Driving Performance at Peru’s Water and Sanitation Services Regulator

1. Assessment and recommendations

Abstract

This chapter summarises the main findings and recommendations of the Performance Assessment Framework for Economic Regulators (PAFER) review of Peru’s water and sanitation services regulator, Sunass (Superintendencia Nacional de Servicios de Saneamiento). The recommendations aim to strengthen the regulator’s organisational performance and governance structures and are divided into short, medium and longer term actions.

Introduction

The National Superintendency of Sanitation Services (Superintendencia Nacional de Servicios de Saneamiento, Sunass) is Peru’s economic regulator for sanitation services that includes drinking water, sewerage treatment and sanitary disposal of excreta. Created in 1992, it is one of four economic sector regulators in Peru.

An ambitious and technically sound regulator, Sunass needs to manage risks and expectations about what can be achieved in a challenging national and sector context. Government policies and plans have set ambitious targets for sanitation. In 2016, a new framework law for the sector expanded the scope of the regulator’s remit to include the regulation and oversight of service providers in small cities and rural areas and added a number of additional functions. Most recently, the COVID-19 pandemic has created further disruption. As an independent regulator and technical expert on the sector, Sunass is well positioned to assess and communicate how and which policy goals can be achieved in the short, medium and long term.

Going forward, the regulator has to ensure a fit-for-purpose toolbox that incentivises behaviour change by operators and consumers to address sector performance. The regulator can build on its expertise and knowledge by, for example, increasing the use of behaviourally-informed tools and interventions, more risk-based approaches, as well as considering updating the design of the tariff model. Such initiatives could enhance incentives for sector performance and increase Sunass’s impact.

Sunass has responded to its new responsibilities by launching a significant institutional transformation that must now be consolidated. The regulator has responded to its new mandate by creating 24 regional offices. This is seen as a positive move and has the potential to improve the effectiveness of Sunass by bringing it closer to operators and consumers throughout the territory. Going forward, in this new organisational model, the regulator needs to consolidate its institutional culture and ensure coherence in approaches. This will require continuing to build up the capacity of decentralised offices, and ensuring fluid communication and knowledge exchange between teams in headquarters and the regions.

Ultimately, the urgent task of increasing access to safe drinking water and sanitation services requires coherent action and co-ordination among actors. A large number of public authorities intervene in the water and sanitation sector at national and sub-national levels. For example, better data sharing and accessibility have been highlighted as specific needs for more effective public action for the sector. Sunass is a strong institutional actor in the sector in terms of its technical capacity, providing the potential to catalyse change and give useful inputs to the policymaking process, but greater role clarity is needed to realise this potential.

Role and objectives

Mandate

A recent legislative reform has fundamentally transformed the role of Sunass from serving only main urban areas to covering the entire national territory. For the first 25 years after its founding in 1992, Sunass regulated Peru’s 50 municipal utilities (Empresas Prestadoras del Servicio de Saneamiento, EPs) that serve the country’s larger urban areas. In 2016, the Framework Law for the Management and Provision of Sanitation Services (referred to from now on as Framework Law 1280) expanded the scope of the regulator’s remit to include the supervision of 450 operators in small cities and more than 25 000 service providers in rural areas to ensure service quality and financial sustainability, in addition to on-going work with the 50 EPs. It also gave the regulator a number of additional functions. Framework Law 1280 defines Sunass’s high-level objectives to “guarantee users the provision of sanitation services, in urban and rural areas, under quality conditions, in order to contribute to the health of the population and the preservation of the environment”. The regulator works to achieve these objectives by setting tariffs, issuing regulations and supervising the provision of sanitation services by providers, and is recognised as an independent, technical expert on the sector.

The expansion of the regulator’s scope to small towns and rural areas is a massive undertaking that will require Sunass to carefully manage expectations about what can be achieved in the short, medium and longer term. Following the 2016 reform, Sunass is responsible for the supervision of a heterogeneous mix of thousands of service providers with different capacities, coverage, types of network connections, and local contexts. Importantly, this sets Sunass apart from most water regulators globally (OECD, 2021[1]). Many operators, including among those historically regulated by Sunass, fail to meet basic standards of financial sustainability and sector performance is generally poor. Outcomes are alarming: according to data on Sustainable Develop Goal 6 (UN-Water, 2020[2]), access to at least basic service provision is 93% for drinking water and 79% for sanitation in Peru; access to services that are safely managed is lower at 51% for drinking water and 53% for sanitation. These figures also hide a stark rural-urban divide. A large informal sector – including many unregistered and unlicensed service providers – limits regulatory reach. This is compounded by attempts at political interference in rate-setting at the local level (Felgendreher and Lehmann, 2015[3]). The new responsibilities have absorbed much of the regulator’s attention as it strives to implement them by 2022, the deadline set in legislation.

The disruption caused by the COVID-19 pandemic has made the task even more challenging. Restrictions on travel have made it difficult to engage with new stakeholders throughout the country’s rural areas. The regulator has responded by switching many activities online (e.g. offering virtual trainings to rural providers, holding videoconferences for consumers) but these tools are not accessible to all, especially vulnerable consumers in remote and rural areas. In general, resources have been prioritised to responding to the sanitary emergency at the expense of some planned activities. The pandemic has also left the sector further weakened. EPs were permitted to use their reserve funds to respond to the sanitary emergency (for example, to provide off-grid solutions to guarantee access to water for hand washing). With funds depleted, questions of financial sustainability and resilience to any future shock come to the fore.

Recommendations

Short term:

• Assess and engage with stakeholders on risks linked to the delivery on new responsibilities and manage expectations as the 2022 deadline for implementation approaches, in a context of reduced resources and the COVID-19 pandemic. As an independent regulator and technical expert on the sector, Sunass is well-positioned to assess how achievable policy goals are in the short, medium and long term. Sunass could:

  • Monitor performance, in particular, in implementing the new responsibilities and functions. The regulator needs to assess what is working well and what is not leading to desired outcomes in terms of changing the behaviour of operators or consumers, as well as broader sector outcomes including service access, water quality and financial sustainability.

  • Make clear the potential trade-off between network expansion and improvements to service quality in the context of scarce investment resources and clearly communicate the regulator’s approach to managing this trade-off.

  • Communicate risks clearly to key stakeholders and the wider public and develop scenarios that indicate which goals can be achieved in the short, medium and long term, and engage with stakeholders on these scenarios with the aim of agreeing joint goals and objectives for the sector.

• Update Sunass’ identity, vision and mission to maintain a common sense of purpose for staff internally and communicate a clear message to external stakeholders, to reflect the new responsibilities and functions that Sunass has taken on in recent years and the institutional transformation that took place.

Medium term:

• Match the reform of Sunass’s role and scope of action with a consolidation of the drive for institutional transformation, using the new identity and vision statement as a guide.

  • Keep under review the capacity, competencies and powers of Sunass. These have already evolved as a consequence of the expansion of the regulator’s scope and functions. Sunass will need to keep these under review in light of its performance in delivering on its new responsibilities.

Functions and powers

The regulator’s functions, powers and tools do not always match the needs and characteristics of the sector, such as resistance to paying tariffs. The Framework Law for Regulatory Bodies (Ley marco de los organismos reguladores de la inversión privada en los servicios públicos, Law 27332, or LMOR) grants Sunass, as with all Peruvian sector regulators, the functions to supervise, set tariffs, issue regulations, inspect the activity of regulated entities, sanction operators, and solve conflicts and claims. Nevertheless, overall sector performance is poor and the regulator has few tools that can incentivise better performance. Nineteen out of the 50 EPs are under the “Transitional Support Regime” due to poor performance, in which the Technical Organisation for the Administration of Sanitation Services (Organismo Técnico de la Administración de los Servicios de Saneamiento, OTASS) assumes management control of the utility. More broadly, there is significant resistance to paying for water services and therefore to implementing tariff decisions. As a result, tariffs are not set at a sufficient level to contribute to investment in upgrading and expanding infrastructure. Given the huge investment needed to meet national goals for access to water and sanitation, Sunass’s tariff-setting function is central to successful performance.

The attribution of new functions attests to Sunass’s reputation as a technically sound agency but the regulator will need to carefully allocate resources towards sector priority goals. Recent reforms bestow Sunass with a number of new tasks that go beyond the core regulatory functions shared by all sector regulators in Peru. New responsibilities include defining the geographical area that utilities must serve and promoting Mechanisms of Rewards for Ecosystem Services (Mecanismos de Retribución por servicios Ecosistémicos, MERESE), among others. Sunass has invested significant energy and resources to deliver the new functions and has gained recognition as a “strategic ally” by other public institutions for its efforts. However, among Sunass’s numerous functions, it will also be important to continue incentivising performance of the 50 EPs that serve the country’s larger urban areas. In this area a considerable number of challenges remain: to enable and provide incentives to EPs to improve their financial performance and to address quality of service provision issues such as drops in water pressure, contamination and a lack of access to drinking water and sanitation services. This should result in better overall outcomes for consumers.

The transition to a new tariff-setting model requires a gradual transition process based on realistic expectations. Currently, tariff increases are linked to the achievement of regulatory objectives. The regulator is in the process of introducing an “adapted” model company approach to tariff setting, as stipulated in Framework Law 1280. In this transition, care should be taken to avoid dramatic changes while moving from a cost-based approach to the new model. During this transition, revenue requirements should move in line with realistic improvements in operations, and collections need to yield cash flows that enable operators to reach regulatory targets in terms of connections and service quality (improving water pressure and reducing leaks and commercial losses).

Recommendations

Short term:

• Review the approach to the delivery of Sunass functions to prioritise essential activities. For example, Sunass could consider delimiting its role in the MERESE scheme to that which is strictly necessary in the process (e.g. the tariff calculation component). Explore the possibilities of identifying other institutions better placed to support EPs in the investment of MERESE funds in upstream river basins.

• Ensure a fit-for-purpose “toolbox”, taking into account sector challenges and specificities, and focus on the outcome of behaviour change (Box 1.1).

  • Continue the good practice of making tariff increases conditional on the achievement of regulatory objectives (such as service quality, compliance with investment programme). Communicate on whether the targets have been reached, and how this affects the tariff.

  • Be realistic when designing the adapted model company approach for tariff setting. Favour an approach that provides a number of easy to understand and intuitive cost benchmarks based on comparable firms, rather than a highly technical analysis that requires detailed information on efficient operating costs for each individual EP.

  • Adopt a risk-based and behaviourally-informed approach to enforcement and inspections (see section on Regulatory enforcement and inspections).

  • Recognise, award and share good practice by different actors, e.g. a competition to award the best performing Municipal Technical Area (Áreas Técnicas Municipales – ATM), as well as service providers.

  • Equip consumers with the information they need to hold their water utilities to account for their performance. Clear, easy-to-understand trends in key performance indicators can show consumers whether service is improving or deteriorating. This could have an important repercussion on their willingness to pay higher tariffs.

  • Implement targeted communication strategies to reach different groups of important stakeholders:

    • Assign sufficient budget to design targeted consumer outreach campaigns (Box 1.2).

    • Initiate more regular contact with Congress and facilitate discussion around the annual report.

    • Build the media as an ally for communicating on the role of the regulator and its view on sector issues. Building an understanding of Sunass’ role and on-going initiatives among the media could facilitate the sharing of Sunass opinions on sector issues and increase media coverage beyond its focus on when things go wrong.

Medium term:

• Ensure sufficient resources dedicated to improving the performance of the 50 EPs. Although Sunass has been given new responsibilities, it should continue to dedicate an appropriate level of its resources towards the on-going economic regulation of utilities that serve the country’s larger urban areas. In this effort, Sunass should make sure to implement the new tariff model gradually, based on realistic expectations of the ability of EPs to improve operations and quality (Box 1.3).

• Recognise and stress the long-term impact of improving sewerage and wastewater services for water quality, the environment, and public health. It would be important to develop a realistic medium term strategy for investing in treatment plants and maintaining their operating efficiency. This effort should not be conducted solely by Sunass, but should include the other actors who would play a role in financing those facilities and monitoring water resource quality.

