Last month Portsmouth Water and Southern Water signed an 80 year commercial agreement (Bulk Supply Agreement) through which Portsmouth Water has committed to supplying 21 million litres of water a day to Southern Water.
This agreement was novel in that Portsmouth Water will invest in a new reservoir, Havant Thicket reservoir, to enable it to meet this supply to Southern Water. As it was the first of its kind, this commercial arrangement presented many interesting legal, regulatory and financial questions to address, such as: how should the charges for each unit of water that is provided to Southern Water be calculated; what compensation, if any, should Southern Water receive if there is a supply interruption; how should any potential compensation payments be calculated; and should there be a separate price control for Havant Thicket. It provides a ground breaking case study for future situations where large infrastructure projects are created to deliver bulk supply between companies.
Frontier Economics has been advising Portsmouth Water on the regulatory issues relating to Havant Thicket for the last two years, including developing a pricing model, and advising on how this commercial arrangement interrelates with wider economic regulation.
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