T W I N N I N G P R O G R A M

COST-BENEFIT DISCUSSION

Naramata Water System

J U L Y 3 1 , 2 0 1 3

Overview

Presentation Purpose

Assignment Objective

Revisit Asset Management

What is Cost-Benefit

Role of Community Infrastructure

Asset Management

Status of Naramata infrastructure

Net Present Value Results

Discussion and Recommendation

2

Presentation Purpose

To Revisit Asset Management Principles and Status in Naramata

12 slides

To Review and Discuss the Cost Benefit of Twinning

10 slides

Recommendations and Discussion

3 slides

3

Assignment Objective

•RDOS retained Urban Systems

•Review the Costs and Savings of the Proposed Twinning Program 7 Phases $20M+ over 45 years

Incorporate looming asset management principles

Compare the net-benefit of twinning vs. alternative

•Recommend Next Steps

4

How Asset Management Helps

Combines all infrastructure needs

Balances infrastructure needs

Links strategic thinking with action-oriented solutions

Identifies affordable levels of service and risk

Basic logic to determine reliable costs and funding

Defensible basis for decision making

Sound basis to engage the public

5

Key Definition

AALCI – Average Annual Life Cycle Investment the funds required to be put away per year to fund the eventual

renewal of assets in a system.

E.g. $1,000/year should be set aside to fund the renewal of a $100,000 asset with a 100 year service life

6

Construction Cost

$100,000 Renewal (Re-Construction)

Cost $100,000

AALCI (Average Annual Life Cycle Investment)

$1,000/year

End of Asset’s Life Cycle Year 0 100 years

Basic Asset

Costs

Analysis Methodology

Basic 4 step process

Estimate missing information

Use accurate cost estimates

Identify reasonable service lives

7

Data Level Rationale 8

Asset

Category

100%

Replacement

Value

Loss in

Value

Remaining

Value

Percent

Remaining

Life

2011 2012 2013 2014 2015

Mains $87,428,000 $54,449,000 $32,979,000 38% $0 $976,000 $0 $1,277,000 $135,000

Water Supply $7,890,000 $7,746,000 $144,000 2% $7,730,000 $0 $0 $0 $0

Reservoirs $12,035,000 $3,542,188 $8,492,813 71% $0 $0 $0 $0 $0

Dams $400,000 $225,000 $175,000 44% $0 $0 $0 $0 $0

Pressure Stations $3,960,000 $3,717,333 $242,667 6% $3,700,000 $0 $0 $0 $0

Sub-total Water $111,713,000 $69,679,521 $42,033,479 38% $11,432,500 $978,500 $2,500 $1,279,500 $137,500

Asset

Category

Diameter

(mm)

100%

Replacement

Value

Loss in

Value

Remaining

Value

Percent

Remaining

Life

2011 2012 2013 2014 2015

Mains > 600 $12,780,000 $8,865,000 $3,915,000 31% $0 $0 $0 $0 $0

350 - 600 $11,813,000 $8,266,000 $3,547,000 30% $0 $943,000 $0 $1,181,000 $0

300 $7,609,000 $3,569,000 $4,040,000 53% $0 $0 $0 $63,000 $0

250 $5,451,000 $3,446,000 $2,005,000 37% $0 $33,000 $0 $0 $0

200 $22,746,000 $12,755,000 $9,991,000 44% $0 $0 $0 $33,000 $0

150 $15,302,000 $9,644,000 $5,658,000 37% $0 $0 $0 $0 $0

<= 100 $11,727,000 $7,904,000 $3,823,000 33% $0 $0 $0 $0 $135,000

Subtotal Mains $87,428,000 $54,449,000 $32,979,000 38% $0 $976,000 $0 $1,277,000 $135,000

Asset

Category

Diameter

(mm)Material GIS Length Installed Life

100%

Replacement

Value

Loss in

Value

Remaining

Value

Percent

Remaining

Life

2011 2012 2013 2014 2015

Mains 300 DI WP-1295 1.50 1967 50 $1,132 $1,036 $96 9% $0 $0 $0 $1,132 $0

300 DI WP-1297 7.77 1967 50 $5,832 $5,336 $496 9% $0 $0 $0 $5,832 $0

300 DI WP-1345 213.19 1967 50 $159,897 $146,289 $13,608 9% $0 $0 $0 $159,897 $0

300 DI WP-3609 21.87 1965 50 $16,405 $15,707 $698 4% $0 $16,405 $0 $0 $0

300 DI WP-3613 21.97 1965 50 $16,483 $15,782 $701 4% $0 $16,483 $0 $0 $0

300 DI WP-3614 6.985 1965 50 $5,239 $5,016 $223 4% $0 $5,239 $0 $0 $0

Level 1, Investment level: For strategic planning with mayors, councils, and senior managers

