Profit productivity change in the English and Welsh water sector: Impact of the price reviews

Profitability and productivity change over time are two key indicators to evaluate the performance of water companies. In this study, the profit inefficiency of water utilities was estimated based on the Luenberger Productivity Indicator (LPI). The empirical approach focused on the English and Welsh water industry from 2001 to 2018. It was illustrated that water companies suffered a profit inefficiency effect of 50%, mainly (44%) attributed to allocation inefficiency, whereas technical inefficiency contributed by 6%. Estimated profit LPI values revealed the impact of the price reviews on the profit productivity of the English and Welsh water companies.     

Assessing capital efficiency in the water and sewerage industry in England and Wales: Ofwat's approach

The Water Services Regulation Authority (Ofwat) is the economic regulator of the water and sewerage companies in England and Wales. Ofwat carries out regular annual reviews of relative capital efficiency and periodic reviews of prices charged by the companies to determine maximum price limits. In reaching these determinations, the most recent of which was in December 2004 (PR04), Ofwat assumed that the companies can, going forward, make some capital efficiencies. Ofwat assessed the scope for such efficiencies in each company by analysing their capital and operating expenditure and outputs, comparing their unit capital costs, making econometric comparisons of their capital maintenance costs and assessing the scope for continuing capital productivity improvement in the water and comparator sectors. Three separate tools used by Ofwat for assessing capital efficiency are described; the cost base (for capital unit costs), capital maintenance econometric models and ‘continuing efficiency’. The paper notes how these three tools were used in combination for price limit assumptions in 2004.     

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.     

Assessing productivity changes in water companies: a comparison of the Luenberger and Luenberger-Hicks-Moorsteen productivity indicators

ABSTRACT

Interest in evaluating productivity changes in water companies has increased in recent years. In this paper, for the first time, we employ the Luenberger-Hicks-Moorsteen Productivity Indicator (LHMPI) to evaluate productivity changes in a sample of Chilean water companies from 2010 to 2016. Productivity change estimations obtained by both the Luenberger Productivity Indicator (LPI) and the LHMPI are compared. Moreover, both indicators were computed assuming constant and variable returns to scale technologies. The LHMPI estimates illustrate that productivity in Chilean water companies has slightly improved over the period studied due to the positive trend of outputs, whereas the inputs negatively contributed to productivity changes. Results from the empirical analysis enabled us to verify that the LHMPI and LPI (and their drivers) are statistically different. This conclusion illustrates that water regulators need to pay attention to the indicators used when assessing productivity changes in water companies.     

Service quality,technical efficiency and total factor productivity growth in Pakistan's post-reform electricity distribution companies

Pakistan's energy sector has undergone substantial reforms during the last three decades with the aim to improve its operational performance and to cater to the growing energy needs of the economy. In the wake of these reforms, the WAPDA Act was passed in 1998 to achieve operational and financial efficiencies. Pakistan's electricity market is still hampered by issues like extended blackouts, electricity thefts, high circular debt and poor service quality. The electricity distribution sector is thus an interesting case to investigate its efficiency in the post-reform period by examining the impact of service-quality parameters (SQPs), which have generally been neglected in the literature. Stochastic frontier analysis has been used to estimate technical efficiency, while the Malmquist Productivity Index is implemented to decompose total factor productivity (TFP) into scale change, technical change and efficiency change from 2006 to 2016. We conclude that the technical efficiency score declines from 98 percent to 36 percent with the inclusion of SQPs in the models. The results also indicate a negative trend in scale change, implying that distribution companies are not operating at the technically optimal scale. We propose that the regulatory body should change its governance regime and focus on incentive-based regulation instead of rate-of-return regulation.     

Water company productivity change: A disaggregated approach accounting for changes in inputs and outputs

The assessment of the productivity change of water utilities provides essential information to sector managers and regulators. This study uses the Luenberger-Hicks-Moorsteen Productivity Indicator (LHMPI) to evaluate productivity change as it can be further decomposed into three components namely technical change (TC), technical efficiency change (TEC), and scale efficiency change (SEC). This study evaluates the productivity of several water companies in England and Wales from 2001 to 2018. We found that productivity declined 1.2% per year due to the use of inputs that increased by 1.4% per year relative to outputs that increased by 0.2% per year.     

