Research Projects

Climate change reporting and performance; Green progress or green wash in Water and Sewerage Companies in England and Wales

Investigators: David Saal,Stuart Cooper and Christopher Brewster, Research Assistant: Ahmed Badran 

This project investigates the relationship between environmental reporting and environmental performance in the English and Welsh (E&W) water industry, an industry which since its privatisation in 1989 has made great strides in improving drinking water quality and environmental performance through improved sewage treatment.  Nonetheless, these environmental improvements are also associated with a substantial increases in greenhouse gas emissions, which, until recently, received little to know focus by firms and regulators.   The project therefore analyses recent initiatives taken by the Water and Sewerage Companies (WaSCs), as well as those triggered by the sector regulators, particularly Ofwat and the Environmental Agency, to reduce greenhouse gas emissions.  In this regard, the project has achieved the following objectives:

  • Identifying  and analysing key environmental issues and their historical development in the E & W water industry;

  • Analysing the level of environmental reporting by issue as well as the level of environmental performance within the E&W water industry;

  • Determining the potential to investigate the association between environmental reporting and performance within the E&W water industry given available data.

  • Developing a framework of understanding of the development of climate change as an issue in the water industry’s regulatory review process.

Click here to download the Greenwash presentation.

Variation in regulated firms’ responses to the state and the market

Funder: British Academy, SG-45273
Investigators: Professor Paula Jarzabkowski & Dr Jane Lê

This project involved a cross-sectoral comparison based on case studies of firms in different parts of the regulated industry supply chain from the energy, rail, water and telecoms sectors. The study examines the implications of different organizational configurations and degrees of regulatory influence, for managerial responses to competing demands upon them from the market and the regulator. Findings demonstrate that a combination of compliance with regulation and manipulation of the regulatory environment to their market interests are the typical responses that regulated firms use to maintain some balance between the range of objectives that they are required to fulfill. Under organizational configurations of functional separation manipulation appears to be a stronger response, and also, counter-intuitively, under conditions of increased regulatory influence. The results indicate a need for longitudinal research into the patterns through which firms engage in different responses over time, according to specific contingencies of the institutional context, and their implications for meeting market and regulatory goals.

Conflicting regulatory and market objectives: A problem for strategy implementation

Funder: Economic & Social Research Council (ESRC) and Advanced Institute of Management (AIM) RES-331-25-3013
Investigators: Professor Paula Jarzabkowski & Dr Jane Lê

The senior management of large, privatised companies have to operate amid a wide variety of practices and rules set on the one hand by regulation and on the other by trading in free markets. ESRC funding, through an Advanced Institute of Management (AIM) Ghoshal Fellowship, enabled us to discover at first hand how those running such organisations manage this apparently complex juggling act. We used a longitudinal qualitative approach, including interviews, observation and documentary data over time, to investigate the management approaches in FTSE 100 infrastructure companies that were facing new regulatory policies designed to increase market-based competition in their sector. Our findings show that:
  • There were structural divisions and conflicts between regulated and market-based units.

  • Results suggested that contradictions arise when divisions within a company are compartmentalised according to their different interests and objectives. This is particularly so when managers have corporate goals to achieve which comprise multiple objectives and interests.

  • Use of cross-divisional project teams and meetings may minimise these contradictions, by bringing the divisions into one group, or enabling them to adjust their individual approach so as to accommodate differences.

  • The new regulatory goals for the companies, as formally presented, proved to be unclear in practice. To transform them into concrete actions involved a complex bundle of regulatory and commercial objectives, against a background of long-established technologies, processes, services and products.

  • It was only as management worked towards the new goals that they began to understand their complexity, and to define and structure them in practical terms. This meant drawing different activities and interests into a bundle which could be accepted by all involved - the regulator, the industry and the various factions within the companies.

  • It seems that formal regulatory goals are, in practice, a shifting ‘end-in-view’. Determining precisely the point at which they have been attained, is something which continuously evolves as different interests, interpretations and knowledge are brought together.

