Dispute referred under section 42 of the Water Industry

Act 1991

Provision of water infrastructure to Celestia development

in Cardiff

Redrow Homes vs. Dŵr Cymru Cyfyngedig

Final Determination

25 April 2014

1

Contents

1. Introduction .......................................................................................................... 2

A. The complaint ................................................................................................ 2

B. The purpose of this document ....................................................................... 2

C. Overview of our final determination ............................................................... 4

2. Background .......................................................................................................... 7

A. The Parties .................................................................................................... 7

B. The Site ......................................................................................................... 8

C. The requisition ............................................................................................... 8

D. The request for a determination .................................................................... 9

E. Technical issues and Mott MacDonald’s report ............................................. 9

3. The legal framework .......................................................................................... 11

A. Definition of a water main and a service pipe .............................................. 11

B. Water mains requisitions ............................................................................. 11

C. Costs that may be included in calculating the requisition charge ................ 12

D. Infrastructure charges ................................................................................. 14

E. Disputes ...................................................................................................... 15

4. Our final determination ....................................................................................... 16

A. Summary ..................................................................................................... 16

B. Legal status of the pipework ....................................................................... 16

C. Non-domestic supply ................................................................................... 17

D. Apportionment of costs ............................................................................... 19

E. The requisition charge ................................................................................. 24

F. Amount and basis of infrastructure charges for the Site .............................. 25

5. Conclusion ......................................................................................................... 30

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1. Introduction

A. The complaint

1.1 This determination concerns a dispute referred to the Water Services

Regulation Authority (“Ofwat”) by Utility Partnership Ltd (“UPL”) on behalf of

Redrow Homes (“Redrow”) under section 42(6) and section 30A of the Water

Industry Act 1991 (“the Act”) on 29 March 2005.

1.2 The dispute is between Redrow and Dŵr Cymru Cyfyngedig (“Dŵr Cymru”)

and, as set out in section 42(6) of the Act, concerns the payment and security

which water undertakers are permitted to require in respect of water main

requisitions and new domestic water supply connections under sections 42

and 146 of the Act respectively.

1.3 More specifically, Redrow disputes the amount that Dŵr Cymru has required

Redrow to pay (pursuant to section 42 of the Act) to Dŵr Cymru in relation to

Redrow's requisition (under section 41(c) of the Act) and infrastructure

charges under the provision of section 146 of the Act for connecting new

domestic premises to the water supply and sewerage network. The amounts

in dispute relate to the provision of infrastructure to provide a water supply to

the Celestia development in the Cardiff Bay area of Cardiff (''the Site'').

B. The purpose of this document

1.4 We have issued two draft determinations to the Parties to this case. We

issued the first In July 2011 stating that we are satisfied that:

the Pierhead Street pipe is a water main and hence part of the

infrastructure requisitioned by Redrow;

that Dŵr Cymru’s requisition charge should be calculated on the basis of

the percentage of the infrastructure’s total capacity that is used by the Site

(rather than estimated notional costs for solely meeting the requirements

of the Site) and should exclude capacity provided for non-domestic supply

purposes; and

that Dŵr Cymru are entitled to levy infrastructure charges for the Site, but

that this charge should be calculated according to the relevant multiplier

method rather than by applying the standard infrastructure charge1.

1 Standard infrastructure charges for water and sewerage are set out and approved in water and

sewerage companies’ annual charge schemes. Where domestic properties, such as high rise flats, are subject to a Common Billing Agreement, non-standard infrastructure charges are applied. These

3

1.5 In response to our July 2011 draft determination, Dŵr Cymru made two sets of

representations in letters dated 2 September and 5 October 2011. UPL

responded to our draft determination on 26 July 2011 accepting the contents

of the draft determination.

1.6 Given the lapse in time since our first draft determination and the significant

comments provided by the Parties, we issued a second draft determination to

Parties in August 2013 to provide them with the opportunity to make any new

representations on our proposed determination. On 9 September 2013 UPL

confirmed that they had no further representations to make on the draft

determination. We received representations from Dŵr Cymru on 20

September 2013. In particular Dŵr Cymru’s representations reiterated their

views that our determination:

(a) Misinterprets section 43 of the Act in terms of how costs are

apportioned for the purposes of calculating the requisition charge

where additional capacity is provided. We have responded to these

comments in paragraphs 4.32 - 4.34 of this final determination.

(b) Should incorporate the fire-fighting element of supply provided via the

requisition in the requisition charge calculation. Our response is set out

in paragraphs 4.15 – 4.17 of this final determination.

(c) Should provide greater clarity in terms of the interaction between

requisition and infrastructure charges. We have addressed this in

paragraphs 4.48 – 4.51 of this final determination.

1.7 We have considered all of the Parties’ representations on both of the draft

determinations and, where appropriate, we have reflected them in this final

determination. However, it should be noted that in preparing this final

determination we have not sought to explicitly respond to every point made by

the parties in the significant volume of documents and correspondence

received. Nor do we seek in this document to summarise each individual

point made by the parties. This final determination refers only to the facts and

information that we consider are relevant to demonstrate the rationale for our

final decision.

are calculated by multiplying the standard infrastructure charge by a ‘relevant multiplier’. As detailed in the appendix on the calculation of the relevant multiplier supporting Condition C in an undertaker’sInstrument of Appointment, this relevant multiplier is determined by adding together the loading units of all of the water fittings in the building, dividing this by 24 (an industry standard reflecting the average number of loading units for a standard domestic property) and then dividing by the total number of self-contained units to which the Common Billing Agreement applies.

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C. Overview of our final determination

1.8 In reaching our decision we have considered the legal framework and the

evidence and information provided to us by both Redrow (either directly or by

UPL, on Redrow's behalf) and Dŵr Cymru. Our conclusions and reasoning are

set out in full in sections 4 – 5 of this determination but an overview of our

main conclusions is set out below.

1.9 We are satisfied that the 200mm pipe in Pierhead Street is a water main as

defined under section 41 and section 219 of the Act and not a service pipe as

defined under section 45 and section 219 of the Act.

1.10 Where additional capacity has been provided beyond that requisitioned for the

Site, we determine that the most appropriate approach to calculating the

proportion of the costs attributable to the Site under sections 42-43A of the

Act is to apportion the costs reasonably incurred based on the percentage of

the total capacity of the infrastructure provided that is used by the Site for

domestic purposes. In this instance the capacity use of the remote

infrastructure laid by the Site is determined to be 9.29%, whilst 100% of the

Pierhead Street works are attributable to the Site since it was provided solely

to meet the needs of the requisition and hence no apportionment of costs is

required.

1.11 As a result of this apportionment, the actual costs reasonably incurred in

meeting the requirements of the requisition total £94,347.65 (£87,123.12 for

the remote infrastructure and £7,224.53 for the main in Pierhead Street). Re-

calculating the discounted aggregate deficit (in line with section 43 of the Act)

to reflect this scheme cost and the final actual occupancy rates for the

properties, we determine that the level of the final requisition charge which

Redrow should pay is £2,663.25. This is detailed in Appendix 1.

