Infrastructure Asset Management

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A 1-1 Infrastructure Asset Management A Practical Guide for Utility and Public Works Directors This guide was developed to help public officials understand the practical matters related to asset management so that more officials are comfortable exploring how asset management can truly benefit their organizations. More specifically, this paper: places asset management in a historical and technical context, describes the difficulties that public agencies face in implementing asset management programs, and suggests an approach to asset management that is incremental, systematic, and therefore, achievable. Historical Background The word “asset” derives from the Latin ad satis, meaning sufficiency. It was adopted long ago by the accounting profession to denote real property of sufficient value to offset the debt, or liability held by an individual or organization. The term “asset management” first appeared in the banking industry to describe an investment practice that built wealth through investments in different types of financial vehicles. These vehicles – bonds, stocks, real estate, etc. – could be valued and posted on the ledger as assets. Moving money between these vehicles – or managing money – became known as managing assets. An early, comprehensive adoption of the term “asset management” in the engineering profession was during privatization of water utilities in Great Britain in the 1980s. In order to establish equitable pricing, privatizers had to develop detailed asset management plans identifying how they would ensure the maximum return on the public investment already made in the infrastructure of the utilities they were to acquire. In 1993, “asset management” made its way into the public works lexicon when the Australian Accounting Standards Board issued the Australian Accounting Standard 27 (AAS27). AAS27 required municipalities to capitalize and depreciate infrastructure assets rather than expense them against earnings. Thus, infrastructure – roads, sewers, fire hydrants and the like – the domain of the engineer, was now a complex set of problems for accountants to manage. Many U.S. utilities have historically already adopted this type of accounting convention, either to comply with revenue bond funding covenants or because they were subject to public utility commission regulations or guidance. However, the advance resulting from the work of the New Zealand National Asset Management Steering Group and the Institute of Public Works Engineering of Australia was to advance this concept beyond solely a paper accounting transaction. Those groups developed a framework that acknowledges that current actions can and do affect the useful life and cost effectiveness of asset investments. This, at least in the view of CDM, was the beginning of the heightened interest in asset management we have seen in the U.S. over the past 10 years. Here in the U.S., the Federal Highway Administration (FHA) has had a leadership role in advancing the principles and practices of asset management to the built environment.

Transcript of Infrastructure Asset Management

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Infrastructure Asset Management A Practical Guide for Utility and Public Works Directors

This guide was developed to help public officials understand the practical matters related to asset management so that more officials are comfortable exploring how asset management can truly benefit their organizations. More specifically, this paper:

places asset management in a historical and technical context,

describes the difficulties that public agencies face in implementing asset management programs, and

suggests an approach to asset management that is incremental, systematic, and therefore, achievable.

Historical Background The word “asset” derives from the Latin ad satis, meaning sufficiency. It was adopted long ago by the accounting profession to denote real property of sufficient value to offset the debt, or liability held by an individual or organization. The term “asset management” first appeared in the banking industry to describe an investment practice that built wealth through investments in different types of financial vehicles. These vehicles – bonds, stocks, real estate, etc. – could be valued and posted on the ledger as assets. Moving money between these vehicles – or managing money – became known as managing assets.

An early, comprehensive adoption of the term “asset

management” in the engineering profession was during privatization of water utilities in Great Britain in the 1980s. In order to

establish equitable pricing, privatizers had to develop

detailed asset management plans identifying

how they would ensure the maximum return on the public investment already made in the infrastructure of the utilities they were to acquire. In 1993, “asset management” made its way into the public works lexicon when the Australian Accounting Standards Board issued the Australian Accounting Standard 27 (AAS27). AAS27 required municipalities to capitalize and depreciate infrastructure assets rather than expense them against earnings. Thus, infrastructure – roads, sewers, fire hydrants and the like – the domain of the engineer, was now a complex set of problems for accountants to manage. Many U.S. utilities have historically already adopted this type of accounting convention, either to comply with revenue bond funding covenants or because they were subject to public utility commission regulations or guidance. However, the advance resulting from the work of the New Zealand National Asset Management Steering Group and the Institute of Public Works Engineering of Australia was to advance this concept beyond solely a paper accounting transaction. Those groups developed a framework that acknowledges that current actions can and do affect the useful life and cost effectiveness of asset investments. This, at least in the view of CDM, was the beginning of the heightened interest in asset management we have seen in the U.S. over the past 10 years. Here in the U.S., the Federal Highway Administration (FHA) has had a leadership role in advancing the principles and practices of asset management to the built environment.

