Comparative performance measurement in regulation: the case of English and Welsh sewerage services

Abstract

This paper discusses the use of comparative performance measurement by means of Data Envelopment Analysis in the context of the regulation of English and Welsh water companies. Specifically, the use of Data Envelopment Analysis to estimate potential cost savings in sewerage is discussed as it fed into the price review of water companies carried out by the regulator of water companies in 1994. The application is used as a vehicle for highlighting generic issues in terms of assessing the impact of factors on the ranking of units on performance, the insights gained from using alternative methods to assess comparative performance, and the issue of assessing comparative performance when few in number but highly complex entities are involved. The paper should prove of interest to those interested in regulation and, more generally, in the use of methods of comparative performance measurement.