Box 1.1. Institutional transformation to deliver on a modified regulatory framework in the Scottish water sector

During its most recent price review process (the Strategic Review of Charges 2021-27, or SRC21), the Water Industry Commission for Scotland (WICS) saw an opportunity to address key challenges in the sector: a perceived adversarial approach in regulation, challenges with long-life assets, lack of flexibility of investment, and challenges of embedding consumer voices. The result was a modified regulatory framework that represents a radical change from the Scottish water sector status quo.

The state-owned monopoly provider in the household market, Scottish Water, faces the challenge of transforming what has been a delivery institution into a company embracing the principles of the modified regulatory framework. The company agreed to produce a transformation plan, with an aim of transforming decision making and cultural practice from top to bottom.

WICS created an additional layer of accountability in the company’s production of its transformation plan. It asked a group of citizens convened to relay customer views into the price setting process, the Customer Forum, to engage with Scottish Water on its transformation plan. After discussions, Scottish Water and the Customer Forum entered into a minute of agreement on expectations for the transformation plan. The company launched its transformation planning with a stock-take of its company character and is working with experts and a management consultancy as it develops a transformation plan.

WICS has taken the first steps in its own transformation planning, reflecting on necessary adjustments through expert workshops and in its corporate plan. The two institutions have worked together on certain aspects of transformation planning, such as joint sessions on enacting Ethical Business Regulation (a key feature of the modified regulatory framework).

In light of the scale of institutional change required, demonstrable progress towards organisational transformation will be important to build confidence that parties are making necessary organisational changes to meet the challenges ahead. During SRC21, WICS created an Ethical Business Regulation Support Group to provide a regular “temperature check” of EBR principles such as trust and openness during SRC21. The support group conducted assessments via regular anonymous online surveys and face-to-face interviews of the parties involved in SRC21, providing an analysis with recommendations after each assessment. The support group provides one example of a mechanism to help parties recalibrate as they adjust their approaches and ways of working in the context of organisational transformation and regulatory framework change, and parties will continue to consider how to provide reassurance that the company and regulatory framework are delivering.

Source: Information provided by the Water Industry Commission for Scotland, 2021.

Box 1.2. Consumer empowerment and information to the consumer provided by Portugal’s Energy Services Regulatory Authority (ERSE)

As part of its mission to protect energy consumer rights and interests, ERSE seeks to empower energy consumers by informing them of their rights and how they can make informed choices, through a variety of tools:

• Dedicated website for consumers

• Online comparison tools on energy offers, contracted power and the origin of their energy

• Multimedia materials on energy issues

• Outreach activities (radio, television, print media, school visits)

• Capacity-building activities (onsite and virtual training courses)

• Telephone hotline to answer consumer queries and complaints

• Dispute resolution and mediation and support to public arbitration centres

ERSE’s website has a dedicated area for consumers. Consumers can find a full range of information in multiple formats regarding ERSE’s regulated sectors, such as alerts on bad practices, tips, comparison tools, videos explaining how the sectors work, as well as data and statistics. The website also provides information explaining the right to and procedures for dispute resolution, including ERSE’s role in this regard. In this area “Gia”, an online virtual assistant is available that answers consumer questions through a chat box.

However, not all consumers have digital access or competence to consult this array of online information. Only through the diversification of direct and indirect information channels is it possible to reach a multiplicity of target audiences with different degrees of literacy, education, age groups and locations. With this in mind, ERSE also provides a dedicated telephone assistance service for the public, available between 15:00 and 18:00 on working days, as well as a face-to-face service, by prior appointment.

In addition, the need to reach less informed audiences requires a more active intervention and investing in new means of communication. Consequently, ERSE decided to broadcast paid information campaigns on the radio to reach an older audience. ERSE is also invited to attend informative news programmes in order to reach energy consumers, for example to explain energy tariffs and bills. Some recordings are also available on ERSE’s YouTube Channel. ERSE does not pay for or receive remuneration for attending such programmes.

ERSE is working to diversify further its means of communication with energy consumers, including: cooperating with the National Guard to visit schools, retirement centres and others to inform about energy, increased social media presence, using plain language in its publications and subscribing to online banner services on news aggregation websites, for example.

ERSE also organises training sessions, aimed mainly at consumer associations and arbitration centres for consumer disputes, and participates in events organised by other entities in order to explain the functioning of energy markets, and in particular prices, bills and consumer rights.

Source: Information provided by ERSE, 2021.

Box 1.3. Extending the coverage of regulation to a highly fragmented water industry: the approach of Italy’s Authority for Energy, Networks and Environment (ARERA)

The Authority for Energy, Networks and Environment (ARERA) is Italy’s independent economic regulator for the water sector. Its regulation applies to water and wastewater services including the abstraction, supply and distribution of water for domestic use, sewerage and wastewater treatment, as well as extraction, multi-purpose water supply and treatment services for mixed residential and industrial use.

A fragmented water industry

The water industry in Italy is highly fragmented with more than 2 000 operators providing water, sewerage and wastewater treatment services to a total population of 60 million. The vast majority of operators are municipal operators in the south of the country, while in the central and northern areas around 100 medium to large operators serve more than 80% of the population. A few large, multi-sector utilities have a market share of more than 50%.

Governance framework

According to legislation, the Ministry of Environment defines the general principles of water use and services at the national level while ARERA provides the specific rules, mechanisms and procedures and ensures compliance. Regions set the geographical area to which integrated water services must be provided (Ambito Territoriale Ottimale, ATO) and identify the local authority (the EGA, generally a regional or sub-regional entity) which is in charge of organising integrated water services at the local level, planning investments and contracting the management of services to operators through public tendering or concessions. Water services may be provided in an integrated way by a single operator or separately by different operators.

Extending the coverage of regulation

Several hundred operators (mainly municipalities directly managing water services in southern Italy) have not yet obtained a tariff approval from ARERA in accordance with the national tariff methodology, as they have not submitted the required information to the regulator. In order to extend the coverage of regulation to these operators progressively, ARERA launched a simplified tariff methodology (the “convergence tariff methodology”) for the 2020-2023 tariff period. This provides a facilitated tariff approval procedure for operators that lack data on revenues, costs and quality of service provision. An operator or the EGA can estimate allowed revenues through the approach defined in the methodology, which provides simplified procedures for tariff planning. Thanks to this approach, in 2021 the EGA of the Calabria region submitted its first tariff plan on behalf of several municipalities in the region. This was an important initial step toward the progressive inclusion of the smallest water providers under the umbrella of regulation.

In addition to this bottom up approach, ARERA signalled the need for legislative reform of water governance in the south to the national government and to the parliament in order to accelerate the transfer of responsibility for providing water services to utilities. ARERA suggested to mandatorily entrust responsibility for water services to publicly-owned companies in cases where EGAs were not able to carry out public procedures to select an operator.

Source: Information provided by the Italian Authority for Energy, Networks and Environment (ARERA), 2021.

Strategic framework

The regulator’s strategic plan provides a solid framework for performance assessment, which could be further strengthened by inviting inputs from external stakeholders. Sunass operates in the framework of a five-year strategic plan (PEI) that identifies a balanced set of strategic objectives that span input, process, output and outcome measures (Table 1.1). Sunass’ external stakeholders (such as its Users Councils), however, are not consulted during the strategic planning process, which is a missed opportunity. Including external stakeholders in the process would have the additional benefit of increasing understanding of the regulator’s role and strengthening water governance more broadly.

Strategic planning needs to balance agility with predictability. Changes to the strategic plan are allowed by legislation during strategic cycles but these should be predictable and not undermine stability of the regulator’s priorities. Frequent reviews might create ambiguities about the regulator’s priorities for staff and stakeholders. In this context, developing an overarching vision and institutional values could help to provide a longer-term horizon to the work of the regulator.

Table 1.1. Sunass strategic objectives analysed according to OECD input-process-output-outcome framework

Sunass’s strategic objectives as part of its strategic plan (PEI) 2020-24

Objective (OEI)	Type of objective
1. Strengthen the provision of sanitation services to users	OUTCOME
2. Consolidate the decentralisation of Sunass functions	PROCESS
3. Improve the perception and appreciation of sanitation services by users	OUTCOME
4. Strengthen Institutional Management	INPUT
5. Implement disaster risk management*	OUTPUT

* This objective is mandatory for all public bodies, as set by the National Centre for Strategic Planning (Centro Nacional de Planeamiento Estratégico, CEPLAN).

Source: Information provided by Sunass, 2021.

Recommendations

Short term:

• Use the strategic plan as a tool to manage risks and expectations by closely monitoring and reporting on the delivery of strategic objectives.

• Consult stakeholders as part of the strategic planning process. For example, Sunass could consider:

  • Organising public consultations through Sunass decentralised offices.

  • Seeking the opinion of its Users Councils.

  • Using existing platforms for citizen engagement such as the Participa vecino! initiative.

  • Going the extra mile to include the perspectives of unserved populations and vulnerable consumers.

  • Clearly communicating the final strategic plan using the same channels as the consultation process, and reach a wider public through the regulator’s website, newsletter, and the media. Sunass could also consider organising a launch event to raise awareness and give visibility. Using plain language and translating into local languages can help ensure accessibility.

Medium term:

• Increase predictability in the strategic planning process and signal the regulator’s longer-term direction of travel. Greater stability from the regulator is particularly important in the context of political instability.

  • Pre-define and communicate from the outset when Sunass will carry out a mid-term review of the strategic plan.

  • Explain clearly the rationale for any changes to the strategic objectives or goals.

  • Include stakeholder consultation in the review.

  • Develop a vision statement that signals the regulator’s longer-term priorities for the sector, beyond the 3-5 year institutional planning cycle.

Institutional co-ordination

A lack of role clarity between different public actors hinders the achievement of sector objectives. Overall, there is a mismatch between the complex legal framework for the water and sanitation sector and the capacity of Peru’s institutions to implement it (OECD, 2021[1]). Low capacity contributes to and is compounded by a lack of clarity around roles and responsibilities. For Sunass, this has resulted in a mismatch between the role it performs and the expectations of other public sector actors. For example, there are expectations that Sunass should ensure that service providers deliver drinking water that meets required safety standards. However, responsibility for monitoring drinking water quality lies with the Health Authority (DIGESA). Nevertheless, poor water quality may undermine popular acceptance of tariffs, essential to the successful delivery of Sunass’s mandate. Users and communities expect access to quality public services with little concern for which public institutions are responsible, hence the importance for all actors to work together and share ownership of common goals.

Despite the number of institutions involved in delivering sector policy objectives, appropriate mechanisms for high-level co-ordination are not in place. Framework Law 1280 defines the respective roles of the large number of ministries and other public bodies that intervene sector, including Sunass, as well as local and regional governments and service providers. Under this legislative framework, the Ministry of Housing, Construction and Sanitation (MVCS) is the governing body for sanitation and has exclusive power over the development, planning, co-ordination, implementation and oversight of national specific and related policies. Beyond definitions in law, there are no regular, institutionalised meetings for co-ordination between public authorities in the sector.

In a context of overlap and weak institutional capacity, Sunass has sometimes taken action to tackle existing or emerging problems beyond its functions as defined in legislation. Many actors report that Sunass is an open, collaborative and dynamic partner. In some instances, in order to support providers’ performance, the regulator steps in where it identifies gaps or other actors are not able to fulfil their role. For example, Sunass carries out training and capacity building activities in EPs and rural service providers, which may overlap with the role of the MVCS and its technical agency for the administration of sanitation services, OTASS.

Sunass has established itself as a key actor for co-ordination at the sub-national level, but this remains a difficult task. Sunass operates in a particularly complex institutional landscape in rural areas, with interventions from a large number of ministries as well as regional and municipal levels of government. The capacity of local actors is typically low. However, in some aspects, effective co-ordination appears to rely on the capacity of Sunass to be physically present in a locality and able to interact with municipal governments and service providers. Despite the positive development of its 24 regional offices, the relatively limited number of Sunass staff in these offices combined with the remote and difficult-to-access nature of many areas of the country may still hinder co-ordination.

