Fundamental flaws in the current cost regulatory capital value method of utility pricing

Jim Cuthbert and Margaret Cuthbert’s most recent analysis of the UK’s utility businesses (see QEC Vol 31 No 3) seeks to challenge the fundamental price setting methodology adopted by utility regulators. The basis of the challenge arises from an estimate of the size of the apparent super normal profits being made by utility companies. From this they conclude that the resultant equity return is too high and so leaves customers paying prices that are too high for the services provided1.