THE PHILIPPINE WATER REVOLVING FUND SUPPORT PROGRAM

ASSET VALUATION OPERATING MANUAL

FOR WATER UTILITIES
FINAL REPORT

June 2011

This publication was produced for review by the United States Agency for International Development.
Development Alternatives, Inc. prepared it.
THE PHILIPPINE WATER REVOLVING FUND SUPPORT PROGRAM

ASSET VALUATION OPERATING MANUAL

FOR WATER UTILITIES

Program Title: PWRF Support Program

Sponsoring USAID Office: USAID Philippines
Contract Number: EPP-I-00-04-00023 Task Order 02
Contractor: DAI
Date of Publication: June 2011

Anna Maria Mendoza

June 2011

The author’s views expressed in this publication do not necessarily reflect the views of the
United States Agency for International Development or the United States Government.
Acknowledgment

This document was prepared through the assistance of the Philippine Water Revolving Fund Support
Program (PWRF-SP), a project supported by the United States Agency for International Development
(USAID).

The Manual drew significantly from the Asset Valuation Policy Guidelines and Valuation Handbook for
Optimized Depreciated Replacement Cost Valuation of System Fixed Assets of the Energy Regulatory
Commission.

The Manual benefited from a peer review, validation workshop and consultations with the following
institutions and water utilities:

Cuervo Appraisers, Inc.

Royal Asia Appraisal Corporation
Calson Development Corporation
Laguna AAA Water Corporation
Gateway Property Holdings, Inc.
Goodhands Water Specialists, Inc.
Filinvest Land, Inc.
Teresa Waterworks, Inc.
Balibago Waterworks System, Inc.
La Paz Housing
San Pedro Resettlement Cooperative, Inc.
Lago Waterworks, Inc.
BP Waterworks, Inc.

The Manual was also enhanced by the inputs of the following NWRB staff:

Deputy Executive Director Nathaniel C. Santos

Belen Juarez
Ma. Isabel Nofuente
Evelyn Dacuycuy
Table of Contents

1. Introduction .................................................................................................................. 1
2. The Asset Valuation Approach ................................................................................ 1
2.1 Regulatory Framework ...................................................................................1

2.2 Valuation of Assets .........................................................................................2

2.3 Regulatory Period ...........................................................................................5

3. The Water Utility Assets ................................................................................................ 5

3.1 Network System Assets ..................................................................................6

3.2 Non-Network System Assets............................................................................6

3.3. Categorization of Non-System Assets...............................................................7

4. Optimized Depreciated Replacement Cost (ODRC) ........................................ 7

Conceptual Framework ...............................................................................................7

4.1 Establishment of Gross Current Replacement Cost .........................................9

4.2 Optimized Replacement Cost Adjustments.....................................................11

4.3 Determining the ODRC of Assets .................................................................15

4.4 Application Guidelines for Water Utilities.....................................................18

5. The Asset Valuation Report ................................................................................... 25

5.1 Asset Valuation Report Format .....................................................................25

5.2 Issuance of Affidavit by the NWRB’s Accredited Appraiser..........................26

References................................................................................................................................. 29

Appendix A
1. Introduction
The purpose of this Asset Valuation Operating Manual for Water Utilities is to provide
comprehensive and practical guidelines for the valuation of assets of water utilities by
regulators and NWRB’s accredited appraisers as basis for the issuance of the Certificate
of Public Convenience (CPC) and for the setting and adjustment of tariffs.

The Manual describes a consistent and transparent approach for the valuation of assets
of water utilities based on independently determined and generally accepted valuation
principles using the Fair Value approach (Ref. The Philippine Water Revolving Fund
Assessment of the Feasibility of Outsourcing NWRB’s Asset Valuation Task and Other
Activities Final Report).

2. The Asset Valuation Approach

The Valuation of Property, Plant and Equipment in the Public Sector as provided in the
International Valuation Standard 201.05 permits two models for the recognition of
operational assets in the balance sheet: a cost model and a fair value model. NWRB will
adopt the Fair Value Model using the Depreciated Replacement Cost Approach
determined on an optimized basis. The approach conforms to both International
Valuation Standards and International Public Sector Accounting Standards.

2.1 Regulatory Framework

The NWRB uses the return on investment (ROI) method in tariff setting and adjustment.
Under the current rules (Board Resolution No. 008-0505 issued in 2005), the ROI
method involves calculating the value of assets entitled to return and applying the 12
percent rate of return on the investment base over the five-year validity of the set or
adjusted tariff. A prerequisite in the method therefore is asset valuation or determining
the different assets in service and putting values to them.

Asset valuation is required in two cases: when a water utility is applying for a Certificate
of Public Convenience (CPC) and when an existing CPC holder is applying for tariff
adjustment.

During the CPC application, the NWRB checks if all assets claimed in the application are
physically existing and valued correctly. The Registration and Licensing Section of the
Water Utilities Division performs this task. The CPC issued to the water utility does not
only grant a permit to operate a water distribution supply business but also authorizes
the utility to implement a certain tariff schedule. Asset valuation is an output in the
determination of the tariff schedule to be implemented.

During the review of the tariff adjustment request, the NWRB needs to check the
physical existence and values of the assets that are claimed to be entitled to a return.
The Systems and Accounts Section of the NWRB Water Utilities Division is mainly

Asset Valuation Operating Manual for Water Utilities: Final Report 1

responsible for this task. The performance of this task is being supplemented by the
Monitoring Division’s validation of the technical aspects of the assets two years after the
issuance of CPCs.

When budget resources permit, the NWRB conducts site visits to check whether the
claims in the annual report are true. If no site visit is conducted, there is no way for the
NWRB to validate the physical existence of the claimed assets, their number, their
physical condition and the reasonableness of the imputed values. In such case, the
NWRB relies only on the presentation of the certified public accountant in the audit
certificate which is attached to the annual report.

The Assessment of the Feasibility of Outsourcing NWRB’s Asset Valuation Task and
Other Activities conducted by the Philippine Water Revolving Fund Support Program
revealed that in the absence of official operating guidelines or a manual on asset
valuation, the following problems have been encountered by the NWRB:

• Water utilities sometimes submit what they claim as “independent”

appraiser’s report but which turn out to be from a sister company. At present,
the NWRB has no idea how many of the so-called independent reports are
genuinely independent.