At the international level, Sunass is active in fora to promote international regulatory co-operation, and could turn to these networks more frequently to exchange on practices and regulatory approaches. Sunass participates in the Association of Water and Sanitation Regulatory Bodies of the Americas (Asociación de Entes Reguladores de Agua y Saneamiento de las Americas, ADERASA) and other international and regional initiatives. As Sunass implements its new responsibilities, there could be value in strengthening engagement with other water regulators in the region to compare how sector regulation is organised in neighbouring countries. As these countries will operate in contexts that show similarities with the context of the Peruvian water sector, this could enable cross-learning on how fellow regulators have tackled common challenges.

Recommendations

Short term:

• Advocate for the creation of institutionalised, regular meetings for high-level co-ordination between all public authorities in the water and sanitation sector. In line with its mandate for whole-of-government co-ordination, the PCM could be well placed to convene heads of institutions on a regular basis (e.g. monthly, quarterly). Formalised and regular interactions can improve transparency and the flow of information, clarify roles and avoid duplication, and over time build a shared vision for the sector and trust between institutions.

• Assess where co-ordination mechanisms for regulatory practices are needed at different levels of government to clarify roles and responsibilities and optimise the efficient use of resources.

  • Consider co-ordination mechanisms such as agreements detailing respective roles, areas of co-operation, or electronic access to information held by other bodies.

• Join efforts in areas where the achievement of Sunass strategic objectives and sectoral policy goals depend on the actions of other actors. Areas to consider could be:

  • Water quality: co-ordinated inspections and enforcement actions with DIGESA could improve outcomes for consumers. Alternatively, Sunass may consider advocating for the transfer of some monitoring activities, where there is a case of overlap between different bodies.

  • The integration of smaller service providers into EPs: establish working groups with all relevant stakeholders in each region (sub-national governments, the EP and smaller providers, OTASS, consumer representatives) to discuss the results of Sunass proposed service delivery area.

  • “Transitional Support Regime”: closer collaboration and discussion with OTASS around which EPs should enter the scheme.

  • Communication: Sunass could consider forming ‘strategic coalitions’ to communicate in simple terms about the rationale for paying for water or increasing tariffs. For example, coherent messaging from the regulator, MVCS, the Ministry of Health, the Ministry of Development and Social Inclusion and others could help strengthen the message that better quality water services can promote health and economic development.

Medium term:

• Put in place co-operation agreements at the sub-national level to empower local institutions to carry out certain regulatory functions. For example, to leverage the ‘on the ground’ presence of municipal governments, Sunass could authorise ATM staff to carry out monitoring and inspection functions in rural areas beyond the period currently envisaged. The division of roles would need to be clearly communicated to rural service providers and other stakeholders.

• Continue and strengthen regional co-operation on water regulation (Box 1.4). Sunass could explore the potential within ADERASA or other regional fora to increase the level of interaction to:

  • exchange experiences, good practices and solutions to common problems;

  • enable regional comparisons of regulatory practices and approaches through surveys and data sharing; and

  • build capacity in its members, for example through seminars, trainings or by establishing or associating with a school of regulation.

  • In these efforts, the capacity of regional associations could be strengthened through international development financing.

Box 1.4. International co-ordination and co-operation between regulatory agencies: the ARIAE experience

The Ibero-American Association of Energy Regulatory Entities (Asociación Iberoamericana de Entidades Reguladoras de la Energía, ARIAE) brings together 27 energy regulatory authorities from 20 Ibero-American countries (Mexico, Portugal, Spain, Central American countries and Spanish- or Portuguese-speaking South American countries).

ARIAE is an association of energy regulators that constitutes a forum for communication between specialists and professionals of its member entities. Its purpose is to promote the exchange of experiences and knowledge in the field of energy regulation, promote regulatory harmonisation, promote the training and education of personnel belonging to its members, at all levels; as well as promoting co-operation in activities of common interest, including research and development. The association is also working to achieve universal access to modern energy sources in the region.

The systematic exchange of information and experiences is supported by the annual meetings of regulators, in the operation of their working groups (on electricity, gas, petroleum products, biofuels, upstream and consumers), their training activities and the elaboration of books and reports, and through the operation of their website and the daily publication of news on its social networks.

ARIAE is the promoter of the Ibero-American School of Energy Regulation (EIR), with two branches, one for the regulation of the electricity sector at the Pontificia Universidad Católica in Chile, and another for the regulation of the hydrocarbons sector at the ESAN University in Peru, with the participation in each of them, of a group of seven universities in the region and elsewhere.

ARIAE has the support of international development partners, such as the Spanish Agency for International Development Cooperation (AECID), the Ibero-American General Secretariat (SEGIB) and the Inter-American Development Bank (IDB). In addition, ARIAE has collaboration agreements with the Economic Commission for Latin America and the Caribbean (ECLAC), the Latin American Energy Organization (OLADE), the World Bank, the Andean Development Corporation (CAF), and the Latin American Association of Sustainable Mobility (ALAMOS).

Additionally, ARIAE holds regular meetings with other regional energy associations, and participates in the World Energy Regulation Forums organised by ICER.

The General Secretariat of ARIAE is managed by the National Commission of Markets and Competition of Spain (CNMC).

Source: Information provided by the National Commission of Markets and Competition of Spain (CNMC), 2021.

Input into policy and law making

In this big picture, full use isn’t always made of Sunass’ expertise for the benefit of sector policy and outcomes. Sunass prepares non-binding opinions and comments when requested by the Congress of the Republic and ministries on proposed policies, laws and ministerial regulations; it lacks the power to submit binding opinions. Despite the strong technical capacity and its potential to provide valuable input into policymaking, Sunass is not systematically consulted. On occasion, the regulator has proactively submitted comments when not requested. Finally, Sunass does not make public the comments and opinions it submits. This is a missed opportunity for improving transparency and safeguarding the independence of the regulator.

Recommendations

Short term:

• Publish Sunass opinions on its website and publicise them through traditional and social media to ensure transparency around its inputs into the policy-making process. Building good relations with the media could help them to stay alert to Sunass statements and afford them the necessary attention.

• Catalogue the opinions that Sunass emits in its annual report (Box 1.5).

• Make full use of Sunass’s role as an independent regulator to raise red flags when necessary and to play a proactive role in placing important issues on the policy-making as well as public information agenda. While remaining a strategic and technical partner of the government, Sunass could take a more proactive stance towards Congress to raising issues and making its position known.

Box 1.5. Publication of formal opinions by Portugal’s Energy Services Regulatory Authority (ERSE)

Most of ERSE's opinions, studies, reports and memorandums prepared within the scope of the regulator’s statutory obligations or regulatory procedures, as well as others prepared on its own initiative, or at the request of a third party, including the Government and the Assembly of the Republic, are published on ERSE’s website. ERSE opinions are also published in its annual report.

ERSE’s website has a dedicated online library that is a repository of relevant legislation and regulation for the sector as well as of ERSE’s activities, including recommendations, opinions, ERSE’s consultative councils, reports, bulletins, studies and memoranda. This library includes documents that ERSE is legally obliged to prepare and publish and serves as a platform for transparency and co-operation.

Without prejudice to requests for access or disclosure under legal terms, as a rule, the publication of these documents occurs at the first of the following moments: after a decision has been taken by the entity that requested ERSE’s opinion; one year after the preparation of the ERSE document; within the legal deadline for publication (e.g. in annual reports).

The availability of such documents does not cover information that, by its nature, is commercially sensitive, constitutes a legally protected secret or personal data.

Whenever opinions/studies/reports/memoranda are part of an ongoing process by an external party, ERSE applies an internal process to identify when its document can be published, in line with the above considerations. For example, when the government requests an opinion from ERSE on a legislative proposal it is not disclosed immediately, but only after the respective government diploma is published in the Portuguese Official Journal, usually the same day or the next.

This measure safeguards the political decision-making debate. However, once the diploma is published, any stakeholder can check whether ERSE’s opinion was included, partially included or not included at all. For greater transparency, the published opinions include a reference to when ERSE’s input was requested by the third party.

Source: Information provided by ERSE, 2021.

Input

Financial resources

The reform of Sunass’s mandate changed the regulator’s financing model, making government budget its main source of funding. Prior to the expansion of its scope, Sunass was funded solely by fees from the EPs that it regulated, collecting a maximum of 1% of income after sales taxes. This cap, set in legislation for all economic regulators, was considered for increase to 2% by a congressional committee but the decision has not passed through Congress. Since 2017, government funds provide the majority of the budget (58% in 2021) (Table 1.2), representing a dramatic change in the regulator’s funding model and subjecting it to uncertainty regarding its budget. Government funds are intended to cover the expansion of supervision to small cities and rural areas.

Table 1.2. Sunass sources of revenue, 2015-2020

Source of revenue	2015		2016		2017		2018		2019		2020		2021		2022 (est.)
	PEN mln	% of total	PEN mln	% of total	PEN mln	% of total	PEN mln	% of total	PEN mln	% of total	PEN mln	% of total	PEN mln	% of total	PEN mln	% of total
Government funds	0	0	0	0	27.9	48	52.7	66	64.1	61	68.5	65	55.5	58	53.1	63
Fees	27.8	100	29.8	100	30.8	52	27.4	34	41.1	39	37.2	35	40.3	42	31.2	37
Resources from Official Credit Operations	0	0	0	0	0	0	0	0	0	0	0.2	0	0	0	0	0
Total	27.8	100	29.8	100	58.6	100	80.1	100	105.2	100	105.9	100	95.8	100	84.3	100

Source: Information provided by Sunass, 2021.

Relatively low fees from regulated entities combined with uncertainty and significant cuts in government funding could undermine the stability of the regulator and threaten to reduce its autonomy. Before the expansion of its scope of action, Sunass considered that its budget was inadequate to carry out its functions fully, as water utilities in Peru tend to be small public utilities with low business income. As a result, its income from fees was considerably smaller than the other sector regulators in Peru (see (OECD, 2019[4]) (OECD, 2019[5]) (OECD, 2020[6])).1 Moreover, the sustainability of funding from government funds is uncertain given fiscal consolidation efforts. The budget decreased by 10% to PEN 95.8 million in 2021, and is expected to decrease by another 12% to PEN 84 million in 2022. The lack of stability in financing risks undermining the regulator’s ability to adequately plan activities, carry out its functions fully and meet its goals, thereby reducing its effectiveness and autonomy.

The regulator’s current planning and budgeting processes are not sufficient to withstand these challenges. Sunass establishes multi-annual budget estimates that are designed to respond to such challenges, but in practice the government approves the budget on an annual basis. The multi-annual budgeting process fails to serve the purpose of establishing medium-term budget certainty. Sunass responds to budget cuts by revising down goals while continuing to deliver across all areas. This approach may not be realistic or desirable in terms of improving outcomes in the sector, which could be best served through a realistic prioritisation of activities, goals and expectations.

Sunass’s ability to manage its resources autonomously is in some cases constrained by central government requirements. Government funds are earmarked for activities in rural areas and small towns. However, as some personnel carry out functions in both urban and rural areas these funds are difficult to isolate for allocation purposes. Other recently introduced government requirements include the obligation to return any budget surpluses to the Treasury every year.

Recommendations

Short term:

• Devise a strategic response to foreseen budget cuts that makes clear the risks associated with budget shortfalls. As an independent regulator, Sunass is in a position to:

  • Advocate for adequate planning and resources for the sector due to its key role in any response to and recovery from the COVID-19 pandemic. The pandemic underscored the importance of water and sanitation for health and the economy. Sunass could use this moment to elevate water and sanitation in the public policy-making agenda.

  • Prioritise objectives and identify which activities and deliverables would need to be cancelled in the event of significant budget shortfall.

  • Introduce a risk-proportionality approach when prioritising to ensure a focus on the higher risk-related activities in case of insufficient budget to deliver all planned activities.