1.12 It would not be appropriate for us to consider the recovery of charges for a

supply for non-domestic purposes under a section 42 determination. Disputes

of this nature have their own separate route for determination under section

56 of the Act, whereby we have certain powers to determine disputes

between parties arising from requests under section 55 to provide a supply of

water for non-domestic purposes. Any terms and conditions or other matter

which falls to be determined for the purposes of such a request are

determined by agreement between the parties or, in the absence of

agreement, by Ofwat.

1.13 The parties have not disputed the service pipe connection charges levied for

the Site and as such we are not making a determination on this component of

the charges levied for the Site. However in October 2007 Dŵr Cymru

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confirmed to us the actual costs incurred in making the water supply

connections. These are £3,129.56 less than their original estimate and Dŵr

Cymru confirmed that a refund would therefore be due to Redrow. On this

basis we have included this refund in our summary of charges made and

pending for the Site.

1.14 We determine that Dŵr Cymru is entitled to recover infrastructure charges for

the Site under section 146 of the Act. We would however only expect these to

be levied where they are being used to recover costs incurred by works to

reinforce the wider local network, beyond the works and costs attributed to

this specific Site and hence already captured in the requisition charge. We

would expect Dwr Cymru to ensure there has been no double recovery of

costs by these two charges.

1.15 The premises on this Site are subject to a common billing agreement. As set

out in Condition C of Dŵr Cymru’s licence where premises are subject to a

common billing agreement the level of the infrastructure charge should be

calculated on the basis of applying a relevant multiplier to the standard charge

rather than applying standard infrastructure charges. As set out in paragraph

4.57, we calculate the total infrastructure charges for the Site to be

£288,181.16.

1.16 We summarise the charges already paid by Redrow to Dŵr Cymru, our

determination of them and any resulting refunds due in Table 1 below. These

will be subject to interest payments. Our conclusion is set out in full in section

5.

Table 1 – Charges made and pending (excluding interest payments)

Item

Dŵr Cymru’s

Estimated

Charge

Amount Paid

by the

Developer to

date

Our

determination

of the Actual

Charge

Developer

Refund

(Payment) Due

Mains

requisition

charge

(the

“discounted

aggregated

deficit”, or

“statutory

commuted

sum”)

£153,451.03 £153,451.03 £2,663.25 £150,787.78

Service pipe £25,880.00 £25,880.00 £22,750.441 £3,129.56

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connection

charge

Infrastructure

charge (water

& sewerage)

£316,160.00 None £288,181.16 (£288,181.16)

TOTAL £495,491.03 £179,331.03 £313,594.85 (£134,263.82)

1 this figure is undisputed by the parties. The refund reflects the difference between Dŵr

Cymru’s estimated and actual costs.

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2. Background

A. The Parties

(i) Dŵr Cymru

2.1 Dŵr Cymru is appointed under the Act to provide water and sewerage

services to customers in most of Wales and parts of England bordering

Wales.

(ii) The Developer

2.2 Redrow Homes is a large developer who specialises in constructing

residential and mixed use premises. Redrow operates across much of the UK

with nine divisions in England, Scotland and Wales.

(iii) Other organisations involved

2.3 UPL is an end-to-end utility infrastructure and energy management solutions

provider. UPL works with developers and other large commercial

organisations to procure infrastructure, energy management and metering and

data services. Redrow appointed UPL to act on their behalf in procuring

infrastructure for the Celestia development.

2.4 Mott Macdonald is an employee-owned management, engineering and

development consultancy. In 2009 we commissioned them to complete a

report on the technical issues and costs associated with the works. We

describe the purpose and outcome of this work in paragraphs 2.16 – 2.19.

2.5 Laing O’Rourke is a privately-owned construction solutions provider whose

services include engineering, construction and specialist services. They acted

as Redrow’s main contractor on the Celestia development.

2.6 McCann and Partners is a building services consultancy based in South

Wales. They were initially appointed to manage the infrastructure provision to

serve the Celestia development, prior to UPL’s appointment in early 2005.

2.7 Bruton Knowles is the appointed management company for the Celestia

development. Part of this role includes collecting a service charge from

residents.

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B. The Site

2.8 The Site is a large development located in Cardiff Bay in Cardiff, comprising

two blocks with a total of 608 residential units (173 one bedroom apartments,

274 two bedroom apartments, 10 duplex apartments and 151 social housing

apartments) and two retail units.

2.9 Redrow commenced construction on the Site in 2004, with work being

completed in 2007.

C. The requisition

2.10 We understand that discussions regarding the provision of water to the Site

were initiated in 2004 when Dŵr Cymru provided Redrow with a quote for

infrastructure to supply the Site. In response to this requisition Dŵr Cymru

installed 24 metres of 200mm pipe across Pierhead Street in February 2006.

In addition they installed:

2.47 kilometres of 400mm pipe including a river crossing over the River Rhymney;

117 metres of 500mm pipe; and

a pressure reducing by-pass valve.

2.11 This additional infrastructure is physically remote from the Site, but was

considered necessary by Dŵr Cymru to supply the Site. This remote

infrastructure includes additional capacity, beyond that requisitioned by

Redrow for the Site, intended to meet demand from future development in the

area. These additional, off-site infrastructure works were completed in

December 2005.

2.12 In April 2005, Laing O’Rourke (on behalf of UPL/Redrow) paid Dŵr Cymru

£153,451.03 as security for the works. This figure represented Dŵr Cymru’s

estimate of what the requisition charge would be. Laing O’Rourke also paid

£25,880.00 for the water supply connections to the Site (provided under

section 45 of the Act to connect the properties to the mains, for which Dŵr

Cymru can recover costs under section 45(6)), again based on Dŵr Cymru’s

estimated costs. Dŵr Cymru has since confirmed that the actual costs of the

water supply connections was £22,750.44.

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D. The request for a determination

2.13 In March 2005, UPL, acting on behalf of Redrow, informed Dŵr Cymru that it

was unhappy with the overall level of the requisition charge for the

infrastructure being provided by Dŵr Cymru. UPL disputed the proportion of

the remote infrastructure costs that have been attributed to the Site. Redrow /

UPL have not disputed the service pipe connection charges for the Site.

2.14 UPL brought a request for determination to us on 29 March 2005 in order to

make a determination regarding:

A. The costs reasonably incurred in meeting the requisition, including the

extent to which they should include the costs of the Pierhead Street

pipework and remote infrastructure away from the Site; and

B. Whether the amount of infrastructure charges for the Site should be

calculated on the basis of the standard infrastructure charge or relevant

multiplier method.

2.15 Between 2005 and 2010 we had a significant amount of correspondence with

Dŵr Cymru to determine:

the nature of the requisitioned works;

details of how the requisition and infrastructure charges had been

calculated; and

which section of the Act we would determine the dispute under.

