There have now been five substantive judgements in Albion Water's long running dispute with Dwr Cymru; the latest being an award of substantial damages to Albion Water.
That body of analysis has produced some very important legal principles which apply to any dominant network provider.
In summary:
- Each of the provider’s services must be priced in a cost-reflective way. Simple whole company averaging is likely to be unlawful.
- A network provider must be clear about what services it offers and what CAPEX and OPEX costs it incurs in providing that service. For example, potable and non-potable supplies ought not to cross-subsidise each other. The actual servicers which are included within any supply must also be clear, e.g. any testing and maintenance.
- Discrete elements of the network should almost certainly be priced independently, with little or no reference to wider costs.
- Network providers must be able to justify their prices by reference to actual cost data. The more granularity they can provide, the stronger position they will be in. Using multiple cost calculation methods and cross checking results will help ensure the legality of charges. Relying solely on regulatory submissions is unlikely to be sufficient.
- Similarly, regulated tariffs are not automatically lawful. Regulators and law makers will have to tread carefully to avoid putting network companies between a rock and a hard place.
These broad points illustrate particular issues regulators and existing network providers should be thinking about when they gather data and set prices. Policy makers should also think carefully as they establish new market frameworks, to help ensure regulation and competition regimes can work simply and effectively together.
Historic pricing approaches mean that there will be commercial opportunities for service only companies and out of area network companies. Understanding the rules of the game helps everyone know where they are. Knowing the legal parameters also helps ensure that the benefits of competition can be realised whilst captive customers and overall system integrity are protected.
Shepherd and Wedderburn act for Albion Water. We would be happy to discuss this case and its potential impact on your business.