Advanced

Costing fixed assets in Swedish municipalities: Effects of changing calculation methods

Yard, Stefan LU (2004) In International Journal of Production Economics1991-01-01+01:00 87(1). p.1-15
Abstract
When pricing public utility services Swedish municipalities are not allowed to charge more than their full cost. A dominant cost component in operations such as energy distribution or handling water and wastewater is the cost of fixed assets-depreciation plus interest, here referred to as "capital service cost" (CSC). The maximum acceptable price for the services is the full cost, i.e., variable cost plus fixed cost, which is mainly CSC. For CSC the sum of the present values (PV) should not exceed the investment value. Several different CSC methods meet such a PV criterion but allocate the CSC differently over time. To achieve a better match with the generated services, costing practice has changed, shifting among several alternate CSC... (More)
When pricing public utility services Swedish municipalities are not allowed to charge more than their full cost. A dominant cost component in operations such as energy distribution or handling water and wastewater is the cost of fixed assets-depreciation plus interest, here referred to as "capital service cost" (CSC). The maximum acceptable price for the services is the full cost, i.e., variable cost plus fixed cost, which is mainly CSC. For CSC the sum of the present values (PV) should not exceed the investment value. Several different CSC methods meet such a PV criterion but allocate the CSC differently over time. To achieve a better match with the generated services, costing practice has changed, shifting among several alternate CSC methods. As these alternates all meet the PV criterion, the issue of charging more than full cost has not been given much attention. However, it is not enough to focus on the internal consistency of the methods. The implementation of changes and the choice of parameter values, such as interest rates, have to be considered. Such wider analysis reveals that Swedish municipalities have overestimated the full costs in public utilities by a total of several tens of billions SEK (several billions USD) giving rise to a corresponding overcharge. (C) 2003 Published by Elsevier Science B.V. (Less)
Please use this url to cite or link to this publication:
author
organization
publishing date
type
Contribution to journal
publication status
published
subject
keywords
capital service, public utility services pricing, calculation methods, cost, Sweden
in
International Journal of Production Economics1991-01-01+01:00
volume
87
issue
1
pages
1 - 15
publisher
Elsevier
external identifiers
  • wos:000188762400001
  • scopus:0242494267
ISSN
0925-5273
DOI
10.1016/S0925-5273(03)00025-2
language
English
LU publication?
yes
id
b3c52ac3-0dba-4ed5-a1f4-91706c0e5d41 (old id 288699)
date added to LUP
2007-11-07 08:12:11
date last changed
2017-01-01 07:03:05
@article{b3c52ac3-0dba-4ed5-a1f4-91706c0e5d41,
  abstract     = {When pricing public utility services Swedish municipalities are not allowed to charge more than their full cost. A dominant cost component in operations such as energy distribution or handling water and wastewater is the cost of fixed assets-depreciation plus interest, here referred to as "capital service cost" (CSC). The maximum acceptable price for the services is the full cost, i.e., variable cost plus fixed cost, which is mainly CSC. For CSC the sum of the present values (PV) should not exceed the investment value. Several different CSC methods meet such a PV criterion but allocate the CSC differently over time. To achieve a better match with the generated services, costing practice has changed, shifting among several alternate CSC methods. As these alternates all meet the PV criterion, the issue of charging more than full cost has not been given much attention. However, it is not enough to focus on the internal consistency of the methods. The implementation of changes and the choice of parameter values, such as interest rates, have to be considered. Such wider analysis reveals that Swedish municipalities have overestimated the full costs in public utilities by a total of several tens of billions SEK (several billions USD) giving rise to a corresponding overcharge. (C) 2003 Published by Elsevier Science B.V.},
  author       = {Yard, Stefan},
  issn         = {0925-5273},
  keyword      = {capital service,public utility services pricing,calculation methods,cost,Sweden},
  language     = {eng},
  number       = {1},
  pages        = {1--15},
  publisher    = {Elsevier},
  series       = {International Journal of Production Economics1991-01-01+01:00},
  title        = {Costing fixed assets in Swedish municipalities: Effects of changing calculation methods},
  url          = {http://dx.doi.org/10.1016/S0925-5273(03)00025-2},
  volume       = {87},
  year         = {2004},
}