Level 2, Program level: For tactical planning with senior managers and staff

Level 3, Project level: For on-going operations, design and construction

Summary of Asset Value

Replacement value is $41.3 million (2012)

Weighted service life of assets is 60 years

Est. Annual Investment $825,000

Note: Twinning would increase asset value

Treatment and watermains are highest value (80%)

Deficits for $2.2M:

intakes and valve facilities (85%)

water mains (15%)

9

Length 60 km Value $41.3M Deficit $2.2M

Summary of Asset Value 10

Water Mains $23,957,000

Intakes/Water Supply/Wells $2,859,000

Treatment $10,360,000

Reservoirs $2,113,000

PRVs and PSVs $1,042,000

Pump Stations $468,000 Diversions and Flumes $200,000

Generators $300,000

Replacement Values

Water System Renewal Summary 11

Intakes, pump stations, and valve facilities are a concern

Large amount of assets nearing their service life at 2019

55%

28%

85%

60%

28%

7%

54%

44%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Water Mains Intakes/WaterSupply/Wells

Treatment Reservoirs PRVs and PSVs Pump Stations Diversions andFlumes

Generators

Expected Remaining Life

Summary of Asset Value 12

A summary of all the AALCI’s

Infrastructure

Deficit

(Backlog)

2012 2013 2014

Existing Water System

Water Mains 23,956,958$ 10,738,472$ 13,218,486$ 55% 327,046$ 1,255$ -$ -$

Intakes/Water Supply/Wells 2,859,028$ 2,056,038$ 802,989$ 28% 1,314,179$ -$ -$ -$

Treatment 10,360,000$ 1,597,333$ 8,762,667$ 85% -$ -$ -$ 120,000$

Reservoirs 2,112,800$ 851,283$ 1,261,517$ 60% -$ -$ -$ -$

PRVs and PSVs 1,042,000$ 750,800$ 291,200$ 28% 602,000$ -$ 80,000$ -$

Pump Stations 467,837$ 434,621$ 33,215$ 7% -$ -$ 105,293$ 362,544$

Diversions and Flumes 200,000$ 93,000$ 107,000$ 54% -$ -$ -$ -$

Generators 300,000$ 168,000$ 132,000$ 44% -$ -$ -$ -$

Sub-Total Water Renewal 41,298,622$ 16,689,548$ 24,609,074$ 60% 2,243,224$ 1,255$ 185,293$ 482,544$

Replacement

Value

Loss in

Value

Investment Year (Current Dollars)

Remaining

Value

Expected

Remaining

Life

Asset

Category 2036 2037

474$ -$ 8,733,370$ 349,335$ 385,577$

-$ -$ 1,939,179$ 77,567$ 73,802$

-$ -$ 360,000$ 14,400$ 236,622$

-$ -$ 1,166,750$ 46,670$ 51,736$

-$ -$ 1,042,000$ 41,680$ 41,086$

-$ -$ 467,837$ 18,713$ 18,713$

-$ -$ 150,000$ 6,000$ 5,000$

-$ -$ 300,000$ 12,000$ 12,000$

474$ -$ 14,159,135$ 566,365$ 824,537$

25 Year

Total

25 Year Average

Annual

Investment

Average Annual

Life Cycle

Investment

(AALCI)

Summary of Asset Value 13

$-

$1,000,000

$2,000,000

$3,000,000

$4,000,000

$5,000,000

$6,000,000

$7,000,000

$8,000,000

InfrastructureDeficit

(Backlog)

2015 2019 2023 2027 2031 2035

Opening Deficit, Renewal Costs and Timing

Total Renewal Program Total Twinning Program

Weighted Existing Asset Service Life = 60.25

$6.1M in water mains up for renewal in 2019

Summary of Asset Value 14

$-

$1,000,000

$2,000,000

$3,000,000

$4,000,000

$5,000,000

$6,000,000

$7,000,000

$8,000,000

InfrastructureDeficit

(Backlog)

