Water industry regulator Ofwat has upheld Wessex Water's right to include certain charges in a case involving a dispute between the water company and a self-lay organisation (SLO) about the approach used to calculate the asset value payment for the self-lay of water mains for one phase of a new housing development in Somerset.

Self-lay is where a developer chooses their own contractor (an accredited SLO), rather than a water company, to install the pipework for supplying a development. The asset value payment is a payment that a water company makes to a developer or SLO when water mains that have been self-laid are later transferred into the ownership of the water company.

If a development requires a new water main or sewer, the developer may ask the water or sewerage company to install the pipework. When this is required for domestic purposes (cooking, cleaning or sanitary facilities), it is known as requisitioning.

Alternatively, they may choose their own contractor to do the work, which is known as self-lay. The water company will take over responsibility for (adopt) self-laid pipes that meet the terms of its agreement with the developer or self-lay organisation (SLO) that carries out the work.

The SLO in this case had challenged the right of Wessex Water to do both of the following:

i. To include the costs that Wessex Water incurred in carrying out work to reinforce their network (‘network reinforcement costs’) to supply the development in Wessex Water’s calculation of the asset value payment.

ii. To charge the SLO both the network reinforcement costs and infrastructure charges for the new housing development.  (Infrastructure charges contribute to other network reinforcement works arising from general increases in demand).

The SLO argued that if Wessex Water was allowed to bill them for both sets of charges they would effectively recover double their costs. In the SLO’s view, both sets of charges were intended to cover Wessex Water’s costs for reinforcing its network as a result of the new development.

Summary of Ofwat’s final decision

Publishing its final decision, the regulator said it was satisfied that Wessex Water’s calculation of the asset value payment to the SLO is correct. It was necessary for Wessex Water to provide the network reinforcement works in order to provide a supply through the self-laid works to the development.

The costs reasonably incurred by Wessex Water in providing the network reinforcement works can also be recovered by them and should be included by them in the calculation of the asset value payment

The decision says Wessex Water is legally entitled to separately recover infrastructure charges because the properties on the development site are being connected to the water and sewer network for the first time. The recovery of infrastructure charges does not affect the charges recovered by Wessex Water for the network reinforcement works or their inclusion in the calculation of the asset value payment.

Wider lessons for companies and customers

Ofwat also highlighted wider lessons for the water companies and their customers alongside the decision. The Water Industry Act 1991 allows a water company to recover the costs of certain network reinforcement works that are necessary to provide a supply to self-laid works.

Water companies should include the costs of certain network reinforcement works that are necessary for self-laid works in their calculation of the asset value payment for self-laid mains. This ensures the water company – and their other customers – benefit from the income offset this calculation provides.

Water companies are entitled to recover both infrastructure charges and self-lay charges - however, these charges should cover the costs of different work. Self-lay charges relate to certain works necessary in consequence of the self-laid works. Infrastructure charges contribute to other network reinforcement works arising from general increases in demand.