Full Cost Accounting for Water Supply and Sewage Treatment: Concepts and Case Application
2004
Renzetti, Steven | Kushner, Joseph
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, we 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, we estimate 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%–55%. Because of the commonality of accounting practices, we expect other Ontario utilities to be similarly underpriced.
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