6.6 Capital Improvement Planning

A utility will have many reasons to install new assets or rehabilitate existing assets. The most common reasons are listed below.
  • Replacement or Rehabilitation of High Risk Assets: As discussed in Section 6.5, some high risk assets will need to be replaced or rehabilitated on a planned schedule.

  • Assets Related to Future/Upcoming Regulations: New rules at the state or federal level may require water or wastewater utilities to install new assets to meet the requirements. For example, when EPA lowers the Maximum Contaminant Levels (MCLs) of primary contaminants or begins regulating a new contaminant, the utility may need to add treatment technologies or make some other changes, such as developing a new water source, to meet the new regulation. It is important for utilities to be aware of upcoming regulations and consider how they may impact the capital needs of the utility.

  • Assets Required for Growth: A utility's service area may expand requiring new infrastructure to reach additional customers, or population growth may occur within the existing utility boundaries requiring expansion of capacity. This growth may result in the need for additional water resources, water and wastewater piping, treatment facilities or storage tanks.

  • Assets Related to Utility Consolidation or Regionalization: Some utilities may find it advantageous to consolidate or regionalize with other nearby utilities. When this consolidation or regionalization includes a physical connection between the utilities, new assets may be required.

  • Asset Replacement Related to Improved Technology or Energy Efficiency: In some cases, a utility may wish to replace an asset with a new asset that uses a different technology. The new technology may result in better operation or improved energy efficiency. Newer assets are often more energy efficient than older assets, so there may be opportunities for significant cost savings if an asset is replaced with a more energy efficient asset. In other cases, assets may be replaced by technologies that improve customer service or enhance operational efficiencies. Examples of this type of asset replacement include automatic metering of water utilities or a SCADA system that electronically controls the utility's operations.
Projects needed to address any of the issues described above should be compiled into a Capital Improvements Plan. The plan, at a minimum, should cover 5 years, but a time horizon of at least 20 years is preferable. Although projects in years 15 through 20 are more speculative in nature than those in the first 5 to 10 years, this long range projection helps the utility plan for and fund its future capital needs.

The capital improvements 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 capital improvement plan or CIP should include the following information:
  • Description of the project
  • Need for and benefits of the project
  • Estimate of project cost
  • Estimate of O&M including reductions in energy costs for projects that address energy efficiency
  • Funding source(s)
It is important to note that the funding source can be internal or external. If the utility desires to track projects separately based on whether it will use internal or external funding sources, it can separate the projects between a CIP (projects funded by outside sources) and a Replacement Schedule (projects funded by internal sources) otherwise all the projects can be listed together on the CIP.

Appendix D contains a copy of a Capital Improvement Plan and Repair and Replacement Schedule.

The CIP needs to be updated annually so that it always covers the same length of time. As projects are completed, they should be removed from the list. Projects listed for the current year that were not completed should be moved to a later year. If no projects are anticipated for a given year, the CIP should reflect this. Appendix D contains an example table that can be used to develop the CIP. There is also an example table for a Repair and Replacement Schedule.