The weighted average cost of capital (WACC) is a key input for calculating the revenue requirements and setting prices for many of the businesses we regulate. The WACC is the weighted average of debt and equity costs required for a benchmark efficient business to invest in necessary infrastructure.
If we set the WACC too high, customers would pay too much and the regulated business could be encouraged to over-invest. If we set it too low, the business’ financial viability could suffer, and it may under-invest. Neither outcome is in the long-term interest of customers.
We use a standard method to determine the WACC in our pricing reviews – the 2018 WACC method.
In addition, we publish a number of tools and information sources to assist stakeholders in replicating our WACC decisions. These include:
We are currently consulting on using an alternative source of data in the estimation of the debt margin. Please see our fact sheet and slide pack that details our approach.