ERMUSR Misc 05-10-2007~/
Elk River ~--~
Municipal Utilities
13069 Orono Parkway
Elk River, MN 55330
May 7, 2007
To: Elk River Municipal Utilities Commission
Jerry Takle
Jerry Gumphrey
Jim Tralle
From: Bryan Adams
Subject: Miscellaneous Issues
phone: 763.441.2020
Fax: 7(3.441.8099
Enclosed is the packed for Thursday, May 10, 2007 commission meeting at 3:30 p.m. Please
note the time change.
The Lorenz case continues on course. As you may recall, on October 2, 2004 Kristin Lorenz was
driving a car on Co. Rd. 33, hit a utility pole and was killed. This utility pole was purchased
from Connexus Energy with acquisition area 21. Elk River Municipal Utilities, Connexus
Energy and Sherburne County are being sued in this case. As a result of this accident, Connexus
Energy is requiring us to indemnity them in future cases of this nature. Below is the language
we have agreed to:
"Connexus Energy states that to the best of its knowledge that facilities sold to
ERMU were designed and constructed in accordance with the National Electrical
Safety Code (NESC) that was in effect at the time of construction and ERMU
agrees that the facilities are being transferred `as is' and without warranty or
representation relating to their condition, design or compliance with the NESC.
ERMUshall indemnify and hold Connexus Energy harmless against all claims
for loss, injury, or damages of any kind, including reasonable attorney fees that
may arise from the condition, maintenance, or operation of the transferred
facilities including any abandoned cable. Connexus Energy will make a reasonable
effort to identify the location of any abandoned cable. "
I have discussed this language with our attorneys. This is more of a business decision than a
legal issue. There is a business risk on our part for increased costs in accidents of this nature, but
if we desire to continue to purchase territory from Connexus, we have no choice but to include
this language.
Attached is the following information for your reading pleasure.
a) Apri120, 2007 Kiplinger letter on Climate Change.
b) From Apri12007 AWWA Journal, titled "The Infrastructure Crisis".
The construction of the Waco Substation and l OOOMCM feeders that will feed in part United
Health Group data center are well underway. The installation of the 10" water main along Twin
Lakes Road is almost competed. At our meeting, staff will update you further on the status of
our other construction projects.
^ ^
e i in er alter
FORECASTS FOR MANAGEMENT DECISIONMAKING
1729 H St. NW, Washington, DC 20006-3938 • kiplingerbiz.com • Vol. 84, No. 16
Dear Client:
It's all but a done deal.
Reeulation of greenhouse gas emissions
is coming. Some states are already moving
to impose caps. By early in the next decade,
the fads are likely to curb emissions as well.
® Losers are obvious: Power plants.
' Automakers. Most users of electricity.
But companies that look ahead, basing decisions
on what is coming later, can minimize the pain.
So who's likely to come out a winner?
Alternative energy firms, of course.
The category spans quite a broad range:
Those involved in power production from wind,
solar, ethanol, geothermal and biomass...
making the equipment, building the plants
and selling the green energy to end users.
Washington, April 20, 2007
/ 1 1' ~
GDP
2%-2.5% for the year
....................................
..
.
..
.
..........
N .
...............
..
.
.
Interest rates
.......... Prime ending '07 at 8.25%
.............................................................
Inflation
.......... Just over 2% for the year
...............................................................
Employment
....
... 1.3 million more jobs
.............................................................
.
.. Trade deficit
Narrowing to $740 billion,
5.4% of GDP
.....................................
.
..
.
.......... ................
..
.
..
Crude oil
Averaging $60 a barrel
Housing sales
.......... Falling 8.5%
..............................................................
Retail sales
Slowing to 3.5% growth
Cornpiete economic outlook at
klplingerbii.conl/ouNooks `: '.
There'll be many other success stories.
The suppliers to the alt-energy firms:
Zoltek and other manufacturers of composites
used in wind turbine blades. Steel producers,
who benefit from more demand for ethanol vats,
pipelines and turbines. AgriPower, BeUtilityFree, Landfills+ and others
that sell systems for collecting methane to use in powering generators.
Suppliers to the nuclear industry: Allegheny Technologies,
a maker of specialty metals such as titanium alloys used in these plants.
Sulzer Pumps and other vendors of heavy-duty pumps for cooling systems.
