Cost of capital

This page contains information on cost of capital issues being considered as part of the input methodologies review.

The Commission is currently reviewing the input methodologies (IMs), which it is required to do within 7 years of setting them. We published our draft decisions papers, except for the Report on the IM review, on 16 June 2016. All papers and supporting documents, including draft amendments to the IM Determinations can now be found on the main IM review page.

One of the key topics for the current IMs review is the cost of capital. Areas of focus include:

  • the use of trailing averages as an alternative to prevailing rates in calculating the risk-free rate and/or debt premium
  • the use of annual indexation in updating the risk-free rate
  • compensating for efficiently incurred longer-term debt (including the appropriateness of the Term Credit Spread Differential)
  • the impact of the weighted average cost of capital (WACC) on incentives to apply for a customised price-quality path
  • using Black’s Simple Discount Rule as a potential cross-check for the Simplified Brennan-Lally Capital Asset Pricing Model (SBL-CAPM)
  • issues related to the airport WACC percentile.

Read more about the IMs review.

Documents

WACC workshop on asset beta and specific cost of capital issues

31/10/2016 (19 documents)

Aurora comments on Transpower submission on cost of debt – October 2016 PDF (679 KB)
Published on 31 October 2016
Contact comments on Transpower submission on cost of debt – October 2016 PDF (168 KB)
Published on 31 October 2016
ENA comments on Transpower submission on cost of debt – October 2016 PDF (517 KB)
Published on 31 October 2016
Vector comments on Transpower submission on cost of debt – October 2016 PDF (167 KB)
Published on 31 October 2016
Wellington Electricity Lines Ltd comments on Transpower submission – October 2016 PDF (1.4 MB)
Published on 31 October 2016
Transpower – Corrected Frontier memo on Dr Lally Appendix – October 2016 PDF (266 KB)
Published on 31 October 2016
Transpower – Explanation of Frontier report corrections – October 2016 PDF (130 KB)
Published on 31 October 2016
Response to Transpower letter – 14 October 2016 PDF (197 KB)
Published on 14 October 2016
Transpower submission on post WACC workshop documents – October 2016 PDF (657 KB)
Published on 14 October 2016
Contact – response to post WACC workshop documents – 5 October 2016 PDF (115 KB)
Published on 14 October 2016
ENA – CEG report responding to Oxera debt beta note – October 2016 PDF (1.1 MB)
Published on 14 October 2016
ENA – WACC letter to Commerce Commission – September 28 2016 PDF (431 KB)
Published on 29 September 2016
Response to ENA letter on WACC issues – 28 September 2016 PDF (241 KB)
Published on 29 September 2016
Oxera – debt beta note – 28 September 2016 PDF (70 KB)
Published on 29 September 2016
Powerco – Bond to Swap spread data analysis – 28 September 2016 Microsoft Excel Spreadsheet (62 KB)
Published on 29 September 2016
Powerco – explanation of bond to swap spread data analysis – 28 September 2016 PDF (26 KB)
Published on 29 September 2016
WACC workshop transcript – September 2016 PDF (511 KB)
Published on 06 October 2016
Input methodologies review – Notification email – WACC workshop further information – 18 August 2016 PDF (68 KB)
Published on 25 August 2016
Input methodologies review – Notification email for the WACC workshop – 13 July 2016 PDF (313 KB)
Published on 13 July 2016

Comments on asset beta adjustments and Black’s simple discounting rule expert advice

31/03/2016 (22 documents)

