Joint Regulators cost of capital study

The UK economic regulators ( see note one below) and the Office of Fair Trading have jointly commissioned the report on certain aspects of the cost of capital for regulated utilities in the UK. This study provides interesting insights into the cost of capital in the regulatory context. This is an independent study and does not necessarily reflect the views of the regulators of the OFT.

The study has been carried out by Stephen Wright (Birkbeck College), Robin Mason (University of Southampton and Centre for Economic Policy Research, CEPR) and David Miles (Imperial College and CEPR) on behalf of Smithers & Co Ltd.

The objectives of the study were to:

• establish, through independent research, the best current approach to the cost of capital for regulated utilities;

• provide an independent view of the extent to which consistency in the approach to the cost of capital can be achieved by regulators together with fully argued reasons as to why there may be differences.

The regulators welcome the report as a useful contribution to the debate in the UK and look forward to comments from interested parties, as this is an important issue for on-going regulatory policy and practice in the UK. If you would like to comment on the paper, please contact Steve Armitage, at steve.armitage@oftel.gov.uk or on 020 7634 5372

A full copy of the study can be viewed by clicking on the relevant link below:

Note:

1 The Civil Aviation Authority (CAA), Office of Water Services (OFWAT),
Office of Gas and Electricity Markets (Ofgem), Office of Telecommunications (Oftel), Office of the Rail Regulator (ORR), and Office for the Regulation of Electricity and Gas (OFREG).