UKRN Cost of Capital – consultation on revised guidance
In March 2023, UKRN published the first guidance on a methodology for setting the cost of capital, as part of regulatory price reviews. This was intended to bring together and consolidate methodologies used across regulated sectors, support greater consistency and over time to reduce unnecessary uncertainty around price control outcomes.
The guidance has had a demonstrably positive impact in promoting consistency in regulatory decision-making. Recent regulatory decisions and methodologies have referenced the UKRN guidance extensively and, particularly around the range of Total Market Return in recent decisions and proxies used to derive Risk-Free Rate, there is markedly closer alignment than prior to the introduction of the guidance.
It was always intended that the guidance should be updated to reflect new developments and, following the commitment made in last year’s UKRN Cost of Capital Annual Report, regulators have once more pooled their thinking to respond to new evidence and experience of using the guidance to identify areas where further alignment can usefully be achieved.
Today, we are delighted to publish revised guidance on a methodology for setting the cost of capital, which will be open to consultation for eight weeks.
The purpose is the same as the 2023 guidance – to promote a common approach where issues are shared across sectors, especially for common parameters and the overall framework for estimating allowed returns – and we are particularly keen to hear views from regulated firms, investors and consumer bodies, as well as the public and any other interested parties. We will be holding some invite-only stakeholder roundtables (one for industry and investors and one for consumer bodies & representatives) in w/c 20th July and will be sending out invites shortly.
If you would like to respond to the consultation, please send your comments via e-mail to Consultation.UKRN@caa.co.uk by Wednesday 19th August 2026.