iowa io-r3 survivor curve. - icc.illinois.gov

Iowa IO-R3 survivor curve.

In developing depreciation rates using the Broad Group procedure, the annual

depreciation rate is based on the average of the overall group, which is then applied to the

group’s surviving original cost investment. A characteristic of this procedure is that

retirements of individual units occurring prior to average service life will be under

depreciated, while individual units retired after average service life will be over depreciated

when removed from service, but overall, the group investment will achieve full recovery by

the end of the life of the total property group. That is, the under recovery occurring early

in the life of the account is balanced by the over recovery occurring subsequent to average

service life. In summary, the cost of the investment is complete at the end of the property’s

life cycle, but the rate of recovery does not match the consumption pattern which was used

to provide service to the company’s customers.

Under the average service life procedure, the annual depreciation rate is calculated

by the following formula:

Annual Accrual Rate, Percent = 100% - Salvaqe x 100 Average Service Life

The application of the broad group procedure to life span groups results in each

vintage investment having a different average service life. This circumstance exists

because the concurrent retirement of all vintages at the anticipated retirement year results

in truncating and, therefore, restricting the life of each successive years vintage investment.

An average service life is calculated for each vintage investment in accordance with the

above formula. Subsequently, a composite service life and depreciation rate is calculated

3-9 AUS Consultants-Weber Fick & Wilson Division

relative to all vintages within the property group by weighting the life for each vintage by the

related surviving vintage investment within the group.

Remaining Life Techniaue

In the Average Remaining Life depreciation technique, the annual accrual is

calculated according to the following formula where, (A) the annual depreciation for each

group equals, (D) the depreciable cost of plant, less (U) the accumulated provision for

depreciation, less (S) the estimated future net salvage, divided by (R) the composite

remaining life of the group:

A=D-U-S R

The annual accrual rate (a) is expressed as a percentage of the depreciable plant balance

by dividing the equation by (D) the depreciable cost of plant times 100:

(a)=D-U-Sx1xlOO R D

As further indicated by the equation, the accumulated provision for depreciation by

vintage is required in order to calculate the remaining life depreciation rate for each property

group. In practice, most often such detail is not available; therefore, composite remaining

lives are determined for each depreciable group, i.e., property account.

The remaining life for a depreciable group is calculated by first determining the

remaining life for each vintage year in which there is surviving investment. This is

accomplished by solving the area under the survivor curve selected to represent the

average life and life characteristic of the property account. The remaining life for each

vintage is composited by dividing (D) the depreciable cost of each vintage, by (L) its

average service life, and multiplying this ratio by its average remaining life (E). The


composite remaining life of the group (R) equals the sums of products divided by the sum

of the quotients:

RGroup=CD/LxE C D/L

The accumulated provision for depreciation, which was the basis for developing the

composite average remaining life accrual and annual depreciation rate for each property

account as per this report, was obtained from the Company’s books and records as of

December 31, 1998. The depreciation reserve maintained on the Company’s books and

records was allocated proportionally to each property account and sub-account based upon

a detailed theoretical depreciation reserve as of December 31. 1998. The theoretical

depreciation reserve was prepared utilizing the vintage level plant in service for each

property group together with the applicable estimated service life and net salvage

parameters set forth in this study.

Salvage

Net salvage is the difference between gross salvage, or what is received when an

asset is disposed of, and the cost of removing it from service. Salvage experience is

normally included with the depreciation rate so that current accounting periods reflect a

proportional share of the ultimate abandonment and removal cost or salvage received at

the end of the property service life. Net salvage is said to be positive if gross salvage

exceeds the cost of removal, but if cost of removal exceeds gross salvage the result is then

negative salvage.

The cost of removal includes such costs as demolishing, dismantling, tearing down,

disconnecting or otherwise removing plant, as weti as normal environmental clean up costs

associated with the property. Salvage includes proceeds received forthe sale of plant and

3-l 1 AUS Consultants-Weber Fick & Wilson Division

materials or the return of equipment to stores for reuse.

Net salvage experience is studied for a period of years to determine the trends which

have occurred in the past. These trends are considered together with any changes that are

anticipated in the future to determine the future net salvage factor for remaining life

depreciation purposes. The net salvage percentage is determined by relating the total net

positive or negative salvage to the book cost of the property investment.

Service Lives

Several factors contribute to the length of time or average service life which the

property achieves. The three (3) major categories under which these factors fall are: (1)

physical; (2) functional, and; (3) contingent casualties.

The physical category includes such things as deterioration, wear and tear and the

action of the natural elements. The functional category includes inadequacy, obsolescence

and requirements of governmental authorities. Obsolescence occurs when it is no longer

economically feasible to use the property to provide service to customers or when

technological advances have provided a substitute of superior performance. The remaining

factor of contingent casualties relates to retirements caused by accidental damage or

construction activity of one type or another.

In performing the life analysis for any property being studied, both past experience

and future expectations must be considered in order to fully evaluate the circumstances

which may have a bearing on the remaining life of the property. This ensures the selection

of an average service life which best represents the expected life of each property

investment.


Survivor Curves

The preparation of a depreciation study or theoretical depreciation reserve typically

incorporates smooth curves to represent the experienced or estimated survival

characteristics of the property. The “smoothed”or standard survivor curves generally used

are the family of curves developed at Iowa State University which are widely used and

accepted throughout the utility industry.

The shape of the curves within the Iowa family are dependent upon whether the

maximum rate of retirement occurs before, during or after the average service life. If the

maximum retirement rate occurs earlier in life, it is a let? (L) mode curve; if occurring at

average life, it is a symmetrical (S) mode curve; if it occurs after average life, it is a right(R)

mode curve. In addition, there is the origin (0) mode curve for plant which has heavy

retirements at the beginning of life.

Many times, actual Company data has not completed its life cycle, therefore, the

survivor table generated from the Company data is not extended to zero percent surviving.

This situation requires an estimate be made with regard to the remaining segment of the

property group’s life experience. Further, actual Company experience is often erratic,

making its utilization for average service life estimating difficult. Accordingly, the Iowa

curves are used to both extend Company experience to zero percent surviving as well as

to smooth actual Company data.

Studv Procedures

Several study procedures were used to determine the prospective service lives

recommended for the Company’s plant in service. These include the review and analysis

of historical retirements, current and future construction, historical experience and future

3-13 AUS Consultants-Weber Fick &Wilson Division

expectations of salvage and cost of removal as related to plant investment. Service lives

are affected by many different factors, some of which can be obtained from studying plant

experience, others which may rely heavily on future expectations. When physical aspects

are the controlling factor in determining the service life of property, historical experience is

a valuable tool in selecting service lives. In the case where changing technology or a less

costly alternative develops, then historical experience is of lesser value.

While various methods are available to study historical data, the principal methods

utilized to determine average service lives for a Company’s property are the Retirement

Rate Method, the Simulated Plant Record Method, the Life Span Method, and the

Judgement Method.

