2.1. Calculation of parameters

Risk-free interest rate

Former methodology:

GDP weighted average of government bonds of all Euro zone countries, based on monthly observations during the two years preceding the year of decision.

Proposed methodology:

Average of Portuguese government bonds, based on monthly observations during the two years preceding the year of decision.

Grounds for this change according to Mazars report:

1. The rate calculated with reference to Portuguese government bonds better reflects the reality of the country;
2. Portuguese debt market risk has shown lower volatility;
3. The intervention of the European Central Bank in the purchase of sovereign bonds (in particular from peripheral countries) has brought about greater stability;
4. Abnormally high numbers which took place in the past have ceased to occur;
5. The use of Portuguese government bonds was a tool used in the past (prior to the crisis of sovereign debt); and
6. It corresponds to a methodology used by several European regulatory Authorities, namely in Spain, Italy, France, Belgium, United Kingdom, among others.

Debt premium

Former methodology:

Average of monthly observations of two-year historic series (2014-2015) of credit default swaps spreads (CDS's) of bond-issuing comparable companies with 10-year maturity.

Proposed methodology:

Spread average made available through the database provided by Bloomberg, for the two years preceding the financial year concerned (2014-2015): EUR EUROPE COMMUNICATIONS BBB+, BBB, BBB-BVAL Yield Curve 10Y.

Grounds for this change according to Mazars report:

1. The number of bodies that use CDS’s associated to bond issues has decreased;
2. In 2014, only 12 out of 15 companies were issued bonds with 10-year maturity, and only 6 presented complete series. In 2015, only 6 companies presented observations, and one of them showed observations for less than one year;
3. Growing concerns about the use of CDS’s indicate the need to limit the use of these tools for European sovereign and corporate debts, increasing emphasis being placed on counterparty risk; and
4. In alternative, the Bloomberg Value Curve database - EUR EUROPE COMMUNICATIONS BBB+, BBB, BBB- BVAL Yield Curve 10Y - is reliable for the calculation of the debt premium, as it reflects European telecom companies with ratings between BBB- and BBB+, which for the most part correspond to ratings of companies that make up the base of comparable companies used as benchmark in the scope of gearing and beta calculation.

Risk premium

Former methodology:

Simple average of ex ante data - Pablo Fernandez and Damodaran (calculated in the year preceding that of the decision, taking future expectations into consideration) - for Portugal.

Proposed methodology:

Simple average of ex ante data - Pablo Fernandez, Damodaran and Dimson, Marsh and Staunton (calculated on the basis of the most recent information available on the date the study is carried out) - for Portugal.

Grounds for this change according to Mazars report:

1. The Dimson, Marsh and Staunton (DMS) series, available for Portugal as from 2014, is a source acknowledged at academic and professional levels for the calculation of the risk premium, and it is used by several European Regulatory Authorities, namely Spain and Ireland; and
2. The DMS series presents long series of information and supplies stability to the methodology.