Albion Water Ltd v Water Services Regulation Authority [2006] CAT 36 (18 December 2006) [2006] CAT 36

"(1) There is evidence before the Tribunal that the treatment cost of non-potable water on an average accounting cost basis was over-estimated in the Decision. However the Tribunal is prepared to assume, without deciding, that treatment costs are in the range 1.6p/m³ to 3.2p/m³. (2) The matter of the "distribution" cost of non-potable water on an average accounting cost basis was not sufficiently investigated. In this respect the Decision is incorrect, or at least insufficient, from the point of view of the reasons given, the facts and analysis relied on, and the investigation undertaken, as regards in particular to the Director's conclusion in paragraph 302 of the Decision to the effect that it was not unreasonable to assume that the "distribution" costs of potable and non-potable water are the same. (3) The evidence strongly suggests that the First Access Price was excessive in relation to the economic value of the services to be supplied, by reason of the absence of any convincing justification for the "distribution" costs included in the average accounting cost calculation. (4) The cross-check as to the validity of the First Access Price by reference to ECPR in paragraphs 317 to 331 of the Decision cannot be safely relied on because (i) the 'retail' price used in the calculation is not shown to be cost-related, as regards the distribution element; (ii) the evidence strongly suggests that that price was itself excessive; (iii) the particular method of ECPR used in this case would eliminate existing competition and, in effect, preclude virtually any competitive entry, because the margins are insufficient; and (iv) the approach of the Authority in its evidence and submissions was not the same as that in the Decision. None of the justifications for an ECPR approach advanced by the Authority persuaded us that we could safely rely on the approach set out in the Decision in the circumstances of the present case. (5) As regards the allegation of margin squeeze, the existence of a margin squeeze was not seriously disputed. The Director's finding at paragraph 352 of the Decision that nonetheless there was no breach of the Chapter II prohibition was erroneous in law and incorrect, or at least insufficient, from the point of view of the reasons given, the facts and analysis relied on and the investigation undertaken. (6) It is unsafe to assume, as the Director does in paragraphs 331 and 338 of the Decision, that the Costs Principle set out in section 66E of the WIA91 supports the conclusion which the Director reached in the Decision, since (i) the retail price used in the calculation in the Decision is not shown to have been reasonably cost-based, and the evidence strongly suggests that that price was itself excessive; and (ii) the Director's interpretation of ARROW costs under section 66E(4) is open to serious question, since that interpretation would on the evidence preclude virtually any effective competition or market entry, and give rise to a potential conflict with the consumer objective under that Act and with the Chapter II prohibition."

"In summary, in light of the above, we consider that the cost of constructing new infrastructure to serve Shotton would not be sufficient to constitute a barrier to entry."

"145. Since [the existence of a dominant position] is the assumption upon which the Decision is predicated, we do not need to consider in detail the Director's analysis, at paragraphs 86 to 225 of the Decision, of the issue of dominance in the relevant market and the associated issue of whether the Ashgrove System is indeed an "essential facility" for the purposes of the Chapter II prohibition. We make it clear, however, that had we had to consider the issue of dominance, we would at first sight have had difficulty in agreeing with the Director's doubts as to whether Dwr Cymru had a dominant position within the meaning of the Chapter II prohibition, and in particular his view that the suggested possibility of constructing a new pipeline to serve Shotton Paper instead of the Ashgrove System would arguably negative any such dominant position. The Director was, in our view, correct to assume that Dwr Cymru had a relevant dominant position. 146. We would also observe that the Decision (at paragraph 213) is somewhat equivocal as to what is the precise ambit of the relevant market in which Dwr Cymru is assumed to be dominant. Like the Director in that paragraph, we accept as a starting point that Dwr Cymru is to be assumed to be dominant in the market for the transportation of non-potable water for supply to industrial customers in the geographical area served by the Ashgrove system (Decision, paragraphs 104 to 110). 147. We also accept that, as Albion suggests in its skeleton argument, if Dwr Cymru is assumed to be dominant in the (upstream) market for the transportation of non-potable water for supply to industrial customers in the geographical area served by the Ashgrove system, the principal issue in the case is whether Dwr Cymru has abused that dominant position so as to eliminate or significantly impede competition in the (downstream) market for the supply of non-potable water to industrial customers in that area, that downstream market for the supply of non-potable water being a market within which Albion and Dwr Cymru are actual or potential competitors. The distinction between the upstream supply of transportation services, on the one hand, and the downstream supply of the water itself, on the other hand, needs to be kept in mind."

