Ofwat sets out framework on settling bulk supply disputes

Regulator Ofwat has set out the framework it will use to resolve pricing disputes involving bulk supplies.

A bulk supply is the supply of water or the provision of sewerage services from one appointed water company to another, or to high usage non-household customers. Companies can draw up a contract between them, known as a ‘bulk supply agreement’ that sets out the terms and conditions of a bulk supply, including the price.

Under the Water Industry Act 1991, if companies fail to reach agreement on a bulk supply, they can ask Ofwat to make a decision on the price and other terms that should apply.

The framework, published yesterday, was developed after stakeholders responded to proposals published in August.

Under the framework the regulator will use the current price as a reference point for its determination when settling dispute and will set charges based on average accounting costs.

Ofwat says it could depart from a “business-as-usual” approach if testing shows this approach would cause material adverse effects. This includes competition or efficiency concerns.

Moreover, Ofwat will include provisions in each determination that allow it to revisit it in future if necessary.

With the introduction of competition due in the sector in 2017, determining how much a monopoly company can charge for bulk supply is of “strategic importance”, according to Ofwat, because it will affect whether potential new entrants decide to enter the market to supply non-household customers.

“This, in turn, will affect the number of retailers that these customers can choose from and, ultimately, the benefits that competition between competing suppliers delivers to them,” it said.

The regulator has a number of bulk supply pricing disputes it is currently working on and says it will begin to publish them in 2014.