Notification email – comments received on the input methodologies review – 31 March 2016 PDF (189 KB)
Published on 31 March 2016
BARNZ – comments on Dr Lallys review of WACC issues – 24 March 2016 PDF (315 KB)
Published on 31 March 2016
Contact Energy – comments on Dr Lallys review of WACC issues – 24 March 2016 PDF (390 KB)
Published on 31 March 2016
ENA – comments on Dr Lallys review of WACC issues – 24 March 2016 PDF (422 KB)
Published on 31 March 2016
First State Investments – comments on Dr Lallys review of WACC issues cover letter – 24 March 2016 PDF (460 KB)
Published on 31 March 2016
First State Investments – comments on Dr Lallys review of WACC issues – Appendix A Incenta – 24 March 2016 PDF (962 KB)
Published on 31 March 2016
First State Investments – comments on Dr Lallys review of WACC issues – Appendix B NERA – 24 March 2016 PDF (343 KB)
Published on 31 March 2016
Fonterra – comments on Dr Lallys review of WACC issues – 24 March 2016 PDF (130 KB)
Published on 31 March 2016
MDL – comments on Dr Lallys review of WACC issues – 24 March 2016 PDF (482 KB)
Published on 31 March 2016
MEUG – comments on Dr Lallys review of WACC issues – 24 March 2016 PDF (242 KB)
Published on 31 March 2016
MGUG – comments on Dr Lallys review of WACC issues – 24 March 2016 PDF (240 KB)
Published on 31 March 2016
NZ Airports Assn – comments on Dr Lallys review of WACC issues – 24 March 2016 PDF (394 KB)
Published on 31 March 2016
Oji Fibre Solutions – comments on Dr Lallys review of WACC issues – 24 March 2016 PDF (205 KB)
Published on 31 March 2016
Orion – comments on Dr Lallys review of WACC issues – 24 March 2016 PDF (194 KB)
Published on 31 March 2016
Powerco – comments on Dr Lallys review of WACC issues – 24 March 2016 PDF (329 KB)
Published on 31 March 2016
HoustonKemp for Powerco – comments on Dr Lallys review of WACC issues – May 2016 PDF (930 KB)
Published on 20 May 2016
PwC – comments on Dr Lallys review of WACC issues – 24 March 2016 PDF (197 KB)
Published on 31 March 2016
Transpower – comments on Dr Lallys review of WACC issues – 24 March 2016 PDF (404 KB)
Published on 31 March 2016
Vector – comments on Dr Lallys review of WACC issues – 24 March 2016 PDF (92 KB)
Published on 31 March 2016
Vector – comments on Dr Lallys review of WACC issues – Appendix 1 CEG Report – March 2016 PDF (907 KB)
Published on 31 March 2016
WELL – comments on Dr Lallys review of WACC issues – 24 March 2016 PDF (1.4 MB)
Published on 31 March 2016
WELL – comments on Dr Lallys review of WACC issues – Appendix A Frontier Economics – February 2016 PDF (1.2 MB)
Published on 31 March 2016

Airport WACC percentile – submissions

18/03/2016 (13 documents)

Air NZ submission – airport WACC percentile – 11 March 2016 PDF (161 KB)
Published on 18 March 2016
Auckland Airport submission – airport WACC percentile – 16 March 2016 PDF (348 KB)
Published on 18 March 2016
BARNZ submission – airport WACC percentile – 11 March 2016 PDF (223 KB)
Published on 18 March 2016
BARNZ submission (attachment) – Covec – 9 March 2016 PDF (429 KB)
Published on 18 March 2016
CIAL submission – airport WACC percentile – 16 March 2016 PDF (365 KB)
Published on 18 March 2016
IATA submission – airport WACC percentile – 16 March 2016 PDF (872 KB)
Published on 18 March 2016
Infratil submission – airport WACC percentile – 16 March 2016 PDF (925 KB)
Published on 18 March 2016
WIAL submission – airport WACC percentile – 16 March 2016 PDF (110 KB)
MEUG submission – airport WACC percentile – 11 March 2016 PDF (150 KB)
Published on 18 March 2016
NZ Airports submission – airport WACC percentile – 16 March 2016 PDF (217 KB)
Published on 18 March 2016
NZ Airports submission (attachment) – Sapere – Asymmetric impact on consumers from underinvestment by airports – 17 March 2016 PDF (385 KB)
Published on 18 March 2016
NZ Airports submission (attachment) – Sapere – The distance between the allowed rate of return and the cost of capital – 16 March 2016 PDF (191 KB)
Published on 18 March 2016
Transpower submission – airport WACC percentile – 16 March 2016 PDF (349 KB)
Published on 18 March 2016

Cost of capital update paper – submissions

11/02/2016 (35 documents)

