Economic and environmental efficiency of UK and Ireland water companies: Influence of exogenous factors and rurality. (1st July 2019)

• Record Type: Journal Article
• Authors: Walker, Nathan L.; Norton, Andrew; Harris, Ian; Williams, A. Prysor; Styles, David
• Is Part Of: Journal of environmental management. Volume 241(2019)
• Page Start: 363
• Page End: 373
• Publication Date: 2019-07-01
• Subjects: Data envelopment analysis -- Double-bootstrap -- Water utilities -- Performance analysis -- Explanatory factors -- Urbanity; Environmental policy -- Periodicals; Environmental management -- Periodicals; Environment -- Periodicals; Ecology -- Periodicals; 363.705
• DOI: 10.1016/j.jenvman.2019.03.093
• Languages: English
• ISSNs: 0301-4797

Abstract

Abstract: For water companies, benchmarking their performance relative to other companies can be an effective way to identify the scope for efficiency gains to be made through infrastructure investment and operational improvements. However, a key limitation to benchmarking is the confounding effect of exogenous factors, which may not be factored in to benchmarking methodologies. The purpose of this study was to provide an unbiased comparison of efficiency across a sample of water and sewage companies, accounting for important exogenous factors. Bias-corrected economic and environmental efficiency estimates with explanatory factors were evaluated for a sample of 13 water and sewage companies in the UK and Ireland, using a double-bootstrap data envelopment analysis (DEA) approach. Bias correction for economic and environmental efficiency changed the rankings of nine and eight companies, respectively. On average, companies could reduce economic inputs by 19% and carbon outputs by 16% if they performed at the efficiency frontier. Variables explaining efficiency were: source of water, leakage rate, per capita consumption and population density. Population density showed statistical significance with both economic (p-value 0.002) and environmental (p-value 0.001) efficiency. Consequently, a rurality factor was defined for each company's operational area, which was then regressed against normalised water company performance data. More rural water companies spend more per property (R 2 of 0.633), in part reflecting a larger number of smaller sewage treatment works serving rural populations (R 2 of 0.823). These findings provide new insight into methods for benchmarking, and factors affecting, water company efficiency, pertinent for both regulators and water companies. Highlights: Economic and environmental inputs could reduce by 19.4% and 15.8%. Bias correction changed the rankings of over 65% of companies. Population density and surface water % significantly linked to higher efficiencies. Rurality has relationship with increased spending (R 2 of 0.63). No. of sewage treatment works linked to rurality/spending relationship (R 2 of 0.82).