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Benefits of Utility Asset Management

November 7, 2016/in Insights-Financial, Insights-Local Government, Insights-Municipal, Insights-Water & Wastewater, Uncategorized /by Judy Lincoln

As our water systems continue to age past their useful life and utilities face increasing budget pressures, the terms asset management and capital improvement planning have become buzzwords in the industry. However, as utility managers struggle to squeeze as much out of their budgets as possible, it is hard for many of them to justify the additional expense associated with developing and implementing an asset management program. Just like with any other purchase, they want to be sure the benefits outweigh the cost. So what are the benefits of asset management and capital improvement planning?

Target budget dollars where they’re needed most and eliminate wasteful spending.

An asset management and capital improvement program helps you identify exactly what maintenance and repair work is necessary without guesswork. Why allocate money toward cleaning out pipes selected at random, when you could target that money to the pipes that need it most (and use the savings to accomplish other system goals)? Why replace pipes simply because of age when they may be in perfectly good condition? Many factors besides age can cause the deterioration of infrastructure.

Photo by TheeErin. Published via a Creative Commons license.

Minimize Risk

Knowing which infrastructure is most likely to fail (and correcting deficiencies before it does) can save you major expenses later in the form of property claims, water loss, etc. Knowing which failures would be the most catastrophic helps you target money toward their prevention as a first priority. With the budget limitations of municipal utility management, you might not be able to prevent every system failure, so it’s important to know which ones have the potential to cause the most financial damage and impact the most customers. This way, you can focus your efforts on preventing those first. If a failure does occur, a good asset management plan will include a proactive response plan, allowing you to respond quicker and more efficiently (thereby reducing damage and disruption).

Maximize Returns

Asset management and capital improvement planning is all about proactively investing in measures to extend the life of your infrastructure. These small investments can extend the life of an asset by several years. Over time, the money you save delaying replacement will far surpass the money you spent to maintain the asset, and your customers will have enjoyed better, more consistent service for this lower cost.

Promote Sustainability

Finding and detecting failures in the system like leaks can prevent water loss and the wasted energy consumed to treat water that never makes it to a customer.

Optimize Customer Service and Satisfaction

Proactively maintaining your assets ensures they function at peak performance for a longer period of time and are replaced before they fail. This means your customers receive top quality service without disruption and are happier for it. In addition, many asset management solutions include optional customer service applications that make it easier for customers to submit service requests and track them to completion.

Justify Your Rates

Rate increases are never popular with customers, but they are easier for them to accept when they are backed up with clear data showing exactly what improvements are needed and why.

Access grants and loans

Competition for funding is fierce, and government agencies are under pressure to make sure the money they invest is used wisely. As a result, they’re more likely to award funds to utilities who have clear documentation of the project need, its benefits, and a plan for getting it built, operating it, and maintaining it at optimum levels over time.

Know your worth

Many utilities have been considering the option of leasing or selling their assets as a response to growing financial obligations in the public sector. A comprehensive asset management system provides documentation of the value of your assets, so you can ensure you are in a position to negotiate the best possible deal for you and your customers. Potential investors will be more comfortable making a significant investment if they fully understand the value and the risks they’re assuming. (For more Insight into the utility leasing trend, see our article on calculating fair annual rental value.)

Every manager must take careful stock of his revenue and his expenses, but not all expenses are created alike. There is a difference between a cost and an investment, and asset management is clearly an investment in your utility’s future. In essence, it helps you provide better service at a lower cost with reduced risk and improved financing options. How many investments can you make that provide that kind of return?

Utility Asset Management: Maximizing ROI

October 28, 2016/in Insights-Municipal, Insights-Water & Wastewater /by Judy Lincoln

Each year, water and wastewater utilities send uncalculated dollars down the drain because of leaks and system failures, but asset management could provide the savings they need to respond to the creeping threats of aging infrastructure, water shortages, and increasingly stringent regulations.

Last year, UCLA filed a lawsuit against the Los Angeles Department of Water and Power for $13 million in damages sustained during a water main break on campus in 2014. This break released 20 million gallons of water onto Sunset Boulevard, flooding the street, campus buildings, and athletic facilities.

The lawsuit is just one of many claims the utility has received from people and businesses impacted by the water main failure; and it’s a reminder of the often hidden and forgotten costs utilities face when their infrastructure fails.

Every day, U.S. utilities produce 34 billion gallons of water, and 22% of it is lost through leaks. That’s billions of dollars in treatment, energy, labor and operations costs that cannot be recouped. These leaks cost the average utility more than $100,000 per year in revenue, but water main breaks like the one at UCLA can be even more costly.

Each year, there are approximately 240,000 water main breaks in the U.S., costing utilities an average $500,000 per break.

Much of our water and wastewater infrastructure is old and has far exceeded its life expectancy. Some pipes date back to the Civil War era! The cost to replace this infrastructure will be high, but, as these examples demonstrate, so is the cost of doing nothing.

As utilities struggle to budget for the replacement of aging systems, they continue to face increasing cost pressures from federal mandates. While the EPA establishes new limits on different contaminants (often requiring utilities to acquire new technology or improve their facilities), funding has not kept pace with these new demands. A report by the Water Infrastructure Network indicates that federal funding on water and wastewater systems has declined by more than 70% since 1980. As a result, local utilities have had to shift more of their revenue from operations and maintenance to new capital expenditures, leaving them even more ill-equipped to respond to an aging system.

At the same time, conservation efforts and improved technology have led many Americans to reduce their water consumption. While this is great for the environment, it translates into lower revenues for utilities – even as water acquisition costs increase (because utilities must turn to more expensive water sources once the least costly sources run dry).

With rising costs and shrinking revenues, utilities need to carefully manage every dollar to ensure the maximum return on their investment. The American Society of Civil Engineers estimates that the cost to make the improvements our water and wastewater system needs to keep functioning over the long term is more than $1 trillion. While there is plenty of work to be done, there is simply not enough funding to do it all at once. Therefore, ASCE recommends assessing the condition of every pipe and valve to determine the risks of failure and properly allocate funds where they are needed most. The need for asset management and capital improvement planning in the water utility industry has never been greater.

