Efficiency in the water industry

This paper considers the use of efficiency measurement in the regulation of the water industry in England, Wales, and Scotland. Ofwat employs econometric models; some examples of these are provided together with an explanation of the way Ofwat applies them to the financial model for each company. Finally we consider the question of the accuracy of these models and conclude that, while the models probably do contain information about companies' scope for cost reductions, Ofwat probably overestimates the quality of its models. Specifically Ofwat's estimate that 90% of the water model residuals and 80% of the sewerages models can be attributed to efficiency has not been given an explicit justification and probably overstates the case.     

The regulation of capex in water

In this paper, the author provides a critique of the approaches adopted by Ofwat (the regulator of the water industry for England and Wales) with respect to the regulation of capex. The paper criticises the approach adopted by Ofwat of seeking to “get prices right” by setting forward looking price caps that attempt to estimate the efficient level of costs going forward. The paper then goes on to critique the comparative efficiency techniques applied in the process of determining water companies' price caps and argues for the establishment of a longer-term framework for the regulation of capex.     

Understanding embodied greenhouse gas emissions in the water and sewerage sectors

Embodied (or embedded) greenhouse gas emissions are commonly overlooked in corporate carbon accounting, although they can represent a large proportion of overall emissions. In this paper, we utilise embodied emission data submitted to Ofwat, the economic regulator of water and sewerage companies in England and Wales, as part of their review of price limits. This is the first time that water and sewerage companies have presented embodied emissions associated with their capital programmes. In total, embodied emissions add an extra 50% on top of companies' operational greenhouse gas emissions. We consider the drivers for embodied emissions and show that capital maintenance programmes are the largest source. We highlight the relationship between capital expenditure and embodied emissions, and discuss why there are significant differences in embodied emission intensities between companies. Many of the differences arise from the way the common methodology for estimating embodied emissions is applied.     

Estimation and evaluation of productivity change and its drivers in the English and Welsh water sector: a stochastic cost frontier approach

ABSTRACT

Estimating productivity change and its determinants is of great importance when measuring the performance of a firm. A true random effect cost model was employed to measure the cost efficiency of water companies in England and Wales from 1993 to 2016. Subsequently, total factor productivity change was estimated and decomposed into cost-efficiency change, technical change, scale efficiency change, output effect and residual price effect. The results indicate that the English and Welsh water industry increased its productivity over the period examined at a rate of about 2.1%, and it was influenced primarily by technical change. The price reviews appear to have a positive impact on the productivity of water-only companies during the whole period examined. In the case of water and sewerage companies, the 1994 and 1999 price reviews had a positive impact on productivity, whereas the last two price reviews had an adverse impact.     

Capital efficiency at airports and related services

To deliver the aviation networks of the 21st century, it will be essential for regulators, airport operators and air navigation service providers to invest in both a timely and efficient manner. Yet applying the benchmarking and efficiency assessments that have helped yield improved operational performance poses a substantial challenge when those tools are applied to capital investment. This paper assesses four aspects important to meeting this challenge. First, the potential difficulties associated with efficiency assessment in the context of capital investment are identified. Second, developments in the methodologies and tools available to operators and regulators are outlined. Third, the experiences and lessons of applying these tools in the aviation sector are assessed. Finally, while the authors remain cautiously optimistic over the future possibilities for assessing capital efficiency in the aviation sector, they conclude by arguing that there is a significant role for regulatory incentives to complement efficiency assessments.     

Productivity and efficiency in the water industry

Over the past twenty years there has been increasing interest in the productivity and efficiency of, and the optimal structures for, the water supply and wastewater industries. In part this interest has manifested itself in the increased use of numerous statistical techniques to determine the productivity and efficiency of the water sector in a variety of countries. The purpose of this paper is threefold. First it briefly reviews the various measures that have been used to gauge the levels of productivity and efficiency in the water sector, with particular reference to input and output data requirements of these measures. Second it summarises the key structural findings that have been determined from this research, particularly with respect to economies of scale and scope, public versus private ownership and the impact of regulation. Third, it considers potential areas for potential future research, such as the effect of environmental management activities (including water conservation) and regulation on productivity and efficiency, the role of wastewater as a potential source of potable or ‘fit-for-purpose’ water and the relationship between water supply and urban planning.     

Do network industries plan to eliminate inefficiencies in response to regulatory pressure? The case of railways in Great Britain

This paper outlines an econometric analysis of business planning data examining the scope for efficiency improvements of regulated firms in regulatory price reviews. Historical data may not fully reflect current industry cost structures, whereas forecast data offers evidence on cost evolution. Business Plans can provide useful information on planned elimination of inefficiencies in response to regulatory pressure. Network Rail submitted such data to the British railway regulator at the last Periodic Review (2013). Using a cost frontier model, the organisation's business units are analysed to determine the extent of their plans to eliminate internal inefficiencies and response to regulatory incentives.     

