Ofwat has opened a new consultation on a draft determination of a bulk pricing dispute between United Utilities and one of its commercial customers.

Iggesund wrote to Ofwat in September 2010 requesting that the regulator make a determination in relation to the price per cubic meter for non-potable water being supplied to the company and the use of the Retail Price Index to adjust the price annually.

Ofwat’s determination relates to the price charged by United Utilities Water to Iggesund Paperboard (Workington) Ltd for the bulk supply of non-potable water to its paperboard mill near Workington, Cumbria and the method of annual indexation applied by the water company.

The water used by the mill is extracted by United Utilities in a raw form from the River Derwent at Yearl, coarse screened and pumped to a raw water pumping station at Barepot and then pumped to a raw water service reservoir near the village of Seaton -  known as the Barepot System. All assets up to and including the service reservoir are used exclusively to provide non-potable water to Iggesund and two other industrial customers, with the paper mill accounting for some 95 per cent of the water supplied via the Barepot System).

The supply to the mill has been the subject of a number of agreements stretching back to the 1960s. The current dispute dates from 2006 when a previous agreement, signed in 1983, came to an end. While both parties signed a new 20 year agreement in October 2009 (back-dated to 1 April 2006) this had been the subject of significant disagreement between the parties and was only arrived at after a protracted period of negotiation. Despite the fact that Iggesund  finally signed the 2009 Agreement, they continued to express their dissatisfaction at the price terms which United Utilities has included.

Ofwat has provisionally concluded that United Utilities should reduce the price that it charges Iggesund from 14.9 p/m3 to 7.5p/m3 (at 2006/07 prices).  The regulator came to the decision after reviewing the price at which United Utilities supplies water to the paper firm. Ofwat also examined both the costs incurred by United Utilities in relation to that supply but also the potential costs that Iggesund would incur if they chose to develop their own supply infrastructure,

Ofwat has used its published framework for resolving bulk pricing disputes. The consultation, which runs until 7 November, is seeking views from interested parties on the questions set out in the draft determination and in particular, on how the regulator has applied the framework in this case.

The regulator is now seeking views from interested stakeholders on the issues set out in the draft determination and comment on the following two specific consultation questions:

• Do you have any comments on how we have applied our published framework for resolving bulk pricing disputes in this determination?
• Do you have any views on the different factors (and materiality of those factors) which may affect the costs of providing bulk water to large users?

The consultation raises some interesting issues in the run-up to the introduction of non-household competition in 2017 when the commercial market is expected to grow significantly - which could also be accompanied by an increase in simlar cases where Ofwat will have to adjudicate.

Deadline for responses to the consultation is 7^th November. Click here to access the consultation document.