Retirement Rate Method - The Retirement Rate Method uses actual Company

retirement experience to develop a survivor curve (observed life table) which is used to

determine the average service life being experienced in the account understudy. Computer

processing provides the opportunity to review various experience bands throughout the life

of the account to observe trends and changes. For each experience band studied, the

“observed life table”is constructed based on retirement experience within the band of years.

In some cases, the total life of the account has not been achieved and the experienced life

table, when plotted, results in a “stub curve.” It is this “stub curve” or total life curve, if

achieved, which is matched or fitted to a standard Survivor curve. The matching process

is performed both by computer analysis, using a least square technique, and by manually

plotting observed life tables to which smooth curves are fitted. The fitted smooth curve

provides the basis to determine the average service life of the property group under study.

Simulated Balances Method - In this method of analysis, simulated surviving


I I

balances are determined for each balance included in the test band by multiplying each

proceeding years original gross additions installed by the Company by the appropriate

factor of each Standard Survivor Curve, summing the products, and comparing the results

with the related year end plant balance to determine the “best fitting” curve and life within

the test period. Various test bands are reviewed to determine trends or changes to

indicated service lives in various bands of years. By definition, the curve with the “best fit”

is the curve which produces simulated plant balances that most closely matches the actual

plant balances as determined by the sum of the “least squares”. The sum of the “least

squares” is arrived at by starting with the difference between the simulated balances and

the actual balance for a given year, squaring the difference, and the curve which produces

the smallest sum (of squared difference) is judged to be the “best fit”.

Period Retirements Method - The application of the Period Retirements Method is

similarto the “Simulated Plant Balances”Method, exceptthe procedure utilizes an Standard

Survivor Curve and service life to simulate annual retirements instead of balances in

performing the “least squares” fitting process during the test period. This procedure does

tend to experience wider fluctuations due to the greater variations in level of experienced

retirements versus additions and balances thereby producing greater variation in the study

results.

Life Soan Method - The Life Span or Forecast Method is a method utilized to study

various accounts in which the expected retirement dates of specific property or locations

can be reasonably estimated. In the Life Span Method, an estimated probable retirement

year is determined for each location of the property group. An example of this would be a

structure account, in which the various segments of the account are “life spanned” to a


probable retirement date which is determined after considering a number of factors, such

as management plans, industry standards, the original construction date, subsequent

additions, resultant average age and the current-as well as the overall - expected service

life of the property being studied. If in the past the property has experienced interim

retirements, these are studied to determine an interim retirement rate. Otherwise, interim

retirement rate parameters are estimated for properties which are anticipated to experience

such retirements. The selected interim service life parameters (Iowa curve and life) are then

used with the vintage investment and probable retirement year of the property to determine

the average remaining life as of the study date. No attempt is made to include any

anticipated additions to the property subsequent to the study date. The recovery of such

additions if made, is reflected when preparing subsequent depreciation studies.

Judaement Method - Standard quantitative methods such as the Retirement Rate

Method, Simulated Plant Record Method, etc. are normally utilized to analyze a Company’s

available historical service life data. The results of the analysis together with information

provided by management as well as judgement are utilized in estimating the prospective

recommended average service lives. However, there are some circumstances where

sufficient retirements have not occurred, or where prospective plans or guidelines are

unavailable. In these circumstances, judgement alone is utilized to estimate service lives

based upon service lives used by other utilities for this class of plant as well as what might

be reasonable life for this plant giving consideration to the current age and use of the

facilities.


I I

ILLINOIS-AMERICAN WATER COMPANY

Studv Results

Account 304 10 - Structures and Improvements - Source of Su~olv

The company’s investment in this account totals only $1,786,748, has attained an

average age of 3.3 years, and is presently depreciated using a depreciation rate of 5.01

percent, The majority of the account investment is related to property located at Route 88

in Peoria and Interurban River Intake plus various more limited investments at other

locations. The development of the applicable depreciation rate for this property is being

determined by life spanning the investments fifty (50) years from their principal construction

date to their applicable probable retirement year. In addition, the investment relative to the

Alton Intake was life spanned to 2000, the scheduled retirement date of the facility. In

addition, an Iowa IOO-R2, based upon an analysis of retirements totaling approximately

$4,400 during the years 1984-l 998, as well as consideration of interim retirement rates for

other structure accounts, was utilized to define the interim retirement rate anticipated to

occur prior to the final retirement of each structure. The result of applying the company’s

investment on a location basis to the Life Span Method was an implicit average service life

of 43.6 years and an average remaining life of 39.6 years.

Average net salvage is estimated at negative twenty-five (25) percent giving

consideration to the fact that the company will experience future expenditures for site

clearance and renewal at the end of the property’s useful service life. The resulting

proposed annual depreciation rate is 2.92 percent.

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AUS Consultants-Weber Fick & Wilson Division

Account 304.20 - Structures and lmorovements - Pumoing

The company’s investment totaling $6,879,212, has a current average age of 15.7

years, and is currently being depreciated using a depreciation rate of 2.56 percent.

Sizeable investment additions have occurred overthe pasttwo (2) decades resulting in the

account investment to more than triple. As with most of the company’s other structure

accounts, the implicit average service life and remaining life of this property group was

determined through the application of the Life Span Method. That is, the vintage

investment for each property location was life spanned from its principal construction date,

generally utilizing a fifty (50) year life span for each of the company’s various individual

pumping station location investments. The fifty (50) year life span is based upon the

general nature of the property group, available historical experience, consideration of

probable major future upgrades. An exception is the company’s investment relative to

Alton which was life spanned to 2000, the estimated retirement date of the facility.

Retirements totaling approximately $335,000 during the years 1984-1998 occurring

at an average age of 29.8 years were studied via the Retirement Rate Method to determine

the level of interim retirements anticipated to occur prior to the end of each property’s

useful service life. While the interim retirements have occurred at intermittent periods, they

have generally occurred over many of the recent years. The result of this analysis was the

recommended utilization of an Iowa 60-Ll interim retirement rate. The application of the

interim rate to the company’s vintage investment with the Life Span Method and estimated

probable retirement years, produces an implicit average service life of 31.7 years and an

average remaining life of 22.6 years.

4-2

AUS Consultants-Weber Fick &Wilson Division

As with most investments in Structures and Improvements, it is anticipated that the

company will experience future expenditures related to cost of removal of the facilities at

the end of their useful life, which will exceed any gross salvage received. The company

has experienced overall salvage of approaching negative eighty (80) percent in

conjunction with retirements totaling approximately $377,000 during the period 1989-1998.

Three year rolling band retirement averages have ranged from a low of approximately

negative thirty (30) percent to well in excess of negative two hundred (200) percent. Future

retirements may equally experience high costs to retire the property from service.

Accordingly, average net salvage is estimated at a modest negative twenty-five (25)

percent and when combined with the average remaining life results in an annual

depreciation rate of 4.70 percent.