  • Develop evidence on the impact of budget cuts on outcomes for consumers, for example: a budget cut of “x” PEN will result in unmonitored water services for “y” population, increasing risks to public health: incidents of diseases linked to untreated water could be expected to increase by “z”%.

  • Present and clearly communicate to key stakeholders (MVCS, PCM, MEF and Congress) to demonstrate what the regulator can deliver given the level of resourcing and the consequences in terms of outcomes for the sector.

Medium term:

• Advocate for budget setting according to an estimation of the costs of regulating and supervising the sector, rather than available resources. This could be used as a basis for discussion and negotiation on the budget with the executive and strengthen the regulator’s case for more resources and flexibility. In case efficient costs of running the regulator exceed revenues, Sunass could advocate for raising the cap on fees (Box 1.6).

• Continue the good practice of multi-annual budgeting and use this as the primary tool in the annual budget negotiation and approval process. Make transparent and public when the approved annual budget deviates significantly from the multi-annual budget plan.

• Advocate for great autonomy in managing financial resources: for example, end the earmarking of funds; carry over unspent resources from one budget year to the next.

Long term:

• Work towards a vision in which tariffs are set at levels that enable all operators to be in good financial health, thereby enabling adequate financing of the regulator through fees. This vision could support a discussion on the potential need for subsidies and/or the design of cross-subsidies where cost-reflective tariffs are not compatible with the affordability of services for vulnerable consumers. In a well-performing sector, revenues from fees could become the majority of the regulator’s funding.

Box 1.6. Ensuring cost-recovery appropriately supports the regulator, in the short- and medium-term

Latvia’s Public Utilities Commission (PUC)

As a consequence of a legislative change in 2017, the regulatory fee that funds the PUC’s operations is set directly in legislation. To account for any potential overpayments above the PUC’s budget as approved by Parliament, excess funds are deposited in the account of the regulator at the Treasury. These limited funds can serve also to avoid unexpected or transitory decrease in PUC’s income without revising primary legislation every year.

The regulator can use these funds to fund its operations in subsequent years, in accordance with its approved budget. In case the funds in the account exceed 25% of total fee revenues, the excess funds are returned to market operators through a deduction in fee payments in the respective year.

Ireland’s Commission for Regulation of Utilities (CRU)

The CRU is funded entirely through levy and licence fees from relevant electricity, gas, petroleum safety, and water industry participants. Levies from market participants comprise the bulk of the CRU’s income. The CRU sets its own budget without requiring government participation, and is defined annually on a cost-recovery basis in the fourth quarter of the year, on the basis of an estimate of CRU operating and capital budget required for the next year. There is no direct government contribution to the CRU budget and the regulator’s annual budget is approved by the Commission without approval or ex ante assessment by the Oireachtas.

Annual budgets for the electricity, gas, petroleum and water are allocated by the CRU to each sector. Revenues, expenses and capital expenditure directly incurred by each sector are recorded in the separate budgets of the electricity, gas, petroleum and water sectors. Shared costs are allocated to each sector in proportion to the staff numbers engaged in the relevant sector. Costs linked to shared administrative functions such as finance, HR, IT, and communications are pooled for all sectors.

Where annual expenditures exceed revenue, the balance is offset against the levy income for the subsequent year. The balances for the electricity, gas, petroleum and water sectors are recorded in their respective accounts, and audited on an annual basis by the Office of the Comptroller and Auditor General, which reports to the Public Accounts Committee of the Oireachtas. The CRU also conducts an annual internal audit, which is outsourced to an audit company. Moreover, based on a risk assessment, a contingency fund is defined on a yearly basis to provide flexibility to deal with potential legal challenges or costs linked to safety cases or events. Any excess of revenue in the financial year is taken into account in determining the levy for the subsequent year per sector. The CRU can carry unspent funds over to the following year’s budget without review or approval from external government entities.

Canada Energy Regulator (CER)

The CER’s Cost Recovery Regulations set out the manner in which the CER determines the costs related to carrying out its mandate and the process for recovering all or a portion of those costs from the companies it regulates. Currently, the CER’s cost recovery system is premised on commodity charging costs that are allocated to specific entities within those sectors (oil – oil pipelines, gas – gas pipelines, etc.). The CER performs the administrative functions of calculating, billing and collecting cost recovery levies from industry on behalf of the Government of Canada –it does not have re-spendable revenue authority. Instead, companies pay their share of recoverable costs to the Consolidated Revenue Fund of Canada and the CER receives its funding through an annual appropriation process through Parliament.

The CER has a Cost Recovery Liaison Committee, which is composed of the staff from the regulator and representatives of the regulated companies. The purpose of this committee is to:

• provide industry with a thorough understanding of CER costs,

• provide a forum to raise issues or concerns related to the cost recovery processes and methods; and,

• discuss the Cost Recovery Regulations.

Source: Information provided by PUC, CRU and CER, 2021.

Human resources

The regulator’s workforce has been increasing as its scope and functions have expanded, but resources remain stretched given the urgent needs of the sector. The staff of Sunass is competent and shares a common sense of purpose, but the regulator’s level of ambition and new functions may mean that its workforce is reaching the limits of what it can deliver. The number of staff grew by nearly 25% between 2017 and 2020, however, several areas report being under-resourced. The internal audit office (OCI) confirms this assessment in the area of inspections. This could create frustration if staff cannot implement work plans.

The profile of Sunass staff will need to evolve in step with its new responsibilities. As well as recruiting local staff with expertise in regulatory functions such as inspection and supervision, Sunass’s new functions require staff with different skillsets, taking into account soft skills as well as technical competencies, e.g. communications, skills to engage with different types of stakeholders, or to carry out capacity building in ATMs. Staff often develop skills on-the-job and the learning curve can be long. The issue of recruiting, retaining and replacing qualified staff in small cities outside of Lima may become more important moving forward. Moreover, women are currently under-represented at senior management level, accounting for just four out of 16 senior posts.

Ensuring Sunass remains an attractive place to work will be key to retain the talent needed to deliver for the sector and perform well against new objectives. Sunass salaries are competitive compared to the regulated sector, although lower than in other Peruvian sector regulators. Staff turnover is relatively high (Table 1.3) and there are limited opportunities for career progression due to rigidity of the civil service labour regime. Overall, Sunass needs to ensure adequate remuneration and benefits packages that can reward high performers.

Efforts may be needed to build trust among staff regarding equal treatment. The regulator needs to build back trust after issues with delayed payment of staff salaries, which resulted in a number of labour lawsuits. Moreover, over 40% of staff are in the decentralised offices and this proportion could grow further as more functions are delegated. Higher salaries for new recruits in the decentralised offices when compared to staff in headquarters could lead to tensions that obstruct constructive working relationships and the transfer of institutional knowledge and expertise.

Table 1.3. Staff turnover, 2017-2020

	2017	2018	2019	2020
Turnover %	18	20	18	13

Source: Information provided by Sunass, 2021.

As allowed by law and practised across the public administration, many senior management positions at Sunass are filled outside any public and competitive selection process. Eighteen posts within Sunass – mainly senior management positions (i.e. Heads of Directorates/Offices) – are appointed under the “puestos de confianza” (positions of trust) modality. This practice, while allowed by law, may create a sense of lack of transparency in hiring and appointments. This form of hiring could also hinder continuity of practice and decision making at Sunass, as many senior management posts may change when new leadership arrives.

Recommendations

Short term:

• Consolidate the talent pool needed for Sunass’ new mandate and responsibilities with a focus on recruitment and retention.

  • Take a more proactive approach to securing and developing the skills required, in particular in local job markets. For example, Sunass could collaborate with universities to develop programmes on economic regulation (in conjunction with other Peruvian economic regulators) and water engineering specialisations.

  • Introduce a broader benefit employment package to ensure that Sunass remains an attractive place to work with special focus on ensuring equal treatment across the workforce

Medium term:

• Reward high performance internally by continuing to develop non-monetary incentives. For example, Sunass could develop employee of the month awards, or offer further training opportunities to good performers.

• Introduce a selection process for “puestos de confianza” to ensure continuity and stability to regulatory decision making.

• Implement gender-sensitive recruitment practices to increase the representation of women at senior levels in the organisation.

Internal organisation and management

Capacity in the decentralised offices is being developed, but protocols for communications may hinder this process. Sunass’s 24 decentralised offices have progressively taken on more functions and the expectation is that this trend will continue. The decentralised offices face constraints in terms of limited resources and capacities that take time to build. Communications with headquarters are centralised hierarchically through the head of each decentralised office, who reports to the Service Area Directorate in Lima, as opposed to each specialist communicating with their colleagues in their technical area. Currently the decentralised offices receive guidelines and periodic trainings from their technical counterparts in headquarters (e.g. the Supervision Directorate), but do not have a direct channel of communication with them, which impedes knowledge exchange and fluid communications.

With the expectation of more delegation to decentralised offices, consistency in practices between offices will be important for the effectiveness and predictability of regulatory delivery. Sunass can be commended for establishing the decentralised offices in a short period of time and in the challenging context of the COVID-19 pandemic. Going forward, a sufficient level of interaction between the decentralised offices and Sunass’s central office will be essential to align practices across offices, but also to learn from good practices regarding the execution of regulatory activities. To help standardise practices, Sunass already established macro-regions and periodic meetings between the heads of decentralised offices and senior management in headquarters, but no such meetings take place horizontally between teams. Sunass will have to consider how it can secure a need for consistency and predictability – to ensure equal treatment of regulated entities – without taking away the ability of decentralised offices to adjust practices according to local circumstances. It may not always be desirable to delegate all aspects of regulatory activities to the decentralised offices, as this could lead to inefficiencies for activities that require more specific expertise that the smaller offices cannot develop.

Recommendations

Short term:

• Maintain sufficient technical capacity at headquarters and update the Organisational Duties Regulation (Reglamento de Organización y Funciones, ROF) of specialised departments to oversee the methodology and quality of the work of the decentralised offices.

• Develop a roadmap for the delegation of functions to decentralised offices and clearly communicate it to all staff.

  • Assess the costs and benefits related to the delegation of specific technical expertise and support functions, to ensure an efficient use of resources.

  • Define a timeline and distribution of responsibilities for the delegation of activities. Factors to consider include existing and required capacities within decentralised offices, as well as risks that could affect the timeline.

• Build a coherent and consistent “Sunass identity and culture” as an independent economic regulator across headquarters and the decentralised offices. To achieve this, Sunass could consider:

  • Increasing the level of interaction between the different offices to exchange information and good practices. More horizontal interaction (between technical staff working on similar topics across different offices) can help ensure consistency and support in the execution of regulatory activities. For example, Sunass could create communities of practice that bring together staff across from across the organisation (and from other public authorities and regulators) interested in particular topics, e.g. on supervision, communications for development, new technologies in sanitation etc. (Box 1.7).

  • Continuing to build up the expertise of staff in decentralised offices through training and developing mechanisms to ensure transfer of knowledge and expertise from long-serving staff to newer recruits, in particular in decentralised offices.

  • Ensuring consistency in approach across decentralised offices so that all parts of the organisation are operating in line with same organisational standards, codes and practices. Sunass may want to consider a matrix-structured organisation where different teams are grouped by function rather than by location. Additionally/alternatively, directorates in headquarters could have responsibility for providing guidance or granting final approval on work carried out in the decentralised offices.

  • Facilitating exchanges of staff between headquarters and the decentralised offices, e.g. temporary placements of 3-6 months. This could help not only with transfer of knowledge and practices but could also safeguard against regulatory capture of decentralised offices. Shorter term exchanges, including for in-person training at headquarters or at the decentralised offices would also strengthen contacts, which could be very helpful for subsequent day-to-day consultation of colleagues in different locations.

Box 1.7. Creating “Communities of Practice”

Regulators have established communities of practice bringing together staff interested in particular topics as a way to share knowledge and stay abreast of latest developments.

