Request by Dŵr Cymru and Tata to make a price determination

Case number

OFW – 0000528

Summary of case

This is about the terms and conditions of a special agreement between Tata Steel UK Limited and Dŵr Cymru.

This special agreement dates back to the 1960s. When the most recent version of this agreement expired, Dŵr Cymru and Tata Steel’s predecessor were unable to reach an agreement over the terms and conditions of a new agreement.

Tata and Dŵr Cymru wrote to us asking that we 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. Both parties referred the dispute to us as they had failed to agree a new contract after their previous agreement expired.

This dispute was referred to us for determination under sections 30A and 56 of the Water Industry Act 1991.

Summary of Ofwat’s final decision

  • It was not appropriate for Dŵr Cymru to charge Tata for the supply to the Llanwern site on the basis of its standard tariff for large industrial users of non-potable water. This is because our analysis of Dŵr Cymru’s costs showed that applying this standard tariff would not have provided an appropriate compensation to Dŵr Cymru for their costs to supply the Llanwern site. The price we have determined allows Dŵr Cymru to recover the costs it incurs to supply the Llanwern site plus a reasonable return on its investment.
  • It is important to note that there are no cross-subsidies between Tata and other customers of Dŵr Cymru.
  • We are not able to publish the final price that we have determined as Tata have told us that this information is commercially confidential.
  • The price we have determined has changed since the price we provisionally set at the draft determination. This is primarily driven by the updated information we received as part of the representations from the parties on the draft determination.
  • In this particular case, we chose to assess parts of Dŵr Cymru’s costs by looking at the local accounting costs rather than Dŵr Cymru‘s region-wide average costs. This was due to the large number of assets that were used either entirely or primarily to serve the Llanwern site.

Relevant powers

Section 56 and 30A of the Water Industry Act 1991

Relevant Ofwat guidance

Our framework for resolving pricing disputes involving bulk supplies

Date opened

1 October 2009

Date closed

11 July 2016

Key documents

Final Determination of Terms and Conditions of the Supply of Non-Potable Water from Dŵr Cymru Cyfyngedig to Tata Steel UK Limited at Llanwern under Section 56 of the Water Industry Act 1991, 11 July 2016

Draft determination of terms and conditions of the supply of non-potable water from Dŵr Cymru Cyfyngedig to Tata Steel UK Limited at Llanwern under Section 56 of the Water Industry Act 1991, 21 July 2015

Enquiries

If you have a query about this case please contact: casemanagementoffice@ofwat.gsi.gov.uk

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