WATER ASSET MANAGEMENT PRACTICE IN THE US: WE VE COME A LONG WAY WITH A LONG WAY TO GO

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1 WATER ASSET MANAGEMENT PRACTICE IN THE US: WE VE COME A LONG WAY WITH A LONG WAY TO GO Abstract The concept of asset management came to the US from Australia and New Zealand a dozen years or so ago. At that time, there was very little interest in the topic other than a few water utilities and a small group of practitioners who were able to see the tremendous benefits asset management could provide. Over a decade later, tremendous progress has been made at the federal, state and water utility level in asset management. There are incentive programs to encourage utilities to engage in asset management and some limited mandates for asset management or fiscal sustainability tied to federal and state capital funding programs. Although asset management is spreading across the country, given the large number of water and wastewater utilities (approximately 95,000), there is still a small percentage of utilities engaging in the practice. Several barriers add to the difficulties in expanding asset management practice, including: the lack of a national mandate, the lack of unified understanding/definition of asset management, blaming asset management for the not providing a preconceived result, poor understanding of the true benefits, funding only capital expenditures (no operation and maintenance expenditures) through state and federal funding programs, the low price of water, the water bill as the last to be paid, and contracting out asset management planning. Some activities on the horizon may change the dynamics, including a new Governmental Accountability Office review of asset management at the request of the US House of Representatives. This by-partisan request for the review has the potential to increase incentives or mandates in asset management. A current survey by the American Water Works Association is intended to assess the state of asset management practice within the water sector and identify the most significant gaps in asset management practice. This identification will enable practitioners and utility groups to develop tools to aid in addressing the gaps. The survey will also help to identify trends in the industry and distinguish the type of asset management practice that is occurring for different size utilities. understanding and acceptance has advanced greatly since its initial introduction, when almost no one thought utilities would accept it or begin putting programs in place. However, the actual implementation of asset management as a robust, wellconceived manner of operating and managing water utilities still has a long way to go.. Key Words: Water, Wastewater, Asset Management, U.S., Barriers to Asset Management Introduction The concept of asset management came to the US from Australia and New Zealand a dozen years or so ago. At that time, there was very little interest in the topic other than a few forward-thinking water utilities and a small group of practitioners who were able to see the tremendous benefits associated with implementing asset management programs. Over a decade later, tremendous progress has been made at the federal, state and water utility level in asset management. There are incentive programs to encourage utilities to engage in asset management and some limited mandates for asset management or fiscal sustainability tied to

2 federal and state capital funding programs, although for the most part, asset management remains a nonmandatory practice. Many states and the federal government, as well as universities, trade associations, and nonprofits, continue to promote asset management and provide training and technical assistance to communities to help them develop and implement an asset management program. The general concept of asset management as a cost-effective, sustainable infrastructure management technique is reasonably well understood and accepted. The greater difficulty is convincing overworked and underpaid utility personnel to put the concept into practice and take on the activities necessary to implement an asset management program. It takes considerable effort to move utilities from a largely reactive operation to a largely proactive operation. The incentive of a better-run, more efficient utility has sufficient appeal for larger utilities, but it is insufficient incentive for many of the utilities in the mid-range or below (under 10,000 in population). Given the large number of water and wastewater utilities in the US, it will take a considerable effort to educate, train, and promote the implementation of asset management to these systems. Several barriers add to the difficulties in expanding asset management practice to more utilities, including: the lack of a national mandate, the lack of unified understanding/definition of asset management, blaming asset management for the not providing a preconceived result, poor understanding of the true benefits, funding only capital expenditures (no operation and maintenance expenditures) through state and federal funding programs, the low price of water, the water bill as the last to be paid, and contracting out asset management planning. Some activities on the horizon may change the dynamics, including a new Governmental Accountability Office review of asset management at the request of the US House of Representatives. This bypartisan request for the review has the potential to increase incentives or mandates in asset management. A current survey by the American Water Works Association is intended to assess the state of asset management practice within the water sector and identify trends in the industry. understanding and acceptance has advanced greatly since its initial introduction, when almost no one thought utilities would accept it or begin putting programs in place. However, the actual implementation of asset management as a robust, well-conceived manner of operating and managing water utilities still has a long way to go.. Status of Current Activities Asset Management as an approach for better management of water and wastewater infrastructure is advancing at the federal, state, and local level. Considering where the US was in asset management practice a decade ago, the advance is quite significant. However, when viewed against the practice in countries who have fully embraced asset management as a way of doing business across all sectors, the US has a long way to go. Federal Level The US Environmental Protection Agency (EPA) continues to promote asset management as well as sustainable infrastructure. EPA has developed and

