Assessing productivity changes in water companies: a comparison of the Luenberger and Luenberger-Hicks-Moorsteen productivity indicators

ABSTRACT

Interest in evaluating productivity changes in water companies has increased in recent years. In this paper, for the first time, we employ the Luenberger-Hicks-Moorsteen Productivity Indicator (LHMPI) to evaluate productivity changes in a sample of Chilean water companies from 2010 to 2016. Productivity change estimations obtained by both the Luenberger Productivity Indicator (LPI) and the LHMPI are compared. Moreover, both indicators were computed assuming constant and variable returns to scale technologies. The LHMPI estimates illustrate that productivity in Chilean water companies has slightly improved over the period studied due to the positive trend of outputs, whereas the inputs negatively contributed to productivity changes. Results from the empirical analysis enabled us to verify that the LHMPI and LPI (and their drivers) are statistically different. This conclusion illustrates that water regulators need to pay attention to the indicators used when assessing productivity changes in water companies.     

Natural hazard risk management in the Chilean drinking water industry: Diagnosis and recommendations

Disaster risk management in water infrastructure is still a world challenge. In this study, we present and discuss the results of an extensive survey conducted to Chilean water companies focused on disaster risk management in the production of drinking water. The main conclusions were: i) there is significant heterogeneity in the practices applied by water companies; ii) water companies use a large variety of tools to manage natural disasters; iii) earthquake is the one more relevant hazard for water companies. Based on the main conclusions of the survey, a set of recommendations for the Chilean water industry are proposed.     

Ensuring sustainable development for the German water sector: setting the stage for the risk-based sustainability management system (RSS)

Abstract

The service provision of drinking water and the disposal of waste water are severely challenged by changing framework conditions. Although service providers necessitate systematic information regarding sustainability risks, no available management tool accounts for them comprehensively. In the context of the project NaCoSi ‘Ensuring Sustainability for Urban Water Systems’, a risk-based sustainability management system (RSS) was developed. This paper aims to introduce RSS and to discuss its contribution towards companies’ viability and transformation in the water sector. The paper describes the comprehensive self-screening approach of RSS, which is based on a causal-chain concept and comprises steps of risk analysis, monitoring and mitigation. Results of the testing phase suggest the validity of risk analysis and its effectiveness in deriving measures. Thus, RSS can help to improve the ability of service providers by analysing challenges and communicating them.     

Impact of external costs of unplanned supply interruptions on water company efficiency: Evidence from Chile

Conventional performance assessments of water companies ignore the external costs due to water supply outages. To overcome this gap, we evaluate the impact of external costs of unplanned supply interruptions on the efficiency of water companies. Two efficiency metrics, internal technical efficiency (ITE), and total technical efficiency (TTE), were estimated based on data envelopment analysis (DEA). The results evidence that the external costs of unplanned water supply interruptions impact, on average, 7.9% of the efficiency of water companies. We also explored the impact of a set of environmental variables on water company efficiency.     

Assessing the influence of exogenous and quality of service variables on water companies´ performance using a true-fixed stochastic frontier approach

ABSTRACT

Improving the cost efficiency and quality of service across time corresponds to two important targets for regulated water companies. Following a pioneering approach, we have evaluated the influence of a set of exogenous and quality of service variables on the English and Welsh water companies’ costs over the period of 1996–2009. A true-fixed effects stochastic cost frontier model was applied since it also allowed computing of the productivity change of the water companies and their drivers. Results have shown that quality of service has an influence on water companies´ costs. This issue is very relevant for bursts in water mains since investments in reducing them will lead to a reduction in the water supply interruptions and water losses. Results of this study illustrate the importance of developing long-term planning investment programmes in the water industry.     

Benchmarking Central American water utilities

This study provides a comprehensive efficiency analysis of water service providers in six countries in the Central American region. Pressures for sector reform have stimulated interest in identifying and understanding the factors that can contribute to network expansion, improved service quality, and cost containment. The aim is to provide policy-makers and investment funds institutions with quantitative evidence on the effectiveness of the regional water sectors and utilities under different perspectives. In addition to key sector performance indicators, the analysis considers several benchmarking methodologies to assess technical and cost efficiency.     