• There can be inconsistencies in asset values reported for (i) supervision and
regulation fee imposition and (ii) tariff adjustment. The supervision and
regulation fees (SRF) are imposed based on capital stock subscribed, capital
invested, or property and equipment, whichever is higher. A water utility is
motivated to report lower asset values when computing the SRF and higher asset
values during the years when it is requesting tariff adjustment. The SRF is an
annual payment and the tariff adjustment is done every five years. This timing
difference makes it hard to reconcile the inconsistencies and charge for any
underpayment of SRF, if any.

• There have been instances when the results of the NWRB’s on-site validation
of the asset’s physical existence and valuation became contentious and were
challenged by the water utility.

• The NWRB has very limited resources and this adversely affects its capability
to conduct site visits and actual asset valuation. Thus, the NWRB has no idea of
the extent of the water utilities’ deviations from good practices and disclosure.

2.2 Valuation of Assets

Based on a review of asset valuation models and approaches (Figure 1), the Fair Value
Model using the Depreciated Replacement Cost determined on an optimized basis
otherwise known as the Optimized Depreciated Replacement Cost (ODRC) will be
adopted.

Asset Valuation Operating Manual for Water Utilities: Final Report 2

 Figure 1

Two (2) Models in the Recognition of

Operational Property, Plant and Equipment

Cost Fair Value

Model Model

Estimated
Market Fair Value
Value

Depreciated Restoration Service Units

Replacement Cost Cost Approach

A comparison of these models and approaches is detailed below:

Cost Model Fair Value Model

Advantage: Advantage:
Convenient. Based on Based on market value determined by appraisal.
acquisition cost. Disadvantage:
Disadvantage: Market evidence may not be available to determine the market value in
May not be based on which case fair value will be estimated by comparing with similar types of
market value. assets or by using any of the three approaches.
1. Depreciated Replacement Cost Approach
Advantage:
Can be established by reference to the buying price of a similar
asset.
When determined on an “optimized basis, it reflects the
service potential required of the asset.
2. Restoration Cost Approach
Advantage:
Reflects the cost of restoring the service potential of the asset to
its pre-impaired level.
3. Service Units Approach
Advantage:
Reflects the number of service units expected from the asset
Recommendation: Fair Value Model using the Depreciated Replacement Cost Approach. The
approach conforms to both International Valuation Standards and International Public Sector Accounting
Standards

Asset Valuation Operating Manual for Water Utilities: Final Report 3

For most standard asset valuations, the three main approaches described and defined
below encompass all the significant methods used in valuation. They all are based on
the economic principles of price equilibrium, anticipation of benefits or substitution.
These three main valuation approaches are provided for by the International Valuation
Standards Council 1.

i) The Direct Market Comparison Approach

The direct market comparison approach is a comparative approach that

considers the sales of similar or substitute assets and related market data. In
general, an asset being valued is compared with similar items that have been
transacted in the market or that are listed or offered for sale, with appropriate
adjustment to reflect different properties or characteristics.

ii) The Income Approach

The income approach considers the income that an asset will generate over its
remaining useful life and estimates value through a capitalization process. This
process applies an appropriate yield, or discount rate, to the projected income
stream to arrive at a capital value. The income stream may be derived under a
contract or contracts, or be non-contractual, eg, the profit generated from either
the use of or holding of the asset.

Two commonly used methods that fall under the income approach are income
capitalization, where an all risks yield is applied to a fixed income stream, or
discounted cash flow where the cash flows for future periods are discounted to a
present value.

The income approach can be applied to liabilities by considering the cash flows
required to service a liability until it is discharged.

iii) Cost Approach

The cost approach applies the basic economic principle that a buyer will pay no
more for an asset than the cost to obtain an asset of equal utility, whether by
purchase or by construction. Unless undue time, inconvenience, risk or other
factors are involved, the price that a buyer would pay for the asset being valued
would not be more than the cost to acquire or construct a modern equivalent.
Often the asset being valued will be less attractive than the cost of a modern
equivalent because of age or obsolescence; where this is the case, adjustments
will need to be made to the cost of the modern equivalent. This adjusted figure
is known as the depreciated replacement cost.

1
Exposure Draft: Proposed New International Valuation Standards International Valuation Standards
Council, June 2010.

Asset Valuation Operating Manual for Water Utilities: Final Report 4

2.3 Regulatory Period

An asset revaluation must be undertaken for each Water Utility. Asset valuation shall be
conducted by NWRB-accredited independent appraisers. The following steps should be
done:

• Select pilot-test water utilities

• Conduct orientation workshop for the NWRB and pilot-test water utilities

• Pilot test the asset valuation procedure using the draft operation manual

• Conduct consultations with water utilities for the full implementation of

independent asset valuation

• The Property, Plant and Equipment account in the balance sheet as of

December 31, 2010 of the selected pilot-test water utilities should reflect the
result of the asset revaluation.

• Fully implement the asset valuation to all water utilities

• The Property, Plant and Equipment account in the balance sheet as of

December 31, 2011 of all water utilities should reflect the result of the asset
revaluation.

• Revaluation of assets shall be conducted by NWRB’s accredited appraisers

every five years for the account of the Water Utility.

3. The Water Utility Assets

Due to the capital-intensive nature of water utilities, capital-related costs represent a
significant proportion of the water utility’s annual revenue requirement (ARR). Return on
and return of capital typically constitutes over 70% of the water utility’s base revenue
requirement. The value of the Regulatory Asset Base is, therefore, a critical input into
the determination of regulated charges and provides an important signal for efficient
pricing and future investment.

A well-defined asset valuation methodology is required in order that the regulatory

objectives of transparency and consistency are achieved.

Incorrect identification and valuation of assets may result to understatement or

overstatement in the balance sheet that will affect pricing and will eventually be
disadvantageous to either the water utilities’ owners and/or users. 2

Energy Regulatory Commission Asset Valuation Manual

2

Asset Valuation Operating Manual for Water Utilities: Final Report 5

3.1 Network System Assets

The principal network assets of a water utility are those assets 3 that link customers to
the points of supply where water utility takes delivery of the water. These include the
following:

• Land ( dedicated to distribution purposes)

• Structures and Improvements (dedicated to distribution purposes) such as

Fences, Gates, Riprap, Landscape

• Deep wells and Pump houses

• Booster Station

• Reservoir

• Chlorinating Equipment

• Pipelines

• Flow Meters

• Service Connections

• Valves and Chambers

• Fire Hydrants

• Transmission Lines

• Generator Set

3.2 Non-Network System Assets

In the application of these policy guidelines, the non-system assets are to be listed and
classified as either Non-Specialized Assets or Specialized Assets. 4

• Non-Specialized Assets are those assets that are not specific to the industry
and would be readily acquired and disposed of in the ordinary course of
business.

