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OS6d Water pricing: approaches and impacts

abstract 695

Water supply: costs and performance of water utilities. Evidence from Switzerland

Author(s): Andrea Baranzini, David Maradan, Anne-Kathrin Faust
Haute Ecole de Gestion de Genève Campus de Battelle, Bâtiment F, 7 route de Drize, CH – 1227 Carouge-Genève, Suisse andrea.baranzini@hesge.ch david.maradan@hesge.ch anne-kathrin.faust@hesge.ch

Keyword(s): water utilities, benchmarking, cost function, data envelopment analysis, performance, efficiency

Article:

Poster:

Session: OS6d Water pricing: approaches and impacts

AbstractThe

main general objective of this paper is to assess and to compare practices in the water supply sector in Switzerland.

The project possesses two interrelated specific objectives:
> Firstly, it analyses the main determinants of the costs

of water supply.
>Secondly, it develops different measures of the economic efficiency of water utilities, while

highlighting its determinants.

In order to achieve those objectives, we accessed a new and unexploited

database on the Swiss water utilities. This very reach database counts more than 1’200 observations over 5 years

and offers detailed and precise information on the type of the water production process, the characteristics of the

network and the costs of water supply. Such database presents an original opportunity to analyse the cost of water

supply and to determine the water utilities efficiency. Such a study has never been done in Switzerland.

This

article is based on two methodologies.
Firstly, it applies the stochastic cost function approach in order to explore

the determinants of water supply cost, their structure and composition. Thanks to this approach, we are able to

differentiate those factors which are outside the control of the water utilities (e.g. topology of the region and customer

density) from those which are under control and can be managed by the utilities (e.g. production factors). Given the

cost function, we are able to fully characterise the water production process, e.g. in terms of economies of scale and

marginal costs, which are important determinants in water policies, such as planning and water tariffs.

The cost

function approach is completed by a “data envelopment” analysis (DEA), which is a linear programming based

technique for measuring the relative performance of organisational units. Such technique estimates the water supply

production frontier from the best observed practices and from it various efficiency measures may be computed. In a

first step, the efficiency scores, defined as the distance between each production unit and the frontier, are estimated.

The second step of the analysis consists in exploring the determinants of the efficiency scores and their relative

significance in order to qualify the efficiency of water production units. The results from the DEA analysis are

particularly useful for the water managers, e.g. in benchmarking analysis.

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Water supply: costs and performance of water utilities. Evidence from Switzerland