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Besides, what methodology you think is preferable for allocating costs and describe the solution of the most difficult aspect in it
Ok,
After researches in Rate Setting and Subsidy Design Strategies (Cost Of Service), I figured that the best revenue requirement methodology for water industry is "The Cash-Needs" approach.
In the beginning we developed "Cost Of Service" module using "The Rate of Return" method in calculating revenue requirement. But it had one major issue in taking Depreciation into account which amplifies the sum of revenue requirement.
Then, we chose The Cash-Needs approach, as its moniker implies, seeks to provide the regulated entity with enough cash/revenue for the firm to operate, plus provide some “cushion” for profits or reserves, without exaggeration by taking accruals (as depreciation) into account.
