Ofwat has ruled that Thames Water’s charges for providing the requisitioned water main and service connections should be lower than the amounts than they have required Millwood Homes to pay.

The water industry regulator made its determination after investigating a complaint it received from Millwood Homes about the charges made by Thames Water for the requisition of a water main, and the making of service connections from new properties at a development of 12 houses in Brasted, Kent to Thames Water’s water main.

Ofwat has determined the reasonableness of the charges and undertakings required by Thames Water in providing the requisitioned water main and for making the service connections, meaning that Thames Water should:

• provide refunds in line with the calculations set out in the final determination document;
• pay interest on the amounts it has recovered before carrying out the work and on the relevant refund amounts (around £60k in total); and
• apply interest rate(s) in accordance in accordance with Ofwat’s Information Notice on interest rates. The amount of any interest payable is for the Courts to determine, if Thames Water and Millwood Homes are unable to agree on the amount.

Lessons for companies and customers

Outlining lessons for both companies and customers from the case, Ofwat said that all parties must provide robust evidence to support their arguments when making applications for a determination.

The regulator also explained that in determining the reasonableness of the costs associated with a service connection, it will usually separate costs into the following two categories:

i. Construction costs – This includes the total cost of the making a service connection (the physical pipe laying and actual connection of pipe to main) including labour, materials and reinstatement.

ii. Administration fees and overhead costs – This includes the administration fees and overheads incurred in providing a single new service connection.

Millwood Homes referred the dispute to Ofwat for determination under sections 42, 45 and section 30A of the Water Industry Act 1991 in August 2013.

Ofwat has determined that the final charge that Thames Water can recover from Millwood Homes for the provision of the new main is £24,034.38 - lower than the security amount of £32,161.59 that Thames Water recovered from Millwood Homes prior to carrying out works, meaning a refund of £8,127.21 is now payable to Millwood Homes.

Ofwat determined the amount of the final charge by concluding that the total actual costs incurred by Thames Water in providing the new main were reasonable, saying that the costs do not appear to be substantially higher than might be expected for the work that was carried out.

However, the regulator concluded that the amount of revenue to be offset against the costs reasonably incurred by Thames Water as part of the final charge, should be greater than Thames Water had allowed for in its own calculations.

In respect of the reasonableness of expenses incurred in making the connections, Ofwat determined that the expenses that Thames Water can recover from Millwood Homes for making the connections amount to £3,333.23 - less than the charge of £4,972.22 Thames Water is seeking to recover .The decision was based on a review of the actual costs incurred by Thames Water against the benchmark costs outlined in two independent reports commissioned by the regulator to understand typical costs for service connections. On the basis of the reports Ofwat concluded that while the construction costs in this case were reasonable, the overhead and administration costs incurred by Thames were unreasonably high and should be reduced.  

Click here to read the determination in full.