E. Technical issues and Mott MacDonald’s report

2.16 In order to assist our understanding of the technical aspects of this dispute,

we commissioned a technical report by Mott MacDonald in 2009. We asked

Mott MacDonald to provide technical advice in relation to the provision of

infrastructure to the Site. Specifically, Mott MacDonald was requested to

examine the following areas:

the requirement for the provision of the assorted water pipes as a result of

this development (separately for domestic and non-domestic supply);

whether the work carried out by Dŵr Cymru to install pipes involving the

river crossing was appropriate;

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the proportion of work undertaken that could be attributed to the Site

(separately for domestic and non-domestic supply); and

whether the costs of the work were reasonable.

2.17 Mott MacDonald’s report confirmed that the assorted water pipes to serve the

Site were required. It also confirmed that the technical solution adopted by

Dŵr Cymru to provide infrastructure to the Site was appropriate and that the

overall costs of the works carried out were reasonable.

2.18 Section 8 of Mott MacDonald’s report considered the proportion of the remote

infrastructure that was provided by Dŵr Cymru that was needed to just meet

the requirements of the requisition. Dŵr Cymru determined (and Mott

MacDonald confirmed) a minimum pipe diameter of 200mm would be

required to meet the Site’s entire flow requirement of 24 litres per second (l/s)

(comprising both domestic (13 l/s) and fire supply purposes (11 l/s)). Mott

MacDonald applied the resulting estimated headloss to the 400mm main

actually provided as remote infrastructure, yielding a flow of 140 l/s. As such

the Site required 17.14% of the remote infrastructure provided for both

domestic and fire supply purposes (24 of the 140l/s) and 9.29% for just the

domestic supply element of this. The report also confirmed that for a flow of

13 l/s a pipe no smaller than 200mm in diameter would be most appropriate.

2.19 A copy of Mott MacDonald’s report was shared with the parties in October

2009. Dŵr Cymru welcomed the general thrust of the report. UPL did not

disagree with the technical aspects of the report, but felt that matters of

double recovery (i.e. the full recovery of the requisition charge and

infrastructure charges) had not been addressed and requested that we

determine these. Mott MacDonald had not been commissioned to look at this

separate issue, but rather to provide technical advice on the infrastructure

provided. We provide our determination on this distinct point on double

recovery of costs in paragraphs 4.49 – 4.51.

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3. The legal framework

This section outlines the key legislative provisions relevant to this case.

A. Definition of a water main and a service pipe

3.1 Section 219 of the Act provides the following definitions:

(a) A water main is defined as: “any pipe…which is used or to be used by a

water undertaker…for the purposes of making a general supply of water

available to customers or potential customers of the undertaker…, as

distinct from for the purpose of providing a supply to particular customers”. This definition includes tunnels or conduits which serve as a pipe and to

any accessories for the pipe.

(b) A service pipe is defined as ''…so much of a pipe which is, or is to be,

connected with a water main for supplying water to any premises as (a) is

or is to be subject to water pressure from that main; or (b) would be so

subject but for the closing of some valve''. This definition includes tunnels

or conduits which serve as a pipe and to any accessories for the pipe.

B. Water mains requisitions

Supplies for domestic purposes

3.2 Under section 41(2) of the Act, an owner or occupier of premises may require

a water undertaker to provide a water main to provide a supply of water to the

premises to be used for domestic purposes (a “requisition”). Subject to the

conditions set out in section 41 of the Act being fulfilled, the water undertaker

is under a duty to provide the water main.

3.3 Under section 41(1)(c) and section 42(2) of the Act, as part of the duty to

comply with a water main requisition, a water undertaker can recover a

contribution from the owner or occupier of the premises towards the costs of

providing the water main (the ''requisition charge'').

3.4 As set out under sections 42-43A of the Act, the requisition charge is

calculated by reference to the annual borrowing costs of a loan of an amount

that would be required to cover the costs incurred in providing the main and

the revenue which will be recovered by the water undertaker by means of the

water main (i.e. the bills paid by customers connected to that main, which is in

turn derived from the Site’s occupancy rates) over each of the 12 years

following provision of the water main. Where, in any of those years, the

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revenue exceeds the borrowing costs, the owner or occupier of the premises

will not be required to make any payment. Where the borrowing costs exceed

the revenue, the water undertaker is entitled to require the owner or occupier

of the premises to pay the difference to the water undertaker.

3.5 Section 42(2)(a) provides for the owner or occupier of the premises to pay the

water undertaker the requisition charge either by way of an annual amount

over each of the 12 years following provision of the water main (the “relevant

deficit”), or a single lump sum payment made following provision of the water

main, which is referred to as the discounted aggregate deficit (the “DAD”).

The relevant deficit is calculated in accordance with section 43 of the Act and

the DAD is calculated in accordance with section 43A of the Act. The final

requisition charge can only be requested once the water main has been

provided, albeit security can be requested in advance by the water

undertaker.

Supplies for non-domestic purposes

3.6 Section 55 of the Act provides for the owner or occupier of premises to

request a supply of water to those premises where either the premises do not

consist of a building, or the requested supply is for non-domestic purposes.

The water undertaker is not under a duty to provide the supply in the same

way as for domestic purposes, but must take such steps as are determined in

accordance with section 56 of the Act to provide such supply.

C. Costs that may be included in calculating the requisition charge

3.7 Section 43(4) of the Act states that the costs reasonably incurred in providing

a water main shall include:

a) “the costs reasonably incurred in providing such other water mains

and such tanks, service reservoirs and pumping stations as it is

necessary to provide in consequence of the provision of the new main”.

b) “such proportion (if any) as is reasonable of the costs reasonably

incurred in providing or procuring the provision of any such additional

capacity in an earlier main as falls to be used in consequence of the

provision of the new main”.

3.8 In setting out how the requisition charge should be calculated section 43(2) of

the Act specifically provides that costs incurred in the provision of additional

capacity beyond that required by the requisition are not to be included in the

“costs reasonably incurred” when calculating the requisition charge.

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“The annual borrowing costs of a loan of the amount required for the

provision of a water main is the aggregate amount which would fall to be

paid in any year by way of payments of interest and repayments of capital

if an amount equal to so much of the costs reasonably incurred in providing

that main as were not incurred in the provision of additional capacity had

been borrowed…” 3.9 This is expanded on by section 43(6) of the Act, which states:

“Any reference in this section to the provision of additional capacity in a water

main provided in pursuance of a requirement under any enactment is a

reference to such works carried out or other things done in connection with

the provision of that main as are carried out or done for the purpose of

enabling that main to be used for the purpose in addition to those for which it

is necessary to provide the main in order to comply with the requirement”.

3.10 Whilst the Act distinguishes in this way between costs reasonably incurred to

provide the main required under section 41 of the Act and those incurred to

provide additional capacity beyond this, there are no specific provisions in

section 43 of the Act setting out specifically how the total costs of providing a

main that allows for a capacity beyond that requisitioned under section 41 of

the Act should be apportioned between the two. As set out above the Act only

requires that “so much of the costs reasonably incurred” are included in the

requisition charge calculation. There are two main approaches to apportioning

the costs of the requisitioned works from the total costs incurred by the water

undertaker in providing greater capacity:

a) a notional costs approach, which estimates the costs that would have been

incurred had the water undertaker provided just the infrastructure

necessary to fulfil the capacity requirements of the requisition (based on

the flow rates required to serve the premises) and nothing more. Where

additional capacity has been provided in the actual works completed by

the water undertaker, this counter-factual approach can only use a design-

based estimate of the costs that would have been incurred rather than

actual final costs of the scheme as built; or

b) an approach based on the percentage of the total capacity of the actual

infrastructure provided that is used to fulfil the requirements of the

requisition (based on the flow rates required to serve the premises). This

as-built approach uses the actual, final costs incurred by the water

undertaker in providing the infrastructure and technical modelling to

determine and apply the percentage of capacity used to fulfil the specific

requirements of the requisition.

