Econometric analysis of betas and spreads for Ofgem

Smithers & Co Report (51 pages, PDF) to Ofgem by Stephen Wright, estimating the CAPM beta and the bond spread for a selection of large UK utility companies. This has been prepared to support Ofgem's work on the 2006/2007 price control for National Grid Electricity Transmission.

As regards pure infrastructure companies, the report finds equity betas below 0.5 for Viridian and Severn Trent, and around 0.5 for National Grid and the other two water companies in the sample. Somewhat higher values are obtained for the diversified energy companies, and a beta of up to 2.1 is calculated for International Energy. Bond spreads over UK gilts (excluding International Power and Viridian for which no data are reported) are shown to have reduced in recent years and to be well under 100 basis points now.

For further information or advice please contact Franck Latrémolière.

Filed under Electricity, Ofgem, Price controls.

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