"Option B: instead of taking water from Heronbridge, it may be possible to purchase the water from United Utilities at, or close to, its Sutton Hall treatment works, which itself is fed inter alia by United Utilities' side of the Heronbridge abstraction works. The attached map at Exhibit CJ-A shows the location of the works. Examination of this location on other maps of the surrounding area, such as the map provided by Albion in its Notice of Appeal (Annex 12/104), suggests that the Sutton Hall works is no more than 8km from the Shotton site, a distance over 8km shorter than the total length of the Ashgrove main. The effect of using a shorter length of main would be to save around £4.5m, assuming similar unit costs for the construction of the main to those presented in Annex 2 in connection with Option A. This would represent a reduction in the standalone price of around 9p/m³ (again using the assumptions presented for Option A – see Annex 2); Option C: use of the boreholes owned by the steelworks next door to the Shotton site. Although Albion has asserted that this option is not feasible, the steelworks has been actively looking to exploit their potential for some time. It has now informed Dwr Cymru that it is re-starting the boreholes and intends shortly to install a reverse osmosis plant to treat the water. Based on my knowledge of typical costs, I estimate that water could be abstracted, treated for hardness (assuming that were necessary), and delivered to the Shotton site for less than 12 p/m³. This cost includes the water, as well as the transportation, and is therefore comparable with the whole price paid by Albion, not just the proposed price for the common carriage element (see Annex 3); and Option D: direct abstraction from the Dee. Shotton is located no more than l km or so from the Dee estuary. In order to treat estuary water to acceptable standards, reverse osmosis would almost certainly be required. If, however, reverse osmosis is economically feasible for the steelworks (see Option C above) then in my view it is likely to be feasible as part of a direct abstraction option. Further, it is clear that this list is by no means exhaustive. Both the Director and Albion have made references to potential alternative sources, such as the Milwr Tunnel."

"• the Deeside industrial park is not close to any significant towns or cities. Were either or both customers for non-potable water to shut down, it is possible that other potential water users would occupy the land in due course, but there is no guarantee that they would require much water at all, let alone non-potable water. Therefore, for the hypothetical service provider there would be a high probability that closure of the two plants would lead to the permanent "stranding" of the project, with no obvious alternative use for the non-potable water at Sealand in prospect; • the market perception of the credit risks of the two customers is not very favourable. The parent company for the paper mill has a BBB credit rating with Standard & Poors, which means that it "exhibits adequate protection parameters", but "adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment"

"We do not accept that we have made a CA98 decision on the relevant issues. But I have spoken to Philip Fletcher and we both have some sympathy with your view that you need a fully reasoned decision. The case does appear to raise important issues relating to common carriage generally and the calculation of access prices. I agree that it is important, both to you and the industry as a whole, that our detailed thinking on this issue is publicly available, and open to challenge before the Competition Commission Appeal Tribunals ("

