IB 20/15 Ofwat issues bulk pricing final determination

Ofwat has today published its final decision on a bulk supply pricing dispute under section 56 of the Water Industry Act 1991.

The dispute relates to the price and method of indexation contained in a special agreement between United Utilities Water (UUW) and Iggesund Paperboard (Workington) Limited (IP(W)L) for the bulk supply of untreated, non-potable water to IP(W)L’s paperboard mill near Workington, Cumbria.

Having undertaken a detailed examined of the specific facts of this case, Ofwat has concluded that UUW should reduce the price that it charges IP(W)L from 14.9p/m3 to 7.7p/m3 (at 2006/07 prices). Our decision also confirms that UUW’s use of the Retail Price Index to adjust the price annually to take account of inflation is appropriate.

In forming a judgement of what the reasonable price for the supply should be in this specific case, and in line with our duties under section 56, Ofwat has had regard to the desirability of UUW’s recovering the costs it incurs in providing the supply to IP(W)L. We have done so in a way which reduces the risk of IP(W)L choosing to invest in duplicate assets to self-supply, as this would render UUW’s existing supply infrastructure largely redundant and would impact adversely on UUW’s wider customer base.

Richard Khaldi, Ofwat Senior Director of Customers and Casework said:

“Ofwat’s intervention will result in a significant reduction in the price that IP(W)L pays for its non-potable water. In addition, the facts of this case mean that UUW’s other customers will not find themselves having to pay for supply infrastructure which, given the geographic isolation of the system, they do not benefit from.

More generally, our Determination in this case also reinforces the importance of appointed undertakers being able to justify the reasonableness of the prices they charge customers for the services being supplied. These services should be provided as efficiently as possible and undertakers must also be prepared to respond to competitive pressures as they would have to do in a non-regulated market.

Whenever possible, appointed undertakings should also pursue all potential opportunities to reach a negotiated resolution of a dispute with its customers before turning to Ofwat to reach a determination.”

Notes to Editors:

  1. Ofwat (The Water Services Regulation Authority) is the economic regulator of the water and sewerage sectors in England and Wales. It exercises its powers in a way that it judges will protect the interests of consumers, promote value and safeguard future water and sewerage services by allowing efficient companies to carry out their functions properly, and finance them.
  2. On 21 September 2010, IP(W)L wrote to Ofwat requesting that we make a determination in relation to the price per cubic meter for non-potable water being supplied to the company and the use of the Retail Price Index to adjust the price annually. Having satisfied ourselves that the parties were in fact in dispute and a negotiated position was not possible, Ofwat agreed to determine this matter using our powers under section 56 of the Water Industry Act, 1991.
  3. Ofwat issued its draft determination in October 2014.
  4. Media enquiries to Ofwat Press Office: Benedict Fisher 0121 644 7642 / benedict.fisher@ofwat.gsi.gov.uk James Sheward 0121 644 7644 / james.sheward@ofwat.gsi.gov.uk