Relevant and even prescient commentary on news, politics and the economy.

Institutions and markets

David Zetland at Aguanomics ponders the interplay of institutions and markets (reposted with authors permission). LocaL conditions in this context are those conditions in a watershed area.

This is what I mean by institutions

I wrote this for some partners on our water project, and I post it here because it seems to give a nice perspective on what we mean by institutions and how to form markets in accord with local conditions.

This section will discuss the potential for using water markets or auctions in the Tajo-Segura basins, along with the institutional details affecting the potential for the successful implementation of markets. Institutional details are important, because they tend to change the nature of markets, making it important to include details in the design and implementation of markets that reflect institutional conditions.

Institutions can take many forms, from the resilient and resistant institutions of culture, to the formal and informal practices of law, to the day-to-day interactions of an evolving population (Williamson 2000). History creates institutions (via path dependency), but history is not destiny. Ideas and actions can change institutions that no longer serve the needs of society.

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Delivering water quality to the tap

David Zetland at Aguanomics reminds us that we always need to get people on board and invested with results of policies, and perhaps a way to keep track relevant to daily lives as well.  Water delivery is pretty local so far in the US, but taken for granted in only parts of the US:

Delivering water quality to the tap

I’m now in Kiev (looking into their water utility regulation), and a typical problem has popped up, i.e., the difficulty in delivering water quality to the tap.
The physical layout of water systems — taking raw water from ground or surface sources, treating it, pumping it through large pipes to smaller pipes, then to building pipes and finally to the tap — means that there are multiple points at which clean water can get contaminated. There’s the problem of dirty water at source and poor treatment, of course, but the more common problems occur when water in transit gets dirty from old or leaking pipes.
By my understanding, most utilities run their systems to deliver clean water to the building (usually at a meter), with the quality of the piping between the meter and the tap being the building owner’s responsibility.
Building piping has two problems. The first is old or leaky pipes that may contaminate the water. The second is that some buildings have many residents who share the same pipes (and sometimes the same meter). Neighbors therefore need to find ways to share their water (rather, the bill) as well as keep their communal and unit-plumbing in good condition.

There are several ways to share the bill (divide by people, install submeters, etc.), but I want to concentrate on the plumbing problem in buildings and networks. The first issue is to know whether the water is safe to drink at the tap. If that’s not true, then it’s important to find where it gets contaminated. That question can result in finger pointing between customers and the utility as to who should pay for water testing, so I came up with this idea, taking as given the fact that utilities (and their regulators) need to ensure that water is safe to drink; it’s not the customer’s obligation, even if it’s in the customer’s interest. Such a “fact” means that utilities need to take the lead on quality testing, and here’s how I’d do it.

  1. Any utility that says its water is safe also needs to persuade customers of that fact.
  2. So it can include coupons in a few hundred bills (every month or so) that can be used to get a free water test at the customer’s tap by a qualified tester. The real cost will be $10-100, depending on local labor costs.
  3. Qualified testers are listed on a website; they are certified and equipped to test water in the house. That website also provides them with free advertising.
  4. Customers contact a tester who measures their water quality (hand held testers are getting better and cheaper). Test results are posted on the internet (without an exact address) and to the utility.
  5. “Safe” results allow the tested customer (and some share of neighbors) to have a better opinion of their water — and drink more of it.
  6. “Unsafe” results will trigger a second test by the utility, to determine if water at the mains is clean (thus the building plumbing has issues) or also dirty. Those results will make it easier for the utility and/or building owner to take action.
  7. There’s a potential problem if tester trying to get false results of unclean water (to get more business), which can be reduced by witholding payment from those whose tests are contradicted in a retest. Those who get too many false positives can be removed from the list (in 2), which will hurt their business. So they are likely to be honest.
  8. We also hope that the utility is honest, but that’s the regulator’s responsibility — and no utility will be able to cover up bad test results for very long.

This idea will help utilities find contamination problems and persuade customers that water is safe to drink (and thus worth paying for!) at the same time as it supports an independent industry for assuring water quality. (Such an industry could survive in places like the Netherlands because testers are also likely to be plumbers who are ALWAYS needed.)

Bottom Line: Water quality is hard for an individual to determine, but utilities can make it easier — and make their product more attractive — by paying for random water tests.

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The political-economy of water…all in auctions

From David Zetland comes this re-posting from  Aguanomics on addressing issues in the political economy for  water.

The political-economy of water…all in auctions

I’ve been working on this idea for 5-6 years, and I think it has great potential for reallocating water while respecting the rights of existing users. It just came out in the Journal of Environmental Management.