"The purpose of the Tribunal's letter of 20 June 2006 was to ascertain whether there was further evidence or submissions that the parties might wish to submit on the issue of market definition and dominance, should the need arise for the Tribunal to consider whether to address that issue. The Tribunal was, and is, of the view that as a matter of case management it is better, and fairer, for the Tribunal to ascertain whether there is further relevant factual material relevant to the issue of market definition and dominance, while the matters are still fresh in everyone's mind, given that the Tribunal in its judgment may make findings on matters that are relevant to issues of dominance (see Transcript, day 6, pp 94-95). The position taken by the Authority and Dwr Cymru is, however that: (a) the Tribunal has no jurisdiction to consider any factual material on the issue of dominance; and (b) in any event, the Tribunal should not consider any such material. That stance clearly sets out the position of the parties with regard to the Tribunal's invitation. Should the need arise, the Tribunal will rule on those points in a reasoned judgment which the parties may or may not wish to appeal. Unless and until it has reason to do so the Tribunal has not taken, and will not take, a decision either to accept or reject the submissions made by the parties in the letters of 30 June 2006 and 3 July 2006 (including those made by Dwr Cymru on 24 April 2006)."

"it is highly unsatisfactory for the issue of dominance to be left as it is, and for the issue of dominance to have become "detached" from the issues relating to abuse. A good deal of evidence bearing on the issue of dominance that was not before the Director is now before the Tribunal. In those circumstances the Tribunal proposes to consider with the parties how the matter of dominance should now be handled. To facilitate that consideration, Annex A to this judgment summarises non-exhaustively matters potentially relevant to the issue of dominance and to the most appropriate course to adopt in that regard."

"(1) The Tribunal must determine the appeal on the merits by reference to the grounds of appeal set out in the notice of appeal. (2) The Tribunal may confirm or set aside the decision which is the subject of the appeal, or any part of it, and may— (a) remit the matter to the [Authority [2] ], (b) impose or revoke, or vary the amount of, a penalty, (c) . . . (d) give such directions, or take such other steps, as the [Authority] could itself have given or taken, or (e) make any other decision which the [Authority] could itself have made. (3) Any decision of the Tribunal on an appeal has the same effect, and may be enforced in the same manner, as a decision of the [Authority]. (4) If the Tribunal confirms the decision which is the subject of the appeal it may nevertheless set aside any finding of fact on which the decision was based."

"Market definition is a tool to identify and define the boundaries of competition between firms … The objective of defining a market in both its product and geographic dimension is to identify those actual competitors of the undertakings involved that are capable of constraining those undertakings' behaviour and of preventing them from behaving independently of effective competitive pressure."

"The key idea is that of a competitive constraint: do the other products alleged to form part of the same market act as a competitive constraint on the conduct of the allegedly dominant firm?"

"In most circumstances, in the Tribunal's view, a market share of 90% or above, which has continued throughout the period of infringement and is likely to continue for several years, will be sufficient, depending on the circumstances, to infer the existence of dominance: See Napp , cited above, at paragraphs [156] to [160], and Aberdeen Journals (No. 2) , cited above, at [310], and the cases there cited."

"The OFT will not factor supply side substitution into market definition unless it is reasonably likely to take place, and already has an impact by constraining the supplier of the product or group of products in question. What matters ultimately is that all competitive constraints from the supply side are properly taken into account in the analysis of market power. Whether a potential competitive constraint is labelled supply side substitution (and so part of market definition) or potential entry (and so not within the market) should not matter for the overall competitive assessment. If there is any serious doubt about whether or not to account for possible supply side substitution when defining the market and calculating market shares, the market will be defined only on the basis of demand side substitutability and the supply side constraint in question will be considered when analysing potential entry." (paragraph 3.18) At footnote 36 to paragraph 3.18 the OFT states: "

"Furthermore although the importance of the market shares may vary from one market to another, the view may legitimately be taken that very large shares are in themselves, and save in exceptional circumstances, evidence of the existence of a dominant position. An undertaking which has a very large market share and holds it for some time… is by virtue of that share in a position of strength…"

"With regard to market shares the Court has held that very large shares are in themselves, and save in exceptional circumstances, evidence of the existence of a dominant position (judgment in Case 85/76 Hoffman-La Roche v Commission [1979] ECR 461 , paragraph 41). That is the situation where there is a market share of 50% such as that found to exist in this case."