3 distributed several publications and tools over the last 10 years, including: Ten attributes of Effectively Managed Water Sector Utilities Moving Toward Sustainability: Sustainable and Effective Practices for Creating Your Own Water Utility From Aspirational to Operational: Sustainable and Effective Practices for Creating Your Own Water Utility Roadmap Planning for Sustainability: A Handbook for Water and Wastewater Utilities Making the Right Choices: Using Sustainability Criteria for Water Infrastructure Decision Making Asset Management: A Best Practices Guide Check Up Program for Small Systems These publications and tools are aimed at convincing water and wastewater utilities to undertake asset management on a voluntary basis. One difficulty is that the information can seem somewhat disjointed when it is presented in so many different contexts: sustainability, asset management, and effective utility management. Furthermore, energy and water efficiency programs, which share many elements with asset management, are presented almost entirely independent of asset management. This siloing of information can make it difficult for a utility to understand what is being asked and how the various pieces fit together. It may also discourage utilities when different parts of the EPA ask the utility to do very similar things, which duplicates work. Congress passed the Water Resources Reform and Development Act in June 2014 to require recipients of the Clean Water State Revolving Fund (CWSRF), a program that funds community wastewater systems, to develop and implement a Fiscal Sustainability Plan (FSP.) While the FSP is not synonymous with an asset management plan, it does have some of the same components and moves systems in the direction of asset management. FSPs require: An inventory of critical assets that are part of the treatment works An evaluation of the condition and performance of inventoried assets A certification that the recipient has evaluated and will be implementing water and energy conservation efforts as part of the plan A plan for maintaining, repairing, and, as necessary, replacing the treatment works and a plan for funding such activities The challenge will be encouraging utilities to go beyond the minimum requirements of the FSP to develop and implement a complete asset management program. Other federal agencies have also begun to promote sustainability or asset management practices. The US Department of Agriculture s Rural Development funding includes requirements for asset management, although these requirements vary widely from state to state and there is no national standard for how these provisions are implemented. Additionally, EPA has developed a partnership with the US Department of Transportation and the US Department of Housing and Urban Development (HUD), called the Interagency Partnership, to help improve access to affordable housing, expand transportation options, and lower transportation costs while protecting the environment in communities nationwide. (Sustainability and the Clean Water State

4 Revolving Fund: A Best Practices Guide, EPA, July 2012) This effort was intended to promote community sustainability, including sustainability of environmental infrastructure. State Level There are many activities taking place at the state level. Some states are being very proactive and strongly encouraging or incentivizing asset management, or including asset management requirements as a part of funding, such as New Mexico and Kansas. Others have programs offering technical support, such as Maine. The table below shows the types of activities states are undertaking and the number of states implementing each approach. Type of Asset Management Activity Provide funding incentives if system does asset management Funding provided for asset management planning Provide training or assistance to help utilities complete asset management activities or plans required as a condition of loans training is required trainings are included in routine surveys of water utilities planning required is included in the state s capacity development strategy Number of States Using the Approach Type of Asset Management Activity included in the needs survey training is provided in some way within the state outreach is done within the state State promotes EPA s CUPSS program assistance is provided onsite State has an asset management guidance document questions are included in the state s capacity assessment workgroup meetings are held training is held for state staff Considering adding funding incentives for asset management Considering an asset management requirement for funding Water Utility Level Number of States Using the Approach There are systems of all sizes and types that are implementing various asset management activities, but they represent a very small fraction of the approximately 65,000 community water systems and 30,000 wastewater systems in the US. It would be difficult to estimate the precise number of systems who have undertaken asset management planning or partial implementation of asset management, but it would be less than 10 percent, probably much less. Relatively few of these utilities 6