Paths to universalize water and sewage services in Brazil: The role of regulatory authorities in promoting efficient service

The 2007 institution of a regulatory framework established ways to overcome deficits in Brazil's sanitation services, including economic efficiency. This study analyzes the performance of regulatory authorities in promoting the efficiency of water and sewage service providers in Brazil. The study was developed in three stages: analysis of efficiency with Data Envelopment Analysis (DEA) for 2006 and 2011; assessment of productivity using the Malmquist Index (MI); and document analysis of regulatory standards. Among the results, significant inefficiencies were detected and the mean for pure technical efficiency was higher among unregulated providers both for 2006 and in 2011. The MI showed gains in productivity from 2006 to 2011. The decomposed analysis of the index indicated a shift in the efficiency frontier to a higher level, but with a decrease in the providers' pure efficiency. From the analysis of the regulatory activity, we identified regulators that had not issued regulatory standards related to the promotion of allocative or productive efficiency. Analysis of the results shows that the regulatory performance has not ensured that providers achieve better performance.     

Perspectives of different parties involved in the selection of capital equipment for sewerage and wastewater-associated infrastructure investment projects

This paper presents a study of UK water industry capital equipment selection, focusing in particular on behaviour in relation to sewerage/combined sewer overflow (CSO) and wastewater‐associated investment activities. Valuable new insights into the perspectives of different parties, including water service providers (WSPs), design consultants and construction companies, are provided. Through analysis of over 200 questionnaires, equipment selection is confirmed to be multi‐organisational, with different parties dominating different roles. Among the selection criteria, service and quality are found to be valued as parameters worth paying for. Relationships and sustainability considerations are also found to be important, although views on whether sustainability benefits will be paid for are divided. While interparty alignment of views is generally good, there are occasional discrepancies at the individual water region level. It is suggested that optimisation might derive from recognising the significance of intangible components of the supplier offering, and managing relationships to allow these to be capitalised upon.     

Multifaceted intra-city water system arrangements in California: Influences and implications for residents

Some cities directly provide drinking water and other utility services to their residents, whereas others contract out these responsibilities in full or in part, with considerable implications for service and non-service outcomes. There is a robust literature considering reasons for city-private provider binaries, as well as a growing number of studies assessing the rise in special district service provision, mixed service delivery arrangements, and inter-municipal service delivery within metropolitan contexts. On the other hand, there are few studies assessing city-level prevalence of these three main provider types jointly, as well as fully accounting for the diversity of institutional arrangements in drinking water service within individual cities.In this study, we construct an empirical profile of and analyze influences on diverse city-level water service provider arrangements using a dataset compiled for all 482 cities in California. Our analysis shows that 80% of cities are served by either a municipality, a private, investor-owned utility or a special district, with special districts being more common than private providers. Moreover, 20% of cities had more than one service provider, and 68% of these cities were served by more than one system type, including many where municipal and private providers co-existed. Using multivariate regression techniques, we analyze influences on different types of city-level drinking water service arrangements. We find that city incorporation date most profoundly influences the mix of water systems in cities, especially arrangements involving special districts or multiple system types. We also find that cities which run their own water system exclusively are more likely to institute conservation policies, and provide suggestive evidence that residents living in cities served by multiple water systems are exposed to wide variance in water rates. Water system fragmentation within city boundaries thus has implications for resource management policy and equity in intra-city resident essential service outcomes.     

Regional consortia and transaction costs for sanitation services in Brazil

Studies on public cooperation usually focus on its impact on the service costs experienced by service providers. However, engagement in public cooperation in service provision often seeks other outcomes, like service coverage (measured by the population served) rather than simply minimizing service expenditure. Moreover, public cooperation by local governments, as either ‘providers’ or owners, generates transaction costs arising from negotiation, monitoring, agency costs and the enforcement of cooperative agreements. However, to date, little empirical effort has been directed at determining the impact of transaction costs on service provision owners and service outcomes. This paper addresses this gap in the empirical literature by examining the relationship between cooperative agreements between Brazilian municipalities for water and wastewater provision and service coverage in the light of transaction costs. We find that transaction costs are higher for cooperative providers due primarily to low service coverage levels, especially in sewage services that demand high investment in assets with high specificity. However, lower expenditures may occur after initial up-front investment.     

