EP A/600/2-80/012a
Protection
Vunicpa' Env ronmerfa' "esearch rPA-<~.00/,?.-RO-0" 2a
Jiboratoiy ,-nly 1 930
: ncsmati OH 45268
Development
Development and
Application of a
Water Supply Cost
Analysis System
Volume I.
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RESEARCH REPORTING SERIES
Research reports of the Office of Research and Development, U.S. Environmental
Protection Agency, have been grouped into nine series These nine broad cate-
gories were established to facilitate further development and application of en-
vironmental technology Elimination of traditional grouping was consciously
planned to foster technology transfer and a maximum interface in related fields.
The nine series are
1. Environmental Health Effects Research
2 Environmental Protection Technology
3. Ecological Research
4. Environmental Monitoring
5. Socioeconomic Environmental Studies
6 Scientific and Technical Assessment Reports (STAR)
7 Interagency Energy-Environment Research and Development
8 "Special" Reports
9. Miscellaneous Reports
This report has been assigned to the ENVIRONMENTAL PROTECTION TECH-
NOLOGY series This series describes research performed to develop and dem-
onstrate instrumentation, equipment, and methodology to repair or prevent en-
vironmental degradation from point and non-point sources of pollution. This work
provides the new or improved technology required for the control and treatment
of pollution sources to meet environmental quality standards.
This document is available to the public through the National Technical Informa-
tion Service, Springfield, Virginia 22161.
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EPA-600/2-80-012a
July 1980
DEVELOPMENT AND APPLICATION OF A
WATER SUPPLY COST ANALYSIS SYSTEM
Volume I
by
James I. Gillean
William L. Britton, Jr.
John H. Brim
ACT Systems, Inc.
Winter Park, Florida 32789
Robert M. Clark
Municipal Environmental Research Laboratory
Cincinnati, Ohio 45268
Contract No. 68-03-2506
Project Officer
Robert M. Clark
Drinking Water Research Division
Municipal Environmental Research Laboratory
Cincinnati, Ohio 45268
MUNICIPAL ENVIRONMENTAL RESEARCH LABORATORY
OFFICE OF RESEARCH AND DEVELOPMENT
U.S. ENVIRONMENTAL PROTECTION AGENCY
CINCINNATI, OHIO 45268
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DISCLAIMER
This report has been reviewed by the Municipal Environmental Research
Laboratory, U.S. Environmental Protection Agency, and approved for
publication. Approval does not signify that the contents necessarily
reflect the views and policies of the U.S. Environmental Protection Agency,
nor does mention of trade names or commercial products constitute
endorsement or recommendation for use.
ii
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FOREWORD
The Environmental Protection Agency was created because the public and
the federal government were increasingly concerned about the dangers of
pollution on the health and welfare of the American people. Noxious air,
foul water, and spoiled land are tragic testimonies to the deterioration of
our natural environment. The complexity of that environment and the inter-
play among its components require a concentrated and integrated attack on
the problem.
Research and development is that first step in problem solution, and
involves defining the problem, measuring its impact, and searching for
solutions. The Municipal Environmental Research Laboratory develops new
and improved technology and systems: 1) to prevent, treat, and manage
wastewater, solid and hazardous waste, and pollutant discharges from
municipal and community sources; 2) to preserve and treat public drinking
water supplies; and 3) to minimize the adverse economic, social, health,
and aesthetic effects of pollution. This publication is a product of that
research and is a most vital communications link between the researcher and
the user community.
The Safe Drinking Water Act of 1974 establishes primary health-
related standards and secondary aesthetics-related but nonenforceable
guidelines for drinking water supplies. These standards will bring about a
fundamental examination of the way water is handled before it is delivered
to the consumer. Many of these changes will have an economic impact on the
affected water utilities. This report describes a cost analysis system
that was developed to analyze a water utility's operating and maintenance
cost data. The cost analysis system provides the manager and other
interested parties with an insight into a water utility's performance, and
defines, by unique cost centers, those areas where costs can be monitored.
Volume I of this report outlines the background, development, and
application of the cost analysis system. Volume II provides the computer
program documentation developed to operate the system.
Francis T. Mayo
Director
Municipal Environmental Research Laboratory
ill
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ABSTRACT
The Environmental Protection Agency is concerned with the Safe
Drinking Water Act's economic impact on the water supply industry.
The Environmental Protection Agency initiated an ongoing program to
gather and examine cost data from utilities across the country on which
to establish a data base for water supply cost.
Experience has shown that although most utilities maintain an
accounting system, the data provided by these systems are maintained in
different formats and are therefore incompatible among utilities. Few
systems provide continuous and adequate cost information directly.
As a result of this effort, and because of the Act's emphasis on
economics, the Environmental Protection Agency initiated a research pro-
gram to develop standardized techniques for analyzing costs within a utility
accounting framework. The system has been implemented successfully in
Kenton County Water District No. 1 in Kentucky. Overall, the performance of
the system has been impressive. In addition to providing useful management
reports, the cost analysis system has assisted in improving the existing
Kenton County Water District financial reporting system. The utility
director has used the data to make key decisions regarding operations and
for establishing billing rates to selected users, as well for a general
rate re-evaluation study. This program is described in a two-volume report.
Volume I describes the development and functions of this system and its
application to Kenton County, Kentucky, Water District No. 1. Volume II
contains the programming documentation and operating instructions for the
cost analysis system.
This report is submitted by ACT Systems, Inc., in partial fulfillment
of Contract No. 68-03-2506, Section II, under the sponsorship of the U.S.
Environmental Protection Agency.
iv
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CONTENTS
Page
Foreword ill
Abstract iv
Figures and Tables vi
Abbreviations and Definitions vii
Acknowledgments viii
1. Introduction 1
Background 1
Scope of the Effort 2
2. Development of the Cost Analysis System 4
Cost Analysis Concept ..... . 6
Kenton County, KY Water District No. 1 8
Concept of Output Reports 9
Level IV Report - Detail of Costs by Cost Center . 9
Level III Report- Summary of Costs by Function . . 13
Level II Report - Cost Comparison Report 16
Level I Report - Summary of Systems Information . 19
Water Supply Data Analysis Report 21
Concept of the Cost Classification System 24
Cost Allocation Concept ..... 27
Concept of Interface with Financial Reporting System . 29
Supplemental Accounting Reports 31
Payroll Report 31
Requisition from Stock Report 31
Payment Authorization Report 31
Service Contract Report 31
Miscellaneous Transactions Report 40
General Ledger Account Summary 40
3. Cost Analysis System Operations 44
Cost Data Flow Through the Cost Analysis System ... 44
Monthly Input Data 46
Annual Input Data 46
System Maintenance ........ 52
New General Ledger Accounts 52
New Cost Center Numbers 55
Changes to Permanent Files 55
Computer Operations 55
4. Conclusions and Results 56
References 59
Appendices
A. Kenton Water District-Covington Cost Center
Identifications 60
B. Kenton Water District General Ledger Accounts 63
Glossary 70
v
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FIGURES
Number
1 Water utility simplified schematic 5
2 Function and cost category information 7
3 Kenton Water District No. 1 service area 10
4 Level IV report - detail of cost by cost center 12
5 Level III report - summary of cost by function 14
6 Level II report - cost comparison 17
7 Level I report - summary of systems information 20
8 Water supply data analysis report 22
9 August 1978 year-to-date cost of water production by
pressure zone in.the Kenton Water District delivery
system 25
10 Cost classification system 26
11 Interface of cost analysis system with financial
reporting system 30
12 Payroll report 32
13 Requisition from stock report 34
14 Payment authorization report 36
15 Service contract report 38
16 Miscellaneous transactions report 41
17 General ledger account summary 43
18 Cost data flow through the cost analysis system 45
19 Payroll input form 47
20 Requisition from stock input form 48
21 Payment authorization Input form 49
22 Service contract input form 50
23 Miscellaneous transactions input form .. 51
24 Depreciation entry form 54
TABLES
1. Kenton Water District Storage and
Pumping Facilities 11
2. Depreciation Summary 53
vi
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ABBREVIATIONS AND DEFINITIONS
$/MG
RPW
NARUC
O&M
cost per million gallons
revenue-producing water. The water measured as
metered consumption and paid for by wholesale and
retail customers in the service area
National Association of Regulatory Utility
Commissioners
Operations and Maintenance
METRIC CONVERSION TABLE
English Units
Metric Equivalents
1 foot
1 mile
1 sq mi
1 mil gal
1 $/mil gal
0.305 meters
1.61 kilometers
2.59 sq kilometers
3.79 thou cu meters
0.26 $/thou cu meters
vii
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ACKNOWLEDGMENTS
The staff of Kenton County, Kentucky, Water District No. 1
participated in the development and implementation of the cost analysis
system described in this report. The cooperation and active support of
Mr. Victor C. Fender, General Manager, and Mr. Malvern Connett, Office
Manager, are gratefully acknowledged.
The following individuals are acknowledged for their review and
advice on the contents of the report:
Mr. James Kelly, Madison Water Utility, Madison, WI
Mr. Harvey Minnigh, Downingtown Municipal Water Works, Downingtown,PA
Mr. Robert Ford, Dallas Water Utilities, Dallas, TX
Mr. Theodore Pope, Orlando Utilities Commission, Orlando, FL
Mr. David Kittredge, Manchester Water Works, Manchester, NH
Mr. Curti^Fain^ EPA Region IV, Atlanta, GA
Mr. David ""Peterson, Department of Water & Gas, Duluth, MN
viii
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SECTION 1
INTRODUCTION
BACKGROUND
The Safe Drinking Water Act of 1974 (PL-93-523) will necessitate a
fundamental reexamination of the ways in which drinking water is supplied
to the American public. A primary feature of the Act is that the
economics and cost of water supply and water delivery must be considered
before regulations are promulgated. In 1974 a two-year study of selected
water utilities was undertaken, whereby data were collected from at least
one Class A water utility (revenues greater than $500,000 per year) in
each of the ten regions of the U.S. Environmental Protection Agency
(EPA). The purpose of the study was to collect data in such a manner
that the resulting information could be easily compared among utilities,
thus providing an understanding of some of the fundamental factors that
affect the cost of water supply and water utility management.
