Water Infrastructure: Comprehensive Asset Management Has Potential to Help Utilities Better Identify Needs and Plan Future Investments
Published: 2004-03-19T00:00:00

Fast Facts:

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

section_title: Letter
paragraphs: In response to your request, this report examines (1) the potential benefits  of comprehensive asset management for drinking water and wastewater  utilities and the challenges that could hinder its implementation and (2) the  role that the federal government might play in encouraging utilities to  implement asset management.
Unless you publicly announce its contents earlier, we plan no further  distribution of this report until 30 days from the date of this letter.  At that  time, we will send copies to appropriate congressional committees, the  Administrator of the Environmental Protection Agency, and the Director of  the Office of Management and Budget.  We will also make copies available  to others upon request.  In addition, the report will be available at no  charge on the GAO Web site at http://www.gao.gov.
Please call me at (202) 512-3841 if you or your staff have any questions.   Major contributors to this report are listed in appendix III.
subsections: section_title: Introduction
paragraphs: 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.
subsections: section_title: The Federal Government Has Played a Major Role in Funding and Setting Requirements for Water Infrastructure
paragraphs: 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.  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.   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.  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.
section_title: Projected Drinking Water and Wastewater Infrastructure Needs Are Significant
paragraphs: 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.
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.  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.
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.  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.  Other studies have made similar predictions for the pipelines  owned by wastewater utilities.
section_title: Many Factors Have Contributed to Deteriorating Utility Infrastructure
paragraphs: 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.”
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.  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; 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.
section_title: Comprehensive Asset Management Focuses on Efficiently Managing Capital Assets
paragraphs: 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.
Experts within and outside the water industry have published manuals and  handbooks on asset management practices and how to apply them.  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.  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.
section_title: Strategy for Adopting and Progress toward Implementing Comprehensive Asset Management Varies
paragraphs: 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.
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.
section_title: Objectives, Scope, and Methodology
paragraphs: 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   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.  (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.
section_title: Comments from the Environmental Protection Agency
paragraphs: 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.
section_title: Water Industry Officials Report Many Benefits from Asset Management Despite Implementation Challenges
paragraphs: 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.
subsections: section_title: Utilities Cite Many Benefits from Asset Management and Some Cautions About Reported Savings
paragraphs: 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.
subsections: section_title: Comprehensive Asset Management Can Improve Decisions about Maintaining, Rehabilitating, and Replacing Capital Assets
paragraphs: 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.  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.  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.  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.   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.   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.
section_title: Comprehensive Asset Management Can Help Utilities Justify Rate Increases and Proposed Projects to Their Customers and Governing Bodies
paragraphs: 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.
subsections: section_title: Making a Sound Case for Rate Increases
paragraphs: 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.  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.
section_title: Improving the Bond Rating
paragraphs: 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.   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.
section_title: Better Demonstrating Compliance with Federal and State Regulations
paragraphs: 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.
At the Charleston Commissioners of Public Works, 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.  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.
section_title: Although Water Industry Officials Identified Financial and Other Benefits from Asset Management, Reported Savings Should Be Viewed with Caution
paragraphs: 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.  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; 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.  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.
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.  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.  As we have already noted, operating costs reductions alone do not provide  enough information to determine the net benefit of implementing asset  management.
section_title: Utilities Face Challenges in Successfully Implementing Comprehensive Asset Management
paragraphs: 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.
subsections: section_title: Asset Management Requires Utilities to Collect Complete and Accurate Data
paragraphs: 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.
subsections: section_title: Existing Data May Be Incomplete and Inaccurate
paragraphs: 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.   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.
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.  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.   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.  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.
section_title: Coordinating Data Across Departments May Be Difficult
paragraphs: 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.  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.
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.
section_title: Utilities May Need to Upgrade Their Technology
paragraphs: 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.   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.   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. 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.
section_title: Utilities Face Challenges in Maintaining Complete and Accurate Data
paragraphs: 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.
section_title: Interdepartmental Coordination and Information Sharing Present Difficult Cultural Challenges
paragraphs: 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.
section_title: Utilities’ Efforts to Increase Focus on Long-Term Planning Conflict with Short-Term Priorities
paragraphs: 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.
section_title: Smaller Utilities Can Benefit from Asset Management Despite Challenges Posed by Limited Resources
paragraphs: 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, 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.  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.
section_title: EPA Can Encourage Water Utilities to Use Asset Management by Strengthening Existing Initiatives
paragraphs: 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.
subsections: section_title: EPA Sponsors Several Initiatives to Promote Utilities’ Use of Asset Management
paragraphs: 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.  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.  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.   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.  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.  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.
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.   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   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.
section_title: EPA’s Efforts to Promote Asset Management Could Be Strengthened by Leveraging Ongoing Efforts Within and Outside the Agency
paragraphs: 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.
subsections: section_title: Improving Coordination Within and Across Drinking Water and Wastewater Programs Could Help Maximize Limited Resources
paragraphs: 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.
section_title: EPA Could Supplement Its Efforts to Promote Asset Management by Using Information Available from Other Federal Agencies
paragraphs: 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; 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.
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.
section_title: Water Industry Officials Favor an Expanded Role for EPA in Promoting Asset Management, but Raised Concerns About Additional Regulatory Requirements
paragraphs: 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.
subsections: section_title: Water Industry Officials See Role for EPA in Linking Asset Management to Regulatory Requirements and Other Initiatives Aimed at Improving Utility Management
paragraphs: 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.
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.
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.
section_title: Water Industry Officials Cite Implementation Challenges if Asset Management Were to Be Mandated
paragraphs: 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.  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.
section_title: Conclusions
paragraphs: 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.
section_title: Recommendations for Executive Action
paragraphs: 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.