1.1 Intended Audience
This guide to asset management is intended to provide some tools and
theory to Technical Assistance Providers (TAP) for assisting very small to
medium sized water or wastewater utilities. Larger systems have considerably
greater resources in terms of personnel, expertise, and funding and should be
expected to handle a higher level of asset management than this guidebook will
This guide uses an Asset Inventory workbook developed by the Rural
Community Assistance Corporation (RCAC) that visually presents information so
decision makers can see the age of equipment, what allocation on a monthly and
annual basis would be needed to replace items selected and a “Maintenance
Scheduler” that alerts the utility to needed operational checks and scheduled
1.2 What is Asset Management?
All water and wastewater systems are made up of assets which are the
physical components of the system and can include: pipe, valves, tanks, pumps,
wells, hydrants, treatment facilities, and any other components in the system.
The assets that make up a water or wastewater system lose value over time as
the system ages. Along with this deterioration, it usually is more difficult to deliver
the type of service that the utility’s customers want; low water pressure or
outages due to repairs or broken equipment are examples. Costs of operation
and maintenance will increase as the assets age and the utility may be faced
with large rate increases.
Asset Management (AM) is a comprehensive program that incorporates
maintenance, utilization of well trained personnel, protection of system
components, and financial planning to provide a level of service to your
customers at the lowest appropriate cost.
The intent of AM is to ensure the long-term sustainability of the water or
wastewater utility. By helping management develop a long-term funding
strategy, the utility can ensure its ability to deliver the required level of service
and maintain capability to obtain bonds or loans for capital replacement or
As we proceed throughout this guidebook you will quickly become aware
of the critical link between the costs to operate the system and the revenues
generated from rates. As assets age, the operating costs invariably go up as well
as the replacement cost. These costs must be factored into utility budgets and
adequate reserve funds established. Failure to do this is probably the number
one shortfall in smaller utility financial planning. The Asset Inventory calculator
will provide the necessary reserve computation.
1.3 Benefits of Asset Management (AM)
The benefits of AM include, but are not limited to:
• Better Operational Decisions
• Improved Emergency Response
• Greater Ability to Plan and Pay for Future Repairs and
• Increased knowledge of the location of the assets
• Increased knowledge of what assets are critical to the utility and
which ones aren’t
• More efficient operation
• Rates based on sound operational information
• Increased acceptance of rates
• Capital improvement projects that meet the true needs of the
1.4 Core Components of AM
There are five core components in this AM outline;
• Asset Inventory and Location Map
• Adequate Reserves
• Scheduled/ Preventative Maintenance
• Emergency Planning
• Long-term Funding Strategy
A. Asset Inventory: The most important step is the asset inventory which
is actually data collection and usually a very tedious effort. You must identify
major system components that will require a “substantial” replacement cost. As
example, replacing several 6” gate valves would generally require planning to
ensure adequate personnel, equipment and funding was available but a small ¾”
valve would typically be replaced out of normal operating costs as routine
maintenance. You should list the number of components such as linear feet of
pipe etc, when it was installed, what the life expectancy may be and what it
would cost to replace the item today. The importance of this effort relates directly
to establishing necessary reserve funds. If an item has an estimated 3 years
useful life remaining, then you have 3 years to save the cost to replace it. If you
wait until you have only one year and start saving, the cost needed from the
utility’s rates increases. In the case where there is no reserve and the item fails,
often there is an immediate large assessment necessary. Large rate increases
are always unpopular with customers…..but sometimes necessary!
The best source to identify what assets a utility has is usually the
construction documents or payment vouchers which contain what the contractor
was paid to install. However, information may be extracted from engineering
reports, “as built” maps, operating manuals and most often in small systems by
talking to previous board/council members, operators or even contractors if
Life Expectancy: Once the number of items and year installed is
identified, the tricky issue of how long it will last needs to be decided. In reality,
this is a variable and often arbitrary figure. Let’s take a look at pipe. The quality of
the pipe, the quality of the installation, the type of soil around the pipe, the
characteristics of the water and the speed of the water are all factors. If the pipe
was initially thin-walled cheap steel installed in corrosive soil with acidic water, is
now extensively leaking and the current water use now produces water-hammer,
you obviously have a low “life cycle”….meaning time between replacements.
