Skip to main content

Advertisement

SpringerLink
Log in

Impact of regulation on English and Welsh water-only companies: an input-distance function approach

  • Research Article
  • Published:
Environmental Science and Pollution Research Aims and scope Submit manuscript

Abstract

The assessment of productivity change over time and its drivers is of great significance for water companies and regulators when setting urban water tariffs. This issue is even more relevant in privatized water industries, such as those in England and Wales, where the price-cap regulation is adopted. In this paper, an input-distance function is used to estimate productivity change and its determinants for the English and Welsh water-only companies (WoCs) over the period of 1993–2009. The impacts of several exogenous variables on companies’ efficiencies are also explored. From a policy perspective, this study describes how regulators can use this type of modeling and results to calculate illustrative X factors for the WoCs. The results indicate that the 1994 and 1999 price reviews stimulated technical change, and there were small efficiency gains. However, the 2004 price review did not accelerate efficiency change or improve technical change. The results also indicated that during the whole period of study, the excessive scale of the WoCs contributed negatively to productivity growth. On average, WoCs reported relatively high efficiency levels, which suggests that they had already been investing in technologies that reduce long-term input requirements with respect to exogenous and service-quality variables. Finally, an average WoC needs to improve its productivity toward that of the best company by 1.58%. The methodology and results of this study are of great interest to both regulators and water-company managers for evaluating the effectiveness of regulation and making informed decisions.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2

Similar content being viewed by others

Notes

  1. Interested readers can consult the Regulatory accounting guidelines 2016–2017 published by Ofwat at its webpage: www.ofwat.gov.uk/wp-content/uploads/2016/10/prs_in1609RAG1617.pdf

  2. In our model, 77% of the observations satisfy quasi-concavity in output, while 56 observations (23%) violate this condition.

References

  • Ananda J (2014) Evaluating the performance of urban water utilities: robust nonparametric approach. J Water Resour Plan Manag 140(9):04014021

    Article  Google Scholar 

  • Ashton JK (2008) Capital utilisation and scale in the English and Welsh water industry. Serv Ind J 23(5):137–149

    Article  Google Scholar 

  • Bottasso A, Conti M (2009a) Price cap regulation and the ratchet effect: a generalised index approach. J Prod Anal 32(3):191–201

    Article  Google Scholar 

  • Bottasso A, Conti M (2009b) Scale economies, technology and technical change: evidence from the English water only sector. Reg Sci Urban Econ 39(2):138–147

    Article  Google Scholar 

  • Bottasso A, Conti M, Piacenz M, Vannoni D (2011) The appropriateness of the poolability assumption for multiproduct technologies: evidence from the English water and sewerage utilities. Int J Prod Econ 130(1):112–117

    Article  Google Scholar 

  • Brea-Solis H, Perelman S, Saal DS (2017) Regulatory incentives to water losses reduction: the case of England and Wales. J Prod Anal In press

  • Carvalho P, Marques RC (2011) The influence of the operational environment on the efficiency of water utilities. J Environ Manag 92(10):2698–2707

    Article  Google Scholar 

  • CEPA (2014). Cost assessment—advanced econometric models. Cambridge Economic Policy Associates Ltd, Report prepared for Ofwat

  • Coelli TJ, Estach A, Perelman S, Trujillio L (2003) A primer on efficiency measurement for utilities and transport regulations. WBI development studies. The World Bank, Washington, D.C.

    Google Scholar 

  • De Witte K, Marques RC (2010) Influential observations in frontier models, a robust non-oriented approach to the water sector. Ann Oper res 181(1):377–392

    Article  Google Scholar 

  • Färe R, Primont D (1995) Multi-output production duality: theory and applications. Kluwer Academic Publications, Boston

    Book  Google Scholar 

  • Färe R, Martins-Filho C, Vardanyan M (2010) On functional form representation of multi-output production technologies. J Prod Anal 33(2):81–96

    Article  Google Scholar 

  • Greene W (2005) Fixed and random effects in stochastic frontier models. J Prod Anal 23(7):7–32

    Article  Google Scholar 

  • Jabran K, Hussain M, Fahad S, Farooq M, Alharrby H, Nasim W (2016) Economic assessment of different mulches in conventional and water-saving rice production systems. Environ Sci Pollut res 23(9):9156–9163

