Narrow Results

Improved access to clean water is important in improving health, relieving drudgery for women, and in designing and implementing effective poverty alleviation strategies. However, few empirical studies have had the objective of establishing the link between community participation and management, and sustainability of community based water utility projects. In addition, there is no consensus on the analytical techniques to use for sustainability assessment. This paper uses data collected from community water utility projects in two regions in Central Tanzania to demonstrate the use of canonical correlation analysis in sustainability assessment. The advantage of canonical correlation analysis is that the results are invariant with respect to the basis in which the variables are transformed. In addition, the analytical technique leads itself to identifying what management issues need to be addressed at the project level, to improve both community participation and management, and hence sustainability of such types of projects.

Social norms comparisons are tools that are being used more and more often by energy and water utilities all over the world in order to induce households to conserve resources. Such conservation programs are appealing to utilities since they are an easy-to-implement alternative to raising prices and commonly result in short-term reductions in energy and water use of about 2–5%. However, the welfare effects of social norms programs are rarely discussed and assessed, especially in the context of municipal water supply. The purpose of this paper is to identify the costs and benefits of social norms information treatments (SNITs) to all social groups and to illustrate a conceptual framework for conducting a benefit–cost analysis of social norms treatments in the municipal water sector. We provide plausible estimates for the costs and benefits of social norms treatments to different affected groups in the municipal water supply sector using current knowledge for both developing and industrialized countries in order to show how practitioners can conduct a benefit–cost analysis of an SNIT for a specific water utility. Our calculations show that the outcome of a benefit–cost analysis of an SNIT is highly location-specific and likely subject to substantial uncertainty. We also present a simple benefit–cost analysis of a price increase that would lead to an equivalent initial reduction in household water use. The latter is found to be more likely to result in net benefits to the society as a whole in low- and middle-income countries, but we show that, in this case, households would have to bear most of the costs.

A key issue facing U.S. water utilities is that while costs are generally fixed and increasing over time, the revenue is typically variable and has generally been decreasing/dampening over time, making it harder to maintain fiscal sustainability. Based on a comprehensive review of the relevant literature, we highlight the major factors that can potentially impact the fiscal sustainability of a water utility from an economic perspective. Furthermore, using numerical examples and data from North Carolina, we critically examine which of these factors actually contribute to the fiscal unsustainability of water utilities. We conclude that decreases in demand and increases in costs are the two primary driving forces. Particularly, rate increases cannot be attributed as a determinant of fiscal unsustainability because of the inelastic nature of water demand. Finally, we also highlight strategies for U.S. water utilities to improve their fiscal sustainability.

Residential “Nonpayment risk” for water utilities — the risk of revenue loss from residential customers not paying water bills — is a financial risk for water service providers that remains poorly understood. Current rate setting strategies do not explicitly consider nonpayment risk and are generally informed by past payment histories. We develop a new heuristic model to categorize and evaluate water utility pricing (rate setting) strategies that are responsive to the effects of nonpayment (i.e., delinquency) on water utility revenues. The model is the first attempt, to our knowledge, to theorize the impact of residential nonpayment on utility revenues. The method draws on the theory behind the Kelly Criterion, a strategy developed in the mid-20th century now used by investors in portfolio management. The results of our thought exercise show that even excessive nonpayment levels (50% each year) do not negate the effectiveness of rate increases for revenue generation, but that nonpayment management can provide revenue benefits. Without political motives, utilities with high nonpayment may be inclined to continue raising water rates, unless higher water rates result in higher nonpayment levels. As such, we highlight the need to understand “nonpayment elasticity”: the change in nonpayment due to changes in water rates. We illustrate how increased nonpayment elasticity can decrease the percent of potential revenue collected, particularly when water rates are increased substantially. The simple model provides a method to evaluate the financial sustainability of elevated nonpayment rates in water utility management and financial risk analysis.

This chapter provides evidence for whether or not regulation can improve the performance of government-owned water utilities. While other studies have examined whether private participation combined with regulation can improve the performance of government-controlled water utilities, there has been little research on whether regulation alone can improve performance.

This chapter examines five case studies on water utility reform in Latin America and the Caribbean. In each case study, a regulatory regime designed for private companies was applied to a government-controlled utility. Assessing performance across a number of indicators, the evidence shows that performance was as likely to deteriorate as to improve during periods of regulation of government-controlled utilities. This contrasts with the evidence of improvement following reforms that combined regulation with private participation. The findings suggest that conventional regulation may be of little use in government-controlled utilities. Conventional regulation is designed to prevent a profit-maximizing utility from raising tariffs above reasonable cost-recovery levels. Government controlled utilities, however, are not commercially motivated and face systematic incentives for short-termism in tariff-setting. Therefore, limiting monopoly profits is not usually the problem that needs to be addressed.

We conclude that, conventional regulation of a government-controlled utility is not useful in isolation. However, regulatory tools can complement governance reforms. One approach may be to adapt conventional regulatory tools so as to help citizens judge the performance of the utilities. Such an approach would help to increase government accountability for the performance of government-controlled utilities.