Transmission price control initial proposals

Ofgem consultation (90 pages, PDF) on initial proposals for the Transmission price control from 2007, with additional appendices (110 pages, PDF) and an analyst presentation (14 slides, PDF).

The cost of capital assumed in the modelling for all companies is 4.2 per cent real post-tax, made up of a notional 60 per cent of debt yielding 3.4 per cent plus RPI and 40 per cent of equity returning 7 per cent over RPI. The cost of equity is stated at paragraph 8.5 of the main document to be based on a midpoint estimate of the total market return; however, Appendix 9 associates the 7 per cent figure with a beta of 0.9 and an equity risk premium of 5.20 per cent (the source of these numbers is not stated).

Operating expenditure efficiency improvements of 1.5 per cent plus specific identifiable savings are assumed; the 1.5 per cent figure is said to be "consistent with the assumption used itself by one of the companies" (the paper does not appear to disclose which company).

Responses by Monday 24 July 2006.

For further information or advice please contact Franck Latrémolière.

Filed under Electricity, Ofgem, Price controls.

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