"In most circumstances, in the Tribunal's view, a market share of 90% or above, which has continued throughout the period of infringement and is likely to continue for several years, will be sufficient, depending on the circumstances, to infer the existence of dominance."

"152. In an e-mail from Albion Water to United Utilities Water dated 6 December 2001, Albion Water stated: "

'At this stage the initiative needs to be absolutely confidential, and exploratory…in the short term I have to be careful not to undermine our position that [Dwr Cymru] main is an essential facility. If we end up going for a new main to serve the site [Enviro-Logic] would have the support of the customer as long as we had exhausted other options first, but the financing options remain to be explored.' 154. United Utilities Water responded in an e-mail from John Lees dated 19 December 2001. It stated that: '

"In summary, in the light of the above, we calculate that the cost of constructing new infrastructure to serve Shotton would not be sufficient to constitute a barrier to entry."

"…that the length of time it would take for a WaSC or a WoC new entrant to construct the necessary infrastructure to supply Shotton would not amount to an insurmountable barrier to entry, and would not prevent a WaSC or WoC constraining an incumbent undertaker's market power through constructing, or threatening to construct, such infrastructure."

"if there are no potential competitors available, and the customer has no water of its own, it has nowhere to go but to the incumbent undertaker for treatment and distribution of its water"

"There are certain factors in this case which would point strongly to Dwr Cymru being in a dominant position on the relevant market. First, albeit depending very much on the precise market definition used, Dwr Cymru might have had a 100% market share at all material times. Second, for whatever reason, no company has yet duplicated the Ashgrove System. Third, we have not seen any evidence that Dwr Cymru itself felt constrained by the emergence of Albion Water during the Inset Application process (or by any other competitor), although we have not expressly sought such evidence."

"138. As to procedural fairness, Austins/Harwood Park has participated fully in these proceedings and has been ably represented. At the case management conference on 19 October 2004 the Tribunal made it clear (transcript, page 14) that one option for the Tribunal was to take its own decision, and that Austins should file any evidence that it wished to file on the issues in the case. Austins, in our view, has had every opportunity to defend itself, knowing the options available to the Tribunal. In addition, as already pointed out, there is no question of a penalty being imposed upon Austins. 139. As to whether the Tribunal should proceed to take its own decision, a primary factor that weighs with the Tribunal is the regulatory delay that has already taken place. The facts of this case are not complex, but they do concern medium sized businesses serving a vulnerable class of consumer. We regard a delay of over two years in producing a decision in such circumstances as incompatible with the effective enforcement of the Act. To remit the matter now, for further investigation of indeterminate length, would not in our view be in the interests of the parties nor, more importantly, in the interests of the consumers concerned…"

"(a) Did Dwr Cymru misallocate any costs when calculating the First Access Price? (b) Does the First Access Price bear no reasonable relation to the economic value of the service provided, when judged by reference to the difference between the costs actually incurred by Dwr Cymru and the price charged? (c) If the answer to (b) is in the affirmative, was the First Access Price unfair either in itself or when compared to competing services?"