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D. Infrastructure charges

3.11 Infrastructure charges are charges that a water undertaker is entitled to raise

pursuant to a charges scheme and section 146 of the Act for connection to a

water supply or public sewer of premises that have not at a previous time

been connected to a water supply or public sewer for domestic purposes by a

water or sewerage undertaker or any other authority or body. The Act’s

provision for raising an infrastructure charge is separate and independent of

the provisions related to providing and charging for a main requisition under

section 41-43 of the Act.

3.12 The methods for calculating the amount of infrastructure charges a water

undertaker can recover are set out in Condition C of a water and sewerage

undertaker’s Instrument of Appointment. Depending on the type of premises

being connected, charges are applied on the basis of either the standard

infrastructure charge method or the relevant multiplier method.

3.13 The standard method is a flat level of water infrastructure charge and

sewerage infrastructure charge set out in 2.1.3 of Condition C of an

undertaker’s Instrument of Appointment and indexed annually against

inflation.

3.14 The relevant multiplier method is a way of calculating infrastructure charges

for particular premises. There are two types of premises where the relevant

multiplier method applies:

a) A House2 which is subject to a Common Billing Agreement, defined in

section 1.3 of Condition C of an undertaker’s Instrument of Appointment

as “an agreement between the Appointee and any other person under

which that person has undertaken to pay….charges for water supply or

sewerage services, or both, in respect of two or more Houses which have

a common Supply Pipe…”; and/or

b) Premises which are not a House(s) and “to which water is provided by a

Supply Pipe with an internal diameter larger than the standard size…

adopted by the Appointee for new connections of Houses.”

3.15 As set out in Condition C of an undertaker’s Instrument of Appointment, the

relevant multiplier method is calculated by multiplying the standard

infrastructure charge by a ‘relevant multiplier’. As set out in the Condition C

appendix, this relevant multiplier is determined by adding together the loading

2 As defined in Condition C of an undertaker’sInstrument of Appointment.

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units3 of all of the water fittings in the building, dividing this by 24 (an industry

standard reflecting the average number of loading units for a standard

domestic property) and then dividing by the total number of self-contained

units to which the Common Billing Agreement applies. The relevant multiplier

is then multiplied by the standard infrastructure charge to determine the

charge per unit for such premises.

E. Disputes

3.16 Section 42(6) of the Act provides that any dispute between a water undertaker

and any other person regarding the amount of any undertakings or security

required for the purposes of section 42 of the Act or the amount required to be

paid in pursuance of any such undertakings can be referred by either party to

Ofwat for determination under section 30A of the Act.

3.17 Section 56 of the Act provides that any terms and conditions or other matter

which falls to be determined for the purpose of a request under section 55 of

the Act shall be determined by agreement between the parties or, in default of

agreement, by Ofwat according to what appears to Ofwat to be reasonable.

3 Each water fitting is given a loading unit based on the amount of water it uses, as detailed in the

appendix on the calculation of the relevant multiplier supporting Condition C in an undertaker's Instrument of Appointment.

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4. Our final determination

A. Summary

4.1 This section sets out our findings and determinations on the four key

questions in this case.

4.2 Firstly we set out our findings in relation to the legal status of the pipework as

this is material to what Dŵr Cymru is entitled to recover from Redrow under

the Act.

4.3 Secondly, we consider whether part of the supply to the Site was non-

domestic and whether this has an impact on the requisition charge.

4.4 Thirdly we set out our findings on whether the technical solution adopted by

Dŵr Cymru to provide water to the Site was appropriate. Further, we consider

whether the costs of the infrastructure provided by Dŵr Cymru to serve the

Site are reasonable and what proportion of those costs should be met by

Redrow as a requisition charge (and on what basis). Our analysis of these

areas will enable us to quantify the appropriate level of the requisition charge.

We set out at the end of this draft decision in Table 5 a summary of the

requisition charge in this determination.

4.5 Finally, we consider the infrastructure charges recoverable from the Site, and

specifically the correct legal methodology for calculating them under section

146 of the Act and Condition C of Dŵr Cymru's Instrument of Appointment.

We then determine the total infrastructure charge for the Site

B. Legal status of the pipework

Determined approach

4.6 The correspondence that we have seen does not clearly state on what basis

any of the infrastructure to serve the Site has been requisitioned or provided

(i.e. as a water main or as a service pipe). We have also not been provided

with a copy of any requisition agreement as we understand that there was no

formal written agreement in place.

4.7 After considering the evidence, and in light of the legal framework outlined in

section 2 above, we consider that the 200mm pipe installed in Pierhead Street

is a water main as defined in section 219 of the Act (see paragraph 3.1). The

200mm Pierhead Street main is a pipe which is to be used by Dŵr Cymru for

the purpose of making a general supply of water available to customers or

17

potential customer(s). The pipe does not directly connect to any particular

premise or supply any particular customers. The pipe therefore falls within the

definition of water main as set out in section 219 of the Act.

4.8 We note that, following representations made to our previous draft

determinations on this case, the parties accept that the 200mm Pierhead

Street main is a water main rather than a service pipe.

4.9 On this basis, we believe the requisition was made under the provisions of

sections 41 and 42 of the Act, Therefore Dŵr Cymru is entitled to raise a

requisition charge from Redrow under the provisions of sections 42 and 43 of

the Act (see paragraphs 3.2 – 3.5) and this determination is made under the

provision of section 42(6). Consequently, we are able to consider whether the

costs for the provision of the 200mm Pierhead Street main and the remote

infrastructure are able to be included in the requisition charge calculation.

C. Non-domestic supply

Dŵr Cymru’s view

4.10 Dŵr Cymru has to date looked for the requisition charge to recover from

Redrow the cost of the infrastructure for both domestic and non-domestic

supplies to the Site, since the flow rate requested by Redrow was intended to

cover both of these.

4.11 In correspondence to us dated 14 July 2010, 20 August 2010 and 22 October

2010 and representations to us on the second draft determination in

September 2013, Dŵr Cymru states that UPL, acting on behalf of Redrow,

had specifically requested fire supplies as part of their requisition. On this

basis Dŵr Cymru believes it is entitled to recover the costs of the fire element

of the supply, and that it should form part of this determination. Dŵr Cymru

believes that sections 55 and 56 of the Act allow for water undertakers to fully

recover costs (i.e. 100%) for the provision of a water supply for non-domestic

purposes (in this case fire-fighting purposes) and any recalculation of the DAD

would need to take this into account. Dŵr Cymru also states that we have

powers to determine the fire element of the supply (pursuant to sections 55

and 56 of the Act) and could use our discretion under section 30A of the Act to

include this element in our section 42 determination. In their representations in

September 2013 they state that by not including non-domestic supply in our

determination, they will have been prejudiced by the time taken to reach our

determination given the limitation of our jurisdiction over disputes referred

under section 56.