Today, the standards for something like AWWA C-900 PVC pipe, when properly
installed (generally bedded in sand or gravel) may have a 100 year or even more
life cycle. Often the sealing gaskets begin to fail long before the pipe.
So, how do you do it? Generally the best way is to look at the operational
history of the component. You should ask this question when you to talk to the
previously mentioned people to identify “what’s in the ground”. As example, a
common life cycle estimation for submersible turbine well pumps is 12-15 years,
assuming they were sized properly, aren’t cycling excessively (turning off and on
which generates heat and torque) and have proper electrical voltage. If there’s a
history of replacing the pump every 6-8 years, that’s the life cycle without making
other improvements. If the pump has been running for 20 years, one could
assume that it is likely to fail anytime…….and the question then is, “What’s the
plan for that?” This kind of thinking is the key to financial planning.
Smaller items such as booster pumps will often have a history of being
replaced every 6-10 years or so. Operators (assuming there IS a valve exercise
program) should be able to identify valves and hydrants that are not working
properly. You don’t need a lot of experience to just to walk around the utility and
identify worn out buildings, rusting equipment, leaky roofs and beat-up trucks.
Take a look at the water audit; the difference between water pumped and
water sold on systems with meters. Using 15% or less as a benchmark, you can
compare the year installed to the water loss and use some common sense. In
one case, a community had a 62% water loss with steel pipe that was installed
over 50 years ago. That’s a pretty good picture of piping that has little life
remaining. Obverse to this, if the pipe is 50 years old but has little water loss and
a good history of few repairs you might guess that it has another 20-30 years
remaining. Herein lies the danger of overestimating the life cycle; you must NOT
do this! Remember, these evaluations should be done annually.
Repair vs. Replace: When identifying future costs, a decision to repair or
replace components is necessary. For instance, smaller booster pumps in a
water system and small blowers in wastewater systems are often run until they
fail and then replaced, however, a large electric motor driving a shaft driven
submersible pump may be removed and re-furbished every 10 years or so. The
component operating manual or a vendor may provide information to help make
these decisions. In all cases, the cost to repair or replace should be in future
Appendix A and B provide a checklist of common components found in
water and wastewater systems respectively to assist in the asset inventory.
There may very well be other components not listed that can be inserted but this
will be a good starting point. The information from the asset inventory will be
entered into the Asset Inventory Calculator to provide information to the decision
makers and to determine the revenues needed to establish equipment
replacement reserve funds.
B. Adequate Reserve Funds: Typically, the most pressing issue in
smaller utilities is the lack of adequate reserve funds. Most small utilities do not
develop “out-year” budgets, meaning they just predict revenues and expenditures
for the next year. Identified reserves should be established either as line items in
the utility budget or contained in a separate schedule. Often the smaller utilities
have a “Beginning Balance” or “Cash-on-hand“ account line, but they cannot tell
you how much of those funds are effectively not available because they are
allocated, say, to replace the well pump in two years.
The below two reserve funds should be established to ensure assets are
replaced as necessary. Other reserve funds not discussed here could include
Operating Reserves (Used to compensate for cash flow reductions), New
Projects Reserves (Usually called Capital Improvements) and sometimes, Debt
Service Reserves required for some types of loans.
Equipment Replacement Reserves: This reserve is often called a
“Depreciation Reserve”. As equipment wears out it loses value and will need to
be replaced sometime in the future. By saving for future costs, you can readily
see that rates can be minimized as long as the money is actually saved for
replacement costs. The Asset Inventory Calculator will calculate the minimum
amount of monthly and annual allocation to reserve funds to pay for the items
selected. There is an explanation of this in the instructions in Appendix C.
