Gwinnett CountyDepartment of Water Resources

The Case for theBusiness Case Evaluation

Asset ManagementCommittee

Water and Wastewater are MoreCapital (Asset) Intensive than Any

Other Utility

0

1

2

3

4

PlantAssets/Revenue

Source: Purvenas, T. J. “Infrastructure Replacement: CreditQuality Concerns”,Water, Spring 1998, National Association of Water Companies,Washington D.C.

Water Electric Gas

Understanding the Asset Life-CycleHelps Optimize Ownership Costs

CAPITAL

CAPITAL

BCE Considers the Whole Cost Picture

So, What is Business Case Evaluation?

• Business Case Evaluation (BCE) is used inthe asset creation process

• Repeatedly revisits the driversfor a project

• Validates the need for a solution in terms ofcustomer value

• Seeks the lowest life-cycle cost solution withdue consideration for risk and non-quantifiedfactors

How Does a BCE Work?

• Looks at the problem first, not the project

• Determines the need for a solution from thecustomer’s point of view (service levels andcost)

• Proposes alternative approaches to creatingthe solution, if a solution is needed

• Analyzes alternatives from the standpoints ofservice levels, costs, and risk

Form Expert Team

• Cross-functional team providing expertise in:

– Planning

– Design/Engineering

– Operations

– Maintenance

– Finance

– Management

Define the problemnot the project

The BCE Process Uses Life Cycle Costsand Makes Risks and Benefits Transparent

Define Driversand Objectives

BrainstormAlternatives

Conduct FatalFlaw Analysis

Risk/BenefitIdentification &Qualification

Life CycleCost Analysis

RefinedAlternatives

List

Net PresentValue Analysis

Selection ofthe Preferred

Option

Explore Widely DifferingAlternatives

Capital, R&R andO&M Costs are

Analyzed

DefineandQuantifyRisks andBenefits

Identify the Problem

• Understand the root cause for why a project orpolicy needs to be created

• Define the problem in terms of level of service

• Document the problem

• Why is this project needed?

• What are some of the issues?

• How do we define success for this project?

• What are the levels of service we need toachieve?

Project Drivers & Goals

10

Develop ProblemStatement

(complete with drivers, objectives and levels of service)

CASE STUDY/ AUDIENCEPARTICIPATION

• “Build 20 mgd treatment expansion atJackson Creek by 2012”

Original (bad) Problem Statement

14

So audience – what’s bad about it? What are objectives, driversthat should be considered? What would a good ProblemStatement look like?

• “determine the best location for the addition of20 mgd of WRF capacity by 2018, including allrequired infrastructure”

Actual Final Problem Statement

15

Brainstorm Alternatives(No alternative too flaky)

CASE STUDY/ AUDIENCEPARTICIPATION

Develop Alternatives

• Start with the “do nothing” scenario

• Nothing should be left off the table

• Utilize the knowledge of the Expert Team

• Screen Alternatives for fatal flaws

Brainstorm Alternatives

• Audience to brainstorm

Brainstormed Alternatives

• Add 20 MGD to Existing F Wayne Hill WRF

• Add 20 MGD to Crooked Creek WRF

• Add 20 MGD to Yellow River WRF

• Add 8 to 10 small automated WRFs dispersed

• Constructed Wetlands and Land Application

• Build co-use plant with neighboring County

Brainstormed Alternatives

• Baseline – Construct new Jackson Creek WRF

• Do Nothing

• Contract with Neighbor for Capacity

• Construct new WRF (2 different areas)

• PLUS 9 more !!

Understanding the Asset Life-CycleHelps Optimize Ownership Costs

Develop Life-Cycle Costs

• Operations andMaintenance

• Rehabilitation andReplacement

• Risk

• Community

• Environmental

StraightForward

MoreComplicated

How We Measure Long-term Costs —Present Value

• Typically, projects have costs and benefitsthat are realized over a long period of time

• Brings future costs back to the present timeto allow valid comparison

• Enables us to compare different optionswhich have different capital and operatingcosts as well as different useful lives