5 have a fully implemented, robust asset management program, probably representing less than 1 percent of the utilities in the US. The saw tooth effect to steal a phrase coined by others, including my friend and colleague Ross Waugh of Inframanage.com, is evidenced in many, many utilities. The utilities engage in asset management, get very excited about it, form steering committees, develop asset inventories, collect lots of data and then a key individual leaves, the budget gets cut, priorities change, a major emergency diverts attention away from asset management, or the data analysis leads to an unwanted answer and the asset management practice drops off. Then something happens to reengage the system in asset management and the practice starts to improve again, followed by an event that drops the practice off again. Many utilities who were early adopters or who invested in asset management planning in a major way have seen their programs decrease dramatically. It can be very hard to sustain asset management when the benefits are unclear to the utility s management or governing body, complaints roll in from staff who are not fully bought into asset management, and there is no underlying compelling reason or outside force (such as a regulatory mandate) to keep the practice moving forward. The good news is that there have been successes by many utilities who have implemented at least some aspects of asset management. One small utility one with only about 50 connections was able to use asset management practices to develop a list of critical assets along with a long term funding plan to be able to pay for replacement of the assets when they reached the end of their useful lives. This utility had never had proper funding to do asset repair and replacement and now can do that without difficulty. Another utility was able to use a business case evaluation process to determine that they were going to invest $5 million dollars into the wrong capital project. By changing the project to one that was more appropriate to the system needs (using a data driven decision process), they were able to achieve a greater level of service for the customers for only $50,000, a savings of $4,950,000. This change also freed up the $5 million to be spent on a project elsewhere in the state. A large utility that has been using asset management principles to question their operation and maintenance practices, asked the question, why do we change the lubrication in our large pumps every year? Is it because the pumps really need this or is it simply because this is the way we ve always done it. They also asked, is there a lubricant that would be better than what we are currently using? Their research into this issue determined that a food grade lubricant could be used that had better wear properties, which allowed them to replace the lubricant once every 4 years instead of once a year. The savings was multi-faceted. They saved approximately 3 times the cost of one replacement, which at $25,000 each for lubricant alone, was a savings of $75,000. They also saved the manpower to make the replacements and found that the pump was more energy efficient and was wearing better, which extends the life of the asset, adding to the cost savings. A large utility had implicit level of service goals but had never written any of its down and had not measured whether they had met the goals. After attending asset management training, they took to heart the idea that measuring level of service goals would change the way they

6 operated their utility. They developed several goals and measured progress towards meeting the goals, which resulted in several changes within their utility. They discovered that they were experiencing significant real water losses in a section of the utility and were able to use this information to investigate the piping network for water leaks. Another service level showed them that they were lacking isolation valves in a portion of the system which meant that a large number of customers had to be shut off each time the piping had to be repaired. They were able to identify the need for additional valves, secure the funding to install the valves, and then communicate with the customers regarding why the valves were being installed. There are many other examples of utilities achieving varying degrees of success with asset management and as these examples are shared and communicated more widely, asset management practice at the utility level may increase. Barriers to Greater Use of Asset Management There are several barriers to greater use of asset management in the U.S. Some of these barriers can be addressed by utilities, while others are more structural in nature and are unlikely to change any time soon. For the practice to advance to a higher level, the barriers will need to be recognized and approaches to implement asset management in the context of the existing barriers will need to be developed. Lack of a National Mandate: There is no federal government mandate in the US for asset management in the water and wastewater sector. The lack of a mandate means that implementation of asset management practice remains largely voluntary. Given all the competing priorities for money and personnel, it is much harder for utility managers to decide to spend limited resources on asset management. Lack of Unified Understanding/Definition of Asset Management: The International Infrastructure Management Manual outlines a generally accepted definition or understanding of asset management that is used throughout the world. A modified version of that definition is used by many practitioners in the U.S. However, there is still considerable variation in how different agencies or different communities define asset management. In some agencies, it is defined merely as developing a reserve account that covers all short-lived assets (roughly 10 years or less.) The lack of a standard definition and approach of asset management makes it harder to implement. Furthermore, a utility that has implemented some alternative version of asset management, such as the development of a reserve account for short lived assets, may feel they have completed asset management even though they have only completed one small fraction of asset management. This thinking makes it much harder to train utilities and to get them to implement more components. Blaming Asset Management for the Results: When a utility takes on asset management, individuals within the utility often expect a certain result. Perhaps they believe asset management will guarantee a rate increase or will ensure they get funding for asset replacement. When these anticipated results don t happen, the asset management process gets blamed and the individuals develop a negative attitude towards asset management, with some attempting to defeat the asset management program altogether. There is a lack of understanding of what asset management

