DORC Valuation Methodology

The depreciated optimized replacement cost (DORC) is calculated on the gross replacement cost of modern equivalent assets (MEA), adjusted for over design, over capacity and redundant assets, less an appropriate allowance for depreciation.

The steps used are:

Determination of Standard Replacement Cost

• The replacement cost is the cost of purchasing a modern or current asset that provides the same service potential as the existing assets. The necessary activities in this step include:
• Asset classification and categorization
• Data verification
• Identify current technology including modern equivalent assets
• Determine standard unit costs including all organization costs (true costs of provision)

Optimization / Modeling

• This process involves the reconfiguring of the existing system to ensure that only the most efficient combination of assets is included in the valuation for current customers. The necessary activities in this step include:
• Ascertain existing capacities / utilization
• Assess standards and philosophies for service provisions including customer charters
• Forecast demand for current customers over planning horizon
• Check on redundant assets
• Complete modeling.

Depreciated Optimized Replacement Cost

The optimized assets are depreciated to reflect the age of the existing assets and their remaining useful economic lives. The necessary activities include:

• Establish the existing age profiles
• Determine useful lives (technical /economic considerations)
• Determine remaining lives (minimum remaining lives, salvage values)
• Consider impact of accelerated replacement programs.