3
NWRB Primer on Tariff Setting and Regulation
4
Based on definitions in the Energy Regulatory Commission Asset Valuation Guidelines, 2006

Asset Valuation Operating Manual for Water Utilities: Final Report 6

 The valuation of Non-Specialized Assets depends upon the manner in which
the assets are acquired. The guidelines state that where assets are normally
acquired in a secondary market, the price of a second-hand asset is relevant
in determining the value. Where assets are not normally acquired in a
secondary market, the price of a new asset (adjusted to take account of
service potential and the impact of other obsolescence factors) is relevant in
determining the value.

• Specialized Assets are those that exist for a purpose which is of particular
advantage and may be unique to the industry, and/or those assets which are
not normally traded in a secondary market place (except as part of a total
entity by reason of their physical characteristics).

For specialized plant, as there is no trading market for such assets, the
appropriate value based upon the guidelines is the lower of the current
replacement cost and the current reproduction cost.

3.3. Categorization of Non-System Assets

As a minimum, the NWRB has specified that the fixed asset registers of water utilities
include the following non-system assets:

• Structures and improvements such as building and building improvements

(non-network related)

• Office furniture and fixtures

• Office equipment

• Vehicles

• Tools and Equipment

4. Optimized Depreciated Replacement Cost (ODRC)

Conceptual Framework

Under this approach, the present value of the remaining service potential of an asset is
determined as the depreciated replacement cost of the asset. The replacement cost
of an asset is the cost to replace the asset’s gross service potential. This cost is
depreciated to reflect the asset in its used condition. An asset may be replaced either
through reproduction (replication) of the existing asset or through replacement of its
gross service potential. The depreciated replacement cost is measured as the
reproduction or replacement cost of the asset, whichever is lower, less accumulated

Asset Valuation Operating Manual for Water Utilities: Final Report 7

depreciation calculated on the basis of such cost, to reflect the already consumed or
expired service potential of the asset.

The replacement cost and reproduction cost of an asset are determined on an

‘optimized’ basis. The rationale is that the entity would not replace or reproduce the
asset with a like asset if the asset to be replaced or reproduced is an over-designed or
overcapacity asset. Over-designed assets contain features which are unnecessary for the
goods or services the asset provides. Overcapacity assets are assets that have a greater
capacity than is necessary to meet the demand for goods or services the asset provides.
The determination of the replacement cost or reproduction cost of an asset on an
optimized basis thus reflects the service potential required of the asset. 5

The Optimized Depreciated Replacement Cost (ODRC) is calculated based on the

gross current replacement cost (GCRC) of assets (which can be similar to historically
used assets where there has been little technological change) that are adjusted for over-
design, over- capacity and/or redundant assets less an allowance for depreciation.

The ODRC valuation approach is used to determine a hypothetical value of the assets.
This hypothetical value is a surrogate for market value in circumstances where it is not
possible to determine values for specialized assets using a market comparison approach.

It follows therefore that the valuation approach should seek to reflect market behavior,
or put another way, the application of the approach should seek to replicate the thought
process that would be followed by an informed potential purchaser acting without
compulsion.

Where market evidence is readily available it is possible to establish a relationship

between market value and replacement cost. Where market evidence is available for the
same broad asset at varying ages, it becomes possible to establish a loss in value or
depreciation profile. By its nature, such a profile takes into account supply/demand
characteristics and the impact of all other factors on value.

Conversely, in the absence of suitable market data, the appraiser should seek to
construct a loss in value or depreciation profile by measuring by other means, the
various factors that impact on value.

In respect of the optimization part of this measurement process, the appraiser attempts
to asses value by reference to the concept of substitution. It is logical to assume that
the maximum amount a potential purchaser would be prepared to pay for an asset is
represented by the purchaser’s lowest alternative cost to replicate the asset. In
assessing what represents the lowest alternative cost, consideration must be given to
the optimum set of assets that would be required to provide the reasonably foreseeable
services required to be delivered by the assets, at reasonably expected quality levels.

5
Exposure Draft: Proposed New International Valuation Standards International Valuation Standards
Council, June 2010.

Asset Valuation Operating Manual for Water Utilities: Final Report 8

If the existing asset does not represent the lowest cost alternative asset to provide the
reasonably foreseeable services, then the potential purchaser will adopt the replacement
cost of the lowest cost alternative in place of the reproduction cost of the existing asset.

The ODRC of water utility distribution assets has been described as representing the
minimum cost of replacing or replicating the service potential embodied in the network
with modern equivalent assets in the most efficient way possible from an engineering
perspective, given the service requirements, the age and condition of the existing assets
and replacement in the normal course of business.

The concept is consistent with the principles of fairness and equity required in assessing
charges in that users only pay for those assets that are required in a commercial context
and therefore are not required to pay for any excess capacity or over-engineering
embodied in the existing assets.

As outlined above, the ODRC approach involves three main steps 6:

1. Establishing the gross current replacement cost (GCRC) of the gross service
potential embodied in the existing assets (with consideration to modern
equivalent assets).

2. Adjusting the GCRC determined above for over-design, over-capacity and

redundant assets.

3. Depreciating this value to reflect the anticipated effective working life of the
asset from new, the age of the asset and the estimated residual value at the
end of the asset’s working life.

4.1 Establishment of Gross Current Replacement Cost

The GCRC can be established:

• By reference to historical costs, adjusted for inflationary increases since

construction (the indexation method);

• By comparison with recent costs of similar assets (the replacement cost

method);

• By reference to technologically advanced assets in use elsewhere (the

modern equivalent assets method)

Where the indexation method is used, a suitable index must be employed (using a Retail
or Consumer Price Index).

6
Based on the steps outlined in the Energy Regulatory Commission Asset Valuation Guidelines

Asset Valuation Operating Manual for Water Utilities: Final Report 9

Where the GCRC is based on the replacement cost method, the efficient current cost is
determined by contacting suppliers, manufacturers or their agents, or by reference to
recently published prices.

Where the GCRC is based on modern equivalent assets, it is determined by reference to

the current market buying price, current reproduction cost or replacement cost of
modern equivalent assets.

With respect to specialized assets, such as mist network infrastructure, the appropriate
cost is the lower of the current replacement cost and the current reproduction cost of
the gross service potential of the existing asset.

4.1.1 Modern Equivalent Asset

A commonly accepted principle in determining the replacement costs is that the

replacement cost to be used in the “lowest cost per unit at which the gross service
potential could be obtained in the normal course of the business”.

