Regulatory Finance
We provide expert advice and technical analysis to firms, industry-bodies and regulators on how best to design, implement, remodel, or respond to regulatory proposals in sectors where price or revenue regulation is required. Our advice spans the regulatory spectrum, from light-touch regulation through to price controls of regulated infrastructure.
how we can support you
The spectrum of regulation ranges from light-touch regulation, such as the FCA’s Consumer Duty, through to price controls of regulated infrastructure, such as the periodic charge controls of regulated utilities. A comprehensive understanding of regulatory economics and finance, and experience of regulatory regimes across different sectors, is critical for ensuring that regulation works well for both firms and stakeholders.
We provide specialised services that are designed to support firms, industry-bodies and regulators on matters of regulatory finance in sectors where price or revenue regulation is required.
Regulatory charge controls
We provide expert advice and technical analysis on financial aspects of regulatory charge controls. We support firms and regulators with cutting-edge, empirical analyses of financial markets and company-level data to provide robust cost of capital estimates and financeability assessments. We deliver our findings through impactful expert reports that are designed to withstand scrutiny, and effective communication with stakeholders.
Fair value assessments
In certain sectors, firms’ pricing practices are subject to some degree of regulatory oversight, such as the FCA’s Consumer Duty. We support firms by reviewing pricing practices and accompanying financial modelling through the eyes of the regulator, and regulators by reviewing the compliance of firms’ pricing practices with applicable regulations. We assess whether current or planned pricing practices are ‘fair value’, based on the estimation of product-specific economic profits and costs (including a reasonable return on capital), characteristics of substitute products, and demand-side considerations.
Business rates valuations
Business rates charged to regulated networks form a material component of their cost bases. In most sectors, business rates are calculated as a percentage of their property rental value. For regulated networks, this rental value is estimated using asset valuation and cost of capital techniques. We support regulated networks during their interactions with the Valuation Office Agency (VoA) on periodic valuations. Our experts have a proven track record of securing multi-million pound savings for regulated networks on their business rates bills, including providing written submissions and oral evidence at the VoA.
Expert testimony
We provide expert witness services to firms or regulators on matters of regulatory finance, including cost of capital estimation, asset valuation and financeability. Our experts have a proven track record of providing expert testimony, such as on the estimation of the cost of capital for water companies and energy networks during their latest appeals at the Competition and Markets Authority.
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In its PR24 redeterminations, the CMA “aimed up” due to concerns about misestimation in the cost of capital. But focusing on uncertainty in cost of capital estimation alone risks missing the broader picture. Read more
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Staying Afloat: To what extent is high leverage to blame for the water sector’s financial resilience issues?
Excessive financial risk-taking through elevated levels of gearing is often cited as a regulatory failure in the water sector that has led to the near collapse of Thames and the categorisation of ten firms as ‘Elevated Concern’ or ‘Action Required’ for financial resilience by Ofwat. Read more
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If you’d like to discuss how we can support you or if you’re interested in career or collaboration opportunities, please get in touch.