Aligning efficiency benchmarking with sustainable outcomes in the United Kingdom water sector

Assessing the dynamic performance of water companies through the lens of service quality

The measurement of performance within the water industry holds significant importance for policymakers, as it can help guide decision-making for future development and management initiatives. In this study, we apply data envelopment analysis (DEA) cross-efficiency techniques to evaluate the productivity change of the Chilean water industry during the years 2010-2018. Water leakage and unplanned interruptions are included in the analysis as quality of service variables. Moreover, we use cluster analysis and regression techniques to better understand what drives productivity change of water companies. The results indicate that the Chilean water industry is characterized by considerable high levels of inefficiency and low levels of productivity change. This is due to the existence of technical regress whereas gains in efficiency were small. Concessionary water companies were found to be more productive than full private and public water companies. Best and worst performers need to make efforts to reduce production costs and improve service quality. Other factors such as customer density and ownership type statistically affect productivity.

Water sector resilience in the United Kingdom and Ireland: The COVID-19 challenge

The outbreak of COVID-19 led to restrictions on movements and activities, which presented a serious challenge to the resilience of the water sector. It is essential to understand how successfully water companies responded to this unprecedented event so effective plans can be built for future disruptive events. This study aimed to evaluate how the water sectors in the UK and Ireland were affected from a holistic sustainability and resilience-based perspective. Using pre-COVID data for 18 indicators of company performance and comparing them to the first year of the pandemic, the direction and magnitudes of change varied across companies. Financial indicators were significantly negatively affected, with interest cover ratio, post-tax return on regulated equity, and operating profit, exhibiting the greatest average declines of 21%, 21%, and 18%, respectively, a trend that would be dangerous to provisions and company operations if continued. Despite this, service and environmental indicators improved during the first year of the pandemic, exemplified by unplanned outage, risk of sewer storm flooding, and water quality compliance risk decreasing by a mean average of 37%, 32%, and 27%, respectively. Analysis using the Hicks-Moorsteen Productivity Index concluded that average productivity increased by 35%. The results suggest that the water sector was relatively resilient to the COVID-19 pandemic in terms of services, but adverse effects may have manifested in a deteriorated financial position that could exacerbate future challenges arising from exogenous pressures such as climate change. Specific advice for the UK water sector is to scrutinize non-critical spending, such as shareholder payments, during periods of economic downturn to ensure essential capital projects can be carried out. Although results are temporal and indicator selection sensitive, we recommend that policy, regulation, and corporate culture embrace frameworks that support long-term resilience to since the relative success in response to COVID-19 does not guarantee future success against differing challenges. This study generates a timely yet tentative insight into the diverse performance of the water sector during the pandemic, pertinent to the water industry, regulators, academia, and the public.

Efficiency benchmarking of wastewater service providers: An analysis based on the Portuguese case

Sustainability is increasingly important in the wastewater treatment sector, and benchmarking studies are needed to identify the best practices in using resources efficiently. This work addresses this need by characterizing and benchmarking this sector in Portugal. Data from around 120 service providers, from 2015 to 2019, regarding inputs consumption, desirable and undesirable outputs, are used in a data envelopment analysis to benchmark these operators and to determine improvement potentials. A productivity change analysis revealed an increase from 2015 to 2019, essentially due to an increased technical efficiency. On the other hand, no real technological change seems to have occurred. A positive effect of the service providers dimension and certifications (quality, environmental and energy) on efficiency was found. Service providers with concessionary governance models and urban typology presented the highest efficiencies, whereas treatment plants underuse contributed negatively to efficiency. These results can inform the definition of strategic policies for the water sector, namely concerning the aggregation of small providers. The proposed methodology, based on the use of a comprehensive new set of studied variables and explanatory factors, allowed to determine the best characteristics regarding the techno-economic efficiency of Portuguese service providers, and can potentially be applied to identify role models in other countries.