    Article  CAS  Google Scholar 

  • Kumbhakar SC, Wang H-J, Horncastle A (2015) A practitioner’s guide to stochastic frontier analysis using STATA. Cambridge University Press

  • Marques RC (2011) Regulation of water and wastewater services: an international comparison. IWA publishing

  • Marques RC, Berg S, Yane S (2014) Nonparametric benchmarking of Japanese water utilities: institutional and environmental factors affecting efficiency. J Water Resour Plan Manag 140(5):562–571

    Article  Google Scholar 

  • Maziotis A, Saal DS, Thanassoulis E, Molinos-Senante M (2015) Profit, productivity and price performance changes in the water and sewerage industry: an empirical application for England and Wales. Clean Techn Environ Policy 17(4):1005–1018

    Article  Google Scholar 

  • Maziotis A, Saal DS, Thanassoulis E, Molinos-Senante M (2016a) Price cap regulation in the English and Welsh water industry: a proposal for measuring performance. Util Policy 41:22–30

    Article  Google Scholar 

  • Maziotis, A., Molinos-Senante, M., Sala-Garrido, R. (2016b). Assessing the impact of quality of service on the productivity of water industry: a Malmquist-Luenberger productivity index approach for England and Wales. Water Resour Manag in Press doi:10.1007/s11269-016-1395-6

  • Mellah T, Ben Amor T (2016) Performance of the Tunisian water utility: an input-distance function approach. Util Policy 38:18–32

    Article  Google Scholar 

  • Molinos-Senante M, Sala-Garrido R (2016) Performance of fully private and concessionary water and sewerage companies: a metafrontier approach. Environ Sci Pollut res 23(12):11620–11629

    Article  Google Scholar 

  • Molinos-Senante M, Maziotis A, Sala-Garrido R (2014) The Luenberger productivity indicator in the water industry: an empirical analysis for England and Wales. Util Policy 30:18–28

    Article  Google Scholar 

  • Molinos-Senante M, Maziotis A, Sala-Garrido R (2015a) Assessing the relative efficiency of water companies in the English and welsh water industry: a metafrontier approach. Environ Sci Pollut res 22(21):16987–16996

    Article  Google Scholar 

  • Molinos-Senante M, Sala-Garrido R, Lafuente M (2015b) The role of environmental variables on the efficiency of water and sewerage companies: a case study of Chile. Environ Sci Pollut res 22(13):10242–10253

    Article  Google Scholar 

  • Molinos-Senante M, Maziotis A, Sala-Garrido R (2016a) Assessment of the total factor productivity change in the English and Welsh water industry: A Fare-Primont productivity index approach. Water Resour Manag In press. doi:10.1007/s11269-016-1346-2

  • Molinos-Senante M, Maziotis A, Sala-Garrido R (2016b) Estimating the cost of improving service quality in water supply: a shadow price approach for England and Wales. Sci Total Environ 539:470–477

  • O’Donnell CJ, Coelli TJ (2005) A Bayesian approach to imposing curvature on distance functions. J Econ 126:493–523

    Article  Google Scholar 

  • Ofwat (1994) Future charges for water and sewerage services. Office of Water Services, Birmingham

    Google Scholar 

  • Ofwat (1999) Future water and sewerage charges 2000–2005; final determinations. Office of Water Services, Birmingham

    Google Scholar 

  • Ofwat (2004a) Levels of service for the water industry in England & Wales 2003–2004 report. Office of Water Services, Birmingham

    Google Scholar 

  • Ofwat (2004b) Future water and sewerage charges 2005–10: final determinations. Available from: http://www.ofwat.gov.uk/pricereview/pr04/det_pr_fd04.pdf

  • Ofwat (2005a) Water and sewerage service unit; costs and relative efficiency 2004–2005 report. Office of Water Services, Birmingham

    Google Scholar 

  • Ofwat (2005b) Levels of service for the water industry in England & Wales 2004–2005 report. Office of Water Services, Birmingham

    Google Scholar 

  • Ofwat (2007) Levels of service for the water industry in England & Wales 2006–2007 report. Office of Water Services, Birmingham

    Google Scholar 

  • Ofwat (2009a) Levels of service for the water industry in England & Wales 2008–2009 report. Office of Water Services, Birmingham

    Google Scholar 

  • Ofwat (2009b) Accounting separation-consultation on June return reporting requirements 2009–10. The water services regulation authority. Birmingham