Account 304.30 - Structures and Improvements - Water Treatment

The company’s current investment in this category of property is $24,280,835, has

attained an average age of 6.1 years, and is presently depreciated utilizing an annual

depreciation rate of 2.82 percent. The major facilities in this account investment include

the Interurban (East St. Louis) Treatment, Granite City, Peoria, and San Koty Treatment

Structures. The implicit average service life of this property category is developed based

upon the application of the Life Span Method to each location’s vintage investment, The

probable year of retirement for each facility was generally estimated as fifty (50) years

subsequent to the facility’s principal construction date. Given that the Alton Plant is in the

process of being replaced, the existing property investment is being life spanned to 2000,

the scheduled completion date of the new facility.

4-3

AUS Consultants-Weber Fick 8 Wilson Division

Interim retirements totaling $696,929, which occurred at an average age of 9.9 years

during the years 1984-1998, were analyzed via the Retirement Rate Method and were

utilized in the selection of an Iowa 75-RI interim retirement rate. Application of the

applicable life spans and Iowa 75-RI interim rate to each location’s investment results in

an implicit average service life of 42.2 years and an average remaining life of 37.4 years.

Due to the ongoing changes anticipated to impact the company’s investment in

treatment facilities and the need to update facilities, cost of removal is anticipated to far

exceed any salvage received. An analysis of the historical retirements during the period

1980-1989 identifies that the company has experienced average net salvage of

approximately negative eight (8) percent. However, in future years, it is anticipated that

due to increasing regulatory requirements to maintain increasingly higher standards and

the corresponding property changes, negative net salvage will likely be driven to even

higher levels. Accordingly, an average net salvage of negative ten (10) percent is

recommended in determining the current recommended annual depreciation rate of 2.58

percent for this property group.

Account 304.60 - Structures and lmorovements - Office Structures

The company’s investment in this account totals $5,290,879 and has achieved a

present average age of 11.8 years. The current depreciation rate is 4.28 percent. The

average service life and related depreciation rate for this property is estimated based upon

the application of the company’s vintage operation center on an investment location basis

using the Life Span Method. While additions to this property class were initiated during the

1930’s, many additions and/or many changes have occurred to the property group over

subsequent years. During 1989, the company added a significant investment to the

4-4


property in conjunction with construction of the Interurban Distribution Facility located

adjacent to its corporate office in Belleville. The useful service life of this asset class was

developed via the application of a forty (40) year life span from the principal construction

date of each facility to develop its applicable probable year of retirements.

Furthermore, interim retirements totaling $213,118, which occurred at an average age

of 14.0 years during the years 1984-1998, were analyzed via the Retirement Rate Method.

Based upon this retirement experience, as well as the experience of others in the industry,

an Iowa 60-R2 interim retirement rate is estimated to define the level of piece-meal

retirements related to heating, lighting, air conditioning, partitions, etc., which will occur

prior to final retirement of each facility.

The application ofthe life span approach to the company’s investment, along with the

applicable interim retirement rate and probable retirement years, produces an implicit

average service life of 34.3 years and an average remaining life of 23.8 years.

With the exception ofthe sale of the relatively young aged East St. Louis office during

1994, the level of experienced net salvage has generally been measurably negative.

Accordingly, future net salvage is estimated at five (5) percent based upon the general

historical experience and the expectation that future levels at the end of life would be

modest. Using the resulting average remaining life togetherwith theestimated net salvage

factors results in an annual depreciation rate of 2.78 percent.

Account 304.70 - Structures and Improvements - Stores, Shoe. and Garaae

The investment in this account totals $2543,991, has achieved a current average age

of 15.8 years, and is depreciated based upon a 5.29 percent depreciation rate. While the

investment in this account is comprised of various locations, a larger portion is related to

4-5


the Granite City and Peoria distribution facilities. The useful service life of the property

group was estimated based upon the application of a forty (40) year life span from the

principal construction date of each facility to develop its applicable property year of

retirement.

In addition, interim retirements totaling $104,308, which occurred at an average age

of 15.4 years during the period 1984-1998, wereanalyzed via the Retirement Rate Method.

Based upon the historical analysis, an Iowa 75-RI.5 life and curve is estimated as the

applicable interim retirement rate. Application ofthe recommended service life parameters

to the property investment produces an implicit average service life of thirty-six (36) years

and an average remaining life of 22.5 years.

An analysis of the company’s net salvage relative to past retirements indicates that

the property has experienced net salvage of more than negative forty-eight (48) percent.

While overall negative salvage levels would likely be somewhat lower than the interim

retirement experience to date, it is anticipated that the company will incur future costs in

conjunction with retirement of the existing facilities. Accordingly, future net salvage is

estimated at negative fifteen (15) percent. The resulting recommended annual

depreciation rate is 3.11 percent.

Account 304.80 Structures and lmorovements - Miscellaneous Structures

The investment in this account totals only $344,504, is depreciated using a current

annual depreciation rate of 4.79 percent, and has achieved a current average age of 13.8

years. The investment in this property group is principally related to various miscellaneous

structures.

4-6


I I I

Retirements totaling $59,094, during the period 1984-1998 which occurred at an

average age of 9.0 years, were analyzed via the Retirement Rate Method. The analysis

identifies that the property class has been experiencing an average service life of forty (40)

years. Application of the estimated Iowa 40-LO service life parameters to the surviving

investment produces an average remaining life of 32.6 years.

While the company has experienced net salvage in conjunction with a past

retirement, current expectations are that the companywill likely experience future negative

net salvage upon retirement of the modest facilities. Accordingly, future net salvage is

estimated at negative ten (10) percent. The resulting recommended annual depreciation

rate is 2.15 percent.

Account 305.00 - Collectina and lmpoundina Reservoirs

The company’s current investment in this account is $39,034, which has attained a

present average age of 9.6 years and is currently depreciated based upon an annual

depreciation rate of 2.24 percent. The current investment in this account is related to

limited investments located at the Interurban Filter Plant.

The vintage investment for each property location’s investment was life spanned fifty

(50) years from the original construction date to arrive at the respective probable retirement

year. Furthermore, an Iowa 80-Ll life and curve is estimated as the applicable interim

retirement rate for this property group. Given the ongoing increases in government

regulations, plus the further aging of the property, greater levels of interim retirements are

anticipated to occur in future years. Application of the estimated life spans to each of the

company’s property on a location basis results in an implicit average service life of 45.3

years and an average remaining life of 36.1 years.

4-7


The company experienced only limited levels of negative salvage to date, however,

future net salvage is estimated at negative ten (10) percent to recognize the anticipated

expenditures for restoration work at the end of the property’s life resulting, in a

recommended annual depreciation rate of 2.48 percent.

Account 306.00 - Lake. River and Other Intakes

The company’s present investment totaling $2,151,109 has achieved an average age

of 37.5 years. The current annual depreciation rate is 1.75 percent. A large majority of the

current surviving investment is relative to Mississippi River Intakes utilized to supply the

East St. Louis Treatment Plant. Retirements, which totaled $189,597 during the 1984-

1998 period and have occurred at an average age of 34.1 years were analyzed via the

Retirement Rate Method. Giving consideration to the available historical data, content of

the account, and likely future retirement pattern for this property, an Iowa 75-R3 life and

curve is estimated for this property group. Application of the recommended service life

parameters produces an average remaining life of 43.9 years. Future net salvage is

estimated at negative fifteen (15) percent resulting in a recommended depreciation rate of

2.04 percent.

