Citizens Advice Response to CMA Consultation on Provisional Findings by PR19 - Cost of Capital Working Papers
Citizens Advice welcomes the opportunity to respond to this consultation as part of its statutory role to represent domestic and small business energy consumers in Great Britain. Our response is not confidential.
We welcome that the CMA has given ground in its updated position on the cost of capital. We note the CMA says that Ofwat’s determinations for the four disputing companies would lead to around 12.5% reduction in bills over the period of the price control relative to those applying in the 2015 to 2020 period. The provisional findings would have seen bills fall by an average of 9.3% while the revised proposals are much closer to Ofwat’s determinations, with around an 11% fall in average customer bills.
In particular, we welcome the CMA’s updated view, subsequent to its provisional findings, that it had previously overestimated the cost of capital of the water companies. Given the pressing statutory deadline in March for the CMA to provide a final determination, we recognise the time pressures on the consultation and the choice of an efficient update to the provisional findings by consulting only on the point estimate and cost of debt for the cost of capital. However, it is problematic to respond to these in full without also knowing how the CMA is responding to the further evidence provided on the other main components of the cost of capital, the risk-free rate (RFR), Total Market Return (TMR), and particularly, beta.