What is asset management?

Asset management is a systematic approach to minimizing the cost of owning, operating, and maintaining your infrastructure at acceptable levels of service.

It is not a computer system or GIS, though these are often valuable tools employed in an asset management program for record-keeping and data analysis. Depending on the needs of your utility, an effective asset management system could be as simple as an Excel spreadsheet or as robust as an enterprise level solution integrating all of your inventory, operations and maintenance, billing, and document management functions. The solution can include mobile interfaces for supporting field crews and even interactive applications to enhance and promote public interaction and transparency.

While utility managers often reject implementing a large-scale asset management program because they think it will cost too much, the truth is: asset management is an investment designed to cut inefficient or wasteful spending and stretch your budget further.

It is about optimizing how you spend your budget dollars in order to make sure they are providing the largest possible return on investment: reducing the life cycle costs of each asset you own while maximizing the service that asset provides over time.

A proper asset management and capital improvement program will help a utility identify areas where money is not being spent wisely and reallocate those funds where they can be most beneficial.

It will also help you recognize and evaluate options for keeping your assets functioning for a longer period of time, so that you don’t need to invest in expensive upgrades or replacements as frequently.

An asset management program involves:

Creating an inventory of what you have and its condition

Establishing your goals.

Prioritizing what’s most critical and directing resources to those needs first.

Measuring the results.

Analyzing those results and repeating or revising the cycle.

It is a circular process that never ends. Many things change over time: the condition of your assets, regulations and the business climate you operate in, the number of users you serve, etc. A good asset management and capital improvement program helps you plan for these changes in advance and respond proactively before they become threats to your bottom line.

Because of the tight financial constraints under which most utilities operate, they often take a reactive approach to budgeting for maintenance and replacements. As an asset fails, they make room in the budget to fix it or replace it, but this reactive approach will not be sustainable over the long-term. Our infrastructure is too old, and too much work will be needed to be able to pay for it all at once. Utilities need to plan for this inevitable future now, so that they can begin saving the money they will need in the coming decades.

Photo by Connie Ma. Published here under a Creative Commons license.

Proactive approach vs. Reactive: By monitoring the condition of your assets and planning for their maintenance and replacement in advance, you avoid the high costs associated with failures like this middle-of-the-night water main break.

Though the financial obligations associated with aging infrastructure, increasingly stringent regulation, and shrinking grant programs can seem overwhelming, asset management and capital improvement planning can help. Asset management helps you find the waste in your spending programs and put those dollars to better use. It helps you recognize potential threats to your system and minimize risk (thereby minimizing the financial damage those threats can do). It also helps you improve service to your customers and achieve buy-in from them when the case must be made for rate increases.

Investing in asset management and capital improvement planning can be hard to justify when utility budgets are stretched so thin, but the savings an asset management program can produce will more than pay for the program over time. Those savings, in fact, may be crucial to meeting the coming challenge of replacing our aging water systems and addressing the possibility of spreading water shortages.

In business, there’s an old saying: Sometimes you have to spend money to make money. With asset management, you spend money to save money.

HRG has extensive experience in asset management for municipal clients, particularly in the areas of sanitary and storm sewer systems. Read more about our asset management experience.

Effective Utility Management Starts With These Strategic Planning Tips

June 15, 2016/in Insights-Financial, Insights-Local Government, Insights-Municipal, Insights-Water & Wastewater /by Judy Lincoln

This article was originally published in the June 2016 issue of Keystone Water Quality Manager. It is reprinted here with their permission.

We’re all familiar with the phrase “If you don’t know where you’re going, any road will get you there.” This is paraphrased from an exchange between Alice and Cheshire Cat in Lewis Carroll’s Alice in Wonderland. Like Alice, you know you need to get “somewhere” because changing regulations, increasing costs, aging infrastructure and customer growth affect the way you provide your service. Each year as operators, managers, and board members, you’re forced to establish budgets, adopt rates and policies, and make recommendations that have long-lasting effects. You may use the best information available at the time but can’t be sure that you’re adequately prepared for what’s just around the corner.

Strategic planning is a tool that helps to identify where you need to go and the best road to get there by exploring the fundamental values and principles that support your utility’s policy and operating decisions. Properly done, it looks at all aspects of the utility’s operations in order to see if they reflect the needs of your customers, ensure regulatory compliance, and generate sufficient financial resources to be sustainable. This is not just a financial plan focused on replacing existing facilities or acquiring new ones, but a comprehensive look at the factors that will drive both short and long-term events and an identification of strategies to address them.

There are five basic elements in a strategic plan:

Vision
Mission Statement
Critical Success Factors
Strategies and Actions to Meet Objectives
Prioritization and Implementation Schedule

However, there can be as many additional elements as the utility feels is necessary to properly address the needs of all its stakeholders: its users, employees, and the community at large. Some of these elements may take a long time to complete, while others can be accomplished relatively quickly. For some, a good deal of data will be needed, while others will simply reflect widely accepted industry practices and preferences. The plan could take a month or a year to complete, depending on the level of detail believed to be required. However, one of the benefits of the planning process will be simply identifying the stakeholders and discussing the elements of the plan with them. The ability to identify areas of consensus and concern is a hugely important and valuable outcome of the plan.

Getting Ready for Strategic Planning

Before you can begin the process, there are some preparatory activities that should be completed:

Authorization
The first task in strategic planning is obtaining the authorization to move forward with the process at all. It is important to involve all of the decision-makers in the strategic planning process, and discussing the scope of the plan and its benefits is one of the best ways to achieve “buy-in” for the entire process. Without buy-in, it will be difficult to fully implement the resulting plan.

