Regulators Adopt Common Approach To CBAs

On 25 July, the Joint Regulators Group (the "JRG") adopted a common approach to discounting in cost-benefit analyses which involve private investment for a public benefit. 
 
The use of a cost-benefit analysis is common when a regulator is considering intervening in a market in which there is no profit incentive for firms to invest but where investment would bring benefits to consumers or the wider public.  In such circumstances, the JRG members agree, regulators' analysis of costs should include a discount for all costs, including the investing firm's financing costs.  The common approach therefore takes into account the cost to the firm of financing its capital outlay.  The level of this discount is based on the firm's own Weighted Average Cost of Capital.