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Benchmarking service quality in the urban water industry

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Abstract

Providing secure and affordable drinking water and sewerage services is the primary mandate of the urban water industry. Water businesses must balance their service obligations and the quality of service delivered in order to maximize customer value. Being a monopoly industry, the urban water sector’s service levels and associated prices are not driven by competitive market pressures but through the regulatory processes. However, improving service quality often comes at a cost and yardstick regulation requires the evaluation and benchmarking of service quality within an economic efficiency framework. This paper uses a bootstrap Data Envelopment Analysis model to evaluate the service quality performance of the Australian urban water sector from 2009–2010 to 2015–2016. Specifically, the paper models the lack of service quality as undesirable outputs of water production. It estimates the Malmquist-Luenberger productivity index and its efficiency change and technical change components for 50 integrated water and sewerage utilities in Australia. Findings indicate that, overall, the sector’s quality-adjusted productivity has improved after a marked decline in 2010/2011. A comparison of the service quality productivity results with the conventional productivity measure revealed that the conventional analysis tends to underestimate the productivity growth. The paper concludes that benchmarking service quality helps the urban water sector to move from compliance-based regulation to best-practice regulation.

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Notes

  1. Economists define productivity as the relationship between the output and inputs necessary to produce the output, denoting the efficiency in the use of productive factors (Antle and Capalbo 1988).

  2. The ownership structure ranges from state-owned corporations to divisions in local councils.

  3. Since we are analyzing the global ML index, a bootstrap sample including each DMU and each year is needed to obtain a bootstrap sample of the global technology.

  4. Some small water utilities owned by local councils do not have formal independent price regulation (Worthington and Higgs, 2014).

  5. The National Performance Reporting dataset was initially managed by the National Water Commission, which was abolished in 2014. Thereafter the responsibility of collecting and maintaining the NPR reporting framework was bestowed upon the Bureau of Meteorology. The dataset originates from a single report.

  6. Integrated utilities carry out both water supply and wastewater functions.

  7. The NPR Framework covers the water utilities serving more than 10,000 customers only. There are many water and wastewater service providers, mostly run by local councils that are not included in the NPR framework. Hence, the present study excludes these small water and wastewater providers due to unavailability of data. Out of the 86 existing water utilities that report to the NPR, 36 utilities were dropped due to (a) missing data and (b) not integrated utilities (water only or wastewater only service providers).

  8. Based on the average annual residential water consumption. The alternative is to use average tariff growth. Doing so would, however, result in comparability issues given the significant variation in the fixed and variable step usage charge/s adopted by water utilities throughout Australia (see Crase et al. 2015).

  9. It should be noted that Cunningham (2014) used data from 2006-2013.

  10. Utilities are classified according to the number of customers they serve. For example, the Major 100 K + category covers urban water utilities that serve more than 100,000 customers.

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Correspondence to Jayanath Ananda.

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Appendix

Appendix

Table 6 and Fig. 9.

Table 6 Service Quality Performance Measures: Australian and U.K. Practices
Fig. 9
figure 9

Productivity change results with different model specifications

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Ananda, J., Pawsey, N. Benchmarking service quality in the urban water industry. J Prod Anal 51, 55–72 (2019). https://doi.org/10.1007/s11123-019-00545-w

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