Identification of Stakeholders
Another important step is to make sure the process considers all relevant points of view. This may seem easy, but, when you actually begin to list them, the number of people and organizations relying on your utility to be well-managed and provide affordable, high quality service is probably greater than you think. While some seem obvious, consider the following examples:
• Current users
• Employees
• Regulatory agencies, including PA DEP and US EPA
• Municipal government, conservation districts and planning agencies
• The Chamber of Commerce or local economic development agency
• Future users, including land owners and developers

This is not intended to be a complete list, only a guide, and not every group will require the same level of involvement in the strategic planning process, but understanding how each group might be impacted is important.

Determination of the Plan’s Time Frame
Strategic plans are generally long-term, usually five years, but a different time horizon may be more useful if you are aware of some specific event likely to occur just beyond the five-year planning period. If a significant expansion of the utility appears likely, five years may not be long enough.

Organization
How will the strategic plan be organized? Who will guide the process? Is it to be done by an outside professional or internal staff? What is the schedule? What will the final plan look like, and how will it be disseminated? Does it need some type of formal adoption or approval? If so, by whom?

Determining the “Vision”

In essence, visioning asks the question: What will the organization look like in the future? Visioning will supply the context for the other elements of the strategic plan. For a wastewater utility, the visioning process may actually be one of the most involved elements of the plan since this is where you try to get a peek at what’s around the corner. Unlike some businesses where visioning is a projection of some blend of marketing prowess, economic predictions and industry trends, each utility is unique because the factors that drive future events will impact it differently.

The task is made a bit easier if you divide visioning into an external scan and an internal scan. Although they may be related in many ways, the external scan looks at:

potential changes in the regulatory environment,
community growth and development,
changes in demographics,
future interest rates,
future construction costs,
the overall level of economic activity.

(Increased economic activity in nearby communities should also be considered since it may impact your service area.)

The internal scan will focus more on:

the needs of existing users and employees,
service improvements,
transparency,
facilities,
finances,
rates,
operating policies,
organizational structure.

These are but a few of the areas that need to be considered in some detail.

The visioning process is almost as diverse as the elements themselves. Clearly, information from outside the utility is necessary. This may include individual interviews with consultants, suppliers and community leaders. Telephone calls, questionnaires, online surveys, and specific messages printed on bill inserts can also solicit feedback from targeted stakeholders. Regardless of how it’s done, the result should be a clear and concise statement that reflects the major trends that are likely to drive the future direction of your utility. But, before you can get too specific, you should develop the broad organizational goals. This is best done with a mission statement.

Drafting Your “Mission Statement”

I know the idea that you can somehow cram the entire essence of an organization into a couple of tightly worded sentences seems impossible. Some mission statements will run on for several paragraphs, but do they really provide more information about the philosophy or principles that govern the utility’s operations? Usually not. Instead, the discipline of packing an organization’s values into a few words may actually provide a better understanding of its goals. Here is an illustration of a short but insightful mission statement for a wastewater utility, courtesy of the Lancaster Area Sewer Authority:

“To provide quality service and apply technology to process wastewater so as to protect and enhance the environment and health and well-being of the community at a reasonable cost.”

The mission statement should not simply be a collection of carefully chosen words that project an image that isn’t consistent with the utility’s values; rather, creating the mission statement should foster a deeper understanding and commitment to those values. This, in turn, provides the benchmarks that measure success.

Identifying “Critical Success Factors”

The visioning process should identify the broad goals and major initiatives that need to be incorporated into the strategic plan. It is not important to determine their feasibility at this point; detailed examination of alternatives will be done later. Simply decide if they are consistent with the mission statement and are not mutually exclusive. Some likely success factors might include:

Achieving greater transparency.
Building up operating and capital reserve accounts.
Having all professional employees become certified in their specialty.
Exploring alternative billing and payment procedures.
Creating or reviewing emergency response procedures.
Reviewing or increasing use of technology to achieve greater efficiency.
Expanding facilities to accommodate expected population increases.
Developing an action plan should demographic changes result in reduced flows.

These are only illustrations; the vision and mission statements will help dictate the critical success factors that should be included in your plan. The key here is to keep the success factors general in nature but focused on specific identifiable outcomes. Another important consideration is quantifying what it means to be successful and the metrics for measurement.

From the above illustration, achieving greater transparency is a success factor, but what exactly does that mean? What is it that should be more transparent, and what are the limits of what is made publically available? Can it measured by the number of visits to your website, or does it mean the creation of a website? Is it measured by a fewer number of requests for specific information or telephone inquiries? How about the development of a newsletter? Is that something that most customers believe would be useful based on data collected during the visioning process?

Some critical success factors may not be determined directly. In the example above, data may not have been collected on customer’s preferences during the visioning process. In that case, the success factor of achieving greater transparency will need to be defined by some other precedent activity to measure the benefits of transparency, or it may be determined that transparency is simply a virtue for its own sake whose benefits may not be immediately measurable. In that instance, the precedent activity may be to look at industry practice and see how your current practices can be improved.

If you are getting the idea that developing the critical success factors is a time-consuming process that requires a lot of effort in order to be done correctly, you’re right. This is often the work of several individuals and should involve a team approach at least to direct the work. Care should be taken to assign responsibility for completing an assignment to someone who is involved in the overall planning effort. If not, they may not understand the actual goal and may simply complete a task.

Developing critical success factors, defining them, and providing metrics for measurement is at the very heart of the strategic planning effort. While strategies and actions will provide the “to-do list” and ultimately become the basis for the final report, they will be driven first by the critical success factors you’ve defined.

Developing “Strategies and Actions”

This step is where the plan is actually created. Critical success factors identify the areas where some action seems warranted; they take our broad goals and further define the “somewhere” we want to go. The next step is determining how to get there.

Again, using the transparency example, probably everyone will agree that organizational transparency is desirable, but someone might disagree with the type of information that is made available or with the level of training that may be necessary to organize and screen information. Cost is always a consideration when implementing changes.

