Gustavson Associates was retained by Millennium Challenge Georgia (MCG) to prepare a model to calculate the economic rate of return (ERR) for rehabilitation work that was undertaken on the north-south pipeline system in Georgia. The pipeline system was in poor condition due to erosion and corrosion. MCG spent $35.2 million on the rehabilitation from 2006 through 2009. Work occurred at 22 sites during three phases.
The report proposes a stochastic (Monte Carlo) ERR model that compares two scenarios: (a) the actual scenario in which rehabilitation work was undertaken, thereby improving the reliability of the pipeline system and (b) a hypothetical counter-factual scenario in which the rehabilitation work was not undertaken, but rather, repairs are made in response to future pipeline failures. The benefit of the rehabilitation work is modeled as the avoided cost associated with the future pipeline repairs that would have been necessary without the rehabilitation work. The report discusses estimates of timing of future pipeline failures in the counter-factual scenario, and the costs associated with those failures, including the repair cost, the cost to replace gas lost due to the failure, and the economic impact of disruption in the gas supply.
