Summary of case
This case concerned a dispute between Wessex Water and a self-lay organisation (SLO) about the approach used by Wessex Water to calculate the asset value payment for the self-lay of water mains for one phase of a new housing development in Somerset.
Self-lay is where a developer chooses their own contractor (an accredited SLO), rather than a water company, to install the pipework for supplying a development. The asset value payment is a payment that a water company makes to a developer or SLO when water mains that have been self-laid are later transferred into the ownership of the water company.
The SLO challenged the right of Wessex Water to do both of the following:
- To include the costs that Wessex Water incurred in carrying out work to reinforce their network (‘network reinforcement costs’) to supply the development in Wessex Water’s calculation of the asset value payment.
- To charge the SLO both the network reinforcement costs and infrastructure charges for the new housing development. (Infrastructure charges contribute to other network reinforcement works arising from general increases in demand).
The SLO argued that if Wessex Water was allowed to bill them for both sets of charges they would effectively recover double their costs. In the SLO’s view, both sets of charges were intended to cover Wessex Water’s costs for reinforcing its network as a result of the new development.
Summary of Ofwat’s final decision
- We are satisfied that Wessex Water’s calculation of the asset value payment to the SLO is correct.
- It was necessary for Wessex Water to provide the network reinforcement works in order to provide a supply through the self-laid works to the development.
- The costs reasonably incurred by Wessex Water in providing the network reinforcement works:
- can be recovered by them; and
- should be included by them in the calculation of the asset value payment
- Wessex Water is legally entitled to separately recover infrastructure charges. This is because the properties on the development site are being connected to the water and sewer network for the first time.
- The recovery of infrastructure charges does not affect the charges recovered by Wessex Water for the network reinforcement works or their inclusion in the calculation of the asset value payment.
Wider lessons for companies and customers
The Water Industry Act 1991 allows a water company to recover the costs of certain network reinforcement works that are necessary to provide a supply to self-laid works.
Water companies should include the costs of certain network reinforcement works that are necessary for self-laid works in their calculation of the asset value payment for self-laid mains. This ensures the customer fully benefits from the income offset this calculation provides.
Water companies are entitled to recover both infrastructure charges and self-lay charges. But these charges should cover the costs of different work. Self-lay charges relate to certain works necessary in consequence of the self-laid works. Infrastructure charges contribute to other network reinforcement works arising from general increases in demand.
Section 51C of the Water Industry Act 1991
Relevant Ofwat guidance
27 September 2013
3 December 2014
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