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.     

Leakage Targets and Socio-Economic Efficiency

During the last few years, the introduction of mandatory leakage targets for UK water companies has had the positive effect of reducing levels of leakage, while requiring the companies to operate at an economic level of leakage. Unfortunately, the determination of company-specific economic levels of leakage have been a source of disagreement between the water companies and the Government, with the Government view that water companies are not using the true long-term marginal costs of water abstraction, and therefore are not safeguarding the environment.
This paper (a) reviews the model which was used to define the economic level of leakage, (b) argues the case for resource management based on the impact of water abstractions on the socio-environmental quality of a resource rather than the myopic focus on leakage reductions, (c) presents the concepts of effectiveness and efficiency in relation to socio-environmental quality, and (d) proposes a new methodology which allows the determination of water abstraction rates while maintaining a desired level of socio-environmental quality.     

Impact of external costs of unplanned supply interruptions on water company efficiency: Evidence from Chile

Conventional performance assessments of water companies ignore the external costs due to water supply outages. To overcome this gap, we evaluate the impact of external costs of unplanned supply interruptions on the efficiency of water companies. Two efficiency metrics, internal technical efficiency (ITE), and total technical efficiency (TTE), were estimated based on data envelopment analysis (DEA). The results evidence that the external costs of unplanned water supply interruptions impact, on average, 7.9% of the efficiency of water companies. We also explored the impact of a set of environmental variables on water company efficiency.     

Measuring the productivity growth of Malaysia's water sector: Implications for regulatory reform

We apply the bootstrap Malmquist-Luenberger productivity index (MLPI) to measure the total factor productivity (TFP) growth for 14 water operators in Malaysia during the years 2000–2017. The analysis confirms that Malaysia's water sector experienced a deterioration in average productivity of 1.21% per year, attributed mainly to technological regression. Before the regulatory reform, the average productivity of water operators improved and was positively influenced by efficiency change. After the reform, the water operators suffered a decline in TFP growth due to decreased efficiency and technical change. The inefficient utilization of capital expenditure and aging water infrastructure are possible reasons for this effect. Regulatory reform is necessary but insufficient to improve the productivity growth of Malaysia's water sector.     

Measuring and comparing the efficiency of water utility companies: A data envelopment analysis approach

This study provides an analysis of Italian water utilities to determine the effects on their efficiency of certain relevant variables that have been broadly discussed in the existing literature. We reviewed the annual financial statements of 43 Italian water utility companies and obtained other technical data from Co.n.vi.r.i., the Italian national authority for water. Using data envelopment analysis we assessed their cost efficiencies and, using non-parametric statistic methods, we discuss the significant differences among clusters.We found that ownership structure, size and geographical location had an impact on the performance of water utilities, although with different degrees of significance.     

Assessing the marginal cost of reducing greenhouse gas emissions in the English and Welsh water and sewerage industry: A parametric approach

Reducing greenhouse gas (GHG) emissions involves effort from different sectors of the economy, including the water and sewerage industry. This study estimates the marginal cost of curtailing GHG emissions in the water and sewerage industry using stochastic frontier analysis techniques for a sample of ten English and Welsh water and sewerage companies over the 2010–2019 period. Results illustrated that the average marginal cost of reducing GHG emissions was 0.181 £/Kg CO₂ equivalent. The marginal cost estimated notably differs across companies and over time. Findings further illustrate the impact of water companies' operating characteristics on the marginal cost of reducing carbon emissions.     

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.     

Performance assessment of the Chilean water sector: A network data envelopment analysis approach

This study applies a two-stage network structure model to evaluate water service providers cost and operational performance embracing service quality variables. An empirical analysis of the Chilean water and wastewater industries over the 2010–2018 period is presented. Moreover, in the second stage of analysis, we analyzed the impact of a set of exogenous variables on the performance of water companies. Results revealed that the Chilean water companies had notable room to reduce costs and improve operational performance. Moreover, it was found that the public water provider performed better than fully private and concessionary water providers.     