One conclusion resulting from the investigation was that although
each of the selected utilities kept financial records, and in some cases
extensive ones, the data among utilities varied to a marked degree.
Another conclusion was that many of the records were kept primarily for
accounting purposes and had little relation to the short- and long-term
operational needs of the utility managers. After a careful analysis of
the data flow and information transfers of a number of large and small
utilities, the investigators developed a technique for data collection and
analysis intended to fulfill both managerial and accounting needs. This
technique, which was based on a matrix concept, was tested by means of a
water supply simulation model developed by the Drinking Water Research
Division in Cincinnati. The technique having proven both effective and
efficient in a hypothetical situation, was implemented in Kenton County,
Kentucky, Water District No. 1 and was further refined and modified based
on the operational experience. Both the system and the experimental
results are described in this two-volume report. This volume (Volume I)
contains a general description of the system and its application. Volume
II contains detailed flow diagrams and charts related to the computer
program developed as a result of the Kenton County application.
The EPA's responsibility for cost evaluation is primarily in terms of
technological modifications that may be required to meet the Safe Drinking
Water Act's definition of maximum contaminant levels (MCL's). However, an
understanding of any cost impacts associated with treatment modifications
required by the Act is virtually impossible if distinctions cannot be made
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between the modification costs and the costs normally incurred in
delivering water to the customer. The system described in this report is
designed as a tool for making these distinctions. Moreover, it can be
used as a tool for managing technology in an efficient manner, and as such
can be useful in terms of providing technical assistance to the states and
municipalities for public water system supervision programs. The results
of this cost analysis research should provide a basis for the conduct of
future studies on the costs of implementing the regulations.
A review of the guidelines established by Governmental Accounting,
Auditing, and Financial Reporting (GAAFR) and AICPA Auditing and
EDP, was conducted to ensure that the system would conform to accepted
accounting principles and practices. It should, however, be emphasized
that the cost analysis system discussed herein is not a formal cost
accounting system although it is discussed in a cost accounting context.
This report provides the results of a carefully considered and structured
approach for retrieving, summarizing, and analyzing water supply and water
utility management cost data. As such, the investigators hope that it will
ultimately provide a useful tool for water supply planners and decision
makers.
SCOPE OF THE EFFORT
This section contains a general discussion of the cost analysis
system. Details of the system are more completely defined in the
development section of this report. The objectives of the cost analysis
system development study were as follows:
a. Develop a system that would furnish complete cost information by
1) defining the costs of water production at identifiable cost
centers within the utility treatment and distribution system, 2)
assigning costs to the water as it flows through the treatment
and distribution system, 3) providing managers and decision
makers with data reflecting the system's performance, and 4)
defining areas where cost should be monitored closely.
b. Develop a system generally applicable to water supply utilities.
c. Demonstrate its application in an operational setting.
The first step in the research was to identify information outputs
from the system. These outputs were identified as follows:
a. Four levels of cost analysis reports designed to provide
information to specific levels of management.
b. A cost analysis report to assign all costs of moving
the water from the intake to the point of consumption.
c. Supplemental accounting reports to provide an audit trail and
summarize financial data for entry into the general ledger.
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After the outputs were established, efforts were directed toward
acquiring and verifying the necessary inputs and assigning data to the
cost centers. The cost centers are, in many cases, equivalent to physical
points within the system. A four-digit cost center identification system
was established to accumulate costs at identifiable locations within the
utility system. Four basic allocating techniques were also developed and
built into the system to ensure that costs would be assigned to appro-
priate centers.
After costs have been allocated to cost centers within the system,
they are then assigned on an incremental basis in $/MG to revenue-
producing water (RPW) flowing through the system to the service zones.
Using this technique, costs can be determined by cost zone and for the
system as a whole.
The system is designed to allocate and trace the costs of water
production with the intention of making it applicable to many water
utilities. However, the system was first implemented and tested at Kenton
County, Kentucky, Water District No. 1 where it is now in operation.
The cost center numbering system for the Kenton Water District is
included in this report as Appendix A, and the cost centers keyed into the
general ledger accounts are included as Appendix B. A listing of the
terms as used in this report is presented in the Glossary.
The concepts, methods, and procedures detailed in Section 2 of this
report follow closely the order of development of the cost analysis
system. In addition, Section 3 presents information -on the cost analysis
system operation.
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SECTION 2
DEVELOPMENT OF THE COST ANALYSIS SYSTEM
The cost study discussed in the introduction required that financial
data gathered from the utilities for the purpose of identifying their costs
must be documented in a format allowing cost to be compared between utili-
ties. Since each utility differed in physical, management, and financial
structures, this was a difficult requirement to meet. The solution to the
problem was reached by using the functions of a water system as the basic
format. Water utilities may differ in characteristics, but generally
speaking, all are similar in function in that each must acquire, treat,
and deliver water. Therefore, if the data from each utility could be
rearranged so that costs associated with acquisition, treatment, and
delivery of water were identified separately; a cost comparison between
utilities could be accomplished.
Figure 1 is a simplified schematic of a typical water utility with a
reservoir raw water source showing the concept of dividing the water utility
into the functions of acquisition, treatment, and delivery. This technique
can be adapted to all water utility systems regardless of their physical
structure. Use of this concept allowed identification of costs not only to
the specific functions of acquisition, treatment, or delivery but also to
the subfunction level. For example, using Figure 1, subfunctions of acqu-
isition include source of supply, reservoir, pumps, and transmission lines.
Subfunctions of delivery include pumps, storage tanks, transmission, and
distribution.
Based on this system of cost analysis, the cost of water is identified
at various locations in the utility system, and as the water moves from its
source to its destination, costs are transferred from the cost centers to
the water. For example, as shown in Figure 1, the acquisition cost consists
of all costs incurred to move water to the treatment plant. When the water
enters the treatment plant, the cost of treating the water is added to the
acquisition cost. Cost also is incurred by additional pumping, located
within the treatment plant, to move the water into the delivery area.
However, this is considered a subfunction of delivery. In addition, costs
such as transmission and distribution are accumulated in each zone. The
transmission costs are those for moving water to zone 1 and zone 2. The
distribution costs include the network of mains and laterals that deliver
water to customers in zones 1 and 2. Analysis of the system in Figure 1
reveals that an element of the pumping cost for pump No. 2 is incurred to
move water through zone 1 to zone 2, and another cost element is incurred in
delivering water through the laterals to customers in zone 1. Similarly,
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the transmission mains include both a transmission cost element and a
delivery cost element. Storage costs are assigned only to the zone in which
the storage facility is located because no element of this cost is applied
to any other zone.
Two types of costs were identified as this technique was refined. One
type was associated directly with the operating functions of acquisition,
treatment, and delivery; and the other type could not be identified with any
specific operating function. These non-operating costs include billing,
accounting, management, etc.', and were placed in a separate category called
support services. Figure 1 shows these across the functional operation.
Within this general concept, two basic types of information are
required, as shown by the matrix in Figure 2. These types of information
match the physical system depicted in Figure 1. Across the top of the
matrix are listed the following specific utility functions: acquisition,
treatment, delivery, and support services. Down the side of the matrix all
costs of operating the utility (labor, power, etc.) are entered. These
cost categories can be cross-referenced against the utility where appro-
priate. Documentation of costs in this format makes it possible to retrieve
and display the various levels or types of information desired. For example,
the cost of labor for treating water can be determined by examining the
first cost category listed within the treatment function.
COST ANALYSIS CONCEPT
The concept of cost analysis is the application of cost to the
movement of water so that the total cost can be identified for the
delivery of water to different points in the system. Cost centers
identified within the physical system localize and trace the costs as the
water moves from the source into the treatment process and through the
delivery system.
Costs are first charged to cost centers within the physical system and
are then transferred in increments from the cost centers to the appropriate
cost zone based on the flow of RPW within the zone. Each month, the RPW by
cost zone is calculated at the Kenton Water District on a worksheet
designed for this purpose. The first step in calculating the RPW is to
determine the metered flow of water within each cost zone and then convert
this figure to billed water by applying a conversion factor. The metered
flow is determined by reading the flow meter at each booster pumping
station or by applying a factor based on power consumption against the
rated flow capacity of the pump station. The conversion factor of metered
flow to billed water is the average RPW calculated from historical data.
Inherent in the process of transferring costs is knowledge of the
physical arrangement of the utility's assets and the functions involved.
Because the cost analysis report is oriented to cost zones, the location of
the pumping and storage cost centers with respect to the cost zones must be
known.
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KENTON COUNTY WATER DISTRICT NO. 1
The Kenton County Water District.No.1, the first water district
established in the State of Kentucky, developed its original water supply
system by purchasing the Dixie Highway Water Company system in 1926. During
this period of time, treated water was being purchased from the City of
Covington, Kentucky and delivered by the District to its customers.
In 1954, the District built a new water intake on the left bank of the
Licking River, within the area of the Markland Dam, approximately 4-3/4
miles upstream from the Ohio River, and a treatment plant located at Grant
and Howard Avenues in Taylor Mill, Kentucky. Presently the treatment plant
contains eight mixed media filters and has a 12.0 MGD rated capacity. After
the raw water has been treated, it flows into a 930 MG capacity clearwell.
Treated water is pumped by two primary pumping stations, one at the
treatment plant and one at Dudley Pike, into the distribution system. The
distribution system, containing approximately 160 miles of pipe, consists of
three pressure levels.
The first pressure level, a 5.0-MGD storage tank, is filled directly
from the treatment facility or by the pumping capacity at the treatment
plant.
The second pressure level, which provides water to the largest
service area, is supplied by gravity from three elevated storage tanks or by
the capacity of the main booster pump station located at Dudley Pike.
The third pressure level is fed by gravity from two elevated storage
tanks located in the Northern Kentucky Industrial Foundation Park and the
City of Florence or by the two booster stations located on Turkey Foot Road
at Lafayette Avenue.
