Italian Water Regulation

The Situation

When Italy's regulatory authority, Aeegsi, announced the new water prices at the end of 2013, several organizations appealed. They claimed that the methodology the Authority used to determine remuneration of the cost of capital went against a 2011 referendum, which they interpreted as a decision to return water service in Italy to the public sector.

NERA's Role

The Italian federation of local utilities (Federutility) entered the case in support of the Authority's decision, and asked NERA to conduct economic analysis examining the merits of the case between those who wanted water service to be exclusive territory of municipal companies and those who wanted private companies to be able to play a role in the sector.

The Result

The administrative court ruled in favor of the Authority and of Federutility, citing a supporting memo written by NERA Academic Affiliate Professor Carlo Scarpa in its decision. The court's acceptance of NERA's contention that the remuneration of risk capital should be considered analogous to other components of the cost of capital is considered a landmark in the defense of the role of private capital in Italy's water sector.