When national regulatory authorities (NRAs) impose price regulation on operators having significant market power, they typically use the weighted average cost of capital (WACC) to calculate the allowed reasonable rate of return on investment. Given the high number of parameters needed to estimate the WACC, there is wide scope for the NRAs to use different parameter values and assumptions, ultimately resulting in different WACC values. These do not necessarily reflect differences in financing conditions across Member States.
In preparation for the Notice, the Commission has extensively cooperated with BEREC and gathered evidence through public consultations and a study prepared by the Brattle Group.
The Commission Notice seeks to:
- improve consistency in the methodology used to determinate the WACC parameters
- enhance regulatory predictability by limiting unexpected variations in the methodology and value of the WACC over time
- promote efficient investment and innovation by setting rates reflecting the appropriate level of risk
- provide more transparency to all stakeholders on the way regulators calculate the WACC.
The Body of European Regulators for Electronic Communications (BEREC) has agreed to estimate, in close collaboration with the Commission, a number of parameters that will enable NRAs to calculate the WACC based on the Notice. This will ensure a transparent, efficient, consistent and harmonised implementation of the methodology outlined in the Notice.
The Commission will apply the methodology outlined in the Notice from 1 July 2020. This will give sufficient time to BEREC to estimate the various WACC parameters and allow the NRAs to implement the methodology in the Notice.
The Notice is available in all EU languages.