Summary of case
This dispute was a complaint from a developer about the requisition charge Southern Water recovered for the costs it incurred in providing a sewer requisition for a new development site. The developer referred the dispute to us because it believed the requisition charge was too high and it disputed whether the works were more than Southern Water needed to do to be able to serve the development.
Summary of Ofwat’s final decision
Our role was to determine whether the requisition charge Southern Water charged the developer was reasonable. Our final determination is that, in this case, Southern Water’s charge was not reasonable. We concluded that Southern Water was right to provide and charge for some reinforcement works as its existing sewer network did not have sufficient capacity to connect the new development. But we consider that the network modelling that Southern Water undertook for this development overstated the extent of the reinforcement works it needed to provide in order to serve just the new development and, therefore, meet the developer’s requisition request. As a result, Southern Water provided works that more than served the development, delivering benefits to Southern Water’s existing customers such as reduced local flood risk. Reflecting these wider benefits, our determination reapportions the costs of the works between the developer and Southern Water’s existing customers. To do this, we established an alternative solution as a theoretical benchmark for calculating what would be reasonable costs for Southern Water to use for calculating its charge to the developer.
This alternative solution would still have provided some improvements in service for existing customers. We have, therefore, determined that the costs of this more cost-effective solution should be apportioned between the developer (£77,851) and existing customers (£292,869). Factoring the estimated revenue from customers on the development into the method for calculating requisition charges at this time, this results in there being no payment due from the developer. Southern Water, therefore, needs to refund the developer £534,500 (the security payment the developer paid ahead of the calculation of the final requisition charge), plus interest for the period this amount has been held.
Wider lessons for companies and customers
The requisition charge for this development was calculated prior to 1 April 2018 and therefore using the ‘old’ provisions in the Water Industry Act 1991 for calculating requisition charges. Our determination is, therefore, also made under those provisions. There are now new charging rules for new connections which came into effect on 1 April 2018 and use a different approach for developer charges. Based on this, we consider the wider lessons for companies and customers from this determination to be limited.
Despite the above change in how companies calculate developer charges, our expectations around fairness of charges and transparency have remained the same. Companies must also ensure the modelling of their networks is robust and supports appropriate planning, and charging, for connections to their network.
Section 30A and 99 of the Water Industry Act 1991
5 August 2015
30 March 2021
Final decision of a dispute determined under section 99 of the Water Industry Act 1991
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