Background of the Invention A serious concern exists today regarding aging water system infrastructure.

Sudden breaking of aging pipelines creates serious disruptions to modem life, especially in larger cities. For example, when a waterline broke in New York City in 1998, the line break caused a street to cave-in and a gas pipeline to break, resulting in a street fire, loss of access to local businesses near the pipeline breaks, and loss of city operational funds.

Another negative impact of aged water system infrastructure is nonvisible leaking. The U. S. Department of Energy estimates that losses from pipeline leaks and breaks range between 15 and 25% of system use. The American Water Works Association published an estimate of waterline leaks in the state of California of 250,000 acre feet (325,000 gallons per acre foot) of water. At the cost of $150 per acre foot in California's Central Valley, this lost water was valued at $37.5 million per year.

Nonvisible leaks are also detrimental to ensuring the safety of a water supply.

With aged distribution infrastructures that leak and introduce contaminants to water through holes, safe water cannot be reliably obtained.

Thus, water pipelines, like any other pipeline systems, need to be repaired or replaced in a timely fashion before they break. In general, the useful life of a typical water pipeline is around 40 years. An American Water Works Association study

estimates that it will require $325 billion in funding to address water system infrastructure needs in this country over the next 20 years to repair/replace water pipelines that are already at or beyond their useful life.

Unfortunately, however. large sums of money to fund pipeline restoration simply are not available to mans water pipeline operators (typically municipalities or public institutions). As a result. many water pipeline operators are forced to defer replacing those pipelines that are at or beyond their useful life. Conventional wisdom, in the water supply industry, is to address this deferment problem by replacing pipelines as needed.

Typically, if a water pipeline experiences frequent leaks, elaborate mathematical models can be developed that take into consideration where the pipeline breaks have occurred.

These models are used to track location and frequency of pipeline breaks. For the most part. based on empirical data thus obtained, water pipelines are scheduled for replacement. This method. however, is often incapable of accurately determining which pipelines. or sections thereof, are truly nonserviceable and, thus, need to be replaced.

Thus, each year miles of water pipelines are dug up and replaced at significant cost, oftentimes only to reveal that major sections of the pipelines replaced are still in good condition and fully serviceable for decades to come.

In summary, pipeline operators are facing significant financial and operational challenges: they must repair and/or upgrade the aging water supply infrastructure, while meeting current needs for a supply of safe water, without exceeding their budgets and without implementing significant rate increases. Ratepayers do not want rate increases, and taxpayers are becoming more reluctant to pass bond issues to finance repair and/or replacement of waterlines.

A need exists for a method that allows a pipeline operator to meet such challenges and to systematically address capital and repair needs of the aging pipeline infrastructure with guaranteed serviceability or performance that results in cost savings. Performance is defined as a measure of serviceability that results in extended pipeline operational life with minimized risk of failure.

Summary of the Invention The method of the present invention guarantees performance that results in capital cost avoidance and operational and repair cost savings to a pipeline operator, such as a municipality or public institution, by guaranteeing successful performance of the pipeline for a predetermined period of time. The method generally involves a pipeline operator that owns and manages a pipeline system, and a pipeline service company that produces cost savings through guaranteed pipeline performance to the pipeline operator.

In accordance with a preferred embodiment of the present invention, first, the pipeline service company inspects the pipeline owned by the pipeline operator. The pipeline service company then analyzes the inspection results with the aid of a computer

to determine what repairs and upgrades are needed for the pipeline. The pipeline service company thereafter conducts an economic analysis, which includes comparing the costs of needed repairs and upgrades to the avoided capital cost of replacement plus operational savings that could derive from the repairs and upgrades in the long run. If the savings resulting from guaranteed performance after the repairs and upgrades sufficiently exceed the costs of the repairs and upgrades, pipeline performance resulting in savings can be guaranteed by undertaking the repairs and upgrades. Then, to finance the repairs and upgrades and a guaranteed performance of the pipeline, the pipeline service company, or a third-party financier, enters into a lease agreement with the pipeline operator. Under the agreement, the pipeline operator, or the third-party financier, leases the repairs and upgrades of the pipeline to the pipeline operator and also provides a guarantee that the pipeline will perform successfully for a predetermined length of term.

Thereafter, the pipeline service company arranges for the repairs and upgrades, and arranges for insuring the guarantee. After all the repairs and upgrades are completed and the guarantee is arranged, the pipeline operator starts making lease payments to the pipeline service company or the third-party financier. whoever financed the lease.

In accordance with one aspect of the present method, the pipeline service company arranges for the guarantee by securing an insurance policy against future pipeline breaks. Depending on the frequency of pipeline breaks, the pipeline operator will receive payment to cover the cost of repairing or replacing the pipeline from the pipeline service company or from the insurance proceeds.