A very interesting subject is the length of time that smaller utilities are
willing to “save ahead”. You will generally find that the maximum threshold will
probably be only around 5 years. Obviously, if you saved money to replace
something in 15 years and the funds were in an interest bearing account, the
overall monthly cost to customers would be very low for that item vs. accruing the
replacement cost in just five years. Customers usually don’t trust the
board/council to save the money and often you will hear the response that “I
won’t be here then!” It is true that smaller management organizations change
board members frequently and the intent of the reserve funds is lost with new
C. Scheduled Maintenance: Scheduled maintenance is often called
“preventive maintenance”. It is a proactive rather than reactive program meaning
that you have the ability of scheduling routine tasks when it is convenient for you
and servicing equipment before it breaks. An example would be a valve exercise
program done on a mild day in June vs. a cold one in February. A valve exercise
program identifies where the valves are, if the valve risers are accessible and not
filled with debris, if you can get the valve key on the valve itself, the position of
the valve (fully open or closed) and if the valve operates. This should be done at
least once a year and should include all valves, even the smaller ones on pump
house manifolds. You should never over-torque valves to the position needed as
they can “stick”. On larger valves, such as found on water mains you should
actually back off ¼ turn from the position needed. The valve will not leak and the
¼ turn allows an indication of which position the valve is in during the next
exercise. Likewise, you should exercise all hydrants and blow-offs and inspect
reservoir roofs and interiors at least annually in addition to your routine reservoir
If available, the operating manual for a piece of equipment will provide
suggested maintenance such as lubrication. Better known vendors often provide
equipment data readily available on the internet, and speaking to a local vendor
will allow you to determine what maintenance may prolong the life of the
Don’t overlook painting, roof repairs and ensuring that any equipment
enclosures aren’t leaking or deteriorating.
There is an example of a small system “maintenance scheduler” at
Appendix D. The program allows you to schedule daily, weekly and monthly
tasks. It will automatically identify the current day and provide you with the next 6
days tasks. The instructions are on the scheduler itself and are self-explanatory.
Any red backgrounds means data is missing or has been improperly
Emergency Planning: As you will see, the Asset Inventory Calculator will
“ask” you to identify the most critical components of a particular utility. This is
designed to get to the question “What are we going to do if this component fails
tomorrow?” Generally, other than having an outside funding source available in
an emergency or an emergency source of water, this means that an emergency
reserve should be established in the utility budget to address failure of critical
The emergency reserve should be able to fund “what is feared the most!”
In small utilities this could be the failure of the primary well-pump for water or
failure of a clarifier drive or lift-station pumps for a sewer utility.
The instructions at Appendix C will also describe how to include the cost
of establishing a cash reserve other than for equipment replacement.
D. Long Term Funding Strategy: Large cost items are not typically
funded by cash reserves because, as previously mentioned, most small systems
are very resistant to saving ahead more than 5 years and then the cost to fund a
major system upgrade with cash would drive rates through the ceiling. Each
system will have a “threshold of financial pain” where increasing rates to meet
future system improvements becomes untenable. These large cost items should
then be planned to have long term financing as the revenue source. However,
care must be taken not to assume that this financing will always be available.
That said, there is still always the need for cash outlay for larger capital projects.
Often the initial engineering or environmental reports will need to be paid from
reserves and these should be included in the asset management calculator
similar to establishing the emergency reserve as described above.
1.5 The Asset Inventory (AI) Calculator
The AI calculator provides the minimum allocation to reserves from
customers needed for selected assets on an average monthly basis as well as
the annual amount. If the utility bills bi-monthly or quarterly you would need to
multiply the amount as appropriate. It also calculates the reimbursement
component of the “Connection Fee” which repays the utility for its previous
investments (which is the value of components and often called Equity).
Appendix E describes the use of the calculator. You should review your state
rules to see which methods are allowed in calculating the reimbursement to the
utility for previous equity accrued.
While the establishment of connection fees, which are called many
names, is not the primary intent of this manual, because they are based on
equity (the calculated current value of assets) which is derived from the condition
and usually the depreciated replacement cost of your assets, this calculation has
been included in the AI calculator. You will find that connection fees are often just
made up or copied from a nearby utility and in actuality have no legal standing.