GCRC of a modern equivalent asset is defined as: “The minimum that it would cost, in
the normal course of business, to replace the existing asset with a technologically
modern equivalent new asset with the same service potential, allowing for any
differences in the quantity and quality of output and in operating costs”.

The statement above requires the appraiser to measure the gross service potential of an
existing asset by reference to its modern equivalent asset. Reference to the modern
equivalent asset is only made so as to obtain a current replacement cost for the asset
already held, regardless of whether the modern equivalent asset will ever be purchased,
or whether the existing assets will ever be replaced.

Further, “in determining current cost with reference to the most appropriate modern
facility, the capacity of that facility should not be such as would exceed materially… the
scale of the entity’s existing operations. The modern facility should be of commercially
available technology and should not require a redesign or re-engineering of an entity’s
existing plant”. 7

4.1.2 Expected Capacity in Use

The replacement costs of individual assets should be based on the “expected capacity in
use” of the existing assets. “Expected capacity in use” is the required level of service
potential or output consistent with both the future growth in demand and the objective
of minimizing the whole of life cost of assets under “total asset management” concepts
and business planning horizons. As systems expand and change a degree of sub-
optimality at any one time is inevitable and is part of the total cost of output, where the

7
Ibid.

Asset Valuation Operating Manual for Water Utilities: Final Report 10

modern equivalent asset has a different capacity, a pro-rata adjustment is necessary to
value the expected capacity in use of the existing asset.

The determination of the modern equivalent asset that would replace existing individual
components of the network should not be confused with the process of optimization. 8

4.1.3 Cost Basis 9

Current costs can be determined on a ‘Greenfields’ or “Brownfields’ basis. The

‘Greenfields’ cost basis assumes construction occurs in an area free of development. The
‘Brownfields’ cost basis assumes construction occurs around all existing infrastructure
and development.

The ‘Brownfields’ cost basis shall be adopted by the NWRB. It is considered appropriate
because it is consistent with the concept of establishing the potential purchaser’s lowest
alternative cost to replicate the network (i.e. a duplicate network would need to be built
in the existing environment). The current cost estimates should reflect the current state
of land use development.

The ‘Brownfields’ cost structure is widely used for optimized DRC valuations including
electricity, gas and water infrastructure assets in most countries adopting optimized DRC
valuation.

4.1.4 Direct Costs

The direct costs applied include any applicable indirect taxes in accordance with current
tax legislation. Such indirect taxes are to be explicitly identified as a percentage of the
replacement cost determined for each asset type.

4.1.5 Indirect Costs

Due allowance must be made for indirect costs associated with the acquisition and/or
creation of the asset such as on-costs, design and engineering costs, freight, duty, local
delivery, interest during construction, etc.

4.2 Optimized Replacement Cost Adjustments

Because the ODRC of the network assets is based on determining the value of the
service potential embodied in the assets, it is necessary to adjust the gross replacement
cost of the existing assets for overdesign, over capacity and redundant assets.

8
Ibid.
9
Ibid.

Asset Valuation Operating Manual for Water Utilities: Final Report 11

The Independent Pricing & Regulatory Tribunal of New South Wales, Australia (IPART)
states that “an optimized system is a reconfigured system using modern technology
designed to serve the current load with current technology, with some allowances for
growth. This, method excludes any unused or under utilized assets and allows for
potential cost savings that may have resulted from technological improvement.”

Therefore, when adopting the ODRC approach the appraiser must establish whether the
asset in its current form represents the optimum replacement given technological and
functional changes since construction. By way of example optimization may be required
in a situation where:

• the existing asset has a greater capacity than is required for existing and
reasonably foreseeable use;

• the capacity or service potential embodied in the existing asset could be

replaced more cheaply than the cost of reproduction of the existing asset due
to improvements in construction techniques, economies of scale, etc.

In assessing the level of optimization, it is important to recognize that it is not intended

that a complete redesign or “greenfields optimization” of the network be undertaken.
Instead “incremental optimization” is adopted, which allows progressive optimization to
the extent that it occurs in the normal course of business.

Incremental optimization places a limiting constraint on the extent of optimization. It

denies a valuation based on optimal replacement of an entity’s entire asset network.
This latter approach is known as “greenfields optimization”.

The incremental ODRC approach recognizes that there is always some degree of sub
optimality and allowance for growth in future demand, and it reflects the historical
development of the existing business, the time lag in asset planning and construction,
the very long lives of the assets, and the replacement of its components, in the normal
course of business. As systems expand and change, a degree pf sub-optimality at any
point of time is inevitable and is part of the total cost of output.

The issue of re-designing the complete network layout is not considered appropriate for
ODRC valuation of infrastructure. This is consistent with ODRC valuation undertaken for
regulatory pricing purposes in respect of the water utility distribution networks in
Australia, United Kingdom and New Zealand. 10

4.2.1 Identifying Over Capacity

The optimization should be based on the reasonably expected level of use of the asset.
The reasonably expected level of use will be determined by reference to the required

Ibid.
10

Asset Valuation Operating Manual for Water Utilities: Final Report 12

level of service potential or output consistent with both the reasonably foreseeable
future demand and objective of minimizing the whole of life costs of assets.

While reliably projected load growth has its own problems, an issue of what represents a
reasonable time frame is also problematic. This is because both elements have a degree
of subjectivity in their determination.

Given the fact that many infrastructure assets are long lived and have a high capital
cost, adopting an artificially short timeframe can have a distorting effect on the
valuation. Furthermore, the incremental cost of providing additional capacity at initial
construction rather than on an incremental basis in response to actual demand growth
often makes good commercial sense when considered over the longer term.

The basic rules for the optimized network are that it should:

a) provide a quality of supply similar to that which currently exists, except

where this exceeds the approved standard quality of supply criteria, and

b) have a capacity similar to that of the existing network, except where this
exceeds allowed future load growth over the forecast periods allowed.

4.2.2 Identifying Over-Engineering

One of the key features to consider in respect of whether a water utility network is over-
engineered is the required reliability and security of the power system supplies.

The reliability of supply in a power system is a measure of its ability to survive a

contingency (such as the failure of a generator) without interrupting supply to
customers. Water system supply reliability is therefore related to the amount of spare or
reserve capacity available to cover contingencies and the probability of contingencies
occurring.

