Ofwat has published this year’s relative efficiency assessments for 2006-07 for the water companies.

For water operating expenditure, the most efficient company, also known as the frontier, is Portsmouth. Wessex is ranked second, and Yorkshire is ranked third. Ofwat have used Yorkshire as the benchmark company for its operating efficiency assessment – the company was also the benchmark for water operating expenditure in Ofwat's 2005-06 assessment. Although Portsmouth was assessed as more efficient than Yorkshire, it is too small to be used as a benchmark company on its own.

Ofwat also assessed Portsmouth as the most efficient company for water capital maintenance -  however Portsmouth is not used as the benchmark company as it is too small. Ofwat were also not able to use the next most efficient companies - Cambridge, Thames and Folkestone & Dover - and instead have used Yorkshire which is ranked fifth.

For a company to be a benchmark on capital maintenance, Ofwat has to be satisfied that it has been investing enough money to maintain its assets. While Thames and  Cambridge appear to be more efficient than Yorkshire in the assessment both have less than stable serviceability and do not meet Ofwat’s benchmark criteria. Folkestone & Dover is also ahead of Yorkshire in the rankings, but again is too small to be the benchmark. In 2005-06, Northumbrian, which was ranked thirteenth, was the benchmark company for capital maintenance. Yorkshire was ahead of Northumbrian in last year’s assessment.

For sewerage operating expenditure, Thames is the frontier company and Wessex is ranked second. In line with its approach in previous years, Ofwat has not used Thames as the benchmark since it has a significant special factor adjustment. While Wessex is also the frontier company for Ofwat’s  sewerage capital maintenance assessment,  Ofwat has not used Wessex as the benchmark company due to its serviceability assessment. This year only two companies are eligible to be the sewerage service capital maintenance benchmark, South West, ranked eight, and United Utilities, ranked ninth.

In 2006-07, Ofwat assessed the serviceability of all companies except South West and United Utilities to be less than stable for infrastructure, non-infrastructure, or both types of assets. A poor serviceability assessment may suggest that a company has not been investing enough money to improve and maintain its assets. This could result in a company appearing efficient when its low costs may be due to a lack of investment in maintaining its assets.

Ofwat are currently concerned about the small number of eligible benchmark companies it had for the 2006-07 sewerage capital maintenance assessment. Ofwat has asked a number of companies to produce action plans to restore stable serviceability, and are currently monitoring them. For the  sewerage service benchmark Ofwat has used South West, ranked eighth, as the sewerage service capital maintenance benchmark. There are seven companies ahead of the benchmark to which Ofwat has also given band A status.

Readers can access full details of the relative efficiency assessment for 2006-07 on the Ofwat website.