Account 307.00 - Wells and Surinas

The company’s present investment in this account totals $651,793, has attained a

current average age of 25.1 years, and is being depreciated using a current depreciation

rate of 1.41 percent. The company’s property is related to twenty-four (24) wells located

in the Pekin and Peoria districts. Many of the well depths are in the range of 100-200 feet

and have daily yields ranging from approximately one (1) MGD to three (3) MGD.

Retirements totaling $61,349, which occurred at an average age of 35.5 years, were

4-8


analyzed via the Retirement Rate Method and is the basis for estimating an Iowa 50-R2

life and curve for this property group’s investment. Application of the recommended Iowa

service life characteristics results in an average remaining life of 35.7 years.

An analysis of historical retirement data totaling $76,754 during the period 1980-I 998

identifies that the company has been experiencing net salvage in excess of negative thirty

(30) percent. Accordingly, due to the increased stringent government regulations, average

net salvage of negative thirty (30) percent is estimated giving consideration to the fact that

the company will most likely face future obligations to expend measurable amounts of

funds to retire this category of property at the end of its useful service life. The resulting

recommended annual depreciation rate is 2.91 percent.

Account 309.00 - SUDDIV Mains

The company’s investment in this account is $3,465,212, has attained an average

age of 38.4 years, while the current depreciation rate is 1.21 percent. The available

retirements totaling approximately $92,054, which have occurred at an average age of 17.8

years, were analyzed via the Retirement Rate Method. Based upon the available data and

future expectations, an Iowa 85-R2 life and curve is estimated for the property group.

Application of the estimated Iowa 85-R2 life and curve to the company’s current surviving

investment produces an average remaining life of 54.3 years. Since any future

modifications will require some removal of existing facilities, a negative fifteen (15) percent

net salvage is estimated to cover the anticipated cost of removal. The resulting


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Account 310.00 - Power Generation Eauipment

The company’s investment in this account totals $1 ,I 98,051, has achieved a current

average age of 14.9 years, and is depreciated using an annual depreciation rate of 2.77

percent. Retirements from the account have totaled $44,081 during the period 1984-1998

and have occurred at an average age of 2.7 years.

Based upon the content of the account, age of the property and general life analysis

results, an Iowa 45-R4 life and curve is estimated as the applicable life characteristics of

the property group. Application of the service life characteristics to the current investment

produces an average remaining life of 30.4 years.

An analysis of retirements during the period 1980-1998 totaling $40,800 identified

that the property group has experienced net salvage of negative forty (40) plus percent.

Furthermore, it is estimated that the company will continue to incur measurable levels of

cost of removal in conjunction with the retirement of these facilities. Accordingly, future net

salvage is currently estimated at negative twenty-five (25) percent. The resulting


Account 311.20 - Electric Pumuina Eauiument

The present investment in this account totals $18,785,626, has attained an average

age of 12.2 years, and is presently being depreciated using an annual depreciation rate

of 2.77 percent. The company has electric pumping facilities throughout its service territory

at its various pumping stations. The company has continuously added and/or replaced

electric pumping equipment within its system having experienced an overall historical

growth rate of twelve (12) plus percent. Significant growth has occurred at various time

periods throughout the property group’s history.

4-10


Retirements totaling $1,457,669, which occurred at an average age of 18.1 years,

were analyzed via the Retirement Rate Method. Replacement of pumping plant routinely

varies over time and is typically driven by various property upgrades. Numerous additional

changes are anticipated in future years with upgrades and/or replacements occurring at

the Interurban Plant andlorother plants. Also, the Alton Plant facilities will be retired during

2000. An analysis of the historical data indicates that the property has recently been

experiencing an average service life representative of an Iowa 35-R0.5 life and curve.

Giving consideration to the historical information plus consideration of the pending future

changes to the company’s pumping equipment, an Iowa 35-R0.5 life and curve is

estimated for the property category. Application of the recommended service life

parameters to the company’s investment results in an average remaining life of 27.8 years.

Retirements totaling more than $1.6 million, which occurred during the period 1980-

1998, identified that the company has routinely experienced negative net salvage in

conjunction with retirements. Net salvage during the overall period has averaged

approximately nineteen (19) percent while various annual averages have far exceeded

negative one hundred (100) percent. Furthermore, due to the need to remove the facilities

at the end of their useful life, future net salvage is estimated at negative twenty (20)

percent. The resulting proposed annual depreciation rate is 3.20 percent.

Account 311.30 - Diesel Pumpinq Eauipment

The company’s investment in this account is only $918,440 and has an average age

of 18.0 years while the present annual depreciation rate is 4.16 percent. Retirements

totaling $193,427 during the period 1984-1998 occurred at an average age of 8.9 years

from this property group. Giving consideration to the age and content of the account

4-l 1


investment, as well as the available historical data, an Iowa 40-R2 life and curve is

estimated for this property class. Application of the recommended Iowa 40-R2 service life

parameters to the company’s investment results in an average remaining life of 25.7 years.

Average net salvage for the property group is estimated at negative ten (10) percent and

when combined with the resulting average remaining life produces a recommended annual

depreciation rate of 2.26 percent.

Account 311.50 - Other Pumoinq Eauipment

This account investment totals $53,342, has attained an average age of 43.7 years,

and is depreciated using an annual depreciation rate of 13.26 percent. The use of an

estimated Iowa 45-R3 life and curve together with the company’s property produces an

average remaining life of 10.4 years. Future net salvage is estimated at negative ten (10)

percent and the resulting annual depreciation rate is 14.29 percent.

Account 320 - Water Treatment Eauioment

The company’s current investment in sub Account 320.10 - Water Treatment

Equipment totals $23,348,961, has achieved a current average age of 19.2 years, and is

being depreciated using the composite annual depreciation rate of 3.91 percent. The

company’s water treatment equipment is comprised of various Water Treatment Plants

along with applicable Chemical Treatment Equipment.

The annual depreciation rate for Water Treatment Plant Equipment is being

developed via the application of the Life Span Method. The implicit average service life

and remaining life is generally developed via the use of a fifty (50) year life span from the

principal construction date of each facility’s investment to determine an applicable probable

retirement years. The company is in the process of constructing a new treatment plant to

4-12

AUS Consultants-Weber FM & Olson Division

replace the existing facility at Alton. Accordingly, the existing plant investment is being life

spanned to 2000, the scheduled completion date of the new facility.

In addition, retirements totaling $3,212,190, which occurred at an average age of22.1

years during the period 1984-1998, were analyzed via the Retirement Rate Method. A

review of the historical data identifies that while the historical activity has varied ongoing

additions and replacements have generally occurred over the life of the property account.

Based upon an analysis of the data and an anticipation of further future upgrades, an Iowa

50-LO.5 life and curve is estimated as the applicable interim retirement rateforthis property

investment category. Application of the recommended service life parameters to the

current investment produces an implicit average service life of 27.3 years and an average

remaining life of 15.9 years.