18

Determined approach

4.12 We note Mott MacDonald’s observations included within its technical report

that confirmed Dŵr Cymru’s calculation that 13 litres per second is the

maximum required for the domestic supply element to the Site. We also note

Mott MacDonald’s observation in its technical report about approaches to the

provision of fire supplies. Mott MacDonald states in section 3.1 of its technical

report that the requisition originally made by McCann & Partners on behalf of

Redrow requested a flow rate of 24 l/s in order to meet both the Site’s

domestic supply requirements and to supply five fire hydrants. Mott

MacDonald note that no dedicated mains for fire-fighting purposes only were

laid by Dŵr Cymru as part of the scheme for the Site and that Dŵr Cymru

viewed the requisition as a request for a flow rate of 24 l/s and four

connections, each with a meter.

4.13 Dŵr Cymru is correct to state that there are discrete legislative provisions for

non-domestic supplies, which would include water for fire-fighting purposes.

Section 55 of the Act imposes a duty (subject to certain conditions) on a water

undertaker to provide a supply of water to premises, where the owner or

occupier of such premises requests the water undertaker to do so, for the

purposes of supplying water for non-domestic purposes. However, unlike

supplies for domestic use, there are no separate, specific provisions in the Act

related to the delivery of the infrastructure required to provide a supply for

non-domestic purposes (i.e. corresponding main requisitions). Section 56 of

the Act provides that any terms and conditions or other matters which fall to

be determined for the purposes of a request under section 55 of the Act shall

be determined by agreement between the parties or, in the absence of

agreement, by Ofwat (see paragraphs 3.6 and 3.17).

4.14 In responding to the Developer’s requisition Dŵr Cymru failed to draw out the

distinct supplies for domestic and non-domestic purposes to be provided

under sections 41 and 55 respectively. Dŵr Cymru did not respond to the

Developer’s request by separately agreeing terms and conditions to recover

the costs incurred in providing the non-domestic supply as provided under

section 55 of the Act. Instead they dealt with the combined supply requirement

as a supply for domestic purposes under section 41, which specifically deals

with water mains sufficient for domestic purposes, including the recovery of

the costs of both supplies within the requisition charge calculated in

accordance with sections 42 and 43. Mott MacDonald confirmed that Dŵr

Cymru dealt with the combined flow rate as a single request.

4.15 As a result of the requisition being provided under section 42, this dispute has

been referred to us under section 42(6) of the Act and therefore by definition

19

relates to payments required to be made or security required to be provided

by virtue of section 42 of the Act. Non-domestic supply does not form part of

the calculation of the requisition charge under section 42 and 43 of the Act,

and is outside of the scope of any determination under section 42(6). As such

the calculation of the requisition charge cannot include costs incurred to

provide supply for non-domestic purposes and we have excluded these costs

from our recalculation of the DAD.

4.16 Whilst under section 30A of the Act we have flexibility in how we handle

disputes to be determined, we do not think it is appropriate to use this

discretion to determine matters that have sections of the Act which specifically

provide for their own separate route to determination, particularly as section

56 of the Act sets out its own discrete provisions for determination rather than

providing for referral of disputes under section 30A of the Act.

4.17 As the Developer’s request for a supply of water for fire-fighting purposes

represents a request for a supply of water for non-domestic purposes, section

55 of the Act applies, with the terms and conditions for provision of the supply

in this matter subject to agreement between the parties. In the absence of

agreement, Ofwat has (under section 56) certain powers to determine

appropriate terms and conditions in this matter. That said, we reiterate that

this matter is outside the scope of our section 30A powers and as a

consequence it is not appropriate for us to determine on this issue in this

section 42 determination. If a separate section 56 referral was made to us on

this point we would then need to decide whether we had jurisdiction. In

particular it would be for the party(ies) to evidence to us that they had tried

and failed to agree between themselves the terms and conditions or other

matters that fall to be determined for the purpose of a request under section

55.

D. Apportionment of costs

4.18 Dŵr Cymru has stated that the actual scheme costs were £945,040.73,

incorporating £7,224.53 for the 200mm pipe in Pierhead Street, but that it had

not reviewed the requisition charge based on actual rather than their original

estimated costs.

4.19 In its technical report, Mott MacDonald deemed these costs to be reasonable.

We note that UPL is not disputing the total costs of these assets but rather the

relative proportion that Redrow should pay under section 42 and section 43 of

the Act.

20

4.20 In a letter dated 14 July 2010, Dŵr Cymru confirmed that the additional

capacity in the remote infrastructure was provided to be used for future

development in the area. In their representations to us in September 2013,

Dŵr Cymru confirmed to us that other developers in the Cardiff Bay area have

since connected to this infrastructure and benefitted from the additional

capacity provided in the 400mm main.

4.21 Given that the remote infrastructure was not provided by Dŵr Cymru with the

intention of supplying the Site alone, we must determine what proportion of

the costs reasonably incurred in providing the remote infrastructure should be

attributed to the Site and hence included in the calculation of the requisition

charge under sections 42 and 43 of the Act.

4.22 In its requisition charge, Dŵr Cymru has attributed 54.15% of the costs of the

scheme to the Site on a notional costs approach. Dŵr Cymru arrived at this

percentage by calculating what its contractor would have charged for

providing the size of infrastructure that would be required purely to supply the

Site’s requirements (including both its domestic and non-domestic supplies).

4.23 In line with the technical advice we received from Mott MacDonald (as set out

in paragraph 2.18), we are satisfied that the Site required 9.29% of the total

capacity of the remote infrastructure to fulfil its domestic supply requirements

(the Site’s non-domestic supply requirements are excluded and do not form

part of the requisition charge, see paragraph 4.15).

Dŵr Cymru’s view

4.24 Dŵr Cymru stated in correspondence dated 5 October 2007 that an

appropriate amount to include in the requisition charge calculation was

54.12% of the total costs of the remote infrastructure. Dŵr Cymru also asserts

that Mott MacDonald’s technical report did not recommend an approach to

apportioning costs for the Site based on the percentage of the infrastructure’s

total capacity to be used by a development.

4.25 Dŵr Cymru does not believe that our stated approach of apportioning costs on

the basis of the percentage of the capacity of the infrastructure to be used by

a development is acceptable or fair to the undertaker, or compliant with the

Act. In their representations to us in September 2013, Dŵr Cymru again

reiterated their belief that where additional capacity is provided costs should

be apportioned on the basis of the proportion of costs that the undertaker

would have had to incur to meet the developer’s requisition requirement. In

this case they believe these are the costs that would have been incurred in

providing a 200mm main solely to serve the Site. They note that had they

21

provided only sufficient capacity to serve the Site, they would have been able

to include the whole of their costs reasonably incurred in the calculation of the

requisition charge.