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Beginning in the early 1990s, the FHA began working with state Departments of Transportation on various management practices that ultimately became so fundamental to FHA’s mission that they created the Office of Asset Management to provide leadership and expertise

in the systematic management of highway infrastructure assets. In 1999 – the same year the Office of Asset Management was created, the Governmental Accounting

Standards Board issued Statement 34 (GASB34)1, a U.S. accounting standard similar in many ways to Australia’s AA27. GASB34 sought to provide users of governmental financial statements a more complete picture of the assets and liabilities facing these entities. Other seminal events in the evolution of asset management in the U.S. include the publication of “Infrastructure 2000,” which identified a systematic and growing gap in the need for infrastructure funding and the available amount of such funding. The report found that the need for repair and replacement funding was especially critical. Then in January, 2001 the U.S. Environmental Protection Agency issued a draft rule known as CMOM (capacity, management, operations, and maintenance). CMOM, while specific to wastewater collection systems, is significant because it is the first pending regulation that may require that asset management programs be implemented within affected departments of public works and municipal utilities.2 Subsequently, Congressional legislation extending the authorization for the state revolving fund programs for water and wastewater has incorporated language that

1 Information about GASB34 is provided in Attachment 1 2 Information about CMOM is provided in Attachment 2

requires asset management as a condition of eligibility. The provisions have not been enacted into law as of yet, but demonstrate the pervasiveness of the concept. Difficulties Experienced In the eyes of the American Public Works Association, “the issue of managing a jurisdiction’s [infrastructure] assets is no longer just an engineering problem; lawyers, planners, accountants, analysts, citizens all have a role to play. Asset management effectively represents a shift from a management by exception philosophy now prevalent in public works operations and planning. A fully implemented public works asset management system will allow decision makers to explore how each action–e.g., operating and maintaining existing facilities as well as building new ones–is likely to influence both current budgets and long-term regional well being.”3 This interdisciplinary view of asset management is enforced by the General Accounting Office (GAO), which makes a strong case that an effective asset management program requires integration of data and decision making across the accounting, engineering, finance, maintenance, and operations functions of an organization.4 No wonder public works and utilities directors have had difficulty implementing asset management programs! It is enough of a challenge to manage one’s own departments effectively. To achieve seamless, inter-departmental decision making involving attorneys, accountants, financial managers, plant

3 Asset Management for the Public Works Manager: Challenges and Strategies. Findings of the American Public Works Association Asset Management Task Force, August, 1998. 4 Comprehensive Asset Management Has Potential to Help Utilities Better Identify Needs and Plan Future Investments. General Accounting Office, March, 2004 (GAO-04-461).

Asset management effectively represents a shift from a “management from exception” philosophy now prevalent in public-works operations and planning.

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operators, engineers, planners, and maintenance personnel…that is quite a challenge. Studies in Canada and the U.S. have revealed some of the common difficulties public works, utilities, and municipal officials have faced in implementing asset management programs5. Their observations are consistent with our own and are summarized below: Challenges:

Too much maintenance and condition data is required

Inadequate standards of analysis exist for valuing assets and establishing condition assessments

There is a lack of cost-effective, non-invasive, and non-destructive inspection and condition assessment tools;

Software tools are too complicated; The value of asset management cannot

be realized during a typical election cycle

An asset management plan could increase the short-term revenue requirements of an organization when its intent is to decrease the cost of operation. However, costs savings are long term

“This is a pain…we already do this stuff!”

How to Design and Implement an Asset Management Program If you are responsible for the planning, design, construction, operation, or financing of public infrastructure, you already do asset management. It’s that simple.

