Inflation and WACC

IPART is required to adopt an inflation expectation to derive a real estimate of the weighted average cost of capital. In its current reviews of the three water utilities — Sydney Water, Hunter Water and Water NSW — the utilities have raised a number of concerns around the proposed estimate of inflation expectations.

The CIE has been asked to conduct a peer review of the reasonableness of the approach and logic applied by IPART in coming to its proposed positions in regard to its inflation estimate and the other regulatory options put forward by the utilities. We have not considered the reasonableness of the resulting overall WACC estimates, but are focused on this specific issue.

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