Cost of Capital

Status
Past review

The QCA determines a cost of capital to apply to the regulated firms under its jurisdiction. This includes discussions on the current methodology for determining the cost of capital for regulated entities such as those operating in the rail sector, including Aurizon Network.

On Friday 13 December 2013, the QCA hosted a WACC Forum focused on aspects of the QCA’s methodological review of its approach to setting the WACC for regulatory decisions, as well as on the QCA’s assessment of Aurizon Network’s 2013 DAU.

To assist in both matters, the QCA has engaged consultants, particularly Dr Martin Lally (Victoria University of Wellington) and Dr Michael Lawriwsky (Incenta Economic Consulting).  The Forum was attended by representatives from Aurizon Network, the coal industry, train operators and the water industry.

The information gathered by QCA staff at the Forum may be used to inform the QCA’s views on various WACC issues.  To the extent that QCA staff contributed to the discussion, the views expressed were their own and do not, in any way, bind the QCA.

On the 13 December 2013 the QCA held a WACC forum that covered a number of issues that have arisen as part of the QCA’s cost of capital methodology review, as well as a number of specific issues that are relevant to the QCA’s consideration of Aurizon Network’s 2013 DAU.

On 25 October 2013, the QCA published three methodology papers on: cost of debt; gamma; and the risk-free rate and the market risk premium, followed by another methodological paper on gamma.  On 29 November 2013, the QCA published an Aurizon Network specific paper on cost of debt.  It is noted that this paper is based on Aurizon Network’s proposed WACC averaging period of 20 business days ending 31 October 2013.  On 11 December 2013, the QCA published a second Aurizon Network specific paper on regulatory capital structure and asset/equity beta.

On 13 December 2013, during the WACC Forum, the QCA’s consultants (Dr Martin Lally and Dr Michael Lawriwsky) presented these papers and Aurizon Network, the coal industry and water utilities were invited to respond.

The QCA invited written submissions on all of these papers by 20 January 2014.  The QCA has published five stakeholders’ submissions (these submissions, and the papers, can be downloaded below).

More submissions on the methodological papers can be found on the research page.

Report and papers

Date
Title Document
13 December 2013 Consultant report Incenta Economic Consulting – Review of Regulatory Capital Structure and Asset/Equity Beta for Aurizon Network pdf, 1.53 Mb
15 November 2013 Consultant report Incenta Economic Consulting – Aurizon Network: Review of Benchmark Credit Rating and Cost of Debt pdf, 332.90 Kb
15 November 2013 Other documents Letter to Aurizon Network regarding the UT4 averaging period pdf, 71.23 Kb
15 October 2013 Consultant report Lally M – Response to Submissions on the Risk-free Rate and the MRP pdf, 449.92 Kb
15 October 2013 Consultant report PwC – A Cost of Debt Estimation Methodology for Businesses Regulated by the Queensland Competition Authority pdf, 2.21 Mb
15 October 2013 Consultant report Lally M – The Estimated Utilisation Rate for Imputation Credits pdf, 296.85 Kb
15 November 2012 Issues paper The Risk-free Rate and the Market Risk Premium pdf, 247.21 Kb
Date
Title Document
20 January 2014 Submission Anglo Submission (Jan 14) pdf, 90.25 Kb
20 January 2014 Submission Aurizon Network Letter (Jan 14) pdf, 1.28 Mb
20 January 2014 Submission Aurizon Network Return on Capital Paper (Jan 14) pdf, 638.02 Kb
20 January 2014 Submission Aurizon Network Risk Analysis (Jan 14) pdf, 1.54 Mb
20 January 2014 Submission Castalia Submission (Jan 14) pdf, 256.30 Kb
20 January 2014 Submission DBCT Submission (Jan 14) pdf, 305.68 Kb
20 January 2014 Submission QRC Submission (Jan 14) pdf, 136.28 Kb
20 January 2014 Submission SFG Gamma Paper (Jan 14) pdf, 735.94 Kb
20 January 2014 Submission SFG Market Risk Premium (Jan 14) pdf, 614.58 Kb
20 January 2014 Submission SFG Systematic Risk (Jan 14) pdf, 325.47 Kb
20 January 2014 Submission Vale Submission (Jan 14) pdf, 2.24 Mb
Date
Title Document
13 December 2013 Other papers Agenda pdf, 81.96 Kb
13 December 2013 Submission Aurizon Network Credit Rating and Cost of Debt pdf, 158.56 Kb
13 December 2013 Submission Aurizon Presentation Cost of Equity pdf, 1.88 Mb
13 December 2013 Consultant report Incenta Capital Structure and Asset / Equity Beta pdf, 222.90 Kb
13 December 2013 Consultant report Incenta Cost of Debt pdf, 260.90 Kb
13 December 2013 Consultant report Incenta Credit Rating and Cost of Debt pdf, 234.04 Kb
13 December 2013 Consultant report Lally Gamma Presentation pdf, 89.70 Kb
13 December 2013 Consultant report Lally Risk Free Rate and MRP pdf, 104.50 Kb
13 December 2013 Other papers Minutes pdf, 45.73 Kb
13 December 2013 Other documents QRC Presentation Afternoon Session pdf, 192.29 Kb
13 December 2013 Other documents QRC Presentation Morning Session pdf, 194.97 Kb
13 December 2013 Other documents QTC Cost of Debt pdf, 287.62 Kb
13 December 2013 Other documents SFG Gamma Presentation pdf, 298.98 Kb
13 December 2013 Other papers SFG Market Risk Premium Presentation pdf, 210.56 Kb