NAWC releases report on alternative regulation and ratemaking approaches

Oct 28, 2013

The National Association of Water Companies (NAWC) announces the release of a report on regulatory mechanisms that can help the U.S. water sector address much-needed infrastructure investment in the coming decades.

Titled "Alternative Regulation and Ratemaking Approaches for Water Companies: Supporting the Capital Investment Needs of the 21st Century", this is the first report of its kind. It promises to be a useful tool in determining where these policies that streamline the regulatory process can be more widely applied to water utilities. These alternative regulatory mechanisms are applied to some degree across all regulated utility sectors. The study shows while significant progress for the water sector has recently been made, there is a clear pattern of these alternative regulations being applied less often and in fewer states to regulated water companies than to electricity and natural gas utilities.

From the executive summary:

"The report shows that the electric and natural gas delivery industries have in place a larger number and a greater variety of alternative regulation policies compared to the water industry. The water industry has made recent progress in innovative ways to recover capital investments in their distribution systems."

The study provides a state-by-state comparison for each utility across the water, electricity, and natural gas sectors, along with a complete discussion about the future challenges for the country’s critical water infrastructure.

"This is an important study and the first of its kind to really look at where these alternative policies are being applied. The water industry faces a significant investment challenge over the next 20 years, and these mechanisms can help us meet that challenge. While the report shows some encouraging trends, it is clear that all stakeholders in the regulatory process need to explore how these policies can be applied to the regulated water sector, ultimately to the benefit of the customer," said Michael Deane, executive director, NAWC.

This report ties in with recent discussions at meetings of the National Association of Regulatory Utility Commissioners (NARUC) surrounding the future of the regulated water sector. As the most capital intensive of regulated utility industries, water companies need to have sufficient capital to invest in their systems and continue to provide exemplary service to their customers. NARUC recently recognized two critical issues facing the industry by unanimously adopting two resolutions that help large and small companies navigate the regulatory process and recover the revenue necessary for their systems:

  • Resolution Supporting the Consideration of Regulatory Mechanisms and Policies Deemed “Best Practices” for the Regulation of Small Water Systems
  • Resolution Addressing Gap Between Authorized Versus Actual Returns on Equity in Regulation of Water and Wastewater Utilities

The full report, "Alternative Regulation and Ratemaking Approaches for Water Companies: Supporting the Capital Investment Needs of the 21st Century", is available for download on the NAWC Website under Documents & Publications.

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