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.

Price-cap regulation in the English and Welsh water industry:a proposal for measuring productivity performance

Privately owned water utilities typically operate under a regulated monopoly regime. Price-cap regulation has been introduced as a means to enhance efficiency and innovation. The main objective of this paper is to propose a methodology for measuring productivity change across companies and over time when the sample size is limited. An empirical application is developed for the UK water and sewerage companies (WaSCs) for the period 1991-2008. A panel index approach is applied to decompose and derive unit-specific productivity growth as a function of the productivity growth achieved by benchmark firms, and the catch-up to the benchmark firm achieved by less productive firms. The results indicated that significant gains in productivity occurred after 2000, when the regulator set tighter reviews. However, the average WaSC still must improve towards the benchmarking firm by 2.69% over a period of five years to achieve comparable performance. This study is relevant to regulators who are interested in developing comparative performance measurement when the number of water companies that can be evaluated is limited. Moreover, setting an appropriate X factor is essential to improve the efficiency of water companies and this study helps to achieve this challenge.