Regulation impact assessment. How much does a regulator cost to the society? João Rosa, David Alves e José Monteiro 9.º Congresso Mundial da Água Lisboa, 21-26 de setembro de 2014

1. BENCHMARK WITH OTHER SECTORS
INTRODUCTION
Regulation impact assessment How much does a regulator cost to the society?
J. Rosa*, D. Alves**, J. Monteiro***
*The Water and Waste Services Regulation Authority, rosa.joaofilipe@gmail.com ** The Water and Waste Services Regulation Authority, david.alves@ersar.pt *** Portuguese Water Partnership, jose.monteiro.ppa@ersar.pt
The Water and Waste Services Regulation Authority (ERSAR) has been regulating water services since the early 2000’s. Its creation followed a trend of growing regulatory intervention due to the liberalisation of several utilities markets in Portugal, such as telecommunications, energy, and healthcare, among others. In the 90’s, the water sector also initiated a process of concession contracts for the service provision and the need for a regulator impelled the creation of ERSAR. Its funding was, from the beginning, based solely on regulatory fees paid by the operators within the regulated market, which is a good practice in order to ensure regulatory independence from political powers. This study aims to analyse the impact of ERSAR’s financing fees on the sector’s turnover (drinking water and sewerage services – W&S) and on consumers’ final bill. Additionally, it is conducted a benchmark between ERSAR and the main Portuguese sectorial regulation authorities.
In order to quantify how much of the sector’s turnover is used to fund regulatory activities and what is the final impact on consumers’ invoice, the estimates are made between the current and predicted scenario. Additionally to these regulatory fees, drinking water operators pay a smaller fee to finance the drinking water quality control activity of ERSAR. ERSAR’s fees are based on two different indexations: Other important information:
METHODOLOGY
ERSAR’S BURDEN IN THE SECTOR
inspiring change
www.iwahq.org
These fees are approved by law and cover all ERSAR’s operational expenses and also activities related with the capacity-building of operators and awareness-raising of consumers.
Current scenario
•Level of activity based on year 2011;
•Only State-owned and private companies are paying regulatory fees;
Predicted scenario
•Level of activity extrapolated to the future, based on year 2011;
•All operators, regardless of their nature are subject to regulatory fees, reflecting the fact that ERSAR has started to regulate also those operators.
71 € per capita year
•Average cost of end-user W&S service
1.3 million €/year
•W&S operators’ turnover
a) Current scenario
b) Predicted scenario
Figure 2 – ERSAR’s burden on the W&S service operators
a) Current scenario
b) Predicted scenario
ERSAR will represent nearly 1 €/year per capita on the end-users’ bill
ERSAR represents 0.68 € /year per capita on the end-users’ bill
For the current scenario the total amount of regulatory fees paid by the operators was around 7 million euro, which has covered the annual budget of ERSAR. According to the analysis made for the year 2011, this amount of fees represents less than 0.5% of the total annual turnover of the operators subject to these fees. If the fees were applied to all the regulated operators, which is the envisaged scenario in the near future, this figure would increase slightly.
In the year 2011 the regulation is estimated to cost approximately 0.68 €, per capita, on average. In the predicted scenario this burden will increase a little more being situated slightly above 1 €, per capita, on average.
Figure 4 – Benchmark between fee’s revenue of some Portuguese sectorial regulation authorities in the year 2011 and their regulation universe
FINAL REMARKS
This analysis, which complements a broader regulatory impact assessment process, is important in order to provide greater transparency to the burden for society resulting from the regulatory activity. The study allows us to conclude that the regulation is a modern tool used to ensure a good quality of service at an affordable price, whose direct costs for society are negligible. We believe that the sharing of this experience and methodology used by ERSAR can be a step towards the appraisal of regulatory intervention as an effective tool for increasing society’s welfare and to thrive for better water services provided to the end-users.
Figure 1 – ERSAR's burden on the end-users’ W&S service costs
One important share of regulation authorities costs derives from its labour costs. Therefore, a comparison is made between regulation authorities in terms of the number of human resources. In this analysis, ERSAR appears to have the 2nd most efficient ratio. Regarding the burden on the regulated sectors, ERSAR stands in the 3rd position when comparing the average amount of fees per operator. When compared to other sectors, W&S’s regulation appears to have an inexpensive human structure and a suitable fee for its regulatory scope.
1st based on the operators’ level of activity (m3 invoiced);
2nd based on the population a given operator serves.
Figure 3 – Benchmark between fee’s revenue of some Portuguese sectorial regulation authorities in the year 2011 and their own human resources
99.05%
0.95%
98.53%
1.47%
99.58%
0.42%
99.39%
0.61%