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Summary
Cost Recovery and Affordability in Small Drinking
Water Treatment Plants in Alberta, Canada
AARO N JANZEN , GO PA L A C H A RI, M O H A M M E D H . I . D O R E, AN D C O O P ER H . L AN G F O R D
http://dx.doi.org/10.5942/jawwa.2016.108.0047
the local median household income (MHI). Marginal cost
recovery appeared to be a realistic interim goal for systems
that are pursuing cost recovery. In the marginal cost recovery scenario, only five systems would exceed 2% MHI,
while 12 systems would exceed 2% MHI in the full cost
recovery scenario. Although marginal cost recovery rates
do not provide reserves for long-term capital upgrades and/
or replacement, they ensure that proper price signals are
identified for the customer. Thus, marginal cost recovery
appears to be feasible for many systems if municipalities
are willing to increase water rates up to 2% of the MHI.
Even with marginal cost pricing, very small systems will
need to consider affordability through careful rate design
and coordination with customer assistance programs.
Managers, regulators, operators, and other decisionmakers working with small drinking water systems may
benefit from considering the various cost recovery scenarios discussed and their implications for affordability
and the finances of small drinking water systems.
Corresponding author: Aaron Janzen is pursuing a master
of science degree in the Civil Engineering Program at the
University of Calgary, 2500 University Dr. NW, Calgary,
Alta., Canada T2N 1N4; [email protected].
FIGURE 1
120
Full Cost Recovery—%
Attempting to recover the true costs associated with
treating and supplying drinking water is a growing industry trend. While many jurisdictions mandate full cost
recovery, it is well known that small systems frequently
lack the capacity to deal with complex regulatory requirements and usually do not benefit from economies of scale.
As a result, balancing affordability with sustainability has
proved to be difficult in small water systems.
A variety of data were collected from 25 stand-alone
treatment plants. The systems all served municipalities
with populations less than 1,000 and were located
throughout Alberta, Canada. The collected information
included capital costs, annual operation and maintenance
(O&M) costs, annual treated water volumes, water rate
structures, annual incomes generated by the water rates,
and local median household incomes.
Capital costs, O&M costs, cost recovery, and affordability were analyzed. The capital and O&M unit costs
(dollars per cubic meter) were found to vary considerably
with the volume of treated water and the type of source
water. Both capital and O&M unit costs increased as the
community’s population decreased. Systems that use surface water were more expensive to build and operate than
when groundwater was the source. The O&M unit costs
in the 25 small systems studied were higher than shown in
recent survey results published by Statistics Canada, highlighting the agency’s recommendation to exercise caution
when extending their equations to small systems.
The costs and revenues of each system were compared
to determine how many systems achieved cost recovery.
Three common cost recovery scenarios were investigated.
Full cost recovery was defined as the recovery of all the
capital and O&M costs. Community cost recovery compared the community’s portion of the capital (excluding
grant money) and O&M costs to water revenues. Marginal cost recovery was approximated by comparing
O&M costs with the water revenue.
Only one community recovered greater than 100% of the
full cost of treating drinking water (Figure 1). Two achieved
community cost recovery, while seven communities recovered
the marginal cost of treating drinking water.
Finally, the impact on affordability of the three cost
scenarios was assessed using two affordability thresholds.
The affordability thresholds were defined as 1 and 2% of
Percentage recovery of the full cost of
treating water plotted against the annual
volume
Groundwater not under the direct influence of
surface water
Surface water and groundwater under the direct
influence of surface water
100
80
60
40
20
0
100
1,000
10,000
100,000
1,000,000
Annual Treated Water Volume—m3/year (log scale)
JA NZEN ET A L. | 108: 5 • JO U R NA L AWWA | M AY 2016
2016 © American Water Works Association
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