Retirements totaling more than $3.9 million occurred during 1980-1989 and were

analyzed to identify the level of experienced net salvage. Net salvage during the

experience band was continuously negative and averaged more than negative forty (40)

percent. While future retirements of the various plant investments may not all experience

such levels, it is anticipated that the company will continue to experience high levels of

negative salvage as it improves and/or replaces facilities. Based upon the range of

experience incurred in conjunction with large historical retirements, future net salvage is

currently estimated at negative thirty (30) percent. Utilization of the recommended life and

salvage factors produces a recommended 5.97 percent annual depreciation rate.

The current surviving investment in sub Account 320.20 Chemical Treatment

Equipment totals $10,506,440, has achieved an average age of 5.6 years, and is currently

depreciated using the company’s current composite depreciation rate of 3.91 percent.

4-13


The company’s experienced retirements, which totaled $668,353 during the period

1984-1998 and occurred at an average age of 17.1 years, were studied via the Retirement

Rate Method. Based upon a consideration of the account content, the age of the property,

the available historical data, an Iowa 14-SO.5 life and curve is estimated as the applicable

service life parameters for this property class. Application of the applicable service life

parameters to the property’s investment produces an average remaining life of 11.4 years.

The historical analysis of the overall treatment equipment group identified negative

net salvage in excess of negative forty (40) percent. In fact, various years’ interim net

salvage exceeded negative one hundred (100) percent. Conversely, it is estimated that

in conjunction with the final retirement of the Alton Treatment scheduled for 2000, the

company anticipates incurring approximately negative ten (10) percent net salvage.

Based upon the study data analysis results, it is estimated that approximately fifty

(50) percent of the original cost of the facilities will be replaced through interim retirements

and additions by the time that each property’s estimated probably retirement year. The

remaining fifty (50) percent would be retired at the end of each facility’s life. Accordingly,

future net salvage for this property group is estimated at negative thirty (30) percent by

weighting fifty (50) percent of the property relative to future final retirements at negative ten

(10) percent and fifty (50) percent of the property relative to future interim retirements at

negative fifty (50) percent. The resulting proposed annual depreciation rate is 7.60

percent.

Account 330 - Distribution Reservoirs and StandDiDeS

The company’s present investment in this account totals $5,989,965 and has

achieved an average age of 19.9 years. The current annual depreciation rate is 1.47

4-14


percent, The account contains investments related to more than thirty (30) storage

facilities ranging in size from 100,000 gallons upwards to five (5) million gallons or greater

capacities. A large portion of the facilities are of steel construction and are in the range of

one (1) to two (2) million. Interim retirements that have totaled $34,197 during the period

1984-1998 and have occurred at an average age of 17.7 years were analyzed by the

Retirement Rate Method. Based upon the analysis of an interim retirement rate of an Iowa

90-R2 life and curve is estimated for the property group’s investment. Based upon the

general content of the account, the company’s overall retirement experience for this

property class, as well as consideration of lives utilized for this property category, each

location’s investment was generally life spanned fifty-five (55) years from its principal

construction date to develop an applicable probable retirement year. Application ofthe life

span to each of the location’s investments results in an implicit average service life of 51.8

years an average remaining life of 33.6 years.

During the period 1980-1998, the company has consistently experienced salvage in

conjunction with retirements. Relative to retirements totaling approximately $267,000, it

has averaged negative seventeen (17) percent net salvage. Furthermore, in conjunction

with the future retirement of facilities from the category it is anticipated that the company

will likely experience expenditures in excess of salvage resulting in future negative net

salvage. The anticipated occurrences, along with the company’s available experience to

date, is the basis of the estimated negative fifteen (15) percent net salvage for the account.

The resulting proposed annual depreciation rate is 2.46 percent.

4-15


I

The company’s investment in this account totals $112,420,988 and has attained an

average age of 18.9 years for which the company’s is currently utilizing an annual

composite depreciation rate of 1.95 percent. In order to identify the applicable service life

parameters for the discrete property components which make up the overall account

investment, the property group was segregated into numeroussub-categories by grouping

the facilities into general type and size categories. The categories studied included Mains

detailed by Cast Iron and Ductile Iron, Asbestos Cement, Steel, Concrete, Copper, Plastic,

Valves, and Valve Boxes plus Manholes, Pits, and Vaults. The pipe and valves were

further segmented into size groupings which included 4 Inch and Under, 6-8 Inch, IO-16

Inch, and 18 Inch and Over. While a sizeable portion of the company’s investment in

mains is attributable to cast and ductile iron, measurable quantities of Asbestos Cement

and Concrete pipe have also been installed.

Based upon an analysis of the historical data, it is identified that the various classes

of property routinely exhibit different life characteristics. Furthermore, the company has

an ongoing program to replace mains of smaller diameter and/or mains that have corrosion

or multiple failures causing customer service interruptions.

The following is a summary of the categories studied with the surviving original cost,

the recommended average service life parameters, and the resulting average remaining

life.

4-16


ILLINOIS-AMERICAN WATER COMPANY

Account 331 - Transmission and Distribution Mains

Prooertv Grouu

Plant In Service 12-31-98

Cl & DI, 4” & Under $4596,082 Cl & DI, 6”-8” 38,349,910 Cl & DI, IO”-16” 32,908,838 Cl & DI, 18’ & Over 9,074,901 ASB Cement, 4” 8 Under 27,809 ASB Cement, 6”~8” 10,670,809 ASB Cement, IO”-16” 3,663,321 Steel, 4” & Under 236,947 Steel, W-8” 3,474 Steel, IO”-16” 373,591 Steel, 18” & Over 763,210 Concrete, 1 W-16” 170,589 Concrete, 16” & Over 3,571,598 Copper, 4” & Under 303,383 Plastic, 4” & Under 730,947 Plastic, W-8” 633,007 Plastic, IO”-16” 76,895 Valves, 4” & Under 372,150 Valves, 6”-8” 2,667,282 Valves, 1 W-16” 1,325,942 Valves, 18” & Over 1,053,554 Valve Boxes 832,909 Manholes, Pits &Vaults 13.841

Total $112,420,988

Cast and Ductile Iron

Average Service

Life Iowa Gun/e

Average Remaining

Life

65 RI.5 38.5 95 R2.5 80.9 95 R2.5 82.7

105 R4 83.9 50 R3 23.6 85 R3 58.4 85 R2.5 60.7 45 RI 11.0 50 R2.5 26.8 90 R3 70.9 95 R3 69.5 95 R4 56.0

100 R4 66.1 70 R3 58.9 80 R3 60.8 80 R3 65.7 85 R3 63.4 50 R2 36.3 60 R3 45.2 60 R3 47.6 60 R3 45.1 60 R3 43.8

100 R3 74.5

71.9

The company’s current investment in 4 Inch and Under Cast and Ductile Iron Mains,

which totals $4,596,082, has attained a current average age of 37.6 years. The growth of

this property group investment has been relatively modest, since for many of the recent

years, retirements more or less being equal to replacements or new additions.