The required level of service for water utility network is defined in terms of currently
accepted service standards in the water supply industry in the Philippines and countries
with similar conditions.11

4.2.3 Identifying Over-Designed, Excess Capacity, Redundant and Standby

Assets

Where assets are over designed, have excess capacity, or are redundant, then an
adjustment needs to be made to the valuation. The adjustment is made so the resulting
valuation reflects the cost of replacing the existing service potential of the assets based
on an efficient set of modern equivalent assets to achieve the required level of service
output (“capacity in use”) within the entity’s planning horizon.

Ibid.
11

Asset Valuation Operating Manual for Water Utilities: Final Report 13

Overcapacity or redundant assets may be defined as assets with a greater service
capacity than is necessary to meet the service delivery outputs within the entity’s
business as back up to an operating asset in the normal course of business to minimize
the disruption of production when prime assets are temporarily out of service.

Severable components of an integrated network that are redundant should be regarded

as surplus assets and excluded from the valuation. Non-severable components, which
are redundant or represent overcapacity, should also be excluded from the valuation.

Over-designed assets are assets with features unnecessary for the goods or services the
assets provide. Measuring the service potential embodied in these assets, based on
modern equivalent assets, automatically excludes attributing any value to the over-
designed features.

Standby assets are assets kept as back up to an operating asset in normal course of
business to minimize disruption of production when prime assets are temporarily out of
service. As such, they are an integral part of the operating asset and should be valued in
the same way as other assets subject to service and quality standards.

• Assets with Over-Design, Over-Capacity Characteristics

To determine whether the GCRC needs to be optimized, the NWRB

evaluators or tariff analysts will conduct the first screening of the assets by
category. The evaluator or tariff analyst will use the water utility’s business
plan as basis for determining assets with over-design, over-capacity
characteristics. The evaluator will determine the required capacity for the
planned investment period. The maximum capacity shall not exceed the
relevant planned investment period of ten (10) years for all types of facilities.
To ensure that the evaluator has the basis for determining the required
capacity and over capacity, the water utility should submit a business plan
with the following minimum requirements: program of activities, asset
management plan (list of assets, specifications), demand forecasts, and
revenue requirements for the planned investment period.

The water utility may appeal to the NWRB for the use of the gross current
replacement cost instead of the optimized depreciated replacement cost. The
NWRB arbiter will decide on the appeal.

If the water utility is not satisfied with the decision of the NWRB arbiter,
optimization tests may be conducted at the water utility’s expense. The
NWRB will require the water utility to provide a listing of assets and will
indicate the sampling size on the asset list prior to releasing the asset list to
the appraiser. The appraisers will aim for the 95% level of confidence.

Asset Valuation Operating Manual for Water Utilities: Final Report 14

 For over capacity, over-designed assets, the appraiser will be required to
report both gross current replacement cost and ODRC. NWRB will decide
which cost to consider in its review.

• Idle, Redundant or Stranded Assets

The appraisers do not need to value idle, redundant or stranded assets. The
NWRB will not include them in the asset base used for tariff setting.

4.2.4 Valuation of Spare Parts and Spare Equipment Inventory

Network equipment spares should be suitable replacements for the assets installed in
the network. The quantity of spares shall not exceed the reasonable quantity of spares
required to meet the disclosed quality of supply criteria. Stranded assets may be valued
as network spares subject to the criteria mentioned. 12

The NWRB requires that the spare parts and spare equipment inventory be put in
service within the useful life set by the manufacturer.

4.3 Determining the ODRC of Assets 13

The optimized gross replacement cost of an asset must be depreciated where the
existing asset’s remaining useful life is less than the life of a new asset. Depreciation
recognizes the limited remaining useful life of an asset.

4.3.1 Principles in Determining Depreciation

The fundamental principle is that straight-line depreciation is to be adopted.

4.3.2 Establishment of Effective Lives

The effective life of an asset is its estimated life, assuming continued use in its present
function as part of a continuing business. It is considered to be at an end when
profitability is exceeded by operating and maintenance costs.

The standard and frequency of maintenance is a significant factor in the determination

of effective lives. All other things being equal, a regulatory and well-maintained asset
will have longer effective life than an identical asset, which is subjected to poor and
infrequent maintenance.

Some of the factors, which must be considered when assessing effective lives, are:

Energy Regulatory Commission Valuation Handbook for Optimized Depreciated Replacement Cost
12

Valuation of System Fixed Assets of Privately Owned Distribution Utilities Operating Under Performance
Based Regulation – Third Regulatory Period – 19 July 2010

Energy Regulatory Commission Asset Valuation Guidelines

13

Asset Valuation Operating Manual for Water Utilities: Final Report 15

 • Service utility of the assets;

• Maintenance level implemented by the owner or operator;

• The environment in which the assets reside;

• External factors such as supply/demand characteristics, changes in

legislation, etc.;

• Physical, technological, functional and economic obsolescence.

In addition to these generic factors that impact on the effective lives, assets of the same
type within a network may have different lives due to different service conditions. Such
factor might include:

• Environmental conditions;

• Level of use;

• Level of maintenance.

The useful life of the assets should be based on the table shown in Section 4.4.1. The
remaining useful of the asset after appraisal should be at least 1 year. It will be given an
additional life of 1 year for each year that the asset continues to be in use.

There may be over-recovery of investment. This situation encourages the water utilities
to undertake regular preventive maintenance activities of its assets. This will increase
service quality due to lesser breakdowns in machinery and equipment.

4.3.3 Residual Values

The residual value of an asset must be estimated to perform a depreciation calculation.

This residual value reflects the fact that the asset may no longer be an economic
proposition in its present role, however, it may remain in use but with profitability
impaired due to increased maintenance costs and lack of efficiency compared with more
modern assets. Alternatively it may be possible to sell the assets to a secondary user or
for salvage value.

In principle when an asset reaches the end of its category or class life it has zero value
under the straight-line depreciation method. Assets however remain in service beyond
this period. It is reasonable to allocate a value to these assets in order to recognize their
value to the network and to provide an incentive for the water utility to extend the
useful lives of assets. It is recommended to allocate a residual value of 5% of the

Asset Valuation Operating Manual for Water Utilities: Final Report 16

optimized replacement cost of assets used beyond their regulatory lives to such assets.
14

4.3.4 Obsolescence

There are four forms of obsolescence that can impact upon the value of an asset. They
are:

• Physical

• Technological

• Functional

• Economic

Infrastructure assets are often considered to be less susceptible to the last three forms
of obsolescence than other assets, however in reality, at some stage in an asset’s life
these forces can and do impact on value.

Physical obsolescence measures the consumption of service potential. It can be

measured by using straight-line depreciation, that is, life consumed over total life.

