Productivity and price performance in the privatized water and sewerage companies of England and Wales

After its privatization in 1989, the water and sewerage industry of England and Wales faced a new regulatory régime and implemented a substantial capital investment program aimed at improving water and environmental standards. A new RPI + K regulatory pricing system was designed to compensate the industry for its increased capital costs, encourage increased efficiency, and maintain fair prices for customers. This paper evaluates how successful privatization and the resulting system of economic regulation has been. Estimates of productivity growth, derived with quality adjusted output indices, suggest that despite reductions in labor usage, total factor productivity growth has not improved since privatization. Moreover, total price performance indices reveal that increases in output prices have outstripped increases in input costs, a trend which is largely responsible for the increase in economic profits that has occurred since privatization. * We would like to thank Emmanuel Thanassoulis, Joshy Easaw, Jim Love, John Sawkins, and an anonymous referee for helpful comments on earlier drafts of this paper. The usual disclaimer applies.

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.

Identification of nonlinear systems by correlation using pseudorandom signals

This thesis is concerned with the measurement of the characteristics of nonlinear systems by crosscorrelation, using pseudorandom input signals based on m sequences. The systems are characterised by Volterra series, and analytical expressions relating the rth order Volterra kernel to r-dimensional crosscorrelation measurements are derived. It is shown that the two-dimensional crosscorrelation measurements are related to the corresponding second order kernel values by a set of equations which may be structured into a number of independent subsets. The m sequence properties determine how the maximum order of the subsets for off-diagonal values is related to the upper bound of the arguments for nonzero kernel values. The upper bound of the arguments is used as a performance index, and the performance of antisymmetric pseudorandom binary, ternary and quinary signals is investigated. The performance indices obtained above are small in relation to the periods of the corresponding signals. To achieve higher performance with ternary signals, a method is proposed for combining the estimates of the second order kernel values so that the effects of some of the undesirable nonzero values in the fourth order autocorrelation function of the input signal are removed. The identification of the dynamics of two-input, single-output systems with multiplicative nonlinearity is investigated. It is shown that the characteristics of such a system may be determined by crosscorrelation experiments using phase-shifted versions of a common signal as inputs. The effects of nonlinearities on the estimates of system weighting functions obtained by crosscorrelation are also investigated. Results obtained by correlation testing of an industrial process are presented, and the differences between theoretical and experimental results discussed for this case;

Powertrain optimisation in a hybrid electric bus

This paper describes the use of a formal optimisation procedure to optimise a plug-in hybrid electric bus using two different case studies to meet two different performance criteria; minimum journey cost and maximum battery life. The approach is to choose a commercially available vehicle and seek to improve its performance by varying key design parameters. Central to this approach is the ability to develop a representative backward facing model of the vehicle in MATLAB/Simulink along with appropriate optimisation objective and penalty functions. The penalty functions being the margin by which a particular design fails to meet the performance specification. The model is validated against data collected from an actual vehicle and is used to estimate the vehicle performance parameters in a model-in-the-loop process within an optimisation routine. For the purposes of this paper, the journey cost/battery life over a drive cycle is optimised whilst other performance indices are met (or exceeded). Among the available optimisation methods, Powell's method and Simulated Annealing are adopted. The results show this method as a valid alternative modelling approach to vehicle powertrain optimisation. © 2012 IEEE.

The impact of leadership and quality climate on hospital performance

Objective. To explore the relationship between leadership effectiveness and health-care trust performance, taking into account external quality measures and the number of patient complaints; also, to examine the role of care quality climate as a mediator. Design. We developed scales for rating leadership effectiveness and care quality climate. We then drew upon UK national indices of health-care trust performance—Commission for Health Improvement star ratings, Clinical Governance Review ratings and the number of patient complaints per thousand. We conducted statistical analysis to examine any significant relationships between predictor and outcome variables. Setting. The study is based on 86 hospital trusts run by the National Health Service (NHS) in the UK. The data collection is part of an annual staff survey commissioned by the NHS to explore the quality of working life. Participants. A total of 17 949 employees were randomly surveyed (41% of the total sample). Results. Leadership effectiveness is associated with higher Clinical Governance Review ratings and Commission for Health Improvement star ratings for our sample (ß = 0.42, P < 0.05; ß = 0.37, P < 0.05, respectively), and lower patient complaints (ß = –0.57, P < 0.05). In addition, 98% of the relationship between leadership and patient complaints is explained by care quality climate. Conclusions. Results offer insight into how non-clinical leadership may foster performance outcomes for health-care organizations. A frequently neglected area—patient complaints—may be a valid measure to consider when assessing leadership and quality in a health-care context.