Because there are generally many facets to each critical success factor, it is important to have several individuals involved in formulating the strategy for evaluation and implementation. This is often accomplished by group meetings, where each critical success factor is discussed. Questions will likely arise that cannot be answered without some further investigation, so tasks must be delegated to a smaller group or an individual for follow-up. In fact, most of the early efforts will be directed to developing the process to obtain the necessary information and assigning someone to gather and analyze it. The analysis is essential so that the success factor can be implemented in a way that achieves its intended purpose. It also provides documentation for any critical success factors that cannot be implemented.

Once the strategy for implementation is determined, specific detailed actions for implementation should be prepared. One of the most important decisions in this stage of the process is timing. You want to think about the best time to launch a new initiative or modify or eliminate an existing one.

Another important task is to identify someone to champion the implementation. Maybe there is one lead person or several depending on the type and number of tasks. If achieving the critical success factor requires technology changes, someone involved with maintaining that technology should be involved in the implementation. This may seem obvious, but sometimes third parties are retained for implementation, resulting in a loss of buy-in from those who will be responsible for making it all work.

Prioritizing Tasks and Designing an Implementation Schedule

Even though this article opened with a reference to a fairy tale, there should be no fantasy about implementation. It’s just as much work as each of the other elements — maybe more, since there are now clear ideas on how each goal is to be achieved and, of course, the devil is always in the details. Regardless of how thorough the analysis was, complications can be expected. Another frustration usually is that it takes longer to accomplish than originally believed.

In order to avoid this, one of the first steps to implementation is to determine the schedule. Unless there are very few and straightforward critical success factors, some effort needs to be expended in prioritizing each success factor for each of the broad goals identified in the vision. Often, once the strategic plan is formalized, a sense of urgency to implement its objectives is inevitable. This is understandable since the reason for the plan is generally to improve the utility’s operations, so why would you want to delay?

For one thing, it’s important to remember that the plan itself looks at a five-year time period, so that not all benefits will be immediately available. Also, events are constantly changing, so some of the fundamental assumptions that went into the plan may change. This may not affect the plan, but the implementation schedule should allow time for monitoring external changes nonetheless.

Another important consideration is the time staff has available to implement the plan. While the plan is being implemented, all other work must continue. Even if some of the heavy lifting is assigned to others, the utility’s staff needs to be involved at each step if they are expected to achieve the plan’s goals and provide necessary feedback.

Communicating the Plan with Your Stakeholders

Okay: you have the vision, you’ve determined the critical success factors, you’ve developed strategies for implementation, and you’ve created the implementation schedule. You have assigned staff to implement the various strategies in order to monitor progress and make sure that each strategy achieves its desired goal. One question remains: What does the final plan look like? Is it a printed document, a slide presentation published on your website, or an internal spreadsheet that serves as a checklist for monitoring implementation?

Like all the other aspects of the plan, the process that rolls out the plan is determined by the goals of the strategic plan itself. If the plan is centered on internal improvements, then employee meetings with handouts may be the most effective means of communicating the plan’s objectives and the strategies designed to implement them. If there are elements of the plan that are service-related – that impact your customers or the community at large – more formal printed materials may need to be prepared. Meetings with important relevant stakeholders may also be useful, especially if there are some financial impacts associated with the plan that they are expected to share.

The only thing that’s constant is change. Absent a crystal ball, tarot cards, or an Ouija board, a well-thought-out strategic plan is the best means of seeing the future. Even if it misses the mark, knowing why it missed and what parts of the utility may be affected is an important benefit that makes the exercise worthwhile. At the very least, developing the plan will require policy-makers, managers and staff to consider each other’s points of view and understand how the customers and community view your utility.

Sanitary Sewer Overflow Solution Comes from An Unlikely Source: A Fish

June 9, 2016/in Insights-Local Government, Insights-Municipal, Insights-Water & Wastewater /by Judy Lincoln

This article on how Middletown Wastewater Treatment Plant solved its Sanitary Sewer Overflow problem was originally published in the June 2016 issue of Keystone Water Quality Manager. It is reprinted here with their permission.

No doubt a fisherman would be intrigued seeing a rock bass on the fine screen at the Middletown WWTP, but the ear tuned to hear “inflow” was even more intrigued.

The visit from the rock bass had been preceded by two decades of inflow reduction efforts due to Sanitary Sewer Overflow issue (SSOs). Yet despite increased interceptor sizes and redirected flows, the SSOs continued. A sewer system dating back to the 19^th century can indeed be challenging, but sometimes solutions are inspired in the unlikeliest of ways.

Discovery of the rock bass was mentioned casually at an authority meeting, and immediately the authority’s engineer began to wonder if there was an unknown connection between the borough’s sanitary sewers and storm sewers. Rock bass are not kept as pets, of course, so the fish would not have entered the system from a toilet or home drain. It must’ve come from Swatara Creek. There is no way the fish came through the WWTP effluent pipe, and only the local storm sewers discharge to Swatara Creek, not the sanitary sewers. Therefore, the fish must’ve entered the sanitary system directly from a connection with the storm sewers. But where?

After several discussions with treatment plant operators and other staff at the borough and authority, the engineer was able to narrow the search down to three possible locations, one of which was located at the site of a streetscape project under construction at the time. Searching this area for a sanitary and storm sewer connection would be very difficult because it was the heart of the borough’s downtown business district and was surrounded by a nest of other utilities and old Brownstone businesses. Yet the effort was worth it: By carefully coordinating with the contractor, the borough was able to discover the unknown connection between the local sanitary and storm systems, and, once it was corrected, sanitary sewer overflows (and basement back-ups at local businesses) were finally eliminated!

This story illustrates the importance of harnessing the feedback and input of your operators and staff at all levels of an authority’s organization. Had the operators’ odd discovery of the rock bass (later nicknamed Leaky) never made it to the authority and their engineer, SSOs could’ve potentially continued in the borough for many years. Operators possess unique knowledge of a system’s materials, construction and history. This knowledge has real value that can lead to major cost savings like those realized by this solution to the borough’s inflow problems.

