Regulatory WACC Course: Cost of Capital

Quick Answer

Price Controls 130 is a recorded course on how regulators set the cost of capital. It explains why the weighted average cost of capital drives allowed revenue, tariffs and investment, how its parts are estimated, from the cost of equity and debt to gearing and tax, and how Ofgem and Ofwat build their models.

Key takeaways

The weighted average cost of capital sets the return a regulated company may earn on its asset base, so it drives revenue allowances, tariffs and investment incentives.
It blends the cost of equity and the cost of debt, weighted by gearing, and must deal with how tax is treated.
Regulators estimate the cost of equity with methods such as the capital asset pricing model and the dividend discount model.
The course compares approaches in the United Kingdom, member countries of the Energy Regulators Regional Association and elsewhere.

What will you be able to do after the course?

You will be able to understand and critically assess a regulator's cost of capital method. The course is built around three outcomes.

Break down the WACC. Its role in tariff and revenue models, and how its parts fit together.
Estimate each part. The cost of equity, the cost of debt, gearing and tax, including how regulators estimate risk premiums.
Assess real models. Read and challenge cost of capital decisions using the Ofgem and Ofwat models as examples.

What does the course cover?

The lecture starts with why the cost of capital matters and then works through each part of the formula.

Introduction
Why the WACC matters in regulation
Components of the WACC formula
Estimating the cost of equity and the cost of debt: the capital asset pricing model, the dividend discount model, risk premiums, gearing and tax, with Ofgem and Ofwat examples

What do the key terms mean?

These are the terms the course uses most, in plain English. Ofgem is the Office of Gas and Electricity Markets and Ofwat is the Water Services Regulation Authority, the economic regulators for energy and water in Great Britain and in England and Wales.

Term	Meaning
Weighted average cost of capital (WACC)	The blended return that lenders and shareholders require, weighted by how much of the company each one funds.
Cost of equity	The return shareholders expect for the risk of owning the company.
Cost of debt	The interest rate the company pays, or is expected to pay, on its borrowing.
Gearing	The share of the company's funding that comes from debt rather than equity.
Capital asset pricing model (CAPM)	A method that sets the cost of equity as the risk-free rate plus beta multiplied by the equity risk premium.
Equity beta	A measure of how sensitive a company's shares are to movements in the market as a whole.
Equity risk premium	The extra return investors expect for holding shares rather than risk-free government bonds.
Dividend discount model (DDM)	A method that infers the cost of equity from share prices and forecast dividends.

Who is the course for?

It suits anyone who works with regulatory finance, infrastructure pricing or allowed returns.

Regulatory finance professionals and infrastructure investors
Policy analysts and consultants in price regulation
Graduate students and researchers in public finance and valuation
Anyone in utilities who needs to understand allowed returns

Which courses should you take first?

Price Controls 130 follows the building blocks course, which shows where the return fits in allowed revenue, and leads into the courses on incentives and case studies from Oman.

Browse every title on the MCC Economics courses page.

Why learn this from MCC Economics?

The allowed return has been a central strand of MCC Economics' research and advisory work since 2017, including its July 2024 paper Cost of Capital: 10 Hot Topics. The firm advises regulators, government bodies and utilities in the United Kingdom and the Gulf, and has contributed to Competition and Markets Authority determinations and to Ofwat's 2024 price review. Its regulatory economics work covers energy, water, aviation and infrastructure. You can read the team's background on the people page.

MCC Economics has helped us better understand the most important issues for our stakeholders, including: charges, shareholder returns, debt payments and inflation impacts.

Leila N. Nasr, Section Head, Department of Energy, Abu Dhabi

Questions buyers ask before registering

Who teaches Price Controls 130?

See the instructor profiles near the top of this page for the current teaching team and their experience.

Is there a live session?

No. Price Controls 130 is recorded course material only, so there is no meeting to attend. You get instant access to the materials once you enrol.

What do I receive when I register?

A video lecture, annotated slides, a quiz and a full transcript.

Which regulators' models does the course use?

It works through real cost of capital models from Ofgem and Ofwat, and compares approaches in the United Kingdom, member countries of the Energy Regulators Regional Association and elsewhere.

Which estimation methods are covered?

The capital asset pricing model and the dividend discount model, along with how regulators estimate risk premiums, the cost of debt, gearing and tax.

Should I take the earlier courses first?

It is not required, but Price Controls 120: Building Blocks shows where the cost of capital fits within allowed revenue.

Can my team take the course together?

Contact MCC Economics through the consultation page to discuss access for a team or training tailored to your organisation.

Page last reviewed October 2026.

Cost of capital in regulation: how regulators set the WACC and the allowed return

Meet your course instructor

PJ McCloskey