Businesses aimed at cleaninf~ up fossil fuel energy emissions:
Those such as Foster-Miller and Pegasus Technologies, which make systems
that remove airborne pollutants from coal plant emissions. And those
such as E.ON U.S. and PPL Corp., which develop new coal-fired power plants
that produce little or no pollution. Further down the road, services
to move carbon dioxide to underground seams for storage should mean a boon
for geology firms and for vendors of drilling equipment and steel pipes.
Products and services to better manage energy supply and demand:
Everything from smart meters that display real-time use and price data
to microelectronics that allow manufacturers to automatically adjust use.
Information technology that lets grid managers trade power on the spot
with multiple partners. Heat-and-power units that convert waste heat
into electricity. Renewable energy brokers. Energy management consultants.
Winners run the gamut from big energy players such as Siemens
and Johnson Controls to lesser-knowns such as Itron, Green Mountain Power,
Areva, Elster Electricity, Comverge and EnerNOC. (More on page 2.)
The Kiplinger Leiter (ISSN 1528-7130) is published weekly for $117lone year, $199/lwo years, $263/three years SubSCnpfiOn inquiries: 800-544-0155 or subsernces@Wplinger.com
by The Kiplinger Washington Editors, 1729 H St., NW, Washington, DC 200063938. Editorial in(ortnahOn: Tel. 20?-887-6462; Fax, ?02 778-89 76;
POSTMASTER: Send address changes to The Kiplinger Leiter, P.O. Box 3295, Harlan, IA 51593. E-mail, letters@kiplinger.com; or Web site, kiplingerbiz,com
Other sure winners in the push to curb global warming:
Makers of all sorts of Earth-friendly building products...
from high-efficiency fluorescent bulbs to improved insulation.
Plus substitutes not only for lumber and wood, but also for glass,
concrete and other materials whose production emits high levels of CO2.
Firms that help automakers meet rising fuel efficiency standards,
which will hit 40 miles per gallon by 2015 or so, versus 27.5 mpg now.
Automakers are likely to turn to firms such as BorgWarner and SKF
for superefficient steering and braking systems, drivetrains
and turbochargers. Also to companies such as Magna International,
which makes ultralight but strong steel. Others, such as ECD Ovonics,
Ballard Power and Apollo Energy, will profit from interest in fuel cells.
Will it take years for a thriving green market to develop?
Not at all. Some smart companies are already investing big bucks,
not waiting for government regulators to lower the boom. Wal-Mart
is budgeting $500 million a year for emissions-cutting measures.
Bank of America, Exelon, Swiss Re and Toyota have all pledged
to lower their contributions to global warming over the next few years.
Uncle Sam is buying in. The country's biggest energy user,
the Defense Department, is inking deals for new photovoltaic arrays.
Ditto, many towns and cities. They're turning to solar panels
for traffic signals and other lighting plus buying office furniture,
cleaning supplies and other products made from renewable materials.
® The housing market will stay in the doldrums well into next near.
' ' The _subprime mess has a very long tail.
The number of loans facing interest rate changes ~
has yet to peak in this risky mortgage class . ~ M~9~ Loans
It will stay high through fall of next year, Facinq Interest Rate Resets
keeping foreclosures ...and supply... on the rise . so ---°------°-- ~-~ ----°~•~~°
Leading home builders are downbeat,
40 .___._.__.. ____ .~.
despite March's surprise gain in housing starts.
The figures are distorted by a surge in building ~ °'°'
in the Midwest after the snow and cold of Feb. zo _
Other regions showed significant slowdowns.
Inventory levels are worrisome. 10
They're at 8.1 months of supply for new homes, p (rtanth Svolume,inbilllans)
marking the highest level since January 1991, ~~ ~~so,,,~,c~.c~~s„~~:.
when the housing market was in a nasty decline.
Housing's prolonged slump will pressure the economy next year,
forcing other sectors to carry more of the .load to support growth.
With Congress rejecting calls to bail out subprime borrowers...
Some states are acting on their own to limit foreclosures.
Ohio is selling $100 million in taxable bonds and will use the proceeds
to refinance shaky adjustable mortgages into fixed-rate loans at 6.75%.
The state's cost: $3300 per loan, well below the $80,000 that foreclosure
and resale typically cost the homeowner, lender and local government.
Other states are also looking to help beleaguered homeowners,
including Calif., .Colo., Md., Mass., Minn., R.I., Va., Wash. and Wis.