4-17


Furthermore, the company is spending approximately $750,000 peryearto eliminate small

diameter mains. An analysis of the group’s retirements totaling $365,433 during the

period 1984-1998, which occurred at an average age of 39.6 years, was completed via the

Retirement Rate Method. This analysis produced a sixty-five (65) year service life

indication. Based upon the historical analysis plus giving weight to the increased focus on

replacing small diameter mains having excessive corrosive failures, an Iowa 65-RI.5 life

and curve is currently recommended. Application of the recommended service life

parameters produces an average remaining life of 47.0 years.

The company’s investment in the 6-8 Inch Cast and Ductile Iron mains category,

which totals $38,349,910, has generally experienced annual growth in annual additions in

the range of six (6) to nine (9) percent per year over the last decade with somewhat lower

growth during the 1960’s to 1980’s. Overall the account has experienced average annual

growth of more than eight (8) percent. The current average age of the property group

investment is 15.8 years. Retirements totaling approximately $533,689, which occurred

at an average age of 27.0 years, were analyzed via the Retirement Rate Method. This

analysis identifies that the annual level of retirements have routinely ranged from under

$10,000 upwards to more than $100,000 per year and averaged approximately $35,000

per year. More recent years’ retirement activity has been occurring at higher levels and

somewhat younger ages. Based upon the available historical data, an approximate ninety-

five (95) year life is indicated for this property group. Giving consideration to the growing

level of retirements, the general life utilized for this category by others, and the company’s

continued review of its mains concerning excessive corrosive failures, etc., an Iowa 95-

4-18


R2.5 life and curve is recommended to be utilized for this property group. The resulting

average remaining life is 80.9 years.

The company’s investmenttotaling $32,908,838 for IO-I 6 Inch Cast and Ductile Iron

mains has experienced an annual growth rate of nearly ten (10) percent over the life of the

property group. The present average age of the account investment is 13.7 years. The

level of annual addition growth over the recent decade or more and has varied having

range between four (4) and nineteen (19) percent on an annual basis. Retirements totaling

$241,696, which occurred during the period 1984-1998 at an average age of 30.5 years,

were analyzed via the Retirement Rate Method. The analysis results togetherwith general

industry information is the basis for the recommended utilization of an Iowa 95R2.5 life

and curve for this property group. The average remaining life of this property group is 87.2

years.

The company’s investment related to 18 Inch and over Cast and Ductile Iron mains

totals $9,074,901 and has achieved an average age of 21.6 years. Due to the more limited

utilization of these larger sized mains, additions to this class of property have varied widely

over the history of the group. Likewise, the level of retirements has also varied from year

to year. Retirements of this class of plant during the period 1984-1998 have totaled

$44,127 and have occurred at an average age of 62.0 years. Based upon the available

data and lives utilized by others in the industry, an Iowa 105-R4 life and curve is estimated

as the applicable service live parameters and the remaining life is 83.9 years.

Asbestos Cement

The company’s investment in 4-Inch and Under Asbestos Cement Mains totals only

$27,809. Few additions have been placed into service over the history of this account,

4-19


accordingly, the average age of the surviving property is 29.0 years. Retirements of

property from this asset class have totaled $5,048 which occurred at an average age of

39.0 years. Giving consideration to the limited experience and the account content, an

Iowa 50-R3 life and curve is estimated and when applied to the surviving asset investment


The company’s surviving investment relative to 6-8 Inch Asbestos Cement Mains

totaling $10,670,809 has achieved an average age of 28.2 years. Retirements during the

period 1984-1998 have totaled $162,734 and occurred at an average age of 22.9 years.

An analysis of the historical data via the Retirement Rate Method provides a basis for an

estimated Iowa 85R3 as the applicable service life parameters for this property group.

The resulting average remaining life is 58.4 years.

The current surviving investment for IO-16 Inch Asbestos Cement Mains totals

$3,663,321 which has attained a current average age of 27.0 years. As with other sizes

of Asbestos Cement Mains, the company has not installed this class of pipe since 1986.

Retirements from this property group have totaled $111,742 during the period 1984-1998

and occurred at an average age of 22.7 years. While the property group retirement activity

has varied from year to year, due to the more limited investment, the available historic data

was analyzed via the Retirement Rate Method which produced an estimated eighty-five

(85) year life indication for this property class. Application of the recommended 85-R2.5

life and curve to the company’s surviving investment produces an average remaining life

of 60.7 years.

4-20


The company’s investment in 4-Inch and Under Steel Mains totals $236,947 and has

achieved an average age of 61.0 years. The company has and will continue to

aggressively replace this class of pipe given its small size and susceptibility to deterioration

because of corrosion. The historical retirement data totaling $96,789 during the period

1984-l 998 and occurring at an average age of 43.2 years was analyzed via the Retirement

Rate Method. Based upon an analysis of historical retirements, the current property age,

and consideration of the company’s replacement effort, an Iowa 45-RI life and curve is

estimated as the applicable service life parameters. The resulting average remaining life

is 11 .O years.

The current investment in IO-16 Inch Steel Mains totaling $373,591 has attained a

current average age of 19.8 years. Retirements of this property class have been limited

to date. However, given the property’s somewhat higher susceptibility to corrosion and/or

other deterioration than cast or ductile iron, a modestly shorter life of ninety (90) years is

estimated for this property class. Application of the Iowa 90-R3 life and curve to the


The investment in 18-Inch and Over Steel Mains totals $763,210. The current

average age of the property group is 27.0 years. The property has been installed

intermittently over the years and no retirements have occurred in recent years. An Iowa

95-R3 life and curve is estimated as the applicable life forthe asset class and the resulting

average remaining life is 69.5 years.

4-21

AUS Consultants-Weber Fick & Wtlson Division

Concrete

The investment in 1 O-16 Inch Concrete Mains totals only $170,589 and has a current

average age of 39.6 years. An Iowa 95-R4 life and curve is estimated as the applicable

life which results in a 56.0 year average remaining life.

The company’s investment related to 18 Inch and Over Concrete mains totals

$3,571,598 and has achieved a current average age of 34.4 years. Additions to this

property category have been intermittent as have been the occurrence of property

retirements. Retirements have totaled approximately $133,193 and have occurred at an

average age of 39.2 years. Based upon the property contained in the account and

consideration of the analysis results relative to the available limited data, an average

service life of an Iowa 1 OO-R4 is estimated for this asset group and the average remaining

life is 66.1 years.

Coooer

The current surviving investment insInch and Under Copper Mains totals $303,383

and has achieved an average age of 11.8 years. While the property group investment is

limited, the company has continually added various additional investments over recent

years. Due to the young age of the plant, retirements have been limited totaling only

$3,303 which occurred at an average age of 26.2 years. Giving consideration to the

analysis results of the available historical data via the Retirement Rate Method which

produced a life indication of seventy (70) years, and property content, an Iowa 70-R3 life

and curve is estimated for the property class. The resulting average remaining life is 58.9

years.

4-22


The current investment in 4 Inch and Under Plastic mains totals $730,947 and has

attained an average age of 20.9 years. Retirements totaling $13,556 have occurred at an

average age of 11 .I years, Based upon the limited investment, property expectations, and

service life used by others, an Iowa 80-R3 life and curve is estimated for the property

category. The average remaining life of this property is 60.8 years.

