Dwr Cymru: common carriage for the supply of water to Shotton paper mill

No. CA98/01/2004

27 May 2004

The Director General of Water Services (the Director) received a complaint under the Competition Act 1998 (CA98) from Albion Water Limited (Albion Water) against Dwr Cymru Cyfyngedig (Dwr Cymru). Dwr Cymru is a statutory water undertaker under the Water Industry Act 1991 (WIA91). The complaint related to the terms offered to Albion Water by Dwr Cymru for access to Dwr Cymru's water distribution pipes and treatment works used for supplying water to the Shotton paper mill (Shotton), a customer of Albion Water. The use of an undertaker's water supply network by a third party in this way is known as 'common carriage'.

On 1 May 1999, Albion Water became the first new statutory water undertaker since the privatisation of the water industry in England and Wales in 1989. It replaced Dwr Cymru as the statutory water undertaker in respect of Shotton. It has, since then, purchased water in bulk from Dwr Cymru at the point of supply to Shotton, which Albion Water then resells to Shotton. Under the current arrangements, Albion Water pays Dwr Cymru for the water, which Dwr Cymru purchases from United Utilities Water plc (United Utilities Water), as well as such treatment and transportation of that water. Albion Water's complaint under CA98 related to its wish to purchase water from United Utilities Water at the point at which the water is abstracted from the River Dee, and then to pay Dwr Cymru to transport the water to Shotton through Dwr Cymru's pipe network and water treatment works.

Albion Water alleged that Dwr Cymru had breached the prohibition imposed by section 18 CA98 (the Chapter II Prohibition) for a number of reasons relating to the price it had offered Albion Water for access to its network. In particular, Albion Water alleged that the access price offered by Dwr Cymru was excessive, amounted to 'price squeezing', and was discriminatory.

Albion Water also alleged that Dwr Cymru had breached the Chapter II Prohibition for a number of other reasons. Albion Water alleged that Dwr Cymru:

(a) delayed inordinately the agreement of a satisfactory price relating to access;
(b) failed to divulge any information regarding the costs of the system and/or the apportionment of any costs;
(c) failed to negotiate the access price;
(d) began the process of introducing a new standard non-potable tariff which Albion Water alleged would enable Dwr Cymru to attribute additional costs to the access price;
(e) changed the access price it had originally offered to Albion Water;
(f) engaged in various incidents of misrepresentation;
(g) knowingly and willingly abused its dominance;
(h) limited production, markets or technical developments to the detriment of consumers pursuant to Section 18(2)(b) CA98; and
(i) proposed an access price which Albion Water alleged maintained poor performance of the existing pipe system.

After carrying out an extensive investigation into Albion Water's complaint, we concluded that Dwr Cymru's access price did contain some cost misallocation. However, we could not conclude that the access price was excessive. In relation to the allegation of 'price squeezing', we did not find any evidence that Dwr Cymru had ceased to incur any retail costs as a result of supplying Albion Water rather than Shotton under the current arrangements, or that Dwr Cymru would make any similar saving under Albion Water's proposed new common carriage arrangement. In simple terms, under both the current and the proposed new arrangements, in practice, Dwr Cymru will continue to supply the same water, through the same pipes and treatment works, to the same premises, as it did before the emergence of Albion Water. It will continue to issue one set of bills to one customer. We therefore concluded that there was no evidence of 'price squeezing'. Finally, we found no evidence that the access price offered by Dwr Cymru was discriminatory.

In relation to the other aspects of Albion Water's complaint we found no evidence of the alleged abuses.

* Indicates information which is confidential to United Utilities Water and has been excised from the published version of the decision pursuant to section 244(3) of the Enterprise Act 2002.

** Indicates information which is confidential to Dwr Cymru and has been excised from the published version of the decision pursuant to section 244(3) of the Enterprise Act 2002.

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