Found Money: How Improved Asset Management Can Help Utilities Close the Funding Gap

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The financial pressure on water and wastewater systems has possibly never been greater. In some systems, precipitous population growth is putting unrealistic demands on aging infrastructure. In others, declining consumption is resulting in revenue loss. In most jurisdictions, regulatory pressure regarding PFAS, lead and other contaminants of concern is forcing expensive capital treatment improvements, and in nearly all jurisdictions, inflationary pressure is resulting in upgrade costs that were affordable when a project was approved but just a year or two later, are out of budget and out of reach.

Federal grants and loans available to water systems have never, in the history of our country, been as generous as they are now. The Bipartisan Infrastructure Law (BIL) is spending more than $50 billion on America’s water infrastructure – the single-largest investment in U.S. water infrastructure ever. However, even as massive as this amount is, it will not be enough for all water systems to properly upgrade and achieve compliance with new regulations.

First, the math just doesn’t work. The EPA has estimated that the cost of fixing, maintaining and improving the nation’s drinking water infrastructure (which says nothing about wastewater) will be $625 billion over the next 20 years – a $575 billion shortfall. Even if there was more money, for smaller systems the processes required to access government funds are simply too burdensome and confusing.

Raising rates for customers – never an easy option – seems inevitable. But first, there’s another way to address some of this funding gap, and it’s right under the nose of nearly every system in the country: improving asset management.

How asset management can help close the funding gap

A modern asset management approach aims to maximize value and minimize costs while optimizing performance and maintaining desired level of service. This strategy can deliver enormous savings, shrinking the funding that utilities need for upgrades and improvements by getting the most value from the assets they already own and operate. The efficiencies that can be achieved through asset management include extending the life of expensive equipment, deferring construction costs, reducing energy consumption, avoiding the cost of over-protecting assets, minimizing downtime and mitigating risk. And, in an age of increased extreme weather events, good asset management can help mitigate the impacts created by weather catastrophes.

It's important to note that a significant amount of federal and state funding requires asset management plans as a prerequisite. So, for utilities that do have the resources and experience to apply for the new grants and loans, they are finding that the money comes with strings attached – strings that are proven to help utilities maximize the life and value of their assets.

The Five Core Question Framework for Asset Management

A strong asset management plan addresses five core elements: asset inventory, level of service, asset criticality, life cycle costing and long-term funding. This EPA-developed framework shows a utility how to get the most value from its existing system through understanding the assets it already has and making better decisions about managing these assets.

1.     What is the current state of my system’s assets?

Documenting your asset inventory is one of the first activities. As the name implies, this step involves creating a portfolio of every asset the utility relies on to achieve its mission. That portfolio – or inventory – also should include information such as asset location, its condition when inventoried, its value, how much energy it requires and what its useful life is. And “useful life,” by the way, should just not be based on the manufacturer’s calendar or accounting depreciation but on actual and regular inspection and evidence of declining performance. Many an asset has gone well beyond its predicted life, and utilities can reap major financial gains by not prematurely replacing equipment (or conversely, appropriately replacing or rehabbing equipment if it shows signs of premature failure). Collecting asset attribute data and condition assessments for your whole portfolio can be daunting but can be prioritized by an asset criticality assessment – see question 3 – and accomplished using a new generation of software tools.

2.     What is my required level of service?

Defining your Level of service is the next component and should be done concurrently with documenting your asset inventory and condition. This exercise ties a utility’s behavior and strategy to its mission. It helps utilities fully understand how their individual systems and assets support the overall utility level of service obligations by knowing what customers and stakeholders demand, what regulators require, how actual performance compares to what is expected and required, and the capacity of current assets. If there is a gap between required performance and actual performance, this last metric – capacity – can help operators determine if the assets can be scaled up in place or need to be replaced or upgraded. Defining your level of service includes communicating expectations clearly and determining how you will measure performance.

3.     Which assets are critical to sustained performance?

Every asset in the inventory should be analyzed as to its criticality toward achieving the target level of service. Which assets, if they fail, would impede the utility’s ability to deliver the expected service? What are the probabilities and consequences of failure for those assets? Some assets will be very high criticality and worthy of monitoring and frequent preventative maintenance, while others can be comfortably run to failure. Criticality and risk assessments help utilities prioritize every asset appropriately, so that maintenance and management strategies, including back-up plans and process redundancy, are commensurate with its importance to the mission.

We encourage utilities to assess criticality concurrent with gathering their asset inventory and prior to condition assessments. A risk and criticality analysis can also be completed much more quickly when assessed at a functional system level instead of on an asset-by-asset basis. This can be accomplished prior to completing asset attribute documentation and condition assessments. Completing a criticality analysis early will identify priorities for targeting your condition assessments toward high critical assets first.

4.     What is my strategic plan for operating and maintaining system assets?

Life cycle costing for operation, maintenance and repair is the next consideration of asset management. This helps utilities understand upfront costs as well as maintenance and operation costs for every year of its expected life. How much energy does the equipment require, and what is the annualized cost of that energy? What chemicals, filter media or other supplies does the equipment need, how quickly do those need to be replenished and what do those cost? What is the schedule and costs of preventative maintenance and repairs – in terms of parts plus in-house labor or outside contract labor?  It is very important to understand whole lifecycle costs or Total Cost of Ownership (TCO) so that utilities don’t overspend by choosing equipment that is cheap to buy but expensive to operate. Visibility to lifecycle costs and management strategies can be enhanced by working with an asset management software solution that includes asset performance management (APM) metrics.

