Allocation of Sewerage Costs to Customer Segments
This report was produced for the Urban Water Research Association of Australia, a now discontinued research program.
Report no. UWRAA 48
This research project was conducted under the auspices of the Urban Water Research Association of Australia by Melbourne Water.
The overall objective of the project was to develop a cost allocation methodology for sewerage costs (including both trade waste and non-trade waste) which can be applied by the major urban sewerage authorities.
Five principal classes of customers namely, domestic, commercial, industrial, trade waste and institutional were identified. For this study, however, pending more detailed investigation, revenue analysis has been limited to domestic, trade waste and commercial (commercial includes all properties not classified as trade waste or domestic).
After considering a number of costing approaches, the total cost approach was adopted because:
– Cost data could be reconciled to financial records
– Data on cost drivers was readily available
– It provides an understandable basis for assessing cross subsidies
However other cost methods could be relevant in specific circumstances and further investigation of alternative approaches is warranted.
The methodology employed for this study was to breakdown sewerage system costs into manageable units (ie collection and conveyance, treatment plants) and to then analyse those costs by processes (eg digestor treatment). Cost drivers were identified for each process.
As the capital costs and in particular the conveyance assets (87% of total asset value) generate most of the sewerage costs, the values attributable to assets is critical. This study has valued assets at written down current replacement cost.
By the nature of the process sewerage assets tend to have long economic lives. In this study for example, over 78% of sewerage assets have remaining lives of 50years and economic lives of 100 years.