4.26 Dŵr Cymru states that apportioning costs on the percentage of the capacity

used by the development site is not lawful and is inconsistent with section

51A(7)(c) of the Act which they believe explicitly requires a notional costs

approach to apportionment. Further they believe it would adversely impact on

sustainability and environmental principles and encourage undertakers to take

a short-term and inefficient approach to investment, only providing supply

sufficient to meet each site’s requirements. In addition Dŵr Cymru believes

that apportioning costs on the percentage of the capacity provided used by

the developer would always leave a proportion of the costs unrecoverable by

the undertaker. In particular they note that this would make investment

inefficient since it would mean the provision of headroom in standard-sized

pipes would be unrecoverable or would lead to undertakers using and

recovering the costs of more expensive bespoke pipes to exactly meet

requisition requirements. We give our view in paragraphs 4.29 – 4.35.

UPL’s view (on behalf of Redrow)

4.27 In its letter to us of 2 November 2010, UPL confirms its strong support for the

apportionment of the remote infrastructure costs being made on the basis of

the percentage of the capacity of the infrastructure to be used by a

development and on actual costs, rather than using notional scheme costs.

We give our view in paragraph 4.29 - 4.35.

4.28 UPL asserts that the apportionment of infrastructure costs in other utilities

(such as electricity) is based on a percentage contribution based on use

against the capacity of the new infrastructure. UPL believe this is an

appropriate mechanism for ensuring that Redrow meets only the cost of works

that are directly attributable to the Site.

Determined approach

4.29 We have taken into account the legal framework, the Parties’ views and the

Mott MacDonald report. We have determined that it is appropriate to calculate

the requisition charge for the remote infrastructure based on the percentage of

the total capacity of the provided infrastructure to be used by the Site for

domestic supply purposes.

4.30 As set out in paragraphs 3.7 – 3.10 above, section 43(2) of the Act requires

that the requisition charge calculation includes “…an amount equal to so

22

much of the costs reasonably incurred in providing the main as were not

incurred in the provision of additional capacity…”. The Act does not set out

specific provisions for calculating how the total costs reasonably incurred

should be apportioned between the required main and any additional capacity

provided in order to establish what amount is “so much” of the total

reasonable costs incurred. Having considered the provisions of the Act and

the arguments made by Dŵr Cymru and UPL, we consider that both the

notional costs approach and the apportionment of costs on the basis of the

percentage of the total capacity used by the development are legally

justifiable. The Act does not clearly favour one approach over the other. We

do not agree with Dŵr Cymru that apportionment based on the percentage of

the infrastructure’s total capacity that is used by the Site is not compliant with

the Act. Dŵr Cymru’s representations on this case have not provided any

arguments or new information on this point that would cause us to change our

view on this point.

4.31 In order to make a determination on the requisition charge for this Site it is

necessary for us to adopt the approach to apportioning the costs of the

remote infrastructure that we believe is most reasonable and balanced, such

that these costs can be included in the requisition charge calculation. We

consider that an approach to recovery based on the percentage of capacity

used by the Site is consistent with the legal framework set out above, and is

consistent with ensuring that Dŵr Cymru recovers only those “costs

reasonably incurred” in the provision of the relevant infrastructure in

accordance with section 43(2) of the Act.

4.32 We do not agree that this approach is inconsistent with section 51A(7)(c) of

the Act. This section refers to "extra expense reasonably incurred” in

complying with a request to provide additional water supply services,

providing no guidance on how to quantify the amount of the total cost of

providing a main under section 51A of the Act should be apportioned to the

"extra expense". As section 51A of the Act deals with agreements to adopt a

water main at a future date, this particular provision relates specifically to a

water undertaker having to pay a developer for the cost of providing additional

capacity, suggesting that the intention of the Act is to prevent the initial

developer in an area from having to disproportionately bear the burden of the

costs of a infrastructure designed to cater for additional capacity to be used by

future developers.

4.33 It is our view that where additional capacity is provided a notional costs

approach to apportionment poses a greater risk of error and over-recovery by

water undertakers (particularly where more than one developer uses the same

infrastructure over time) since it is based on estimated costs for a

23

hypothetical, design-based scheme that will never actually be built. This

counterfactual approach also risks disincentivising development and distorting

competition between developers since the first developer on a site would

always bear the risk of the water undertaker’s decision to provide additional

capacity by facing much higher charges than subsequent developers joining

the shared infrastructure at a later point.

4.34 In contrast, apportioning costs on the basis of the percentage of the capacity

provided that is necessary for the actual requisition provides greater clarity

and transparency for all parties due to it being based on the actual costs of

providing the infrastructure actually constructed and the proportion of that

needed to serve different purposes. We consider that recovery based on the

percentage of capacity used apportions costs and risks between developers

and the water undertaker in a reasonable and equitable manner. It ensures

that where a water undertaker decides to include additional capacity beyond

the requisition’s requirements, the financial burden of this decision does not

fall disproportionately to the first developer that shares that infrastructure, but

rather that the developer meet the costs of only that proportion required in

consequence of their requisition, This approach aligns with the principle that

water undertakers need to have a clear view of potential future developments

in order to take a strategic and efficient approach to the development of their

network to support this. This best ensures that they provide additional

capacity where they are confident that this will be required and as such where

they will be able to recover appropriate charges.

4.35 Dŵr Cymru argues that apportioning costs for infrastructure based on the

percentage of capacity used would render most large capital schemes

uneconomic. We do not agree with Dŵr Cymru’s argument. We would expect

water undertakers to only build infrastructure with additional capacity where

they have a justification, such as they anticipate that there will be extra

demand on the system, including as a result of new property development

schemes, or to improve security of supply for existing customers.

4.36 In 2011 Dŵr Cymru provided updated cost information to us confirming actual

capital costs of £945,040.73 rather than their original estimated costs for the

scheme of £849,512.00. This revised total comprises £7,224.53 for the

Pierhead Street main plus £937,816.20 for the remote infrastructure works.

On the basis of the percentage of the infrastructure’s total capacity used for

the Site for domestic supply purposes (as set out in paragraphs 2.18 and

4.25), we have calculated the proportion of the cost for the remote

infrastructure that should be included in the requisition charge calculation

under section 42 of the Act to be £87,123.12. Reflecting the proportion of the

capacity provided that is used for domestic use, as set out in paragraph 2.18

24

above, this is 9.29% of £937,816.20, the actual costs incurred for the remote

infrastructure element of the requisition. The 200mm pipe in Pierhead Street

connects the Site to Dŵr Cymru’s network and was solely provided to meet

the needs of the requisition and did not provide additional capacity added by

the undertaker. As such apportionment of the pipework’s costs is not required

and the full cost of the 200mm pipe in Pierhead Street (£7,224.53) is also

included in the requisition charge. As a result of these two components, we

determine that the total scheme costs reasonably incurred to meet the

requirements of the requisition are £94,347.65. It is this figure that should be

used as the scheme costs for the purposes of calculating the requisition

charge (see paragraph 4.42).