2015 2019 2023 2027 2031 2035

Opening Deficit, Renewal Costs and Timing

Total Renewal Program Total Twinning Program

Weighted Existing Asset Service Life = 60.25

$6.1M in water mains up for renewal in 2019

Sustainable investment level

Sustainable Revenues

Asset Renewal Requirements

~$825,000/yr

Current Asset Capital Fund

~$125,000/yr

15

$(9,000,000)

$(8,000,000)

$(7,000,000)

$(6,000,000)

$(5,000,000)

$(4,000,000)

$(3,000,000)

$(2,000,000)

$(1,000,000)

$-

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Current Deficit Trend

Sustainable Revenues

Asset Renewal Requirements

~$825,000/yr

Current Asset Capital Fund

~$125,000/yr

16

$(9,000,000)

$(8,000,000)

$(7,000,000)

$(6,000,000)

$(5,000,000)

$(4,000,000)

$(3,000,000)

$(2,000,000)

$(1,000,000)

$-

Ye

ar

1

Ye

ar

2

Ye

ar

3

Ye

ar

4

Ye

ar

5

Ye

ar

6

Ye

ar

7

Ye

ar

8

Ye

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9

Ye

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10

Current Deficit Trend

$(5,000,000)

$(4,500,000)

$(4,000,000)

$(3,500,000)

$(3,000,000)

$(2,500,000)

$(2,000,000)

$(1,500,000)

$(1,000,000)

$(500,000)

$-

Year1

Year2

Year3

Year4

Year5

Year6

Year7

Year8

Year9

Year10

Year11

Year12

Year13

Path to Sustainable Revenues

Twinning

Purpose

Offset pumping and treatment costs by developing both domestic and irrigation systems

“treat only what needs to be treated; pump only what needs to be pumped” -

17

Twinning

7 Phases and $20M over 45 years

Total length – 20km of new pipe

New, smaller diameter domestic mains

Replace existing large, raw supply mains (renew assets)

Increases AALCI

Estimated power savings in year 25 $85,000

New AALCI over 25 years approx. $70,000

18

Net Present Value Analysis

What is NPV?

a form of cost-benefit analysis

Includes:

Initial investment e.g. Phase 1

Annual costs and savings over 45 years

Discount rate – use MFA pooled investment fund @ 1.56%

19

Net Present Value Analysis

What does it reveal?

45 years of costs and savings compressed into one $figure

Decide between alternatives

Implement twinning $XXX

Invest elsewhere $XXX

20

Compare between alternatives

Twinning

Annual Costs Cost savings = power savings

Costs incurred: new AALCI

Periodic Capital Costs Capital costs incurred: new twin-mains

Costs incurred: opportunity cost of early renewal of assets

21

Twinning 22

Opportunity Cost – loss for replacing assets early

E.g. cashing in a Bond

0

20

40

60

80

100

120

1 6 11 16 21 26 31 36 41

Co

nd

itio

n R

atin

g

Year

Condition

Good

Fair

Poor

Net Present Value Analysis

What if:

large positive number = significant returns

Small positive number = marginal returns

Negative number = losing venture

Consider Other Factors

Operations: watershed management, plant reductions, more pipe, system capacity,

Long-term Needs: licenses, farming equipment, asset renewal

Greenhouse gas emissions

23

Twinning 24

Twinning 25

Twinning 26

Net Present Value Analysis

What if:

large positive number = significant returns

Small positive number = marginal returns

Negative number = losing venture

Consider Other Factors

Operations: watershed management, plant reductions, more pipe, system capacity,

Long-term Needs: licenses, farming equipment, asset renewal

Greenhouse gas emissions

27

NPV Results and Recommendation

Results

losing venture

-$3,330,000

Change inputs = change NPV results

E.g. utility rates rise faster than inflation

28

NPV Results and Recommendation

Option to hold the Twinning Project

Negative result of the net-present value analysis

Catch up on asset renewal needs and revisit the twinning

Conservation Ramp-UP

Achieve the targets set out in the current plan

Possible to achieve the intent of twinning without new infrastructure

29

Discussion Suggestions

What are our options for building off of twinning momentum?

How can we build additional revenues to afford the assets we have? What is our financial plan?

How do we extend the life of infrastructure to keep our costs low? Other cost saving techniques?

30

T H A N K Y O U

31

Deficit Explained 32

Back

Asset has failed or in process of failing

Typically results in complaints, claims, breaks, loss of service

Increases renewal costs

0

20

40

60

80

100

120

1 6 11 16 21 26 31 36 41

Co

nd

itio

n R

atin

g

Year

Condition

Good

Fair

Poor