The scale effect in China's power grid sector from the perspective of malmquist total factor productivity analysis

China's power grid sector, which combines transmission and distribution, has grown rapidly after the restructuring reform in 2002. We evaluate the scale effect in the sector by employing a parametric Malmquist index based on a heteroscedastic true fixed-effects stochastic frontier model to estimate technical efficiency and total factor productivity for China's 30 grid companies from 2002 to 2017. The results show that there exists a scale effect. Most companies exhibit increasing returns to scale, total factor productivity experiences a significant growth driven by scale expansion. Companies with different scales should take differentiated actions to meet the challenges of market-oriented reform.     

The use of a variable cost function in the regulation of the Italian water industry

The purpose of this study is to estimate a multivariate variable cost function in order to analyze the cost structure of a sample of Italian water distribution companies.The empirical results of this study could be used by the Italian Regulation Authority of this sector to improve the actual tariff regulation process.A variable cost function was estimated using panel data for a sample of 32 water distribution firms operating at the provincial level over the period 1991–1995. Results indicate the importance of explanatory variables such as price of labor, water loss and service area characteristics.Results also indicate the existence of economies of output and customer density and the presence of small diseconomies of scale.     

钢铁企业副产煤气定价模式探讨

钢铁企业副产煤气的合理定价十分重要,它直接影响项目的经济效益,影响用气和供气企业的公平交易。副产煤气定价有比价法和机会成本法两种模式,其中,机会成本法定价较为公允,建议钢铁企业副产煤气定价采用以发电利润为基准的机会成本法来确定副产煤气的价格。     

Changes in the total costs of the English and Welsh water and sewerage industry: The decomposed effect of price and quantity inputs on efficiency

Understanding what drives changes in regulated water companies' costs is of great relevance to water regulators. This study decomposes and estimates the change in total costs for a sample of ten water and sewerage companies in England and Wales from 1993 to 2016. The results demonstrate that companies' total costs increased over time due to increases in input prices and input quantity. Any gains obtained from the efficient allocation of resources and technical progress were lost due to mergers and technical inefficiency. Finally, we link our results with the regulatory cycle to evaluate the impact of the regulatory regime on companies' costs and discuss some policy implications.     

Construction project change management in Singapore: Status,importance and impact

Changes in construction projects are inevitable. In order to minimize the impact of changes on a project, it is imperative to implement change management. This study aims to assess the status, importance and impact of change management implementation in the Singapore construction industry. To achieve the objective, a comprehensive literature review was conducted to gain an in-depth understanding of change management, and a questionnaire survey was conducted. Analyzing the data collected from 384 projects submitted by 32 companies, the implementation status was investigated at both company and project levels, followed by identification of key factors that encourage and discourage companies to practice change management. Furthermore, the importance and impact of change management in terms of project performances such as cost, time, and quality were also examined. The analysis results establish that the implementation status in the Singapore construction industry is relatively low while improvement in project cost, time and quality performances achieved by the companies that implement change management tends to be greater than the companies that do not. Recognizing the implementation status, importance and impacts of change management will be a starting point to reduce changes that negatively affect project performances, ultimately allowing the Singapore construction industry to increase opportunities for project success.     

Reform and efficiency of New Zealand's airports

The paper analyses the efficiency performance of New Zealand's airports in the context of structural reform. This study is in two parts using two separate databases. In the first part a Malmquist Data Envelopment Analysis approach is used to estimate the productivity change over the longer term of the country's three largest airports between 1991/92 and 2011/12. Partial productivity indicators are used to supplement and reinforce this analysis. In the second part, a separate database is used with Data Envelopment Analysis in a two-stage process to determine the impact of scale economies and ownership type on levels of efficiency. The first part of the study found that the efficiency and productivity of the three airports improved over the years, although this was influenced to some degree by locational factors. The second part of the study found that the larger airports were more efficient than the smaller ones, and jointly owned airports are somewhat less efficient. Productivity gains appear to enable airport expansion, rather than price reductions.