Pricing behaviour, search cost and the development of competition

Funder: Economic & Social Research Council (RES-000-22-1686).
Investigators: Professor Michael Waterson (University of Warwick) and Dr Monica Giulietti

The UK domestic electricity supply market has seen very significant changes over the last few years.  Since May 1999, when the market was opened to competition, there was a period of significant entry, followed by consolidation amongst suppliers.  Supply prices, previously regulated, are now (since May 2002) unregulated.  Input prices have fallen considerably in real terms, but then risen again, in line with oil prices.  These features make the market an extremely useful test case in which to examine key questions concerning the nature and development of competition.
Our objective is to examine three questions relating to this process.  The first relates to convergence itself: Are prices converging, or is there, for example, a constant differential between the price an incumbent can charge relative to an entrant?  Second, if they are converging, is this to a particular relationship with costs of supply?  Convergence to a collusive equilibrium, for example, would clearly not be evidence of competition.  Third, and somewhat differently, what can we infer from the distribution of prices over time about the nature of search behaviour?

The UK is a world leader in respect of the opening up of electricity supply to competition.  Hence firms’ behaviour in setting prices is of considerable interest. Questions about price levels are important because the product is universally consumed and is significant in peoples’ budgets, so if competition were muted the effects would be severe. Price dispersion is important since there may for example be distributional impacts if lower prices are available on the internet but lower income consumers do not have internet access.  Price dispersion also has the potential to throw light on the nature of search. The general aim is to discern something both about consumer behaviour and about competition from the ensuing price distributions.  This is in line with the general theme that consumers and so information matter to competition.

Link between wholesale and retail electricity prices

Investigators: Professor Michael Waterson (University of Warwick), Professor Luigi Grossi (University of Verona, Italy) and Dr Monica Giulietti
The principal aim of this project is to identify the process through which changes in fuel, generation and distribution costs are transmitted to the retail market given the institutional features and the competitive conditions in the intermediate and final markets. The first step in this investigation is to establish what actually constitutes the cost of supply for energy companies, particularly with respect to the current structure of the wholesale market. Following the introduction of NETA, virtually all bargains on wholesale price and supply have been made on a bilateral basis, with clearing being a very small proportion of total trade.  This has made wholesale prices less transparent compared to the previous arrangements, when a single System Marginal Price was set by the network operator.

The specific research questions to be addressed in the project are as follows:
  • RQ1: Are fuel costs, wholesale and retail prices in a stable long-run relationship? How has this relationship been affected by institutional and structural changes?  
  • RQ2: Over what time horizon and with what intensity do price changes upstream affect retail prices? How has the price transmission mechanism been affected by the wholesale market reform?
  • RQ3: Are all classes of domestic consumers affected to the same extent by changes in upstream costs?
  • This project contributes to the policy debate about the role of effective competition in promoting efficient energy supply and fair prices for all.

Developing Panel Based Methods for Assessing Relative Performance in the English and Welsh Water and   Sewerage Industry

Funder: Ofwat and the Economic and Social Research Council: Case Award
Investigators: Dr. David Saal, Professor Emmanuel Thanassoulis and Alex Maziotis

This research, which involves collaboration with the water regulator Ofwat, is aimed at developing advanced panel based performance measurement techniques that will improve the regulator’s ability to set appropriate price caps.  While focused on the water industry, this research has wider resonance in areas such as public sector efficiency measurement where comparative performance measures need to be developed for a limited number of complex organisations.   Moreover, given changing environmental standards, the project also involves consideration of how to appropriately account for changes in environmental performance when measuring relative firm performance. 

The Measurement of Economies of Vertical Integration and Diversification in the Power Sector and the Effects of Liberalizing Reforms on Firms' Performance

Funder: Spanish Ministry of Education
Investigators: Dr. David Saal, Professor Pablo Arocena (Universidad Pública de Navarra, Spain), Professor Tim Coelli  (University of Queensland, Brisbane, Australia)

The principal aim of this project is to analyse whether benefits from competition were outweighed by increased costs due to lost scope economies between the generation, distribution, and supply of electricity. As our preliminary results suggest not inconsiderable scope economy savings between electricity and generation, this suggests that vertical restructuring has had substantial costs, thereby suggesting that the benefits of increased competition may not be as large as some policy makers believe.  Future research in this area will consider whether current policies favouring vertical separation can be justified if we also take into account the full economic costs of greenhouse gas emissions, which may be lower in a vertically integrated electricity system.  

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