  • Orea L (2002) A parametric decomposition of generalized Malmquist productivity index. J Prod Anal 18(1):5–22

    Article  Google Scholar 

  • Pinto FS, Simoes P, Marques RC (2016) Water services performance: do operational environmental and quality factors account? Urban Water J In press

  • Portela MCAS, Thanassoulis E, Horncastle A, Maugg T (2011) Productivity change in the water industry in England and Wales: application of the meta-malmquist index. J Oper Res Soc 62(12):2173–2188

    Article  Google Scholar 

  • Saal DS, Parker D (2000) The impact of privatization and regulation on the water and sewerage industry in England and Wales: a translog cost function model. Manag Decis Econ 21(6):253–268

    Article  Google Scholar 

  • Saal DS, Parker D (2001) Productivity and price performance in the privatized water and sewerage companies in England and Wales. J Regul Econ 20(1):61–90

    Article  Google Scholar 

  • Saal DS, Parker D (2006) Assessing the performance of water operations in the English and Welsh water industry: a lesson in the implications of inappropriately assuming a common frontier. In: Coelli T, Lawrence D (eds) Performance measurement and regulation of network utilities. Edward Elgar, Cheltenham

    Google Scholar 

  • Saal DS, Reid S (2004) Estimating OPEX productivity growth in English and Welsh water and sewerage companies: 1999–2003. RP0434. Aston Business School Research Papers

  • Saal DS, Parker D, Weyman-Jones T (2007) Determining the contribution of technical efficiency, and scale change to productivity growth in the privatized English and Welsh water and sewerage industry: 1985–2000. J Prod Anal 28(1):127–139

    Article  Google Scholar 

  • Saal DS, Arocena P, Maziotis A (2011) Economies of integration in the English and Welsh water only companies and the assessment of alternative unbundling policies. ACCIS Working Paper, No 7

  • See KF (2015) Exploring and analysing sources of technical efficiency in water supply services: some evidence from southeast Asian public water utilities. Water Resour Econ 9:23–44

    Article  Google Scholar 

  • Simon CP, Blume L (1994) Mathematics for economists. W.W. Norton & Company, New York, London, New York

    Google Scholar 

  • Torres M, Morrison PC (2006) Driving forces for consolidation or fragmentation in the US water utility industry: a cost function approach with endogenous outputs. J Urban Econ 59:104–120

    Article  Google Scholar 

  • Wales TJ (1977) On the flexibility of functional forms: an empirical approach. J Econ 5(2):183–193

    Article  Google Scholar 

  • Wolf H, Heckelei T, Mittelhammer RC (2010) Imposing curvature and monotonicity on flexible functional forms: an efficient regional approach. J Comput Econ 36(4):309–339

    Article  Google Scholar 

  • Worthington AC (2014) A review of frontier approaches to efficiency and productivity measurement in urban water utilities. Urban Water J 11(1):55–73

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Departamento de Ingeniería Hidráulica y Ambiental, Pontificia Universidad Católica de Chile, Av. Vicuña Mackenna, 4860, Santiago, Chile

    María Molinos-Senante

  2. Escuela de Arquitectura e Instituto de Estudios Urbanos, Pontificia Universidad Católica de Chile, El Comendador, 1916, Santiago, Chile

    María Molinos-Senante

  3. Centro de Desarrollo Urbano Sustentable CONICYT/FONDAP/15110020, Av. Vicuña Mackenna, 4860, Santiago, Chile

    María Molinos-Senante

  4. Sorbonne Business School, 8 rue de la Croix de Jarry, 75013, Paris, France

    Simon Porcher

  5. London School of Economics, Department of Management, Houghton Street, London, WC2 2AE, UK

    Simon Porcher

  6. Foundazione Eni Enrico Mattei, Isola di San Giorgio Maggiore 8, Venice, Italy

    Alexandros Maziotis

Authors
  1. María Molinos-Senante
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Simon Porcher
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Alexandros Maziotis
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to María Molinos-Senante.

Additional information

Responsible editor: Philippe Garrigues

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Molinos-Senante, M., Porcher, S. & Maziotis, A. Impact of regulation on English and Welsh water-only companies: an input-distance function approach. Environ Sci Pollut Res 24, 16994–17005 (2017). https://doi.org/10.1007/s11356-017-9345-2

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11356-017-9345-2

Keywords

Search

Navigation