This change story is from our 2020 annual report.

In Colombia and across Latin America, regulations have until now stood in the way of using revenue from ratepayers to provide a secure funding base for investments in green infrastructure for improving water supply. SEI worked with authorities in Colombia to develop a framework for regulatory reform that leads the way to a secure foundation for investment in green water infrastructure.

For many years, conservation organizations in Latin America, including The Nature Conservancy, have promoted the creation of water funds to serve as investment managers for green infrastructure projects. In some watersheds there has been success in attracting voluntary investments, largely from private sector actors that depend on water supplies or the philanthropic community, these donations are by definition insecure. And because of this, water fund managers have long sought to cover the costs of green infrastructure through water tariffs collected by drinking water utilities. But they face a fundamental problem in doing so: regulation of water tariffs is typically based on the principle that because water utilities are monopolies they require strict oversight.

In Colombia, this oversight role is carried out by the Potable Water and Basic Sanitation Regulation Commission (CRA), based on public utility laws that require Colombian drinking water utilities to demonstrate to the CRA that any increases in rates to cover the cost of capital improvements must be efficient. In other words, utilities must show that investments included in any capital improvement plan – including green infrastructure investments – represent the cheapest approach to achieving a target level of service.

Overcoming barriers in regulation

The CRA has for some time been under pressure, largely from conservation organizations, to find a way to approve water rates that included the cost of green infrastructure investments. The difficulty for the CRA is that it has been forced to apply the same economic efficiency standards applied to those for grey infrastructure. The conservation community and others argued that these investments would improve hydrologic conditions in a watershed, and thus the quality of service, but had neither the expertise nor motivation to present a thoroughgoing case to regulators.

What was needed was more comprehensive analysis that would demonstrate to regulators that investments in green infrastructure would be the most economically efficient way to improve the service provided by drinking water utilities.

To meet this need, the CRA partnered with SEI, which was able to effectively provide the level of analysis and expertise needed to support the CRA in developing an approach that was compliant with Colombian law.

Knowledge partnership unlocks change

By collaborating with SEI Latin America, the CRA could rely on a knowledge partner that not only understood the constraints it faced, but also was able to deploy its signature Water Evaluation and Planning (WEAP) software. The integrated hydrology and water resources functions of the WEAP tool enabled analysis that went beyond the frameworks previously proposed by the conservation community: WEAP allowed the CRA to test procedures for regulatory oversight that were adapted to the well-developed legal and regulatory structures around investment in grey infrastructure.

After two pilot applications, the CRA was able to put forward a package of regulatory reform that was both compliant with Colombian law and yet flexible enough to give green infrastructure projects a fair review.

The outcomes from this partnership are vital if green infrastructure investment is to go to scale in Colombia, given that the funds available to pursue these investments are currently voluntary. Connecting these investments directly to the ratepayers who permanently receive water service would be a game changer and provide a sustainable foundation for future investment in green infrastructure.