Efficient Capital Replacement Planning The Economic Optimization Approach. March 26, 2018

Transcription

1 Efficient Capital Replacement Planning The Economic Optimization Approach March 26, 2018

2 DO YOU HAVE AGING INFRASTRUCTURE? Dahuloe

3 Break the old paradigms How Long does a Sewer Main Last? -Clay Pipe -Cast Iron -Ductile Iron -PVC

4 Break the old paradigms When is a Sewer Main s Useful Life Over? When it s design Useful Life has passed (REALLY?!)

5 Break the old paradigms When is a Sewer Main s Useful Life Over? When it s design Useful Life has passed When it has been fully depreciated

6 Break the old paradigms When is a Sewer Main s Useful Life Over? When it s design Use ful Life has passed When it has been fully depreciated When I m sick and tired of re p a iring it

7 Break the old paradigms When is a Sewer Main s Useful Life Over? When it s design Use ful Life has passed When it has been fully depreciated W he n I m s ic k a nd tire d o f re p a iring it When the Board finally approves replacement

8 Break the old paradigms When is a Sewer Main s Useful Life Over? When it s design Use ful Life has passed When it has been fully depreciated When I m sick and tired of re p a iring it When the Board finally approves replacement When it backs up into my basement

9 Break the old paradigms When is a Sewer Main s Useful Life Over? When it s design Use ful Life has passed When it has been fully depreciated When I m sick and tired of re p a iring it When the Board finally approves replacement When it backs up into my basement When the moratorium is required

10 Break the old paradigms When is a Sewer Main s Useful Life Over? When it s design Use ful Life has passed When it has been fully depreciated When I m sick and tired of re p a iring it When the Board finally approves replacement When it backs up into my basement When the moratorium is required After we hire a new Director

11 Break the old paradigms When is a Sewer Main s Useful Life Over? When it s design Use ful Life has passed When it has been fully depreciated When I m sick and tired of re p a iring it When the Board finally approves replacement When it backs up into my basement When the moratorium is required Afte r we hire a new Dire c to r When the new regulation is enforced

12 OUR TOPIC When is a Sewer Main s Useful Life Over? When it s design Use ful Life has passed Efficiency (maybe) When it has been fully depreciated When I m sick and tired of re p a iring it MORTALITY When the Board finally approves replacement When it backs up into my basement When the moratorium is required CAPACITY Afte r we hire a new Director When the new regulation is enforced LEVEL OF SERVICE

13 What s Different about economic risk-based capital planning? Other Approaches Use ful life Prio ritize p ro je c ts Ris k Po int Syste m Gut-fe e l tim ing Sub-op tim a l s p e nd ing Economic Approach Ec onom ic life Prio ritize a nd s c he d u le Risk cost Intervention Ye a r Op tim ize d s p e nd ing

14 What s Different about economic risk-based capital planning? OTHER APPROACHES Prio ritize p ro je c ts Risk Point System Gut-fe e l tim ing Sub-o p tim a l s p e nd ing Asset ID Failure Probability Consequence Categories, Weights, and Scores (1-5) Size Flows Carried Traffic Water Bodies Businesses Total Risk Point s FM - A 20% FM - B 10 % WM - A 20% WM - B 15%

15 What s Different about economic risk-based capital planning? OTHER APPROACHES Prio ritize p ro je c ts Risk Point System Gut-fe e l tim ing Sub-op tim a l s p e nd ing (Assuming points are valid) but what does a Risk Point really mean? Order is determined, but how does a point translate to required timing? Is it cheaper to replace, or continue maintaining? Asset ID Failure Probability Consequence Categories, Weights, and Scores (1-5) Size Flows Carried Traffic Water Bodies Businesses Total Risk Point s FM - A 20% FM - B 10 % WM - A 20% WM - B 15%

16 Your Aging Asset s costs Tangibles Operational Maintenance Preventative Maintenance Predictive Maintenance Corrective Maintenance Emergency Repairs Collateral Damage Two identical assets in different locations can be VERY different MOST can be Quantified by Looking at your historical expenses

17 Failure Probability TANGIBLE COSTS increase with age, and all relate to asset failure Your Aging Asset s Costs Tangibles Asset Age

18 Your Aging Asset s Costs Tangibles Failure Probability Asset Age The Weibull distribution is one of the most widely used failure probability analysis tools Wallodi Weibull

19 The magnitude of costs is related to the consequences of the asset s failure Curve s steepness is calibrated based on historical failures Your Aging Asset s Costs Tangibles Cost ($) Curve s shape is Weibull s contribution Asset Age

20 So, WHEN does the cost of owning an aging asset warrant its replacement? Your Aging Asset s Costs Tangibles Cost ($) Asset Age?

21 Can we find the optimal spending balance? Capital Expenditures Repair & Maintenance

22 If we know the new asset s ownership cost, we can determine optimal replacement timing Can we find the optimal spending balance? Cost ($) $ (New > $ (Existing Asset Asset Ownership) Ownership) $ (New < $ (Existing Asset Asset Ownership) Ownership) Asset Age?

23 NEW ASSET: Can we find the optimal spending balance? Present Value Total Cost Risk Age Annualized Capital Cost Service Life

24 Can we find the optimal spending balance? EXISTING ASSET NEW ASSET

25 What about intangibles? Economic

26 What about intangibles? Health risk Environmental risk Public inconvenience Loss of goodwill Job security Political risk

27 What about intangibles? Health risk Environmental risk Public inconvenience Loss of goodwill Job security Political risk Economic

28 What about intangibles? Health risk Environmental risk Public inconvenience Loss of goodwill Quantified by answering, what would you be willing to pay to avoid this risk?

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30 Economic Can we find the optimal spending balance? EXISTING ASSET NEW ASSET Bare minimum TOTAL cost

31 Economic

32 Client applied Process to six Asset classes W ater distribution system W astewater collection system W astewater lift stations W astewater force mains W astewater treatment facility

33 Client applied Process to six Asset classes Water distribution system Major risk driver-street repair Demonstrated economic support for prioritizing small main replacements

34 Client applied Process to six Asset classes Wastewater collection system Demonstrated relatively low risk (triple bottom-line), due to inspection program Incorporation of anticipated I&I increases demonstrated operational savings gains from lining

35 Client applied Process to six Asset classes Wastewater LIFT STATIONS Provided additional justification for current projects Brought particular attention to one, old, high-consequence structure

36 Client applied Process to six Asset classes Wastewater TREATMENT PLANT Many run to failure components (low risk) Brought attention to a few, old, highconsequence structures

37 Client applied Process to six Asset classes FORCE MAINS Extremely high environmental consequence Many old mains Just completed a risk-based study Council felt it provided insufficient justification

38 Client applied Process to six Asset classes CIP Right-sizing: Study recommendations Along with other priorities, $62 million in five years is aggressive Some levelizing is appropriate to make manageable Recommended Budget, $ million Fiscal Year Wastewater Treatment Plant Force Mains Lift Stations Collection System Water Mains

39 this is Something you say for more info, contact: Brian Houston, PE, LEED AP Charlotte, NC Thank you