RD250 - ETNO Reflection Document on the ERG draft Principles of Implementation and Best Practice for WACC calculation

Corrections for efficiency by a national regulatory authority (NRA) are unjustified in view of a market-driven determination of the cost of capital. Each of the discussed methodologies to calculate a divisional Weighted Average Cost of Capital (WACC) has serious drawbacks. PIBs should caution against a divisional calculation of WACC, which does not correspond to divisions of a company that already separately calculate their cost of capital. ETNO recommends a more thorough investigation of the theory and applicability of real options in the light of academic literature and current regulatory challenges.

Corrections for efficiency by a national regulatory authority (NRA) as currently foreseen in the PIB 2 and 3 (ii) are unjustified in view of a market-driven determination of the cost of capital.

In the current PIB 10 and 11, IRG should acknowledge that each of the discussed methodology to calculate a divisional Weighted Average Cost of Capital (WACC) has serious drawbacks. The PIBs should caution against a divisional calculation of WACC, which does not correspond to divisions of a company that already separately calculate their cost of capital.

ETNO recommends a more thorough investigation of the theory and applicability of real options by the IRG and the European Commission in the light of academic literature and current regulatory challenges. Appendix A.2 should not be part of these PIBs.