Properly using the AI calculator would provide data based on the water or
wastewater system itself and is likely to be of more legal validity. In other words
someone who disagrees, such as developers, would need to demonstrate why
they think your figure is “wrong”. There is a large amount of arbitrary subjective
data in analyzing assets but using this calculator would explain how you arrived
at “the amount”. REMEMBER, this is for reimbursement for equity and any
services rendered such as installation of meters etc. would be an additional
Appendix A: Equipment Replacement - Water
Size, Type of Material Number, Year Useful Life Cost to
Item Description, Yardage etc. Installed Remaining Replace
AirVac relief valves
Filters / Filter Media
Appendix B: Equipment Replacement - Wastewater
Size, Type of Material Number, Year Useful Life Cost to
Item Description, Yardage Installed Remaining Replace
Air/Vac release Valve
Instructions for the Asset Inventory (AI) Calculator
Data entry is in the white cells and the light yellow cells are computed and
protected. You may enter the utility name.
There are two “conditional formatting” background colors to alert the user for
possible mistakes. If the background is red, then there is either missing required
data or the entry is in error. If the background is violet, then that means “check
for possible missing data or accuracy”, but the entry is not an error otherwise.
The bright yellow column titles all contain drop down comment boxes with
the instructions for entries in that column. In order to use the calculator you
will find the data collection is the hardest part.
It is suggested to either keep similar categories together such as all piping,
pumps etc. or list items in order of shortest life remaining, however you may
enter assets in any order you desire.
The calculator is unique in that it calculates a minimum, stable reserve
component to be added annually to your budget. Most “depreciation” calculators
divide an item’s cost by the years to be replaced and then add them all together.
This method is inaccurate at best and actually “wrong” sometimes. The cost
derived using “straight-line depreciation” is often very much more than
necessary. The calculator will show you the minimum needed to meet your goals.
As an example, the annual contribution to fund an item costing $14,000 in ten
years and another item costing $6,000 in 3 years is $2,000 per year for ten
years. Straight-line depreciation would produce a result of $3,400 per year: a
To select items to be included in the reserve calculation you enter the information
on that component from left to right on the spreadsheet, and enter an “x” in
column P and the interest from your savings account in column O. Be sure to
include the inflation rate in column L. The future cost for any particular item is
calculated for you in column R. The calculator looks at previous reserve
allocations, when items are replaced and future costs to process the minimum
necessary savings. NOTE: It is possible that in order to replace an expensive
item in a short amount of time that you will not see an increase in the
needed amount to the reserve fund when you enter other items! The reason
is that the amount necessary to say, replace the first item, may be large enough
to cover the costs of all future items after the first item is replaced. As previously
mentioned, you will probably see customer resistance to saving ahead for more
than around 5 years, even though it’s cheaper to save for longer periods of time.
If you wish to simply establish a cash reserve for other than equipment
replacement you need an extra “step”. For instance, if you wanted to include
establishing a $10,000 emergency reserve in the calculations you would enter
“Emergency Reserve” as an asset, enter the current year as the install date, the
number of years over which you wish to accrue the funds under “Estimated
Effective Life”, $10,000 in either “Original Cost” or “Replacement Cost” and enter
$10,000 in column N under “Debt and Grants”, and then the entries as
described above. This ensures the amount is not computed in the connection
If you have cash on-hand you’d like to apply to reserve funds, enter the
information as described above and print a copy of the original AI calculator.
Then subtract the money on-hand from items listed in the “Future Cost” column,
beginning with the items needed first. If you have enough funds to pay off the
“Future Cost” of items, remove the “x” in column P until you do not have enough
to replace the future cost of the next item. If there is a substantial amount of
money remaining to be applied you may reduce the entry under either “Original
Cost” or “Replacement Cost” (which one you are using) by that amount otherwise
just stop. The worst case would then be you would have more money than
mathematically required as assets come due for replacement. Remember, this is
done annually and things will change annually as well. The spreadsheet will then
show the needed monthly and annual contribution to reserves factoring in the
cash on hand. You will need the original list to fully explain this. Remember,
these funds are allocated and this spreadsheet “proves it!”
