Ask Your Mates Open Forum

Do any utilities out there currently track Renewal vs. Growth Capital Expenditure

  • 1.  Do any utilities out there currently track Renewal vs. Growth Capital Expenditure

    Posted 02 June 2019 19:31
    ​Hi All,

    I am hoping some of you out there in the Public Utility world are currently tracking the split between Growth vs. Renewal CapEx.  If so how are you determining the split for upgraded assets i.e., partially renewal and partially upsize.  For instance what would the growth vs. renewal split be for an existing DN200 main at the end of its life that was renewed on the same alignment but upsized to say a DN250 to accommodate future growth.   I would also like to know if any public sector companies are benchmarking the growth vs. renewal CapEx split metric or would be willing to benchmark in the future?

    Any input would be much appreciated.  Thank you!!

    Regards,

    Earl DuPriest

    Asset Management Program Manager

    Charleston Water System

    103 St. Philip Street | Charleston, SC 29403

    Tel: 843-727-7202

    Mob: 843-214-4310

    E: dupriester@charlestoncpw.com



    BlogPageSpacerBlank


  • 2.  RE: Do any utilities out there currently track Renewal vs. Growth Capital Expenditure

    Posted 04 June 2019 00:29
    Hi Earl

    This is a common practice of local government within NZ and a legal requirement for funding policies. The most common approach, is the benefits approach. This is where assets are sized to service a future population, typically, 20 years design life . So the proportion of growth represents the % of future population served in 20 years compared to current. The rest of the cost apportion (1 - growth%), is for renewal, if the driver of the project is a replacement.
    If its a growth driven project, ie, the asset is under capacity, but has life remaining in it to serve the current population, then the method is different, with much of the cost being apportioned to growth.

    Let me know if you need more info on it as I may be able to find some methods you can use.

    Ta
    Vaughn Crowther
    vaughn.crowther@utilitynz.co.nz
    BlogPageSpacerBlank


  • 3.  RE: Do any utilities out there currently track Renewal vs. Growth Capital Expenditure

    Posted 04 June 2019 18:17
    ​Hi Vaughn,

    Thank you for the reply. NZ is quite a bit stricter and more advanced with utility accounting than here in the USA (similar to AM in general). However we are slowly and steadily heading in that direction. Currently we do not depreciate assets discreetly but rather we depreciate pools of assets. This complicates any ability to measure whether a single asset has been fully depreciated. We can rely on relative useful lives to over come this gap but again we have some issues there too. A good example are some of the 100+ year old pipes in our system that in many cases are still in pristine condition. This is something of an unfortunate blessing particularly when we are trying to set realistic useful lives for assets. As a result we are primarily focusing on keeping it simple and just getting started.

    Long story short, I would be very interested to see some of your models for apportioning the  growth vs. renewal split and if possible discussing some of the utilities you work with who might be able to benchmark or compare with us once we get our heads fully wrapped around growth vs. renew.

    Thank you for your response and I look forward to discussing this further with you!

    Regards,
     

    Earl DuPriest

    Asset Management Program Manager

    Charleston Water System

    103 St. Philip Street | Charleston, SC 29403

    Tel: 843-727-7202

    Mob: 843-214-4310

    E: dupriester@charlestoncpw.com

     

     


    BlogPageSpacerBlank


  • 4.  RE: Do any utilities out there currently track Renewal vs. Growth Capital Expenditure

    Posted 04 June 2019 00:52
    Hi Earl,

    Regarding the split between renew vs growth for water mains, we run cost estimate for both (assuming other variables are much the same such as alignment) and use the difference divided by cost to renew as the proportion for growth

    cheers. Sam
    BlogPageSpacerBlank


  • 5.  RE: Do any utilities out there currently track Renewal vs. Growth Capital Expenditure

    Posted 04 June 2019 18:18
    ​Hi Sam,

    Thank you for the reply.  Your reply is in line with what we are thinking here at Charleston Water.  That is to say the difference in upsizing an existing pipe would be the driver for the split in renew vs. growth.

