First Ofwat determination under water supply licensing

Ofwat determination (37 pages, PDF) ordering Anglian Water to reduce the wholesale charges that it offers to Aquavitae for water supply at four sites under the Water Act 2003 water supply licensing arrangements.

Ofwat's determination is expressed in terms of margins between retail and wholesale charges which range between 0.36 and 1.89 per cent. These figures are between 3.3 and 4.5 times larger than the discounts originally offered by Anglian to Aquavitae.

Ofwat states that:

7.3 We are disappointed with the level of discounts that have resulted from our determination. Although these discounts are higher than those offered by Anglian Water, the determination confirms (using real data) our existing theoretical analysis of the Costs Principle. In particular, a licensee is required to pay the incumbent’s unavoidable retail costs as well as its own entry costs, which can reduce significantly the net discounts available. We continue to believe that the Costs Principle remains one of the most significant barriers to the development of effective retail competition.

This determination is Ofwat's response to Aquavitae's August 2007 competition complaint. Ofwat decided not to investigate the matter under competition law.

For further information or advice please contact Franck Latrémolière.

Filed under Ofwat, Water.

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