In addition to processing its own water supply, the Water District
maintains an emergency connection with the City of Covington's Waterworks
System. This tie-in is situated adjacent to the Dixie Highway near the
northeastern limits of the Water District's service area, and is being
maintained for the mutual benefit of both water operations.
Currently, the Kenton County Water District provides water to about
15,600 customers of the northwestern portion of Kenton County, Kentucky, in
a 40-square-mile retail service area. Treated water is supplied to 12
townships, an industrial park, and to unincorporated areas of Kenton County
lying within the service area. In addition, water is supplied to the City
of Florence and to the International Airport.
In July 1977, the Kenton Water District acquired the operating control
of the City of Covington, Kentucky, Water Utility. A separate cost analysis
system was implemented for Covington, since bonding restrictions required
that the Covington accounting be separate from that of the Kenton Water
District. Therefore, reports, similar to those of the Kenton Water
District, are prepared for the Coving.ton system.
8
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Figure 3 is a map of the Kenton County Water District No. 1 service
area, showing the locations and relative sizes of the three pressure zones.
Table 1 lists the Kenton Water District's storage and pumping cost centers
by zone location and cost center identification.
CONCEPT OF OUTPUT REPORTS
As mentioned previously, the first step in the development of the cost
analysis system was to identify the desired outputs. Once the outputs were
established, appropriate input data were acquired, verified, and assigned
to the proper cost centers. It was determined that the cost analysis
system would produce two types of output: cost analysis reports and
supplemental accounting reports.
Four levels of cost reports were designed to provide information for
specific levels of management, ranging from detailed to summary reports.
Samples of all reports are provided in this section.
The Level IV report was developed to provide very detailed cost
information. This report assigns input cost categories to each cost center
by account description. The Level III report relates the detailed cost by
broader, standardized categories. The Level II report compares actual
expenditures with budgeted amounts and with expenditures for the previous
year. The Level I report summarizes the cost data and identifies the $/MG
of RPW for the major cost centers and the total cost for the system. Costs
for the previous month, the previous year, and the budgeted amounts are also
compared on the Level I report.
The cost analysis report allocates cost to the movement of water
through the system from the intake to the point of consumption. It iden-
tifies costs by delivery zone, including indirect costs (by allocation).
In this manner, zoned and system costs can be examined.
Detailed descriptions of the output, including reduced reproductions
of the computerized reports, are provided below.
Level IV Report - Detail of Costs by Cost Center
The Level IV output (Figure 4) is in matrix form, with the horizontal
rows representing the general ledger.cost accounts and the vertical
columns representing the cost centers. The dollar amount of cost by
general ledger account for each cost center for the current month is
displayed at the appropriate intersection of a row and a column.
Figure 4 presents a portion of the acquisition function for Kenton
County as an illustration of the Level IV report. However, separate
reports are programmed in the system for each utility function:
acquisition, treatment, delivery, and support services. Each report
contains cost data relative to its particular functional title. For
example, all acquisition costs would be printed in the report title
"Acquisition Cost".
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3401
4041--3303
BOOSTER STATION
STORAGE FACILITIES
TREATMENT PLANT
RIVER INTAKE
MAJOR PIPELINES
Figure 3. Kenton County Water District No. 1 service area.
10
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TABLE 1. KENTON WATER DISTRICT STORAGE AND
PUMPING FACILITIES
Facility
Location
Cost center
Storage:
Dudley Pike
Harrington Road
Edgewood
Kenton Lands
Industrial Park
Pressure zone 1
Pressure zone 2
Pressure zone 2
Pressure zone 2
Pressure zone 3
3301
3302
3303
3304
3305
Pumping:
Kenton County Plant
Dixie Highway
Kyles Lane
Dudley Pike
Turkey Foot
Lafayette
Pressure zone 1
Pressure zone 2
Pressure zone 2
Pressure zone 2
Pressure zone 3
Pressure zone 3
3401
3402
3403
3404
3405
3406
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All operating and maintenance costs, excluding interest and taxes,
are included in the Level IV report. The cost categories descriptions
represent the current Kenton County general ledger cost accounts. For
example, Operation Supervision is a general ledger account in the O&M fund
used to record costs for source of supply, pumping, water treatment,
transmission and distribution, and customer accounts.
In this example, all dollars charged to the Licking River intake
structure through the Operation Supervision account will appear in the
matrix intersection of the first row and the first column. Total dollars
expended through the Operation Supervision account chargeable to the
transmission line connecting the Licking River intake structure and the
Kenton County treatment plant are shown at the intersection of the first
row and the second column. The total of any row will give the total
dollars expended for that general ledger cost account for the subject
function. The totals of the columns represent the total dollars charged to
each cost center of the function. Since costs are accumulated at
identifiable cost centers within the utility system, all cumulative costs,
for a particular physical point or cost center can be related to the Kenton
Water District service area map shown in Figure 3.
Level III Report - Summary of Costs by Function
Figure 5 is a sample of the Level III report. This report is a
summary by month and year to date of the information in the Level IV
report. Again, a matrix format is used, with the columns representing the
six major cost center classifications (functions): acquisition, treatment,
delivery, support services, interest, and taxes. Because taxes vary
depending on the contractual arrangement of the utility, a subtotal column
shows the total cost before taxes.
The rows in the Level III report represent standard cost categories
independent of the chart of accounts used by the utility. They are sum-
maries of chart of accounts items. These cost categories are designed to
be constant, whereas the nomenclature of general ledger accounts varies
from year to year and from utility to utility, thus making comparisons
impractical. The major standard cost areas chosen for this study are as
follows: 1) payroll costs, 2) other direct costs, 3) depreciation, and 4)
interest and taxes.
In this output, the payroll costs include gross pay and payroll
benefits only. All nonlabor costs are listed as other direct costs.
Payroll costs comprise the following subclassifications:
a. Management and supervision - Gross pay for all managers and
supervisors of all divisions, including operations, maintenance,
and support services.
b. Operations labor - Gross pay to personnel operating the facilities
identified with the functions of acquisition, treatment, or
delivery.
13
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c. Maintenance labor - Gross pay to personnel for maintaining the
facilities identified with the functions of acquisition,
treatment, or delivery.
d. Other labor - Gross pay to all persons not included in the three
labor categories previously defined; for example, meter readers
and secretarial help.
e. Benefits - Costs of employee benefits, such as contributions to
social security taxes, pension plans, and health insurance.
Other direct costs comprise all nonlabor costs before depreciation,
interest, and taxes. The following subcategories are included:
a. Maintenance - All nonlabor costs involved in maintaining
facilities identified with acquisition, treatment, or delivery,
including the cost of materials and all other nonlabor cost
incidental to maintenance labor.
b. Chemicals - The cost of chemicals used in the treatment process.
c. Power - The cost of power or fuel used to pump or treat water,
excluding the costs of lighting and heating.
e. Miscellaneous - All other direct nonlabor costs not included in
one of the above subcategories.
Depreciation is an element of the cost of billed water; therefore,
an annual depreciation base by cost center was determined and the system
charges each cost center one-twelfth of the annual depreciation.
Interest and taxes include all interest charges and taxes required
to operate and maintain the facilities. These costs are displayed as a
type of cost center (column) and are summarized by account type (row).
Level II Report - Cost Comparison
The Level II report is shown in Figure 6. This report compares the
actual costs incurred with two standards: the budgeted costs and the prior
year costs. In the Level IV reportf the actual costs of each function are
reported in detail by cost center and general ledger cost description.
These costs are then summarized by cost center function and standard cost
category to produce the Level III- report. In the Level II report, these
costs are compared with predetermined standards.
In Figure 6 showing the comparison of actual to budgeted costs, six
columns of numbers follow the budget categories. The first two columns
show actual costs for the current period and year to date. The second two
columns reflect the budget by year to date and annual amount. The budgeted
year-to-date amount represents the annual budget prorated for the number of
months expired. The fifth and sixth columns show the variance of actual
16
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cost to budgeted cost as a balance and as a percent.
In the comparison of actual costs to budget, the rows of costs
coincide with the general ledger chart 'of accounts because the utility
normally establishes its budget by general ledger account. The total
actual cost, budget, and variance are displayed only for budgeted accounts.
Costs incurred for nonbudgeted general ledger accounts are printed below
and the total balance is provided. Then budget and variances are given for
depreciation, interest, and taxes, and a final total balance is provided.
The second section of the Level II output, also shown in Figure 6, compares
current year-to-date costs with previous year-to-date costs. The rows
represent the standard cost categories used in the Level III output,
because they constitute a standard reference for use in this comparison.
The comparison is made for each of the six major cost functions, showing
variance as a balance and as a percent. This information is followed by
the total current year-to-date cost, prior year-to-date cost, and
variance.
Level I Report - Summary of Systems Information
The Level I standard report illustrated in Figure 7 contains summary
information from the accumulated cost data plus additional data intended to
supply information by which to evaluate the overall operation of the
utility. From the matrix format, a correlation can be made between costs
and operations. The columns represent the six major cost center functions
plus a subtotal before taxes and a final total after taxes.
The first five rows of Figure 7 contain cost data expressed as $/MG
of RPW for the following: 1) current period, current year; 2) previous
period, current year; 3) current period, previous year; 4) year to date,
current year; and 5) year to date, previous year. These unit costs are
compared in this way to facilitate a trend analysis.
The next two rows contain the total costs for the current period and
year to date. These totals agree with the totals of the Level III and
Level II reports by function and grand total. From the Level II report,
the total budget variance is then printed as a percent of actual
expenditure compared to the budget.
The next four rows contain data on water flow as follows: 1) treated
water, current period; 2) RPW, current period; 3) RPW, year to date; and 4)
RPW, previous year to date.
Treated water is the water coming from the treatment facility or
source, which is available to the delivery function. Revenue-producing
water (RPW) is the amount of water from which revenue was derived. The
difference between treated water and RPW is water that was provided to
users at no cost or which was lost in some way.