Communities of Practice at the Australian Competition and Consumer Commission (ACCC) and the Australian Energy Regulator (AER)

The ACCC/AER has several internal communities of practice. For example, there is a community of practice on Communications & Engagement and another on Data Governance. The regulator also has internal networks which bring together like-minded people using specific tools or approaches. For example, there is a “Quantitative Analysis Network” that meets regularly to discuss and learn about tools and techniques for quantitative analysis (such as R, excel, python). An “Economics Network” meets to share issues and developments in economics.

Professional Networks at Sweden’s Post and Telecom Authority (PTS)

At the Swedish Post and Telecom Authority (PTS), several internal professional networks provide the opportunity for staff members from different departments and units to come together and discuss topics of mutual interest. The structure and set-up of the networks differ depending on the theme and purpose and may shift over time. Topics include workshop facilitation, competitive intelligence or simply providing a forum for all the lawyers in the authority to meet and discuss.

One of the more long-standing and established networks is themed around supervision. PTS is organised so that supervision of market actors takes place in different departments and based on different legislation and regulations. The Supervision forum is a chance for all staff members actively working on supervision to exchange views and ideas but also a way for PTS to try to ensure coherence in its processes across departments. Although the supervision is based to some extent on different legal frameworks, and there may be justified reasons for different approaches, the aim is to have coherent processes when possible.

The forum meets twice a year and in between there are possibilities for exchange of information on ongoing cases or other interesting topics. Often there are external speakers invited as well, providing perspectives on supervision from other regulators or, for example, the Parliamentary Ombudsmen, that responsible for ensuring that public authorities and their staff comply with the laws and other statues governing their actions. The forum is administrated by a group of staff members working on supervision in different departments.

Source: Information provided by ACCC/AER 2020 (updated in 2021) and PTS, 2020.

Process

Governing body and decision making

A number of safeguards are in place to ensure adequate qualifications and integrity of board members, but a new legislative proposal could dilute the independent nature of regulatory decision-making. Board members are currently selected by a committee comprising the PCM and ministries, and the terms of board members are staggered. Candidates are required to have adequate professional and academic qualifications, and for the executive president there is a requirement to sit a public exam that tests candidates’ sectoral expertise. However, a legislative proposal introduced to the Congressional Commission in September 2021, Law Proposal 21/2021-CR, proposes to add representatives of user and consumer associations and non-governmental organisations to the board. These representatives would not be subject to the same requirements for professional and academic experience. The proposal risks confusing the role of the board of economic regulators with stakeholder engagement fora. Assigning stakeholder representatives to the Sunass board would weaken the basis for impartial, predictable and expert regulatory decision-making.

The part-time nature of board positions may leave little time for strategic decision-making. The board of Sunass has a wide mandate, with exclusive responsibility for regulatory decision making (except for sanctioning decisions) as well as for setting the strategic direction of the organisation and monitoring performance. Board members operate on a part-time basis, meeting twice a month, and tend to have other occupations as well. Extraordinary board meetings take place when necessary, but are not remunerated. The part-time nature of board positions can result in an uneven balance between the time dedicated to regulatory decision-making and strategic discussion. In practice, board members rarely reject regulatory proposals, although they may ask to expand on reports or make additional considerations. In addition, lengthy selection procedures can sometimes result in vacant board seats, further reducing the level of scrutiny the board can exert.

Given the limited time that the board can dedicate to preparatory work, the general management and so-called “pre-board meetings” play an essential role to safeguard the quality of regulatory decision making. In practice, the General Management of Sunass acts as a hub through which all proposals pass, after which the proposals are presented to the Executive President and the board. It also provides a platform for cross-organisational alignment, where input from other directorates can be sought during the pre-board meetings. In a context where board members only have limited time to prepare for board meetings, the pre-board meetings can serve as a useful tool to increase scrutiny of regulatory decision making.

Recommendations

Short term:

• Ensure sufficient time and resources to board members for strategic decision making (Box 1.8). Such matters could include, for example, prioritisation of those activities that contribute most towards the regulator’s strategic objectives in a context of scarce resources.

• Assess possibilities to delegate certain decision-making responsibilities to the technical body of the regulator, to provide more focus in the board’s responsibilities towards strategic decision-making. Any delegation of decision-making should be accompanied by appropriate transparency and accountability mechanisms to hold decision makers at all levels of the organisation to account.

• Retain and defend the requirement that all board members should have adequate professional and academic qualifications and be subject to identical vetting requirements. Sunass may also seek ways to strengthen and institutionalise stakeholder engagement but firmly outside of the board of the regulator (see Engagement and transparency of engagement process).

Medium term:

• Continue the good practice of public exams for the executive president and consider introducing this requirement for all board members. This could provide stronger safeguards to ensure the right level of qualifications for all board members.

• Strengthen the overall level of board engagement. In this effort, Sunass could consider:

  • Advocating for a legislative change allowing full-time board positions;

  • Organising more frequent board meetings; or

  • Providing remuneration to board members for extraordinary board meetings.

Box 1.8. Governing Board of Mexico’s Federal Telecommunications Institute (IFT)

The 2013 reform of the Mexican constitution established the IFT as an autonomous, independent public agency with its own decision-making power and operations, with legal personality and its own assets. The authority was created for regulating spectrum, networks, services, competition and efficient development of the broadcasting and telecommunications sectors. It also acts as competition authority for these markets.

The Governing Board is the Institute’s highest instance of governance and decision making. It is composed of seven full-time Commissioners with voting rights, including its president. The IFT Chair presides the Governing Board and Institute, and is its legal representative.

The Commissioners remain in office for nine years. Their mandates are staggered to allow for continuity and are non-renewable. All commissioners have one vote, weigh in on complex decision-making in the sector and have non-delegable duties. All the Commissioners have to attend plenary sessions except for justifiable cause. Their powers are not limited and they are on an equal footing.

Source: information provided by IFT, 2018.

Regulatory quality tools

Sunass’s current use of regulatory impact assessment (RIA) shows some deficiencies, but the regulator is already making strides to improve practices. The 2016 OECD report Regulatory Policy in Peru identified a lack of ex ante impact assessment across regulators in Peru (OECD, 2016[7]). There is only a limited approach towards cost-benefit analysis, which means not all costs are measured, making it difficult to compare different regulatory options. Moreover, there is no proportionality requirement to tailor the level of assessment to the potential impacts of new regulations. To improve practices and align with international best practice, Sunass received technical assistance from the OECD and internal guidelines for regulatory impact assessment were developed in 2021 (OECD, 2021[8]).

Sunass does not conduct ex post evaluation of regulations, missing a chance to assess their effectiveness and highlight the organisation’s impact in the sector. Ex post evaluation of regulations is a useful tool to analyse if intended goals have been achieved and whether approaches need to be adjusted. Especially in a context with more complex changes to the regulatory framework (such as the new responsibilities of Sunass in rural areas and its efforts towards the integration of service providers), ex post evaluation can improve insights on the regulator’s effectiveness.

Recommendations

Short term:

• Implement the technical guidelines on RIA approved in 2021, as part of the reforms following the OECD’s technical assistance.

• Assign the quality control for RIA to another body outside the Directorate of Policies and Regulations, to ensure a minimum level of quality for all RIA.

Medium term:

• Establish RIA as a mandatory step in the development of all regulations, with only limited exceptions based on clear criteria.

• Use the reform and approval of the internal RIA guidelines to make RIA operational across the whole organisation. In this effort, Sunass should:

  • Ensure swift implementation and awareness across the organisation for the RIA guidelines, in order to establish clear processes, criteria for exceptions and procedures for public consultation.

  • Target the use of RIA in proportion to the significance of the regulation. The depth of the RIA should depend on the size of the regulatory impact, focusing efforts on the most important and impactful regulatory measures (OECD, 2020[9]).

  • Compare alternative options based on wider costs and benefits. The wider costs include “direct costs (administrative, financial and capital costs) as well as indirect costs (opportunity costs) whether borne by businesses, citizens or government” (OECD, 2012[10]).

• Introduce systematic ex post evaluation of all (significant) regulations, a necessary condition to ensure that regulations are effective and efficient (OECD, 2012[10]). In doing so, Sunass should take into account the recommendations made in the 2020 OECD report Reviewing the Stock of Regulation. These recommend among others to safeguard that “ex post reviews should be an integral and permanent part of the regulatory cycle” and “consultations need to be undertaken with affected parties, using processes that are as accessible as possible”. Ex post evaluations should be implemented progressively, starting with pilot projects but moving towards systematic application across the organisation.

Regulatory enforcement and inspections

Sunass has a limited range of sanctions to effectively tackle poor performance by EPs, and many EPs enter a “transitional regime” that impacts the continuity of the sector. Sunass reports that monetary sanctions have had limited success in reducing the high levels of non-compliance in the sector. The regulator also has the ability to remove the management of EPs, but this mechanism focuses on cases where management does not meet the legal requirements needed to hold the position or in case of conflict of interest. A limited enforcement toolkit to incentivise better performance of EPs, combined with other sectoral challenges such as financial constraints, means currently 19 out of 50 EPs have entered into the Transitional Support Regime (RAT) on grounds of poor performance. These companies are run by OTASS for a maximum period of 15 years. The success of this regime will depend on the ability to establish an improvement in the management beyond the short-term, to ensure sustainability of the sector.

Sunass’s use of a differentiated approach to enforcement for rural providers seems reasonable and pragmatic, but it is not yet clear if approaches are leading to the desired behavioural change and compliance. Although within its powers, Sunass has decided not to sanction rural providers for a period of at least two years, in contrast to its approach to enforcement for EPs. Sunass instead provides support and incentives for rural providers to improve service provision. Given the relatively short time that this approach has been in place, there is no evidence yet on whether this differentiation is resulting in the desired outcomes.

Sector supervision is challenging due to the large number and different types of providers, Sunass’s limited capacity for inspections and a lack of compliance culture. The decentralised offices only have a limited reach due to their capacity, which makes it especially difficult to reach out to all 50 EPs and 25 000 rural service providers. A report by OCI also highlights the limited capacity of Sunass’s Supervision Directorate, and Sunass reports that its lack of financial resources results in underfinanced supervision activities. Sunass relies on a strategy to involve the ATMs in the engagement with rural providers. The ATMs perform a crucial role with the potential to increase the regulator’s reach towards all rural providers. However, the capacities of ATMs also tend to be limited. This results in a low overall capacity for inspections of the different types of providers. Moreover, 70% of the corrective measures identified through inspections of EPs in 2020 were not implemented, leading to sanctioning actions. Breaches are frequently linked to non-compliance in terms of control of treatment processes, operational aspects and quality of billing. Given the low overall compliance and complex sector context, Sunass has implemented a number of compliance promotion activities, such as benchmarking, guidance sessions on regulations and workshops on good corporate governance. This effort to build capacities, which can support a culture of compliance and performance, is made more difficult by the high level of turnover of both leadership and staff in water utilities. Furthermore, the political appointment of utility managers limits both operational effectiveness and long term planning.

Many other supervisory bodies have responsibilities in the sector, but low levels of collaboration create inefficiencies. These findings show similarities with findings in the 2020 OECD report on the Environmental Evaluation and Enforcement Agency of Peru (Organismo de Evaluación y Fiscalización Ambiental – OEFA), which noted in that context a need for a greater level of co-ordination, more clarity on mandates and improvements in data sharing among institutions (OECD, 2020[11]). In the water sector, different bodies supervise and enforce aspects of service delivery that are in many cases closely related or even dependent on each other. For example, the supervision on the frequency of quality testing is performed by the Health Authority in case the EP has a quality control plan, but is done by Sunass in case there is no such plan (which in practice is often the case). There are currently no joined-up approaches to overall inspections and the level of interaction and sharing of data remains low. This can lead to information asymmetries that could harm the effectiveness of supervision and enforcement.

Recommendations

Short term:

• Increase the interaction with other supervisory bodies in the sector, analysing potential benefits of joined-up approaches to inspections and institutionalisation of information sharing, enhancing the effectiveness and efficiency of the overall framework.

• Make the outcomes of inspections publicly available in cases where this is legally possible, to increase citizen awareness and improve transparency.

