Full-cost accounting for water supply and sewage treatment
Posted January 2006
By Steven Renzetti and Joseph Kushner
It has been suggested recently that water and sewage utilities move to “full-cost” accounting as a means of addressing some of the challenges facing them. However, there are disagreements regarding how to implement this concept, and few estimates exist that show the impact of such a change. In this paper, which appeared in the Spring 2004 edition of the Canadian Water Resources Journal, the authors consider what is meant by full-cost accounting for water utilities, and examine the operations of the Regional Municipality of Niagara, a typical municipality in Ontario, to determine the extent to which current accounting procedures understate the full social cost of providing these services.
In the case of the Niagara Region utility, it’s estimated that the annual unaccounted costs were between $10 and $35 million in 1998. This estimated range compares to a combined annual operating budget for the water and wastewater facilities of $64 million. Thus, our results indicate that the cost of water supply and sewage treatment is substantially understated by a factor of 16 to 55 percent. Because of the commonality of accounting practices, the authors expect other Ontario utilities to be similarly under-priced.
For access to the complete paper, visit www.cwra.org.