Technological obsolescence results from changes in the design and materials of

construction of currently available assets. As manufacturing techniques, materials and
processes improve; manufacturers are able to construct assets with equivalent or
improved output at lower cost levels. This form of obsolescence is particularly apparent
in new or emerging technologies.

Improvements in technology and construction techniques commonly impact on

infrastructure assets, especially because they are often long-lived. Normally
infrastructure assets experience organic growth that matches the growth of a
community over time. Assets are often built to a size that matches the needs of the
community at that time. As the community grows the asset becomes outgrown by the
needs of the community it serves. Additional assets are created that meet those
additional needs. When viewed from the standpoint of current needs, the composite
group assets can often represent an inefficient set of assets for the task at hand.

Functional obsolescence also results from changes in the design and material of
construction of currently available assets, however the impact on value is measured by
reference to changes in operating and maintenance costs, or improvement in service
quality rather than reductions in capital costs.

Ibid.
14

Asset Valuation Operating Manual for Water Utilities: Final Report 17

As discussed above, the size, capacity and or performance of a particular type of asset
may have been constrained due to design and manufacturing techniques and materials
of construction available at the time of construction. As these design and manufacturing
techniques and materials of construction are developed and improved over time, it often
becomes possible to create assets of a greater size and/or capacity than had been
possible in the past. A small number of large assets usually attract lower operating and
maintenance costs than a large number of small assets with an equivalent combined
capacity or service potential. Also, it often becomes possible to improve the service
quality which may match with customers’ expectations.

Economic obsolescence results from external economic factors. It is defined as the

impairment of desirability or useful life arising from economic forces, such as changes in
optimum use, legislative enactments which restrict and impair the right to use the assets
for their intended use, and changes in supply and demand relationships. 15

4.3.5 Materiality

Valuations are to be determined having regard to the principles of materiality defined as

follows:

“Materiality means, in relation to information, that information which if omitted,

misstated or not disclosed has the potential to adversely affect decisions about
the allocation of scarce resources made by users of the financial report or the
discharge of accountability by the management or governing body of the entity”.

Materiality in the context of valuations is generally considered to be of the order of +-

5% in gross asset value. 16

4.3.6 Value Added Tax (VAT)

The Value Added Tax (VAT) should be excluded from all regulatory asset base valuation
unless the regulated entity does not have an exemption from VAT.

4.4 Application Guidelines for Water Utilities

These Application Guidelines provide the specific methodology to be followed by Water

Utilities in determining the ODRC values on an optimized basis of their network assets.
The application of the ODRC valuation methodology determined on an optimized basis
involves the following steps:

a) defining and identifying the network system assets;

b) assessing the replacement cost of those assets (GCRC);

Ibid.
15

Ibid.
16

Asset Valuation Operating Manual for Water Utilities: Final Report 18

 c) optimizing the network configurations and its components asset and

d) determining the “optimized depreciated replacement cost value of the assets.

The ODRC is based on the engineering optimization of the network configurations and
its component assets following which an appropriate allowance is made for depreciation.
It measures the minimum cost of replicating the system in the most efficient way
possible, from an engineering perspective, given its service requirements and the age of
the existing assets.
The valuation is built up as the sum of the values of individual asset groups. The
valuation should be based on an optimal network, built to modern efficient designs,
that:

• meets the same service requirements as the existing network, and

17
• is depreciated to the same remaining life as the existing network.

4.4.1 Defining and Identifying Network System Assets

To facilitate identification and valuation of network system assets, the useful lives shown
below will be used as reference:

Description Useful Life

(years)
Land
Water Treatment Plant
Structures 20-50
Electro-mechanical Equipment 15
Dam
Structures 50-100
Electro-mechanical Equipment 10-20
Deepwells, Pumphouses and Booster Stations
Deepwell Casing 15-30
Pump Assembly 10-30
Motor for pump 5-10
Motor control for pump 5-15
Pumphouse-mixed material 10-20
Pumphouse-reinforced concrete 20-50
Reservoir
Concrete reservoir 30-50
Steel Overhead Tank 25

Ibid.
17

Asset Valuation Operating Manual for Water Utilities: Final Report 19

 Description Useful Life
(years)
Steel tank on ground concrete 30
Chlorinating Equipment 1-10
Pipelines
- Transmission
Cast iron pipes 50
Galvanized iron pipes 30
Steel pipes with cement lining 40
Steel pipes without lining 20
Asbestos cement pipes 30
uPVC pipes 25
HDPE pipes 50
- Distribution
Cast iron pipes 40
Galvanized iron pipes 20
Steel pipes with cement lining 30
Steel pipes without lining 20
Asbestos cement pipes 20
uPVC pipes 40
HDPE pipes 40
- Customer Connections
Galvanized iron pipes 15
uPVC pipes 30
PB pipes 30
Flow Meters 7-15
Water Meters 5-10
Valves and Chambers 20
Fire Hydrants 20-30
Building 20-50
Leasehold Improvements 10-20
Site Facilities
Fences
Cyclone wire 10
Concrete hollow blocks 30
Gates 20
Riprap 10
Landscape 10
Generator Set 15-30
Office Furniture and Fixtures 5-10
Office Equipment 5
Vehicles 5-10
Tools and Equipment 5
Custom built software 5
(Reference: NWRB Primer on Tariff Setting and Regulation; useful lives were reviewed
and revised in consultation with private appraisers)

Asset Valuation Operating Manual for Water Utilities: Final Report 20

 • Minimum Data Requirement

To conduct an accurate and valid valuation, the following are the minimum
data requirements to be submitted to the NWRB. NWRB will furnish the appraiser
with a copy for its use after indicating thereon the recommended sampling size:

a) Asset register database. There maybe more than one database to

cover different asset types. There should be verifiable processes used
to populate and keep the database up to date.

b) The asset register database should contain as a minimum the asset

categories outlined in this guideline and sufficient attributes and other
data available to value and assign residual lives.

c) The minimum attributes classification of assets necessary for

valuation are material types, sizes, quantities, year
constructed/refurbished and condition.

d) External attributes impacting on the construction and asset

performance should also be reported. They are typically ground type,
development density, failure histories and operating environment. 18

• Data Verification

To ensure the information available in the database is accurate and complete

records should be verified by sampling.

The key components of the verification process should include:

a) Verification of asset records for location and length

b) Completeness of records in relation to timing of assets being added or

removed

c) Assessment of construction date and capitalized rehabilitation.

