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

Alexandros Maziotis, David Saal, Emmanuel Thanassoulis, María Molinos-Senante*

*Corresponding author for this work

Research output: Contribution to journalArticle

Abstract

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.

Original languageEnglish
JournalUtilities Policy
VolumeIn press
Early online date31 May 2016
DOIs
Publication statusE-pub ahead of print - 31 May 2016

Bibliographical note

© 2016, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/

Supplementary data available on the journal website.

Keywords

  • panel index numbers
  • productivity decomposition
  • regulation
  • water industry
  • X factor

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