30/06/08
Water UK has published a report by independent consultants NERA Economic Consulting on the cost of capital for PR09.
The cost of capital is always a key factor in determining the price limits for water companies, with financing investment accounting for nearly a third of customers’ bills.
Over £70 billion has been invested in the sector since privatisation, and the need for investment will continue into the 2010 quinquennium (funded through PR09) and well beyond.
Setting an appropriate cost of capital is critical to ensuring that the sector will continue to attract the necessary finance for this investment – and given the ongoing turbulence in capital markets, doing this is as complex as ever.
The NERA report provides a thorough and objective analysis, examining and testing a range of established and new approaches, cross-checking with regulatory precedent and taking on board evidence from a wide range of sources.
Ofwat has said that they will not make any decisions on the cost of capital until they have to, next year – a position that Water UK supports, particularly in light of the market and the importance of maintaining investor confidence in the sector.
Contact: Rob Wesley
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