The welfare costs of non-marginal water pricing: evidence from the water only companies in England and Wales

The evaluation of the economic efficiency of regulatory schemes is essential for regulators and utilities. In this study it is analysed for the first time the welfare costs of non-marginal cost pricing in the water supply in England and Wales, by computing the deadweight loss of the water only companies (WoCs) that existed over the period of 1993–2009. The results indicate that the current price schemes can have substantial efficiency costs. Our estimates show that the loss of efficiency for the WoCs lies between 15 and 60 million GBP over the period 1993–2009. These amounts could have been redistributed either to the companies in terms of profits or to the consumers via price reductions. The methodology and results of this study are of great interest for both regulators and water utilities managers to evaluate the effectiveness of price regulation and make informed decisions.     

Do political links influence water prices? Determinants of water prices in Germany

We explain water prices in Germany by analyzing demand and cost drivers, governance structures and political links to local politicians. First, we find evidence for economies of scope between supply and wastewater treatment. Soil rigidity significantly influences water prices, and prices tend to be higher in municipalities with declining populations. Second, we analyze governance structures and political links between local mayors and water utilities. We find weak indication that these factors influence prices. The existence of multiple political interests in the governance bodies overseeing water utilities tends to coincide with higher prices. As most of our governance and many of our political factors lack statistical significance, we conclude that it is mainly cost and demand factors that determine prices, and political links play a minor role.     

Privatizing water supply in Hong Kong

With the exception of the water supply industry, all major utilities in Hong Kong are owned and operated by private enterprises. In terms of price, returns, and productivity, the water supply industry in Hong Kong compares unfavourably with privately-owned utilities. The financial performance of the Water Supplies Department has been deteriorating in recent years. In order to improve the performance of the water supply industry, the Hong Kong Government should consider inviting the private sector to run the industry. Hong Kong can learn from other countries with regard to reforms made in the water supply industry.     

合理构建城市供水定价机制

目前我国城市供水价格不合理，既加大了供水单位和财政的负担，又造成用水的浪费。通过对城市水供水价格的构成、水价不合理的成因以及如何构建科学的城市供水定价机制等方面的阐述，指出我国城市供水价格应真实反映水的价值，同时提出了水价制定应采取的方式和途径。     

Financial sustainability of rural water supply: An analysis of cost recovery,revenue collection,and efficiency

Maintaining a financial sustainable pipe water supply (PWS) is one of the serious challenges in sustainable provision of water supply in rural areas. Poor revenue collection and willingness to pay for the service is adding severity to the problem. This study analyses the factors affecting revenue collection in rural water utilities and measures its efficiency in maximizing revenue and average hour of water supply per day. The findings convey that cost recovery is a failure in rural water supply even they are not able to generate revenue. Inactive community participation, the notion of free water supply, unaccountable payment is main reason for poor revenue collection. Therefore, active community participations, educating the household on water supply, adoption of accountable payment mode will be a step towards revenue generation. To attain efficiency, the utilities can expand their output revenue and hours of water supply by 22% without altering their input. This study is an empirical contribution in the field of sustainable provision of water supplies, which address the problem of poor revenue generation in rural water supply and find out the reason for it.     

Utility governance,incentives, and performance: Evidence from India's urban water sector

In developing countries, managing trade-offs between socioeconomic and environmental objectives in water utilities is challenging. The Indian water sector suffers from financial losses, lack of access, and poor service quality. We use a stochastic frontier analysis approach to study 304 urban water supply services during 2010–2015. We examine the role of socioeconomic and environmental aspects. Results indicate that water supply exhibits significant inefficiencies and, thus, scope for improvement. Measures to reduce non-revenue water, increase water quality, and improve cost recovery and bill collection, may help induce efficiency. Results also indicate that increasing water supply hours would improve service performance.     

Application of system dynamics for developing financially self-sustaining management policies for water and wastewater systems

Recently enacted regulations in Canada and elsewhere require water utilities to be financially self-sustaining over the long-term. This implies full cost recovery for providing water and wastewater services to users. This study proposes a new approach to help water utilities plan to meet the requirements of the new regulations. A causal loop diagram is developed for a financially self-sustaining water utility which frames water and wastewater network management as a complex system with multiple interconnections and feedback loops. The novel System Dynamics approach is used to develop a demonstration model for water and wastewater network management. This is the first known application of System Dynamics to water and wastewater network management. The network simulated is that of a typical Canadian water utility that has under invested in maintenance. Model results show that with no proactive rehabilitation strategy the utility will need to substantially increase its user fees to achieve financial sustainability. This increase is further exacerbated when price elasticity of water demand is considered. When the utility pursues proactive rehabilitation, financial sustainability is achieved with lower user fees. Having demonstrated the significance of feedback loops for financial management of water and wastewater networks, the paper makes the case for a more complete utility model that considers the complexity of the system by incorporating all feedback loops.     

