Water UK today publishes a report by independent consultants NERA Consulting Ltd on 'Cost of Capital for PR09'.
The report has been produced by NERA, well established consultants in the field of regulatory finance, together with leading finance academics Professor Paul Grout, University of Bristol and Professor Ania Zalewska, University of Bath.
It provides a comprehensive analysis of the issues in setting the cost of capital, 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.
The report provides the authors’ best estimate of the appropriate range for the cost of capital at PR09, as of March 2008. It is intended to inform the process of price setting for PR09, the next milestone being the submission of draft business plans by companies to Ofwat on 11 August 2008.
The work will be kept under review, and updated as the PR09 process moves towards the final determinations in November 2009, in order to take full account of the most up to date data - this is particularly important in light of the current capital market turbulence.
Pamela Taylor, Water UK Chief Executive, said:
"The cost of capital is a key building block in determining the price limits for water companies. Given the size of investment in the sector, some £70bn since privatization, the cost of financing this investment accounts for a significant proportion of customers’ bills.
"Setting an appropriate cost of capital is critical to ensuring that the sector will continue to attract the necessary finance for ongoing investment. Given the ongoing turbulence in capital markets appraising the cost of capital is as complex as ever.
"Working with academics, NERA have produced a thorough and objective analysis that we hope will stimulate a well-informed assessment by both companies and regulators in the forthcoming price review."
For more information please contact:
Water UK Communication
020 7344 1809
020 7659 8582