"335. The second question we considered was whether the First Access Price could be said to bear no reasonable relation to the economic value of the service provided, when judged by reference to the difference between the costs actually incurred by Dwr Cymru and the price charged. 336. There is no legal definition of the "economic value" of a service. In United Brands, the ECJ simply referred to examining differences between costs and prices. Similarly, there is no definition of "excessive" in the context of pricing. 337. We have considered how best to assess costs, and whether the First Access price is excessive in relation to those costs. On the one hand, Dwr Cymru adopted a particular approach to calculating the First Access Price which, with our adjustments to correct cost misallocation, would point to costs closer to 19.2p/m³, than the 23.2 p/m³ of the First Access Price. 338. However, as discussed above, we think that there are dangers in accepting only one approach when assessing costs and whether or not an access price is excessive. We therefore had regard to the Second Bulk Supply Agreement, the Costs Principle, and ECPR. The access price resulting from an ECPR approach based on the Second Bulk Supply Agreement would be approximately 22.5p/m³. We think that the Costs Principle would produce the same price. 339. In light of the above, and despite our dissatisfaction with the fact that the First Access Price did contain cost misallocation, we have doubts about whether the First Access Price could be said to bear no reasonable relation to the economic value of the service provided, when judged by reference to the difference between the costs actually incurred by Dwr Cymru and the price charged. … 341. We are therefore unable to answer our second question in the affirmative, we do not therefore need to address our third question, and we conclude that Dwr Cymru did not abuse a dominant position in breach of the Chapter II Prohibition by engaging in excessive pricing."

"For the reasons given above we have reached the following conclusions: (1) There is evidence before the Tribunal that the treatment cost of non-potable water on an average accounting cost basis was over-estimated in the Decision. However the Tribunal is prepared to assume, without deciding, that treatment costs are in the range 1.6p/m³ to 3.2p/m³. (2) The matter of the "distribution" cost of non-potable water on an average accounting cost basis was not sufficiently investigated. In this respect the Decision is incorrect, or at least insufficient, from the point of view of the reasons given, the facts and analysis relied on, and the investigation undertaken, as regards in particular to the Director's conclusion in paragraph 302 of the Decision to the effect that it was not unreasonable to assume that the "distribution" costs of potable and non-potable water are the same. (3) The evidence strongly suggests that the First Access Price was excessive in relation to the economic value of the services to be supplied, by reason of the absence of any convincing justification for the "distribution" costs included in the average accounting cost calculation. (4) The cross-check as to the validity of the First Access Price by reference to ECPR in paragraphs 317 to 331 of the Decision cannot be safely relied on because (i) the 'retail' price used in the calculation is not shown to be cost-related, as regards the distribution element; (ii) the evidence strongly suggests that that price was itself excessive; (iii) the particular method of ECPR used in this case would eliminate existing competition and, in effect, preclude virtually any competitive entry, because the margins are insufficient; and (iv) the approach of the Authority in its evidence and submissions was not the same as that in the Decision. None of the justifications for an ECPR approach advanced by the Authority persuaded us that we could safely rely on the approach set out in the Decision in the circumstances of the present case."

"For the reasons given above, the evidence before the Tribunal regarding actual costs incurred or attributable, strongly supports Albion's contention that a calculation of the actual costs attributable to the Ashgrove system would show that both the distribution cost of 16p/m³, and the total cost of 19.2p/m³, found in the Decision on an average accounting basis, were not related to "the costs actually incurred" by Dwr Cymru and accordingly were excessive."

