The Brattle Group has developed innovative methods to estimate the cost of capital at a line-of-business level for companies considering vertical disintegration, for firms entering foreign markets, and for companies facing radical changes to their cost structure. These techniques supplement traditional measures (such as DCF or CAPM) with structured models of risk and careful analogies to other industries or time frames.
We frequently provide expert testimony before regulatory bodies, courts, and arbitration panels regarding appropriate cost of capital, allowed rate of return, and discount rate.
We have assisted in the preparation of testimony and the development of cost of capital estimates on behalf of numerous natural gas pipeline, electric utility, gas LDC, and water utility clients. We have testified before the Federal Energy Regulatory Commission, state regulatory commissions, and before regulatory bodies in Canada, the United Kingdom, and Australia. Our work has included standard estimation techniques (DCF, CAPM) as well as more advanced models specific to the industries or lines of business in question, e.g., based on the structure and risk characteristics of cash flows or based on multi-factor models that better characterize regulated industries.
For companies faced with managing substantial R&D, The Brattle Group has used option-pricing models and similar techniques to assess how the cost of capital is affected by positioning along the supply chain. These analyses have allowed us to assist clients in valuing potential products at different stages in the development process.