Water Regulation

Benchmarking

At the Danish Water Regulatory Authority, we work to ensure that water and waste water companies become more efficient all the time.

About benchmarking

Benchmarking is used to set revenue caps and annual efficiency requirements. This contributes to lower water prices, higher consumer welfare and enhanced competitiveness for water-consuming companies and thereby growth in Denmark.

  • The companies report information on operations (underlying relationships with cost drivers) and investments (list of assets) as well as actual operating costs and investments. These reports are quality assured and corrected if necessary.

  • Based on the quality-assured information, the two net volume measurements (OPEX and CAPEX) are calculated, which express the company's activities and assets. In order to correct for any expensive operating or investment costs due to old fixed assets and/or fixed assets subject to a complex infrastructure, alternative net volume measurements are calculated.

  • The water companies are benchmarked on their net volume measurements and their actual costs to identify the most efficient companies. Actual costs consist of the sum of operating costs, depreciation and financial costs.

  • Immediate efficiency scores are calculated for the companies. These are ranked on a scale from 0 to 1 and describe how efficient a water or waste water company is. The most efficient companies have a score of 1, which converges to zero as a company’s efficiency falls. Under special circumstances, the immediate efficiency scores are corrected. This adjusted efficiency score is used to calculate the companies' efficiency level. The efficiency level is the cost level that each company should have in order to be among the most efficient. The efficiency potential is calculated as the percentage difference between the company's revenue cap from the previous year and the efficiency level. As a precaution, this cannot exceed 16 per cent of the revenue cap from the previous year.

  • The efficiency requirement is the efficiency potential in DKK. Efficiency requirements are calculated on the basis of the efficiency potential. Efficiency requirements are deducted from the financial framework of the water companies.

Annual results and model papers (in Danish)

If you are interested in accessing the specific model papers, data, and R-codes, please visit our Danish website