    Example from original post:
    DN250 - DN200 = 50mm  --> 50mm/DN250 = 0.2 or 20% upsize
    Therefore the split Renewal would be 80% of cost and Growth would be 20%

    Is that along the lines of how you all calculate Renew vs. Growth split?  Of course some other factors may come into play such as remaining useful life and depreciation but we are trying to keep it simple as we socialize this concept, mainly to avoid to much confusion.

    Thank you for you r input and I look forward to your reply.

    Regards,

    Earl DuPriest

    Asset Management Program Manager

    Charleston Water System

    103 St. Philip Street | Charleston, SC 29403

    Tel: 843-727-7202

    Mob: 843-214-4310

    E: dupriester@charlestoncpw.com

     

     



    BlogPageSpacerBlank


  • 6.  RE: Do any utilities out there currently track Renewal vs. Growth Capital Expenditure

    Posted 04 June 2019 19:29
    Hi Earl

    The method totally depends on what is driving the upgrade.

    If it's an early replacement driven by growth then; Don't forget that pipe volume better represents capacity, which is what you are buying here RE: Growth. Your capacity is increasing by much more than 20%. It is more like 56.8% (V =  squared proportion to diameter). You have obviously chosen a 250mm based on calculations of future capacity needs.
    If its an old pipe, and you are future proofing, then yes, your simple method may be better.

    I realise you want to keep it simple, but you also want to avoid a precedent-setting that is much more difficult to back out of. Typically, you will be able to defend your growth apportionments more rigorously if you denominate your calculations on units of demand, rather than asset sizes.

    RE: Tracking depreciation, this is simple too. Year of install and an estimate of remaining life.

    More info here.
    https://www.qldc.govt.nz//assets/Uploads/Detailed-DCFC-Document-REVISION-131218.pdf
    see page 272.



    Vaughn


    BlogPageSpacerBlank


  • 7.  RE: Do any utilities out there currently track Renewal vs. Growth Capital Expenditure

    Posted 05 June 2019 18:41
    ​Hi Vaughn,

    That is some great advice. I had not thought about the capacity difference in terms of volume. Possibly because of trying to keep it too simple. The linked resource is also extremely helpful.  Thank you very much!!!

    Regards,
    Earl DuPriest
    BlogPageSpacerBlank


  • 8.  RE: Do any utilities out there currently track Renewal vs. Growth Capital Expenditure

    Posted 06 June 2019 21:00
    Hi Earl (send this direct to you a couple of days ago, should have posted to online forum),

    I don't mind that method you gave in your example. very simple to understand and apply consistently.

    For water mains that have reached end of life and are due for renewal, we make an assessment also of their capacity for predicted future growth in our area.

    If there is predicted growth we may need to upsize the water main - in this case we would work out the renew vs growth split by running high level cost estimates of both pipe sizes - one for a straight renewal with same size pipe diameter and one for the upsized pipe (usually using a Rawlinsons type estimating handbook or reference rates for different size pipelines provided by our state government). These are high level cost estimates such as 200DN = $250/m and 250DN = $290/m. So the difference is $40/m. Therefore the renew vs growth split if we went for a 250DN pipe is $40/$290 = 86.2% renew and 13.8% growth. This method of finding the difference between cost estimates could be used for other asset classes also (pump stations, reservoirs, etc)

    We recently did this when replacing a 300DN main with a 600DN main which was about a 35% renew and 65% growth.

    We also have some areas with no forecast growth
    (such as flood-prone land) . These pipelines are generally replaced with same size diameters (or in some cases smaller diameters) so they are 100% renew.

    We also have rare cases, such as out of sequence development that Council is supporting, where we require a larger size main but the water main may still be in good condition just not large enough to meet the demand. These would have a different calculation for determining renew vs growth %'s. Not sure, as haven't had to run one through yet, but would assume would be somewhat based on remaining useful life of the asset being made redundant.

    Cheers. Sam
    Asset Planning Engineer
    Rous County Council.

    BlogPageSpacerBlank