• Supports optimal lifecycle cost decisions

Pump Station Example

• Pump A costs $25,000, power is $1,200/yr• Pump B costs $28,000, power is $900/yr• How do these compare? 20-year PV, 5%…• PV of Pump A power = $14,955• PV of Pump B power = $11,216• Pump B power savings = $3,739,

outweighing its $3,000 higher initial cost• All else being equal, we would purchase

Pump B

Case Study: Problem Statement

• “To reduce and mitigate the likelihood andconsequence of failure of the 48”/42” force mainthat conveys wastewater from the City and theTown to the STP. Major risks include impacts tothe drinking water supply, property damage,public safety and regulatory enforcement.Solutions must be cost effective (i.e. optimize lifecycle costs) and facilitate effective O&Mpractices and should increase operationalflexibility.”

Lifecycle Costs

Solution

CapitalCost($M)

50-yearNPV ($M)

Ranking

Alternative #1: Existing Force Main Pipe ConditionAssessment, Monitoring and Mitigation

$2.5 $11.0 1

Alternative #2: Targeted Replacement of Existing ForceMain with Condition Assessment, Monitoring and Mitigation

$7.7 $28.5 2

Alternative #3: North Loop Force Main with TargetedReplacement of Existing Force Main, ConditionAssessment, Monitoring and Mitigation

$56.6 $78.6 6

Alternative #4: Construction of new Force Main in samecorridor as existing Force Main

$45.9 $49.6 3

Alternative #5: Construction of Mini-Loop Force MainSystem Parallel to Existing Force Main

$54.5 $60.7 5

Alternative #6: Sliplining of existing 42"/48" force main $52.2 $56.7 4

Establish Non-monetary Factors

Factor Description Weight

Facilitates effectiveO&M practices

Are the improvements easy to operate and maintain? 10

Mitigates sanitarysewer overflows

Will the improvement reduce the occurrence of sanitary seweroverflows over the life of the project?

20

Water supplyDoes the alternative reduce the potential contamination to watersupplies?

25

Increases remaininguseful life

Does the alternative increase the remaining useful life of theexisting main?

10

Public safetyDuring construction does the alternative reduce the risk to thetraveling public or residents?

15

Propertyimpacts

Does the alternative reduce the magnitude of impacts topublic/private property if it fails?

20

Alternative Solutions

50-year NPV($M)

NPVRanking

Non-monetaryFactors

Weighted Score

NMFRanking

Alternative #1: Existing Force MainPipe Condition Assessment,Monitoring and Mitigation

$11.0 1 225 6

Alternative #2: TargetedReplacement of Existing Force Mainwith Condition Assessment,Monitoring and Mitigation

$28.4 2 283 5

Alternative #3: North Loop withTargeted Replacement of ExistingFM, Condition Assessment,Monitoring and Mitigation

$78.6 6 376 2

Alternative #4: New Force Main insame corridor as existing*

$49.6 3 391 1

Alternative #5: Construction of Mini-Loop Force Main System Parallel toExisting Force Main*

$60.7 5 331 3

Alternative #6: Sliplining of existing42"/48" force main

$56.7 4 308 4

*

Costs and Non Monetary Factors

Managing Asset Risks

Risk Quantification

RISK COST =

Frequencyof Failure

(Projected events per year)

Consequenceof Failure

(Dollar cost of each event)X

MEASURE: $/YEAR

Example :Heat Exchanger in Digester Complex

– Sludge circulatesthrough one jacket,hot water through theother – heats thesludge

Heat Exchanger Failure Analysis

– Most common failure mode not condition-related

– However, potential for major problem (weld failure) thought tobe condition related, could impact the digestion processthrough the whole complex under certain conditions

– Detailed assessment performed – teardown, CCTV,ultrasound

Failure Mode Effect

Freq. per

Digester

per Year

Incident

Cost

Annual

Cost per

Digester1. Ragging of HE 1. Poor heating.

Downtime 3 days.

16 $285 $4,560

2. Failure of

welds, repairable

1. Loss of hot water to

the dirty side. High

makeup required by

Syngen and boilers.

0.18 $1,340 $241

3. Failure of

welds, not

repairable

1. Loss of hot water to

the dirty side. Heat

exchanger needs

replacing, out of

service for 14 weeks.

Unknown (has

not occurred)

$60,460 ???

