Utilities Should Incorporate Asset Management into PPP Models

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Utilities Should Incorporate Asset Management into PPP Models

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Friday, October 14, 2016 - 8:00am

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Water and wastewater utilities considering the use of public-private partnerships (PPP) often express concerns that such arrangements could lead to rate increases and diminished service. However, it is possible to provide ratepayer safeguards and allow reasonable returns on private investments under PPP models through the implementation of an asset management framework. 

Frameworks such as International Organization for Standardization (ISO) 55001 ensure that utilities and municipalities adopt a life cycle approach to the management of their assets, according to Will Williams, Associate Vice President in Black & Veatch’s Asset Management practice. 

“ISO 55001 establishes a clear strategy for the asset base and detailed life cycle plans for the various asset classes,” Williams said. “This helps eliminate concerns about an overall deterioration of the asset base during the PPP term.” 

The benefits of implementing good practice asset management are well documented and include:

  • Better management of risk;
  • Effective prioritization of investment;  
  • Breakdown of organizational silos with increased collaboration and alignment around asset life cycle management;
  • Documentation of key processes and procedures; and  
  • Structured training and retention of key skills.

Implementing an ISO 55001-compliant asset management framework helps set the performance boundaries of the PPP and enables both the asset owner and asset manager to understand the life cycle imperatives of the asset base, Williams said. Under such a framework, key performance indicators are established and aligned with the strategy – which, in turn, is aligned to the organization’s overall strategic plan. 

Williams said some utilities believe that PPPs tend to incentivize expenditures in the first part of the PPP term, at the expense of investment toward the end of the term. 

“A risk-based approach is typically used to identify the magnitude of capital expenditures required, and to prioritize them,” Williams said. “Maintenance expenditures are targeted based on the condition and performance of the assets, rather than being based on set time intervals.” 

Overall, this means the management of the assets moves from reactive to proactive, and the focus becomes obtaining the optimal value from the assets across their life cycle, Williams said. Planning is long-range and well-organized. 

“As well as benefiting the utility by ensuring good asset stewardship, the asset management framework also ensures the protection of the developer’s investment by lowering risk of failure and life cycle cost,” he said. “It provides reliable asset performance through the term of the agreement to meet the obligation of the PPP contract.” 

Private investment in water infrastructure can be mutually beneficial to investors and ratepayers, Williams said. The key is customer communication and awareness and an overarching asset management framework that requires whole-life stewardship. Managing investment across the life of a system and partnership can help utilities address significant aging infrastructure needs and water resource requirements in an effective and sustainable manner. 

“Establishing an asset management framework at the start of the PPP ensures that there is a plan in place for the maintenance and proactive replacement of assets throughout their life cycle,” Williams said. “It also ensures that the plan is adequately funded, quelling skepticism on these types of agreements.”

Keywords: Finance & Socially Responsible Investment | Black & Veatch | Business & Trade | Energy | Environment & Climate Change | Finance | Finance & Socially Responsible Investment | Markets, Regulation & Policy | Organization for Standardization (ISO) | PPP | Social Finance

CONTENT: Article