But doing asset management is not the same as having an asset management program. The doing of asset management is the complex decision

5 Municipal Infrastructure Asset Management: A Best Practice. National Guide to Sustainable Municipal Infrastructure. Canada, 2003.

making you do every day: the priority-setting, what-if analysis and “buck-stops-here” responsibility you exercise. An asset management program is a set of procedures that institutionalize and preserve that decision making. And what makes having a program so important is that it:

Makes the decision making understandable to others

Provides a consistent framework for making those decisions and balancing competing needs and interests

Creates data that can make next year’s decision making even better

Establishes roles, goals, and metrics that can focus and motivate your entire organization toward more cost-effective operation

More than anything else, an effective asset management program will help you get the funding required to run a first-class operation. Whether your operation is funded through rates, taxes, debt service, grants, or any combination, an asset management program will provide your funders sound, understandable data illustrating the revenue you need and the consequences of not getting it on a timely basis. There are many definitions of asset management. CDM is fond of this one, provided by the FHA:

“Asset management is a systematic process of maintaining, upgrading, and operating physical assets cost effectively. It combines engineering principles with sound business practices and economic theory, and it provides tools to facilitate a more organized, logical approach to decision making. Thus, asset management provides a framework for handling both short- and long-range planning.6”

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In keeping with this definition, there are six questions that your asset management program must enable you to answer:7

1. What assets do you have and where are they?

2. What is the remaining service life of your assets?

3. What are they worth in real dollars? 4. What needs to be done to preserve your

assets (repair, renewal, or replacement)? 5. When do you need to do it and how much

will it cost? 6. How will you equitably distribute the cost

burden among users?

The Asset Management Conceptual Model To answer these questions, CDM has developed a conceptual model and a six-step process to configure this model to fit your organization. Here is how the model works:

Customers – rate payers, the public, “users” of your services – have needs and pay money to your organization to have those needs met.

6 Asset Management: Advancing the State of the Art Into the 21st Century Through Public-Private Dialogue. Federal Highway Administration and the American Association of State Highway and Transportation Officials, 1996. 7 These questions are derived from information contained in Municipal Infrastructure Asset Management: A Best Practice. National Guide to Sustainable Municipal Infrastructure. Canada, 2003.

[Your customers may not always recognize the value of the service you provide them, which sometimes complicates this chain of events.] This money is seen as revenue that is either collected by your organization or distributed to your organization in the form of a budget.

That revenue is accounted for and used to offset the cost of engineering, operations, maintenance, and the other activities you oversee. Those activities provide value to your customers in the form of specific services, such as the provision of drinking water, disposal of waste, pedestrian and vehicular transport, and so on. All those services depend upon physical infrastructure, which has inherent dollar value commensurate with its condition and/or remaining useful life. Your ability to preserve those infrastructure assets so that they provide the maximum value to your customers – or return on investment – is the heart of your asset management program.

In this model, the key variables – those that must be configured to meet your specific goals,

structure, culture and resources – are:

The methods you employ to make asset preservation decisions, and

The movement of revenue through your organization.

They are represented by the small black arrows to support your preservation decision making. That revenue, mapped in the form of

annual capital and operating budgets, is a major determinant in how well an organization performs and achieves the asset management goals. More informed maintenance, repair, renewal, and replacement decisions allow directors to adjust the timing of preservation activities, providing more flexibility in leveling capital expenditure requirements between budget years. Leveling, in turn, delivers optimum financial returns. Asset managers of the future will be judged by their ability to

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optimize the cost of maintaining existing assets against replacements, while meeting a defined level of service to the public.

The Six Steps For years, with some “back-of-the-envelope” estimates of infrastructure age and original installed cost, engineers have made estimates of long-term repair and replacement (R&R) expenditures. These estimates have been rudimentary and self-fulfilling as opposed to informed and strategic. And as a result, communities and utilities frequently discount these needs and do not adequately plan, and thus understate their revenue needs. However, the lack of a systematic program increases system failure, increasing costs in the short and long term. As a result, municipalities have not been generating enough revenue from user rates and taxes to cover their full cost of service. Lots of revenue is consumed in the near term since there is often no choice but to react to a problem and repair an asset as a corrective or emergency measure. The time frame in which we have faced the greatest problems is the 2-5 year window. This is the timeframe in which we must select specific assets to be repaired or replaced in time to get projects funded in the capital improvement program.