Protection value and functional service life of heritage timber buildings

ABSTRACT

The development of objective methodologies for the preventive conservation of historic buildings is extremely relevant to mitigate the deterioration of buildings and sites with exceptional cultural value. In this sense, there is a growing need to develop comprehensive, coherent plans to manage, preserve and protect heritage buildings in areas that are extremely susceptible to natural disasters, such as the case of the Pacific coast of South America. Two methodologies are presented in this study to assess the functional service life and protection level of cultural heritage in Chile. This research intends to establish a correlation between the functional performance of heritage buildings and the Chilean code related to the definition of the preservation of historic heritage buildings. This study applies both methodologies to 25 heritage buildings (timber housing) located in the city of Valdivia, Chile. A multiple linear regression analysis is applied in order to rank the influence of the variables used to define the protection level, according to the Chilean standard, in the functionality index of timber heritage constructions. The information obtained in this study is exceptionally relevant for the researchers and stakeholders responsible for the definition and implementation of maintenance programmes in building stocks.     

Development of a customer satisfaction evaluation model for construction project management

Construction project management (CPM) is a technical-oriented service for construction project clients. Evaluating the performance of service providers is beneficial both to purchasers, enabling them to appraise the services received, and to providers, helping them to improve their services. However, no appraisal system for such services exists. This study developed a novel customer satisfaction evaluation model for CPM services that was developed using a questionnaire-based survey and statistical analysis. Test results show that the developed model is a feasible system. Research using this model reveals that CPM services in Taiwan are satisfactory with acceptable performance for clients. The developed model is a good reference for evaluating and assessing CPM performance.     

Measuring and comparing the efficiency of water utility companies: A data envelopment analysis approach

This study provides an analysis of Italian water utilities to determine the effects on their efficiency of certain relevant variables that have been broadly discussed in the existing literature. We reviewed the annual financial statements of 43 Italian water utility companies and obtained other technical data from Co.n.vi.r.i., the Italian national authority for water. Using data envelopment analysis we assessed their cost efficiencies and, using non-parametric statistic methods, we discuss the significant differences among clusters.We found that ownership structure, size and geographical location had an impact on the performance of water utilities, although with different degrees of significance.     

A test of radon service providers available on the Internet

With the announcement of the Government of Canada's Radon Guideline and increased public awareness of radon risk, more and more Canadians wish to test their homes for radon. Radon service providers available on the Internet have attracted many homeowners' attention. These services provide an easy and less expensive way for homeowners to test radon levels in their homes. However, a question has frequently been asked, 'How reliable are the radon testing services available on the Internet?' To answer this question, we ordered 36 radon testing kits from 10 service providers on the Internet. The test results showed that online radon testing services could collectively meet the performance requirement. However, the quality of a few service providers needs to be improved. PRACTICAL IMPLICATIONS: Indoor radon tests were performed with detectors ordered from 10 service providers available on the Internet. The results showed that online radon testing services could collectively meet the performance requirement. However, the quality of a few service providers needs to be improved.     

Water industry asset management: a proposed service-performance model for investment

The water industry in England and Wales has developed over the last century, from small organisations serving local communities to large integrated companies in private ownership, overseen by a government regulator. Asset management practice has developed greatly in the 17 years since privatisation, with companies able to plan their operations and investment as they believe appropriate for the provision of customer services, subject to justifying their plans to the economic, quality and environmental regulators. Investment has flowed into the industry to replace deteriorated assets and to improve the quality of drinking water and rivers. The asset base is complex and, with a replacement value of approximately £231 billion at the 2002–2003 price base index suitable approaches are required to ensure that both the water service and the sewerage service are delivered at the most appropriate long‐term cost. The 2004 UK water industry price review was supported by the introduction of a Capital Maintenance Planning Common Framework to help companies understand and explain their maintenance investment requirement. In this paper, a service‐performance model is proposed to improve managers' understanding of the way in which businesses and the environment change over time, taking account of maintenance and other strategic requirements. Although developed with the water industry in mind, the model is equally applicable to other asset‐intensive industries.     

