IB 04/16 Ofwat issues final determination on price for Tata Steel’s water supply from Dŵr Cymru

Ofwat has made a final determination on the price and several non-price terms of the supply of non-potable water by Dŵr Cymru (Welsh Water) to Tata Steel UK Limited (Tata)’s site in Llanwern, South Wales under section 56 of the Water Industry Act 1991.

All household water customers and most non-household water customers are charged for water based on their water company’s annual charges scheme. However, in some circumstances, a water company may enter into a special agreement with a non-household customer to provide a water supply at a different price and/or with different conditions to that set out in their charges scheme.

The supply of non-potable (not drinking water quality) water from Dŵr Cymru to Tata at Llanwern is subject to a special agreement that dates back to the 1960s. When the most recent version of this agreement expired in March 2004, Dŵr Cymru and Tata Steel’s predecessor were unable to reach an agreement over the terms and conditions of a new agreement.

If the parties cannot agree the terms and conditions of a special agreement, they can ask us to make a determination on the disputed issues under section 56 of the Water Industry Act of 1991.

In autumn 2008, Dŵr Cymru and Tata asked us to determine certain terms and conditions of the supply of non-potable water from Dŵr Cymru to Tata at Llanwern in South Wales including the price that should be charged for this service.

Under Section 56 of the Water Industry Act we must set the price for this supply on the basis of the costs of the supply from Dŵr Cymru to Tata plus a reasonable level of profit for Dŵr Cymru.

The focus of our initial investigation was to understand the infrastructure used by Dŵr Cymru to supply the Llanwern site, and, where the infrastructure was used to supply both Tata and other customers, the proportion of the capacity of the system that was being used to supply Tata. Using this information, we then investigated the costs associated with providing this supply to Tata.

As part of our investigation, we commissioned an external expert to review the appropriate cost of capital to use when calculating the price for the supply. This report assessed both industry-wide and site specific factors to give a cost of capital for the supply to the Llanwern site.

In June 2015 we released our draft determination on this case and publicly consulted on it. We have considered the information and views that we received as a result of the consultation and we are now issuing the final determination on this dispute.

We have now set a final determination for the price for the supply of water to Tata’s Llanwern site. The parties consider the terms of this final determination to be commercially confidential and we will therefore not be making the details publically available.