Assessing productivity change over time and identifying its determinants is a
valuable tool for water regulators when setting water tariffs. However, in a price cap regulatory
framework such as in England and Wales policy makers should give attention to quality of
service issues. Previous studies that assessed the productivity change of the English and Welsh
water industry did not include the lack of quality of service to customers as undesirable
outputs. To overcome this limitation, and as a pioneering approach, we estimated the
Malmquist-Luenberger Productivity Indicator and its components, efficiency and technical
change, for the 10 water and sewerage companies and the 12 water only companies over the
period 2001–2008. To explore the role of quality of service to customers on the productivity
change over time, we contrasted our results with a conventional measure of productivity
change namely the Luenberger productivity indicator. The findings suggest that from 2001 to
2004 water companies made significant efforts to improve the quality of the service provided
to customers, whereas after 2005 companies’ performance regarding customer services was
considered as poor. Results excluding quality of service variables illustrated that productivity declined during all years evaluated. However, when the quality of service was introduced in
the assessment, productivity improved by 4.13 % from 2000 to 2004 whereas it declined by
16.96 % in the following years. From a policy perspective, water utility regulators need to pay
attention to quality of service issues when assessing companies’ performance and setting water
tariffs under comparative yardstick regimes,