The investment relative to 6-8 inch Plastic mains totals $633,007 and has achieved

an average age of 15.1 years. Accordingly, the level of historical data is limited, given that

retirements have totaled only $19,270 and occurred at an average age of 24.0 year. While

plastic pipe is a quality material that is widely utilized in many environments, it is more

susceptible to damage due to construction, stress, etc. than cast and ductile iron. Further,

analysis of water industry property for other companies has likewise identified shorter

useful life for plastic pipe. Accordingly, an Iowa 80-R3 life and curve is estimated for this

property group and when applied to the current investment produced an average remaining

life of 65.7 years.

The investment relative to IO-16 Inch Plastic pipe totals only $76,985 and has

attained an average age of 22.5 years. Since no retirements have occurred to date,

historical data is unavailable for life analysis for this property. Based upon the future life

expectancy of the property class service lives used by others for like property, an Iowa 85-

R3 life and curve is recommended. Application of the proposed service life parameters to

the current investment results in an average remaining life of 63.4 years.

4-23


Valves

The current investment relative to 4-Inch and Under Valves totals $372,150, has

achieved a current average age of 16.9 years. Retirements totaling $36,705, which

occurred at an average age of 26.5 years during the period 1984-1998, were analyzed via

the Retirement Rate Method which provided the basis of the estimated 50-R2 life and

curve for the property group. Application of the service life characteristics produces an

average remaining life of 36.3 years.

The company’s investment in the 6-8 Inch Valves property group totals $2,667,282,

which has attained a current average age of 15.9 years. The additions to the property

group have been relatively uniform throughout recent years. Retirements during the period

1984-1998 have totaled $58,911 and have occurred at an average age of 26.9 years,

Retirement levels have generally been increasing during more recent years. An analysis

of the data forthe 1984-l 998 experience band generally produced an indicated service life

of sixty (60) years. Giving consideration to the historical experience, as well as the

company’s effort to continue maintaining its facilities, an Iowa 60-R3 life and curve is

estimated for this property group. The result of applying the service life parameters to the

company’s current investment is an average remaining life of 45.2 years.

The present surviving investment for IO-16 Inch Valves totals $1,325,942. The

current average age of the surviving gross additions, which have been steadily growing

over the history of the account, is 13.2 years. Likewise, retirements totaling $32,410 have

also occurred continuously over the company’s experience band. Retirements during the

period 1984-1998, which occurred over the period at an average age of 27.6 years, were

analyzed via the Retirement Rate Method produced a service life indication of sixty (60)

4-24


years. Giving consideration of the historical experience plus the ongoing need to maintain

the facilities, an Iowa 60-R3 life and curve is recommended for this property group. The

resulting average remaining life is 47.6 years.

The investment in 18-Inch and Over Valves totals $1,053,554 and has a current

average age of 16.0 years. The level of additions has generally increased in recent years

along with the higher growth of large diameter mains. Retirements totaling $46,258, which

occurred overthe history ofthe account during 1984-1998 at an average age of 23.7years

were analyzed via the Retirement Rate Method. Based upon the results of the analysis,

an Iowa 60-R3 life and curve is estimated for the property group. Application of the

estimated service life parameters to the company’s investment produces an average

remaining life of 45.1 years.

Valve Boxes

The company’s Valve Box investment totals $832,909, were originally installed

during the period since the late 1930’s and have a current average age of 17.6 years.

Retirements from this category have totaled $24,169 and occurred at an average age of

24.7 years. Based upon an analysis of the company’s historical retirement data via the

Retirement Rate Method, an Iowa 60-R3 life and curve is recommended as the property’s

useful service life. The resulting remaining life is 43.8 years.

The investment in Manholes, Pits 8 Vaults totals $13,841 and is currently 27.0 years

of age. An insufficient level of retirements has occurred to complete a historical analysis.

Based upon the content of the account, an average service life of one hundred (100) years

is estimated and when applied (Iowa IOO-R3) to the current surviving investment results

in an average remaining life of 74.5 years.

4-25


I

Mains Salvaqe

Salvage experienced during the period years 1980-1998 for most years was

significantly negative. However, during several years, namely 1980,1990,1992, and 1993,

the company experienced higher levels of gross salvage which was principally related to

large highway relocation projects. While various highway projects will continue to occur

from time to time, the overwhelming majority of the company’s mains will not be impacted

by this factor. Notwithstanding the levels of gross salvage for selected years, the

company’s overall net salvage relative to $2.4 million of retirements during the period 1980-

1998 was an average net salvage of nearly negative thirty-two (32) percent, Recent years

have routinely experienced salvage in the range of negative fifty (50) percent or more. It

is expected that negative salvage will routinely be experienced by the company’s mains

property when retired from service. Even though the majority of mains retired are

abandoned in place, all property must be disconnected from the existing distribution

system when removed from service at the end of its life. Such requirements will routinely

result in cost of removal expenditures, and resulting negative net salvage, which far

exceeds any salvage received for reclaimed materials, etc. Based upon the company’s

past experience and expectation of higher levels of negative net salvage, more typical of

the company’s recent years experience, average net salvage is estimated at negative forty

(40) percent. Utilizing the recommended applicable service lives and salvage factors for

each property category produces a remaining life depreciation rate for this account is 1.64

percent.

4-26


Account 333.00 - Services

The company’s investment in this account totals $35,282,323 and is comprised of

Services - I-Inch and Under totaling $31,864,109 and Services - Over I-Inch totaling

$3,418,215. Typically, the smaller diameter Services serve residential, as well as smaller

commercial customers, while the larger diameter Services serve large commercial and

industry-type customers.

The company’s present investment for Services - I-Inch and Under, which has a

present age of 18.3years, totals $31,864,109. The currentdepreciation rate utilized by the

company for this property group is the company’s composite account-level depreciation

rate of 3.84 percent. The annual investment growth of this property class has generally

occurred in the range of four (4) to six (6) percent per year for the last three (3) plus

decades.

Likewise, the retirements overthe 1984-l 998 experience band ofthe property group

have occurred continuously and at a relatively constant rate. An analysis ofthe retirements

totaling $820,719, which occurred at an average age of 30.3 years during the period

1984-1998, were analyzed using the Retirement Rate Method. This analysis produced a

general life indication in the range of seventy-five (75) plus years. Increasing retirement

levels are anticipated in future years. Giving consideration to the analysis results relative

to the available data and expectation of increasing retirements in future years as this

property continues to age, an Iowa 75-R3 life and curve is currently recommended for this

asset investment category. Application of the recommended Iowa 75R3 life and curve

service life parameters to the company’s investment results in a remaining life of 58.0

years.

4-27


The company’s present investment relative to Services - Over I-Inch totals

$3,418,215 and the current average age is 17.6 years. During past years, the growth of

additions has occurred in the range of four (4) to six (6) percent.

Retirements during the period 1984-1998 totaled $80,439 and occurred at an

average age of 25.3 years. An analysis of the historical data via the Retirement Rate

method provided the basis for an average service life estimate of seventy (70) years.

