2001, but in accordance with the incoming 
administration's regulatory review plan, withdrew the proposal to give 
the administration an opportunity to review it.

[28] The Orange County Sanitation District provides wastewater services 
for approximately 2.3 million people living in central and northwest 
Orange County, California.

[29] The operating cost reductions were measured per property, or for 
each residential or community property connected to the water and sewer 
supply.

[30] Hunter Water Corporation is an Australian utility that provides 
water and wastewater services to almost 500,000 people in parts of New 
South Wales.

[31] Hunter Water's capital expenditures fluctuated during the 10-year 
period, decreasing from about $40 million in 1990/1991 to about $10 
million in 1997/1998, then spiking to about $62 million in 2000/2001, 
then decreasing to about $40 million again. Utility officials attribute 
the spike in capital expenditures to growth and a regulatory upgrade of 
the utility's wastewater treatment system and transport system.

[32] An environmental management system is a management tool to help an 
organization improve its environmental performance, prevent pollution, 
and meet regulatory requirements.

[33] EPA used these mislabeled Australian estimates as a basis for 
projecting life-cycle cost savings of 20 to 30 percent for U.S. 
utilities using asset management. Additionally, it appears that the 
engineering firm that predicted about $350 million in life-cycle cost 
savings for Orange County Sanitation District used the same estimates 
in its model. 

[34] Augusta County Service Authority serves a population of 
approximately 67,000 people in Virginia.

[35] East Bay Municipal Utility District supplies water and provides 
wastewater treatment to approximately 1.3 million drinking water 
customers and 640,000 wastewater customers in parts of Alameda and 
Contra Costa counties in northern California.

[36] Tacoma Water serves approximately 300,000 customers in the city of 
Tacoma, Washington, and portions of Pierce and South King counties.

[37] The Department of Public Works in Billerica, Massachusetts, serves 
a population of approximately 10,000 people.

[38] Des Moines Water Works distributes water to a population of 
approximately 300,000 in Des Moines, Iowa, and its surrounding 
communities.

[39] See Managing Public Infrastructure Assets to Minimize Cost and 
Maximize Performance, 57.

[40] Greater Cincinnati Water Works provides water to approximately 1.2 
million customers. 

[41] Melbourne Water Corporation manages the city of Melbourne's water 
catchments and major distribution system. The utility supplies 
approximately 500,000 megaliters of water annually to its three retail 
water companies.

[42] St. Paul Regional Water Services provides drinking water to 
approximately 415,000 residents of St. Paul, Minnesota, and its 
surrounding communities.

[43] As noted earlier, most U.S. utilities are small, with 93 percent 
of the 54,000 community drinking water systems and 71 percent of the 
16,000 wastewater systems serving 10,000 people or fewer.

[44] Somersworth is a New Hampshire city with approximately 11,000 
residents. Somersworth's Department of Public Works and Utilities is 
responsible for water and wastewater services for the city. 

[45] The Association of Metropolitan Sewerage Agencies developed the 
handbook, Managing Public Infrastructure Assets to Minimize Cost and 
Maximize Performance, in partnership with the American Water Works 
Association, the Association of Metropolitan Water Agencies, and the 
Water Environment Federation.

[46] U.S. Environmental Protection Agency, Asset Management: A Handbook 
for Small Water Systems, EPA 816-R-03-016 (Washington, D.C.: September 
2003).

[47] EPA has drafted the booklet, Taking Stock of Your Water System, 
and expects to publish the final version sometime in 2004.

[48] The training courses are being developed by the environmental 
training center located at the College of Southern Maryland, which is 
also responsible for the asset management toolkit for small wastewater 
utilities. To fund this work, EPA awarded the center a 3-year grant 
totaling $450,000, covering the period from August 2002 to August 2005.

[49] An environmental management system is a management tool to help an 
organization improve its environmental performance, prevent pollution, 
and meet regulatory requirements. 

[50] Water Environment Federation and Association of Metropolitan 
Sewerage Agencies, Moving Toward Comprehensive Utility Management 
Systems: Report of the Environmental Management Systems (EMS) for 
Public Utilities Integration Project (Alexandria, Va.; Washington, 
D.C.: September 2002). EPA provided a grant of $256,888 for this 
project. 

[51] See Water Environment Research Foundation, Research Priorities for 
Successful Asset Management: A Workshop (Alexandria, Va.: 2002). 

[52] U.S. Department of Transportation, Federal Highway Administration, 
Office of Asset Management, Data Integration Primer (Washington, D.C.: 
August 2001).

[53] U.S. Department of Transportation, Federal Highway Administration, 
Office of Asset Management, Life-Cycle Cost Analysis Primer 
(Washington, D.C.: August 2002).

[54] States may nevertheless provide financial assistance if the use of 
such assistance will ensure compliance with regulatory requirements and 
the water utility has agreed to make the necessary changes in 
operations to ensure that it has the financial, managerial, and 
technical capacity to comply over the long term.

[55] Privately owned utilities are not required to comply with 
financial reporting requirements from the Governmental Accounting 
Standards Board. About half of the nation's drinking water systems and 
an estimated 20 percent of the wastewater systems are privately owned, 
according to EPA and industry sources.

[56] GAO/AIMD-99-32, 26.

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