In the preliminary round, Edina and I were asked to advise an institutional investment manager on a single, highly consequential question: what is Hydro One’s fair market cost of capital. Over a two week period, we focused on building a regulator defensible WACC for a pure play, rate regulated utility operating under the Ontario Energy Board framework (with not much sleep).
We approached the problem the way a professional investor would. We built a blended cost of equity using CAPM, dividend discount modeling, and the bond yield plus risk premium approach, grounding every input in Canadian market data, allowed ROE policy, and utility specific risk characteristics. Rather than forcing a single point estimate, we emphasized robustness and sensitivity, making sure the result aligned with how regulators actually think about capital costs.
The final submission was designed to be usable in practice. It balanced buy side rigor with regulatory realism, producing a cost of capital appropriate for valuation, portfolio decisions, and future rate proceedings in the Canadian utilities space.
