Estimation of weighted average cost of capital in transmission and distribution: case of Croatia

A regulatory method chosen for setting allowed revenue in transmission and distribution of electricity in croatia is a traditional Rate of Return method. The main feature and, at the same time, the main drawback of this method that a price is in a direct relationship with the costs of regulated company. A parameter used in this method, which does solely depend on the costs and management decisions, is the rate of return. The rate of return is usually calculated mg the weighted average cost of capital formula (WACC). The WACC reflects two types of finance used to fund vestments, debt and equity respectively. The cost of equity is calculated using the Capital Asset Pricing Model CAPM). This Paper provides the WACC calculation based on the estimates of particular parameters which could be plied in the case of electricity transmission and distribution in Croatia.