Congress WILL put the rating agencies in the hot seat soon,
probing conflicts of interest and asking why Standard & Poor's, Moody's
and Fitch were slow to cut their ratings on subprime-backed securities.
Remember, your subscription includes The Kiplinger Letter online
infrastructure
BV JOHN E. CROMWELL III, ELISA SPERANZA,
AND HAYDN REYNOLDS
The Infrastructure
~~
~~~~
n 2005, AWWA's Water Utility Council commissioned the authors to
US WATER UTILITIES ARE AT develop a report (AWWA, 2006) that would clarify the infrastructure issue
and motivate local actions to address the issue. The primary objectives
A TURNING POINT. UTILITY were to (1) articulate the true nature of the need for infrastructure stew-
MANAGERS AND GOVERNING ardship via asset management and (2) help water utilities convey this need,
both internally and externally, to governing bodies, customers, and other stake-
BOARD MEMBERS MUST MAKE holders. This article is derived, in part, from that report.
Much has been written about the infrastructure "crisis." Coverage of the
CRITICAL REINVESTMENT issue began with publication of America in Ruins (Choate & Walter, 1981),
DECISIONS NOW TO ENSURE Which used images of ancient Roman ruins to frame the infrastructure issue as
an imminent crisis. Many other studies of the nation's infrastructure crisis followed.
THAT THE UNITED STATES In addition, the media continues to use catastrophic images and provocative
headlines when covering infrastructure issues. These presentations convey the mes-
CONTINUES TO HAVE THE FINEST sage that the damage is done and US cities are already in ruins. This character-
WATER SYSTEMS IN THE WORLD. ization exaggerates reality-and, ironically, is not consistent with the proper
definition of the word "crisis."
According to Merriam-Ik%bsters Collegiate Dictionary (2006), a crisis is a
"turning point," a key juncture at which decisive action must be taken to avoid
damage or harm. Used correctly, crisis is actually a good word for characterizing
the nation's existing infrastructure situation.
CROMWELL ET AL I 99:4 JOURNAL AWWA ~ APRIL 2007 109
~~~~
i/i~~l/1<<s try?tit r,~~n~~.7~~rs i:~t`A~%;<~w~~/ms's' Elf~t~r ~l~i~'~t~r ~',~~i.~t. -E~
u~~t~ PCIf3r1%I-~ft~;`~ ~t?L'l1CCt' Cs!? b't/1t~F~ f a::t!<:F'S
"Unfortunately, it seems to require a disaster or catastrophe."
"Sadly, the greatest impact would be an example of catastrophic failure
somewhere."
"The tyranny of the immediate has taken over public decision-making."
"It will probably take a crisis."
"Unfortunately, many times it is a disaster or major problem."
"For most communities, it will probably take a significant critical event where
it is perceived that the public's health or safety has been put in jeopardy.
Then elected officials can champion the solution and position themselves as
protecting the public from imminent disaster."
SOURCE: Water Infrastructure at a Turning Point: The Road to Sustainable Asset
Management, AWWA, 2006.
The two charts shown in Figure 1
appeared in Dawn of the Replace-
ment Era (AW~Y~A, 2001). These
charts present data from 20 medium-
and large-sized US water utilities.
Figure 1, part A shows the replace-
ment cost value (in 2001 dollars) of
the pipe assets of those 20 utilities,
plotted in the historical year in which
they were installed. Part B shows a
projected ramping up of pipe replace-
ment investment needs in the twenty-
first century. This investment gener-
ally echoes the historical pattern of
pipe installation, with allowances for
differences in asset lives resulting
from manufacturing eras and oper-
ating environments.
Although the graphs in Figure 1
do define a crisis in the real sense of
the word, they also convey consid-
erable good news.
• The pattern of pipe installation
produced by historical demographic
trends results in an echo wave of rein-
vestment needs. This pattern does not
indicate a sudden increase in expen-
ditures, but rather a ramping up of
expenditures that extends over sev-
eral decades-the period we call "the
provided to customers. This is espe-
cially important as knowledge of
asset wear-out processes and appli-
cation of renewal technologies con-
tinue to improve.
'T'here is also considerable risk
conveyed in Figw-e 1. Communities
that do not act at this crucial point to
implement asset management and
ramp up reinvestment will fall behind
the curve, leaving the next genera-
tion with a mountainous funding
problem that will constitute a true
threat to sustainability.