"631. …In our judgment, the evidence we have referred to above, taken as a whole, shows on the balance of probabilities that it was not reasonable for Dwr Cymru to assume that the costs of "distribution" of non-potable and potable water were the same at 16p/m³. 632. By various routes, Albion arrives at a figure of no more than around 2p/m³ for distribution costs...The Authority did not adduce any evidence to show what the component elements of the cost structure of a typical non-potable system might be, even indicatively, on an average cost accounting basis. Apart from one document relating to the operating costs of the treatment works, no original or contemporaneous accounting material was produced by Dwr Cymru. 633. It must, in our view, have been obvious from the interim judgment that the Tribunal was seeking evidence in order to ascertain how, on an average accounting cost basis, the distribution cost of 16p/m³ could be justified, in its component elements, even indicatively. Instead of responding to the opportunity given to them by the Tribunal, Dwr Cymru, and later the Authority, produced quite different "stand-alone" calculations on a "new build" basis, even though it was accepted, rightly, in evidence that those calculations did not, and could not, form any basis for charging. 634. We find it difficult to believe that Dwr Cymru, and the Authority, would not have considered at an early stage of this case what accounting information was available that could be used to justify the average accounting cost figure of 16p/m³, even making various assumptions and estimates, but no such information has been produced. It is in our view significant that the only cost calculation produced by the respondent Authority, namely its "stand-alone" calculation of 25p/m³, comes within the "ball park" of the First Access Price of 23.2p/m³ only by assuming a rate of return some 15 times the rate that Dwr Cymru normally earns on its existing assets, and allocating to the Ashgrove system the entire overheads of a self-standing water company. That in itself, in our view, is strong evidence that the First Access Price was excessive. Dwr Cymru's higher figure of 32.4p/m³ is based on assuming an even higher rate of return, and inflating the MEA value of the pipeline at a time when, in our view, it must have known, or at least ought to have known, that the cost of mains laying was declining sharply. 635. This unfortunate history thus leaves the Tribunal, on the evidence, with a large unexplained gap between Albion's figure of 2p/m³ for distribution costs, which is supported by calculations on an average accounting cost basis, and the figure used in the Decision of 16p/m³, the components of which are not supported, even indicatively, by any calculations at all, either in the Decision or otherwise. We do not think that Dr. Bryan could have been expected to do more, since all the information is or should be in the hands of Dwr Cymru and the Authority. 636. In all those circumstances, and for the reasons given above, in our judgment the matter of the "distribution" cost of non-potable water on an average accounting cost basis was not sufficiently investigated. It follows, in our view, that on this aspect the Decision is incorrect, or at least insufficient, from the point of view of the reasons given, the facts and analysis relied on, and the investigation undertaken, as regards the conclusion set out in paragraph 302. 637. On the basis of Albion's estimate of distribution costs of around 2p/m³ and the range of some 1.6p/m³ to 3.2p/m³ for treatment costs, on Albion's figures the First Access Price should have been in round figures no more than 4p/m³ to 5p/m³. Even doubling Albion's figures to take account of elements possibly understated or omitted would produce a price broadly in the range of 8p/m³ to 10p/m³, less than half the First Access Price of 23p/m³. The evidence taken as a whole strongly suggests to the Tribunal that the First Access Price was excessive, in relation to the economic value of the services to be supplied, applying the United Brands test, by reason of the absence of any convincing justification for the "distribution" costs included in the average accounting cost calculation."

"(1) The Tribunal may at any time, on the request of any party or its own initiative, at a case management conference, pre-hearing review or otherwise, give such directions as are provided for in paragraph (2) below or other directions as it thinks fit to secure the just, expeditious and economical conduct of the proceedings. (2) The Tribunal may give directions – … (j) to enable a disputed decision to be referred back in whole or part to the person by whom it was taken;…"

"(4) Tribunal rules may make provision enabling the Tribunal to refer any matter arising in any proceedings (other than proceedings under section 47A or 47B of the 1998 Act) back to the authority that made the decision to which the proceedings relate, if it appears that the matter has not been adequately investigated."

"have regard to the desirability of – (a) facilitating effective competition within the water supply industry; (b) the supplier's recovering the expenses of complying with its obligations by virtue of this section and securing a reasonable return on its capital; (c) the supplier's being able to meet its existing obligations, and likely future obligations to supply water without having to incur unreasonable expenditure in carrying out works; (d) not putting at risk the ability of the supplier to meet its existing obligations or likely obligations to supply water."

"If the appellant challenges a decision by a regulator, and establishes, on grounds taken in the notice of appeal, that the decision was wrong, whether as a matter of procedure or because of some misdirection of law or because the CAT takes a different view of the facts on the evidence before it, the Tribunal has a choice of a number of courses open to it. It may set aside the decision and remit the case to the regulator. It may feel able to decide itself what the correct result should have been, so that no remission or reference back is necessary. It may wish to retain for itself the task of deciding the eventual outcome but require further findings from the regulator, in which case it will not remit but may refer all or part of the decision back under rule 19(2)(j), with a view to deciding the appeal with the benefit of the result of that referral."