Medium term:

• Incentivise a behavioural change towards compliance and an improvement of outcomes. In this effort, Sunass could:

  • Make use of behaviourally informed approaches towards compliance and performance, especially in those areas where the more traditional means of enforcement are either unavailable or not effective. In these efforts, transparency on the performance of utilities through tailored communication could support public scrutiny. Sunass could make use of the guidance included in the OECD Regulatory Enforcement and Inspections Toolkit on the use of compliance promotion and risk-based approaches as part of the regulatory toolkit (OECD, 2018[12]).

  • Experiment with more risk-based approaches towards inspections, and a shift in focus from procedural compliance towards outcomes. This is particularly important in a context where hands-on supervision of all providers may be impracticable, and in light of overall low levels of compliance. Risk-based and outcome-focused approaches could direct the regulator’s actions towards the most troublesome areas of performance and focus on those violations that matter most, to have the biggest impact (Box 1.9; Box 1.10; Box 1.11).

  • Continue the good practice of providing guidance rather than sanctioning rural providers. Sunass should carefully consider alternative strategies for rural providers to incentivise compliance, such as benchmarking and publicising of good practices, based on the available evidence and responsive to the profile of providers. This could be done through a mapping of the origins of non-compliance and the potential intervention points at which the regulator could influence practice, to analyse the effectiveness of different options (causal pathway methodology).

Box 1.9. Verified trust and accountability (VTA) regulatory approach for small-scale and off-grid water, sewerage and energy services used by the Essential Services Commission of South Australia (ESCOSA)

ESCOSA is adopting a verified trust and accountability (VTA) regulatory approach to the way it regulates small-scale and off-grid water, sewerage and energy services in South Australia. The VTA approach provides a targeted, flexible approach to regulation. This is to ensure that the regulatory frameworks it applies under industry regulation Acts is consistent with its primary statutory objective, and is proportionate and responsive to recent and emerging issues. Those issues can relate to changing technological, operational, environmental or other factors impacting the delivery of water and sewerage retail services, and the sale and/or supply of electricity and gas services to South Australians through small-scale networks.

As well as accounting for existing compliance obligations, the new approach is designed to place more transparency and emphasis on licensed small-scale networks providing assurance to their customers and the Commission, that the services they provide are sustainable over the medium to longer term.

The approach will formally begin in July 2022 after an implementation phase, during which the Commission will work with licensees to produce baseline data sets with which the Commission will categorise each licensee. The categorisation of licensees forms part of introducing the VTA approach. The Commission will assess each licensee on compliance and sustainability performance and place it in one of two categories:

• Category A: Licensees considered trusted to competently run their networks with less prescriptive regulatory oversight. Category A licensees benefit from reduced regulatory reporting.

• Category B: Licensees where there are concerns regarding network performance, with respect to either compliance, medium to long-term service sustainability, or both – and there does not appear to be a credible, measurable remediation strategy. This does not imply or mean that the licensee’s operation is unsafe but indicates that customers are facing a higher level of service risk than appropriate.

A fact sheet outlines the methodology used to categorise licensees.

The Commission will work with and monitor Category B licensees as they develop and implement remediation strategies, with the goal of future reassessment as Category A. The results of the assessment for each licensed operator will be publicly available. This ensures customers and licensees have transparency regarding the outcome of the assessment.

Source: https://www.escosa.sa.gov.au/projects-and-publications/projects/corporate/verified-trust-accountability-regulatory-approach-to-small-scale-networks; ESCOSA (2021), Final Inquiry Report : Inquiry into regulatory arrangements for small-scale water, sewerage and energy services, https://www.escosa.sa.gov.au/articledocuments/1005/20210713-inquiry-smallscalenetwork-finalreport.pdf.aspx?embed=y.

Box 1.10. Risk-based approach to inspections in Greece

Since 2016, Greece, under the initiative of the General Secretariat for Industry within the Ministry of Development and Investment, is conducting a holistic effort to transform the business environment. This effort includes a simplification of licensing procedures and a transition of inspection systems to a risk-based approach.

Law 4512/2018 introduced for the first time the principles of risk-based supervision, which aims to improve consumer welfare by reducing risks (existing or potential) to the public interest, such as health, safety and environmental protection. At the same time, it aims to create the environment for an effective and efficient inspections mechanism without additional (or unnecessary) burden to businesses.

The new framework focuses on the compliance of businesses, through the introduction of innovative tools, such as checklists for inspections, risk-based planning, a complaint management system (CMS) and the Enforcement Management Model (EMM). The Greek inspection system consists of three steps: 1) planning 2) execution and 3) compliance.

1. Planning: Planning of inspections is conducted on an annual basis and risk criteria are determined by the competent authorities. The main criteria are: a) the evaluation of the risk an economic activity poses to public interest, b) the available resources of the authority and c) the results of previous inspections.

2. Execution: Inspections of economic activities are conducted through checklists. A checklist contains both questions to collect information on the business and questions that facilitate the inspector to examine the compliance of the business with the applicable legislation. It is an evaluation tool containing the essential requirements or categories of requirements directly related to the potential risk of the specific activity and with which businesses must comply. Carrying out inspections through these checklists ensures effective decision-making on addressing identified risks.

3. Compliance and EMM: Aiming to ensure compliance of economic activities based on proportionate criteria (also risk-based), Greece has developed the Enforcement Management Model (EMM). The EMM is a “decision tree”, which provides inspectors with the appropriate guidance, criteria and parameters before deciding on the appropriate measures, if violations are identified.

The important element of the EMM is to “drive” inspectors not to impose fines or other strict administrative measures, if compliance can be achieved through softer measures, such as guidance to the business or written recommendations, measures that also build trust between the public and the private sector. The decision is based on risk analysis, as well as the principles of proportionality, transparency and uniformity. In the nexus of this system is not the imposition of a fine or of a stricter measure, but the support of businesses to comply with regulations, as compliance is a prerequisite for a friendly and competitive business environment. Thus, the first available tool for the inspector is the provision of guidance and consulting (Table 1.4).

Table 1.4. Measures based on risk categorisation

Level of Compliance	Types of measures of compliance
	Guidance and consulting	Written recommendation for compliance	Imposition of fine	Temporary or permanent closure	Ban of products	Report to public prosecutor’s offices	Administrative sanctions based on legislation
High-risk (important violation)	✓	✓	✓	✓	✓	✓	✓
Medium risk (moderate infringement)	✓	✓	✓	-	-	-	✓
Low risk (minor infringement)	✓	✓	-	-	-	-	-

Greece will undergo an evaluation of the supervision tools in the next years, however, so far the system shows positive results and supports the efforts for a better regulatory environment for businesses in Greece. In addition, it provides a system that is transparent and fair by shifting the paradigm, as public authorities do not follow the punitive-oriented inspections system but encourage and support businesses to achieve the necessary compliance. Therefore, a relationship of trust and co-operation is built between the government and businesses.

Source: Information provided by the Secretary General for Industry in Greece, 2021.

Box 1.11. The ACCC’s compliance and enforcement strategy

In Australia, the Australian Competition & Consumer Commission (ACCC) has developed a compliance and enforcement strategy that is communicated to all stakeholders. The agency uses four integrated strategies to achieve the compliance objectives:

• Encouraging compliance with the law by educating and informing consumers and businesses about their rights and responsibilities.

• Enforcing the law, including resolution of possible contraventions both administratively and by litigation and other formal enforcement outcomes.

• Undertaking market studies or reporting on emerging competition or consumer issues with a view to identifying any market failures and how to address them, and to support and inform the compliance and enforcement measures and identify possible areas for policy consideration.

• Working with other agencies to implement these strategies, including through co-ordinated approaches.

The ACCC is selective in the matters to investigate and the sectors in which the agency engages in education and market analysis. The ACCC uses annual compliance and enforcement priorities to inform decision making in this regard.

In deciding which compliance or enforcement tool (or the combination of such tools) to use, the first priority is always to achieve the best possible outcome for the community and to manage risk proportionately. The ACCC’s enforcement actions seek to maximise impact across an industry sector. For example, the agency uses the outcome of one court proceeding to encourage other industry participants in the sector to improve their practices.

The ACCC’s role is to focus on those circumstances that will, or have the potential to, harm the competitive process or result in widespread consumer detriment. The ACCC therefore exercises discretion to direct resources to matters that provide the greatest overall benefit.

Each year the ACCC reviews the compliance and enforcement priorities. Priorities are determined following external consultation and an assessment of existing or emerging issues and their impact on the regulated matters. The ACCC publicly announces its priorities in February each year. The priorities are released with the aim of promoting market wide compliance with the law and to manage public expectations regarding the ACCC’s ability to take on additional matters outside its priority areas. A number of key stakeholders in Australia actively respond to the ACCC’s announcement of the priorities and take active measures to improve compliance.

Source: Information provided by ACCC, 2021.

Engagement and transparency of engagement process

The Users Councils have the potential to increase the engagement of users in the regulatory process, but would have to be strengthened to fulfil this ambition. Activity levels differ across councils, where only the Lima User Council meets on a regular basis. While the councils are intended to be composed of five to six members, in practice this is not the case. In addition, Users Councils should have representation of unserved or underserved groups, which in practice does not appear to be the case, representing a lost opportunity to capture different perspectives in user priorities. Users Councils rarely submit opinions, or carry out events on regulatory issues or transmit user queries with communities, which are part of their functions. Moreover, they do not receive any resources from Sunass. All Peruvian economic regulators are required to establish Users Councils and there are significant differences between sectors in how they function and provide their inputs. There would be scope for cross-learning between regulators to increase the added value of this engagement mechanism.

Sunass faces the challenge to engage all consumers in the regulatory process, including the hard-to-reach and potential consumers. Sunass’s engagement with users is centred on complaints and disputes but input into regulatory decision-making is relatively limited. As both the scope of public consultation and the involvement of Users Councils are limited, Sunass may not be able to engage with all consumers, to ensure their perspectives and interests are sufficiently considered in regulatory decision-making. As only 13% of consumers are aware of Sunass’s functions and many materials are not available in local languages, many vulnerable consumers will be unaware of the possibility to engage in the regulatory process to provide input and submit opinions. This may be the case especially for consumers in rural areas or those without internet access. However, engagement with all types of current and potential consumers will be crucial in a context of resistance towards paying a tariff for water.

Beyond Users Councils, Peru’s economic regulators are not required to establish other stakeholder engagement bodies, and Sunass could learn from the experience of other countries to strengthen practice. Draft regulations are open to public comment, but Sunass does not always hold a public hearing to collect input from stakeholders. The 2021 report Implementing Regulatory Impact Assessment at Peru’s National Superintendence of Sanitation Services assesses that Sunass currently does not have a mechanism for early consultation of regulatory proposals, which could result in a lack of information and input to identify policy issues (OECD, 2021[8]). There may be scope, in particular in the water and sanitation sector, where compliance and capacity are an issue, to enhance the involvement of operators in the regulatory process using fora bringing together all relevant stakeholders and experts.

Recommendations

Short term:

• Ensure public hearings are conducted on all new regulatory proposals with a relevant impact on stakeholders.

• Establish more frequent meetings between Sunass and the Users Councils, allowing an on-going discussion on upcoming regulatory proposals, wider sector challenges and the role of the regulator within the sector.

• Provide an increased level of transparency on input by Users Councils, by publishing opinions on regulatory proposals and a response from the regulator on Sunass’s website.

• Strengthen the inputs of Users Councils into the decision-making process. To empower the councils, Sunass could consider:

  • Ensuring that Users Council membership is representative of the diversity of users in Peru;

  • The allocation of a minimum level of resources that could facilitate the participation of Users Councils;

  • The provision of training to members of Users Councils to explain the regulatory framework and discuss ways in which they can contribute towards the regulatory decision making; and

  • Periodic exchanges between Peruvian economic regulators on the experiences and good practices regarding engaging Users Councils in the regulatory process, to create mutual learning opportunities.

• Consider alternative mechanisms to improve the level of interaction with vulnerable consumers, including more targeted communication in plain language and local languages.