The welfare costs of non-marginal water pricing: evidence from the water only companies in England and Wales

The evaluation of the economic efficiency of regulatory schemes is essential for regulators and utilities. In this study it is analysed for the first time the welfare costs of non-marginal cost pricing in the water supply in England and Wales, by computing the deadweight loss of the water only companies (WoCs) that existed over the period of 1993–2009. The results indicate that the current price schemes can have substantial efficiency costs. Our estimates show that the loss of efficiency for the WoCs lies between 15 and 60 million GBP over the period 1993–2009. These amounts could have been redistributed either to the companies in terms of profits or to the consumers via price reductions. The methodology and results of this study are of great interest for both regulators and water utilities managers to evaluate the effectiveness of price regulation and make informed decisions.     

Assessing the influence of exogenous and quality of service variables on water companies´ performance using a true-fixed stochastic frontier approach

ABSTRACT

Improving the cost efficiency and quality of service across time corresponds to two important targets for regulated water companies. Following a pioneering approach, we have evaluated the influence of a set of exogenous and quality of service variables on the English and Welsh water companies’ costs over the period of 1996–2009. A true-fixed effects stochastic cost frontier model was applied since it also allowed computing of the productivity change of the water companies and their drivers. Results have shown that quality of service has an influence on water companies´ costs. This issue is very relevant for bursts in water mains since investments in reducing them will lead to a reduction in the water supply interruptions and water losses. Results of this study illustrate the importance of developing long-term planning investment programmes in the water industry.     

Water industry asset management: a proposed service-performance model for investment

The water industry in England and Wales has developed over the last century, from small organisations serving local communities to large integrated companies in private ownership, overseen by a government regulator. Asset management practice has developed greatly in the 17 years since privatisation, with companies able to plan their operations and investment as they believe appropriate for the provision of customer services, subject to justifying their plans to the economic, quality and environmental regulators. Investment has flowed into the industry to replace deteriorated assets and to improve the quality of drinking water and rivers. The asset base is complex and, with a replacement value of approximately £231 billion at the 2002–2003 price base index suitable approaches are required to ensure that both the water service and the sewerage service are delivered at the most appropriate long‐term cost. The 2004 UK water industry price review was supported by the introduction of a Capital Maintenance Planning Common Framework to help companies understand and explain their maintenance investment requirement. In this paper, a service‐performance model is proposed to improve managers' understanding of the way in which businesses and the environment change over time, taking account of maintenance and other strategic requirements. Although developed with the water industry in mind, the model is equally applicable to other asset‐intensive industries.     

Water and Sewerage Charges in Scotland

The paper outlines the statutory arrangements governing water and sewerage charges in Scotland, and comments on the factors affecting the levels of charges. Trends in revenue expenditure over the period 1989–90 to 1992–93 are considered in relation to increases in personal community water charge levels, metered water rates, and costs per household. Non-domestic sewerage rates and industrial effluent charges are also discussed. Some comparisons are made with England and Wales and with other countries. The funding arrangements for capital expenditure and their effect on the levels of charges are described, with particular reference to debt levels and rising expenditure to meet UK and EC standards. Factors affecting future charge levels are also identified.     

高校工程管理中的项目质量成本管理研究

结合项目质量成本管理的概念,阐述了质量成本管理对于高校基建工程的意义,分析探讨了质量成本与高校基建工程管理的内在联系,提出了在高校基建工程中运用质量成本管理的几点建议,以保证学校工程的质量,节约成本。     

Potential for Sewage Sludge Co-Combustion in the UK Based on German Experience

Increasingly strict legislation, escalating costs and external pressures are causing the water industry to look for alternative strategies to agricultural recycling for the disposal of biosolids. Although the development of the 'safe sludge matrix'has encouraged agricultural recycling, negative press has hampered this outlet and public perception is seen as a major threat. Accordingly, many water companies are looking towards thermal-reduction technologies and have invested in thermal dryers and sludge incinerators; however, such technology has high capital costs and complex maintenance and operator requirements. An alternative method, i.e. co-combustion, is becoming more popular in mainland Europe. Unlike incineration/drying, the capital expenditure is low and operator/maintenance risks are minimised.
This paper (i) discusses a case study in which 40 000 dry tonnes of sludge per annum have been successfully combusted since 1996, and (ii) explores how this experience could be applied in a UK situation.     

Service life prediction of exterior cladding components under standard conditions

An empirical method was developed for the prediction of the service life of building components, based on an evaluation of their actual performance and on the identification of failure mechanisms affecting their durability. The service life of exterior components subjected to normal service conditions is predicted. Four types of exterior claddings are exemplified: cementitious mortar, synthetic rendering, ceramic mosaic, and wet‐fixing stone cladding. The proposed prediction models yield high degrees of fit to the data (R ² in the range of 0.86 to 0.93 at a 0.0001 level of significance). Life cycle costs (LCC) analysis – following service‐life prediction results – leads to the conclusion that maintenance and replacements costs account for 10–80% of initial capital costs. Synthetic rendering exhibited the highest LCC effectiveness, reflecting durability and low capital costs. The method can be used for planning preventive maintenance, evaluating economic implications of failures, and planning service life.     

