The General Efficiency Assumption: Setting X in RPI-X, A Report for Water UK

Tue Oct 01 16:24:38 EDT 2002
By Dr. Bill Baker, former NERA Senior Consultant Brian Williamson, and former NERA Analyst Helen Lay Jung

This report for Water UK, which represents water and sewerage companies in the UK, discusses the appropriate way to set the efficiency factor X in an index-linked, price-capped regime to ensure that anticipated output prices track the anticipated costs of delivering the outputs. NERA Director Dr. Bill Baker, former NERA Senior Consultant Brian Williamson, and former NERA Analyst Helen Lay Jung review the approaches to setting the efficiency factor X employed by the UK and international regulators. On the basis of this review, the authors highlight the weaknesses and strengths of the current approaches and set out a number of recommendations for setting X in an RPI-X regulatory regime to ensure anticipated output prices track anticipated costs.