Step 1 – The Asset Management Strategy During development of the asset management strategy, a set of guidelines must be established for making decisions about, and establishing funding mechanisms for R&R. In CDM’s approach, the strategy must explicitly address three timeframes:

1. Immediate, or the corrective action phase

2. Near-term, or the tactical planning phase, and

3. Long-term, or the strategic planning phase

These phases, and the elements of each, are illustrated in the below figure.

In addition to establishing the R&R criteria for each of these planning phases, the strategy must address the three core planning elements of:

Organizational alignment and readiness;

Business process definition and documentation; and

Technology

Organizational and business process matters are self explanatory. It should be clear from the earlier discussion on difficulties others have encountered with asset management that your entire organization must be aligned to a set of

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clear goals and the ownership of business processes and outcomes must be documented. Regarding technology, it is impractical to implement an asset management program without some sophisticated computer tools. The basic tools required include a database of all your assets – in which the initial capital investment, maintenance, renewal, and replacements costs are tracked – and a flexible report generator that allows multiple views of these data based on various assumptions and funding scenarios. The availability, use, maintenance, and integration of these tools within your enterprise-computing environment is something that must be scoped, scheduled, and budgeted in the plan. It should be noted that you have discretion in how comprehensively you tackle this problem. For example, you may only start this with a single treatment plant, the downtown infrastructure, or just pumping stations. The pace and focus of the program is something you can and should control.

Step 2 – Asset Inventory The asset inventory is a database of your assets. It is necessary to distinguish between an asset and a part. There are just too many individual pieces of equipment, or parts of assets to be able to create and maintain a record of each. This distinction is often referred to as a “hierarchy.” A sample generic hierarchy is illustrated below.

The fewer levels in the hierarchy, the less data will need to be managed. The tradeoff, of course, is that there will be less data to analyze. The trick is to identify the fewest number of “parts” of assets while retaining the ability to track each asset’s performance as it relates to the designed life expectancy and service level. The hierarchy should allow for reconciliation of an asset in the hierarchy with an asset in your community’s financial accounting system. If you are already using a maintenance or work management system, you may already have adopted a hierarchy that is embedded in that software. This should be reviewed for compatibility with your asset management goals. An optional element of this step is to classify assets into importance or criticality. In some programs, this classification is used as a prioritization tool for determining which assets to preserve before others.

The process of inventorying your assets is likely to be the single most time consuming and expensive part of your asset management program.

Step 3 – Assess the Condition of Assets Typically, during the initial inventory step, a condition assessment is made concurrently. It is important to remember that condition assessments must be made at regular intervals. Step 3, therefore, is the beginning of the iterative,

or continuous phase, of the asset management program. As discussed earlier, one of the difficulties encountered with asset management programs is the lack of availability of models, methods, and appropriate guidance for how to conduct condition assessments. This is a step that requires both creativity and common sense. For some assets, there are good models and best practices available for condition assessment – the NASSCO sewer pipe condition rating system is one Asset Hierarchy

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such example.8 Paving condition assessment methodologies are quite mature. During step 3, it is important to determine how “condition” is defined for each type of asset and, indeed, whether to define condition. In many cases, the condition of an asset is less relevant than, or is simply a surrogate for its useful life. In these cases – for a mechanical blower for example, it may be more expedient to directly estimate the useful remaining life of the asset than it is to say it is in “fair” or “poor” condition.

Step 4 – Financial Valuation of Assets This is the step that gives asset management its name. Without this step, we would be talking about “infrastructure maintenance” or “facilities management.” But we are talking, indeed, about asset management. The valuation step is a bit tricky. As the public works or utility director, you are only marginally concerned with the total valuation of your installed assets. The value of that portfolio, if you will, is a bit academic. What is germane is the amount of revenue you will need to keep those assets functioning at the level of service your customers demand. That revenue requirement is a function of the value of the installed assets. More specifically, it is a function of the remaining useful life of your assets, the cost of replacement, and your ability to preserve the assets through optimal R&R planning. The purpose of this step is to establish an assessment of the system’s replacement value to inform future budgeting. By understanding and establishing the replacement value, it is possible to assess and evaluate the cost effectiveness of R&R strategies. There are a variety of approaches to obtaining these estimates, and can be done relatively cost effectively.

