Allocating broadband costs is considered a best practice in the utility industry to treat each utility service as a standalone business, responsible for each utility recovering their full cost of service. Broadband utility infrastructure is used by the entire community. Thus, the municipality’s utilities and city government should pay for the cost of broadband usage, just as any other customer.

Several commonly used methods allocate inter-departmental broadband costs. These methods generally involve a fixed monthly fee to cover the fiber infrastructure's fixed costs and a variable component based on operation and maintenance expenses. Other methods may use allocations based on bandwidth usage or the number of fiber strands used.

One approach is using a fixed and variable fee. The monthly fixed charge is based on dedicated interconnections' carrying costs (depreciation and rate of return) of the installed fiber's length.

In addition, a variable charge should be calculated based on the actual operation and maintenance expenses of fiber maintenance. The allocation method would be based on the route miles (10%) in the above example.

Alternatively, a cost allocation based on data usage could be used if the utility uses AMI metering with wireless technology and hard-wired connections for substation usage. This method involves comparing overall data bandwidth used to the total network usage and multiplying by the total data fees for the year.

Allocating broadband costs equitably benefits customer rates, as utilities and municipalities gain efficiencies through broadband services, leveraging a ready resource rather than constructing new facilities.

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About Russ Hissom - Article Author

Russ Hissom, CPA is a principal of Utility Accounting & Rates Specialists a firm that provides power and utilities rate, expert witness, and consulting services, and online/on-demand courses on accounting, rates, FERC/RUS construction accounting, financial analysis, and business process improvement services. Russ was a partner in a national accounting and consulting firm for 20 years. He works with electric investor-owned and public power utilities, electric cooperatives, broadband providers, and gas, water, and wastewater utilities. His goal is to share industry best practices to help your business perform effectively and efficiently and meet the challenges of the changing power and utilities industry.  

Find out more about Utility Accounting & Rates Specialists here, or you can reach Russ at russ.hissom@uarsconsulting.com.

The material in this article is for informational purposes only and should not be taken as legal or accounting advice provided by Utility Accounting & Rates Specialists. You should seek formal advice on this topic from your accounting or legal advisor.