Notification email – Submissions on input methodologies review – emerging technology pre-workshop paper and cost of capital update paper – 11 February 2016 PDF (389 KB)
Published on 11 February 2016
Aurora submission – cost of capital update paper – 5 February 2016 PDF (834 KB)
Published on 11 February 2016
BARNZ submission – cost of capital update paper – 5 February 2016 PDF (260 KB)
Published on 11 February 2016
Colonial submission – cost of capital update paper – 5 February 2016 PDF (577 KB)
Published on 11 February 2016
Contact Energy submission – cost of capital update paper – 5 February 2016 PDF (1.5 MB)
Published on 11 February 2016
ENA submission – cost of capital update paper – 9 February 2016 PDF (232 KB)
Published on 11 February 2016
ENA submission (attachment) – CEG, Asset beta – February 2016 PDF (1.5 MB)
Published on 11 February 2016
ENA submission (attachment) – CEG, Inflation – revaluations and revenue indexation – February 2016 PDF (657 KB)
Published on 11 February 2016
ENA submission (attachment) – CEG, Key reforms to rate of return under the IMs – February 2016 PDF (1.6 MB)
Published on 11 February 2016
ENA submission (attachment) – CEG, Use of Black's simple discount rule in regulatory proceedings – February 2016 PDF (663 KB)
Published on 11 February 2016
Infratil submission – cost of capital update paper – 5 February 2016 PDF (1.8 MB)
Published on 11 February 2016
MDL submission – cost of capital update paper – 5 February 2016 PDF (150 KB)
Published on 11 February 2016
MEUG submission – cost of capital update paper – 5 February 2016 PDF (167 KB)
Published on 11 February 2016
MEUG (attachment) – Craigs Investment Partners, Vector – 9 November 2015 PDF (868 KB)
Published on 11 February 2016
MGUG submission – cost of capital update paper – 5 February 2016 PDF (378 KB)
Published on 11 February 2016
NZAA submission – cost of capital update paper – 5 February 2016 PDF (315 KB)
Published on 11 February 2016
Orion submission – cost of capital update paper – 5 February 2016 PDF (307 KB)
Published on 11 February 2016
Powerco submission – cost of capital update paper – 5 February 2016 PDF (727 KB)
Published on 11 February 2016
Powerco submission cover letter – cost of capital update paper – 5 February 2016 PDF (62 KB)
Published on 11 February 2016
PwC submission – cost of capital update paper – 5 February 2016 PDF (500 KB)
Published on 11 February 2016
Transpower submission – cost of capital update paper – 5 February 2016 PDF (1.8 MB)
Published on 11 February 2016
Transpower submission cover letter – cost of capital update paper – 5 February 2016 PDF (392 KB)
Published on 11 February 2016
Frontier Economics (on behalf of Transpower) submission – cost of capital update paper – 5 February 2016 PDF (1.7 MB)
Published on 11 February 2016
Vector submission – cost of capital update paper – 9 February 2016 PDF (371 KB)
Published on 11 February 2016
WELL submission – cost of capital update paper – 9 February 2016 PDF (1.4 MB)
Published on 11 February 2016
WELL submission (attachment) – CEG, Asset beta – February 2016 PDF (1.5 MB)
Published on 11 February 2016
WELL submission (attachment) – CEG, Critique of the AER's JGN draft decision on the cost of debt – April 2015 PDF (2.2 MB)
Published on 11 February 2016
WELL submission (attachment) – CEG, Inflation – revaluations and revenue indexation – February 2016 PDF (657 KB)
Published on 11 February 2016
WELL submission (attachment) – CEG, Key reforms to rate of return under the IMs – February 2016 PDF (1.7 MB)
Published on 11 February 2016
WELL submission (attachment) – CEG, Use of Black's simple discount rule in regulatory proceedings – February 2016 PDF (663 KB)
Published on 11 February 2016
WELL submission (attachment) – Incenta, Term of the risk free rate for cost of equity – June 2013 PDF (1.2 MB)
Published on 11 February 2016
WELL submission (attachment) – SFG, Evidence on the required return on equity from independent expert reports – 24 June 2013 PDF (827 KB)
Published on 11 February 2016
WELL submission (attachment) – SFG, Response to the QCA approach to setting the risk-free rate, report for Aurizon – 25 March 2013 PDF (397 KB)
Published on 11 February 2016
WELL submission (attachment) – SFG, Response to the QCA discussion paper on risk free rate and MRP – 19 March 2013 PDF (702 KB)
Published on 11 February 2016
WIAL submission – cost of capital update paper – 5 February 2016 PDF (95 KB)
Published on 11 February 2016

Cost of capital update

28/01/2016 (9 documents)

Terms of Reference for expert advice on cost of capital topics – 22 December 2015 PDF (251 KB)
Published on 22 December 2015
Notification email – Expert advice on cost of capital topics and publication of emerging technology workshop transcript – 22 December 2015 PDF (79 KB)
Published on 22 December 2015
Notification email – Extension for submissions on cost of capital update paper and publication of material from airport profitability assessment workshop – 18 December 2015 PDF (364 KB)
Published on 18 December 2015
Notification email – input methodologies review – publication of material from emerging technology workshop and report on TAMRP – 16 December 2015 PDF (361 KB)
Published on 16 December 2015
Input methodologies review – International comparison of regulatory precedent on the weighted average cost of capital – 11 December 2015 PDF (613 KB)
Published on 11 December 2015
Notification email – input methodologies review – regulatory practice paper and emerging technology workshop – 11 December 2015 PDF (364 KB)
Published on 11 December 2015
Input methodologies review – the cost of capital update paper – 30 November 2015 PDF (793 KB)
Published on 30 November 2015
Complications arising from the option to apply for a CPP – Dr Martin Lally – 18 September 2015 PDF (282 KB)
Published on 30 November 2015
Notification email – update on the input methodologies review of the cost of capital – 30 November 2015 PDF (367 KB)
Published on 30 November 2015