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Price controls

What it is:

Advising clients on price control arrangements.

Types of studies:

We can advise clients (whether regulators, price regulated firms or other stakeholders) on all economic issues relating to the setting of price controls.

For example, this includes:

Competition assessment —analysing whether firms have significant market power, and hence whether there are grounds for applying price regulation. Our competition expertise is presented in more detail here.

The design of price controls —advising on all aspects of the design of price controls, including the appropriate scope, structure and duration.

Incentive schemes — advising on the design of incentives, including for efficiency, quality of service, investment, innovation and the provision of accurate cost projections.

Cost-benefit analysis of capital projects —assisting with the cost-benefit analysis of capital projects being put forward for inclusion within price limits (or with the review of cost-benefit analysis produced by other parties).

Efficiency benchmarking —applying a wide range of quantitative techniques to benchmark costs in order to assess what cost levels are efficient.

Cost of capital and financeability — advising on the appropriate rate of return for price regulated firms, as well as on the assessment of financeability. We can also advise on the retail margins that should be allowed for asset-light businesses. Our cost of capital expertise is presented in more detail here.

Modelling risks and rewards – modelling the range of potential outcomes for the return on regulatory equity (e.g. using Monte Carlo simulation modelling).

Mechanisms to deal with uncertainty — advising on risk mitigation mechanisms.

Financial modelling —constructing, extending or reviewing the financial models required to calculate price limits and test financeability.

Impact assessment —carrying out impact assessments of price control proposals. Our impact assessment expertise is presented in more detail here.

Introduction of competition —advising on the introduction of competition into regulated sectors, including access pricing arrangements and reforms to price regulation to promote competition.

Tariffs —assisting in the design of tariff structures, including the building or review of tariff models.

Our Experts

Our in-house team in this field includes John Spicer and Stephen Topping.

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