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Comparative Analysis of Determining the Risk-Adequate Cost of Capital for Regulated Network Operators in Network Industries

In: Modern Finance and Risk Management Festschrift in Honour of Hermann Locarek-Junge

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  • Ulrike Stopka

Abstract

Even years after liberalisation, network industries such as electricity, telecommunications and railways are characterised by the existence of essential facilities that cannot be easily duplicated by new market entrants. Regulation must therefore ensure non-discriminatory, fair-priced access for all competitors to these facilities. The article considers the approaches to tariff regulation applied by the Bundesnetzagentur in the three sectors. The focus is on the comparison of the methodological framework for determining the eligible cost of capital. The estimation of the input parameters for CAPM and the results for the eligible rate of return on equity are discussed. There are considerable particularities in the electricity sector. Then, the determination of the eligible total costs of capital is addressed. In the telecommunications and railway sectors, this is done via the WACC method while in the electricity sector different approaches are used.

Suggested Citation

  • Ulrike Stopka, 2022. "Comparative Analysis of Determining the Risk-Adequate Cost of Capital for Regulated Network Operators in Network Industries," World Scientific Book Chapters, in: Tony Klein & Sven Loßagk & Mario Straßberger & Thomas Walther (ed.), Modern Finance and Risk Management Festschrift in Honour of Hermann Locarek-Junge, chapter 6, pages 103-135, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9781800611917_0006
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