1LLA~iAi~ll"~t~ Tf•IE i,SStIE
Today's utility managers and gov-
erning board members are ar a turn-
ing point. There is an urgent need to
mobilize and sustain proactive invest-
ments to prevent catastrophic or dis-
astrous conditions from developing
in our infrastructure. Mobilizing
action to prevent catastrophe is, in
many ways, more challenging than
mobilizing action in response to cat-
astrophe. There are broadly held
beliefs that an acute crisis is required
to motivate significant new spending.
However, framing the issue in this
manner suggests that aone-tithe ex-
penditure is an effective response. In
contrast, proactive asset management,
coupled with a sustained ramping-up
-
_ ;w .
`.t
., ~ - f T , '~Y,
~
S
Ana }
~r ~
1
1,
,, .~:.
l
l ~
w , t. ~ J
Y
t ~n .
,ilvs . Y"~~M F 1.-. r ~ ~ +h~ . ,, 3~+ .. ~ .. } .._ .i!_....._,.
dawn of the replacement era." Con-
sequently, utilities are able to gradually
transition to a new steady state that is
at a higher level of spending needed to
sustain a mature pipe network.
• Experience with the best asset
management practices indicates that
there are many ways to flatten and
stretch the ramping-up phase without
compromising the level of service
of expenditures, is the appropriate re-
sponse for probable infrastructure
needs-a point that must be commu-
nicated to stakeholders. Water infra-
structure renewal requires along-term
commitment that cannot be sustained
if perception of the problem and the
reality are not brought closer together.
The sense of urgency that gave
rise to the crisis rhetoric is not mis-
placed. Professionals in the public
works arena have known that when
urban infrastructure needs to be
replaced because of wear and obso-
lescence, it is difficult to draw ade-
quate public attention and mone-
tary resources to these needs. This is
particularly true in the wider context
of reinvestment needs in other sec-
tors (e.g., transportation and health).
This worry stems from the fact that
infrastructure wears out over time
and is invisible to most people.
Over the past several decades,
major national studies of water infra-
structure have been conducted
(NCPWI, 1987a, 19876; WIN, 2000;
USEPA, 2002; CBO, 2002). These
studies predicted a growing need for
reinvestment in infrastructure. They
also emphasized meeting those needs
to prevent a funding gap from which
it would be difficult to recover. The
authors of these studies were preoc-
cupied with quantifying the national
scale of the problem in terms of bil-
lions of dollars. Although the num-
bers vary between studies, the con-
sistent result was the need for
sustained increases in investment.
Although these infrastructure
studies documented the prospect that
a funding gap could arise, media cov-
erage required more newsworthy
headlines, i.e., that a huge gap
already exists and our infrastructure
is falling apart. The media knows
that afull-blown crisis draws more
attention than a potential one. Some
utility managers regard such news
coverage as a victory until a jour-
nalist shows up at the door to ask
why a crisis has been allowed to
develop in the first place and who is
to blame-with cameras rolling.
Even if it appears to work once,
the crisis approach is not the sus-
tainable funding mechanism needed
for water infrastructure renewal. If
the issue is framed in this way, util-
ities may be backed into a corner,
and sustainable solutions may be
out of reach. To say there's a crisis
is like saying there's a fire. Once
it's doused, it's expected that the
crisis is over.
While developing the most recent
AWWA Water Utility Council report
(AWWA, 2006), the authors polled
utility managers and public affairs
professionals to gain a sense of cur-
rent opinions (see sidebar on page
110). Broadly summarized, utility
managers believe they are in the dif-
ficult position of trying to convey a
need for sustained action to prevent
catastrophic conditions from devel-
oping, while other community needs
are made to seem more pressing.
Managers are very concerned that
the true value of water and waste-
water infrastructure is underappre-
ciated. They believe that a long-
term commitment to funding the
renewal process, rather than a
short-term response, is needed to
ensure sustainability.
Public officials were also polled.
They generally believe that water util-
ities provide good, reliable service.
Their impressions of water infra-
structure issues (see sidebar on page
114) are, for the most part, locally
based and not distracted by national
media. Although they believe they
should "do the right things" to sup-
port utility managers in funding
needs and educating the community,
they note many stark realities that
enter into the picture.
First and foremost, locally there
are competing demands for funding.
