Judgment in respect of an appeal by Albion Water Limited against a decision of the Director General of Water Services (now the Water Services Regulation Authority) finding that Dŵr Cymru had not infringed the Chapter II prohibition of the Competition Act 1998.
The Tribunal found that the Director had made a number of errors in concluding that Dŵr Cymru’s charges to Albion (in respect of the common carriage of non-potable water, purchased by Albion from United Utilities, through a pipeline and water treatment plant owned by Dŵr Cymru and on to Albion’s customers) were not excessive.
In particular the Tribunal found that the distribution cost of non-potable water on an average accounting basis had not been sufficiently investigated in that: no accounting information could be provided to explain the distribution cost element of Dŵr Cymru charges; the proposition that the cost of distribution for potable and non-potable water are the same could not be supported; a regional average approach to charging could not be justified; there was no reason why location related charging was not permissible for non-potable systems.
Furthermore the Tribunal concluded that the Director should not have used the Efficient Component Pricing Rule (ECPR) methodology in the circumstances of this case, where inter alia: the retail price used in the calculation was not cost related with regard to the distribution cost element of that price; where the evidence strongly suggested that the retail price was excessive; and using the ECPR would, effectively, preclude any competition or market entry.
The Tribunal also found that the Director’s conclusion that there was no margin squeeze contrary to Chapter II of the Competition Act 1998 was incorrect in that: the access price offered by Dŵr Cymru was not shown to be cost related and the evidence suggested it was excessive; Albion could not earn a normal profit when paying the access price offered by Dŵr Cymru; the margin squeeze could not be justified on the basis of the ECPR; no account was taken of the nature of the services being provided by Albion and the additional value they offered through the provision of water efficiency services; and that the approach taken by the Director in determining this matter was contrary to the established practice of the OFT and European Commission.
