Water companies left to decide whether to obey Ofwat or CAT

Ofwat letter stating its position that its guidance on access codes is a legal requirement which overrides duties under the Competition Act 1998 and Article 82, and that water undertakers should follow it in offering access charges. The letter does not acknowledge the possibility that the guidance might be unlawful (and therefore not a valid legal requirement capable of protecting undertakers that follow it from competition law claims).

The Competition Appeal Tribunal has ruled as follows in relation to this guidance:

356. Sympathetic though the Tribunal is to Aquavitae's request that the Tribunal order [Ofwat] to withdraw its existing Guidance on Access Codes, and take other measures to require incumbents to accord a proper margin to licensees seeking to exercise their rights under the water supply licensing provisions of the WIA91, in our judgment relief of that kind is outwith the jurisdiction of the Tribunal under Schedule 8, paragraph 3, of the 1998 Act. We welcome [Ofwat's] recent letter to the Minister of 28 November 2006 and trust that the difficulties that have arisen in the implementation of the water supply licensing provisions under the WIA91 will be speedily overcome.

358. ... the Tribunal is not satisfied that [Ofwat's] current interpretation of section 66E(4) is correct, nor that [Ofwat's] existing Guidance is lawful guidance, nor that statutory undertakers would be acting lawfully in following that Guidance, notwithstanding Condition R of their conditions of appointment, nor that paragraph 5 of Schedule 3 to the 1998 Act would necessarily be applicable. Plainly a most serious situation arises if the lack of competitive entry in the water industry is due to [Ofwat's] own actions.

The judgment found that Welsh Water, who claimed to have been following the same principles as in Ofwat's guidance, had committed an abuse of a dominant position by imposing a margin squeeze on Albion Water. Some proceedings in the case are still ongoing.

For further information or advice please contact Franck Latrémolière.

Filed under Ofwat, Water.

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