Abstract: This paper proposes a novel mechanism for reallocating temporary water flows or permanent water rights. The All-in-Auction (AiA) increases efficiency and social welfare by reallocating water without harming water rights holders. AiAs can be used to allocate variable or diminished flows among traditional or new uses. AiAs are appropriate for use within larger organizations that distribute water among members, e.g., irrigation districts or wholesale water agencies. Members would decide when and how to use AiAs, i.e., when transaction costs are high, environmental constraints are binding, or allocation to outsiders is desired. Experimental sessions show that an AiA reallocates more units with no less efficiency that traditional two-sided auctions.

Those of you with an academic subscription can download it here. Those of you without can download my author’s copy [pdf]

Here’s an earlier post that links to other presentations of the AiA.

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Miya Water’s quest to plug leaks

Via David Zetland’s Aguanomics. I continue to follow David’s thinking on how to plan, price, and ultimately use water in a 21st century manner. He offers interesting notions on the roles of government/pricing (and markets). There is currently big bucks involved and only to grow in importance and critical decisions to be made. Water is also an intensely watershed based arena (local) except when it is not. Re-posted with permission.

Miya Water’s quest to plug leaks

While in Jerusalem, I had the opportunity to speak with Tami Gaoni Feldman of Miya Water.
Her company is in the business of reducing non-revenue water (NRW), or water that goes into pipes but never reaches a customer’s meter gets paid for.
Well-managed water systems might have a NRW rate of 5 percent (due to fire hydrants, flushing the system, minor leaks, etc.). In a poorly-managed and maintained system, NRW rates range from 40 to 90 percent. The most common causes of high NRW rates are theft of water, non-payment of bills, leaking pipes and miscalibrated meters.
IBNET tracks NRW rates for about 2,000 utilities.
Tami told me that Miya is working with one of two utilities in Manila, where the 300 staffers in the NRW division tackle 100 leaks per day and overall system losses of 300 ML per day (about 240 acre feet per day). Miya has had some success so far in reducing NRW from 67 to 50 percent.
Miya uses three main tools to reduce NRW: monitor and fix leaks, manage system pressure to reduce leaks in low-demand periods (middle of the night), and increase payment for services. As a first step, Miya makes sure there are water meters at big junctions, to make it easier to track down branches with high 24/7 baseline use.

These technical details were interesting, but Miya faces an additional problem: water managers and politicians facing water shortages prefer to increase supply (via desalination, reclamation, groundwater pumping, etc.) instead of reducing NRW losses.
This behavior does not make sense from a cost-benefit perspective. A decent NRW program will increase revenue per unit of treated water pumped into the system. Those revenues mean that NRW programs “pay for themselves.”
I hate to say it, but this feature is even more attractive than my “raise prices” recommendation: it’s an engineering solution (water managers like those) that will not increase prices (politicians like those).
So why is it hard for Miya to sell its services?
I see two main reasons. First, a good NRW program requires up-front financing to pay for staff, software, meters, and so on. For most cash-strapped utilities, additional money is hard to come by. So why not get a loan from a bank or development agency? Because (according to Tami, but within my understanding) bankers are not familiar with NRW programs. They are more comfortable with making loans on physical assets like desalination plants that can be pledged as collateral.
Now stop and think about this for a second. What happens if a water utility fails to repay a loan on a NRW program? There’s no collateral to grab. What happens if it fails to repay a loan on a plant? Yes, there’s collateral, but then what? Are the bankers going to drag a plant from Dhaka back to Geneva? So the “collateral excuse” is hollow.
That leaves conservatism and one other excuse: managers and politicians like new facilities that they can pose in front of, cut ribbons for, etc. There’s no photo opportunity at a non-leaking pipe.
We couldn’t think of any other reasons, but maybe you can.
Until then, I will conclude that NRW reduction programs are an underutilized method of improving utility performance.
Bottom Line: Every water utility should have a program to track, report and reduce its NRW rate — for its financial stability, environmental stability, and the good of its customers

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Full cost pricing, the poor, or both?

by David Zetland
reposted with permission from Aguanomics

Full cost pricing, the poor, or both?On 19 April in Berlin, I joined a debate in favor of the following proposition:

Is cost recovery pricing the best way to ensure the poor have access to good water services?

I was seconded by Dr William Muhairwe, Managing Director of the NWSC Uganda.
Arguing against full cost pricing were Wenonah Hauter (Executive Director of Food and Water Watch) and Anil Naidoo (Blue Planet Project Organizer for the Council of Canadians). Wenonah and Anil are colleagues of Maude Barlow.*

The conference used the provocative URL of “water meets money,” and that name alone was enough to attract 15-20 anti-corporate greed protestors (there were about 450 attendees at the conference).** Their attendance was particularly ironic, since it was corporate money that upgraded Berlin’s water system over the past ten years (at lower cost than was expected of the previous, public-only management).

We won the debate. That was not such a surprise with a crowd that has fought to get adequate money for water services. What I thought interesting was the way that Wenonah and Anil chose to argue their position.