As this story shows, incorporating the input of operators and staff at all levels of an organization can make finding solutions to your most puzzling challenges as easy as shooting fish in a barrel (or fine screen).

Joshua Fox, P.E., is the eastern Regional Service Group Manager for HRG’s Water & Wastewater Service Group. He has extensive experience in the planning and implementation of I/I Programs and rehabilitation projects.

Bruce Hulshizer, P.E., is a project manager in HRG’s Water and Wastewater Service Group. He has two decades of experience in civil engineering and is an active member of the Pennsylvania Water Environment Association, where he serves as co-chair of their Collection System Committee.

Assessing the Condition of Large Sewers

October 13, 2015/in Insights-Water & Wastewater, Uncategorized /by Judy Lincoln

Determining the condition of large sewers can be challenging, but multiple tools are available to help. This article, which was published in the October 2015 issue of Keystone Water Quality Manager magazine, provides a brief review of large sewer condition assessment tools and gives some guidance in deciding which to use.

Knowing the condition of your sewer system now can save you major headaches (and money) down the line. The investment you make today in conducting regular inspections of your pipes and pump stations will help you avoid emergencies like burst pipes and sewer overflows tomorrow, but it will also help you make better decisions about where to allocate limited revenues in terms of maintenance, repairs, and replacements.

Even though the investment in a condition assessment is worthwhile, you want to make sure you spend those assessment dollars wisely and get the data you need in the best possible quality for the lowest possible cost. Many tools are available, and each one is suited to particular needs. Which tool is right for your system? Let’s take a look at the strengths and limitations of some of the most popular methods of sewer inspection available today.

Knowing What Each Tool Can Do

1. Zoom Camera
A handheld or truck-mounted zoom camera is a great tool for quickly assessing the condition of large sewers. A zoom camera enables you to see for several hundred feet down the sewer line, but the view is limited by any obstruction to line of sight (such as grease, cobwebs, debris or a deflection in the sewer). In addition, the camera will only allow you to see above the water level.

2. Acoustic Assessment
Another quick assessment method is the use of acoustics. The ability for sound to pass through the sewer provides an indication of whether a blockage exists or not. However, it is not a complete assessment and will require some additional inspection work. Still, an acoustic assessment can cost about a quarter of the price of basic closed circuit television, so it can be used to save money by focusing more expensive data collection methods only on areas the acoustic assessment has identified to have potential blockages (as opposed to using a more expensive, but more thorough tool throughout the entire system).

3. Closed Circuit Television (CCTV)
CCTV has been used for many years to evaluate sewers, and it can be customized to the needs of your unique system because of the different types of cameras and vehicles that are available. A conventional pan and tilt camera may be sufficient for some pipes, but a fish-eye type camera lens can be used for a virtual pan and tilt that is somewhat more comprehensive.

CCTV provides a visual assessment of the sewer, but it can also be helpful in identifying buried manholes or revealing other unknowns in the connectivity of the sewer system.

In the past, it was a challenge to obtain sufficient lighting to get a clear picture of large sewers (see figure on the right), but new technology solves this problem by using a strobe light and stitching a series of images together, rather than recording continuous video.

4. Sonar
While some tools like the zoom camera cannot provide data on the condition of pipes below the water surface, sonar can. Therefore, it is useful for identifying debris and sensing connections below water level. However, some water must be in the sewer for the use of sonar to be possible.

5. Laser Profiling
Laser profiling can reveal buried manholes or other connections to the sewer that may not have been realized and can also be used to assess pipe wall loss (as long as the original sewer size information is available and can be entered into the software). However, like the zoom camera, laser profiling can only be used to see above the water level. Therefore, it’s wise to combine it with sonar and CCTV in order to get a complete assessment of the sewer condition, as seen in the figure on the right. (The red shows results from the laser, while the blue shows results from sonar.) For a recent project involving 70,000 feet of sewer, the cost to use these three tools together was approximately $5-6 per foot.

6. LIDAR (3D Laser)
LIDAR is an advanced technology alternative to standard visual and photographic inspection methods. It uses 3D optical scanners to collect simultaneous data and images, which can be used to produce a 3D model of the sewer. This model can then be used to measure, identify deficiencies, and make recommendations for rehabilitation or replacement. It can also be used in 3D infrastructure system modeling and management applications when combined with equally accurate pipe and structure positional data. One instance 3D data is especially useful is in manufacturing the lining for a bend in a sewer.

As an advanced technology, LIDAR provides more comprehensive data than a zoom camera or CCTV inspection could. As an added bonus, the optical scanners are typically inserted into the sewer from the surface, eliminating the need for a person to enter the confined space of the sewer and the associated dangers they could encounter.

7. H2S Gas Sensor
An H2S Gas Sensor is helpful in cases where there is concern about corrosion. The sensor can be mounted on a multi-sensor platform to provide additional insight into the state of the sewer.

8. Gyroscopic mapping
Gyroscopic mapping is used to obtain X-Y-Z coordinates of the sewer along its length, so it’s helpful for identifying the location of bends or changes in elevation. However, this tool requires known X-Y-Z coordinates at the starting and ending points of a sewer.

For large sewers, a small pipe needs to be pulled through the large pipe as a host for the probe, leading to some limitations in the information gained. However, this tool can be useful for facilities such as force mains where changes in direction are often not seen from the surface.

9. In-pipe Ground Penetrating Radar (GPR)
GPR inside the pipe gives insight beyond the sewer itself. It can reveal void spaces outside the sewer line, such as may be caused by infiltration. It can also shed light on the thickness of concrete covering rebar in the sewer.

Deciding Which Tool is Right for You

With a clearer picture of what each tool can and cannot do, you’re better prepared to decide which one will produce the best results for your system. In doing so, here are some things you should consider:

1. Understand your goals.
Consider what you want to gain from the assessment. For example:

If you know the sewer segment has concerns and has bends in it, then 3D LIDAR may be desirable as a means of mapping the sewer.

