Competition Appeal Tribunal remedies order in Albion Water’s appeal in the Dwr Cymru case

06 May 2009

Richard Eccles

On 9 April 2009, the Competition Appeal Tribunal (CAT) issued its judgment on the remedies to be imposed and costs to be awarded in respect of the margin squeeze and excessive pricing infringements of the Competition Act.   The CAT required Dwr Cymru to bring both infringements to an end and to refrain from any conduct having the same or equivalent effect and, in respect of the excessive pricing for common carriage of water on Dwr Cymru’s network, to respect a maximum access price specified at 2000/2001 prices as being conduct not having the same or equivalent effects to the infringement.  However, the CAT declined to order a specific margin to be maintained as between Dwr Cymru’s common carriage charge and its retail price, because of the practical difficulties in setting a retail margin remedy, the lack of detail about costs and revenues of Dwr Cymru, and the need therefore for further fact finding investigation. 

The previous judgments of the Court of Appeal of May 2008 on the margin squeeze and of the CAT of November 2008 concerning the excessive pricing, have been reviewed in previous issues of this Bulletin, namely issue 14 of October 2008 and issue 15 of January 2009, respectively. In the present judgment on remedies, the CAT considered that it must make an order requiring a reduction of the access (common carriage) price provided by Dwr Cymru for the partial treatment and common carriage of non-potable water through its Ashgrove system, since Ofwat would itself have had the power to give such a direction.  The CAT concluded that a common carriage price (as proposed by Dwr Cymru to Albion) of not exceeding 14.4p/m3 at 2000/2001 prices would be conduct not having the same or equivalent effect as the infringement prohibited in the order.  The CAT rejected proposals to adjust such price for inflation by reference to the producer prices index or the retail prices index, and instead required the inflation issue to be dealt with by commercial negotiation between the parties. 

With regard to the margin squeeze, the CAT declined to make a final order in relation to the bulk supply price because the Competition Act did not give the power to impose a remedy in respect of behaviour without a prior finding of infringement, and none of the CAT judgments had found Dwr Cymru’s bulk supply price to constitute an infringement of Chapter II of the Competition Act.  Nor had the bulk supply price been a significant part of any reasoning leading the CAT to find the access price to be excessive and unfair.  The CAT revoked the interim order of November 2006 which had imposed a reduction on the bulk supply price by 3.55p/m3 for Albion.  The matter was left that if the parties could not agree a bulk supply price, then the issue would have to be referred to Ofwat for dispute resolution under the Water Industry Act 1991.

In relation to the margin squeeze infringement, the CAT declined to impose a specific minimum margin as between Dwr Cymru’s access and retail prices because of a concern to avoid direct price administration and because of the need for further investigation of Dwr Cymru’s downstream costs and revenues, in particular the need to examine whether the retail price would be sufficient to cover the costs to Dwr Cymru of providing its own retail services on the downstream market.  This was against the background of a lack of detailed data available to Ofwat or provided to the CAT.  The case was contrasted with the Genzyme case, in which the CAT did conduct an investigation and set a minimum retail margin, because in that case there was considerable available data about margins and the OFT had prepared detailed reports in this respect.

In relation to the costs of the proceedings, Albion Water was awarded its reasonable costs before the CAT as from January 2007 until 30 January 2009, this being the date of exchange of skeleton arguments on the question of remedies.  However, in respect of the subsequent proceedings and remedies hearing, no order was made as to costs because the CAT had substantially accepted Ofwat’s and Dwr Cymru’s arguments.

The remedies judgment is significant in that it brings to an end very long running litigation.  It is also significant in providing clarification of the nature and extent of the CAT’s powers to impose specific remedial orders in respect of margin squeeze.  The CAT considered these powers to be limited to the extent that detailed cost and revenue data were not obtained by the relevant competition regulatory authority, in this case Ofwat, and were therefore not available to the CAT itself.  However, the CAT stated that this conclusion was based on the specific circumstances of the case.  Ofwat had declined to intervene against Dwr Cymru in response to Albion Water’s complaint, the infringements having been found by the CAT on appeal by Albion Water against Ofwat’s decision.   At least in cases where the OFT or the relevant sector regulator has itself found the existence of infringement, one may expect that the CAT would be willing to make an order in respect of a specific margin required to remedy a margin squeeze infringement.

Source: judgment of the Competition Appeal Tribunal, Case No.s 1034/2/4/04 (IR) and 1046/2/4/04 of April 9, 2009, Albion Water Limited and Albion Water Group Limited v Water Services Regulation Authority, Dwr Cymru Cyfyngedig and United Utilities Water Plc intervening.