Cost of Capital for PR09: Final Report for Water UK

Sat Jan 31 15:24:38 EST 2009
By Dr. Richard Hern, Tomas Haug, Anthony Legg, and Mark Robinson with Professor Paul Grout of the University of Bristol and Professor Ania Zalewska of the University of Bath

A NERA team led by Director Dr. Richard Hern and Associate Director Tomas Haug was commissioned by Water UK -- which represents all UK water and wastewater service suppliers at the national and European levels -- to estimate the cost of capital for the water industry as part of the 2009 price review (PR09). In November 2009, Ofwat will set limits on the prices that water and sewerage companies in England and Wales can charge their customers during the five year period 2010-15. An important component of this review is the cost of capital.

In this report, produced in conjunction with Professor Paul Grout of the University of Bristol and Professor Ania Zalewska of the University of Bath, NERA provides a comprehensive analysis of the issues in setting the cost of capital. In compiling the report, the team examined and tested a range of established and new approaches, cross-checked with regulatory precedent, and considered evidence from a wide range of sources.

The NERA team first prepared a cost of capital report for Water UK in June 2008 that was based on data up to the end of March 2008. In this final report, we update our June report taking into account data up to the end of November 2008.

The NERA report and more information can be found on the Water UK website.