Regulatory price performance, excess cost indexes and profitability:how effective is price cap regulation in the water industry?

In this study we apply an index number approach to allow for cross sectional comparisons of relative profitability, productivity and price performance of the regulated Water and Sewerage companies (WaSCs) in England and Wales during the years 1991-2008. In order to better analyse the impact of regulation on WaSC performance, we decompose actual economic profits into spatial multilateral Fisher productivity (TFP) index, the inverse of which is demonstrated to be a regulatory excess cost index that measures the deviation of a firm’s actual costs from benchmark costs, and a newly developed regulatory total price performance (TPP) index, which measures the excess of regulated revenues relative to benchmark costs. Increases (decreases) in regulatory price performance are indicative of the loosening (tightening) of price cap regulation. Moreover, we also show that the relationship between actual economic profitability, regulatory excess costs and regulatory price performance indices can be used to categorize regulatory price caps as “weak”, “powerful” or “catch-up promoting”. The results indicated that throughout the entire 1991-2008 period, price caps were never “powerful”, in the sense that they required less productive firms to immediately and fully catch-up to the most productive firm to regain economic profitability. More specifically, during the years 1991-2000 price caps were “weak” as prices were high enough for the firms to achieve economic profits despite their low productivity levels. However, after 2001 prices became “catch up promoting” as they required less productive companies to eliminate at least some excess costs in order to eliminate economic losses. Finally, we emphasize that as our results also clearly demonstrated a much closer alignment between allowed revenues and benchmark costs after 2001, Ofwat’s approach during this period was not only appropriate, but should also be continued in the 2009 price review.

The measurement and decomposition of economy-wide productivity growth:Assessing the accuracy and selecting between different approaches

Productivity at the macro level is a complex concept but also arguably the most appropriate measure of economic welfare. Currently, there is limited research available on the various approaches that can be used to measure it and especially on the relative accuracy of said approaches. This thesis has two main objectives: firstly, to detail some of the most common productivity measurement approaches and assess their accuracy under a number of conditions and secondly, to present an up-to-date application of productivity measurement and provide some guidance on selecting between sometimes conflicting productivity estimates. With regards to the first objective, the thesis provides a discussion on the issues specific to macro-level productivity measurement and on the strengths and weaknesses of the three main types of approaches available, namely index-number approaches (represented by Growth Accounting), non-parametric distance functions (DEA-based Malmquist indices) and parametric production functions (COLS- and SFA-based Malmquist indices). The accuracy of these approaches is assessed through simulation analysis, which provided some interesting findings. Probably the most important were that deterministic approaches are quite accurate even when the data is moderately noisy, that no approaches were accurate when noise was more extensive, that functional form misspecification has a severe negative effect in the accuracy of the parametric approaches and finally that increased volatility in inputs and prices from one period to the next adversely affects all approaches examined. The application was based on the EU KLEMS (2008) dataset and revealed that the different approaches do in fact result in different productivity change estimates, at least for some of the countries assessed. To assist researchers in selecting between conflicting estimates, a new, three step selection framework is proposed, based on findings of simulation analyses and established diagnostics/indicators. An application of this framework is also provided, based on the EU KLEMS dataset.

Profit, productivity and price performance changes in the water and sewerage industry:an empirical application for England and Wales

This paper aims to analyse the impact of regulation in the financial performance of the Water and Sewerage companies (WaSCs) in England and Wales over the period 1991–2008. In doing so, a panel index approach is applied across WaSCs over time to decompose unit-specific index number-based profitability growth as a function of the profitability, productivity and price performance growth achieved by benchmark firms, and the catch up to the benchmark firm achieved by less productive firms. The results indicated that after 2000 there is a steady decline in average price performance, while productivity improves resulting in a relatively stable economic profitability. It is suggested that the English and Welsh water regulator is now more focused on passing productivity benefits to consumers, and maintaining stable profitability than it was in earlier regulatory periods. This technique is of great interest for regulators to evaluate the effectiveness of regulation and companies to identify the determinants of profit change and improve future performance, even if sample sizes are limited.

Highly refractive index sensitive femtosecond laser inscribed long period gratings

The distinct behaviour of femtosecond laser inscribed long period gratings, with a non-uniform index perturbation within the optical fibre core, has been studied experimentally. The non-uniform laser-induced perturbation results in light coupling from the core mode to a greater number of cladding modes than is the case with their UV laser inscribed counterparts, and this is made evident from the surrounding refractive index (SRI) grating response. Femtosecond inscribed long period gratings are shown to simultaneously couple to multiple sets of cladding modes. A 400μm LPG is shown to result in attenuation peaks that have both blue and red wavelength shifts over a 1250nm to 1700nm wavelength range. This gives rise to SRI sensitivities far greater than anything achievable by monitoring a single attenuation peak. The maximum sensitivity produced by monitoring a single attenuation peak was 1106nm/RIU, whereas monitoring opposing wavelength shifts resulted in a significantly improved sensitivity of 1680nm/RIU. © 2011 Copyright Society of Photo-Optical Instrumentation Engineers (SPIE).

Regrouping metric-space search index for search engine size adaptation

This work contributes to the development of search engines that self-adapt their size in response to fluctuations in workload. Deploying a search engine in an Infrastructure as a Service (IaaS) cloud facilitates allocating or deallocating computational resources to or from the engine. In this paper, we focus on the problem of regrouping the metric-space search index when the number of virtual machines used to run the search engine is modified to reflect changes in workload. We propose an algorithm for incrementally adjusting the index to fit the varying number of virtual machines. We tested its performance using a custom-build prototype search engine deployed in the Amazon EC2 cloud, while calibrating the results to compensate for the performance fluctuations of the platform. Our experiments show that, when compared with computing the index from scratch, the incremental algorithm speeds up the index computation 2–10 times while maintaining a similar search performance.