If blockages are your concern, acoustic rapid assessment may be a good starting point to help narrow the focus on runs where you want to perform further evaluation.

If you have seen evidence of corrosion in manholes and have a concrete pipe, an H2S sensor may be in order.
If you want information on the whole pipe and cannot bypass the flows, you will need to supplement a technology like CCTV with sonar in order to see below the water surface.

When defining your goals, be sure to solicit the input of all levels of staff and the ways they can benefit from the data.

2. Consider combining technologies to address different needs.
Each tool described here has strengths and limitations, so no technology is perfect for all conditions. Laser profiling and sonar can be combined to get thorough data above and below the water surface. An acoustic assessment can be used as a preliminary method in order to identify any blocked pipes that require more detailed assessments. An H2S gas sensor may be needed for pipes that may have corrosion, but you may have pipes of varying material throughout your system and may not need to pay for this technology everywhere. By working with a knowledgeable consultant, you can customize a plan using several different technologies only where they are needed in order to maximize the use of your budget resources.

3. Recognize that special equipment availability may affect your schedule.
Specialized equipment is not as readily available as basic equipment, so, if quick turnaround is necessary, you may want to plan your schedule around any specialty equipment needs.

4. Understand the sewer material being investigated.
If the sewer is concrete, corrosion is a real concern, so an H2S gas sensor or laser profiling may be needed. (This is not the case if the sewer is vitrified clay.)

5. Consider the ground surface.
Is there evidence of settlement on the surface near sewer lines? If so, perhaps in-pipe GPR should be considered to look for voids that have developed around the sewer.

6. Recognize your flows.
Some of the tools described here have specific water flow requirements. For example, CCTV and laser profiling require head space above the water to be effective, but sonar needs a certain depth of water over the bottom of the sewer (as well as any debris present) in order to be successful. Therefore, you will need to coordinate with appropriate staff to implement a means of controlling the flow of water through these lines.

Water flow also impacts the types of vehicles used to carry the various tools through the sewer. Depending on your flows, a crawler may work well, or a float platform may be more suitable. Wheels can be put on float platforms, so additional space is needed for clearance.

7. Plan for the unexpected.
As much as you try to consider every goal and every possible need, each job involves surprises. (If you knew exactly what you’d find in the pipes, you wouldn’t need an inspection, after all, would you?)

That’s why you should design a plan that is flexible for changing circumstances and build extra time into your schedule. Decide ahead of time what will be done if a buried manhole or substantial debris is found: Will you uncover the manhole now? Will you clean the debris out right away or just note it in the report?

The vehicles carrying the inspection tools can often travel thousands of feet if there are no drops or other concerns, so you may not need to access every single manhole during a condition assessment. However, you should still have a method in place for identifying each manhole in case needs change. (Also, individually identifying each manhole – even those not uncovered for access – is essential for logging the findings of your assessment in a report.)

Develop IDs for every manhole – even those you don’t plan to access — prior to inspection and have a plan for how to ID structures if one is found during the investigation. This can reduce confusion and make post-processing more efficient.
A thorough assessment of the condition of your sewers is crucial to optimizing system performance, determining maintenance and repair needs, and budgeting for the eventual replacement of aging infrastructure. It can also help you discover problems before they result in a system failure or reduced service to your customers. While inspections can cost thousands of dollars, they can save you thousands more if they prevent a sewer main backup or break (and the associated costs to repair the sewer and other infrastructure the break may have damaged). They also help you better target your cleaning and maintenance efforts to where the work is needed most.

In determining which technology to use for a condition assessment, you need to consider the materials of your pipes and the volume of flows through them, the goals you plan to accomplish, and your timeline for completing the work. Some tools like a zoom camera or acoustic assessment provide quick data but may need to be supplemented with other methods if blockages are found or more detail is needed. Other tools like laser profiling and CCTV will only provide data on the condition of pipes above the water line, so additional technologies like sonar will be needed to assess the pipes below water level. Some technologies like 3D LIDAR and gyroscopic mapping provide a high level of detail that may be necessary for certain specialized cases.

The figures above illustrate some meaningful findings from a condition assessment. The “shape” of the pipe resulting from sonar and laser profiling is compared with the design shape of the pipe in the figure on the left, indicating helpful information such as debris and uncovered manholes (the red spots). The quantity and distribution of debris as shown in the figure on the right will help in developing bidding documents for a cleaning project and getting better prices.

In order to provide the best possible data at an optimized price, it is wise to seek the counsel of an experienced professional who can customize a plan that uses several different technologies based on the varying conditions throughout your system.

With the right tools, you can ensure you get the data needed to keep your system functioning at optimum levels for all your customers for several years to come.

Matthew Cichy, P.E. is a water and wastewater senior project manager responsible for a variety of engineering tasks, including water and wastewater facilities planning, the design of water distribution systems, wastewater collection and conveyance systems, pumping stations, and water and wastewater treatment plants as well as construction administration, field inspections, financial consulting, and project management.

Bruce Hulshizer, P.E. is also a project manager in HRG’s water and wastewater service group. He has two decades of experience in civil engineering and is an active member of the Pennsylvania Water Environment Association, where he serves as their co-chair of the Collection System Committee for 2015.

Erin Threet Honored as ‘Woman Making a Difference’

September 25, 2015/in Company News /by Judy Lincoln

Lewisburg, PA, Office Manager Erin Threet was honored in the September 25 issue of PA Business Central as a local Woman Making a Difference.

PA Business Central is a leading business journal serving the Central Pennsylvania region. Women from across the paper’s 23-county readership area were nominated based on their business success and contributions to the community.

Threet is an integral member of the leadership team at HRG as both an office manager and shareholder of the firm. She is also dedicated to improving the community through her work designing infrastructure that provides clean water to local homes and businesses.