In accordance with another aspect of the present method, the pipeline system is a water pipeline system. The initial inspection of the pipeline is conducted using remote field eddy-current-based equipment, and the inspection results are analyzed using diagnostic software to accurately assess the current condition of the pipeline.

The present method does not require that significant initial costs be borne by a pipeline operator ; a pipeline operator begins making payments for the repairs, upgrades, and the guarantee only after the repairs and upgrades are completed and the guarantee is arranged. Thus, the present method is readily feasible for many pipeline operators who have only limited funds at hand. Further, since pipeline performance resulting in cost savings is guaranteed under the present method, a pipeline operator is able to make payments for the repairs, upgrades, and the guarantee from the realized savings.

By proactively and preemptively repairing and upgrading an aging pipeline system, the method of the present invention significantly improves the efficiency of the pipeline system in the long run, and ensures continued access to safe water for consumers.

Brief Description of the Drawings The foregoing aspects and many of the attendant advantages of this invention will become more readily appreciated by reference to the following detailed description, when taken in conjunction with the accompanying drawings wherein: FIGURES 1A and 1B jointly form a flow diagram illustrating the steps of the present method of guaranteeing performance of a pipeline system.

Detailed Description of the Preferred Embodiment The invention provides a method of guaranteeing successful performance of a pipeline for a predetermined period of time, which results in avoided capital replacement costs and operational and repair cost savings, to a pipeline operator, such as a municipality or a public institution. The method generally involves two parties: a pipeline operator that owns and manages a pipeline system, and a pipeline service company (hereinafter PSC) that guarantees pipeline performance to the pipeline operator.

The pipeline service company provides a technology-based performance guarantee and may also serve as a financier of the guarantee. The PSC may additionally provide the repairs and upgrades of the pipeline as a general contractor in partnership with a subcontractor. as more fully described below.

In the following description, the present method will be described with respect to water pipeline performance guarantee and resulting cost savings. It should be understood. though, that the present method may be applied with any other types of pipeline systems to guarantee successful performance. Such other pipelines may be for oil. sewer, Lias. steam, or other fluid.

FIGURES 1A and 1B illustrate a flowchart illustrating the steps of the present method. In block 2, a PSC enters into a contract with a pipeline operator for inspection of the pipeline and analysis of needed repairs and upgrades. The contract preferably specifies that the PSC will conduct the inspection and the analysis on a fixed fee or unit price basis. typically on a cost per linear foot basis.

Based on the contract thus entered into, in block 4, the PSC inspects the pipeline to assess its current conditions. Inspection of the pipeline, in particular detection of pipeline defects, may be performed using suitable detection equipment. One type of equipment especially suitable for inspecting a pipeline is a remote field eddy-current (RFEC) based hardware. Those skilled in the pipeline maintenance technology are familiar with the use of RFEC to determine the integrity of boiler and chiller tubes as found in heat exchangers and boilers. Briefly, this technique uses an electromagnetic coil to generate a low-frequency magnetic field, which penetrates pipe walls. In areas thinned by corrosion, the magnetic field will reach a"remote"detector coil more strongly (amplitude) and more quickly (time of flight). The increase in amplitude and decrease in time of flight can be correlated with the degree of metal loss.

In block 6, the PSC analyzes the inspection data thus obtained to determine what repairs or upgrades are needed for the pipeline system. To this end, data from the RFEC hardware described above can be advantageously combined with diagnostic software operated on a computer with a central processor and a memory unit to create a report that accurately and in detail assesses the condition of the pipeline. An example of an RFEC- based hardware/software combination that can produce such a condition assessment report is marketed under the trademark Hydroscopet), available from Hydroscope Inc., USA of Albuquerque, NM. The software is disclosed in U. S. Patent Application Serial No. 09/164. 4') 7. incorporated herein by reference. The report begins with a detailed inventory of the pipeline analyzed. such as length and diameter of each pipe, number of joints, tees. and valves. The report then provides pipeline integrity profiling, such as the percent of remaining pipeline thickness and summary graphic representation of the number of"break observation points"."Break observation points"are locations on a pipeline that could require a point repair. The information in the report is used to determine what portions of the pipeline need repair or replacement and which do not.

Next in block 8. using the data and analysis from block 6, the PSC conducts an economic (numerical) analysis by analyzing the estimated cost of the repairs and upgrades determined in block 6 with the potential savings that could result from making the repairs and upgrades, such as avoided pipeline replacement cost, long-term reduced cost of pipeline repair, and reduced water loss through pipeline leaks. The savings may further include reduced potential fines for noncompliance with various governmental regulations. During the analysis, other utility and roadway improvement data may be cross-referenced. The cost of repairs and upgrades of a pipeline may be reduced if the repairs and upgrades are performed integrally with other scheduled utility and roadway repair projects.