In this environment, visible, tangi-
ble, and immediate public benefits
matter most. The relative lack of vis-
ibility of buried pipes and the long-
term nature of the renewal process
are noted as impediments to mobi-
FIGURE 1 Replacement cost value lin 2001 dollars)
of pipe assets for 20 utilities, plotted in the historical
year in which they were installed (A), and projected
ramping up of pipe replacement investment
needs in the twenty-first century (B)
600
soo
0
0 400
E
300
o zoo
U
too
c
0
E
I
0
v
A
B
Source: Dawn of the Replacement Era: Reinvesting in Drinking Water
Infrastructure, AWWA, 2001.
CROMWELL ET AL ~ 999 JOURNAL AWWA ~ APRIL 2007 111
0
O O1 W n t0 ~ Q ~ N O OI m n tD
f` r O O O N c7 R N O tD n W T
00 d0 W 00 O1 T 01 Of C~ T 01 O Ol Ot O
.- ~ .- ~ r Year .- .- ~ .-
o n e m ~n N m m e7 0 ~ v co
0 o N N co a s ~n io n r, ao a, rn
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
N N N N N N N N N N N N N N N
Year
lizing local action. The effectiveness
of crisis conditions, court orders, US
Environmental Protection Agency
(USEPA) standards, and security con-
cerns are acknowledged as motivat-
ing factors. Although the value and
importance of water are acknowl-
edged as motivators, the need for a
long-term commitment to sustain-
ability as a focus of intergenerational
stewardship is regarded as a rough
sell in some communities.
Part of the solution to this prob-
lem involves framing the issue in a
way that is closer to reality. The issue
should be framed proactively in terms
of the need for a sustained ramping
up of expenditures rather than as an
expenditure gap, which frames the
issue as a crisis that requires sudden
outlays of cash. As confirmed by our
research, every city has a long queue
of crisis petitioners, and being rele-
gated to waiting in that line is not
FIGURE 2 Demographic waves and changing pipe materials (A) combine
with variable pipe life estimates to produce echo waves
of replacement needs IBI
A
a
c
0
E
~,
I
N
0
U
B
d
C
0
.~
I
N
0
U
- .- r ~- r N
Year
Year
Source: Water Infrastructure at a Turning Point: The Road to Sustainable Asset
Management, AWWA, 2006.
AC-asbestos-cement, Conc-concrete, OJ-ductile iron, Pit Ct-pit cast iron,
PVC-polyvinyl chloride, Spun C!-spun cast iron
the desired outcome. Communities
cannot afford co have their utilities
backed into that corner.
By framing the issue in terms of
the need to ramp up, utilities are able
to draw a focus on asset manage-
ment as the best practice approach
to keeping the investment slope grad-
ual, thus avoiding rate shocks
(AWWA, 2004). Communities that
practice asset management are able to
mobilize around finding a sustain-
able path rather than seeking a lim-
ited crisis response.
ASSET LIFE LESSONS
Pipes generally constitute the
bulk of a utility's infrastructure and
have the longest useful lives. Con-
sequently, they are major drivers
in fundamentally altering invest-
ment needs for rehabilitation and
replacement and are the impetus
for ramping up expenditures. This
does not diminish the importance
of nonpipe assets, which also rep-
resent asignificant investment and
typically require much shorter
replacement cycles.
Pumps, treatment facilities, and
extensive instrumentation and con-
trol systems are also "invisible" to
the public. However, these compo-
nents have shorter life cycles and
require earlier replacements, creat-
ing aview of water-related infra-
structure that requires only periodic
injections of capital followed by
years of trouble-free operations. In
contrast, pipe rehabilitation and
replacement will require a sustained
flow of expenditures.
In simple terms, pipes are replaced
based on the date the pipe was
installed and the length of its life.
As in any population, age is not the
only determinant of the length of a
life. All the pipes that are "born" in
a given year will not "die" in the
same year in the future. For example,
pipes placed in corrosive soils or in
locations where they are subject to
adverse stresses have a decreased life
expectancy. The number of years of
service for a group of pipes installed
in the same year will take the form of
~,
~n ~n in N
O O O O O O O O O O
N N N N N N N N N N
Failure of underground pipe
becomes very evident
when sinkholes form to
swallow up cars, which
happened in the city of Fort
Lauderdale, Fla.
a statistical distribution,
such as abell-shaped
curve. Within this dis-
tribution, the average life
of most pipes makes up
the middle of the distri-
bution and the ex-
tremes-represented by
the "tails" of the distribution
curve-are either shorter or longer
than the average.