More on the Heat Exchangers

• Although the detailed CA uncovered no incipientfailures, staff remained concerned

• Staff proposed several alternatives ranging fromwholesale heat exchanger replacement toadding a sludge preheating system

• Costs of these solutions ranged from $800thousand to $5.2 million

• A subsequent Business Case Evaluation withstaff found the best solution – stock a spare($114 thousand)!

• This did not affect the probability of failure, butreduced the consequence of failure to near-zero

Consequences of Failure IncludeBoth Direct and Community Costs

• Direct repair costs

• Loss of production/revenue

• Social costs (traffic, cleanup, health, etc.)

• Image repair costs

• Legal costs

• Fines, penalties

Social/Environmental Cost

• How do you put a $ on Community Costs?

– Existing Research on Costs

– Past History with Community Impact

– Reasonable Persons Test

Social Cost Example: Traffic Delaysfrom Construction

• Sewer Rehabilitation

Normal Excavation Less Disruptive ApproachCost/ft $140 $225

680 homes affected8 miles of pipe3 month delay

$3.6 M more for less disruptive method$1,760 per household/month

Would a reasonable person pay $1760/month toavoid traffic delays?

Risk/Benefit Identification& Qualification

CASE STUDY/ AUDIENCEPARTICIPATION

Problem Statement

Determine the disinfection process of thefinished water produced at the productionfacilities that optimizes safety for plantpersonnel and the nearby residents,affords the best operational effectiveness,and has the best cost efficiency.

39

Alternatives Considered

• No Action (continue with chlorinegas)

• Purchased (12%) sodiumhypochlorite

• On-site sodium hypochlorite (0.8%)generation

• MIOX

• Chlorine dioxide

• Tablet chlorination

• Klorigen (proprietary system)

• Chloramines

Short-Listed Alternatives

• ALTERNATIVE No. 1: Continued Use ofChlorine Gas

• ALTERNATIVE No. 2: Bulk Delivery ofSodium Hypochlorite (“bleach”)

• ALTERNATIVE No. 3: On-site Generation ofSodium Hypochlorite (0.8%)

• ALTERNATIVE No. 4: MIOX (proprietarymixed oxidant system)

41

Audience participation

1. How to quantify the unthinkable2. What Other Non – economic

factors to consider

How do we assess ‘risk’ with chlorinegas?• Last documented fatalities associated with a

non-warfare chlorine gas release

– January 6, 2005 – Graniteville, SC train

derailment (8 fatalities)

• No documented ‘fixed facility’ chlorine gasreleases resulting in deaths

• Chlorine Gas Institute – 0.6 accidentalreleases per 1M tons produced

– 13M to 14M tons of chlorine produced

annual in US

• Average WTP/WWTP accidental chlorinereleases: 4 per year

Placing Context to Consequence

• Largest Consequence is Public Safety

• “There is no “price” for life because its value isimmeasurable. Rather it is a way of expressingthe value of death. For Example, if people arewilling to pay $6.10 to avoid a one in a millionincrease in the risk of death, then the value of astatistical life is $6.1 million.” (F. Ackerman)

• From the Arsenic Drinking Water Rule, adjustedfor inflation between 9 and 11 million dollars

Risk/Benefit Evaluation

46

•The Net Present Value economic analysis does not incorporatenon-cost factors

•The Risk Evaluation Tool helps in understanding the trade-offsaccepted in selecting one alternative over another. It uses agradient scale to rank the alternatives based on

•CONSEQUENCE:

•Public Health and Safety

•Failure Impact and Mitigation

•Disruption to the Community

•Compliance with Regulations

•Water Quality

•Response

•LIKELIHOOD:

•Susceptibility

•Complexity of Operation & Maintenance

•Reliability: Track Record of the Technology

•O&M Protocols

•COST:

•Net Present Worth

Risk Evaluation Tool

47

Consequence Scoring

Public Health

& Safety

Failure Impact

and Mitigation

Disruption to

the Community

Compliance

with

Regulations

Water

QualityResponse

Consequence

ScoreRank

0.30 0.05 0.20 0.20 0.20 0.05

10 10 10 8 1 1 7.4 1

8 8 8 7 5 5 7.1 2

4 3 1 3 4 3 3.1 4

4 3 1 3 4 4 3.2 31 1 1 1 1 1 1.0 5

Susceptibility

to sabotage

Complexity of

Operation &

Maintenance

Reliability:

Track Record of

the Technology

O&M

Protocols

Likelihood

ScoreRank

0.20 0.60 0.15 0.05

9 3 1 6 4.1 2

4 4 2 4 3.7 4

2 5 3 4 4.1 2

2 5 5 4 4.4 11 1 1 1 1.0 5

Weight

Base - Chlorine

Production (No Action)

Bulk Sodium Hypochlorite

IDEAL ALTERNATIVE

On-Site Generation 0.8%

Mixed Oxidants

Alternative

Integer Ranking Levels, 1 Through 10: 1 (Negligible) …..2…..3….. 4 (Low) …..5…..6….. 7 (Moderate) …..8…..9….. 10 (Severe)

Alternative

Weight

Base - Chlorine

Production (No Action)

Bulk Sodium Hypochlorite

On-Site Generation 0.8%

Mixed OxidantsIDEAL ALTERNATIVE

Likelihood Scoring

Risk Evaluation Tool

48

Conseque

nce Score

Likelihood

Score

Risk

Score

Risk

Rank

Risk

Reduction

(Percenta

ge)

Net

Present

Worth

(Financial

Impact)

7.4 4.1 30 1 0 $13.3

7.1 3.7 26 2 12 $26.9

3.1 4.1 13 4 58 $44.9

3.2 4.4 14 3 54 $44.9

1.0 1.0 1 5 97 $0

Alternative 2 - On-Site Generation

Alternative 3 - Mixed Oxidants

IDEAL ALTERNATIVE

Risk Scoring

Program Modification

Base - Chlorine Production (No Action)

Alternative 1 - Bulk Sodium Hypochlorite

Risk Evaluation of Alternatives

10 20 30 40 50 60 70 80 90 100

9 18 27 36 45 54 63 72 81 90

8 16 24 32 40 48 56 64 72 80

30

7 14 21 28 35 42 49 56 63 70

26

6 12 18 24 30 36 42 48 54 60

5 10 15 20 25 30 35 40 45 50

13

4 8 12 16 20 24 28 32 36 40

14

3 6 9 12 15 18 21 24 27 30

2 4 6 8 10 12 14 16 18 20

1 2 3 4 5 6 7 8 9 10

Risk Matrix - Secondary Disinfection

Co

nseq

uen

ce

▬▬

▬►

Likelihood ▬▬▬►

Another Way of looking at Risk

Alternative

Risk

Reduction NPV Cost Ratio

Base - Gaseous Chlorine 0 13.3 0

Alt 1 - Bulk Sodium Hypochlorite 12 26.9 0.45

Alt 2 - On-site Generation 58 44.9 1.29

Alt 3 - Mixed Oxidants 54 44.9 1.20

Alt 4 - Ideal (hypothetical) 97 0 ∞

Risk Reduction/Cost Ratio Summary

Higher is Better

NonEconomic Factors

• Gaseous Chlorine

– Effective

– Smallest facilityfootprint

• On-site Generation– Effective– Inherently safer– Reduced Security

Risk– Adaptable to future

regulatory changes– Greater public

acceptance– Longer useful

equipment life (lesscorrosive)

Money talks

BCE Problem Statement Recommendation Benefit of BCE pfffftttt!

Beaver Ruin PSProvide cost ef fective and reliable conveyance of a portion of the f low s from

southw est Gw innett County to the F. Wayne Hill WRF

Pump Station Improvements at existing site and

force mains to handle 72 mgd f low s

Conf irmed baseline alternative w ith

savings of $85,000,000 (NPV) over

next low est alternative (tunnel)

4

Developer Pump

Station Standards

Establish a set of recommended changes to the "Sanitary Sew er Pump Station

and Force Main Design & Construction Manual" to optimize operation and

maintenance costs

In Progress

Mulberry PSDetermine the most appropriate means of conveying w astew ater f romthe