8 Manual of Sewer Condition Classification. National Association of Sewer Contractors (NASSCO).

Step 5 – Establish Capital and Operating Budgets The valuation step can readily be projected to a total-dollars-per-year requirement to either replace or perform major rehabilitation for all the assets that have been inventoried. This projection is typically very uneven, with some years showing a large requirement and many years showing lesser requirements. These numbers will be very dependent upon when large assets require R&R. In order to minimize financial burden, it is necessary to “smooth out” these projections by determining an amount to be reserved for R&R each year that will result in a near-flat funding curve throughout the study period. A planning horizon of at least 20 years is preferred in order to plan adequately for the large asset replacements. Funding the R&R reserve in an adequate amount each year will allow the organization to accumulate excess funds in some years in order to expend additional funds in other years. It is rarely possible to accumulate the full amount necessary to replace multiple major assets and the reserve may need to be supplemented by long-term borrowing. This will be individual to each organization and cannot be formulized. The R&R reserve transfer should become part of the revenue requirement for rates. The fairness doctrine here is that the current customers who are “using up” the assets, so to speak, are contributing to their replacement. The key concern raised by many customers is that they do not want to be paying for

It is rarely possible to accumulate the full

amount necessary to replace multiple major assets and the reserve

may need to be supplemented by long-

term borrowing.

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improvements now so that future customers can benefit from and not have paid anything to support the facilities. This funding approach more accurately matches the cost of an asset with the benefits/service provided by that asset.

Step 6 – Maintain, Repair, Renew, and Replace Assets to Achieve Sustainability Implementing an asset management program supports the long-term maintenance, repair, and replacement of the assets needed to achieve sustainability. Two steps to achieving sustainability are dedicating sufficient funding to support system needs and making smart decisions about where to allocate this funding first. An asset management program coupled with a sound decision support approach will allow utilities to meet each of these objectives. In many cases, funding levels and priorities for the maintenance, repair, and replacement of assets have been based on rules of thumb, operator knowledge, and seat-of-the-pants understanding of system needs. While these are often reasonable approaches to making these decisions in the short term, these approaches typically fail in the long term for a number of potential reasons:

• Proposed budgets based on rules of thumb can not withstand high-level scrutiny during budget-cutting times;

• Staff turnover results in a lost knowledge base to support these decisions; and

• Undocumented assumptions cannot be tested and confirmed to improve the decision-making process in the future

To reverse this trend, it is important to define the functional objectives that must be achieved by a maintenance, repair, and replacement program. Once these functional objectives are defined, they may be used with assembled asset information to set priorities, allocate funding, and document the success in meeting identified

objectives. For example, a typical infrastructure maintenance, repair, and replacement program would include three primary functional objectives:

1. Capacity restoration – this objective is aimed at keeping assets functioning at their full, original capacity. Examples are removing sediment or debris from a pipeline system; reducing infiltration and inflow in a wastewater collection system; and/or repairing system defects that would limit system flow capacity.

2. Damage repair – this objective is aimed at

repairing structural damage and failures in the system that are the result of wear, corrosion, age, and/or construction-related damage. This function reduces the risk of system failure that could cause interruptions in service, negative impacts to the community, and increase costs as compared to scheduled maintenance and repairs.

3. Maintenance reduction – this objective is

aimed at repairing portions of the system that are subject to known, repeated maintenance problems that increase maintenance costs and keep crews from conducting more productive preventive maintenance. Examples in a wastewater collection system are the repair of conditions such as root intrusion, offset joints, pipe sags, improper service connections, and other system deficiencies that typically lead to recurring problems for system operators.

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By defining these functional objectives, utility managers can develop specific criteria to set priorities for where in the system each function is needed. In addition, financial analyses may be conducted for each of these criteria to demonstrate the returns that will be achieved on infrastructure investments. This provides a mechanism to defend proposed funding levels and present the business case for increasing maintenance, repair, and replacement investments. This analysis approach, coupled with condition assessment information needed to support these objectives, improves and documents the basis for setting budgets and priorities so they are more clearly understood by decision makers. Lastly and possibly most importantly, the resulting benefits from the investment in the maintenance, repair, and replacement program must be quantified and documented. This last element, documenting benefits and results, is essential to defending the need for funding on an annual, recurring basis so that the long-term success of the program is not undermined.