5.     What is my long-term funding strategy?

The final core component is long-term funding. What revenue streams does the utility have to invest in capital and pay for operation and maintenance in a way that optimally protects the longevity and performance of its assets? Is that revenue sustainable? This component helps to connect utility departments that are often siloed, especially within larger systems. It’s very important for the finance department to understand what engineering, operations and maintenance require for both daily performance and long-term sustainability of the operation. Understanding of the economics and costs of your utility will inform stronger decision making about financial strategies around rate structures, reserves, and capital financing assistance.

Visibility, clarity and confidence: what asset management delivers to utilities

Good asset management delivers visibility across the entire organization, not just within silos. Broad visibility requires accurately identifying risk, documenting and monitoring asset condition, and engaging all relevant stakeholders. An unfortunate example of how a breakdown in visibility can directly affect level of service was the Flint, MI, lead contamination water crisis. What started as a financial decision that didn’t account for the change in the source water’s impact on the condition or state of assets, didn’t understand the operational impact, nor engage relevant stakeholders, resulted in the sickening of thousands of water customers, including children, the government having to distribute free water bottles to residents for four years and hundreds of millions of dollars in costs (and counting). Effective asset management establishes line of sight across your organization from top to bottom and across silos; and provides visibility across the asset lifecycle and your entire asset portfolio.

With visibility, priorities start to emerge, and decisions become obvious. A utility can thus achieve clarity, which enables leaders to effectively prioritize and plan, target the right resources and develop risk-based capital plans that make the most of available funding.

Visibility and clarity result in utility managers having confidence about their strategy, making everyone’s job easier. This confidence is anchored in risk-based decision support and business intelligence, which leads to an ideal balance of cost, risk and performance, improved asset reliability and availability, and optimized operations.

Asset management helps future proof water systems

The main reason that the U.S. water infrastructure is in such a state of disrepair is the decades upon decades of neglect and the societal undervaluing of clean water. Recent high profile events like Flint or Jackson have highlighted the public health importance of safe drinking water, something that has been take for granted by many. Unfortunately, this broader public awareness has co-occurred with serious threats to the U.S. water system that we have the least amount of control over – scarcity and extreme weather. It’s safe to say that our nation has not done a good job of future proofing our water infrastructure, and now that safe and reliable water supply is facing existential threats, the reckoning must include a major reprioritization of water.

“Change is the only constant,” so the ancient saying goes, and as the rate of technological change continues to accelerate, all industries must become nimbler and more resilient. Regulatory pressure, water scarcity issues and rise in extreme weather put water utilities in a particular nexus of change, and asset management is the master key to adapting and preparing for whatever the future brings.

How asset management can reduce and avoid costs for utilities

Applying the five core element framework for asset management leads to measurable positive impacts.

In the Midwest, a criticality assessment by by a regional authority identified $5 million in potential maintenance budget savings and a further $5 million in resource re-allocation, where money that was being spent on low criticality assets could be directed toward higher risk assets. This exercise essentially “found” $10 million in the utility’s own operations to help reduce its risk and lower its costs. From prioritized daily work orders to targeted risk-driven asset investment planning, substantial efficiencies and optimization are possible with a fully executed asset management plan.

A water agency in the California high desert, has experienced rising costs and operational challenges due to population growth, increased regulations, decreased water supply due to climate change and aging infrastructure. Its status quo management approach, which leaned heavily on spreadsheets and the institutional knowledge of long-term staff, was no longer working, so the agency instituted an infrastructure asset management program. All the agency’s assets were identified and assigned a criticality and risk rating based on the consequences and likelihood of failure. This analysis identified where resources should be re-allocated, identifying how the utility could save money on low criticality asset spending and redirect those savings to deferred maintenance or new capital investments for high criticality needs. Their new asset management program enabled the utility to identify risks, prioritize the most critical assets and reduce the waste resulting from unnecessary spending on low-risk activities and assets.

It’s not uncommon for plants to rely on assets with high criticality and yet not inspect or maintain those assets accordingly.  In the Pacific Northwest, during a typical rain event in 2017, a bad float switch worth only a few hundred dollars started a cascade of events that caused the failure of multiple pumps during a high tide, which caused a massive flood at the water resource recovery facility and ultimately $57 million in damages. Had the plant had an effective asset management program in place, that float switch would have been identified as a high criticality asset and been replaced and properly monitored – a minor investment for a $57 million return.

Asset management is essential to the funding strategy of water and wastewater systems

Most organizations operate in silos that are difficult to dismantle, leading to scattered maintenance efforts, wasted resources and missed opportunities to get more value from their assets. By accurately identifying risk and setting priorities across the entire asset inventory, the asset management framework delivers visibility, clarity and confidence for better asset management decisions and outcomes.

Funding from the Bipartisan Infrastructure Law is historic and will undoubtedly assist many municipalities with water and wastewater system upgrades. Nevertheless, most utilities will not be able to rely on that funding alone but will have to piece together a funding strategy that includes multiple streams to continue their mission of providing water and wastewater services to their communities. The savings right before them cannot be overlooked. Asset management can reduce operating and capital costs, optimize a utility’s operations for an uncertain future, and better manage risk in spite of funding constraints, for more reliable, resilient and sustainable operations in the long-term.

What are the asset management expectations in your state?

Every state has its own asset management requirements and assistance for water utilities. This database catalogs every state’s obligations and opportunities in asset management and provides links to relevant departments and helpful resources.

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