Finally, the Level I report gives the percentage of total cost
chargeable to each function for the current year to date and the previous
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year to date. This provides an indication of shifts in cost and of
trends in areas where expenses are increasing.
Water Supply Data Analysis Report
The water supply data analysis report illustrated in Figure 8
establishes the relationship between costs and delivered water. This
report identifies the cost of the water as it moves from the source to a
delivery point. Some reasons for variation in the cost of water delivery
are as follows: 1) the customer is farther from the treatment plant,
requiring more pumping and transmission cost; 2) a high population density
distribution area has the advantage of reduced fixed unit costs of
delivery; 3) transmission in some distribution areas is more efficient
than in others; and 4) some components of a utility system are more
expensive to operate and maintain than others.
The water supply data analysis report furnished for the current period
and for the year to date is presented in terms of total costs and then as
unit costs. The total costs by function are shown by individual zones. In
the example based on the Kenton Water District's system, there are three
cost zones. The water flows from the treatment facility to zone 1, where
it is boosted by pump stations to zone 2, and from there it is boosted
again to zone 3.
Transmission costs are defined as the costs of moving water from one
cost zone to another. The transmission cost in zone 1 is calculated by
identifying the cost of the transmission mains in the zone, and then
multiplying this cost by the ratio of water used in zone 1 to the total of
water entering zone 1. The balance of the transmission cost is applied to
moving the water to zone 2, and is therefore added to the transmission cost
identified with zone 2. Calculations similar to these are made to
determine the transmission costs of zones 2 and 3.
Pumping costs in zones 1, 2, and 3 are calculated similarly to
transmission costs. The total pumping cost in zone 3 consists of the cost
of the pump stations located in zone 3 plus part of the pumping costs from
zones 1 and 2.
Because there is no relationship between storage or distribution cost
and the cost of water moving from one zone into another, storage and
distribution costs apply only to the zone of location.
In summary, the cost analysis report deals with two types of water
delivery costs:
a. Transferable costs - Costs transferred in increments from cost
centers to cost zones based on the movement of RPW within the
zones. Transferable costs under the delivery function are pumping
and transmission.
21
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b. Nontransferable costs - Costs of storing and delivering water
within a single zone. Nontransferable costs are distribution and
storage and apply only to the zone of interest.
As demonstrated in Figure 8, the total costs by zone are displayed as
total direct and total indirect costs, and the total RPW delivered in each
zone is shown as mil gal and as a percent of all water delivered.
The water supply data analysis report presents the unit cost of water
by zone and function as follows:
a. Unit cost of water in a zone - Based on cost allocated from
other zones (the transferable costs) and the nontransferable costs
in each pressure zone. The total unit costs by zone do not
sum to the unit cost of water for the entire system because the
unit cost of the system is a weighted average of the unit costs of
each zone.
b. Unit cost of water by function for each zone and for the
entire system - Adding the unit costs by function within a zone
gives the total unit cost for the zone but not for the system.
Only when these zoned unit costs are multiplied by the RPW billed
within the respective zones and summed will they yield the total
cost for the system.
Examination of this report (unit cost by zone) will show trends or
deviations from normal costs within a distribution area. Studying the
functional unit costs by zone, the percentage of cost for acquisition,
treatment, delivery, etc., will reveal fluctuations in transferable costs.
Figure 9 is a graphic presentation of the year-to-date cost of
revenue-producing water from each zone in the Kenton Water District system,
for the period ending August 1978. As can be seen in the graph, the cost
of water for zone 2 is greater than zone 1 or zone 3. A closer detailed
analysis of zone 2 reveals that zone 2 is more capital and service
intensive therefore the greatest cost area in the utility's system.
CONCEPT OF THE COST CLASSIFICATION SYSTEM
The cost classification system illustrated in Figure 10 provides the
interface with the financial reporting system and the parallel functioning
of the cost analysis system. The first group of numbers (XXX-XX)
designates the general ledger expense accounts. This five-digit number
conforms in general to the National Association of Regulatory Utility
Commissioners (NARUC) Chart of Accounts.
The second group of numbers (YYYY) identifies the cost centers that
generate the expense. As shown in Figure 10, the first digit of the cost
center number identifies the function, the second digit identifies the
subfunction, and the last two digits identify the unit. The subfunction
(second digit) and identification (third and fourth digits) appear only in
the Level IV report.
24
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The lower left-hand portion of Figure 10 illustrates the function of
the first two groups of numbers in producing the Level IV report, detailing
all costs by general ledger accounts description and cost center. The rows
represent the general ledger accounts; the columns identify the three
levels of cost centers.
The third group of numbers (ZZ) as illustrated in the upper and lower
right-hand portions of Figure 10, is a two-digit series corresponding
to the 12 standard cost categories used in the Level III summary reports as
illustrated in the upper and lower right-hand portions of Figure 10.
Numbers from 01 through 04 represent labor sources and 05 through 12
represent nonlabor sources. Every O&M ledger account is assigned a
standard cost category for both labor and nonlabor sources. For example,
account number 624-16, lubricants, would not normally appear on a time
card; however, if it should appear, it would automatically be assigned to
cost category 04, payroll costs/other labor. The chart in the lower right-
hand portion of Figure 10 illustrates how the four-digit cost center
numbering system is used with the standard cost category numbering system
to produce the Level III report by matching cost categories with the
functions of acquisition, treatment, delivery, support services, interest,
and taxes.
COST ALLOCATION CONCEPT
The cost analysis system accumulates costs of water production at
various cost centers located within the physical utility system. Costs are
assigned to the specific cost centers as the costs are recorded and
allocated when specific cost centers are not known. The cost analysis
system can only fulfill its function when all cost data are charged to the
appropriate cost centers. This is accomplished by identifying the correct
cost center when the data are entered on the source document; i.e., payroll
time card, requisition from stock form, etc. Exceptions to this procedure
will occur when the cost center information is not obtained or when a
general cost is involved that cannot be identified to a specific center.
To deal with such exceptions, an allocation concept assigns costs to
appropriate cost centers.
Four basic methods of allocating costs to cost centers are defined and
described below:
a. Cost Allocation Code A - Using Code A, all costs charged to a
particular general ledger account but lacking cost center
identification will always be charged to a single predesignated
cost center. For example, costs charged to 600-01, Source of
Supply/Operation Supervision, will always be charged to cost
center 1101, Kenton County/Licking River Intake. Moreover, this
Code A program will cancel an incorrect cost center shown on a
source document and will automatically charge the correct cost
center. This cost allocation will prevent errors resulting from
incorrect cost center designations by charging the only acceptable
cost center assigned to account 600-01.
27
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b. Cost Allocation Code B - Under Code B, all indirect costs will be
allocated to cost centers based on the ratio of direct costs
charged to the cost centers from source documents. For example,
each cost zone in Kenton County has a transmission cost center:
3101 for zone 1, 3102 for zone 2, and 3103 for zone 3. If 80
percent of all direct transmission costs of operation, mainte-
nance, and depreciation is charged to 3102, then 80 percent of all
indirect costs such as the supervisor's salary will also be
charged to 3102.
c. Cost Allocation Code C - This code will allocate cost to
designated cost centers based on a fixed multiplier. The code is
used only once in the Kenton Water District cost analysis system
for power costs charged to 623-06, power purchased treatment. In
the Kenton Water District, 96.8 percent of the total power costs
will be charged to cost center 3401, pump station/plant; the
remainder will be charged to 2101, treatment/purification, to
operate the water treatment pump and equipment. Because only one
meter records all power used at the treatment plant, this
allocation is based on a study made over a period of time to
determine the amperage used to operate the delivery pumps at the
treatment plant compared with the total amperage metered for the
treatment plant during that period of time.
d. Cost Allocation Code D - This code is similar to Code A except
that the direct costs shown on the source document will be recog-
nized by the system and will override the single cost center pro-
grammed previously. Code D is used when there is no absolute
connection between the ledger cost account and any single
cost center.
Thus, general ledger cost accounts data are assigned specific
information by the allocation process as follows:
a. The cost centers to be charged in the event direct charges are
not made when data are entered.
b. The allocation code indicating the method to be used in
allocating the cost.
c. The standard cost category to be charged is determined by the
data source; i.e., labor or nonlabor.
A list of the Kenton Water District general ledger accounts by
category and description is presented numerically by account number in
Appendix B. This listing also shows the allocation code used and the cost
centers assigned to each account.
As new general ledger accounts are created, it is imperative that
they be assigned corresponding cost centers, an allocation code, and
standard cost categories (labor and nonlabor). Unless a ledger account
is identified with the information as specified above, costs assigned to it
will not be processed by the cost analysis system.
28
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CONCEPT OF INTERFACE WITH FINANCIAL REPORTING SYSTEM
The interface effort started with visits and briefings at Kenton
County Water District No. 1 to study and develop an in-depth understand-
ing of the operations, documentation methods, and accounting system. The
effort was then directed to the task of interfacing the cost analysis
system with the general ledger accounting/financial reporting system in
use. The interface was designed to make maximum use of the existing input
system to produce the desired accounting documentation and operational cost
information. The required interface included computer programming to
adjust the input data for generating the desired outputs.
After the interface was developed, the physical implementation was
accomplished, including installation and verification that the
computerized portion of the system was operational, making necessary
revisions to the type and flow of information, and training utility
personnel in the documentation requirements.
In simplified terms, the basic accounting system now in use at the
Kenton Water District comprises two subsystems: 1) the cost analysis
system developed by this effort, and 2) the general ledger/ financial
reporting system already in operation at the utility. The cost analysis
system is automated, but only the billing and accounts receivable portion
of the general ledger/financial reporting system is automated.
Figure 11 illustrates the interface of the cost analysis system with
the general ledger/financial reporting system used at the Kenton Water
District.
Financial and operational data are shown flowing into the subsystems
to produce the outputs shown. The general ledger input data are derived
from source documents and also from the output of the cost analysis and
accounts receivable subsystems.
All O&M transactions are processed through the cost analysis system.