“Throughout the past five years, PA Business Central has named so many distinctive, accomplished women to this list, women I admire. It is truly an honor to be named alongside them and the contributions they have made to our region,” Threet said.

ABOUT HRG

Originally founded in 1962, HRG has grown to be a nationally ranked Top 500 Design Firm, providing civil engineering, surveying and environmental services to public and private sector clients. The 200-person employee-owned firm currently has office locations in Pennsylvania, Ohio, and West Virginia.

Act 73 Compliance: Calculating Fair Annual Rental Value for Water Systems

September 24, 2015/in Insights-Financial, Insights-Water & Wastewater, Uncategorized /by Judy Lincoln

by: Russ McIntosh

This article was published by Pennsylvania Municipal Authorities Association in the August 2015 issue of their magazine, The Authority.

Does your authority lease facilities from its incorporating municipality? If so, your lease payments should be carefully documented and calculated to ensure you are in compliance with Act 73, or a potential legal challenge could result.

Background

Passed in 2012, Act 73 added Section 5612 (a.1) to the Municipal Authorities Act, restricting the use of authority funds for

“any purpose other than a service or project directly related to the mission or purpose of the authority as set forth in the articles of incorporation or in the resolution or ordinance establishing the authority…”

Some authorities are obligated to make lease payments to the municipality that owns the facilities they use to provide service. While payments for the use of facilities operated by the authority to provide its services would seem to satisfy the “mission or purpose” requirement, deciding on the amount of that payment could be problematic. If the fee is too high – beyond a fair market value – rate payers could argue that the excess funds are not being used for a purpose directly related to the authority’s mission. And under Act 73, they could make that argument in court:

“A ratepayer to an authority shall have a cause of action in the court of common pleas where the authority is located to seek the return of money expended in violation of paragraph (1) from the recipient.”

Operating authorities that lease their facilities are not as common as straight operating or leaseback authorities. Although there have been no legal challenges to date, other recent changes in the act that allow for stormwater authorities may expand the applicability of the Act 73 amendments.

Act 68 of 2013 added Section 5607 (a) 18 to the act and extends the power of authorities to allow for:

“Storm water planning, management and implementation as defined in the articles of incorporation by the governing body. Authorities, existing as of the effective date of this paragraph, already operating storm water controls as part of a combined sewer system, sanitary sewer system or flood control project may continue to operate those projects.”

This may generate a need for more authorities to lease their facilities since the majority of storm water facilities are owned by the municipalities who remain responsible for compliance with their Municipal Separate Storm Sewer Systems (MS4s) permit. Authorities have the ability to impose fees and charges for storm water service, which may provide a convenient vehicle for funding these systems with user charges instead of general fund tax revenues without having to actually transfer ownership of the facilities. Authorities may also be useful in establishing drainage basinwide charges without having to seek regulatory approval.

Fair Annual Rental Value Calculation in Practice: Reading Area Water Authority

Recently HRG was selected by the Center for Excellence at Albright College to perform a study for the Reading Area Water Authority (RAWA). The work required HRG to calculate the fair annual rental value of the water facilities RAWA leases from the City of Reading. The calculation was needed in order to make sure that the payments required under RAWA’s lease with the city met the requirements of the Municipal Authorities Act as amended by Act 73 of 2012.

The mission of the Center for Excellence in Local Government at Albright College is “to maintain and enhance the quality of life in Berks County by assisting municipal leaders in meeting the changing needs of their communities.” RAWA is an operating authority that serves a population of approximately 150,000 in the city and portions of the surrounding municipalities. It delivers approximately 15 million gallons of water each day and has an annual budget of $27,000,000. It leases facilities from the city, and lease payments to the city represent about one-third of its annual budget.

Approach and Methodology

While a few systems have been leased to third parties such as the Allentown wastewater system to the Lehigh County Authority and the Borough of Middletown’s water and wastewater systems to United Water of PA, these leases have an entirely different objective and a structure that provides an up-front, lump-sum payment for a fixed term. There is no reliable public market that determines the “fair annual rental value” of a utility system and no single formula for determining this value. Instead, fair annual value calculations must consider:

The value of the assets employed in rendering the service
The existing financial structure of the utility
Market interest rates
Opportunity cost

A lease payment that represents the fair rental value of the system, the amount that a willing lessee would be willing to pay a willing lessor on an annual basis, needs to consider a variety of factors.

These factors include:

Asset base
Outstanding debt
Necessary reinvestments
Return on investment
Cash flow

In the case of Reading, the city owns the facilities and made significant investments in the water system over time in order to comply with regulatory mandates and protect the public health and safety of those who purchase water from RAWA. From the city’s point of view, the fair annual rental value should be based on the value of the assets and a reasonable rate of return consistent with their risk. It should also consider likely future events, such as the need to make additional investments to keep facilities updated and to accommodate the future growth. Such calculations are made independent of the actual revenue being generated by those assets.

From RAWA’s point of view, the fair annual rental value needed to reflect the system’s cash flow or user rates would need to be increased. RAWA’s mission is to charge users reasonable and uniform rates consistent with the level of service provided. Rates and charges are RAWA’s only source of income and must generate sufficient funds each year to pay all the expenses of the system, including operation and maintenance expenses, debt service, the annual rental payment to the city, and necessary capital investments.

Balancing both points of view, our analysis considered the current net book values of the water system’s assets and also considered the current replacement value of those assets. Other assets such as water rights were considered in the calculation where appropriate. Assets were looked at in total and adjusted for investments in facilities financed by RAWA bonds. Appropriate rates of return were calculated and applied.

We also considered the projected cash flow from operations using current rates adjusted for cash needed for reinvestment in capital assets. Future rate increases, the impact of customer growth and regulatory, environmental, and safety compliance were important factors in determining future cash flows. We selected a five year period, 2015 through 2019, in order to measure the sensitivity of the annual fair rental value of these factors on water rates.