Malmquist-type indices in the presence of negative data:an application to bank branches

In this paper we develop an index and an indicator of productivity change that can be used with negative data. For that purpose the range directional model (RDM), a particular case of the directional distance function, is used for computing efficiency in the presence of negative data. We use RDM efficiency measures to arrive at a Malmquist-type index, which can reflect productivity change, and we use RDM inefficiency measures to arrive at a Luenberger productivity indicator, and relate the two. The productivity index and indicator are developed relative to a fixed meta-technology and so they are referred to as a meta-Malmquist index and meta-Luenberger indicator. We also address the fact that VRS technologies are used for computing the productivity index and indicator (a requirement under negative data), which raises issues relating to the interpretability of the index. We illustrate how the meta-Malmquist index can be used, not only for comparing the performance of a unit in two time periods, but also for comparing the performance of two different units at the same or different time periods. The proposed approach is then applied to a sample of bank branches where negative data were involved. The paper shows how the approach yields information from a variety of perspectives on performance which management can use.

Differences between theoretical predictions and operational performance in a stock control application

Over the past decade, several experienced Operational Researchers have advanced the view that the theoretical aspects of model building have raced ahead of the ability of people to use them. Consequently, the impact of Operational Research on commercial organisations and the public sector is limited, and many systems fail to achieve their anticipated benefits in full. The primary objective of this study is to examine a complex interactive Stock Control system, and identify the reasons for the differences between the theoretical expectations and the operational performance. The methodology used is to hypothesise all the possible factors which could cause a divergence between theory and practice, and to evaluate numerically the effect each of these factors has on two main control indices - Service Level and Average Stock Value. Both analytical and empirical methods are used, and simulation is employed extensively. The factors are divided into two main categories for analysis - theoretical imperfections in the model, and the usage of the system by Buyers. No evidence could be found in the literature of any previous attempts to place the differences between theory and practice in a system in quantitative perspective nor, more specifically, to study the effects of Buyer/computer interaction in a Stock Control system. The study reveals that, in general, the human factors influencing performance are of a much higher order of magnitude than the theoretical factors, thus providing objective evidence to support the original premise. The most important finding is that, by judicious intervention into an automatic stock control algorithm, it is possible for Buyers to produce results which not only attain but surpass the algorithmic predictions. However, the complexity and behavioural recalcitrance of these systems are such that an innately numerate, enquiring type of Buyer needs to be inducted to realise the performance potential of the overall man/computer system.

The performance of cement stabilised minestone

This study is concerned with the durability of cement stabilised minestone (CSM). Minestone is dominated by the clay-bearing mudrocks and shales of the Coal Measures. Consequently, engineering problems are often encountered due to the likelihood of these rocks undergoing volume change and degradation when exposed to fluctuations in moisture content. In addition, iron sulphides (chiefly pyrite) are frequently present in minestone as diagenetic minerals which on excavation have the potential to oxidise forming sulphate minerals. The oxidation of sulphides may in itself contribute to volume increase in pyritic rocks and sulphate minerals may combine with the products of cement hydration to produce further expansion. The physical and chemical properties of a wide range of minestones are determined and attempts are made to correlate these with the engineering performance of cement stabilised specimens subjected to short-term immersion in water. Criteria, based on these raw material indices are proposed with a view to eliminating minestones which are unsuitable. A long-term durability study is also described. In this, the geochemical stability of pyrite in CSM was examined together with the role played by the sulphur bearing mineralogy in determining the engineering performance of CSM's exposed to conditions of increased moisture availability. The nature of a number of disrupted CSM pavements which have been examined are also discussed.