WACC

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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.

 

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