The economic analysis including, for example, statistical analysis, pay back analysis, cash flow projections and other financial analysis, and risk analysis using known equations, can be facilitated through the use of a commercially available computer having a central processing unit to operate commercially available or custom software.

The analysis carried out can be stored in an electronic memory device, for instance, on a floppy disk or a hard drive. The results of the analysis, including the calculations carried out therein, may be displayed on a visual output device, such as a computer monitor or printed on paper. Also, the data used in the economic analysis, including the data concerning the condition of the pipeline from block 6, may also be stored in an electronic memory device of the types discussed above.

In the final analysis, if the avoided capital replacement costs and savings due to the repairs and upgrades are found to be sufficiently favorable relative to the cost of carrying out the repairs and upgrades, it is possible for the pipeline operator to pay for the

repairs and upgrades from such savings. In such a case, the present method can proceed to the carrying out of the repairs and upgrades. On the other hand, if the cost of repairs and upgrades outweighs, or is otherwise not favorable relative to, the avoided costs and potential savings that could derive from the repairs and upgrades, making the repairs and upgrades will not make financial sense and, thus, the method ends in block 8.

Block 9 indicates that the pipeline operator pays for the inspection and analysis performed by the PSC from its existing budget.

After it is determined that the performance guarantee based on the needed repairs and upgrades will result in cost avoidance and savings, in block 10, the pipeline operator (e. g., municipality) signs a lease agreement with the PSC or a third-party financier, to "lease"the repairs and upgrades and also to receive a guarantee of pipeline performance for a predetermined term. Typically, the guarantee is given for five to fifteen years of successful pipeline performance. When the pipeline operator is a municipality, the lease agreement may advantageously be a tax-exempt municipality lease agreement. Lease- based financing is well known and widely used in funding various infrastructure projects, such as in performance contracting.

Various other financing mechanisms are available for a pipeline operator to finance repairs and upgrades and a performance guarantee of a pipeline, such as loan- based financing. It should be understood that the lease-based financing is described herein merely as one preferred example of a financing mechanism that is readily available for many pipeline operators with limited funds. Thus, the present method may be used with any other financing mechanism known and used in the industry, as long as such mechanism is feasible for the particular pipeline operator involved.

In lease-based financing, the lessee (i. e., pipeline operator, such as a municipality) is an owner of a pipeline. who needs to fund a repair and upgrading project and wishes to obtain a guarantee that a pipeline will be serviceable for a predetermined length of time.

As in any leasing arrangement, the lessee makes lease payments only if the lessee has full use and possession of the asset being leased (i. e., repaired and upgraded pipelines and guaranteed pipeline performance). Thus, the pipeline operator typically does not make lease payments until after the repairs and upgrades are completed, and until after the performance of the pipeline is guaranteed. This financing arrangement is highly advantageous to the pipeline operator, since it does not impose any high initial monetary payments on the pipeline operator.

In block 12, the lease amount based on the lease agreement, including the cost of the inspection and analysis of the pipeline (if not already paid in block 9), the cost of the repairs and upgrades, the cost of the performance guarantee, and the cost of the capitalized interest (the amount that becomes due before lease payments are made), is financed through the PSC or the third-party financier, with whom the pipeline operator

signs the lease agreement. Typically, the sum financed through the lease arrangement ranges between 30% to 80% of the cost of replacing the entire pipeline system that is at or beyond its useful life. Therefore, the present method allows for significant cost savings for an pipeline operator.

In block 14. the proceeds from the financing arrangement are placed in an escrow account. The amount held in the escrow account is used to finance the repairing and upgrading project for the pipeline operator (lessee) on behalf of the PSC or the third-party financier (lessor), as more fully described below. As noted above. the pipeline operator need not make any lease payments until after the scheduled repairs and upgrades to the pipeline are completed. Thus, at this point, the pipeline operator has not yet made any payments.

Thereafter, in block 16, the scheduled repairs and upgrades to the pipeline are made. There are several ways to manage the repairing and upgrading of the pipeline, with two possible options shown in the drawings. First, as shown in blocks 18 through 24, the pipeline operator itself may manage the repairs and upgrades. From a legal perspective, since the pipeline operator (e. g., municipality) is merely the lessee of the repair/upgrade project, it undertakes the project on behalf of the lessor (i. e., the PSC or the third-party financier). Specifically, in block 18. a consulting engineer engineers the repairs and upgrades. Next in block 20, the pipeline operator places the repairs and upgrades project out for bids. In block 22, the winning contractor undertakes the repairs and upgrades. Preferably, the PSC manages and oversees the contractor's work to assure its quality, since the quality of the repairing and upgrading work directly affects the PSC's ability to guarantee performance of the pipeline for the duration of the predetermined term. In block 24, as the repairs and upgrades progress. the pipeline operator approves periodic draws from the escrow account to be paid to the contractor and the PSC for their work.

