Cost of Capital Energy Market

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© Crown copyright 2015
You may reuse this information (not including logos) free of charge in any format or
medium, under the terms of the Open Government Licence.
To view this licence, visit www.nationalarchives.gov.uk/doc/open-government-

licence/ or write to the Information Policy Team, The National Archives, Kew, London
TW9 4DU, or email: psi@nationalarchives.gsi.gov.uk.
The Competition and Markets Authority has excluded from this published version
of the working paper information which the Inquiry Group considers should be
excluded having regard to the three considerations set out in section 244 of the
Enterprise Act 2002 (specified information: considerations relevant to disclosure).
The omissions are indicated by [].
Contents
Page
Introduction ................................................................................................................ 2
General approach to estimating the WACC ............................................................... 3
CMA estimation of WACC .......................................................................................... 5
Interpretation of WACC ............................................................................................ 27
Appendix A: Firms’ submissions on their cost of capital ........................................... 30
Appendix B: Corporate tax rates .............................................................................. 35
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stand-alone energy business (whether vertically integrated, or operating either
in generation or in retail supply) would require a size premium. In the first
instance, we note that the majority of the energy firms active in GB are
generally very large businesses. Second, it is not clear that these businesses
would necessarily share any (unknown) general characteristics of small firms
that increase their cost of capital due to higher risk. Our current view,
therefore, is that it is not appropriate to reflect a size or value premium. This is
in line with previous CMA (and CC) decisions in both market investigations
and price determinations, such as private healthcare and Bristol Water.
29

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Appendix B: Corporate tax rates
Corporate tax rates
Country 2007 2008 2009 2010 2011 2012 2013 Average
UK 30.00 30.00 28.00 28.00 26.00 24.00 23.00 27.00

France 33.33 33.33 33.33 33.33 33.33 33.33 33.33 33.33
Germany 38.36 29.51 29.44 29.41 29.37 29.48 29.55 30.70
Australia 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00
Hong Kong 17.50 16.50 16.50 16.50 16.50 16.50 16.50 16.60
Spain 32.50 30.00 30.00 30.00 30.00 30.00 30.00 30.40
Italy 37.25 31.40 31.40 31.40 31.40 31.40 31.40 32.20
Austria 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00
Greece 25.00 25.00 25.00 24.00 20.00 20.00 26.00 23.60
Canada 36.10 33.50 33.00 31.00 28.00 26.00 26.00 30.50
Finland 26.00 26.00 26.00 26.00 26.00 24.50 24.50 25.60
US 40.00 40.00 40.00 40.00 40.00 40.00 40.00 40.00
NZ 33.00 30.00 30.00 30.00 28.00 28.00 28.00 29.60
Source: KPMG global tax rates.
35

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Corporate tax rates

Country 2007 2008 2009 2010 2011 2012 2013 Average

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Source: KPMG global tax rates.

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