Accounting for service quality to customers in the efficiency of water companies: evidence from England and Wales

Abstract

This paper investigates the role of service quality to customers in the efficiency assessment of water companies in England and Wales. To achieve this, data envelopment analysis techniques are employed to compute the technical efficiency of the water companies following two approaches: (i) traditional assessment based on quantity variables (without the inclusion of service quality variables) and (ii) alternative assessment considering quantity and service quality variables as undesirable outputs. The analysis covers 22 water and sewerage companies and water only companies providing drinking water services. The results indicate that the traditional efficiency assessment reveals a high level of technical efficiency, suggesting that the English and Welsh water industry is mature and that one of the challenges it faces is improving service quality. When introducing service quality variables in the evaluation, the average scores of technical efficiency slightly decrease. This suggests that, on average, water companies do not necessarily provide high quality of service, meaning that the traditional efficiency assessment favours their performance. Quality of service supplied to customers within a water sector matters and should be taken into account during the benchmarking process as it could assist regulated companies and regulators to improve performance and incentives, respectively.

Evaluating the Efficiency of Water Distribution Network Sectors Using the DEA-Weight Russell Directional Distance Model: The Case of the City of Valencia (Spain)

“…• Variable returns to scale (VRS) were assumed in some studies evaluating the efficiency/inefficiency of water supply services [3,5], the role of service quality in the efficiency [25], or regulatory aspects [26]; • Constant returns (CRS) were adopted to assess the sustainable efficiency [27] and to analyze the relationship between efficiency and management system [28] and between urban water use and wastewater decontamination systems [29]; • Variables and constant returns were used to understand the performance patterns in water utilities [6,30,31], to estimate potential savings in water distribution [32], to measure the impact of reforms in the sector [33], to assess the relevance or the type of ownership on efficiency [34,35], to study the setting of price limits [32], to incorporate qualitative indicators in water delivery [36,37], etc.…”

“…In the literature reviewed, a commonly used input variable is operation or maintenance costs [2][3][4][5][6]8,13,[23][24][25]37,42], but other costs have also been considered, such as staff cost [3,4], indirect labor cost for pipe network management [14], capital expenditure [37], amortization and taxes, water purchased and energy cost for producing drinking water [3], total expenses [71], or total production cost [10]. In some works, the production inputs have been included, such as labor in absolute terms [6,8,13,24,42], relative terms (staff per 1000 connections [5], number of employees per 1000 consumers [41]), total assets or capital stock [2,23,25], and energy [4].…”

“…With regard to the main variables used as desirable outputs, two groups can be highlighted, which would broadly include the number of users served by the distribution network [4,6,13], households [23,25,26] or number of water connections [2,5,24], and variables related to the flow that users receive. This group includes water quantity, with variables such as total drinking water produced [3,26], system input volume [7] or average dairly clear water production [5], accounted for water [37], distributed water volume [4,6,8,13,23,25,42], or hours of supply [37] (also mention revenue form service delivered [10]). The water flow supplied is the variable most used in DEA works as the desired output.…”

“…With regard to the first feature, it has been considered leakage volume [3] or unbilled water [8]. With regard to the second feature, water quality is considered (properties below the reference level [23,25]), as well as interruptions in water supply (unplanned interruptions [23,25], failure in drinking water requirements [8]), and number of complaints [6,23].…”

“…This is because the study is strictly based on the variables provided by the company EMIVASA. In spite of this, the variables used find support in the efficiency evaluation studies within the framework of the efficiency of the water distribution network: operating and maintenance costs [2][3][4][5][6]8,13,[23][24][25]37,42], water flow supplied (water quantity) [3][4][5][6]8,23,25], leaks [3,14,26,42], pipe length of the sector [2,[6][7][8]13,14,26,42], and number of users in the sector [4,6,8,13,25]. Like other studies in the literature [37], variables related to quality that have also been used in the literature on water distribution quality and health, are included: turbidity variation [75][76][77][78][79][80][81], variation of residual free chlorine [79,[82]…”