BEECHER - NAWC

Water ComparedAlternative ModelsrTable 4-7 reports a comparative analysis of the assumptions that underlie each model and theefficacy of the model relative to water-sector performance goals. As in the previousassessments, the analysis is organized loosely around the technical, economic, andinstitutional categories.The two dimensions of the analysis-assumptions and efficacy-also can be combined for anoverall assessment, depicted in Figure 4-2. Although this analysis is highly subjective, it canbe used to evaluate the relative position of the regulatory options. Based on the analysis,traditional regulation fits well with the water industry; deregulation appears to be the leastfavored option. The remaining alternatives-structured competition, performance-basedregulation, and contract-based regulation-have somewhat mixed results. While theassumptions associated with these models may not be perfectly consistent with the waterindustry, each has the potential to promote performance. Of course, the analysis is highlysubjective and modifications could easily change their relative position in the assessment.Table 4-7Validity of Assum tions and Efficacy of ModelAlternative Assumptions ModelTra d". 1t10na Re1 ulat1onTechnical Technology creates a High. Ensure petformancetendency toward monopoly Assumptions through economicand precludes effective are consistent regulation and standards.competition.with water'sEconomic Economic regulation is highly Regulation of monopolyneeded to prevent monopolistic profits; cost-of-servicemonopoly exploitation. character. ratemaking.Institutional Economic regulation by Control monopoly powerindependent commissionsthrough regulatoryprevents abuse andoversight.balances interests.Efficacy of themodelModerate tohigh. Canpromote neededcapitalinvestment; maynot provideadequateincentives in all ·areas or recognizeforms ofcompetition.IStructure d CompetitionTechnical Technology limits Moderate to Ensure performancecompetition but some high. through economicmarkets are contestable. Acknowledges reguJation and standards.Economic Costs, prices, and profits limits to Modify economicmust be regulated or competition and regulation to removemonitored. need for disincentives, providerestructuring. incentives.Institutional Regulation can be Increase regulatorymodified or relaxed underoptions and flexibility;some circumstances toadopt policies that helppromote performance andlevel the playing field forbeneficial restructuring.competition.Moderate tohigh. Canpromoteperformancewhile maintainingregulatoryprtltections; canbe combined withperformancebasedregulation.NAWC 90September 1998