The Regionalization of Water Utilities: Perspectives, Literature Review, and Annotated Bibliography
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96-21 THE REGIONALIZATION OF WATER UTILITIES: PERSPECTIVES, LITERATURE REVIEW, AND ANNOTATED BIBLIOGRAPHY Janice A. Beecher, Ph.D. Senior Research Scientist and Director of Regulatory Studies Center for Urban Policy and the Environment Indiana University with J Higbee Anthony Menzel and Richard Dooley Graduate Assistants School of Public and Environmental Affairs Indiana University for THE NATIONAL REGULATORY RESEARCH INSTITUTE The Ohio State University 1080 Carmack Road Columbus, Ohio 43210 (614) 292-9404 July 1996 This report was prepared by The National Regulatory Research Institute (NRRI) with funding provided by participating member commissions of the National Association of Regulatory Utility Commissioners (NARUC). The views and opinions of the authors do not necessarily state or reflect the views, opinions, or policies of the NRRI, the NARUC, or NARUC member commissions. NRRI 96-21 EXECUTIVE SUMMARY Regionalization constitutes fundamental structural and institutional change in the way water and wastewater utility services are provided. Regionalization reflects structural change in terms of consolidating water utility ownership, operations, or management within a politically geographic or hydrogeologic area. Regionalization reflects institutional change in terms of establishing public policy and resource planning frameworks that encompass regional considerations. This bibliography provides a contemporary, broad-based, and multidisciplinary collection of works on regionalization in the water sector. Those contemplating regionalization for the first time may be impressed by the extent to which others have contemplated this issue as well. This report provides a brief literature review and a lengthy annotated bibliography on the subject of regionalization in the water and wastewater utility industries. A comprehensive and iterative approach was taken in developing the literature database, which consists of books, reports, articles, and conference papers. Many important contributions to the literature are highlighted in the bibliography, which is organized into seven general areas: 1. Economic Analysis 2. Utility Operations 3. Natural Resources 4. Implementation 5. Policies and Institutions 6. Case Studies in Regionalization 7. General Planning and Administration The water literature, defined here broadly, clearly speaks to the issue of regionalization in important ways. Emerging paradigms, especially watershed management, directly reflect regional perspectives. The literature is very multidisciplinary and gradually becoming interdisciplinary, as well as very international in character. The blending of scientific and institutional considerations in water THE NATIONAL REGULATORY RESEARCH INSTITUTE iii NRRI 96-21 resource planning and management appears to be one of the more noteworthy trends. Taken as a whole, the studies in the literature find much agreement over the technical and economic benefits of regionalization, but frustration with the institutional context of implementation. As new approaches to regionalization are explored, the literature will grow. iv THE NATIONAL REGULATORY RESEARCH INSTITUTE NRRI 96-21 TABLE OF CONTENTS FOREWORD .................................................. vii PERSPECTIVES ON THE REGIONALIZATION OF WATER UTILITIES: REVIEW OF THE LITERATURE ............................... 1 Introduction ............................................... 1 Approach .............................................. 3 Organization ............................................ 5 Literature Review ........................................... 7 1. Economic Analysis .................................... 7 2. Utility Operations ..................................... 13 3. Natural Resources ................................... 20 4. Implementation ...................................... 24 5. Policies and Institutions ............................... 29 6. Case Studies in Regionalization ......................... 35 7. General Planning and Administration ..................... 39 Observations ............................................. 44 ANNOTATED BIBLIOGRAPHY .................................... 47 THE NATIONAL REGULATORY RESEARCH INSTITUTE v NRRI 96-21 FOREWORD Regionalization is a timely topic in water resources planning and management. Public utility regulators may find occasion to consider the implications of regionalization in the context of developing economic regulatory policies for the regulated water sector. This bibliography provides a comprehensive overview of the regionalization perspectives. Douglas N. Jones, Director July 1996 THE NATIONAL REGULATORY RESEARCH INSTITUTE vii NRRI 96-21 THE REGIONALIZATION OF WATER UTILITIES: PERSPECTIVES, LITERATURE REVIEW, AND ANNOTATED BIBLIOGRAPHY Introduction Regionalization constitutes fundamental structural and institutional change in the way water and wastewater utility services are provided. Regionalization reflects structural change in terms of consolidating water utility ownership, operations, or management within a politically geographic or hydrogeologic area. Regionalization reflects institutional change in terms of establishing public policy and resource planning frameworks that encompass regional considerations. This bibliography provides a contemporary, broad-based, and multidisciplinary collection of works on regionalization in the water sector. Those contemplating regionalization for the first time may be impressed by the extent to which others have contemplated this issue as well. Many of the authors represented in the bibliography offer definitions of regionalization: Regionalization refers to large, physically united systems or the coordinated management of two or more independent systems (American Water Works Association, 1979). Regionalization is the administrative or physical combination of two or more community water systems for improved planning, operation, and/or management. Regionalization should be viewed in the context of a range of possible approaches, from the actual physical interconnection of systems to an administrative and management arrangement to provide common technical, operational, or financial services for two or more systems (SMC Martin, Inc., 1983: III-1). Regionalization is the integration or coordination of the physical, economic, social, information, or personnel structure of water resource projects to better [address] national, regional, and local societal objectives and constraints (Whitlatch and ReVelle, 1990: 70). THE NATIONAL REGULATORY RESEARCH INSTITUTE 1 NRRI 96-21 Regionalization is the consolidation of two or more water systems for the purpose of increased viability (Pennsylvania Public Utility Commission, 1995, as reported in Holland, 1995). Emerging evidence, reflected in the case study literature, suggests a possible trend toward regionalization in the water industry, both domestically and abroad. Systematic and conclusive evidence of a trend toward regionalization is not readily available. A trend that is easier to document, however, is the growing literature on regionalization. Although not a new concept, regionalization seems to be getting increasing attention. Rapidly rising water costs have brought water system economies (or diseconomies) into focus. The interest in regional solutions also can be linked to the growing interest in closely related subjects, such as watershed management, integrated resource planning, and privatization. Regionalization has been studied from theoretical, empirical, practical, and ideological viewpoints. Some studies of regionalization are highly scientific; others are more subjective. The literature leans heavily in favor of regionalization as the preferred approach to water industry organization. As a generalization, regionalization is believed to offer substantial economies of scale and scope, yielding efficiency benefits as well as ecological benefits through improved resource management. Support for regionalization comes from many corners. The literature provides not only very specific rationales for regionalization, but also specific strategies for implementation. Two important caveats accompany this observation. First, from a technical standpoint, analyses found in the literature recognize limits to economies of scale. Bigger is not always better because economies in certain utility operations (such as source development and treatment) are offset by diseconomies in other operations (such as transmission and distribution). Second, from an institutional standpoint, studies in the literature also recognize the institutional tradeoffs involved in establishing regional water utility operations. Water utility operations historically have been very local, if not parochial, in character. Yet in many respects, existing institutions do not 2 THE NATIONAL REGULATORY RESEARCH INSTITUTE NRRI 96-21 adequately address the legitimate needs of communities to participate in water resource decisionmaking. The strong desire to maintain local control, therefore, remains a significant barrier to regionalization. The purpose of this bibliography is not to fully explore or analyze these and other salient dimensions of the literature. Specific methodologies or findings are not evaluated or critiqued. Rather, the purpose of the bibliography is to expose readers to the larger context of regionalization and the full range of issues addressed in the literature, while highlighting some key findings of interest. The numerous contributions to this area, and the many vantage points represented, can help inform