Benchmarking the economic and environmental performance of water utilities: a comparison of frontier techniques

Purpose

The purpose of this paper is to estimate and compare the efficiency of several water utilities using three frontier techniques. Moreover, this study estimates the impact of several qualities of service variables on water utilities’ performance.

Design/methodology/approach

The paper utilizes three frontier techniques such as data envelopment analysis (DEA), stochastic frontier analysis (SFA) and stochastic non-parametric envelopment of data (StoNED) to estimate efficiency scores.

Findings

Efficiency scores for each methodological approach were different being on average, 0.745, 0.857 and 0.933 for SFA, DEA and StoNED methods, respectively. Moreover, it was evidenced that water leakage had a statistically significant impact on water utilities’ costs.

Research limitations/implications

The choice of an adequate and robust method for benchmarking the efficiency of water utilities is very relevant for water regulators because it affects decision making process such as water tariffs and design incentives to improve the performance and quality of service of water utilities.

Originality/value

This paper evaluates and compares the performance of a sample of water utilities using three different frontier methods. It has been revealed that the choice of the efficiency assessment method matters. Unlike SFA and DEA, a lower variability was shown in the efficiency scores obtained from the StoNED method.

Pitfalls in international benchmarking of energy intensity across wastewater treatment utilities

The collection, treatment and disposal of wastewater is estimated to consume more than 2% of the world's electrical energy, whilst some wastewater treatment plants (WWTPs) can account for over 20% of electrical consumption within municipalities. To investigate areas to improve wastewater treatment, international benchmarking on energy (electrical) intensity was conducted with the indicator kWh/m³ and a quality control of secondary treatment or better for ≥95% of treated volume. The core sample included 321 companies from 31 countries, however, to analyse regional differences, 11 countries from an external sample made up of various studies of WWTPs was also used in places. The sample displayed a weak-negative size effect with energy intensity, although Kruskal-Wallace analyses showed there was a significant difference between the size of groups (p-value of 0.015), suggesting that as companies get larger; they consume less electricity per cubic metre of wastewater treated. This relationship was not completely linear, as mid to large companies (10,001-100,000 customers) had the largest average consumption of 0.99 kWh/m³. In the regional analysis, EU states had the largest average kWh/m³ with 1.18, which appeared a result of the higher wastewater effluent standards of the region. This was supported by Denmark being the second largest average consuming country (1.35 kWh/m³), since it has some of strictest effluent standards in the world. Along with energy intensity, the associated greenhouse gas (GHG) emissions were calculated enabling the targeting of regions for improvement in response to climate change. Poland had the highest carbon footprint (0.91 kgCO₂e/m³) arising from an energy intensity of 0.89 kWh/m³; conversely, a clean electricity grid can affectively mitigate wastewater treatment inefficiencies, exemplified by Norway who emit just 0.013 kgCO₂e per cubic meter treated, despite consuming 0.60 kWh/m³. Finally, limitations to available data and the analysis were highlighted from which, it is advised that influent vs. effluent and net energy, as opposed to gross, data be used in future analyses. The large international sample size, energy data with a quality control, GHG analysis, and specific benchmarking recommendations give this study a novelty which could be of use to water industry operators, benchmarking organisations, and regulators.

Comparing Operational, Environmental and Eco-Efficiency of Water Companies in England and Wales

The assessment of performance of water companies is essential for their regulation. In doing so, several variables and models can be employed. This study evaluates and compares the performance of a sample of English and Welsh water companies from the operational, environmental and eco-efficiency perspectives by applying the non-radial data envelopment analysis range adjusted measure model. This methodological approach allows integrating greenhouse gas emissions as undesirable output. The results indicated that the water industry performed well from an operational perspective. However, environmental inefficiency considerably exists which illustrates the difficulties of the water companies in reducing greenhouse gas emissions. The average eco-efficiency was 0.783 which means that while expanding water services, water companies could further reduce costs and carbon emissions by 11.7% on average. Other factors such as water treatment complexity and population density significantly affect water companies’ eco-efficiency. Several policy implications are finally discussed.