E. The requisition charge

4.37 Neither UPL nor Redrow have disputed the income and occupancy rate

assumptions used by Dŵr Cymru in its calculation of its estimated requisition

charge.

4.38 In a letter dated 14 July 2010, Dŵr Cymru stated that the relevant start year

for the requisition charge should be 2005-06 rather than 2006-07. This is

because in Dŵr Cymru’s opinion the main had been provided in January

2006. This has been reflected in our revised calculation set out in paragraph

4.42.

4.39 In April 2010 UPL provided the details of the final actual occupancy rates in

the scheme. With 161 property completions in 2006 (Year 2 of the 12-year

period); a further 391 in 2007 (Year 3); and the final 56 units completing in

2008 (Year 4). This has been reflected in our revised calculation set out in

paragraph 4.42.

Determined approach

4.40 Section 42(2)(a)(ii) of the Act provides that the requisition charge is to be paid

following provision of the main, which would include the remote infrastructure.

As such, the final requisition charge could only be calculated once the main

and remote infrastructure were provided and Dŵr Cymru had its actual costs.

4.41 In this case, we understand that the works on the remote infrastructure were

completed in December 2005, with the remaining works being completed in

January 2006.

4.42 Using the standard DAD calculation methodology spreadsheet (in line with the

approach outlined in paragraph 3.4 above), we have recalculated the

25

requisition charge to reflect the revised actual costs incurred in meeting the

requisition (as set out in paragraph 4.36); our determination regarding the

apportionment of these (as set out in paragraph 4.36); and the actual

occupancy rates of the development (as set out in paragraph 4.38). On this

basis, we have determined the discounted aggregate sum and hence the

requisition charge to be £2,663.25. Appendix 1 gives details of this

calculation.

F. Amount and basis of infrastructure charges for the Site

Dŵr Cymru’s view

4.43 Dŵr Cymru asserts that it is entitled to recover in full the requisition charge in

accordance with sections 41 to 43A of the Act, as well as infrastructure

charges under 146 of the Act as they are discrete legal provisions. It states

that there is no cross-referencing in the Act between sections 41- 43A and

146 of the Act and hence there is no legal requirement to net infrastructure

charges against the requisition charge. Dŵr Cymru reasserted this view in

their representations to us in September 2013, emphasising that these two

provisions in the Act are distinct and that they can legitimately recover both

charges from the developer. Furthermore they asked that we conclude

whether any double recovery has occurred in this case. We give our view in

paragraphs 4.48 – 4.51.

4.44 Dŵr Cymru believes infrastructure charges for the Site should be raised using

the standard infrastructure charge method rather than the relevant multiplier.

They estimate the infrastructure charge at £316,160.00, calculating this by

multiplying the standard infrastructure charge for 2005/06 (£260.15) by the

Site’s 608 property units. We give our view in paragraph 4.54.

4.45 Dŵr Cymru has asserted that a common billing agreement is not in place for

the Site and that common billing agreements are unlawful. In support of this

position, it has referred us to a county court case in 2003 between it and a Mr

Dartnell (and others, Claim no CF104548 at Cardiff County Court, 1 August

2003). Dŵr Cymru informed us that its Counsel asserted in that case that

common billing agreements are not legal following the coming into force of the

Water Industry Act 1999 and that the judge accepted this interpretation of the

legislation. We give our view in paragraphs 4.53 and 4.54.

UPL’s view (on behalf of Redrow)

4.46 In correspondence to us dated 10 April 2007, UPL confirmed that it

understood there to be a common billing arrangement in place for the Site

26

with a management company (Bruton Knowles). Water and sewerage charges

form part of the service charge paid by residents of the Site to Bruton

Knowles, they are not billed directly by Dŵr Cymru.

4.47 UPL is of the opinion that if Dŵr Cymru had wished to apply the standard

infrastructure charge basis for the Site it should have individually metered the

flats. As a result it is UPL’s view that infrastructure charges should be

calculated on the basis of the relevant multiplier method as opposed to the

standard infrastructure charge. We give our view in paragraph 4.54.

Determined approach

4.48 As set out in paragraph 3.11 above the Act’s provision under section 146 for

raising an infrastructure charge is separate and independent of the provisions

related to providing and charging for a main requisition in under sections 41-

43 of the Act. As such water undertakers are entitled to levy both charges

where a main requisition is resulting in the connection of premises to the

network for the first time.

4.49 Infrastructure charges were originally established to help enable water

undertakers to invest in general network improvements required to meet

increasing demand from new customers. The infrastructure charge is a flat-

rate, indexed figure recoverable against each domestic premises connected to

the water supply and/or public sewer network for the first time. This figure

originally sought to reflect the average cost of a new connection over time. As

such it does not relate directly to the actual costs of a specific scheme of

improvement or reinforcement works, but rather becomes a source of funding

for such works as and when the need for them arises. In this way

infrastructure charges are distinct from requisition charges applied under

section 43 of the Act, which directly link to works needed to provide a specific

main, both in terms of the main itself and wider works required in

consequence of providing that main.

4.50 Dŵr Cymru is entitled under section 146 of the Act to recover infrastructure

charges for the Site in addition to applying a requisition charge. We would

however expect infrastructure charges to be used for local network

improvement works and hence costs that are distinct from those directly

attributed to meeting the requirements of the requisition for the Site. We are of

the view that only the costs of infrastructure specifically provided to supply a

site should be included in the requisition charge. To avoid double recovery,

infrastructure charges should be used to fund separate costs from those

included in the calculation of the requisition charge. In this case we believe

that the costs of the infrastructure specifically required to supply the Site

27

(including the remote infrastructure attributable to the Site) are being

recovered through the requisition charge levied by Dŵr Cymru. We would not

expect any infrastructure charges levied for this Site to be contributing to

these same investment costs.

4.51 The scope of our determination has sought to consider whether Dŵr Cymru is

entitled to apply infrastructure charges and if so the method for calculating

these, rather than whether there has been any double recovery of costs

incurred through the two charges. As such we have not explicitly sought or

seen evidence that would enable us to assess whether double recovery of

investment costs has occurred in this case. However it is our expectation that

the costs that these two charges are intended to recover for Dŵr Cymru

should be distinct and that infrastructure charges should not be used in such a

way as to lead to any double recovery.

4.52 There are two domestic supply pipes provided at the Site which are separately

metered. Dŵr Cymru issues bills to Bruton Knowles who then recover water

bills from residents of the Site via a service charge. Dŵr Cymru does not

individually charge each of the apartments in the development. This practice

falls within the definition of a common billing agreement in section 1.3 of

Condition C of Dŵr Cymru’s Instrument of Appointment set out above and is

therefore subject to the relevant multiplier (see paragraphs 3.12 – 3.15).

4.53 We have considered Dŵr Cymru’s arguments that common billing agreements

are illegal and have also considered the 2003 County Court judgment. In our

view the judgement referred to by Dŵr Cymru does not conclude that common

billing agreements are illegal. Section 142 of the Act provides that water

undertakers can charge for the supply of water either in accordance with a

charges scheme under section 143 of the Act or in accordance with

agreements with the persons to be charged. In this case, this person is

Bruton Knowles.