Aligning stakeholder interests: How ‘appropriate’ technologies have become the accepted water infrastructure solutions for low-income areas

Service differentiation and the use of "appropriate technologies" are often presented as alternative approaches to providing water service to low-income areas. Service differentiation allows water service providers to manage the risks associated with service expansion to these areas. We argue that rather than a choice of the service provider alone, the decision for service differentiation should be seen as a consensus between different actors in the water services sector. A review of secondary data, and semi-structured interviews with diverse stakeholders in three Kenyan cities, show that managers of water utilities also choose these strategies because they appeal to and align with the interest of donors, governments, sector organisations, and alternative providers.     

Drivers and barriers to participation in Sweden's local flexibility markets for electricity

Local flexibility markets (LFM) for electricity are in their early stages, and most research has focused on their design aspects and aggregators, while little attention has been paid to providers and potential providers of flexibility resources. The present research aims to fill this gap by analysing data from 25 in-depth interviews with enrolled and potential flexibility service providers of two LFMs in Sweden. The primary goal of the analysis is to identify the drivers and barriers to participating in and providing flexibility to LFMs that are influencing these actors. Our findings show that monetary incentives were not as important as expected. The main drivers were as follows: an aggregator acting as a mediator between the buyer and the provider; a champion with personal engagement in the organisation; a wish to be a part of resolving congestion in the electricity grid; and gaining knowledge about flexibility as a resource. The main barriers identified were that LFM design was challenging to understand and that extensive knowledge about how the market functions was needed to participate. Other barriers were related to existing regulations, manual and time-consuming processes, participation not being profitable enough, perceived interference with the companies’ core businesses, and the risk of compromising customer relationships. For the future, it is essential to simplify participation, develop automation, and contribute to establishing aggregators who can support potential flexibility service providers.     

Modeling Virtual Design and Construction Implementation Strategies Considering Lean Management Impacts

Virtual design and construction (VDC) implementation remains a challenge as companies lack understanding of the implementation strategies and their relation with other important improvement efforts such as lean management. This article presents a performance modeling methodology that allows companies to assess VDC implementation strategies, including lean management as a moderator. The methodology is based on a conceptual model of the implementation variables that influence project performance and a mathematical method that uses partial least squares to explain the relationships among the multiple variables. The methodology was tested using data from an existing survey to identify the variables and quantify the relationships. A significant finding is that using lean as a moderator strengthens the connection between strategies and allows a better performance on companies. The results are exploratory but provide interesting insights into VDC implementation strategies and provide evidence of the methodology's power.     

Predicting a water infrastructure leakage index via machine learning

In this study, the infrastructure leakage index (ILI) indicator that is preferred frequently by the water utilities with sufficient data to determine the performances of water distribution systems is modeled for the first time through the three different methodologies using different input data. In addition to the variables in the literature used for the classical ILI calculations, the age parameter is also included in the models. In the first step, the ILI values have been estimated via multiple linear regression (MLR) using water supply quantity, water accrual quantity, network length, service connection length, number of service connections, and pressure variables. Secondly, the Artificial Neural Network (ANN) approach has been applied with raw data to improve the ILI prediction performance. Finally, the data set has been standardized with the Z-Score method for increasing the learning power of the ANN models, and then the ANN predictions have been made by converting the data through the principal component analysis (PCA) method to minimize complexity by reducing the data set size. The model predictions have been evaluated via mean square error, G-value, mean absolute error, mean bias error, and adjusted-R² model performance scale. When the model outputs obtained at the end of the study are evaluated together with the classical ILI calculations, it is seen that the successful ILI predictions with three and four variables, including the age parameter, rather than six variables, have been made through the PC-ANN method. Water utilities with insufficient physical and operational data for ILI indicator calculation can make network performance evaluations by predicting the ILI through the models suggested in this study with high accuracy in a reliable way.     

The use of a variable cost function in the regulation of the Italian water industry

The purpose of this study is to estimate a multivariate variable cost function in order to analyze the cost structure of a sample of Italian water distribution companies.The empirical results of this study could be used by the Italian Regulation Authority of this sector to improve the actual tariff regulation process.A variable cost function was estimated using panel data for a sample of 32 water distribution firms operating at the provincial level over the period 1991–1995. Results indicate the importance of explanatory variables such as price of labor, water loss and service area characteristics.Results also indicate the existence of economies of output and customer density and the presence of small diseconomies of scale.