"It may wish to retain for itself the task of deciding the eventual outcome but require further findings from the regulator, in which case it will not remit but may refer all or part of the decision back under rule 19(2)(j), with a view to deciding the appeal with the benefit of the result of that referral."

"The issue of an alleged margin squeeze arises because, to operate the proposed common carriage arrangement, Albion would have to pay the First Access Price of 23.2p/m³, and also acquire the water from United Utilities. United Utilities submits that it was likely to wish to negotiate with Albion a higher water price than the price United Utilities currently pays Dwr Cymru but, even if Albion paid only the price currently paid by Dwr Cymru of some 3.3p/m³, Albion's total cost would still be some 26.5p/m³. Since the retail price currently offered by Dwr Cymru under the New Tariff is 26.6p/m³, the de facto position is that the difference between the input price set by Dwr Cymru (i.e. the First Access Price) and the price Dwr Cymru sets in the downstream market (i.e. Dwr Cymru's retail price of 26.6p/m³) is such that Albion would be unable to compete effectively and would be forced to exit the market. In effect, the difference between Dwr Cymru's upstream and downstream prices would leave Albion with a zero margin, and thus unable to compete unless Shotton Paper were prepared to pay Albion more than Dwr Cymru's retail price."

"772. However, it has not been seriously disputed by the Authority and Dwr Cymru that, if the Decision is correct, Albion's common carriage proposal is dead. Albion is expected under the Director's ECPR calculation to supply Shotton at a margin of 0 per cent. Whatever the debate about the size of the margin needed by Albion, it is not seriously suggested that it could survive on a zero margin, and it has only done so, so far, because of the support of Shotton Paper and the interim relief ordered by the Tribunal. As Mr Jeffery points out in his witness statement of 11 November 2004, Albion necessarily incurs some staff costs, office costs, insurance costs, regulatory costs associated with its statutory appointment as an inset appointee, and so on. 773. Similarly, and for the same reason, if the Director's approach is correct, Albion could not survive even under the existing arrangements: so long as Dwr Cymru's retail price is at or about 26p/m³ and the price under the Second Bulk Supply Agreement is the same, Albion's margin between these two prices is effectively squeezed to zero. 774. It follows that, in this particular case, the application of ECPR will prevent the development of a competitive supply situation as regards the Ashgrove system, and eliminate an existing new entrant. Under the 1998 Act, the Tribunal is not concerned with the interests of Albion as such, but it is concerned with the interests of the customer, here Shotton Paper (and possibly Corus) and the preservation of competitive choice. The adoption of a pricing rule which, in this particular case, would simply throw Shotton Paper back into the hands of its former monopoly supplier, would not seem to us compatible with the development of competition."

"Moreover, in our view it is manifest that a "notional" retail business of Dwr Cymru could not trade profitably at a retail price of 26p/m³ and an input price of 23.2p/m³. It would still have to acquire the water (costing at least 3.3p/m³). At a retail price of 26p/m³, a notional "retail arm" of Dwr Cymru would itself have no margin to meet its costs, including overheads and profit. It follows that on this approach the alternative test for a margin squeeze is also met."

"(1) Tribunal rules may provide for the Tribunal to make an order, on an interim basis – … (c) granting any remedy which the Tribunal would have had power to grant in its final decision. (2) Tribunal rules may also make provision giving the Tribunal powers similar to those given to the OFT by section 35 of the 1998 Act."

