Asset Management and the Burden of Capital Investment

Water, wastewater, and stormwater utilities are arguably the most capital-intensive industries in the world.  A key metric is net capital investment per dollar of revenue generated.  On average, public sector utilities consume $6.05 per revenue for water facilities and $7.52 per revenue for wastewater facilities in terms of the capital investment requirements.  The table below highlights this in 2012.

Utilities require significant investment on property, plant, and equipment to serve their customers and generate revenue from service to those customers.  For many of the nation's utilities, this capital infrastructure is approaching the end of its expected life. At the same time, utilities are facing steadily increasing regulatory requirements associated with the federal Clean Water Act and Safe Drinking Acts.

The critical nature of the capital investment per revenue metric speaks directly to the need for water utilities to embrace and execute robust asset management.  Along with the management philosophy of proactive asset management, organizations also need to get on the "Efficiency Innovation" bandwagon. Efficient innovation is a key goal of the private sector - efficiency innovations allow companies to make and sell established products or services at lower prices.  The Walmart retail model, for example, is an efficiency innovation.

In every competitive economy, efficiency innovations are critical to companies' survival.  But by their very nature of producing more with less, efficiency innovations entail eliminating jobs or outsourcing them to an even more efficient provider.  In addition to being able to produce more with fewer people, efficiency innovations make capital more efficient, improving cash flow.

Efficiency innovation combined with robust asset management allows public utilities to focus on the right kind of investment.  The capital planning process needs to be completed under the umbrella and organizational culture of efficiency innovation + robust asset management - (1.) Review the requirements of the utility business plan, (2.) Develop a comprehensive facility master plan, (3.) Determine and schedule capital requirements, and (4.) Develop capital financing plan.  This increased focus on efficiency innovation + robust asset management will produce much greater integration among the utility's capital plan, financial plan, and strategic plan.

Public utilities will also have people problems in the efficiency innovation + robust asset management world - skilled talent is even scarcer than capital.  Utilities will need help and support as they move to internalize the problem.  By embracing in-house vocational and professional programs, or working more closely with schools and universities, organizations can address the problem directly.

Company	Net Capital Investment (in millions)	Total Revenue (in millions)	Net Capital Investment/Revenue
American Water	$11,739.4	$2,876.9	$4.08
Aqua Water	$3,936.2	$757.8	$5.19
California Water Services Group	$1,438.443	$539.966	$2.57
Apple	$15,650.8	$156,508	$0.10
Boeing	$9,660	$81,698	$0.12
General Motors	$16,890	$152,256	$0.11
U.S. Steel	$6,408	$19,328	$0.33