The cost analysis system receives operational and cost data from input
documents prepared by Kenton Water District personnel and produces three
types of reports. One type of report displays information that measures
the performance of the utility, a second type provides a cost analysis
report, and additional reports produce supplemental general ledger data
that provide an audit trail and summarize the cost data for manual entry
into the general ledger.
Appendix A is a list of the four-digit cost centers presently in use
in the Kenton County-Covington systems, along with the two-digit numbering
system used by Kenton County field personnel.
To eliminate any difficulty in recording the four-digit cost center
number, the system was developed to accept the two-digit cost center
numbers used by field personnel and automatically cross-reference them to
the four-digit system of the cost analysis system. When a direct charge
cannot be made because the cost center is unknown, the cost analysis system
29
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will allocate the cost to an appropriate cost center through a cost
allocation program. However, optimum usefulness of the system depends on
accurate identification of costs to the correct cost centers.
SUPPLEMENTAL ACCOUNTING REPORTS
The supplemental reports have been developed to provide an interface
with the financial reporting system of the Kenton Water District and serve
the dual functions of providing an audit trail and summarizing data to post
to the general ledger. Five reports are displayed in two configurations to
fulfill these functions, and a general ledger summary report brings all
this information together and completes this set of reports.
Payroll Report
The first function of the payroll report illustrated in Figure 12
lists the details of each payroll transaction by social security number to
provide a balancing feature of each employee payroll expense. When more
than one account is charged, the total will equal the total gross pay in
the right-hand column.
The data are then sorted to list by general ledger account number
the individual dollar amounts charged and the account total.
At the end of each month, this report is used to make journal entries,
charging the general ledger accounts shown and crediting accrued payroll.
Requisition From Stock Report
The first function of this report, as illustrated in Figure 13, lists
by requisition number the details of each transaction processed and serves
as the audit trail. When more than one account is charged on a requisi-
tion, the amount charged to each account or cost center is shown, along
with the total cost of the transaction. The data are then sorted to list,
by general ledger account number, the amounts and the total charged to each
account for stock requisitions for the month. The offsetting debits are
charged to the appropriate accounts.
Payment Authorization Report
Figure 14 reports cost data from the payment authorization form used
for all O&M purchases from outside vendors. The first configuration
supplies, by form number, a detailed audit trail of transactions processed.
The second page summarizes the amounts to be charged to each general ledger
account for the purchases made for the month. The offsetting journal entry
credit is to accounts payable. As checks are written to vendors, accounts
payable is charged on the cash journal rather than the expense account.
Service Contract Report
This report summarizes the data from the service contract form as
shown in Figure 15. Each service contract is listed by number, with the
31
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cost chargeable to each of seven categories, and the total is shown under
the balance column. Totals of the columns headed TRACTOR, COMPRESSOR,
TRUCK, and OTHER are processed by the cost analysis system as a credit to
the equipment expense credit account, and the total of the overhead is
processed as a credit to the overhead expense credit account. Journal
entries are made to reflect these credits, and an offsetting debit is made
to the construction in process/new services account. When the total of the
MATERIAL column is entered as a credit to inventory with a debit to the
contruction in process/new services account, this same information must not
be posted from the requisition from stock report.
Miscellaneous Transactions Report
All cost transactions not processed from other source documents are
entered through a miscellaneous transactions and adjustments form. The
reports illustrated in Figure 16 provide an audit trail of the transactions
entered and a summary of the ledger accounts with a net debit or credit for
each account.
General Ledger Account Summary
Figure 17 represents the supplemental report summarizing, by general
ledger account numbers, all the input data used in the five previous
reports. This report balances to the other supplemental reports and can be
used to post journal entries into the general ledger system.
40
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ACCUUNT NUMBER AMOUNT
ACCOUNT SUMMARY
620-01
620-10
623-05
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623-07
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7*. 71
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87.20
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37.00
91.80
Figure 17. General ledger account summary.
43
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SECTION 3
COST ANALYSIS SYSTEM OPERATIONS
COST DATA FLOW THROUGH THE COST ANALYSIS SYSTEM
Cost data from five source documents are used in the Kenton Water
District cost analysis system as illustrated in Figure 18. In addition to
the forms previously used as source documents by the Kenton Water District,
the payment authorization form was developed to provide a document for
handling all purchases from outside vendors. The miscellaneous transac-
tions or adjustments form was added because no convenient document existed
for processing assorted miscellaneous transactions not appropriate to other
input forms.
Although other accounting documents are in use by the Kenton Water
District, they do not generate data for entry into the general ledger
(for example, a work order system is used only for control). Labor and
materials are charged directly from the source documents (payroll time
cards, requisition forms, etc.) and are not entered through work orders in
process.
Figure 18 describes the cost data bank compiled from source
documents by the cost analysis system. Payroll costs, cost of materials
used from stock, depreciation, purchases, and interest are added; the total
is then increased or decreased by any necessary adjustments. At this
point, two types of costs are removed from the data bank: 1) costs to be
capitalized (for example, service contract expenses); and 2) costs
recoverable by revenue entry, such as cost of materials sold and cost of
maintenance services for other utilities. This removal of nonoperating and
nonmaintenance costs results in isolating the cost incurred to produce and
deliver water.
Following the flow of Figure 18,- the cost data are listed as they
appear in output format. Three basic types of cost reporting are
generated for management information: 1) costs reported by various cost
centers, useful for monitoring and- measuring performance at the cost
centers; 2) costs reported'as cost of RPW, useful in identifying or
adjusting the cost of RPW billed to customers; and 3) costs reported by
performance to some standard, useful in measuring the current performance
of the utility.
44
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MONTHLY INPUT DATA
Monthly input data as follows are entered into the cost analysis
system directly from the source documents named.
a. Payroll time cards (Figure 19)
(1) Input source code
(2) Input pay date
(3) Input employee social security number
(4) Input gross pay data by general ledger account and by cost
center if designated
(5) Input total gross pay
(6) Input employer share of payroll taxes
b. Requisition from stock form (Figure 20)
(1) Input source code
(2) Input requisition number
(3) Input cost data by general ledger account and by cost center
if designated
(4) Input total amount of requisition
c. Payment authorization form (Figure 21)
(1) Input source code
(2) Input requisition number
(3) Input cost data by general ledger account by cost center if
designated
(4) Input amount of the payment authorization
d. Service contract form (Figure 22)
(1) Input source code
(2) Input date
(3) Input service contract number (number written on top of form)
(4) Input cost data for material, labor, tractor, compressor,
truck, other, overhead
(5) Input total of service contract
e. Miscellaneous transactions form (Figure 23)
(1) Input source code
(2) Input entry number
(3) Input data for that entry by general ledger account and cost
center if designated
(4) Input amount
ANNUAL INPUT DATA
Normally, in accordance with generally accepted accounting principles
for utility accounting, the cost of depreciable assets is recovered through
the bond fund by arrangements to cover debt service with consumer billing.
However, a depreciation cost element is part of the cost of RPW, and the
cost analysis system should treat depreciation as an operating cost rather
than a recoverable cost.
46
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KENTON COUNTY WATER DISTRICT NO, 1
PAYMENT AUTHORIZATION
N* 2134
DATE.
VENDOR
FUND.
AMOUNT $
Figure 21. Payment authorization input form.
49
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Service No.
Meter No..
SERVICE CONTRACT FORM
Date Installed-
Quantity
Size
Meter
Meter Vault
Meter Top
Corporation
Copper Setter
Yoke Complete
Copper Pipe
Unit Cost
Total
Total
Hrs.
Labor
Total
Cost
Total Material
State Tax
Labor
Hrs.
Tractor
Compressor
Service Truck
Dump Truck
Sub-Total
Overhead
Total
Date-
Completed by-
Figure 22. Service Contract input form.
50
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KENTON COUNTY WATER DISTRICT #1
MISCELLANEOUS TRANSACTIONS OR ADJUSTMENTS
DATE
FOR ADDITIONAL COST ENTRIES OR ADJUSTMENTS OF PRIOR COSTS
ENTRY
NO.
DESCRIPTION
GENERAL
LEDGER ACCT
NO.
COST
CENTER
NO.
AMOUNT TO
BE DEBITED
OR (CREDITED)
TOTAL DEBIT
AND (CREDIT)
EACH ENTRY
|
Figure 23. Miscellaneous transactions input form.
51
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Because the Kenton Water District did not depreciate its fixed
assets, it was necessary to research the records to establish a depre-
ciation base. The depreciation base for Kenton Water District assets was
established, using as reference a December 31, 1959 study made by 0. G.
Loomis and Son, Consulting Engineers. At that time, 'asset values were
established and existing service lines were estimated.
All asset changes from 1959 to the present were reviewed by the asset
classification used in the general ledger. Fixed assets of the distri-
bution system were treated differently because contributions were made to
the utility but were not necessarily recorded in the ledger accounts. A
composite adjustment factor was computed to convert 1976 replacement costs
to actual costs. To accomplish this adjustment, the 1976 replacement cost
for asset additions at various times was computed using the Handy-Whitman
Index of Water Utility Constructin Cost . The resulting total book cost
was compared with the totals of the calculated 1976 replacement costs for
various distribution components to arrive at an adjustment factor.
Once this factor was calculated, it was applied to the current
replacement cost of distribution assets in service (obtained from the
Kenton Water District Engineering Department) to convert this value to cost
(either actual or from contributions). This calculation was made for the
following: mains 12 inches or more, mains and laterals less than 12
inches, valves and hydrants, and meters and services. Table 2 exemplifies
a summary of the effort to calculate depreciation.
The method for entering depreciation is to use the depreciation entry
form (Figure 24), listing the cost center and its annual depreciation.
Once this is done and entered into the system, the system will charge that
cost center with one-twelfth of the annual amount for each monthly run. If
depreciation does not change for a particular cost center, it is not
necessary to make an adjusting entry. However, once an adjusting entry is
made, the annual depreciation entered will reflect the depreciation change
for that cost center.
The accuracy of depreciation cost elements depends on current depre-
ciation information reflecting additions and retirements of assets as they
occur. Therefore, depreciation data should be reviewed and adjusted at
least annually.
