Capital Improvement Plans

A system will have many reasons to install new assets or rehabilitate existing assets. The most common reasons include:

• Replacing or rehabilitating high-risk assets
• New assets needed to meet upcoming regulations
• Assets required for growth
• Assets needed to allow the system to consolidate or regionalize
• Asset replacement related to improved technology or energy efficiency

Projects needed to address any of the issues described above should be compiled into a Capital Improvements Plan. The plan can be separated into short-term and long-term needs. The short-term plan, at a minimum, should cover 5 years, but generally a time horizon of 10 to 20 years is preferable. Although projects in years 10 through 20 are more speculative in nature than those in the first 5 to 10 years, this time horizon helps identify those projects that will need to be addressed relatively quickly. The long-term capital improvement plan should have a time horizon of 50 to 100 years, so the system can view the replacement of almost all of its assets over time. This long-term horizon matches the useful life of the longer-lived assets, such as buildings and pipe, and enables the system to see replacement waves – those time periods in which many assets will require replacements within a brief period. The replacement waves reflect the installation waves when many assets were installed at the same time.

The capital improvement plan should specify project priorities and the anticipated funding source for each one. The projects should be listed by the year in which they are planned. At a minimum, the CIPCapital Improvement Plan should include the following information:

• Description of the project
• Need for and benefits of the project
• Estimate of project cost
• Estimate of O&MOperations and Maintenance including reductions in energy costs for projects that address energy efficiency
• Funding source(s)

To create the capital improvement plan, use data from the asset inventory: including useful life estimates, replacement cost, and condition to help determine what year each asset will need to be replaced and what it will cost for the replacement. The replacement year can be adjusted with data from asset performance, including failures, O&MOperations and Maintenance expenses, and risk if any asset needs to be replaced sooner or can be kept in service longer.

The short-term capital improvement plan should be reviewed at least every few years to see if there are any changes needed. The long-term capital improvement plan can be reviewed every 5 to 10 years and adjusted based on current information.