CWEA Asset Management Seminar Berkeley, CA, September 17, 2003

1. CWEA Asset Management SeminarBerkeley, CA, September 17, 2003 Planning for and FundingAsset Replacements and Refurbishments:“Making Do” with Limited Asset Knowledge Ken Harlow, Brown and Caldwell

2. Outline of Presentation • What Can I Do with my Existing Asset Knowledge? • Using Class-based Knowledge to Forecast R&R Costs • The RPM: Establishing Funding Policies for Sustainability • How does the RPM Help? • Demonstration of the RPM

3. Your Board/Council Does Care about the Infrastructure! • “What is our system worth in today’s dollars?” • “How much should we be spending on R&R?” • “How much will we be spending twenty years from now?” • “What should our R&R reserve levels be?” • “How much should we contribute each year?”

4. Perfect Asset Knowledge – When??? • Many agencies can’t answer these questions because of poor asset knowledge • Remedying this is a lot of work – improving asset knowledge is usually a task of many years (but worth it, of course…) • Question: What can you do with the asset knowledge you have now?

5. What Can I Do with the Asset Knowledge I have Now? With only a moderate effort, you can: • Establish long-term replacement funding policy to assure infrastructure integrity • Calculate the value your infrastructure assets • Especially in California: Protect needed reserves from possible expropriation

6. Using Class-based Knowledge to forecast R&R Costs

7. Two Kinds of Asset Knowledge • Asset specific knowledge: Age, condition, value, likely replacement and refurbishment (R&R) needs • This level of knowledge is required to make dependable R&R decisions on specific assets • Asset class knowledge: Typical useful life, pricing formulas, model refurbishment programs • If you can develop class-based knowledge, you can forecast aggregate R&R needs and support long-term funding policies to sustain your infrastructure

8. What is an Asset Class? • An asset class is a group of assets with: • Similar form and function • Similar useful lives and refurbishment programs • Similar replacement pricing formulas • Key: Prepare a master asset listing and assign each asset to a class (usually 20-25 classes) • Each asset class has a useful life, pricing formula, and typical refurbishment program • A refurbishment is a capital expenditure required to achieve useful life — it is not an O&M cost

9. Typical R&R Life Cycle: Steel Tank Refurbishment types: Build Replace A. Exterior painting (7.5 years) B: Interior coating / Floor repair (15 years) C. Floor replacement (30 years) A+B+C $ A+B A+B A A A A 0 7.5 15 22.5 30 37.5 45 52.5 60 Time

10. You Still Need Some Asset-specific Knowledge • Year in service • Asset class • Physical attributes (length, diameter, material, horsepower, etc.) • Physical attributes are used to generate replacement costs of assets using formulas or look-up tables • And that’s all you need (if that’s all you have)

11. Using Class-based Knowledge to Generate R&R Costs • Once class-based knowledge is defined, you can simulate infrastructure performance: Asset-by-asset replacements and refurbishments over many years • Key is the cyclical nature of these “R&R” activities • Each “transaction” is costed to create a schedule of expenditures well into the future • Finally, funding policies can be tested against future expenditures to create a funding plan • All this is done easily using the Replacement Planning Model (RPM)

12. Who has Used This Approach? • City of Roseville • City of Oxnard • Dublin San Ramon Services District • Montecito Sanitary District • MWD of Southern California • Moulton Niguel Water District • Mesa Consolidated Water District • Orange County Water District • Irvine Ranch Water District • Maui Board of Water Supply • Orange County Sanitation District • Asheville, North Carolina

13. The RPM: Establishing Funding Policies for Sustainability

14. Assetinventory Years inservice Replacementcosts Usefullives R&R costsby year RPM Refurbishmentprograms Fundbalances Annualcontributions Earnings rate Inflation rate Elements of the Funding Analysis

15. The R&R Fund • Replacement/Refurbishment (R&R) Fund is the fundamental tool for accumulating and disbursing R&R money • Fund performance is modeled using the RPM

16. Modeling R&R Fund Performance • R&R Fund balances are based on: • Beginning balance • Fund contribution policies • R&R needs by year • Interest earnings • Various other policy decisions • The RPM “builds” funding policy by varying these and other parameters while observing results of the simulation

17. How does the RPM Help?

18. The RPM Shows Clearly the Patterns of Future R&R Expenditures • Clear delineation of R&R costs over various timeframes • Easy-to-use, friendly interface • Detailed logs of transactions; many graphical reports • Ideal for exploring policy options and recommendations with the board

19. The RPM Provides Clear, Effective Answers to Funding Questions • Helps develop true asset-based funding policies • Provides an entry to asset management • Proven track record delivers confidence to your client

20. The RPM Also Shows what the Infrastructure is Worth • RPM supplies the replacement value of all assets • Current asset value is of great interest and usefulness to: • Staff • Board • Customers

21. RPM Demonstration

22. Questions and Answers