Cross-sector sustainability benchmarking of major utilities in the United Kingdom

Benchmarking can be a useful tool for utility companies to improve their efficiency, offering many potential positives such as assessing performance objectively, exposing areas where improvement is needed, and identifying best performing companies, ultimately illuminating possible strategies for poorer performers to implement. Despite these positives, the challenge remains of how to compare the performance of different organisations from different sectors. This research aimed to develop a methodology to effectively compare companies across sectors using UK utilities across the water and sewage, energy, and communications sectors as a case study. A methodology was constructed based on service, environmental, and financial metrics, and cross-sector benchmarking was undertaken, which generated performance scores based on company metrics relative to sector peers. This circumnavigated issues of indicators often being mismatched across sectors and the lack of relevance and context when sectors do use similar indicators. Results showed that the sample of 18 utilities had two distinct clusters, one of eight sector leaders and the other of ten lower performers. Sky had the highest overall score of 13.5 (maximum 15), suggesting it significantly outperformed the rest of the communications sector. Similarly, British Gas and SSE lead the energy sector, whilst Wessex, Severn Trent, and United Utilities lead the way for water and sewage companies. The two distinct groups of sector leaders and lower performers can be employed to identify other companies that may offer learning opportunities. Top performers can assess top performers in other sectors to identify how they might continue improving, rather than be potentially limited within their sectors. Conversely, lower-performing companies can look within and across sectors to identify best practices to improve their performance. The methodological development and UK utility sustainability results collectively provide novel insight into the water, energy, and communication sectors and contribute to the international academic literature on benchmarking by illustrating an alternative and unique solution to comparing diverse sectors in any region.     

Promoting the supply of low income rental housing

Abstract

There is disturbing evidence of a contraction in the stock of low income private rental housing. In this paper we offer evidence indicating that federal government tax preferences, economies of scope and higher operating costs are part of the explanation for this contraction. The Australian Bureau of Statistics Rental Investors’ Survey is used to gauge whether low income housing tax credits and tax‐free capital gains thresholds can be used to promote the supply of low income rental housing.     

施工标准变化引发单价纠纷的法律对策分析

阐述了基建领域项目单价纠纷的含义,分析了施工标准变化引发项目单价纠纷的成因,并为解决该问题提供了法律上的对策,从而保证国家基础设施建设项目及时竣工。     

Promoting the supply of low income rental housing

There is disturbing evidence of a contraction in the stock of low income private rental housing. In this paper we offer evidence indicating that federal government tax preferences, economies of scope and higher operating costs are part of the explanation for this contraction. The Australian Bureau of Statistics Rental Investors' Survey is used to gauge whether low income housing tax credits and tax-free capital gains thresholds can be used to promote the supply of low income rental housing.     

The capital budgeting evaluation practices (2004) of building contractors in Hong Kong

This paper reports the investigation results of capital budgeting evaluation practices of Hong Kong building contractors. The survey aims to identify the popularity of various techniques for capital budgeting evaluation and to measure the changes of the practices longitudinally by comparing the results of the current study (2004) with those of the similar surveys conducted in 1994 and 1999. The current survey results revealed that the “formal financial evaluation” was the most popular technique for capital budget evaluation. The “payback period” was the mostly used investment appraisal technique. For risk appraisal techniques, “shortening payback period” occupied the first position. The “planning programming” remained as the most popular management science technique. Moreover, a comparison of the practices of large contracting firms was carried out to view the changes over the last 10 years. The results showed that the practice of capital budget evaluation was emphasized. The popularity of employing investment appraisal and risk analysis techniques was dropping. In addition, the capital budgeting evaluation techniques examined were fitted into a discriminant function analysis (DFA), which allowed contracting firms to be classified in accordance with their predominant characteristics in the practices. The classification result was 89.1% of all cases were correctly classified.     

Detection and prevention of unbalanced bids

Unbalanced bidding is a serious problem for the construction owner because it may increase the cost of construction The most common way to mathematically unbalance a bid is frontloading where a bidder overstates the unit price of line items scheduled to be performed early in the project and understates the unit price of line items performed later. A bidder can also overstate the unit price of a line item whose quantity was somehow underrated by the engineer. If the owner proves that a mathematically unbalanced bid costs more to perform, the bid is said to be materially unbalanced, in which case the owner can reject the bid. A model is presented that formalizes and automates the process of detecting mathematically and materially unbalanced bids by comparing line item prices with the engineer’s estimates and the average prices offered by the bidders. This model allows owners to detect and reject unbalanced bids, and deters bidders from unbalancing their bid.