Conclusion Asset management really represents a way of conducting and operating a business, not a one-time project. The creation of an asset management program requires the involvement of engineers, financial planners, maintenance professionals, operators, accountants, and, in some cases, attorneys. Integration of data from key business units is critical to creating an asset management strategy and program. An asset management strategy cannot be developed without first defining objectives and constraints. Infrastructure asset knowledge (condition information, etc.) is a critical part of building predictive and decision-making models. However, we cannot optimize repair and replacement dollars by simply collecting data; we must know what optimization problem we are trying to solve and organize and report that information to help inform strategic and tactical decision making.

The financial management benefits from an asset management system are many. It gives managers a system to accurately project maintenance and capital replacement trends into the future. The system will assist in developing annual funding profiles for the maintenance, repair, rehabilitation, and replacement of assets. Progressive maintenance planning funded through an asset management system will limit the frequency of expensive and disruptive corrective maintenance, reducing costs over time. Historic levels of maintenance can be projected for assets nearing the end of their useful lives. The identification of assets projected for disposal will trigger requests for planning support, design, and funding for replacement. By tying costs to asset condition, and by long-term planning for each asset, it provides reliable information for policy makers so they can understand long-range funding needs.

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Attachment 1

GASB34 GASB sets reporting and accounting rules for municipal and state governments and agencies. While GASB’s statements do not have the force of law, they define “Generally Accepted Accounting Principles,” or GAAP for governmental entities. Financial statements must comply with GAAP to receive an unqualified opinion from a public entity’s outside auditor. The failure to obtain an unqualified opinion may adversely affect a municipality’s ability to borrow money and receive grants.

GASB Statement 34 is a recent requirement for state and local governmental units intended to provide users of financial statements a more complete picture of the financial health of the governmental unit(s). Among the many requirements of GASB34, is that the unit provide information on its long-term infrastructure asset base. Until GASB34, there was no requirement that governmental units include any such information in their financial statements.

More specifically, GASB34 requires reporting the value and/or condition of publicly owned capital and infrastructure assets for all governmental properties and assets based on one of two accepted methodologies. The critical issue is that a governmental entity maintain a record of asset value based upon either the time value of the asset (depreciation approach) or its actual physical condition (modified approach) relative to an asset service level designation.

The “depreciation” approach requires an inventory of assets, determination of their original cost, assessment of their useful life, and the depreciation of those original costs in the financial statements.

The “modified” approach also requires an inventory of assets, but also requires a quantitative measure of the level of service to be provided by each asset, a plan to maintain that level of service, and a minimum 3-year evaluation cycle to ensure that the required level of service is being provided by each asset. This is essentially an asset management program.

Under the “modified approach,” each asset is identified and a service level established for that asset. A condition assessment9 is made of each asset and a determination is made of what is necessary to maintain the asset’s current condition, or to bring the asset up to the established service level. This condition level must be established through a formal policy adopted by the public entity. It is necessary to determine the funding level required for meeting the required service levels, so budgets must be set, including providing an appropriate maintenance as well as a capital program to renew the asset if necessary. Finally, an annual report of actual money spent versus funds budgeted for repairs and maintenance will be prepared and attached to the annual audit. On a periodic basis, at least once every 3 years, the entity must review its compliance with its overall service plan.

Although the modified approach is likely to be more time consuming and require more work to implement than the depreciation approach, bond rating agencies and insurers will likely prefer this approach since it provides a much more complete picture of the organization’s assets and liabilities, and thus long-term financial risk. The value of the modified approach to the utility and public works director is that it produces a method for prioritizing maintenance, renewing and replacing aging infrastructure, linking to a budget program that puts more emphasis on preventive rather than corrective maintenance

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activities, and, thus ensuring more consistent, reliable, and equitable funding.