"(1) The Tribunal may make an order on an interim basis – … (c) granting any remedy which the Tribunal would have the power to grant in its final decision. (2) Without prejudice to the generality of the foregoing, if the Tribunal considers that it is necessary as a matter of urgency for the purpose of – (a) preventing serious, irreparable damage to a particular person or category of person, or (b) protecting the public interest, the Tribunal may give such directions as it considers appropriate for that purpose (3) The Tribunal shall exercise its power under this rule taking into account all the relevant circumstances, including – (a) the urgency of the matter; (b) the effect on the party making the request if the relief sought is not granted; and (c) the effect on competition if the relief is granted. (4) Any order or direction under this rule is subject to the Tribunal's further order, direction or final decision…"

"(1) This section applies if the OFT has begun an investigation under section 25 and not completed it (but only applies so long as the OFT has power under section 25 to conduct that investigation). (2) If the OFT considers that it is necessary for it to act under this section as a matter of urgency for the purpose – (a) of preventing serious, irreparable damage to a particular person or category of person, or (b) of protecting the public interest, it may give such directions as it considers appropriate for that purpose."

"(1) If the OFT has made a decision that conduct infringes the Chapter II prohibition or that it infringes the prohibition in Article 82, it may give to such person or persons as it considers appropriate such directions as it considers appropriate to bring the infringement to an end."

"(a) a decision falling within paragraphs (a) to (f) of section 46(3) … (e) a decision of the OFT not to make directions under section 35."

"It seems to us that if the First Access Price of 23.2p/m³ is not shown to be reasonably related to costs, it must equally be the case that the even higher price of 26p/m³ under the Second Bulk Supply Agreement, used as the basis of the ECPR calculation in the Decision, is not shown to be reasonably cost-based either. The only difference between the First Access Price and the Second Bulk Supply Agreement price is that the resource cost of water is included in the latter and not in the former. Similarly, if the evidence strongly suggests that the First Access Price of 23.2p/m³ was excessive, the same must be true of the price of 26 p/m³ under the Second Bulk Supply Agreement. Those facts in our view fatally undermine the ECPR calculation set out in the Decision."

"757. In those circumstances, the central problem facing the Tribunal is that there is no evidence that the prices in these various special agreements relied on as comparators in setting the price in the Second Bulk Supply Agreement were related to the costs of supply, and if so in what way. To the extent that the non-potable customers in question were being charged prices similar to those charged to Shotton Paper, we have already shown in the first part of this judgment that the First Access price of 23p/m³ is not shown to be reasonably related to costs, on the evidence before the Tribunal. A fortiori that applies to the Second Bulk Supply Agreement price of the order of 26p/m³. If the price in the Second Bulk Supply Agreement of 26p/m³ is not cost-justified, and since the evidence strongly suggests that that price was excessive, it does not in our view assist that that price is based on a comparison with other prices which are not cost-justified either. We add that the only contemporary evidence we have which purported to give some cost justification for the price under the Second Bulk Supply Agreement (D21 to the Reply) has been abandoned by Dwr Cymru, with the Authority's support, as not offering "incremental insight" (Jones 2, paragraph 16). … 760. The price in the Second Bulk Supply Agreement of 26p/m³ is not, as such, under challenge in these proceedings. What is, however, under challenge is whether that price can safely be used, in a Decision adopted eight years later, as the basis for an ECPR calculation. Albion could not have foreseen that the price under the Second Bulk Supply Agreement indicated by the Director in 1996 would be used as the basis for an ECPR calculation in 2004. In our view, that price cannot be used for that purpose, essentially because that price has not been shown to be, even approximately, reasonably related to costs, as discussed in the earlier part of this judgment. The evidence also strongly suggests that that price is excessive in relation to costs as regards the distribution element. The same applies, by necessary implication, to Dwr Cymru's earlier retail price to Shotton Paper of 27.2p/m³, and what we understand to be Dwr Cymru's current offer price under the New Tariff of 26.6p/m³, to both of which the same objections apply."

"Similarly, and for the same reason, if the Director's approach is correct, Albion could not survive even under the existing arrangements: so long as Dwr Cymru's retail price is at or about 26p/m³ and the price under the Second Bulk Supply Agreement is the same, Albion's margin between these two prices is effectively squeezed to zero."