How should urban water be priced? – An empirical analysis for the city of Mekelle,Ethiopia

Urban water utilities have focused on setting water prices to cover average costs, usually using increasing block rate designs. In an attempt to contribute to the use of efficient, equitable, and revenue-sufficient pricing, this paper estimates the long-run marginal and average social costs of water supply in Mekelle city using a multi-product translog cost function that incorporates the shadow price of natural water. Findings show that the marginal social costs of providing one m³ of residential and non-residential water are Birr 5.33 and 7.71 (Birr = Ethiopian currency: 1 Euro ≈ 23 Birr), respectively, while the average current prices are Birr 4.46 and 6.10/m³. On the other hand, the average social costs of residential and non-residential water are estimated at Birr 14.34 and 16.36/m³, respectively, implying that marginal social cost-based prices would still lead to a revenue deficit of approximately Birr 9/m³.     

Impact of operating rules on planning capacity expansion of urban water supply systems

ABSTRACT

Water utilities often rely on industrial water supply (e.g. desalination) to complement natural resources. These climate-independent sources of supply allow operators to respond quickly to varying operating conditions, but require them to choose operating strategies, or rules. How does such operational flexibility impact the performance of water supply systems? How might it affect long-term plans for capacity expansion? Possibly significantly, as demonstrated by the analysis of a water supply system based on Singapore. First, we simulate the dynamics of the system under multiple rainfall and operating scenarios to understand the extent to which the operators’ behavior affect system performance. Results show that different operating rules can have comparable impact on the variability in system performance as hydrological conditions. Then, we show that small changes in the operating rules can lead to substantial changes in the capacity expansions, such as the size of a new desalination plant.     

Cost and productivity effects of demographic changes on local water service

We investigate the impact of demographic changes on local public services taking the case of water service. We apply a structural production function approach to a large panel of German water utilities between 2003 and 2014. Exploring variation of population density and the population age structure across service areas and over time, we provide evidence that demographics and their changes significantly affect the utilities’ productivity and costs. We find that demographic changes cause significant cost increases in rapidly shrinking and ageing regions. Our results provide important policy implications regarding the prevention of growing regional disparities in public services.     

A composite indicator for measuring the environmental performance of water,wastewater, and solid waste utilities

The aim of this paper is to measure and benchmark the environmental performance of Portuguese utilities jointly active in the three sectors of water supply, wastewater collection and solid waste management. To do so, we suggest the use of a traditional (optimistic) directional distance Benefit of the Doubt index. We complement the analysis by considering also the pessimistic version of the proposed BoD and by implementing a robust and conditional approach. The obtained results show that there is space for improvement in the pressure balance of these utilities, especially for small and very large units, mostly operating in urban areas.     

Revising the existing Performance Indicator system for small water supply utilities in Japan

97.5% of the water utilities in Japan serve less than 50,000 customers, and are called small water utilities. The Performance Indicator system in Japan, used to evaluate the performance of various aspects of the supply system, currently has 137 items, which are too many in number for the small utilities to adopt because of resource and financial constraints. The objective of this study is to, thus, revise the existing PI system to arrive at a reduced, relevant and practical structure that provides enough information to rationally evaluate small water supply systems in Japan. Principal Component Analysis was used to reduce the dimensionality of the original data. The results suggest that only nine components, consisting of 33 items (called 9-cPIS), are sufficient for evaluating the small water utilities. The effectiveness of the 9-cPIS in benchmarking, evaluating business models, and the planning and management of the water utilities has been discussed further.     

