Benchmarkingthe Economic Performance of Australian Urban Water Authorities

ReportNo WSAA 93

April 1995

SYNOPSIS

Thisreport comprises a description and evaluation of the techniques used to measureand compare the economic performance of six Australian urban water and sewerageauthorities. Only summary results from this analysis is provided in thisreport. Detailed results are provided to each of the participating waterservices authorities on a confidential basis.

Performanceis assessed for each of the three major functions of Australian waterauthorities; water, sewerage reticulation and sewage treatment. Theirperformance is compared to the 30 water companies and 10 sewerage companies inEngland and Wales for the year 1992/93. The performance of drainage serviceshas not been analysed in this study because of the lack of international data.

Economicperformance is measured using Data Envelopment Analysis (DEA). This analysis iscomplemented by a range of cost and technical performance indicators. DEA isregarded as the most comprehensive measure of economic efficiency. It cansimultaneously model multiple inputs and outputs which results in a summarymeasure of performance. The results of the DEA modelling are also used toidentify inefficiency caused by producing at the wrong level of output (scaleinefficiency), using a more expensive combination of inputs (cost or allocativeinefficiency) or using too many inputs (technical inefficiency). Thecontribution of each input to the level of efficiency is also identified.

TheDEA technique is also used to identify appropriate referent or peerorganisations that can be used to provide a model for organisations that areidentified as being inefficient. The results of this analysis and the otherdetailed measures of efficiency have been provided, in confidence, to theparticipating water authorities.

However,DEA can be sensitive to inappropriate data outliers. Using high quality data iscrucial to this and all other performance monitoring methods. The data used inthe study is consistent between the England and Wales and Australianauthorities in so far as the data definitions are identical. Particularattention was paid to collecting the data from the Australian authorities toensure it complied with the definitions used by the UK regulator, but someproblems remain.

Theindividual operating environments of each authority was taken into account inthis study by statistically adjusting the DEA efficiency measures using a rangeof operating environment factors that are considered to be outside the controlof the authorities. The adjustment of the DEA scores for these factors ensuresthat the remaining differences in performance reflects the consequences ofalternative management practices.

Copiesof the Report are available from WSAA, price $A30. Orders may be placed throughthe Bookshop at www.wsaa.asn.au or by email to info@wsaa.asn.au.