'This bell-shaped curve of life ex-
pectancy stretches out replacement
investment needs over a longer period
of time than would be the case if all
pipes had exactly the same life
expectancy. Stretching out reinvest-
ment needs sounds good, but the total
picture is a bit more complicated.
Most water systems installed
additional pipes as the utility
expanded. Every installment of pipe
assets will have its own bell-shaped
curve of replacement needs. The suc-
cession of bell-shaped curves will be
staggered over time, and the distri-
butions will overlap. To get an accu-
rate picture of total replacement
needs, the overlapping curves must
be added together.
The result is a replacement invest-
ment forecast, or echo wave, that
reflects the original waves of con-
struction and expansion in a water
system. In the past, the expansion
rate of pipe networks was a result of
population growth, which tended to
ebb and flow as waves of growth
swept over US cities. Combining the
demographic patterns of original con-
struction work with the bell-shaped
curves of expected pipe life produces
a graph like the one in Figure 2. This
graph illustrates the relationship
between the original waves of con-
struction and the echo waves of
replacement for each class of pipe
assets. The resulting ramplike shape
of reinvestment results because most
system expansion occurred during the
latter part of the previous century
(i.e., most pipes are less than ~0 years
old) and because even the oldest pipes
have long lives (life expectancy for
many of the oldest pipes is more than
100 years because of the thick-walled
design of the early iron pipes).
Two key variables determine the
echo wave of pipe reinvestment
needs; one is known, and the other is
unknown. The original pipe instal-
lation pattern is fixed and known; it
can be inferred reasonably well from
data on historic population growth
trends even if there are no utility
records. The second variable-the
bell-shaped distribution of pipe life
for each annual cohort group of pipe
assets-is not known with precision.
1Vloreover, it is not fixed but rather
evolving as individual pipes continue
to wear out, and it is changeable
because of maintenance interventions.
Asset management focuses on this
"pipe life" variable in an attempt to
optimize the rate of reinvestment in
terms of total life-cycle costs (flat-
tening the ramp) while maintaining
the level of asset performance
required to deliver the desired level of
service to customers.
In addition to physical failures
such as main breaks, pipe perfor-
mance is affected by line pressure,
water chemistry, and microbiology.
CROMWELL ET AL °9:4 JOURNAL AWWA ~ APRIL 2007 113
Impediments to Local Action
-~ on Water Infrastructure
-Views from local elected officials,
"Water. is out of sight, so political-payback is low ...other public
works projects have more visibility'and therefore get more support."
.~;
"Even though water utilities are enterprise~fands, they still compete
'with general fund activities inthe public's mind-it all looks the same
...~
,. -:
to them; all payments are coming out of the same pocket ultimately."
"'Quality-of-Irfe projects tike recreation programs, parks, and
libraries have higher priority; and the public fails to make the linkage
.between safe water and hovv it supports other quality-of-life
projects..; . ° _. `
"Schools, streets, and public safety always come first."
"The greatest impedimentto action on infrastructure issues is the
invisibility of the system."
"We have to educate people and combat the perception that water
system improvements will promote sprawl."
"The greatest impedimentto action on our part is fear that rates will
exceed the public's willingness to pay. The greatest impedimentto
action [and] support in the community is water's low profile."
Source: Water Infrastructure at a Turning Point: The Road to Sustainable Asset
Mahagement, AWWA, 2006.
The wear-out/service deterioration
process can be actively managed to
extend pipe life by efficiently respond-
ing to main breaks and by intervening
with maintenance actions to arrest
structural decay. In some instances,
rehabilitation investment can be sub-
stituted for replacement investment
to extend pipe life by remediating
nonstructural performance issues such
as adequate pressure and acceptable
taste, odor, color; and microbial safety.
THE VALUE OF ASSET LIFE
Pipes are not a "simple" asset
because of the complex way in which
they wear out at varying rates over
time. This complexity is coupled with
the inherent difficulty of assessing
and tracking this wear-out process
when the assets are buried from view.
The importance of these complexi-
ties becomes magnified because pipes
constitute such a high proportion of
the replacement value of a water sys-
tem's assets.
A utility that falls behind in pipe
reinvestment will find it very diffi-
cult to catch up. On the other hand,
a utility that replaces pipes too early
may lose an enormous amount of the
remaining value of these expensive
assets. There is a lot at stake in deter-
mining the right rate of reinvestment.