Medium term:

• Increase the added-value and impact of stakeholder engagement, to go beyond a mere legislative requirement and establish it as a main element within the regulatory decision-making process (Box 1.12). In this effort, Sunass could consider:

  • Using early consultation as a tool to engage with all stakeholders and collect input that feeds into the analysis of the complexity of the issue and the appropriateness of potential regulatory options; and

  • Exploring the creation of ad-hoc or permanent stakeholder engagement bodies that would bring together all stakeholders, and possibly sector experts, to provide early inputs to the regulatory process and to seek to create exchange of views on plans and challenges (Box 1.13).

Box 1.12. Engagement, consultation and transparency practices at Portugal’s Energy Services Regulatory Authority (ERSE)

ERSE’s decision-making processes include a series of mechanisms to promote stakeholder engagement, consultation and transparency. These include the use of:

• Public consultations

• Stakeholder consultations

• Pre-consultations

• Public hearings

• Consultative councils

The ERSE Statutes require the regulator to consult all interested parties and the general public before approving or amending any regulation. Such a consultation must foresee a period of 30 working days for the submission of comments and suggestion. The submissions received are made public, unless the author has explicitly requested confidentiality. Furthermore, ERSE is required to substantiate its decisions in writing, including in relation to the criticisms or suggestions that may have been made to its draft decision.

In addition, ERSE may hold tailored stakeholder consultations, where a regulatory decision affects a specific group of stakeholders. For exceptional and urgent situations, the statutes also allow ERSE to undertake a rapid consultation, of minimum eight consecutive days, addressed to directly affected stakeholders. For particularly complex or sensitive issues, ERSE may also conduct pre-consultations before the presentation of a regulatory proposal in order to identify stakeholders’ main concerns. This preliminary step does not substitute the obligation for full consultation.

Internal procedures for the various types of consultations ensure that the consultation process is conducted in a consistent and reliable manner across all departments and policy areas. These practical guidelines include among other things: standardised templates and required supporting and explanatory documents; the information to be provided via the publication page on the website; the correct calculation for the consultation period; the handling of confidential information and personal data; as well as a step-by-step guide on the consultation launch, closure, evaluation and finalisation of the regulatory decision. As part of the consultation, ERSE publishes its proposals, supporting analysis and parameters, cost-benefit studies and other inputs which substantiate its draft decision.

In addition to the written consultation process, ERSE systematically holds public hearings when developing regulatory measures. Traditionally hosted as face-to-face meetings, ERSE has increasingly employed digital technologies to broaden its outreach and ensure that its engagement efforts are not diminished due to epidemiological or other crises.

ERSE also consults key stakeholders on its various decisions through three independent advisory bodies that deliver non-binding opinions (see Box 1.13 for more details).

ERSE combines rigorous consultation processes with quicker processes in urgent and extraordinary cases, allowing for nimble decision-making when required, as well as extensive communication and publication practices. As of October 2021, ERSE had concluded a total of 100 public consultations since its creation. On average, consultations have lasted 144 days (5 months); in two cases, the process took two years to complete.

Source: Information provided by ERSE, 2021.

Box 1.13. The role of consultative bodies in the regulatory decision-making process at Portugal’s Energy Services Regulatory Authority (ERSE)

ERSE’s Statutes form the foundation for the regulator’s inclusive and transparent decision-making approach, through the creation of three consultative bodies (known as councils), which contribute to the development of its technical regulations, tariff decisions and the broad lines of action and deliberations taken by ERSE’s Board of Directors. The three consultative councils – Advisory Council, Tariff Council and Fuels Council – act as a forum for creating consensus among key stakeholders.

As part of a broader consultation and engagement policy (see Box 1.12), the councils issue non-binding opinions on ERSE’s regulatory proposals. Importantly, where the regulator does not take on board the opinions presented by the councils, it must justify in writing why it has not adopted the council’s proposed changes. Together with ERSE’s other engagement mechanisms, this process ensures accountability and strengthens the integrity of the regulator’s decisions. In addition, they provide a permanent platform for stakeholders to meet and understand each other’s perspectives. In this way, the councils provide stability to stakeholders and achieve consensus in their statements in an impressive 90% of cases.

The councils are composed of a broad spectrum of representation from national, regional and municipal government, consumer organisations and the energy industry. Council members serve a non-remunerated and renewable term of three years. Each council decides how often to meet in order to prepare its opinions. Generally speaking, and in response to the increased activities and responsibilities of the regulator, the councils may meet several times a month. All opinions of the councils are approved by majority vote, although if members do not agree with all or parts of the opinion of the council they can state this in the submission to ERSE. The opinions of the councils are made public and published on the ERSE website.

Given the characteristic asymmetry of information and resources between the industry and consumers, ERSE seeks to facilitate the latter’s engagement in a number of ways. First, industry and consumer representatives must be represented in equal numbers. Second, ERSE provides a subsistence and attendance allowance for consumer representatives, as well as for government, public bodies and representatives from Azores and Madeira. In addition, ERSE provides training to the household consumer associations that sit on its consultative councils in order to build their capacity and ability to contribute to deliberations.

Source: Information provided by ERSE, 2021.

Complaints

Challenges in the sector are exemplified by the high number of complaints Sunass receives; greater value could be extracted from this information if it was analysed in a systematic way. Although Sunass is only the third recourse for consumer complaints, the regulator receives a high volume of complaints, indicating that the direct mechanism to file complaints first with providers is not successful in settling differences. In an attempt to resolve problems before an official complaint is pursued, Sunass launched the ‘Participa vecino’ initiative to create a platform for more informal exchange between users and service providers, using micro-hearings to address disputes and answer questions. Through its complaints function, Sunass collects useful information on current issues in the sector, which could be used to inform other functions such as supervision or the drafting of regulation. Insights from complaints are sometimes used to inform other areas of Sunass’s functions, but this is not done systematically.

Recommendations

Short term:

• Assess how to improve communication towards consumers around tariff increases, the overall functioning of the sector and the rationale for paying for water services, and understanding their bills, to make sure consumers understand their rights in these situations and what can be expected from Sunass. As part of this effort, Sunass could consider using behavioural insights to increase the willingness of consumers to pay a tariff for drinking water and sanitation services.

Medium term:

• Use the insights from the complaints procedure to feed into other processes to improve Sunass’s actions and sector performance. Sunass could conduct an analysis on the topics of consumer complaints, and publish the resulting report, to increase insights. These insights can be used to:

  • Strengthen the effectiveness of regulatory processes, by aiming the actions at the most problematic areas and subsequently decreasing the number of complaints;

  • Provide targeted training and/or guidelines to EPs, to enable them to provide clear information on user rights and the responsibilities of providers related to the most frequent areas of complaints (such as was done in the case of complaints related to tariff increases). This could bring as a result that more complaints are dealt with in a satisfactory manner between users and providers, supporting the effectiveness of the mechanism to file complaints with providers first.

Output and outcome

Data collection, analysis and management

Sunass, alongside other public bodies in the sector, is confronted with poor availability of data on sector performance, and has employed a number of initiatives to address this shortcoming. Since 2004, Sunass has collected data from the EPs that is defined in regulation. However, in practice, the regulation is not reviewed often enough to remain aligned with data needs, causing a discrepancy with actual data collection practices. Through its decentralised offices and ATMs, Sunass has also collected data on 2 000 out of 25 000 rural providers – a big improvement given the initial lack of data. On the other hand, the regulator is still far away from achieving a universal data coverage for the entire sector.

Sunass’s efforts to improve efficiency and drive sector transformation are made more difficult due to a lack of reliable and consistent data. Data is the bedrock of evidence-based economic regulation, but many factors affect the quality of the data Sunass has at its disposal. Data quality tends to be low due to inconsistency in data management practices and low capacity of staff in utilities. Sunass faces challenges to train staff in providers given their high turnover rate. Finally, a lack of automation and IT infrastructure due to budget constraints, as well as difficult formats in which data is sometimes submitted, can make data validation processes long and internal data sharing and usage more difficult.

The relatively low level of data sharing between public institutions in the sector undermines an efficient use of resources and could pose an additional burden on regulated entities. Data sharing is not institutionalised, but rather depends on personal interactions and relationships. MVCS leads the management and integration of information systems on the sector, but interoperability with Sunass’s system is not yet effective. There are a number of efforts to improve data sharing but progress is slow. A low level of data sharing means that providers are sometimes required to report the same data to different institutions, through different systems.

Recommendations

Short term:

• Assess whether current requirements in terms of data reliability (most notably, the sworn statement) are sufficient to guarantee data quality, and in which cases additional requirements such as an audit may be preferable and possible.

• Promote data sharing and collective data collection through the establishment of institutional data agreements with other public bodies such as OTASS, MVCS and the National Statistics Institute (INEI) (Box 1.14).

Medium term:

• Earmark the implementation of IT strategies, such as automation, digitalisation and the move to cloud-based systems, as a priority within the budgetary planning process. Improvements in data usage and sharing within the institution have the potential to increase the efficiency of operations as well as the effectiveness of actions, and should therefore receive priority.

• Assess whether all the data collected from utilities is necessary and used by the regulator, and update the regulation on data collection if needed. Data requirements should be clearly understood and not too onerous for firms.

• Provide online training and guidance documents to EPs on data definitions and ways to record and submit data. This could support a more standardised method of data collection, based on easy-to-process data formats. To account for high levels of staff turnover in EPs, these trainings and documents should be delivered in a format that can be accessed at any time.

• Build upon Sunass’s rural data collection efforts so far, to expand the data availability and include a larger share of the communal organisations. To achieve this, Sunass could further empower ATMs and assess the potential for automation and digitalisation in the data collection processes.

Box 1.14. Sharing and using data to better manage risks in Italy

A number of Italian regions and institutions have, in recent years, worked on improving data sharing, analysis and usage, to reduce the burdens and inefficiencies created by duplications and lack of coordination between different services, and better support regional economies.

In Lombardy, the Mo.Ri.Ca system for risk monitoring in construction sites uses data emerging from notifications, surveillance and accidents (collected via Impres@BI) and estimates the risk level of a given site on this basis. Risk criteria and weights, previously defined empirically, are now being improved through Machine Learning. The key strength of the system is that it integrates data from a number of sources, including notifications from the health care system, and considerably improves risk management at a very limited cost.

In Campania, in addition to the existing GISA system to plan and manage all food safety inspections, the region partnered with the University of Naples Parthenope to develop MytiluSE, a system to predict the quality of waters so as to secure safety of mussels produced in the bay of Naples. Rather than expending large resources on ex post controls to find potential contamination, the system works preemptively, enabling to know which days the harvesting of mussels would be unsafe. Once fully operational, it can both inform producers and guide inspectors’ work. Developing the system involved investigating the currents of the bay of Naples, mapping contamination sources, and developing a reliable predictive model, but it is potentially completely transformative for regulatory delivery. It was also adapted to predict air pollution by fumes, which can affect feed for bovine herds. The predictive approach for mussels is not only better for the economy and public service efficiency, but it also avoids health hazards far more effectively, because microbiological testing and sampling takes time, and results can come too late (leading to potential contaminations from other products harvested the same day).

Source: Montella R, Riccio A, di Luccio D, Mellone G, de Vita, C G (2020), MytiluSE: Modelling mytilus farming System with Enhanced web technologies, Università degli Studi di Napoli Parthenope, Sciences and Technology Dipartiment, commissioned by Campania Region, Unità Operativa Dirigenziale Prevenzione e Sanità Pubblica Veterinaria (presentation), as cited in (OECD, 2021[13]), OECD Regulatory Policy Outlook 2021, OECD Publishing, Paris, https://doi.org/10.1787/38b0fdb1-en.

Monitoring and reporting on the performance of the sector

Sunass’s benchmarking creates a powerful tool to incentivise sector performance, and could be further improved to hold operators to account. Benchmarking providers gives behavioural incentives to improve performance, through the naming and shaming of good and poor performance. This approach to performance reporting may be especially important in a context with many publicly owned providers. However, data is not presented in a way that allows the public to use the findings to hold operators to account. Sunass does not publish trends over time for individual key performance indicators, but instead focuses its reporting on a composite indicator on the performance of operators. This more aggregated reporting weakens the incentives that result from the benchmark.

