About Reckon > Economic regulation > Price control licence conditions > Price controls
Price controls
We have a detailed understanding of utility price control reviews, particularly in the UK. We are familiar with all the key building blocks (cost of capital, efficiency projections and benchmarking, regulatory asset value, demand forecasts, incentive schemes) and the way in which they can be combined to minimise the costs to consumers of providing the required outputs.
Contact: Franck Latrémolière
Contact: Nicholas Francis
We maintain a rolling review of price control news relevant to our work.
Efficiency studies
We have particular knowledge and experience of methods for "efficiency analysis" to be used in price control reviews.
This includes ways of determining assumptions for future efficiency improvement. We understand how cross-industry studies of productivity improvement and within-sector analysis of expenditure levels can contribute to the development of these estimates, and how they need to be combined with each other.
Experience: UKWIR/Ofwat efficiency methods (2006-2007)
Experience: Ofgem productivity trends (2007)
Cost of capital and financeability
We are familiar with the debates that inform the estimation of the cost of capital and the determination of the return on capital to be allowed in price controls, including:
- The relevance of CAPM, dividend growth models and market-asset ratios.
- Methods to address financeability issues.
- Technical issues about tax, inflation and averaging methods.
- Specific areas of analysis, for example the interaction between asset base indexation and the return on capital, or arguments about a possible small company premium.
Experience: Ofwat cost of capital (2003-2004)
Price control structure and incentives
We have expertise in:
- the structure of price controls, e.g. revenue or price limits, tariff baskets;
- efficiency incentives and outperformance retention schemes;
- quality of service incentives;
- arrangements for funding uncertain investment requirements.
Reckon's staff have experience of advising both regulators and regulated companies on these issues.
Implementation of price controls
Once the policy, the numbers and the incentives schemes have been set, price controls need to be converted into workable legal documentation.
We have specific expertise and experience in drafting and reviewing the licence conditions or other legal documents which give effects to the price control determinations, particularly in cases where there are complex revenue driver arrangements or financial incentive schemes.
We can also help with modelling, forecasting and other tasks involved in the day-to-day management of price controls.