Discounting for cost-benefit analyses involving private investment, but public benefit - Published by the Joint Regulators Group (JRG)

This technical paper sets out the approach to discounting that is a shared view of the membership of the Joint Regulators' Group (JRG).

The JRG is an association of the UK's economic and competition regulators. The JRG exists to support its members in delivering their own statutory remits, and to add value by visibly supporting the coherence of the UK system of economic regulation.

The issue of discounting in cost-benefit analysis (CBA) is one which many sector regulators face; regulators have discussed it within the JRG so to benefit from sharing and promoting good regulatory practice. The focus of this paper is on discounting in the particular case of a CBA where a firm finances the investment, but benefits mainly accrue to consumers and/or the wider public. This paper does not seek to determine whether or not a regulator should be intervening, but rather if the regulator is considering intervening and using a CBA, what the appropriate technical framework for CBA might be. For example:

• Regulators may need to consider whether to intervene in markets and require firms to do something for which there is no profit incentive but where the intervention proposed would involve investment by the firms in question.
• Regulators may need to consider the costs and benefits of investment plans proposed by regulated firms.

We consulted on the approach to discounting for CBAs on the 4th October 2011. Following a three month consultation period we received four responses that were in support of our proposed approach. This paper set out the conclusion of that consultation.

It should be noted that, although this is a view shared by the membership, each regulator will need to consider the appropriateness of the approaches set out in this paper to the specific issues and circumstances it is assessing, and with regard to its specific remit (which differs across regulators).

Responses

Responder name	Type
Carne_Mr_S.pdf (PDF File, 27.2 KB)	Organisation
Northumbrian_Water.pdf (PDF File, 9.6 KB)	Organisation
Severn_Trent_Water.pdf (PDF File, 50.6 KB)	Organisation
South_West_Water.pdf (PDF File, 648.8 KB)	Organisation