SYSTEM MAINTENANCE
Changes, additions, or deletions must be handled according to specific
procedures to ensure the proper functioning of the cost analysis system.
New General Ledger Accounts
Initiating a new. general ledger account that will accumulate cost in
the cost analysis system requires the following input: 1) new account
number, 2) assigned cost center numbers, 3) applicable allocation code, and
4) standard cost categories (labor and nonlabor).
52
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53
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KENTON COUNTY WATER DISTRICT i»l
DEPRECIATION ENTRY FORM
COST CENTER NO.
ANNUAL DEPRECIATION
Figure 24. Depreciation entry form.
54
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New Cost Center Numbers
The effect of a new cost center on the allocation codes must be
determined and any necessary adjustments must be made.
Information about the location and function/subfunction of the cost
center will be necessary to determine accumulation of costs.
Changes to Permanent Files
Any addition, deletion, or change to a permanent file, including
budget information, must be entered into the operating system to provide
accurate up-to-date output reports.
COMPUTER OPERATIONS
Volume I describes the development and operation of the cost
analysis system. Volume II contains the programming documentation and
operating instructions for the cost analysis system.
55
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SECTION 4
SUMMARY AND CONCLUSIONS
Kenton County, Kentucky, Water District No. 1 data has been processed
by a cost analysis system since January 1, 1978. Overall, the performance
of the cost analysis system has been impressive. In addition to providing
useful management reports, the cost analysis system has assisted in
improving the existing Kenton County Water District financial reporting
system.
The following three problems have been encountered with the Water
District CAS system:
1. Some data entered into the manual financial reporting system were
not concurrently entered into the cost analysis system. This has
led to an imbalance between the two systems, and required
adjustments.
2. Depreciation has been a problem within the system since Kenton
County's fixed asset records were not established with the
capability of identifying the proper depreciation. This
necessitated the allocation of depreciated values. Depreciation
is now included as a routine item in all reports.
3. The cost analysis system requires input data documented to the
level of cost centers. To make an account or cost center change,
additional information for the computer operation must be
developed. As stated earlier, this system requires that each cost
be identified by a number that denotes the area where services are
being performed. This is necessary in order to identify the cost
to the actual cost center. Some difficulty has been encountered
in having source documents coded with the proper cost centers.
However, the cost analysis program will allocate those costs to
cost centers even though they are not included on a source
document. When this system is utilized as a management tool, a
better understanding of its operation will be developed and the
accuracy of identifying activities to cost centers will improve.
During its operation, the system has accomplished the following:
1. A cost analysis system for analyzing water supply data has been
developed which does have features making it applicable to other
water supply utilities. This system has been implemented and
operated at Kenton County Water District No. 1.
56
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2. The system, using a matrix concept, can match operational and
financial data at the top level functions of acquisition,
treatment, delivery, and support services, and for two lower
levels of detail.
3. This system allows a water utility manager to evaluate cost of the
total utility down to the smallest component of the system. The
costs are logically structured so he can move from one level to
another with compatible data.
4. This system can be used to estimate the cost of water as it flows
through the actual utility system and is delivered to the various
consumers.
5. The reports generated by the system can be used to compare
budgeted versus actual expenditures as well as a cost comparison
between specific operations for different time periods, such as
this year's electrical cost versus the cost of electricity for
last year. After several years of information is accumulated,
these features should significantly improve the capability for
long-range forecasting.
6. The data base developed contains the same types of information
that would be used as a base for a financial reporting system.
This base, with the addition of other information such as
revenues, can form a financial reporting system.
7. The system is capable of generating special, useful reports, such
as payroll summaries; requisition from stock reports; payment
authorization report; service contract report, etc.
After much of the development work was completed on the cost
analysis system for the Kenton County Kentucky, Water District No. 1, the
organization acquired the responsibility for the Covington, Kentucky Water
System, and the two systems became integrated. However, because of issues
relating to various bonds that were outstanding, it was decided to keep the
Covington and Kenton systems separate from a cost analysis standpoint.
Program adjustments were made and separate cost analysis reports are
produced for the Covington utility. This proved that the cost analysis
system could be applied to a separate utility without major reprogramming.
The cost analysis system for the two separate utilities provided the
utility director with a comparison of costs. During a comparison, it was
discovered that one of the treatment plants was producing water at a lower
cost than the other treatment plant. Since the two systems were physically
connected, the Director began to utilize the more efficient plant for the
majority of the water production.
Cost analysis system reports are provided monthly allowing management,
from the Commissioner level down, to review costs shortly after they have
occurred. Therefore, management action can be taken when cost occur rather
than later, when a major impact on the organization has taken place.
57
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The development of a cost analysis system based on its application in
Kenton County has been successful. The managers have used it to make
critical decisions regarding the utility system and have made it a routine
part of their operations. They intend to use it as the basis for
accounting and financial reporting in the future.
It is the authors' opinion that the system, with proper adaptation,
can be applied easily to other utilities. However, additional work might
have to be done to adapt the system to a larger water utility and/or to
other utility functions such as wastewater management.
58
-------
REFERENCES
1. U.S., Congress, Senate. 1974. Safe Drinking Water Act. Public Law
93-523.
2. Gillean, James I., W. Kyle Adams, and Robert M. Clark. 1977. The
Cost of Water Supply and Water Utility Management. Volume II.
Municipal Environmental Research Laboratory, Office of Research and
Development, U.S. EPA, Cincinnati, OH.
3. Clark, Robert M., James I. Gillean, and W. Kyle Adams. 1977. The
Cost of Water Supply and Water Utility Management. Volume I.
Municipal Environmental Research Laboratory, Office of Research and
Development, U.S. EPA, Cincinnati, OH.
4. National Committee on Governmental Accounting. 1978. Governmental
Accounting, Auditing, and Financial Reporting. Municipal Finance
Officers Association of the United States and Canada. Chicago, 111.
5. Davis, Gordon B., CPA, PhD. 1975. Auditing & EDP. American
Institute of Certified Public Accountants, Inc. New York, N.Y.
6. National Association of Regulatory Utility Commissioners. 1977.
National Association of Regulatory Utility Commissioners - Uniform
System of Accounts for Water Utilities. Washington, D.C.
7. Whitman, Requardt, and Associates. 1973. Handy-Whitman Index of
Water Utility Construction Cost. Baltimore, MD.
59
-------
APPENDIX A
KENTON WATER DISTRICT-COVINGTON
COST CENTER IDENTIFICATIONS
COST CENTER
NUMBERS
KENTON COUNTY
NUMBERS
PUMP STATIONS
Kenton County
River intake
Plant
Dixie Highway
Kyles Lane
Dudley Pike
Turkey Foot
Lafayette
Covington
River intake
Cold Spring
Ida Spence
Devoe Park
Boone County
1301
3401
3402
3403
3404
3405
3406
1320
3422
3423
3424
3425
01
02
03
04
05
06
07
11
12
13
14
15
TRANSMISSION (mains 12 inches or more)
Kenton County
River intake
Zone 1 (first pressure zone)
Zone 2 (second pressure zone)
Zone 3 (third pressure zone)
1201
3101
3102
3103
20
21
22
23
Covington
River intake
Zone 5 (basin area)
Zone 6 (Ida Spence)
1220
3121
3122
24
25
26
60
-------
KENTON WATER DISTRICT-COVINGTON
COST CENTER IDENTIFICATIONS (continued)
Covington (continued)
Zone 7 (Devoe Park)
Zone 8 (Boone County)
Zone 9 (Cold Spring)
COST CENTER
NUMBERS
3123
3124
3125
KENTON COUNTY
NUMBERS
27
28
DISTRIBUTION
Kenton County
Zone 1 (first pressure zone)
Zone 2 (second pressure zone)
Zone 3 (third pressure zone)
Covington
Zone 5 (basin area)
Zone 6 (Ida Spence)
Zone 7 (Devoe Park)
Zone 8 (Boone County)
Zone 9 (Cold Spring)
3201
3202
3203
3221
3222
3223
3224
3225
31
32
33
35
36
37
38
**
STORAGE
Kenton County
Dudley Pike
Barrington Road
Edgewood
Kenton Lands
Industrial Park
3301
3302
3303
3304
3305
40
41
42
43
44
STORAGE (continued)
Covington
Bromley
Ida Spence
Devoe Park
3321
3322
3323
50
51
52
* No transmission costs in this zone; therefore, no number assigned.
** No distribution costs in this zone; therefore, no number assigned.
61
-------
KENTON WATER DISTRICT-COVINGTON
COST CENTER IDENTIFICATIONS (continued)
ACQUISITION SOURCE**
Kenton County
Licking River Intake
Covington
Ohio River intake
COST CENTER KENTON COUNTY
NUMBERS NUMBERS
1101
1120
60
61
TREATMENT PLANT **
Kenton County
Water purification
Plant overhead
Covington
Water purification
Plant overhead
2101
2201
2120
2220
70
71
72
73
SUPPORT SERVICES **
Kenton County
Customer accounts
Administrative and general
Covington
Customer accounts
Administrative and general
4101
4201
4120
4220
80
81
82
83
** NARUC Account numbers should identify this cost center. (NARUC account
numbers to be identified as Kenton County or Covington).
