Andrea Guerrini, President of WAREG, the European network of water regulators, shares views with Aqua Publica on the role that water regulation can play in supporting utilities in their mission to provide efficient services. 

1. From your perspective (WAREG), what are the main challenges the water sector will have to tackle in the coming years and how can regulation help address them?

WAREG is the first association of water regulatory agencies in Europe. Established in 2014 and hosted by the Italian Regulatory Authority for Energy, Networks and Environment, which also holds its Presidency, it is based on the voluntary cooperation among 31 Agencies with supervisory and/or adjudicatory powers on economic regulation of drinking water and wastewater services.

One of the main objectives of our WAREG Associates is to ensure that public water and wastewater infrastructures maintain adequate quality standards, in order to avoid negative public health outcomes. From our surveys we observed that there is a need for significant and sustainable investment in such infrastructures, in order to address the growing pressures from environmental change, increasing demand and compliance with EU environmental standards. This is in the context of ageing infrastructure and/or previous underinvestment in many EU countries.

However, even though water in itself is a public good, delivery of qualitative drinking water and sanitation services to the entire population in a country is an industrial process that requires high expenditure in infrastructures and maintenance operations over the years. Consequently, another common challenge for WAREG Regulators is to ensure that additional costs for investments and operations, although targeted at meeting environmental safety and health standards, are fully recovered through affordable tariffs for all customers, in particular the most vulnerable ones.

Full support to the objectives on drinking water quality set by the European Commission proposal for a new Drinking Water Directive was expressed by WAREG in a recent position paper, where it was also asked to recognise more clearly in European legislation the importance of the action of economic regulators, whether at national, regional or local level, in order to ensure universal access to safe drinking water, economic affordability and transparency of water prices for households.

Additionally, some WAREG Associates are concerned with the proposed new EU regulation on minimum requirements for water reuse, that seems to promote a common framework to address the risks associated with water scarcity in several EU countries. The aims of the proposal to encourage more rational use of water, especially in the agricultural sector, are acceptable and their implementation could greatly benefit from regulatory tools.

2. How, more specifically, can regulation drive water utilities in designing sound and long-term oriented investment strategies?

Economic regulation works to address market failures for the benefit of the customers that they serve. Market failures can occur in the absence of sufficient competition in the delivery of services with negative outcomes for consumers of those services. Economic regulation is able to address these failures by introducing competition where appropriate or by using other measures that address price and/or standards of service provision.

Experience in sectors such as energy illustrates the valuable role that economic regulators can play in supporting efficient delivery of necessary infrastructure for the benefits of customers of service providers and wider society.

The economic regulatory toolbox available may differ depending on several external inputs, such as for instance type of regulatory powers, division of roles between different levels of administration (central, regional, local), water industry size, ownership structure, and other factors existing in a given country.

Regulators have to remain neutral with respect to investment and operation choices, however they can have some key tools to generate incentives to design sound and efficient strategies, such as:

• power to approve capital investment plans, capital and operational expenditure and associated charges for services to ensure necessary and efficient expenditure for defined outputs and outcomes that benefit customers;
• power to set and enforce defined standard for services to customers. For example, standards related to accuracy and frequency of billing, customer contact response times, notice of planned supply interruptions and complaints resolution processes and timelines;
• power to monitor and report on performance.Economic regulators can monitor and publish reports regarding delivery against that committed to by utilities for the costs the regulator allows them to recover from charges for the provision of services.

3. Responsibilities and institutional role of regulators vary from country to country. Despite these differences, what common trends do you see in the evolution of the 'job' of regulator?

According to the internal governance arrangements, regulation can be carried out at local, regional and/or national level, and in some instances there are forms of self-regulation. In half of EU countries economic regulation of water and wastewater services is centralised by law into a national independent Authority.

At the same time, where local regulation applies, Municipalities often find it difficult to accept guidance from a central Authority at national level, hence harmonisation of rules and quality standards should rely on different tools than those adopted.

Most importantly, despite the huge differences in regulatory models, similar problems can be found everywhere in Europe, which can be typically addressed by a regulator, such as:

• finding adequate financial resources to address infrastructure investment needs;
• driving cost-efficiencies for operators and value for the money paid by consumers;
• promoting reputational incentives on regulated utilities to improve performance by increasing efficiency of service delivery;
• engendering public trust and confidence in regulated utilities.

Find out more

• Read the full publication The Public Water Services of the Future: here
• WAREG, European Water Regulators: https://www.wareg.org/