Many municipal water distribution systems across North America are reaching or have exceeded their design lives and, therefore, require extensive upgrading through rehabilitation and/or replacement. However, these needs far surpass the available resources, and decision makers must prioritize their replacement/rehabilitation needs. One such approach is the determination of the optimal replacement time based on the minimization of the total or annual average cost during a predetermined service period. This paper describes a simple approach for the optimization of replacement/rehabilitation activities for a network of buried pipes, which is based on the assumption that the occurrence of breaks in a pipeline segment follows a nonhomogeneous Poisson process. Equations for evaluating the optimal replacement time are derived by minimizing the expected annual average cost during the service period of the pipeline segment. Predictions are compared with those obtained by minimizing the expected total (accumulated) cost during the service or planning period. The use of the proposed approach is illustrated via numerical examples. Optimal replacement time predictions, based on minimization of the annual average cost, were found to be significantly longer than those obtained based on minimization of the total cost for the case-where break occurrence rate follows an exponential function.