Application of the estimated Iowa 70-R3 life and curve to the surviving vintaged

investments produces an average remaining life of 53.7 years.

A review of the approximately $1,343,006 of retirements and related experienced

net salvage during the period 1980-I 998 identifies thatthis property group has experienced

average net salvage in excess of negative four hundred-fifty (450) percent. Only two (2)

years during the period 1980-1998 experienced net salvage less than negative four

hundred (400) percent, Accordingly, a conservative negative three hundred (300) percent

net salvage is the estimated future net salvage relative to the company’s Services

investment. The resulting recommended annual depreciation rate for Services - I-Inch and

Under is 6.44 percent and for Services - Over I-Inch is 6.94 percent.

Account 334.00 - Meters and Meter Installations

To analyze the various asset components included in this property account, the

company’s investments have been segmented into Meter and Meter Installation

classifications. Furthermore, the Meter Installations have been segmented into

Installations - I-Inch and Under and Over I-Inch and Vaults. Likewise, the Meter

investments have been segmented by Metal Meters - I-Inch and Under, Metal Meters -

Over I-Inch, and Plastic Meters.

4-28


Meter Installations

The company’s investment for Meter Installations totals $12,690,820 of which

$10,223,931 is relative to Account 334.21 - Meter Installations - I-Inch and Under,

$1,455,233 is related to Account 334.22 -Meter Installations -Over I-Inch, and $1 ,011,656

is applicable to Vaults. Currently, the account investment is being depreciated using the

annual depreciation rate of 5.07 percent.

The company’s investment relative to Account 334.21 - Meter Installations - I-Inch

and Under totaling $10,223,931 has achieved a current average age of 17.6 years. The

company’s historical retirement data totaling $177,490 relative to this asset class, which

occurred during the 1984-l 998 period at an average age of 38.4 years, was analyzed via

the Retirement Rate Method. Based upon the analysis of the available data and

consideration of the property group, an average service life of seventy-five (75) years is

estimated for the property. Application of the estimated Iowa 75-R3 service life

characteristics to the current investment produces an average remaining life of 58.6 years.

The company’s investment for Meter Installations - Over I-Inch totals $1,455,233,

has a current average age of 14.2 years, and is depreciated using an annual depreciation

rate of 5.07 percent. Retirements totaling $66,911, which occurred at an average age of

11.9 years during the period 1984-1998, were analyzed via the Retirement Rate Method.

This historical data indicated that while additions have continued to be added during each

year, retirements have declined somewhat in recent periods. It is expected that various

levels of unrecorded retirements may exist with regard to this property. Consideration of

the retirement data and the general content of the property group provides the basis for an

estimated seventy-five (75) year average service life. Application of the estimated Iowa

4-29


75RI 5 life and curve to the surviving property produces an average remaining life of 64.0

years.

The company’s investment in Meter Vaults totals $I,01 1,656 and the current

average age of the property group investment is 12.8 years. While additions have

generally continuously occurred throughout recent years, retirements have occurred

intermittently and have been limited. Retirements totaling $12,264 during the years 1984-

1989 have occurred at an average age of 23.4 years. Giving consideration to the

retirement rate analysis results and general content of the property group, an Iowa 95-R2.5

life and curve is estimated for the property class. The resulting average remaining life is

83.5 years.

An analysis of historical retirements during the period 1980-1998 totaling $349,413

and related net salvage identifies that measurable levels of negative net salvage have

been experienced. Net salvage experience has ranged between negative 300500 percent

during numerous recent years and averaged approximately three hundred eighty (380)

percent during the 1980-1998 period. Future net salvage is conservatively estimated at

negative two hundred-fifty (250) percent and the resulting annual depreciation rate is 5.17

percent for Meter Installations - I-Inch and Under, 4.98 percent for Meter Installations -

Over I-Inch, and 3.88 percent for Meter Vaults. The overall composite depreciation rate

relative to Meter Installations is 5.05 percent.

Meters

The company’s present investment relative to Metal Meters - I-Inch and Under totals

$6,132,019 and is currently being depreciated using an implicit composite annual

4-30


depreciation rate of 3.68 percent while the current average age of the Metal Meters - I-Inch

and Under is 5.0 years.

Retirements totaling $I,86551 8 have occurred at an average age of 17.5 years from

this property group during the period 1984-1998. The company has an ongoing program

to convert its existing meters to Touch Pad Meters. Under this program, any meter twelve

years old is retired plus meters requiring return to stores are subject to retirement. An

analysis of the company’s investment data indicates that for the overall (19751995)

experience band, as well as during more recent years, this meter investment category has

been achieving an average service life of eleven (11) years. Based upon the company’s

experience and future expectations, an Iowa 1 l-R3 life and curve is recommended as the

service life for Meters - I-Inch and Under. Application of the recommended Iowa 1 l-R3

service life parameters to the company’s investment produces an average remaining life

of 6.9 years.

The company’s current investment for Metal Meters - Over I-Inch is $754,471, has

attained a current average age of 5.9 years, and is currently depreciated using an annual

depreciation rate of 3.68 percent. An analysis of retirements relative to this property

category totaling $589,914 occurring during the period 1984-1998 at an average age of

14.6 years, was completed using the Retirement Rate Method. This analysis identifies that

while the retirements have been continuous, they have varied from year to year. Based

upon the historical data, the life indication produced via the life analysis was ten (10) years.

Application of the estimated Iowa IO-RI.5 service life parameters to the company’s


4-31

AUS Consultants-Weber Fick & Olson Division

The company’s investment in Plastic Meters totals $306,758, has attained a current

average age of 14.0 years, and is being depreciated using an annual depreciation rate of

13.25 percent. The company no longer installs Plastic Meters and has been rapidly

replacing them in past years. The limited remaining meters are scheduled for replacement

over the near term.

Retirements totaling $2,492,763 have occurred at an average age of 9.8 years

during the 1984-1998 experience band. Based upon an analysis of the historical

retirement data via the Retirement Rate Method, an Iowa 1 O-R2 life and curve is estimated

for the property class. Application of the service life parameters to the surviving investment


A review of retirements totaling approximately $5.6 million during the period

1980-1998 indicates that the company has experienced overall average net salvage of

approximately seven (7) percent. However, during the more recent period, the experienced

net salvage has declined significantly with the result that recent overall rolling three-year

average experience (1990-1998) has been in the range of one (1) to three (3) percent net

salvage. Recent experience relative to Metal meters has been in the range of four (4)

percent and approximately one (1) plus percent for Plastic meters. Based upon the review

of the company’s experienced net salvage experience, future net salvage is estimated at

five (5) percent for Metal meters and one (1) percent for Plastic meters.

The resulting recommended annual depreciation rate is 14.23 percent for Meter

Meters - I-Inch and Under and 16.40 percent for Metal Meters - Over I-Inch. The

proposed composite depreciation rate for Metal Meters is 14.47 percent. By comparison,

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iowa io-r3 survivor curve. - icc.illinois.gov

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