The number of samples is usually selected so as to provide analysis results with

95% confidence. The significance of items should also be considered in terms of
the effect on accuracy and materiality of the overall valuation.19

Ibid.
18

Ibid.
19

Asset Valuation Operating Manual for Water Utilities: Final Report 21

4.4.2 Assessing the Replacement Cost of Network System Assets

The second step in determining the ODRC of network system assets is to ascertain the
replacement cost of the identified assets, not on the basis of the particular assets
installed, but on the bases of replacement with modern equivalent assets.

The following guidelines on the standard replacement costs are provided to achieve a
consistent and cost efficient approach to valuation. 20

• Standard Costs

Each of the asset groups and subgroups should be allocated a per unit
replacement cost for its modern equivalent.

The standard replacement costs shall be based on industry observed costs and
best achievable practice in the Philippines and include the following elements:

a. costs of materials delivered to store inclusive of any taxes paid.

b. Direct labor including survey, design and construction and labor-costs

incorporating holiday pay, actual sick leave (not sick leave
allowances) training, other unproductive time, workers compensation
payments, superannuation and payroll tax.

c. Transport and plant costs for delivery and erection.

d. Overhead costs which include:

ƒ Preparation of strategy plans

ƒ Use of consultants
ƒ Capital rationing processes; project approval and budgeting
ƒ Contract administration
ƒ Site supervision
ƒ Construction related corporate administration overhead; asset
register data processing including new asset data input,
retirements for replaced assets and associated procedures

• Non Standard Costs

In assessing costs for asset categories for which no standard costs can be
determined, historical cost indexation shall be applied using suitable growth
indexes.

Ibid.
20

Asset Valuation Operating Manual for Water Utilities: Final Report 22

 Such costs should be verified on the basis of competitive pricing or estimates
thereof; not necessarily the cost of self construction (Reference: The Energy
Regulatory Commission Asset Valuation Manual).

• Standard Asset Lives

The life of each asset commences when the equipment is commissioned for the
first time or refurbished. If the year of first commissioning or refurbishment is
unknown, a reasonable estimate shall be made.

Where life extension is applied, the cost of the life extension shall be capitalized
and added to the valuation. The asset shall be depreciated at the same rates as
before life extension.

The life of an asset shall be reduced by the appraiser where it is considered that
the remaining economic, safety or technical life warrants.21

4.4.3 Optimization of the Network Configuration and its Component Assets

The third step in determining the ORDC Valuation is to undertake an optimization of the
network configuration and its component assets to enable the optimized replacement
cost value (ORC) of the network system assets to be derived. The purpose is to ensure
the valuation reflects the replacement costs of an efficient set of modern equivalent
assets that would be able to achieve the required level of service.

The steps in the optimization process are the following:

a) exclude stranded assets;

b) optimize the configuration of the network;

c) optimize the capacity of elements in the network;

d) optimize the stores and spares.

4.4.4 Determining the ODRC Asset Value

The fourth step in determining the ODRC valuation is to depreciate the optimized
replacement cost value of the network assets where the existing asset’s remaining
useful life is less than the useful life of a new asset. The depreciation recognizes the
limited remaining useful life of the asset. 22

Ibid.
21

Ibid.
22

Asset Valuation Operating Manual for Water Utilities: Final Report 23

4.4.5 Valuation of Land and Easements 23

• Land Valuation

Land is valued based on existing use.

Land that is held by a Water Utility can be categorized as follows:

a) Land in Use – land that will continue to be used by the Water Utility for
the foreseeable future in support of its business operations.

b) Surplus land - land that is no longer required to support the Water

Utility’s business operations.

• Land in Use by the Water Utility

Where land is held for continued use and would be replaced if the Water Utility
was deprived of it, the basis of valuation under the deprival value concept is the
current market value for the existing use.

Where land is valued on the basis that it will continue to be used for the
existing purpose, there are a number of inherent assumptions:

a) The existing use of the land will continue to support the business
operations thereon;

b) The future service potential of the land will not diminish in the
foreseeable future; and

c) The business operated on the land is profitable and will continue to be

profitable for the foreseeable future.

On the basis of the above criteria, there is no intention that the land would be
made available for an alternate use, irrespective of whether an alternate use
would provide a higher value.

• Land with Limited Use to the Water Utility

Land with limited future service potential, that is, the existing use of the land
may be discontinued in the relatively near future (say, the next five years)
should be valued on the following basis:

Ibid.
23

Asset Valuation Operating Manual for Water Utilities: Final Report 24

 a) The present value of future net cash inflows for the remaining term of
the existing use; and

b) The deferred value of the alternate use of the land.

The present value of the future net cash inflows would only be assessed over the
anticipated remaining life of the existing use. In those circumstances where cash
inflows cannot be clearly identified from the land, then an appropriate yield
should be assessed that reflects the continued use by the Water Utility. The
present value of the potential net income should then be determined for the
remainder of the existing use. The alternate value should be deferred until the
existing use is discontinued. The sum of these assessments would be the value
of the land subject to a limited use requirement by the Water Utility.

• Surplus Land

Land that is surplus to the current or anticipated needs of a Water Utility should
be valued at current market value.

Irrespective of the category of the land holding outlined above, the valuation
should take into account the nature of the parcel, the legal restrictions on use,
the opportunities for and impediments to development that are inherent to the
specific parcel of land, other constraints that exist in respect of that land and any
other special attributes that the land may possess.

• Easement Valuation

This is a right, privilege or interest to a specific purpose that one party has in the
land of another.

The historical costs charged on this account are the costs of securing permits
from local government units and the actual payments if there are any for the
right-of-way to landowners, which is converted under the Grants of Right-of-way
Documents. The valuation will be based on indexation of the historical cost.

• Structures & Other Land Improvement Valuation

These will be classified as system fixed assets or non-system assets.

Assets that are classified as non-system assets may be further defined as
specialized or non-specialized assets.

5. The Asset Valuation Report

5.1 Asset Valuation Report Format

Asset Valuation Operating Manual for Water Utilities: Final Report 25

The appraiser engaged by Water Utility to conduct asset valuation will use the format
prescribed by NWRB. The asset valuation report format is found in the Appendix.