Rather than pay attention to the ongoing failures of water service, governance and political leadership in places where the poor lack water service, they claimed that corporations should pay more taxes. Although it sounded like they were presenting talking points instead of responding to the position that William and I presented, I guess that they were thinking that this pot of money combined with the UN-backed human right to water would deliver services. But their argument was weak on several levels:

  1. They failed to address governance failures.
  2. They failed to acknowledge successes of full cost pricing in places like Uganda (and many others).
  3. They failed to consider how higher tax revenues on corporations (should they even be collected!) would somehow get to water providers, and THEN support water services to the poor.

I concentrated on two points:

  1. Subsidies to the poor (via income transfers or even some for free, pay for more water prices) are not incompatible with full cost pricing within a water utility.
  2. Subsides from the central government (or aid agencies) are unstable and come with strings attached. Given the problems that governments face (from the US to India), it seems folly to link water services to political games that would rank water way down the list of priorities.***

My partner, William, presented even stronger points. He spoke from experience of delivering water to the largest cities in Uganda. Compared to him, Anil sounded way more “let’s sing kumbaya, guys” than realistic.

But don’t believe me, listen to the whole debate here [MP3 backup]. The first few minutes of my statement were not recorded. Here are my notes [pdf]; I didn’t use them all.

Wenonah also made some funny claims about my previous ideas (she totally misunderstood all-in-auctions and called me a Stalinist for my idea of pricing water per person). Here’s her take on the debate, which includes the classic line “…is it any surprise that we lost 75% to 25%? Anyway, Anil and I knew we won the debate on the merits and ethics of our arguments.” Sounds like something that Gaddafi, Mugabe or Mubarak would say (as defenders of Their People).

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The water data hub is LIVE!

Who gets water at what prices in the US still appears to be considered a local issue in the US at its core, and at best regional during droughts that cross borders or as it pertains to agricultural use and ‘retail’ (cities and burbs).

 The issue of private versus public ownership is not very visible yet in US news, nor our need to repair our infrastructure (see my series on water  links to Part 1-5) .  And our friends in Texas haven’t sent any recent alerts to me on their current problems (have any of us followed any other drought concerns on the national stage?). Water distribution questions did actually make national news in 2007/2008 droughts along the east coast and southwest but quickly disappeared.  However, the fault lines on who has access to water, news on how we actually obtain fresh water,  and questions on price structures became quite sharp and very legal in a only a year or two.

The question on an international scale remains largely invisible to US and perhaps is time to revisit.  The IMF and World Trade Organization ownership rules are considered arcane and not relevant unless it involves the occasional town water supply and a company like Nestle’s.

Ian Wren and David Zetland have begun the Water Data Hub to help centralize primary source material worldwide. The authors announced the hub to help centralize data at David’s Aguanomics:

I’ve been looking for a centralized source of water data for over a year, a place where I could go to find data on any kind of water question.

Although that quest led me to IBNET — a fantastic resource on water utility data in many countries — I was unable to find a good centralized index of water data.
Even more depressing, I was unable to get any interest or support out of organizations (USGS, World Bank, OECD, et al.) whose missions might imply support for just such an idea.

So, I decided to set up my own water data hub (WDH) — a central location that links to water data, no matter where it is, who owns it, or what dimension of water it describes.

Last November, I asked for help on this project, and Ian Wren (from San Francisco) joined me.

It’s thanks to Ian’s hard work (weekends and evenings!) that I can now invite you to visit!

So, please go there and add data sources. The WDH, like any network, gains value with the number of links.

Oh, and don’t forget that anyone can add a link to the hub. You only need a WDH account (free and easy to set up). So, go ahead and add your favorite data source from the World Bank, Exxon-Mobile, the Nature Conservancy, et al.

Note by my wording that the WDH does not host, own or control data. It’s basically an index of data controlled by other organizations.
The big goal now is to make a census of data, so that we know what exists, what’s missing and what overlaps.
Future developments:

  • WDH 1.1: You can add records for data that exist but are not available to the public. This will make it easier to contact data owners to ask for access and — hopefully — to pressure them to release it to the public.
  • WDH 1.2: Anyone can comment on the quality of data sources held elsewhere; this will help everyone understand the uses and limitations of data — information that is not necessarily available from data owners.
  • WDH 2.0 (2013): We will start the very difficult process of “normalizing” data from many sources (using translation tables) to make it possible to assemble a data table from 2+ sources linked to the WDH.

Note that the WDH will make it easier for anyone who analyzes data to do their job; analysis is too difficult to automate.

As you might expect, I am running WDH as a stand-alone, academic, non-profit. At the moment, we do not need money as much as your time.

Bottom Line: Please add new spokes to the WDH (get it?) and tell others about the water data hub.

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