Allocationof Sewerage Costs to Customer Segements

ReportNo WSAA 48


December 1992




Thisresearch project was conducted under the auspices of the Urban Water ResearchAssociation of Australia by Melbourne Water.


Theoverall objective of the project was to develop a cost allocation methodologyfor sewerage costs (including both trade waste and non-trade waste) which canbe applied by the major urban sewerage authorities.


Fiveprincipal classes of customers namely, domestic, commercial, industrial, tradewaste and institutional were identified. For this study, however, pending moredetailed investigation, revenue analysis has been limited to domestic, tradewaste and commercial (commercial includes all properties not classified astrade waste or domestic).


Afterconsidering a number of costing approaches, the total cost approach was adoptedbecause:


-         Cost data could be reconciled to financial records


-         Data on cost drivers was readily available


-         It provides an understandable basis for assessing cross subsidies


Howeverother cost methods could be relevant in specific circumstances and furtherinvestigation of alternative approaches is warranted.


Themethodology employed for this study was to breakdown sewerage system costs intomanageable units (ie collection and conveyance, treatment plants) and to thenanalyse those costs by processes (eg digestor treatment). Cost drivers wereidentified for each process.


Asthe capital costs and in particular the conveyance assets (87% of total assetvalue) generate most of the sewerage costs, the values attributable to assetsis critical. This study has valued assets at written down current replacementcost.


Bythe nature of the process sewerage assets tend to have long economic lives. Inthis study for example, over 78% of sewerage assets have remaining lives of 50years and economic lives of 100 years.


Copiesof the Report are available from WSAA, price $A30. Orders may be placed throughthe Bookshop at or by email to