Consequently, it is critical ro have an
asset management process that seeks
to understand and proactively man-
age the rate at which pipes wear out
in concert with a logical, rargeted
reinvestment program.
Originally, water utility pipe net-
works were financed through the
repeated waves of population and
resultant economic growth, reflect-
ing atremendous store of value. In
a city with half a million people,
the cost to replace the water pipes
might amount to $1 billion. Today,
some cities have lost as much as a
third of the population they had at
their peak. Apile-up of replacement
needs, as implied in Figure 2, can
present significant financial risk to
a utility if these previously stag-
gered investments must be repeated
simultaneously, without correlation
to the current economic conditions
for that community.
There is a potential catastrophe in
the making if this large wave of invest-
mentneeds is not recognized and acted
on in advance. A community that
allows this wave to overtake its water
utility without a proactive strategy
will be inundated by it.
Another essential message re-
garding the ramp-up phase is that
with few exceptions ramping up can
extend over decades. This allows time
to build knowledge of asset life ex-
pectancy and an ability to increase
asset life through maintenance, tar-
geted rehabilitation, and develop-
ment of new and/or less expensive
technologies. Fortunately, there is
time to reduce the uncertainty, flatten
the ramp, and ensure that commu-
nities derive maximum value from
these essential public assets.
RESOLVING THE CRISIS
Utilities face a real infrastructure
crisis-a turning point that requires
decisive action. The crisis is the result
of subtle phenomena and involves
many invisible assets. Consequently,
the opportunity to take timely action
could be missed. This risk is amplified
by the fact that a staggering amount
of public equity is at stake, not ro
mention public health. Asset man-
agement provides a necessary risk
management framework in which
uncertainties can be systematically
investigated and ~n~eighed. This
enables decision-makers to make bet-
ter-informed, timelier decisions about
the rate of reinvestment in w•atcr
infrastructure and, in turn, to better
serve their communities.
Utility managers and board mem-
bers are counted o^ to apply careful
and balanced judgment to issues
involving utility policies, operations,
capital investment, and customer ser-
vice. Governing board members often
see their main role as that of con-
trolling costs and quality of service.
Asset management enables govern-
ing board members to also act as
stewards of invaluable water infra-
structure.
if viewed as unrelated line items
in operating and capital budgets, the
activities needed to develop, refine,
and implement asset management
programs are considered in the con-
text of short-term benefits against
other spending needs. It is in this
context that true catastrophe will
ultimately be needed to support
changes in expenditures.
When asset management initia-
tives are grouped into a coherent
risk management program, it is pos-
sible to see the connections between
a given level of capital replacement
and parallel activities, such as
repair, rehabilitation, and condition
assessment. In turn, board members
can better appreciate and make the
case for ramping up key expendi-
tures. Moreover asset management
is a continuous improvement process
that facilitates knowledge transfer
from one generation of managers
and board members to the next. It
also provides direction for research
and development of repair and
replacement technologies and a bet-
ter understanding of sustainable ser-
vice levels.
The dynamics of echo replacement
waves are such that transition to a
steady stare in the replacement era
will extend decades into the furwc.
Today's utility managers and go~~-
erning board members stand at a
turning point. They cannot solve the
infrasn-ucture problem by writing
one big check-which is an incorrect
perception of this generation's
responsibility. This generation is
responsible for inaugurating a process
of asset management that will facil-
itate ramping up of reinvestment and
guarantee a sustainable flow of valu-
ablepublic benefits from these valu-
able assets.
,4ClK~il CI Wl~'Bi; l~'lEl1f
This article is derived, in part, from
the AWWA report, "Water Infra-
structure at a Turning Point: The Road
to Sustainable Asset Management"
(2000 ). It was developed for the
ASX~VA Water Utility Council with
sponsorship from the Water Industry
Technical Action Fund. The authors
are indebted to a number of collabo-
rators, including Gary Breaux, Tom
Curtis, Paul Demit, Mike Hooker,
Gary Lynch, Sue '.McCormick, John
Sullivan, Kurt Vause, Gina Wammock,
and Al Warburton.
ABOUT THE AUTHORS
~ .John Cromwell III
~°`~ consa7lts for aatilities
~~ ~ and perforans policy
research for Stratus
Consarlting Inc., in
1Xlashington, D.C'.
