# Commission Decision (EU) 2015/658 of 8 October 2014 on the aid measure SA.34947 (2013/C) (ex 2013/N) which the United Kingdom is planning to implement for support to the Hinkley Point C nuclear power station (notified under document C(2014) 7142) (Only the English version is authentic) (Text with EEA relevance), Division

Extent: E+W+S+N.I.

Table 14
Regulated Settlement Benchmarks: Allowed returns on regulated assets for UK energy and water utilities in recent regulatory price controls
http://www.ofwat.gov.uk/pricereview/pr14/gud_tec20140127riskreward.pdf
https://www.ofgem.gov.uk/ofgem-publications/86375/fast-trackdecisionletter.pdf
https://assets.digital.cabinet-office.gov.uk/media/535a5768ed915d0fdb000003/NIE_Final_determination.pdf. The Commission notes that while Table 13.10 of the quoted document provides a ‘low’ and a ‘high’ estimate for the reported financial indicators, the UK's submission seems to be based on the ‘high’ estimates alone.
https://www.ofgem.gov.uk/publications-and-updates/riio-t1-final-proposals-national-grid-electricity-transmission-and-national-grid-gas-–-overview
Source was not provided in the submission.
http://www.caa.co.uk/docs/33/CAP%201140.pdf
http://orr.gov.uk/data/assets/pdf_file/0011/452/pr13-final-determination.pdf
Nominal values are calculated using an arithmetic approach. A geometric approach would add 0,1 per cent-0,2 per cent to nominal cost of equity and nominal vanilla WACC estimates.
Credit Suisse: National Grid — No longer a growth/value play, cut to Neutral, 29 May 2014; Credit Suisse: SSE — Referendum risk to be addressed, 15 August 2014; Macquarie: National Grid — Quality costs, but better opportunities elsewhere, 24 March 2014.
The submission interpreted the length of the investment horizon as the length of a price control period. However, the submission notes that the asset lives of the investments undertaken by regulated companies often span multiple price control periods, having ‘useful lives’ of up to 60 years.
The value ascribed by the regulator to the capital employed in the licensee's business.
Where source RAV values are stated in historical price terms, they have been converted to current prices using the ONS RPI index (unless otherwise stated).
We note that regulated companies' investment expenditure is in diverse, multiple projects that typically form only a small proportion of its RAV.
http://ofwat.gov.uk/regulating/prs_web_rcvupdates
http://www.westernpower.co.uk/docs/About-us/financial-information/2014/Annual-reports-and-financial-statements/Financial-performance-for-website-Mar-14.aspx
http://www.uregni.gov.uk/uploads/publications/RP5_Main_Paper_22-10-12_FINAL.pdf (page 100).
This is Ofgem's forecast for RAV at the end of the price control period. Note that at the start of the price control period SHETL is estimated to have a RAV of 0,7bn (which is forecast to increase to 3,6 bn by 2020-21): https://www.ofgem.gov.uk/ofgem-publications/53747/sptshetlfpsupport.pdf (pages 36 and 37) and https://www.ofgem.gov.uk/ofgem-publications/53602/4riiot1fpfinancedec12.pdf (pages 8 and 9).
http://www.bristolwater.co.uk/wp/wp-content/uploads/2013/04/Annual-Report-2013.pdf (page 27).
http://www.heathrowairport.com/static/HeathrowAboutUs/Downloads/PDF/Development_of_Regulatory_Asset_Base_30-Jun-2014.pdf
http://www.networkrail.co.uk/browse%20documents/regulatory%20documents/regulatory%20compliance%20and%20reporting/regulatory%20accounts/nril%20regulatory%20financial%20statements%20for%20the%20year%20ended%2031%20march%202013.pdf (page 331).
Source: based on UK submission ‘SA.34974 Hinkley Point C State aid case — Answers to the Commission's questions received 16 September 2014’.
Regulator
Ofwat
Ofgem
CC
Ofgem
CC
CAA
ORR
Determination
PR14 (not final)
WPD 14
NIE 2014 Final
RIIO T1 2012 (NGET)
Bristol W 2010
HAL 2014 Final
NR 2013
Gearing
62,50 per cent
65 per cent
45 per cent
60 per cent
60 per cent
60 per cent
62,50 per cent
Real cost of debt (pre-tax)
2,8 per cent
2,6 per cent
3,1 per cent
2,9 per cent
3,9 per cent
3,2 per cent
3,0 per cent
Real cost of equity (post-tax)
5,7 per cent
6,4 per cent
5,0 per cent
7,0 per cent
6,6 per cent
6,8 per cent
6,5 per cent
Real vanilla WACC
3,8 per cent
3,9 per cent
4,1 per cent
4,6 per cent
5,0 per cent
4,7 per cent
4,3 per cent
Inflation
3,5 per cent
3,5 per cent
3,5 per cent
3,5 per cent
3,5 per cent
3,5 per cent
3,5 per cent
Nominal cost of debt (pre-tax)
6,2 per cent
6,1 per cent
6,6 per cent
6,4 per cent
7,4 per cent
6,7 per cent
6,5 per cent
Nominal cost of equity (post- tax)
9,2 per cent
9,9 per cent
8,5 per cent
10,5 per cent
10,1 per cent
10,3 per cent
10,0 per cent
Nominal vanilla WACC
7,3 per cent
7,4 per cent
7,6 per cent
8,1 per cent
8,5 per cent
8,2 per cent
7,8 per cent
Analyst return on equity forecast (ex ante)
c 14 per cent
Investment horizon — Price control length
5
8
3
8
5
5
5
Investment Size: Regulatory Asset Value (RAV)
70m — 11,7bn (estimated 2014 — 15) values)
5,9bn (2014)
c GBP 950m (forecast across price control)
2,2bn — 14,8bn (forecast RAV range of companies over price control)
0,39bn (2013)
14,9bn
45bn (2013)
Degree of revenue protection
More than HPC — see answer to question 2c — NNBG Submission on Rate of Return, 10 September
Degree of construction risk
Less than HPC. See detailed discussion recitals 124 – 131 — NNBG Submission on Rate of Return, 10 September
Degree of operating risk
Less than HPC. See detailed discussion recitals 132 – 135 — NNBG Submission on Rate of Return, 10 September
Degree of financing risk
Less than HPC. See detailed discussion paragraphs 136 – 139 — NNBG Submission on Rate of Return, 10 September
Other risks
Less than HPC. See detailed discussion on difference in fundamental business models; diversification of assets; and technology risks in recitals 113 – 122 — NNBG Submission on Rate of Return, 10 September
Contingent equity required
None

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Source: https://www.legislation.gov.uk/eudn/2015/658/annex/A/division/12 (the official version)
Page: https://openlegislation.uk/eu-decision-2015-658/annex-A/division-12
Contains public sector information licensed under the Open Government Licence v3.0. Source: legislation.gov.uk, The National Archives.