This dispute was about Affinity Water’s calculation of asset value payments for works provided by a Self-Lay Provider (SLP) at a development site (the Site). The SLP disputed Affinity Water’s exclusion of excavation and reinstatement costs, as well as non-contestable costs, from the calculation of asset value payments in relation to this Site.
Our determination focused on whether the excavation, reinstatement and non-contestable costs (i.e. the disputed costs) should be included in the calculation of the asset value payments for the Site. We also looked at whether Affinity Water was correct to deduct its non-contestable costs from the asset value payment.
Summary of Ofwat’s final decision
We determined that Affinity Water’s costs reasonably incurred used to calculate the asset value payments associated with this Site must include excavation and reinstatement costs as these would have been incurred had the mains been requisitioned. We also determined that Affinity Water’s costs must also include the non-contestable costs as these were costs reasonably incurred.
We also determined that the reasonably incurred non-contestable costs can, in accordance with section 51C(3) of the Water Industry Act 1991, be deducted from the asset value payment. We did not determine the level of the net asset value payment itself. Affinity Water will calculate this value on the basis of the conclusions of this determination.
Wider lessons for companies and customers
The self-lay agreements associated with this Site were entered into prior to 1 April 2018. What this means is that we have determined this dispute under the ‘old’ provisions in the Act as opposed to with reference to the new charging rules which came into effect on 1 April 2018 and now apply to all sites. Based on this, we consider the wider lessons for companies and customers from this determination to be limited.
Having said this, we consider the principle set out in the charging rules that “charges (including any income offsets), any asset payments and arrangements for when they are each payable must be set in accordance with the principle that they should promote effective competition for contestable work” will remain relevant.
Relevant Ofwat guidance
05 November 2018
19 June 2019
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