5.2 Issuance of Affidavit by the NWRB’s Accredited Appraiser

Together with the Asset Valuation Report, the NWRB’s accredited appraiser shall issue
the following affidavit:

AFFIDAVIT

I____________________________________________________________
(Name of appraiser/affiant)

of ____________________________________________________________
(Residence Address)

1. That I am the duly Accredited Appraiser

of _________________________________________________________
(Name of Water Utility)

2. That I have personally and carefully prepared the foregoing Valuation

Report of ___________________________________________________
(Name of Water Utility)

3. That I attest to the truthfulness and accuracy of all statement of facts

contained in the said report during the period_______________________;

4. That I conducted the valuation of assets in accordance with the Assets

Valuation Operating Manual of NWRB

IN WITNESS WHEREOF, I have hereto affixed my signature this _________

day of _________________, 2010_____ at ___________________________

____________________________
(Signature of Affiant)

Subscribed and sworn to before me this ______ day of _________ 20__,

Affiant exhibited to me his community Tax Certificate No. _____________
Issued at ______________________________ on ___________, 20_____.

_____________________
(Notary Public)

Doc. No.______
Page No.______
Book No._____
Series of:_____

(Reference: NWRB Primer on Tariff Setting and Regulation)

Asset Valuation Operating Manual for Water Utilities: Final Report 26

6. The Asset Valuation Process

The asset valuation process will include the following:

a) NWRB requires the water utility to submit an asset list/inventory following the
format shown in the Appendix;

b) NWRB will provide a copy of the inventory to the appraiser for validation;

c) The Appraiser will validate the asset list using a sampling method based on a
statistically valid sampling methodology, resulting in a confidence level not lower
than 95% with a margin of error below the materiality threshold of 5%. The
sampling method and the sampling size will be subject to a “no objection” by the
NWRB.

d) If appraiser deems the level of confidence to be lower than 95%, the

water utility will be required to conduct a re-inventory of its assets.

6.1 Frequency of Asset Valuation

The NWRB allows appraisal of assets every 5 years to coincide with the review period.
The frequency of appraisal may change as deemed necessary by the NWRB.

7. Accreditation Criteria and Procedures 24

Appraisal firms who would like to be accredited by NWRB must submit a copy of all
documents previously submitted to the Securities and Exchange Commission (SEC) in
their request for SEC accreditation, such as but not limited to:

1. Notarized application for accreditation

2. Company profile indicating the history, scope of services of the appraiser

company, and the bio-data of executive/certifying officers

3. Copy of license issued by the Department of Trade and Industry

4. Certificate of good standing issued by any registered association of appraisal

companies

5. List of past and present clientele

24
Based on the Energy Regulatory Commission Asset Valuation Manual.

Asset Valuation Operating Manual for Water Utilities: Final Report 27

 6. Certifications from at least one (1) commercial bank and two (2) public
companies that they have engaged the services of the appraisal company

7. Notarized certification of the appraisal company signed by its President that

the company meets all the qualification requirements under Section 2 of the
SEC Memorandum Circular No. 3 Series of 2003 (Guidelines for the
Accreditation of Appraisal Companies); that it has not been declared liable by
the SEC or by any competent court for violation of the Corporation Code or
the Securities Regulation Code; and that the company or any of its
directors/executive officers has no adverse judgment on any administrative,
civil or criminal case involving its appraisal business

8. Latest audited financial statements

9. Copy of the Certificate of Accreditation issued by the SEC

The appraiser-applicant must also manifest in writing that permission is granted to the
NWRB to review the working papers that support its appraisal report.

Foreign appraisers not registered to do business in the Philippines can perform appraisal
work only if they work in collaboration with a duly accredited appraiser.

The accreditation of an appraiser shall expire or it shall be automatically delisted after a

period of three (3) years unless renewed before said date. The accreditation may be
revoked for cause as determined by the NWRB.

The application fee for initial or renewal accreditation shall be five thousand pesos
(PHP5,000.00). The application fee shall be subject to change based on a periodic
review done by the NWRB.

Asset Valuation Operating Manual for Water Utilities: Final Report 28

References

Philippine Water Revolving Fund Support Program. Assessment of the Feasibility of

Outsourcing NWRB’s Asset Valuation Task and Other Activities. Final Report, March
2010.

Energy Regulatory Commission. Asset Valuation Policy Guidelines for Privately-Owned

Distribution Utilities Subject to Performance-Based Regulation, August 9, 2006.

Energy Regulatory Commission. Valuation Handbook for Optimized Depreciated

Replacement Cost Valuation of System Fixed Assets of Privately Owned Distribution
Utilities Operating Under Performance Based Regulation – Third Regulatory Period, July
19, 2010.

Exposure Draft: Proposed New International Valuation Standards International Valuation

Standards Council, June 2010.

National Water Resources Board. Primer on Tariff Setting and Regulation, March 2005.

Asset Valuation Operating Manual for Water Utilities: Final Report 29

Appendix A
Asset Valuation Report Format

Page 1
COST CENTER  ASSET  ASSET SUB  ITEM  ACQUISITION  HISTORICAL  RESIDUAL 
DESCRIPTION QTY UNIT  CPI  RC (NEW) ODRC (NEW) USEFUL LIFE AGE REL COMMENTS
NAME CATEGORY CATEGORY NAME DATE COST LIFE
NON NETWORK COMPUTER   MODULE
21 ASSETS EQUIPMENT 1 UNIT 10/23/1991 2,500.00 2,500.00 400 20 17 3
NON NETWORK COMPUTER   MODULE
22 ASSETS EQUIPMENT 1 UNIT 10/23/1991 2,500.00 2,500.00 400 20 17 3

Page 2
     
 
WEIGHTED   WEIGHTED  ACCUMULATED  WEIGHTED  WEIGHTED 
DEPRECIATED 
COST CENTER  ASSET  ASSET SUB   HISTORIC   ACCUMULATED   DEPRECIATED  AVERAGE  AVERAGE ASSET   INDEXED   OPTIMIZED  OPTIMIZED  AVERAGE  AVERAGE 
 CPI  OPTIMIZED 
NAME CATEGORY CATEGORY COST  HISTORIC COST  HISTORIC COST  AGE OF  LIFE FOR TAX  COST  INDEXED COST  INDEXED COST  AGE OF  ASSET LIFE 
INDEXED 
ASSET  PURPOSES  DEPRECIATION  ASSET  FOR TAX 
COST 
CATEGORY  CATEGORY  PURPOSES 
NON NETWORK COMPUTER  
ASSETS EQUIPMENT 2,500.00                              2,100                     400  5 18 2500 2500                  2,100                   400  5 18
NON NETWORK COMPUTER  
ASSETS EQUIPMENT 2,500.00                              2,100                     400  5 18 2500 2500                  2,100                   400  5 18

Legend:
     to be filled‐in by the Water Utility
     to be filled‐in by NWRB's Accredited Appraiser