Nonetheless, because the modified approach involves increased effort, many utilities have determined that a practical approach to GASB34 compliance is to use the depreciation method for formally meeting GASB34 requirements, while concurrently implementing an incremental modified approach by piloting a limited number of assets based upon which to develop the procedures and methodologies appropriate to the organization

GASB34 Compliance Deadlines

Revenue Phase Category

Implement in FY after

$100 Million + 1 June 15, 2001

> $10 Million and < $100 Million

2 June 15, 2002

< $10 Million 3 June 15, 2003

For historical assets acquired after June 15, 1980

$100 Million + 1 June 15, 2005

> $10 Million and < $100 Million

2 June 15, 2006

< $10 Million 3 Exempt

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Attachment 2

Capacity, Management, Operations, and Maintenance (CMOM)

The CMOM regulations are EPA’s policy initiative to move communities to reduce and ultimately eliminate sanitary sewer overflows (SSOs), which are a violation of the Clean Water Act. On January 5, 2001, EPA Commissioner Browner signed and issued the draft rule on SSOs. Since that time, EPA has broadened the definition of SSO’s to include discharges that reach waters of the U.S., as well as overflows that do not reach waters of the U.S., which includes wastewater backups into buildings caused by utility operations.

The 120-day comment period for the draft rule will not begin until the proposed rule is published in the Federal Register, and the EPA administrator has delayed this pending inter-agency review and approval. This delay does not remove the potential for enforcement actions by EPA regional enforcement staff, since SSOs are Clean Water Act violations. Enforcement actions, which are discretionary, can lead to consent decrees or permit requirements that require a utility to implement a CMOM-type program. The following is an overview of the four-part draft regulation:

1. Municipal Satellite Collection System

This section of the draft regulation will require owners of municipal satellite collection systems to:

Obtain a “no discharge” NPDES permit, or

Issue a permit amendment to the owner of the permitted publicly owned treatment works facility

that receives wastewater from the satellite collection system. (For many municipalities, this will be a new permit with all the enforcement powers of the National Pollution Discharge Elimination System regulations.)

2. Municipal Sanitary Sewer System CMOM Program.

This is the heart of the draft regulation. All NPDES permittees (including satellite collection systems with SSOs) will be required to develop and implement a comprehensive CMOM program following the standards prescribed in the regulation.

The key elements of a sound CMOM program include:

Planning to ensure adequate capacity during both dry and wet weather,

Effective overall system management, including mapping, maintenance tracking, training, and supervision,

Efficient operations, as measured in spending, equipment performance, and efficiency, and

Regular system maintenance.

3. Municipal Sanitary Sewer Systems-General Prohibitions

This portion of the proposed regulation defines the general prohibition of SSO discharges and the use of enforcement discretion for SSOs caused by “severe natural conditions,” and affirmative defenses for discharges caused by other factors beyond the “reasonable control” of the utility. The affirmative defense clause is very important to POTWs to provide appropriate liability protection for SSOs that are beyond the “reasonable” control of the utility.

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4. Municipal Sanitary Sewer Systems-Reporting, Public Notification, and Recording

This portion of the rule defines what is considered an SSO, and defines procedures for agency notification, public reporting, and record keeping. These procedures include immediate notifications and follow-up reports, discharge monitoring reports, and annual reports. The current definition of an SSO as outlined in the regulations is as follows:

“A sanitary sewer overflow (SSO) is an overflow, spill, release, or diversion of wastewater from a sanitary sewer system. SSOs do not include combined sewer overflow or other discharges from the combined portions of a combined sewer system.

SSOs include:

Overflows or releases of wastewater that reach waters of the United States;

Overflows or releases of wastewater that do not reach waters of the United States; and

Wastewater backups into buildings that are caused by blockages or flow conditions in a sanitary sewer other than a building lateral. Wastewater backups into buildings caused by a blockage or other malfunction of a building lateral that is privately owned is not an SSO.”

The SSO draft regulations were developed on the premise that utilities that routinely evaluate and improve their sanitary sewer systems will reduce the likelihood of Clean Water Act violations, extend the life of their infrastructure, and provide better customer service. The regulations specifically discuss the development of an asset management approach to maintenance as the procedure for deflecting regulatory action and fees if a SSO event occurs. Therefore, the steps involved with creation of asset management procedures and funding strategies discussed under GASB34 are components of the CMOM requirements as well.