Ofwat has opened a consultation on a draft determination of a bulk pricing dispute which could have important implications for the opening of the non-household sector to retail competition in 2017.

The determination relates to prices charged by Anglian Water Services Limited to Independent Water Networks Limited for the bulk supply of potable water and the bulk discharge of wastewater to the Priors Hall site, in Corby, Northamptonshire.

In December 2008, Ofwat received a request from Anglian Water to vary the bulk supply price (BSP) terms to be applied in respect of the provision of bulk supplies of water and bulk sewerage services from Anglian Water to IWN.

 Anglian Water and IWN are now in dispute about the price that IWN should pay to Anglian Water for the bulk services - both parties have signed bulk supply and bulk discharge agreements under which Anglian Water is charging IWN its relevant published large user tariff (LUT) for the provision of bulk services.

As part of its application, Anglian Water said it considered the published LUT to be inappropriate for the purposes of setting the bulk supply prices to be used in agreements with potential new appointees.

Ofwat recently published a framework for resolving bulk pricing disputes -  this is the first time the new framework has been used. Using the framework, Ofwat has considered whether the price in dispute:

a. is appropriate given the geographic nature of supply;

b. would give rise to competition concerns; or

c. would give rise to efficiency concerns.

After applying the tests, Ofwat has concluded that there is no compelling evidence to deviate from Anglian Water’s Large User Tariff and that there is no evidence to demonstrate that there is a material difference in the costs of providing bulk services to a large user customer as opposed to a new appointee serving primarily household customers. Ofwat has taken the view that the LUT, at any given point in time, is the appropriate BSP to be used in the bulk supply and bulk discharge agreements between the Anglian Water and IWN for the Priors Hall site.

The water regulator is now seeking  stakeholder views on how it has applied the framework in the  dispute between the water company and IWN.

New appointments and variations of appointments are currently the primary vehicle with which competitive pressure can be applied to existing appointees. The case could therefore have important implications for the opening of the non-household retail sector to competition in 2017 – provision of bulk supplies and transfer pricing are central planks of the new market.

The consultation, which runs for four weeks, seeks views on two key questions set out in the draft determination:

Q1 Do you have any comments on how we have applied our published framework for resolving bulk pricing disputes in this determination?

Q2 Do you have any views on the different factors (and materiality of those factors) which may affect the costs of providing bulk water and sewerage services to large users versus new appointees who serve household customers? 

Deadline for responses to the consultation is 13th March. Once Ofwat has considered responses received, the regulator said it "will make any changes we deem necessary" before publishing a final determination.

Click here to download the consultation document