Recommendations

Short term:

• Enable tracking of utility performance through wider public access to disaggregated data underlying indicators and historical trends. Emphasis should be on the importance to provide straightforward data and indicators that stakeholders can interpret without trouble, as well as easy-to-read charts on changes in performance over time (Box 1.15).

Medium term:

• Consult with stakeholders on the data needs and insights they are most interested in, and conduct regular checks to ensure data remains accessible.

Box 1.15. Sector data transparency initiatives by regulators

Sector data transparency initiative by Mexico’s Federal Telecommunications Institute (IFT)

The Telecommunications Information Bank (Banco de Información de Telecomunicaciones, BIT) is an interactive tool for consulting, analysing, exploring and downloading data on the telecommunications sector. The portal is equipped with data exploration modules, in which users can download disaggregated information and historical series in open data format.

The BIT is a portal that incorporates good practices in terms of open data and access to information. The IFT made the BIT platform available to the public in order to disseminate and promote the use of information on the regulated sector that IFT uses to monitor and regulate the telecommunications and broadcasting sectors in Mexico. The BIT contributes to: i) generating knowledge on the performance of telecommunications and broadcasting in Mexico; ii) strengthening the decision making of the different public and private actors involved in these sectors and, iii) strengthening the design of public policies.

The BIT enables users to consult information regarding the macroeconomic environment of telecommunications and broadcasting in Mexico, revenues and investment of operators, as well as indicators related to the different services such as fixed and mobile telephony, fixed and mobile broadband and television. It also has a data download module and a graphic explorer to perform customised queries, generate variables, perform complex sectoral analyses, build indicator dashboards and graphically analyse time series.

The BIT is a dynamic information platform that is expected to evolve over time. In the medium term, the published tables will be updated every quarter, in addition to validating historical information for long-term analysis. Further improvements could include the addition of information not published to date, such as marketing and bundling metrics, in order to monitor the convergence of telecommunications services.

Open Data at the Swedish Energy Markets Inspectorate

Open data at the Swedish Energy Market Inspectorate (Ei) are information available for anyone to use, re-use and share, so others can develop it and create benefits for more people. The information is made available without restriction in the form of copyright, patents or confidentiality, by being free of personal data and otherwise confidential information.

Ei works actively with open data in accordance with directives and recommendations from the European Union (EU) and the government. The re-use of government information is regulated by the PSI Act (PSI stands for Public Sector Information, i.e. public information). The law is based on the EU PSI Directive.

Ei's data sources are catalogued according to international standards in a directory service that, in addition to the reference/access point/API to the data itself, contains metadata description of the data sources according to the DCAT-AP standard. The catalogue is “harvested”, i.e. loaded and published on the national catalogue of open data (http://www.dataportal.se) and the EU open data catalogue (http://www.europeandataportal.eu).

The data catalogue lists all of Ei's open data and Ei's statistics portal contains the datasets published as statistics. Ei is continuously working to make more data available and will increase the range in the data catalogue. Currently the data catalogue includes open data on, for example, outage indicators, network tariffs and prices, customers per type of subscription, companies’ income statements and balance sheets, and technical data related to the electricity network (https://www.ei.se/om-webbplatsen/psi/).

Ei actively encourages the re-use and processing of its data and hopes that Ei's open data can be used as part of everything from research to new digital services. In this way, Ei can contribute to increased social benefit for all.

Source: Information provided by the Swedish Energy Markets Inspectorate, 2021; http://www.ift.org.mx/comunicacion-y-medios/comunicados-ift/es/el-ift-presenta-el-banco-de-informacion-de-telecomunicaciones-bit-comunicado-462017; BIT Website: https://bit.ift.org.mx/BitWebApp/.

Monitoring and reporting on the performance of Sunass

In line with good practice, Sunass’s strategic objectives are monitored and reported on through indicators with time-bound targets. Sunass uses a compact set of eight indicators linked to specific strategic objectives, which it reports on through its annual report (Table 1.5). It also connects the data on indicators with financial information, to give insights into the regulator’s effectiveness in its use of resources. Furthermore, performance reporting on indicators is complemented with other data on performance in terms of efficiency, number of tariff studies, reports and compliance, which provide further insights on Sunass’s performance. Though not a legal requirement, Sunass shows good practice by sharing its annual report and performance report with Congress, strengthening the accountability of the regulator.

Table 1.5. Indicators and goals linked to Sunass’s strategic objectives

Sunass strategic plan (PEI) 2020-24

Objective (OEI)	Indicator	Goals
		2020	2021	2022	2023	2024
1. Strengthen the provision of sanitation services to users.	Index of the Management and Provision of Sanitation Services of the Provider Companies (IGPSS).*	76.31%	78.86%	81.41%	83.96%	84.01%
	Percentage of providers in rural areas with good management.	25.05%	25.88%	26.72%	27.56%	28.41%
2. Consolidate the decentralisation of Sunass functions.	Percentage of ODSs showing optimal performance in the performance of decentralised functions.	70%	80%	90%	100%	100%
3. Improve the perception and appreciation of sanitation services by users.	Percentage of users who value the importance of having sanitation services.	3%	5%	10%	15%	10%
	Percentage of users satisfied with Sunass services	50%	55%	60%	70%	75%
	Percentage of users of sanitation services who are willing to pay the set tariffs.	0%	5%	10%	15%	20%
4. Strengthen Institutional Management	Percentage of internal clients satisfied with the services provided by line bodies.**	60%	65%	70%	75%	80%
5. Implement disaster risk management*	Percentage of implementation of Disaster Risk Management Plan.	50%	60%	70%	80%	90%

* The IGPSS is an index composed of 18 indicators spanning six performance areas: access to services; service quality; financial sustainability; governability and governance, and disaster risk management.

** The line bodies refer to the offices within Sunass that provide support and advice, which are the Office of Planning, Budget and Modernization, the Office of Legal Advice, the Office of Communication and Institutional Image, the Office of Administration and Finance and the Office of Information Technologies.

There is a need for guidance to the public on how indicators can be used to assess the regulator’s performance. In general, it is not clear how target levels are defined, or what the reasons are for changes in these target levels throughout the years. Moreover, indicators may not always be intuitive for the public to understand, where the annual report only reports on the average performance for each strategic objective, which can be based on a number of underlying indicators. For example, it may not directly be clear what is understood to be ‘good management’ of service providers, or what optimal performance in the execution of deconcentrated functions looks like.

Recommendations

Short term:

• Reinstate the good practice of producing and publishing an annual report on Sunass’s activities and performance, an important mechanism to strengthen transparency, accountability and understanding of the regulator’s role.

Medium term:

• Measure the regulator’s performance on its strategic objectives through a set of simple and straightforward performance indicators that are more directly affected by the actions of Sunass, complemented by ‘watchtower’ indicators on sectoral performance. Indicators more directly affected can include aspects such as the number of providers with an up-to-date tariff study or the number of rural providers that charge a household fee in line with Sunass’s methodology. “Watchtower” indicators assess the wider sector performance, and could serve to identify challenges within the sector in order to direct the regulator’s actions.

• Provide easy-to-understand guidance to stakeholders on the interpretation of key indicators to enable them to track the regulator’s performance more easily.

• Engage stakeholders in the formulation of target levels for the indicators, and when relevant clearly communicate on the reasoning for any changes made to the target levels (Box 1.16).

Box 1.16. ACCC Performance Consultative Committee

The ACCC Performance Consultative Committee was established in 2015 to act as the ACCC’s formal stakeholder consultation body under the Australian Government’s Regulator Performance Framework (RPF), which was in place from 2015 to 30 June 2021. The framework established a common set of six outcomes-based key performance indicators that facilitated assessment of Commonwealth regulators’ performance, particularly how they engaged with regulated entities and administered regulations.

In mid-2021 the Government replaced the RPF with the Regulator Performance Guide, which details three principles of regulator best practice:

1. Continuous improvement and building trust: regulators adopt a whole-of-system perspective, continuously improving their performance, capability and culture to build trust and confidence in Australia’s regulatory settings.

2. Risk-based and data driven: regulators manage risks proportionately and maintain essential safeguards while minimising regulatory burden, and leveraging data and digital technology to support those they regulate to comply and grow.

3. Collaboration and engagement: regulators are transparent and responsive communicators, implementing regulations in a modern and collaborative way.

The committee initially consisted of 16 business, legal and consumer representatives who collectively covered the broad range of stakeholders that the ACCC engages with in undertaking its various functions. In late 2021 it was expanded to just over 20 key stakeholders to reflect the increased breadth of the ACCC’s work in recent years, and the expanded scope of the purpose of the committee.

The committee is therefore well placed to continue to provide feedback to the ACCC about its performance.

During its first six years, the committee met annually to:

• provide feedback on the self-assessment methodology, measures, evidence and surveys that the ACCC used to annually assess its performance against the six RPF KPIs;

• ‘externally validate’ the ACCC’s draft annual self-assessment under the RPF.

External validation provided an avenue for the committee to provide feedback on whether the self‑assessment results broadly accorded with their views of the ACCC’s performance against the KPIs over the assessment period.

With the change to the Regulator Performance Guide, the committee will meet twice per year from 2022 to provide a forum for increased engagement with, and feedback from, key stakeholders on a wider range of performance issues related to the work of the ACCC. This will include our performance in achieving our statutory regulatory obligations and core purpose to ‘Make markets work for consumers, now and in the future’, as reported through our Corporate Plan and Annual Report.

Sources: ACCC website: https://www.accc.gov.au/about-us/consultative-committees/accc-performance-consultative-committee; information provided by ACCC, 2021.

References

[3] Felgendreher, S. and P. Lehmann (2015), “Public Choice and Urban Water Tariffs--Analytical Framework and Evidence From Peru”, The Journal of Environment & Development, Vol. 25/1, http://dx.doi.org/10.1177/1070496515619651.

[8] OECD (2021), Implementing Regulatory Impact Assessment at Peru’s National Superintendence of Sanitation Services, OECD Reviews of Regulatory Reform, OECD Publishing, Paris, https://dx.doi.org/10.1787/c0cdc331-en.

[13] OECD (2021), OECD Regulatory Policy Outlook 2021, OECD Publishing, Paris, https://dx.doi.org/10.1787/38b0fdb1-en.

[1] OECD (2021), Water Governance in Peru, OECD Studies on Water, OECD Publishing, Paris, https://dx.doi.org/10.1787/568847b5-en.

[6] OECD (2020), Driving Performance at Peru’s Transport Infrastructure Regulator, The Governance of Regulators, OECD Publishing, Paris, https://dx.doi.org/10.1787/d4ddab52-en.

[11] OECD (2020), Regulatory Enforcement and Inspections in the Environmental Sector of Peru, OECD Publishing, Paris, https://dx.doi.org/10.1787/54253639-en.

[9] OECD (2020), Regulatory Impact Assessment, OECD Best Practice Principles for Regulatory Policy, OECD Publishing, Paris, https://dx.doi.org/10.1787/7a9638cb-en.

[4] OECD (2019), Driving Performance at Peru’s Energy and Mining Regulator, The Governance of Regulators, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264310865-en.

[5] OECD (2019), Driving Performance at Peru’s Telecommunications Regulator, The Governance of Regulators, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264310506-en.

[12] OECD (2018), OECD Regulatory Enforcement and Inspections Toolkit, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264303959-en.

[7] OECD (2016), Regulatory Policy in Peru: Assembling the Framework for Regulatory Quality, OECD Reviews of Regulatory Reform, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264260054-en.

[10] OECD (2012), Recommendation of the Council on Regulatory Policy and Governance, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264209022-en.

[2] UN-Water (2020), Peru, https://www.sdg6data.org/country-or-area/Peru (accessed on 7 July 2021).

Note

← 1.  For example, energy and mining regulator Osinergmin received PEN 327 million from fees in 2015, compared to the PEN 28 million in fees that Sunass received in the same year.