Split Cost of Capital

Split Cost of Capital

  • Information Paper
  • Discussion Paper
  • Project Information

We released The Split Cost of Capital information paper on 4 February 2014.

This information paper explains the ‘split’ cost of capital concept, its rationale and its potential for application in the Australian regulatory context. The paper was prepared taking account of submissions received on the Discussion Paper published on 3 April 2013.

The QCA proposes to conduct further investigation of the split cost of capital concept in the course of ongoing price determinations.

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On 26 April 2013 we released the discussion paper, The Split Cost of Capital, for public comment.

This discussion paper explores the concept of split cost of capital in more detail and assesses its potential application in the Australian regulatory context. By identifying the cost of capital for the different components of the business, it is expected that the paper will better inform our understanding of the revenue requirement for regulated firms.

Five submissions have been received.

 

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Investors need assurance that they can expect to recover their investment and earn a normal commercial return on their investment recognising the relevant risks that they face. There is evidence that certain regulated businesses face relatively low risks on investments that have already been made but may face higher risks on their business operations and future investments.

On the basis of these different risk profiles, a ‘split’ cost of capital concept has been proposed by Professor Dieter Helm of Oxford University. 

The QCA is examining the split cost of capital concept.

 

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