Adequacy of DEA as a regulatory tool in the water sector. The impact of data uncertainty

[EN] The regulation of water services shares many similarities with that of other utilities such as electricity or telecommunications. As a result, similar methods are often used by regulators to assess the efficiency of companies in those sectors. Data Envelopment Analysis (DEA) is one of those widely applied methods. This paper aims to determine the adequacy of DEA as a regulatory tool for urban water services, with a special focus on the quality of the available data. In order to obtain useful conclusions, two DEA simulations were performed with audited data from 194 water utilities, officially made available by the Portuguese water regulatory authority (ERSAR). Both simulations will demonstrate that the inherent inaccuracies found in some of the key data provided by water utilities represent a significant obstacle to obtain meaningful results with the DEA technique. This could represent a paradigm shift for some of the regulatory authorities currently using DEA or similar techniques, as the complexity of the method does not seem to be justified by a better analysis of the comparative performance of the different services.Cabrera Rochera, E.; Estruch-Juan, ME.; Molinos-Senante, M. (2018). Adequacy of DEA as a regulatory tool in the water sector. The impact of data uncertainty. Environmental Science & Policy. 85:155-162. https://doi.org/10.1016/j.envsci.2018.03.028S1551628

Evaluation of the impact of separative collection and recycling of municipal solid waste on performance: An empirical application for Chile

The collection of municipal solid waste (MSW) is a public service with notable effects on the environment and public health. The objective of this study was to evaluate the impact of selective collection and recycling of MSW on the performance of municipalities in providing MSW services. By employing the data envelopment analysis method, the efficiency and eco-efficiency scores for a sample of 298 municipalities in Chile were analyzed and compared. The efficiency estimation focused on the economic performance of the municipalities in the provision of MSW services, whereas the eco-efficiency assessment also integrated the environmental performance. The results indicated that the selective collection and recycling of MSW had a significant impact on the performance of the municipalities in providing these services. The percentages of efficient and ecoefficient municipalities were very low (4.70% and 4.36%, respectively), thus demonstrating the large room for performance improvement by Chilean municipalities in the management of MSW. The efficient and eco-efficient municipalities were heterogeneously distributed throughout the country, revealing the lack of collaboration between municipalities at the regional level. Finally, exogenous variables to the management of MSW carried out by the municipalities, including the population served, population density, tourism and waste generated per capita, all had an impact on the efficiency and eco-efficiency scores. The results and conclusions of this study are of great relevance for policy makers at the regional and local levels to improve the management of MSW in the context of a circular economy

Efficiency assessment of water and sewerage companies: A disaggregated approach accounting for service quality

Abstract This paper evaluates the efficiency of water and sewerage companies (WaSCs) by applying the weighted Russell directional distance model. This is a non-radial data envelopment analysis (DEA) model that allowed us to obtain an individual efficiency score for each input and output considered in the assessment. This study provides a pioneering approach to evaluating the efficiency of WaSCs, since previous studies on this topic were based on radial DEA models that only provide a global efficiency score. Moreover, three variables representing the lack of service quality were introduced into the model as undesirable outputs. An empirical application was carried out for the 25 largest Chilean WaSCs for 2013. The results illustrated that around one-third of the WaSCs in Chile are totally efficient. The inefficiency scores for each variable evidenced that one of the main challenges of the water industry in Chile is to reduce the percentage of unbilled water and that this issue is especially marked for medium WaSCs. As part of the second-stage analysis, some differences in performance between private and concessionary WaSCs were found, although the results were inconclusive. Several policy implications to help water companies' managers and water regulators make informed decisions were drawn from our empirical analysis

Measuring the CO shadow price for wastewater treatment:a directional distance function approach

The estimation of the value of carbon emissions has become a major research and policy topic since the establishment of the Kyoto Protocol. The shadow price of CO provides information about the marginal abatement cost of this pollutant. It is an essential element in guiding environmental policy issues, since the CO shadow price can be used when fixing carbon tax rates, in environmental cost-benefit analysis and in ascertaining an initial market price for a trading system. The water industry could play an important role in the reduction of greenhouse gas (GHG) emissions. This paper estimates the shadow price of CO for a sample of wastewater treatment plants (WWTPs), using a parametric quadratic directional distance function. Following this, in a sensitivity analysis, the paper evaluates the impact of different settings of directional vectors on the shadow prices. Applying the Mann-Whitney and Kruskal-Wallis non-parametric tests, factors affecting CO prices are investigated. The variation of CO shadow prices across the WWTPs evaluated argues in favour of a market-based approach to CO mitigation as opposed to command-and-control regulation. The paper argues that the estimation of the shadow price of CO for non-power enterprises can provide incentives for reducing GHG emissions

Cost–benefit analysis of water-reuse projects for environmental purposes: A case study for Spanish wastewater treatment plants

Water reuse is an emerging and promising non-conventional water resource. Feasibility studies are essential tools in the decision making process for the implementation of water-reuse projects. However, the methods used to assess economic feasibility tend to focus on internal costs, while external impacts are relegated to unsubstantiated statements about the advantages of water reuse. Using the concept of shadow prices for undesirable outputs of water reclamation, the current study developed a theoretical methodology to assess internal and external economic impacts. The proposed methodological approach is applied to 13 wastewater treatment plants in the Valencia region of Spain that reuse effluent for environmental purposes. Internal benefit analyses indicated that only a proportion of projects were economically viable, while when external benefits are incorporated all projects were economically viable. In conclusion, the economic feasibility assessments of water-reuse projects should quantitatively evaluate economic, environmental and resource availability

Estimating the environmental and resource costs of leakage in water distribution systems: a shadow price approach

Water scarcity is one of the main problemsfaced bymany regions in theXXIst century. In this context, the need to reduce leakages fromwater distribution systems has gained almost universal acceptance. The concept of sustainable economic level of leakage (SELL) has been proposed to internalize the environmental and resource costs within economic level of leakage calculations. However, because these costs are not set by the market, they have not often been calculated. In this paper, the directional-distance function was used to estimate the shadow price of leakages as a proxy of their environmental and resource costs. This is a pioneering approach to the economic valuation of leakage externalities. An empirical application was carried out for the main Chilean water companies. The estimated results indicated that for 2014, the average shadow price of leakages was approximately 32% of the price of the water delivered. Moreover, as a sensitivity analysis, the shadow prices of the leakageswere calculated fromthe perspective of thewater companies'managers and the regulator. Themethodology and findings of this study are essential for supporting the decision process of reducing leakage, contributing to the improvement of economic, social and environmental efficiency and sustainability of urban water supplie

Cost modelling for wastewater treatment processes

The aim of this paper is to provide a methodology for a better understanding of the cost structure of wastewater treatment processes. This methodology may be useful in the planning of new facilities. The existing models in the literature are focused on the influence of the capacity of plant, expressed as inhabitants or flow rate, on the cost of treatment. We propose a new approach for the operating cost function that includes the most representative variables in the process. The idea is that the modelling of treatment costs enables us to understand the key role of the economies of scale in this context; and also the influence of other variables such as contaminants removed, or the age of the facility. The calculation of these extended cost functions also enables a detailed comparison to be made of the various treatment technologies from an economic point of view. In this sense, an extensive knowledge of the structure of the costs associated with each of the available treatment technologies is a basic issue in the planning of treatment processes and water reuse projects. This research applies a cost modelling methodology using statistical information from a sample of 341 wastewater treatment plants in Spain