Welsh Water Ltd, R (on the application of) v Water Services Regulation Authority (Ofwat)

Ofwat’s policy for appointing non-incumbent water undertakers to unserved greenfield sites was lawful and rational. The statutory consumer objective requires protection of existing and future consumers, wherever appropriate by promoting effective competition. It does not require Ofwat to show a defined benefit for consumers on the particular site or for customers of the incumbent. A policy may lawfully promote competition for the market, including through developer-selected inset appointments, where the specialist regulator considers that the policy furthers the statutory objective. Welsh Assembly guidance must yield where it conflicts with the express duties imposed by the Water Industry Act 1991.

Welsh Water, the incumbent statutory water and sewerage undertaker for the relevant area, challenged Ofwat’s appointment of SSE Water as undertaker for an unserved greenfield development at Llanilid. Ofwat had applied its policy that customers affected by an inset appointment should be no worse off than if they had remained with the incumbent. Welsh Water contended that Ofwat had to be satisfied that the new appointee would provide a more beneficial service. The central issue was whether Ofwat’s policy was lawful and rational under the amended statutory duties in the Water Industry Act 1991.

1. The claim for judicial review was dismissed with costs. Permission to appeal was refused.

2. The relevant statutory objective was the consumer objective in section 2(2A)(a) and section 2(2B) of the Water Industry Act 1991: protecting consumers, wherever appropriate, by promoting effective competition in water and sewerage services.

3. “Consumers” included existing and future consumers. The interests requiring protection were not confined to consumers on the inset site or to customers of the incumbent undertaker.

4. Ofwat could regard inset appointments as competition for the market and as one of the limited available means of introducing competition into a vertically integrated, geographically bounded monopoly. The evidence of the specialist regulator showed that the policy could promote competition, lower prices, improve service, encourage innovation and provide incentives for incumbents to improve.

5. A policy intended and effective to further the statutory objective could not be characterised as unlawful or irrational merely because a more demanding policy might also have been adopted. Ofwat was entitled to apply its policy within the generous range of judgment allowed by the statute, while keeping it under review.

6. Section 7(4)(b) did not require Ofwat to demonstrate a definable benefit for prospective residents of the site or for customers of Welsh Water throughout its area. Welsh Assembly guidance was relevant only within its statutory limits and had to yield to Parliament’s express duties where inconsistent with them.

This was a first-instance judicial review in the Administrative Court. Permission to appeal was refused.