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<p>It is standard practice for regulated sectors to calculate gearing by reference
to Regulator Capital Value (RCV). This is because there exists an RCV which represents
costs incurred to date which can be recovered from customers in the future. This approach
to calculating Regulatory Gearing is used by Ofgem and the Civil Aviation Authority
and is recognised by the Rating Agencies.</p><p> </p><p>As the RCV represents the
net stock of investment that has been contributed by debt and investors over time,
it grows with net levels of investment. This provides the capacity against which companies
may raise debt and equity to finance investment programmes.</p><p> </p><p>There is
no equivalent to an RCV for companies operating in a competitive market. Gearing measured
by reference to RCV is a more useful metric than standard accounting measure of gearing
in a utility sector because future revenue streams are more certain than they would
be for companies operating in a competitive market.</p>
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