62
-------
APPENDIX B
KENTON WATER DISTRICT
GENERAL LEDGER ACCOUNTS
KENTON COUNTY
ACCOUNT DESCRIPTION
Source of Supply
Operation supervision
Operation engineering
Operation labor
Operation-other expenses
Water purchased
Building services
Ground maintenance
Other expenses
Maintenance supervision
Maintenance engineering
Maintenance structures and
improvements
Maintenance of river intake
Maintenance of supply mains
Pumping
Operation supervision
Operation engineering
Power purchase source
Power purchase treatment
Power purchase distribution
Operation labor
Communications
Lubricants
Auto maintenance
Auto gas and oil
LEDGER
ACCOUNT
NUMBERS
600-01
600-10
601-02
601-50
602-00
603-03
603-25
603-50
610-01
610-10
611-02
611-50
613-02
613-50
616-02
616-50
620-01
620-10
623-05
623-06
623-07
624-02
624-04
624-16
624-20
624-22
ALLOCA-
TION
CODE
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(B)
(B)
(A)
(C)
(C)
(B)
(B)
(B)
(B)
(B)
1101
1101
1101
1101
1401
1101
1101
1101
1101
1101
1101
1101
1101
1101
1201
1201
1301,
3405,
1301,
3405,
1301
3401,
3402,
1301,
3405,
1301,
3405,
1301,
3405,
1301,
3405,
1301,
3405,
COST CENTERS
TO BE CHARGED
3401, 3402,
3406
3401, 3402,
3406
2101
3403, 3404,
3401, 3402,
3406
3401, 3402,
3406
3401, 3402,
3406
3401, 3402,
3406
3401, 3402,
3406
3403, 3404,
3403, 3404,
3405, 3406
3403, 3404,
3403, 3404,
3403, 3404,
3403, 3404,
3403, 3404,
63
-------
KENTON WATER DISTRICT
GENERAL LEDGER ACCOUNTS (continued)
KENTON COUNTY
ACCOUNT DESCRIPTION
Charts
Building services
Utilities
Grounds maintenance
Safety
Other expenses
Maintenance supervision
Maintenance engineering
Maintenance structures and
improvements
Maintenance equipment
Acquisition maintenance
Pumping equipment-labor
Acquisition maintenance
Pumping equipment-other
Treatment plant maintenance
Pumping equipment-labor
Treatment plant maintenance
Pumping equipment-other
Distribution maintenance
Pumping equipment-labor
Distribution maintenance
Pumping equipment-other
Water Treatment
Operation supervision
Operation engineering
Chemicals
Operation labor
Communications
Utilities
Lubricants
LEDGER
ACCOUNT
NUMBERS
624-32
626-03
626-13
626-25
626-35
626-50
630-01
630-10
631-02
631-50
633-02
633-50
633-52
633-55
633-62
633-65
633-72
633-75
640-01
640-10
641-00
642-02
642-04
642-13
642-16
ALLOCA-
TION
CODE
(B)
(B)
(B)
(B)
(B)
(B)
(B)
(B)
(B)
(B)
(B)
(B)
(A)
(A)
(A)
(A)
(C)
(C)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
COST CENTERS
TO BE CHARGED
1301,
3405,
1301,
3405,
1301,
3405,
1301,
3405,
1301,
3405,
1301,
3405,
1301,
3405,
1301,
3405,
1301,
3405,
1301,
3405,
1301,
3405,
1301,
3405,
1301
1301
3401
3401
3402,
3402,
2201
2201
2101
2101
2201
2201
2201
3401
3406
3401
3406
3401
3406
3401
3406
3401
3406
3401
3406
3401
3406
3401
3406
3401
3406
3401
3406
3401
3406
3401
3406
3403
3403
, 3402,
, 3402,
, 3402,
, 3402,
, 3402,
, 3402,
, 3402,
, 3402,
> 3402,
, 3402,
, 3402,
, 3402,
, 3404,
, 3404,
3403,
3403,
3403,
3403,
3403,
3403,
3403,
3403,
3403,
3403,
3403,
3403,
3405,
3405,
3404,
3404,
3404,
3404,
3404,
3404,
3404,
3404,
3404,
3404,
3404,
3404,
3406
3406
64
-------
KENTON WATER DISTRICT
GENERAL LEDGER ACCOUNTS (continued)
KENTON COUNTY
ACCOUNT DESCRIPTION
Shop and laboratory
Auto maintenance
Auto gas and oil
Charts
Building services
Ground maintenance
Safety
Other expenses
Maintenance supervision
Maintenance engineering
Maintenance structures and
improvements
Maintenance water treatment
equipment
Transmission & Distribution
Operation supervision
Operation engineering
Tanks ground maintenance
Tanks other expense
Operation labor
Tractor expense
Compressor expense
Auto maintenance
Auto gas and oil
Other expenses
Meter labor
LEDGER
ACCOUNT
NUMBERS
642-17
642-20
642-22
642-32
643-03
643-25
643-35
643-50
650-01
650-10
651-02
651-50
652-02
652-50
660-01
660-10
661-25
661-50
662-02
662-18
662-19
662-20
662-22
662-50
663-02
65
ALLOCA-
TION
CODE
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(B)
(B)
(B)
(B)
(B)
(B)
(B)
(B)
(B)
(B)
(B)
2201
2201
2201
2201
2201
2201
2201
2201
2201
2201
2201
2201
2101
2101
1201,
3202,
3304,
1201,
3202,
3304,
3301,
3301,
1201,
3202,
3304,
1201,
3202,
3304,
1201,
3202,
3304,
1201,
3202,
3304,
1201,
3202,
3304,
1201,
3202,
3304,
3201,
COST CENTERS
TO BE CHARGED
3101,
3203,
3305
3101,
3203,
3305
3302,
3302,
3101,
3203,
3305
3101,
3203,
3305
3101,
3203,
3305
3101,
3203,
3305
3101,
3203,
3305,
3101,
3203,
3305
3202,
3102,
3301,
3102,
3301,
3303,
3303,
3102,
3301,
3102,
3301,
3102,
3301,
3102,
3301,
3102,
3301,
3102,
3301,
3203
3103,
3302,
3103,
3302,
3304,
3304,
3103,
3302,
3103,
3302,
3201,
3302,
3103,
3302,
3103,
3302,
3103,
3302,
3201,
3303,
3201,
3303,
3305
3305
3201,
3303,
3201,
3303,
3303,
3201,
3303,
3201,
3303,
3201,
3303,
-------
KENTON WATER DISTRICT
GENERAL LEDGER ACCOUNTS (continued)
KENTON COUNTY
ACCOUNT DESCRIPTION
Auto maintenance
Auto gas and oil
Meters other expenses
Customer labor
Auto maintenance
Auto gas and oil
Customer other expense
Communications
Utilities
Shop and tools
Grounds maintenance
Safety
Other expenses
Rents
Maintenance supervision
Maintenance engineering
Maintenance structures and
improvements
Maintenance tanks
Maintenance mains
LEDGER
ACCOUNT
NUMBERS
663-20
663-22
663-50
664-02
664-20
664-22
664-50
665-04
665-13
665-17
665-25
665-35
665-50
666-00
670-01
670-10
671-02
671-50
672-02
672-50
673-02
673-50
ALLOCA-
TION
CODE
(B)
(B)
(B)
(B)
(B)
(B)
(B)
(B)
(B)
(B)
(B)
(B)
(B)
(B)
(B)
(B)
(B)
(B)
(B)
(B)
(B)
(B)
3201
3201
3201
3201
3201
3201
3201
1201
3202
3304
1201
3202
3304
1201
3202
3304
1201
3202
3304
1201
3202
3304
1201
3202
3304
1201
3202
3304
1201
3202
3304
1201
3202
3304
1201
3202
3304
1201
3202
3304
3301
3301
3101
3101
9
9
9
9
>
9
9
>
t
>
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
COST CENTERS
TO BE CHARGED
3202
3202
3202
3202
3202
3202
3202
3101
3203
3305
3101
3203
3305
3101
3203
3305
3101
3203
3305
3101
3203
3305
3101
3203
3305
3101
3203
3305
3101
3203
3305
3101
3203
3305
3101
3203
3305
3101
3203
3305
3302
3302
3102
3102
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
3203
3203
3203
3203
3203
3203
3203
3102
3301
3102
3301
3102
3301
3102
3301
3102
3301
3102
3301
3102
3301
3102
3301
3102
3301
3102
3301
3102
3301
3303
3303
3103
3103
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
3103
3302
3103
3302
3103
3302
3103
3302
3103
3302
3103
3302
3103
3302
3103
3302
3103
3302
3103
3302
3103
3302
3304
3304
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
3201,
3303,
3201,
3303,
3201,
3303,
3201,
3303,
3201,
3303,
3201,
3303,
3201,
3303,
3201,
3303,
3201,
3303,
3201,
3303,
3201,
3303,
3305,
3305,
66
-------
KENTON WATER DISTRICT
GENERAL LEDGER ACCOUNTS (continued)
KENTON COUNTY
ACCOUNT DESCRIPTION
Maintenance services
Maintenance meters
Maintenance hydrants
Maintenance miscellaneous
plant
Equipment expense credit
Overhead expense credit
Customer Accounts
Operation supervision
Meter reading labor
Auto maintenance
Auto gas and oil
Customer records labor
Office supplies
Contract expense
Collection expense
Postage
Uncollectable accounts
Communications
Utilities
Safety
Other expenses
Interest expense on
deposit guarantees
Administrative and General
LEDGER
ACCOUNT
NUMBERS
675-02
675-50
676-02
676-50
677-02
677-50
678-02
678-50
680-30
680-31
901-00
902-02
902-20
902-22
903-02
903-15
903-24
903-26
903-30
904-00
905-04
905-13
905-35
905-50
905-51
ALLOCA-
TION
CODE
(B)
(B)
(B)
(B)
(B)
(B)
(B)
(B)
(B)
(B)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
3201,
3201,
3201,
3201,
3201,
3201,
1201,
3202,
3304,
1201,
3202,
3304,
1201,
3202,
3304,
1201,
3202,
3304,
4101
4101
4101
4101
4101
4101
4101
4101
4101
4101
4101
4101
4101
4101
4101
3202
3202
3202
3202
3202
3202
3101
3203
3305
3101
3203
3305
3101
3203
3305
3101
3203
3305
COST CENTERS
TO BE CHARGED
, 3203
, 3203
, 3203
, 3203
, 3203
, 3203
, 3102, 3103,
, 3301, 3302,
, 3102, 3103,
, 3301, 3302,
, 3102, 3103,
, 3301, 3302,
, 3102, 3103,
, 3301, 3302,
3201,
3303,
3201,
3303,
3201,
3303,
3201,
3303,
Operation supervision and 920-01 (A) 4201
management
Building services 921-03 (A) 4201
Communications 921-04 (A) 4201
Utilities 921-13 (A) 4201
Office supplies 921-15 (A) 4201
Auto maintenance 921-20 (A) 4201
67
-------
KENTON WATER DISTRICT
GENERAL LEDGER ACCOUNTS (continued)
KENTON COUNTY
ACCOUNT DESCRIPTION
Auto gas and oil
Dues and subscriptions
Travel
Other expenses
Professional fees
Property insurance
Injuries and damages
Employee pension and benefits
F.I.C.A.
