NERA Reviews Beta Estimation For Determining RIIO-2 Cost of Equity

Dr. Richard Hern, James Grayburn, Zuzana Janeckova and Ricardo Rodrigues

The Situation

National Grid, a UK-based utilities company, requested NERA to review the different approaches in reports commissioned by Ofgem on beta estimation for determining the cost of equity at RIIO-2.

NERA's Role

In this report, NERA experts Dr. Richard Hern, James Grayburn, Zuzana Janeckova, and Ricardo Rodrigues summarize the different approaches proposed by Ofgem’s consultants, identify areas of agreement and disagreement, and point out inconsistencies between the reports.

The Result

Our experts found that Ofgem’s advisors provided contradictory views on several topics. Given the disparate views and the absence of a clear justification for a change, we conclude that there is currently no reason to move away from established approaches to beta estimation.