Alternatively, as shown in blocks 26 through 30. the PSC may engineer and manage the repairs and upgrades. In block 26, the PSC engineers the repairs and upgrades. Next in block 28, the PSC manages the repairs or upgrades by overseeing subcontractors. In block 30, the pipeline operator approves periodic draws from the escrow account to be paid to the PSC as the repairs and upgrades progress. The PSC then pays to the subcontractors for their work from the draws.

Numerous variations of these two options for repairing and upgrading the pipeline are possible. For example, a single entity could engineer and make the repairs and upgrades, with the PSC serving as an inspector to make sure that the work is done properly.

Once the repairs and upgrades are complete, in block 32. the PSC guarantees performance of the pipeline that has been repaired and/or upgraded for a predetermined

length of term, for example five to fifteen years for cast-iron pipes. However, the duration of the guaranteed performance may vary with the material composition and age of the pipeline. Also, as more advanced inspection equipment and analysis software is developed, the duration of the performance guarantee may be adjusted to reflect the ability to more accurately locate needed repairs and assess the useful remaining life of the pipeline. In any event, the PSC offers a guarantee to the pipeline operator that, during the term of the guarantee, breaks in pipelines that the PSC has inspected and analyzed or that have been properly repaired and upgraded will not occur at a frequency that exceeds a specified level. Such level typically would have been agreed upon by the parties at the step corresponding to block 10.

Specifically, in block 34, the PSC arranges for the guarantee, for example, by securing an insurance policy. As indicated by block 36, the pipeline operator is made an additional beneficiary of the guarantee, as arranged by the insurance policy. Thus, both the PSC and the pipeline operator will be protected against unforeseen, excessive pipeline breaks in the future for the duration of the guaranteed term. Alternatively, an insurance policy may be provided directly to the pipeline operator. and the cost of the insurance may be paid from the fees paid by the pipeline operator to the PSC.

After all the scheduled repairs and upgrades are completed, and pipeline performance guarantee is finalized, the pipeline operator starts making lease payments to the PSC or the third-party financier, whoever financed the lease, see block 38. As described above, the pipeline operator achieves savings from the avoided capital replacement cost and the reduced cost of operating the pipeline due to the repairs and upgrades made to the pipeline. Thus, the pipeline operator is able to make the lease payments from such savings. In other words. the pipeline operator is using the savings generated through the"guaranteed"performance of the pipeline to fund the pipeline restoration and maintenance project.

Under the lease agreement, the pipeline operator makes lease payments for the full use of the repaired and upgraded pipeline and for the successful performance of the pipeline guarantee. Thus, when the term of the lease (i. e., the term of the guarantee) is over, the pipeline operator (lessee) purchases the repaired and upgraded pipeline that has performed successfully for the duration of the guaranteed term for a nominal sum from the PSC or the third-party financier (lessor).

If the pipeline incurs no failures or breaks during the duration of the guaranteed term, no further steps will occur other than that the pipeline operator will continue making the periodic lease payments to the PSC or the third-party financier. Typically, the payments continue until the guarantee term expires.

If, on the other hand. the pipeline leaks or other failures should occur, as in block 40. the pipeline operator shall receive payment to cover the cost of necessary repair

or upgrade. Referring to block 42, if pipeline failures occur at a frequency greater than the predetermined frequency (for example, three breaks per mile per year for two consecutive years), the pipeline operator will receive the cost for replacing the pipeline from the guarantor (e. g.. insurer). Referring to block 44, if pipeline failures occur at a frequency less than the predetermined rate, the PSC will reimburse the pipeline operator for the cost of repairing the pipeline. In either event, the pipeline operator need not pay for the further required repairs or upgrades. Alternatively, the PSC may elect to repair the pipeline failures by itself, or may contract with a subcontractor to make the repair. In this case also, the pipeline operator will not incur any costs for the further repairs and upgrades.

Accordingly, the present method, when used with lease-based financing, is financially highly feasible for many pipeline operators with limited budgets, since the method does not involve significant initial costs for a pipeline operator. Regardless of what financial mechanism is used. the present method guarantees pipeline serviceability that results in cost savings to a pipeline operator, from which the pipeline operator can fund the pipeline restoration and maintenance project. By proactively repairing and upgrading an aging pipeline system, the method significantly improves the efficiency of the pipeline system, and ensures continued access to safe water for consumers.

While the preferred embodiments of the invention have been illustrated and described, it will be appreciated that various changes can be made therein without departing from the spirit and scope of the invention.