He has bachelor's
.degrees in biology and economics
as well as a master's degree in pub-
lic policy analysis, all from the
Universaty of Maryland.
Cromwell may be contacted at
jcronzwell@stratusconsulting.com.
F,lisa Speranza is vice-president of
CHZM HILL and global team
leader for Utility Management
Solutions. Haydn Reynolds is a
leading authority in the Aus-
tralian water industry on improv-
ing the strategic integration of
asset management and capital
investment, including the assess-
ment of asset lives based orz life-
cycle cost concepts.
If you have a comment about this
article, please contact us at
journal@awwa.org.
R'r~~R~~7C~~
Association of Local Government Engineer-
ing New Zealand, 2006. International
Infrastructure Management Manual.
National Asset Management Steering
Group, Thames, New Zealand,
AMSA (Association of Metropolitan Sewer-
age Agenciesl, 2001. Managing Public
Infrastructure Assets to Minimize Cost
and Maximize Performance. AMSA,
Washington.
AWWA, 2006. Water Infrastructure at a Turn-
ing Point: The Road to Sustainable
Asset Management. AWWA, Denver.
AWWA, 2004, Avoiding Rate Shock: Making the
Case for Water Rates. AWWA, Denver
AWWA, 2001. Dawn of the Replacement
Era: Reinvesting In Drinking Water
Infrastructure. AWWA, Denver.
Choate, P. & Walter, S., 1981. America in
Ruins. Council of State Planning Agen-
cies, Washington.
CBO (Congressional Budget Officel, 2002.
Future Investment in Drinking Water
and Wastewater Infrastructure. CBO,
Washington.
Merriam-Webster's Collegiate Dictionary.
2006. Merriam-Webster Inc., Spring-
field. Mass.
NCPWI (National Council on Public Works
Improvementsh 1987a. The Nation's
Public Works: Report on Water Supply.
NCPWI, Washington.
NCPWI, 1987b. The Nation's Public Works:
Report on Wastewater Management.
NCPWI, Washington.
USEPA (US Environmental Protection
Agencyh 2002. The Clean Water and
Drinking Water Gap Analysis. USEPA,
Washington.
WIN (Water Infrastructure Networkl, 2000,
Clean & Safe Water for the 21st Cen-
tury. WIN, Washington.
CFOMWELL ET AL 99.4 JOURNAL. AWWA APRIL 2007 115
BY ARTURO A. BURBANO, SAMER S. ADHAM,
{ :~..
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,~
.
sR
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_,
AND WILLIAM R. PEARCE
wide survey
s a result of demographic expansion, many areas of the world face
the challenge of ,meeting ever-increasing water demands. This situ-
ation_~is particularly complex in arid regions where water resources
are scarce and/or dangerously close to exhaustion (USGS, 2003).
. For this reason, the use of nontraditional water sources such as sea-
watet;'brackishgroundwate~`and reclaimed wastewater has become an attrac-
tive alternarive for increasing water supplies for potable and nonpotable uses.
'-A corrfinon chazacterstic`of these nontraditional water sources is their high
coneentratio~ !of'totaldissolved solids (TDS). The US Environmental Protec-
tion Agenc}~ has established a~guideline (i,e., secondary maximum contaminant
level) ~~of 500 mg/L as TDS;foi- drinking water (AWWA, 1999). An arbitrary
criterion has determined a TTZS concentration of 1,000 mg/L (excluding hard-
ness) as t~e,upper salintty,~lirnitfor water suitable for human consumption
(Bhattacharyya et a1, 2001): Yet in regions of the world such as Saudi Arabia
and otlier:countnes inxhe Persian Gulf, water with salinity levels that exceed
1,000 mg/L is.used for domestic supply because less-saline water is scarce or
unavailable':{A1-Salahwi, 1999).
Water with TDS of approximately 3,000 mg/L or higher is considered too
'saline to drink. This category includes seawater and some brackish ground-
- waters. whose TDS concentrations may vary from approximately 20,000 to
:50,000 mg/Land .1.,000 to 10,000 mg/L, respectively. Reclaimed wastewater,
which-;has a TDS content ranging from 600 to 1,400 mg/L, has become an
increasingly popular alternative. water source in light of the new emphasis
on water reuse (Alexander et al, 2003; Adham et al, 2001; Lozier et al, 2000).
to of
full-scale
aesa[inati~~-
esults from