This worksheet is code protected and may not be accessed by the user, other
than formatting cells, columns and rows.
Appendix D: Maintenance Scheduler
Most small systems are not so complicated that they need an expensive
computerized maintenance management program, but still, unfortunately
operators leave, or die, and all the maintenance knowledge is missing for the
“new guy”. Also, it’s easy to forget to do some things that only happen once or
twice a year. By taking a few minutes to enter maintenance tasks into the
program you will be reminded of what needs to be done today, as well as the
next six days whenever you open it. This program is also very good for new
employees that haven’t memorized the routine as yet.
It’s also handy for when you go on vacation and someone else stands in for you.
They will be able to see what they are to do. There’s an interesting feature that
allows someone to enter other than today’s date and it will show you, again,
what’s supposed to be done on that day as well as the next 6 days.
The instructions are on each page of the spreadsheet. You will enter the “daily”
tasks, the tasks that are done on some kind of weekly schedule, and then the
tasks that will be done on specified days during every month or any identified
The example below shows what you would see on a given date and reflects the
tasks typically seen in a small water system,
Appendix E: Connection Fees
Connection Fees are known by many names: capacity charges, system
development charges, general facility charges, reimbursement fee, plant
investment fees, but most commonly, connection fees. Connection fees are
usually used to pay back the utility for its previous investments in infrastructure.
Some of the other names are often used to establish a fund for future capital
improvements. There are several methods to arrive at the figure.
The term Connection Fee will be used in this description and implied as a
reimbursement. Connection Fees normally have two components: the
reimbursement portion plus a component to pay for actual services rendered.
Utilities generally provide new connection inspections of some sort and often
install meters and mainline taps with various appurtenances attached. Small
utilities typically greatly undercharge for these services.
ERU: The annual averaged water use of a residential customer, usually
expressed as monthly; ex: 7,500 gallons per month. In the winter the monthly use
is less and in the summer, more.
The formula for determining the reimbursement charge is relatively simple to
write: The overall value of the utility is first determined. This amount is reduced
by any debt and any grants, yielding the “equity” (remaining value of investment
from users). The overall equity is then divided by the number of ERUs
(Equivalent Residential Use: in this case the annual water use of an average
residential customer) allowed at maximum capacity. The result is the
reimbursement per ERU. The total ERUs authorized is determined by the
governing agency with jurisdiction and may be found in the Water System Plan,
Facility Plan or often in the operating permit.
System value may be determined by using original cost plus an inflation factor
(which appreciates its present worth) or replacement costs at today’s pricing.
You should check to see if state statutes limit or prohibit either procedure!
Herein lays the difficulty in establishing the fees. Each system component group,
such as 10” DI pipe, 6” PVC pipe, valves, hydrants, meters, wellhouse, well
pump, reservoir, rolling stock, PRVs etc. should be valued individually and
adjusted for depreciation (devaluation due to less remaining life). This entails a
very detailed and lengthy effort and quite a few arbitrary decisions. Proper
installation, for example, can extend the life cycle, where poor installation can
reduce it. Cheap components will also reduce life (increase depreciation).
Ex: Today’s cost of 5000 feet of 6” PVC @ $32 foot = $160K
50 year life assigned, its now 40 years = 80% depreciation or 20% life remaining
= $32K value (.20 x $160K)
The resulting value of each group is the “total” value of the utility and the
difference between the total value and the replacement costs is the “total”
depreciation. You should never just arbitrarily assign an overall depreciation
value to the whole system because you can’t defend this method!
Final Calculation: System calculated value is $1.8M. With an outstanding debt of
$300K, equity is $1.5M. If the capacity was 525 ERUs, the reimbursement
component would be $2,857 per ERU.
New non-residential customers could estimate their annual use in ERUs and pay
fees accordingly with an adjustment for actual use ± once records are
The methodology and charges should be legally reviewed by counsel
knowledgeable in the procedure prior to implementation. Connection fees should
be recalculated every 3-5 years.