4.54 We consider that where the common billing agreement raises charges at the

same level as those set out in the water undertaker’s charges scheme, the

common billing agreement will be legal under section 143 of the Act in respect

of the Site. In such circumstances, there is no difference to the end customer

between being charged under the charges scheme or via the common billing

agreement. We therefore determine that a common billing agreement is in

place in relation to the Site and that therefore the relevant multiplier method

should be applied in calculating the infrastructure charges in accordance with

Condition C of Dŵr Cymru’s Instrument of Appointment.

28

4.55 The connections were made in January 2006. On this basis, we have

calculated the infrastructure charges with respect to the standard

infrastructure charge for 2005-06 (£260.15).

4.56 UPL provided us with details of the water fittings installed at the Site to inform

the calculation of the relevant multiplier for the Site. In their representations to

us Dŵr Cymru has queried whether these are correct, in particular in terms of

the split between one and two-bedroom apartments. We have sought further

information on this from both UPL and Cardiff City Council’s planning

department, but have been unable to get a final verification of the Site’s

apartment types and water fittings. As such we have had to base our

determination on the best information available to us. The water fittings

information we have used for the Site’s 608 units are set out below.

Table 2: Water fittings by apartment type

Loading

Unit

1-bed

apartment

2-bed

apartment duplex

social housing

No. of

fittings

Load

Units

No. of

fittings

Load

Units

No. of

fittings

Load

Units

No. of

fittings

Load

Units

Shower 3 1 3 1 3 1 3 1 3

WC 2 1 2 2 4 3 6 1 2

Basin 1.5 1 1.5 2 3 3 4.5 1 1.5

Sink 3 1 3 1 3 1 3 1 3

Washing

Machine 3 1 3 1 3 1 3 1 3

Dish-

washer 3 1 3 1 3 1 3 1 3

Bath 10 0 0 1 10 1 10 0 0

Total

loading

units

- - 15.5 - 29 - 32.5 - 15.5

29

Table 3: Total loading units for Site

Loading units

per apartment

Number of

apartments of

that type

Total loading

units

1-bed apartment 15.5 173 2681.5

2-bed apartment 29 274 7946

Duplex 32.5 10 325

Social housing

apartment 15.5 151 2340.5

Total development - 608 13293

4.57 In line with the method set out in paragraph 3.15 and using the total loading

units set out in Table 4 above, we have calculated the relevant multiplier for

the Site to be 0.914. As set out in Table 5, applying this to the Site’s 608 units

and a combined water and sewerage infrastructure charge of £520.30

(£260.15 for water and £260.15 for sewerage), we calculate the Site’s

infrastructure charge to be £288,181.16.

Table 4: Level of infrastructure charges to be applied

Type of

service

Property

Units

Total

loading

units

Relevant

Multiplier1

Standard

Infrastructure

Charge per

unit

Charge

with RM

applied

per unit

Total

Infrastructure

Charge

Water 608 13,293 0.91 £260.15 £236.99 £144,090.58

Sewerage 608 13,293 0.91 £260.15 £236.99 £144,090.58

Total 608 13,293 0.91 £520.30 £473.48 £288,181.16

1 as set out in Condition C of an undertaker's Instrument of Appointment this is determined by

dividing total loading units by 24 (the industry standard reflecting the average number of

loading units for a standard domestic property) and then dividing by number of property units

in the development

4 The total of 13,293 loading units for the development is divided by 24 and then by the number of

units in the development (608) to reach a relevant multiplier of 0.91. This figure has been rounded in the text above, but the full figure is used in the charge calculation.

30

5. Conclusion

5.1 Based on the conclusions outlined above, and on the basis that the Site

requires 9.29% of the total capacity of the installed remote infrastructure and

100% of the Pierhead Street infrastructure, we have determined that the

actual reasonable costs incurred in meeting the requirements of the

requisition total £94,347.65. Recalculating the requisition charge (in line with

section 43 of the Act) to reflect this scheme cost and the final actual

occupancy rates for the properties, we determine that the level of the

requisition charge which Redrow should pay is £2,663.25 (see Appendix 1).

5.2 The Parties have not disputed the service pipe connection charges levied for

the Site and as such we are not making a determination on this component of

the charges levied for the Site. However Dŵr Cymru has confirmed to us that

a refund of £3,129.56 is due to Redrow for these charges. On this basis we

have included this refund in our summary of charges made and pending for

the Site.

5.3 In line with our determination in paragraph 4.48 above, we consider that Dŵr

Cymru is entitled to levy infrastructure charges for the Site, in order to support

wider local network reinforcement. They should be calculated on the basis of

the relevant multiplier methodology. On this basis, infrastructure charges of

£288,181.16 (£144,090.58 for water and £144,090.58 for sewerage) can be

raised by Dŵr Cymru. These charges should not be used to recover costs

already incorporated in the calculation of the Site’s requisition charge.

5.4 Dŵr Cymru has held the estimated requisition charge (£153,451.03) on

security. As this far exceeds our recalculated amount of the DAD, Dŵr Cymru

owes Redrow a refund of £150,787.78. Interest payments will also be due on

both the security paid by Redrow (from the date this was paid to Dŵr Cymru

until the works were provided) and the refund due (from the date the works

were provided until the refund is made to Redrow). In addition, Redrow is due

a refund of £3,129.56 reflecting the undisputed difference between the

estimated and actual charges of the water supply connections to the Site. This

will also be subject to interest payments. The Parties should arrange between

themselves how this money is to be refunded, as we understand the Site’s

infrastructure charges are still owed to Dŵr Cymru. Interest rates should be

applied in accordance with Ofwat’s Information Notice on interest rates.

5.5 We summarise the charges already paid by Redrow to Dŵr Cymru, our

determination of them and any resulting refunds due in Table 5 below. On this

basis, Redrow is due refunds of £150,787.78 from the requisition charge and

£3,129.56 from the service pipe connection charge, but owes Dŵr Cymru

31

£288,181.16 for the Site’s infrastructure charges. Subject to adjustments for

interest payable these payments should be paid within 20 working days of this

final determination document being issued to parties.

Table 5 – Charges made and pending (excluding interest payments)

Item

Dŵr Cymru’s

Estimated

Charge

Amount Paid

by the

Developer to

date

Our

determination

of the Actual

Charge

Developer

Refund

(Payment) Due

Mains

requisition

charge

(the

“discounted

aggregate

deficit”, or

“statutory

commuted

sum”)

£153,451.03 £153,451.03 £2,663.25 £150,787.78

Service pipe

connection

charge

£25,880.00 £25,880.00 £22,750.441 £3,129.56

Infrastructure

charge (water

& sewerage)

£316,160.00 None £288,181.16 (£288,181.16)

TOTAL £495,491.03 £179,331.03 £313,594.85 (£134,263.82)

1 this figure is undisputed by the parties. The refund reflects the difference between Dŵr

Cymru’s estimated and actual costs.