The current environment of low interest rates as well as recently elevated premiums over regulated asset values present a problem to UK regulators measuring the components of the weighted average cost of capital as they strive to find the balance between protecting the interests of existing and future consumers and ensuring that efficient firms can finance their operations.  Regulated industries are bracing themselves for significant reductions in the WACC in a tough cycle of price reviews.

Industries are divided about how best to calculate the cost of capital and where the balance lies between customers and investors. To what extent is the way that the WACC is calculated effective?  Over what time horizon should it be estimated?  What account should be taken of leverage?   Should a more dynamic system be considered in case of a significant change in interest rates?

Speaker: Stephen Wright, Professor of Economics, Birkbeck University of London

Respondent: Nigel Hawkins, Analyst, Hardman & Co

For more information on the Beesley Lecture Series 2019, click here.