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Profit, productivity and price performance changes in the water and sewerage industry: an empirical application for England and Wales

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Abstract

This paper aims to analyse the impact of regulation in the financial performance of the Water and Sewerage companies (WaSCs) in England and Wales over the period 1991–2008. In doing so, a panel index approach is applied across WaSCs over time to decompose unit-specific index number-based profitability growth as a function of the profitability, productivity and price performance growth achieved by benchmark firms, and the catch up to the benchmark firm achieved by less productive firms. The results indicated that after 2000 there is a steady decline in average price performance, while productivity improves resulting in a relatively stable economic profitability. It is suggested that the English and Welsh water regulator is now more focused on passing productivity benefits to consumers, and maintaining stable profitability than it was in earlier regulatory periods. This technique is of great interest for regulators to evaluate the effectiveness of regulation and companies to identify the determinants of profit change and improve future performance, even if sample sizes are limited.

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Notes

  1. Spatially consistency implies that each year’s relative productivity measures do not depend on the other years in the comparison and temporal consistency implies that each firm’s productivity estimates do not depend on the number of observations in the time series.

  2. While it would be particularly desirable to disaggregate other input usage data further and in particular to allow for separate energy and chemical usage inputs, the data available at company level from Ofwat’s regulatory return do not allow a further meaningful decomposition of other input sage.

  3. The same firm is consistently found to have the highest spatial productivity estimates in all years, and is therefore modelled as the benchmark most productive firm in each year of our study.

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Acknowledgments

The authors would like to express their gratitude for the support of the Economic and Social Science Research Council as well as the Office of Water Services (Ofwat). María Molinos-Senante would like to thank Generalitat Valenciana (APOSTD/2013/110) for financial support.

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Authors and Affiliations

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

    Alexandros Maziotis

  2. Aston Business School, Aston University, Birmingham, B4 7ET, UK

    Alexandros Maziotis, David S. Saal & Emmanuel Thanassoulis

  3. Loughborough University, Leicestershire, LE11 3TU, UK

    David S. Saal

  4. Department of Mathematics for Economics, University of Valencia, Avd. Tarongers S/N., Valencia, Spain

    María Molinos-Senante

  5. Division of Economics, University of Stirling, Stirling, FK9 LA4, UK

    María Molinos-Senante

Authors
  1. Alexandros Maziotis
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  2. David S. Saal
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  3. Emmanuel Thanassoulis
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  4. María Molinos-Senante
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Correspondence to María Molinos-Senante.

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Maziotis, A., Saal, D.S., Thanassoulis, E. et al. Profit, productivity and price performance changes in the water and sewerage industry: an empirical application for England and Wales. Clean Techn Environ Policy 17, 1005–1018 (2015). https://doi.org/10.1007/s10098-014-0852-2

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  • DOI: https://doi.org/10.1007/s10098-014-0852-2

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