Using Multiple Calculation Methods to Determine Fair Annual Rental Values

HRG used multiple methodologies in order to blend the desire of the lessor (the city) to obtain the highest rent possible with that of the lessee (RAWA) to provide service at reasonable and uniform rates while meeting all financial obligations. In this way, we tried to approximate the amount that a willing lessee would be willing to pay a willing lessor.

Book Value Method: HRG evaluated the net asset values as the basis for calculating the fair annual rental, then applied rates of return commonly allowed in regulated utility cases for similar municipally owned water utilities. Typically, the PUC distinguishes between capital provided through debt financing and capital provided by investors when considering the overall return on investment that can be included in the rates. Various utility specific factors are considered, and expert testimony may be required when determining the rates of return allowed.
Replacement Value Method: Our analysis also considered replacement cost as a basis for calculating the fair rental value of the system. Replacement value, in this instance, is used to approximate the opportunity cost associated with holding an asset that has appreciated in value. It is important to note that in order to actually realize the benefit of the appreciated asset values, it would be necessary to convert those values into cash or other assets. Accordingly, our approach did not simply apply the rate of return on equity to the equity value created through use of replacement cost; rather, net equity was determined and a composite rate applied.
Cash Flow Method: Like our other approaches, this method has its limitations, since available cash flow measures the difference between revenues received and expenses paid, including necessary reinvestments in the system included in the current budget or future debt service. It is sensitive to changes in the rates charged for services, general price level changes and any imbedded operating inefficiency. In order to compensate for the limitations in the cash flow approach outlined above, we obtained water rate information from surrounding water systems and systems serving metropolitan areas similar to Reading in order to measure RAWA’s ability to increase rates to meet current and future lease rental costs.

Each method represents a valid approach for a particular purpose. Investors in investor-owned utilities are compensated for their investment in two ways: the rate of return allowed and collected through the utility’s rate structure (which is often paid out as a cash dividend) and the change in the value of their shares of stock. This is not true for municipally owned utilities where there is no capital stock or dividends. There is no ability to “sell” the equity created by an increase in the utility’s economic value without impacting the ratepayers.

Applying return on the current replacement cost method allows for the introduction of the increased economic value into the calculation. And, as can be seen in the table below, the values are higher even after calculating the return on the net realizable value. However, it is our belief that the cash flow method, while not perfect, provides the best overall measure of the current economic value on which to base the annual fair rental value of the water system.

Our use of multiple calculations provided a range of fair annual rental values. This was especially useful when looking at these calculations for a multi-year period.

Based on our analysis, we concluded that the annual fair rental value for the water system is $9,275,000 per year. This value represents the projected annual average cash flow value of the system yielding an average rate of return on the net book value of the city’s investment in net assets of 6.83% or 3.03% on net replacement book value. The return on net book value of 6.83% is within the rate of return range for investor-owned public water utilities. The lower rate of return calculated using replacement values is consistent with market rates for safe investments in today’s economic environment such as 20-year US Treasury Bonds.

Conclusion

While our study addressed the specific needs of RAWA and the city, each utility system is different. The passage of Act 68 authorizing stormwater authorities will likely involve transfer or lease of existing, municipality-owned stormwater facilities to an authority. Given the language of the Act 73 amendment, some due diligence would seem to be warranted when payments are being made by an authority to a municipality. Not all annual fair rental value calculations will require the use of multiple methods. However, in order to avoid a potential legal challenge, proactive authorities should examine their lease payments to ensure they are in compliance with the law.

Threet Receives Rising Tide Award from American Water Works Association

April 30, 2015/in Company News /by Jared Kroh

Erin Threet, P.E., was given the Rising Tide Award by the Pennsylvania section of the American Water Works Association at its annual conference in Hershey, Pennsylvania, on April 22, 2015. Ms. Threet is a water and wastewater engineer and manager of Herbert, Rowland & Grubic, Inc.’s (HRG) Lewisburg, PA, office.

The Rising Tide Award is given each year to young professionals for their commitment and contributions to the water industry. Ms. Threet has nine years of experience in water and wastewater facilities planning, design, and permitting.

ABOUT HRG

HRG’s Milton Regional Sewer Authority wastewater to energy project was featured in the Standard Journal.

December 1, 2014/in Company News, News-Municipal /by Jared Kroh

HRG’s Milton Regional Sewer Authority wastewater to energy project was featured in the Standard Journal. Read about this innovative award-winning initiative.

Joshua T. Fox, P.E., to be Honored as One of Central PA’s Forty Under 40

October 2, 2014/in Company News, News-Water & Wastewater /by Jared Kroh

Joshua T. Fox, P.E.

The Central Penn Business Journal has named Joshua T. Fox, P.E., to its 2014 Forty Under 40 list, which recognizes individuals for their commitment to business growth, professional excellence and the community. Fox serves as a Regional Service Group Manager for Herbert, Rowland & Grubic, Inc.’s (HRG) Water & Wastewater service group in the firm’s eastern region.

Fox is an associate of HRG and joined the firm in 2006. As a Regional Service Group Manager, he is responsible for leading, training, directing and supervising engineering staff and technicians in the planning, design, permitting and construction of water and wastewater infrastructure projects for municipal, private, and industrial clients. Additionally, he serves as project manager for multiple major projects ensuring technical quality, superior client communication, on-target delivery, and overall project success for clients.

In addition to his responsibilities at HRG, he currently serves as the Company Commander for Headquarters Company 3rd Battalion 103 Armor Regiment in Danville, PA. He has received numerous citations for his service and leadership including the Bronze Star for meritorious service.

Fox earned his bachelor’s degree in civil engineering technology from Pennsylvania College of Technology. He is a licensed professional engineer in Pennsylvania.

Fox is the third employee from the firm to receive this award within the past four years. The winners will be honored at a reception and awards program at the Hilton Harrisburg on Monday, October 27, 2014.

ABOUT HRG