7 is designed to achieve as well as the limitations on the asset management process. Some of these results also stem from a partial adoption of asset management principles. A utility may take on some aspects of asset management without taking on the entire program. They may fail to communicate risk to the governing body who is making decisions about funding, which results in poor funding decisions, but not see the connection between their lack of fully embracing asset management and the result. Poor Understanding of the True Benefits: Many of asset management s benefits are not obvious to the individual s engaged in the practice. They may find it hard to quantify the benefits, especially when they are non-monetary in nature, and therefore fail to embrace asset management. As an example, a utility may use the same operating budget in a much more efficient way, but miss this benefit since the budget has not decreased. It is important going forward to spend more time assisting utilities in quantifying their benefits in all three areas financial, environmental, and social to make sure asset management practice is embraced at all levels of water and wastewater industry. Funding Only Capital Expenditures: The U.S. continues to provide considerable funding to water and wastewater utilities in the form of low interest rate loans, subsidized loans, grants, or loan/grant combinations. This type of funding is exclusively for capital expenditures; it cannot be used to fund operation and maintenance (O&M) expenditures. This distinction means that water and wastewater utilities must pay for O&M expenses out of customer rates/fees/tariffs, while they can receive outside funding through state or federal tax dollars for capital expenditures. The desire to keep rates low drives many utilities to defer maintenance on assets, shortening asset life, sometimes considerably. Then when the asset fails they receive governmental funding the replace it. In essence, the funding program is paying for deferred maintenance by replacing assets early, which is an inefficient practice. Furthermore, this practice drives utilities away from the fundamental principles of asset management. Price of Water: The price of water remains extremely low in all areas of the US. The average cost of water nationally is approximately $30/month for 22,700 liters (6,000 gallons) which means that a liter of water at the household tap costs considerably less than a penny. With water priced this low, there is insufficient funding to properly address infrastructure needs in all categories (operations, maintenance, repair, rehabilitation, and replacement.) Furthermore, when water is priced this low, customers don t value it as highly as they should. The same customers who could not live without a cell phone or internet service, take water completely for granted and are not willing to pay even a fraction of the cost of those other services for water. Last Bill To Pay: In the US, there has been a shift in the order in which individuals pay their bills. While traditionally the household mortgage was the first bill to be paid, it is now the third bill to be paid, behind the car payment and credit card payments. The last bills to be paid are utilities, including electric, natural gas, and water. This low priority for water makes it difficult to raise the necessary funds for properly maintaining assets. Contracting Out Asset Management: Many utilities see contracting out asset

8 management planning activities to a third party as the easy way to complete a plan. When communities don t get involved in the process but rather have someone else do the whole plan for them, they are highly unlikely to change their behavior or actually implement the activities. The plans tend to sit on the shelf and nothing changes. This tendency to contract out hard tasks is so engrained in the water industry, that it will be necessary to fight against it to ensure that communities actually take on the changes necessary to reap the benefits asset management can provide. Asset Management Activities of the Southwest EFC The author is the Director of the Southwest Environmental Finance Center and has been working under contracts with EPA, state governments, and water utilities to provide training and technical assistance services in asset management across the US. In just the past two years, the author has provided 40 classroom trainings in over 30 different states or US territories, 12 webinars, and assisted systems of all sizes with asset management planning and implementation. These activities expand the reach of asset management and help advance the practice. These activities will be continuing over the next several years at least. The activities in the past have been largely introductory in nature because utilities are still learning about asset management. It is hoped that as utilities initiate practices, that the training and assistance may advance to a higher level of practice. The author participated in the New Mexico Water Infrastructure Team that developed a standardized approach for asset management that would be acceptable to any state or federal agency funding water or wastewater utilities within the state. This effort will help utilities and assistance providers understand what is expected of them in asset management. The author has also been providing asset management to other sectors beyond water and wastewater infrastructure, including senior citizen centers. As the practice grows in the water sector, other sectors are beginning to see the benefits and are engaging in asset management as well. Hopefully, this trend will continue. What s Next/Where Do We Go From Here? The US congress has taken an interest in asset management and has tasked the Government Accountability Office with investigating asset management for water and wastewater utilities and making recommendations regarding the use of asset management. This far-reaching study is expected to be completed by December It may ultimately result In the promotion of asset management through incentives or it may result in some level of mandates for asset management. The American Water Works Association is doing a nationwide survey of asset management practice to determine strengths, weaknesses, and gaps in asset management practice. The survey went out to thousands of individuals with the hope that at least 500 people would complete the survey. As of the date of this paper, the survey had exceeded this target level and will close at the end of May The results of the survey will be compiled and included in a report that is expected by fall The report will describe trends in the industry by system size and type and will possibly present some case studies. has definitely advanced within the US over the past

9 decade and is expected to continue to do so how quickly depends on many hard to predict factors. At some point, it may be so imbedded within the industry that it will advance rapidly, but that point is many years away. There may be additional state or federal mandates that move the practice forward or we may remain in the voluntary mode and the practice may continue to advance more slowly. The good news is that the practice is still moving forward. management Speaker Biography Heather Himmelberger is a registered professional engineer with 30 years of experience. She has a BS in Environmental Engineering from Penn State University, an MS in Environmental Engineering from Johns Hopkins University and is currently pursuing a PhD in Civil Engineering at the University of New Mexico. She has been the Director of the Southwest Environmental Finance Center (formerly the New Mexico EFC) since Heather has been providing asset management training and assistance for the past 12 years and has delivered well over 100 trainings of this type throughout the US, including 40 in the last two years. She has assisted utilities with the implementation of asset