NERA Economic Consulting Report on Cost of Capital for Water and Sewerage Companies in England and Wales

26 June 2008

London/26 June 2008 -- NERA Economic Consulting, a leading global provider of economic advice and analysis in business, legal, and regulatory matters, has produced a new report meant to provide input for the UK water industry's 2009 price review (PR09). The report, "Cost of Capital for PR09," was commissioned by Water UK and produced by NERA with assistance from two leading finance academics: Professor Paul Grout of the University of Bristol and Professor Ania Zalewska of the University of Bath.

"Our report applies advanced economic tools and models to estimate the cost of capital for the water and sewerage companies in England and Wales, including the cost of equity, cost of debt, and gearing," said NERA Associate Director Dr. Richard Hern. "This is an important exercise because the cost of capital is a key factor regulators use in determining price limits for water companies."

The estimates produced by NERA and Professors Grout and Zalewska project a slightly lower cost of capital for the water industry than the cost of capital allowed by Ofwat at the 2004 price review. However, the main driver of the lower costs -- a lower cost of debt -- seems to be shifting as the cost of new debt for water companies has been moving up in recent months.

"Cost of Capital for PR09" reflects the authors' best estimates as of March 2008. Given the volatile conditions in the financial markets and the need to flesh out many details of PR09, NERA is planning to update the report's conclusions later this year.

NERA Economic Consulting (www.nera.com), founded in 1961 as National Economic Research Associates, is a unit of the Oliver Wyman Group, an MMC company.

About NERA

NERA Economic Consulting (www.nera.com) is a global firm of experts dedicated to applying economic, finance, and quantitative principles to complex business and legal challenges. For over half a century, NERA's economists have been creating strategies, studies, reports, expert testimony, and policy recommendations for government authorities and the world's leading law firms and corporations. We bring academic rigor, objectivity, and real world industry experience to bear on issues arising from competition, regulation, public policy, strategy, finance, and litigation.

NERA's clients value our ability to apply and communicate state-of-the-art approaches clearly and convincingly, our commitment to deliver unbiased findings, and our reputation for quality and independence. Our clients rely on the integrity and skills of our unparalleled team of economists and other experts backed by the resources and reliability of one of the world's largest economic consultancies. With its main office in New York City, NERA serves clients from more than 25 offices across North America, Europe, and Asia Pacific.