Financial Implications of Competition Models -- Water UK

19 December 2008
By Dr. Richard Hern, Tomas Haug, Domink Huebler, and James Grayburn, et. al.

NERA was commissioned by 15 water and sewerage companies in England and Wales to study the financial implications of approaches to separating, and introducing competition into, elements of the water and sewerage value chains. "Financial implications" include changes to existing financing arrangements, changes in the eventual cost of capital, and changes in the eventual feasible debt levels. The study was motivated by current discussions of possible competitive reforms.

NERA undertook interviews with water companies, investors, financial arrangers, and rating agencies; reviewed the provisions of existing financing arrangements and experiences and evidence from other sectors; assessed the risks likely to be borne by competitive business units and the associated cost of capital; and modeled the possible future financial positions of the business units implied by various competitive reforms applied to stylised water companies, using two approaches to determining the opening values of the business units.