Mulberry basin and most of the Apalachee basin

Based on current f low projections and current on-

going projects, suff icient capacity available until

2030, Eliminate project

Eliminated $50,000,000 ProgramfromCIP

(capital)4

Old Norcross Rd PSDetermine the best means for conveying raw w astew ater f low fromspecif ic

subbasins to the FW Hill WRC

Expand Beaver Ruin PS Capacity rather than

construct another new PS

Eliminated pump station at a savings of

$12,000,000 (NPV)

Pump Station Phase-

outs

Determine the payback period to recover the decommissioning costs for feasible

pump station phase-out candidatesIn progress

Rosemoore PSDetermine the best means for conveying flow s from Rosemoore Lake and Ascot

subdivisions to FWH WRC

Proceed w ith the easement acquisition and

construction of the proposed 16-inch gravity

sew er

Demonstrated payback period of less

than 30 years to phase out pump

station

Ross Road PS

UpgradeDetermine the best means to reliably convey w aste w ater

Evolved from a Capital need BCE to an Operational

driven BCE

Savings of $7,200,000 by focusing on

operational improvements.

South Gw innett

WW Conveyance

Determine the most cost ef ficient w ay to convey and treat 2030 w astew ater

f low s in the southern part of Gw innett County

Convey flow through the NBC Tunnel and NBC

Pump Station to the Beaver Ruin PS site rather

than remain in DeKalb County

Savings of $100,000,000 compared to

remaining in DeKalb County (NPV)

West Gw innett

Sew er (NCI)

Where w ill flow in the Chattahoochee River Drainage Basin be treated and w hat

infrastructure improvements w ill be needed thru 2030In progress

Bio-Solids Handling How to best dispose of the biosolids f romWRFs In progress (Master Planning effort

Jackson CreekDetermine the best location for the addition of 20 MGD of WRF capacity by 2018,

including all required conveyance inf rastructure

Expand at the FWH WRC rather than construct

new 20 mgd WRFSavings of $50,000,000 (NPV)

Co

nveyan

ce

Water Distribution

System

Improve Water System transmission, distribution, storage and pumping capacities

to address pressure and fire protection needs thru 2030

3 sets of projects in the north and central zones

for 2010, 2020 and 2030 timeframes

1. Programsavings of $100,000,000

(capital)

2. Tailored programto specific needs

4

Secondary

Disinfection

Process

Determine the disinfection process of the finished w ater produced at the w ater

production facilities that optimizes safety for plant personnel and the nearby

residents, af fords the best operational effectiveness and has the best cost

ef ficiency

1. Migrate aw ay from gaseous chlorine

2. Implement pilot program/study to determine best

on-site generation process

1. Identified "best" alternative to

gaseous chlorine

2. Proactive in light of potential DHS

regulations

Standby Pow er

Generation

In the event of large scale pow er failure occurs, how can Gw innett County DWR

continue to provide w ater service

1. The use of on-site standby generators is the

most viable option

2. Include the design of Standby generation in

future expansions

Increased Level of Service through

reduced risk

Tre

atm

en

t

Waste

wa

ter

Wa

ter

Tre

atm

en

tC

on

veyan

ce

BCE process can be applied at all scales

Streamlined BCE Tool

• Equipment A vs. Equipment B

• Repair vs. Replacement

• Allows consideration of non-monetary factors

Key Benefits of Applying the BCE

• Fosters AM “buy-in” from all levels in theorganization

• Stresses importance of collecting good data

• Management/front line consensus ondecisions

• Opportunity to present $ savings toboard/governing body

• Repeatable, defensible, and quantitativeprocess

BCE Process (The Money Shot)

Questions?

George.Kaffezakis@gwinnettcounty.com

rstahr@brwncald.com

Another way of checking the pulse of theIndustry

Type of Disinfectant

BY LOCALE Chlorine GasBulk (12%) Sodium

Hypochlorite

On-site (0.8%) SodiumHypochloriteGeneration

Regionally 3 7 8

Nation Sampling 21 21 12

Total 24 28 20

BY CAPACITY

<50 1 8 6

50-100 7 11 8

100-150 7 5 5

>150 9 4 1

BCE Difference

• No distinction between capital and operatingcost – a $ is a $

• Focus on long-term, life-cycle costing

• Goal is to provide the lowest total cost to thecommunity in terms of the “triple bottom line”

– Financial

– Community

– Environmental