Objectives of the paper: This paper investigates the potential presence of economies of scale, scope, and population density, as well as the effect of other operational variables, on three key cost items for wastewater utilities: sewage transportation, sewage treatment, and customer handling. Methodology: The research is based on a panel dataset, including three-year data for 85 Danish wastewater utilities; for the data analysis, three general panel data regression models were adopted under two different assumptions: fixed and random effects. Findings: The paper demonstrates the presence of economies of density and scope, while the impacts of size and other operational variables were not statistically relevant. Research limits: The study analyses a single European country during a three-year period. Although Denmark provides an appealing setting in which cost drivers for wastewater utilities can be compared as it is characterized by the presence of companies of different sizes and with different strategies, cross-country studies are still needed to improve the generalization of the research findings. Practical implications: National water authorities should include environmental variables such as population density in the benchmarking model adopted for tariff setting. Firms could then pursue policies of mergers and acquisitions regarding other wastewater utilities operating in high density areas. Furthermore, they could promote the installation of mini treatment plants in rural and isolated areas, thus reducing or eliminating the cost for wastewater transportation, which is the variable most affected by density. Finally, a vertical integration strategy must be pursued, since this reduces transportation costs via the joint provision of water and wastewater services and lightens the burden of the administrative area. Originality of the paper: The paper investigates and discusses the important but still under-investigated issue of cost drivers for wastewater utilities.
Exploring cost drivers for wastewater utilities: an empirical analysis
GUERRINI, Andrea;
2015-01-01
Abstract
Objectives of the paper: This paper investigates the potential presence of economies of scale, scope, and population density, as well as the effect of other operational variables, on three key cost items for wastewater utilities: sewage transportation, sewage treatment, and customer handling. Methodology: The research is based on a panel dataset, including three-year data for 85 Danish wastewater utilities; for the data analysis, three general panel data regression models were adopted under two different assumptions: fixed and random effects. Findings: The paper demonstrates the presence of economies of density and scope, while the impacts of size and other operational variables were not statistically relevant. Research limits: The study analyses a single European country during a three-year period. Although Denmark provides an appealing setting in which cost drivers for wastewater utilities can be compared as it is characterized by the presence of companies of different sizes and with different strategies, cross-country studies are still needed to improve the generalization of the research findings. Practical implications: National water authorities should include environmental variables such as population density in the benchmarking model adopted for tariff setting. Firms could then pursue policies of mergers and acquisitions regarding other wastewater utilities operating in high density areas. Furthermore, they could promote the installation of mini treatment plants in rural and isolated areas, thus reducing or eliminating the cost for wastewater transportation, which is the variable most affected by density. Finally, a vertical integration strategy must be pursued, since this reduces transportation costs via the joint provision of water and wastewater services and lightens the burden of the administrative area. Originality of the paper: The paper investigates and discusses the important but still under-investigated issue of cost drivers for wastewater utilities.
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