Payroll taxes-city
Regulatory Commission expense
Commissioner fees
Other expenses
Maintenance of buildings
Maintenance of equipment
Other expenses
O&M Fund - Miscellaneous
Cost of materials sold
Independence Area:
Operation supervision
Operation labor
Communication
Electricity
Insurance
Office supplies and postage
Maintenance supervision and
improvements
Maintenance of buildings and
grounds
Maintenance of pumps
Maintenace of equipment and
usage
Water purchased
Maintenance of mains
Maintenance of tanks
Maintenance of services
Maintenance of meters
LEDGER
ACCOUNT
NUMBERS
921-22
921-28
921-29
921-50
923-00
924-00
925-00
926-00
926-21
926-23
928-00
930-23
930-50
932-39
932-40
932-50
98
1201
1202
1203-4
1203-5
1203-14
1203-15
1204
1205-02
1205-50
1206-02
1206-50
1207T02
1207-50
1209
1210-02
1210-50
1211-02
1211-50
1212-02
1212-50
1213-02
1213-50
ALLOCA-
TION
CODE
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
COST CENTERS
TO BE CHARGED
4201
4201
4201
4201
4201
4201
4201
4201
4201
4201
4201
4201
4201
4201
4201
4201
4401
4302
4302
4302
4302
4302
4302
4302
4302
4302
4302
4302
4302
4302
4302
4302
4302
4302
4302
4302
4302
4302
4302
68
-------
KENTON WATER DISTRICT
GENERAL LEDGER ACCOUNTS (continued)
KENTON COUNTY
ACCOUNT DESCRIPTION
Maintenance of hydrants
Customer services
Meter reading
Billing service expense
Professional service
Turn on/off
Taylor Mill:
Supervisory services
Maintenance and emergency
repairs
Plant Fund
Interest on notes payable
Interest on mortgage loan
Maintenance expense (office
LEDGER
ACCOUNT
NUMBERS
1214-02
1214-50
1215
1217
1219
1220
1226
1101
1102-02
1102-50
32-1
32-2
32-3
ALLOCA-
TION
CODE
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
(A)
COST CENTERS
TO BE CHARGED
4302
4302
4302
4302
4302
4302
4302
4301
4301
4301
5000
5000
4201
building)
Extraordinary expense
Bond Fund
Interest paid
Depreciation Fund
Depreciation
General Fund
Interest expense
Extraordinary maintenance
Office Building Expense
Leased premises
209 (D) 4201,-1101, 1201, 1301, 2101,
2201, 3101, 3102, 3103, 3201,
3202, 3203, 3301, 3302, 3303,
3304, 3305, 3401, 3402, 3403,
3404, 3405, 3406, 4101
49 (A) 5000
250 (D) 4201, 1101, 1201, 1301, 2101,
2201, 3101, 3102, 3103, 3201,
3202, 3203, 3301, 3302, 3303,
3304, 3305, 3401, 3402, 3403,
3404, 3405, 3406
453 (A) 5000
455 (D) 4201, 1101, 1201, 1301, 2101,
2201, 3101, 3102, 3103, 3201,
3202, 3203, 3301, 3302, 3303,
3304, 3305, 3401, 3402, 3403,
3404, 3405, 3406, 4101
460 (A) 4201
69
-------
GLOSSARY
The terms and definitions listed below clarify and establish the
usage of the terminology appearing in this report.
acquisition costs: All costs incurred from the point of acquiring water
at its source to the point when it enters the treatment process.
These costs may include pumping, storage, and transmission.
cost: Expenses incurred to produce and distribute water. Expenses
incurred for other purposes, such as the sale of materials, are
excluded. Expenditures classified as assets are also excluded from
this definition except for depreciation and interest charges
resulting from such expenditures.
cost center: A unit that accumulates cost. A cost center with definite
boundaries must be identified so that all related costs can be
separated. Cost centers are usually part of the physical property
of the water utility, such as a pumping station or a storage
facility.
delivery costs: All costs for moving the treated water from the treat-
ment process until it is delivered to the customer. These costs
include transmission, distribution, storage, and pumping costs.
distribution costs: The costs involved in moving water within a single
pressure zone and delivering it to the customers. This cost
definition includes all costs incurred to operate and maintain the
various components of the distribution system up to and including
the meter but excluding the cost of reading the meter. Also
excluded are the costs of storage facilities and pumping. As stated
before, transmission mains may have a distribution cost element;
however, all delivery mains are considered as totally for
distribution because no transmission cost element is incurred.
distribution mains: Mains serving the primary purpose of moving water to
the consumer. The size of pipe varies, but pipe less than 12 inches
in diameter is generally considered distribution.
function cost center: The top level of cost categories generally
describing the principal functions of the water utility. There are
six individual function cost centers: 1) acquisition, 2) treatment,
3) delivery, 4) support services, 5) interest, and 6) taxes. With
the exception of interest and taxes, each function cost center
70
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normally comprises a group of subfunction cost centers.
identification cost center: A third level of cost categories identifying
specific components of the subfunction. Examples of identification
cost centers under the storage facility subfunction are individual
storage tanks located in the delivery area.
interest costs: The cost of money borrowed by the utility.
pumping costs: The cost of operating and maintaining pumping stations,
including the cost of power to operate the pump.
storage costs: The costs of operating and maintaining storage
facilities. Included are both extraordinary repair costs not
capitalized and all routine maintenance costs.
subfunction cost center: A second level of cost categories
representing types of cost centers within a function. Examples of
of subfunctions under the delivery function are pumping stations and
storage facilities.
support services costs: All costs that are not an integral part of
operating or maintaining the cost centers that come in physical
contact with the water. Examples are insurance, billing, and the
salary of a general manager.
tax costs: The costs of fees paid by the utility to a government for the
privilege of operating a business. An example is real estate tax on
a nonmunicipal utility.
transmission costs: Costs of moving water from one pressure zone to
another, exclusive of pumping. Also excluded are the costs of any
transmission mains that serve only within a single zone. In. a
multipressure zone system, most transmission mains incur costs in
two subfunctional cost centers. The element of cost involved in
moving water through one zone to another zone is a transmission
cost; the element of cost involved in moving water within a single
zone is a distribution cost.
transmission mains: Mains serving the primary purpose of moving large
volumes of water from one pressure zone to another. The size of
pipe varies depending on the size of the utility; however, mains 12
inches in diameter or larger are generally considered transmission
mains.
treatment costs: All costs incurred in treating the water from the point
of entry into the treatment phase until the treatment processes are
completed. Included are the indirect costs of operating and
maintaining the treatment plant, but excluding any cost centers
related to other functions that may take place within the treatment
plant. Examples of such nonrelated cost centers to be excluded from
the treatment cost center are pumps located in the treatment area to
move water into the delivery area.
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TECHNICAL REPORT DATA
(Please read Instructions on the reverse before completing)
1. REPORT NO.
EPA-600/2-80-012a
2.
3. RECIPIENT'S ACCESSION NO.
4. TITLE AND SUBTITLE
DEVELOPMENT AND APPLICATION OF A WATER SUPPLY
COST ANALYSIS SYSTEM
Volume I
5. REPORT DATE
July 1980 (Issuing date)
6. PERFORMING ORGANIZATION CODE
7. AUTHOR(S)
James I. Gillean, William L. Britten, Jr.,
John H. Brim, and Robert M. Clark
8. PERFORMING ORGANIZATION REPORT NO.
9. PERFORMING ORGANIZATION NAME AND ADDRESS
ACT Systems Inc.
Winter Park, Florida 32789
10. PROGRAM ELEMENT NO.
C61C1C SOSttl Task 39
11. CONTRACT/GRANT NO.
68-03-2506
12. SPONSORING AGENCY NAME AND ADDRESS
Municipal Environmental Research LaboratoriesCin., Of
Office of Research and Development
U.S. Environmental Protection Agency
Cincinnati, Ohio 45268
13. TYPE OF REPORT AND PERIOD COVERED
Final Report 9/78-9/79
14. SPONSORING AGENCY CODE
EPA/600/14
15. SUPPLEMENTARY NOTES
See also Volume II (EPA-600/2-80-012b)
Project Officer: Robert M. Clark' (513)
684-7488
16. ABSTRACT
The Environmental Protection Agency is concerned with the Safe Drinking Water Act's
economic impact on the water supply industry. Experience has shown that although
most utilities maintain an accounting system, the data provided by the system are
maintained in different formats and are therefore incompatible among utilities.
Few systems provide continuous and adequate cost information directly.
To help remedy this deficiency, the Drinking Water Research Division has initiated
a program to develop standardized techniques for analyzing data within a utility
accounting framework. This program is described in two volumes. Volume I (this
volume) describes the development and application of this system to Kenton County,
Kentucky Water District No. 1.
17.
KEY WORDS AND DOCUMENT ANALYSIS
DESCRIPTORS
b. IDENTIFIERS/OPEN ENDED TERMS
c. COS AT I Field/Group
Accounting
Cost Analysis
Cost Center
Cost Effectiveness
Cost Engineering
Water Supply
Product Costing
13B
18. DISTRIBUTION STATEMENT
Release to Public
19. SECURITY CLASS (ThisReport)
Unclassified
21. NO. OF PAGES
80
20. SECURITY CLASS (Thispage)
Unclassified
22. PRICE
EPA Form 2220-1 (Rev. 4-77)
72
>US GOVERNMENT PRINTING OFFICE 1980 -657-165/0031
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