Capture and corruption in public utilities: The cases of water and electricity in Sub-Saharan Africa

The paper focuses on public utilities services located in poor countries with a special attention to capture and corruption issues. It confronts the optimal policy of Auriol and Picard [Privatization in Developing Countries and the Government Budget Constraint, Nota di Lavoro 75.2002. Fondazione Eni Enrico Mattei, Milan, Italy] regarding private sector involvement in public utilities with empirical evidence on water and electricity in Sub-Saharan Africa (SSA). As predicted by the theory, the participation of private unregulated firms in the supply of services for the middle class and poor people is fairly common in SSA. By contrast, services for rich people are provided by public utilities. Theory suggests that their prices should be high so that the public firms make a profit. Yet piped water and electricity are subsidized. This suggests that there is a problem of capture by the ruling elite. Since ruling elites design privatization programs, there is concern about their optimality. The paper shows that the social cost of corrupted privatization is non-monotone in the opportunity cost of public funds. Because of the fiscal loss it represents, privatizing profit centers of public firms entails huge social costs in very poor countries.     

Is the price of water for residential use related to provider ownership? Empirical evidence from Spain

This paper assesses the relationship between provider ownership and the price of water for residential use set by 386 Southern Spanish municipalities. Our main contribution to the previous literature is that we go much further than merely distinguishing between private and public ownership. First, we find that prices are lower when the urban water service is directly provided by town councils. Second, when water services are contracted out to external companies, the prices set by public utilities are higher than the prices of private utilities due to larger fixed quotas. Finally, water prices are also higher when the provision of the service has been privatised to an institutionalised public-private partnership compared to contractual public-private partnerships.     

Non-conventional public-private partnerships for water supply to urban slums

Slums are a common feature in developing countries. The pressure of growing urbanization is exacerbating the deplorable socio-environmental conditions in the slums, where providing water supply remains as a key challenge. Public utilities usually are reluctant to supply water to slums due to lack of tenure and other policy hurdles. Alternative options such as conventional public-private partnerships (PPP) are not always feasible for slums. The authors investigated NGO led water supply arrangements in six slums of Dhaka city to show that the interventions are a variant form of PPP that differs from the conventional form in terms of institutional, financial and social aspects. These non-conventional PPPs used social capital of slum dwellers as a major resource in about 200 slums enabling approximately 100,000 poor slum dwellers to gain legal access to public water supply. It also increased water revenue collection efficiency and helped in reforming related public policies in Bangladesh.     

城市供水量预测的数学模型

考虑到时间、温度、水价对供水量的影响,建立了城市供水量预测的差分阻滞模型和神经网络模型,并对其预测结果进行了比较.结果表明:各模型都是可行的,且预测精度很高.考虑到用水负荷的从众心理和水价对个体用水量的影响,利用元胞自动机模型对水价与城市供水量之间的关系进行了模拟,模拟结果表明当社会从众心理一定时,水价的调整对供水量的影响有一个最有效的范围.     

The evolution of urban water systems: societal needs,institutional complexities,and resource costs

ABSTRACT

Urban water systems provide critical services to meet the supply, sanitation, and drainage needs of urban societies. Evolving needs have resulted in increasingly expansive infrastructure, raising questions about the sustainability of such large infrastructure investments. In this study, we demonstrate the historical interplay between growing urban water needs, the services developed to meet them, and their total resource cost. We hypothesize that needs evolve hierarchically, with predictable outcomes in the form of service progression. To test this hypothesis, we use a suite of metrics at the US national scale indicative of our proposed hierarchy levels. At the city scale, we assess the cost implications of this progression of services. We use the emergy framework to quantitatively reconstruct the historical resource requirements of supply, sanitation, and drainage services and show how evolving needs lead to mounting resource costs. Lastly, we discuss implications of continually increasing complexity for meeting future water needs.     

Measuring and comparing the efficiency of water utility companies: A data envelopment analysis approach

This study provides an analysis of Italian water utilities to determine the effects on their efficiency of certain relevant variables that have been broadly discussed in the existing literature. We reviewed the annual financial statements of 43 Italian water utility companies and obtained other technical data from Co.n.vi.r.i., the Italian national authority for water. Using data envelopment analysis we assessed their cost efficiencies and, using non-parametric statistic methods, we discuss the significant differences among clusters.We found that ownership structure, size and geographical location had an impact on the performance of water utilities, although with different degrees of significance.     

Operating in the shadowland: Why water utilities fail to manage decaying infrastructure

Decaying water infrastructure is a growing challenge in high-income countries while at the same time being under pressure from other socioeconomic and environmental issues. This paper analyses why addressing these challenges is so challenging, despite the critical role of water service for society. The paper is based on a study of the Swedish water sector and reveals how the utilities are influenced by several factors that constrain their agency. Most importantly, the utilities operate in a ‘societal shadowland’ where the public and politicians take their services for granted, lowering the sense of urgency and impeding their ability to take action.