PURC Director of Water Studies Dr. Sandy Berg delivered a presentation about benchmarking water utilities, drawing from his International Water Association book on the topic. He also met with 40 staff from SUNASS, the water/wastewater regulatory commission. Señor José Salazar Barrantes, Presidente del Directorio of SUNASS, delivered an overview of the evolution of the agency, focusing on performance indicators. Ana Vergara (June 1998 PURC/WB alumna) translated his presentation into Spanish.
The operators of large and small water and wastewater systems in the Caribbean have identified performance indicators as an important area for capacity-building. This collaborative workshop presents the results from Phase I of the CariWOPs Program (funded by UN-Habitat and IDB).
This project, funded by the Inter-American Development Bank, has three purposes:
Assemble verifiable benchmarking data for the Central American nations;
Prepare studies that identify the relative performance of utilities in the region;
Organize a workshop to promote sustainable data collection procedures, making information available to key stakeholders.
Empirical procedures allow analysts to measure cost or productivity performance and identify performance gaps. Such metric benchmarking is essential for those developing and implementing water policy. The tools are important to:
Document past performance
Establish baselines for gauging productivity improvements, and
Make comparisons across service providers.
Rankings can inform policymakers, those providing investment funds (multilateral organizations and private investors), and customers regarding the cost effectiveness of different water utilities. If decision-makers do not know where they have been or where they are, they cannot set reasonable targets for future performance.
Survey of Benchmarking Methodologies in the Water Sector
This survey focused on metric benchmarking that quantifies the relative performance of organizations or divisions. The study identifies the strengths and limitations of several techniques that yield performance scores based on production or cost estimates (“total” methods).
The production and cost applications pertain to the water sector, but the principles of data envelopment analysis and econometric analysis can be applied to any industry. Using well-established empirical procedures, the analyst can measure cost or productivity performance and identify performance gaps. Such metric benchmarking is essential for those developing and implementing water policy. The tools are important for documenting past performance, establishing baselines for gauging productivity improvements, and making comparisons across service providers. Rankings can inform policymakers, those providing investment funds (multilateral organizations and private investors), and customers regarding the cost effectiveness of different water utilities. If decision-makers do not know where they have been or where they are, they cannot set reasonable targets for future performance. Some of this material has been incorporated into the World Bank’s IBNET (The International Benchmarking Network for Water and Sanitation Utilities).
PURC Director of Water Studies Sanford V. Berg serves on the Faculty Advisory Committee for the University of Florida Water Institute. Progress Energy is a founding sponsor of the institute. UF is initiating a number of programs that address resource sustainability issues, including those associated with water.
Reubin O’D. Askew Institute
In 2005 PURC and the Askew Institute hosted a conference on water issues, “How Should Florida’s Water Supply be Managed in Response to Growth?”. Water policy experts discussed current planning initiatives, as well as the environmental and economic considerations involved in linking water supply to population growth. The program also examined the evolution of water supply policies at home and abroad, their implications for economic development, and strategies for educating the public about water sustainability issues.
Risk mitigation applies a set of institutional and financial instruments to make risks and rewards commensurate with each other, promoting efficient capital allocation. Managers and investors are concerned about measuring risk and evaluating the effectiveness of these mechanisms when considering private investments in infrastructure. Policy-makers share these concerns since infrastructure is important for economic and social development: excessive risk limits investment. Potential investors in international energy projects seek mechanisms for risk mitigation.
There are three basic approaches to mitigating regulatory risk: institutional instruments that limit the possibility of government opportunism, financial instruments that decrease financial risk, and managerial strategies, such as choosing technologies that may not be cost-minimizing but that have lower “sunk” costs than more traditional alternatives.
This project surveyed ways to measure and mitigate regulatory risk, directing attention to indicators and methodologies that have been developed to explain infrastructure investment. It summarizes important studies on regulatory indicators and on institutional and financial instruments for mitigating regulatory risk in infrastructure. The concluding observations identify some key issues that warrant additional attention. The output of the project consists of a literature review and a survey article available through the research papers search engine.
Jamison, Mark A., Lynne Holt, and Sanford V. Berg. 2005. “Mechanisms to Mitigate Regulatory Risk in Private Infrastructure Investment: A Survey of the Literature.” University of Florida, Department of Economics, PURC Working Paper.
Jamison, Mark A., Lynne Holt, and Sanford V. Berg. 2005. “Measuring and Mitigating Regulatory Risk in Private Infrastructure Investment.” The Electricity Journal, 18(6): 36-45.
Infrastructure Regulation and Market Reform
Designed for government and industry policy makers, this book on the principles and practice of Infrastructure Regulation and Market Reform is co-published by PURC and the Australian Competition and Consumer Commission (ACCC) and covers such topics as price cap regulation, interconnection pricing, investment incentives, benchmarking, and sector issues.