The water regulator is also pressing for changes to the legislation to open up this area to competition.
In 53 of the 62 disputes settled by the director general of Water Services in the past three years, the charges made by the water companies were found to be excessive. As a result customers have received refunds of about £23,000.
Ian Byatt commented: 'Not only do I want to see a reduction in charges but I would also like to see the making of connections opened up to competition.
'I am therefore seeking a change to the legislation to allow developers and builders to carry out connection work, albeit subject to company inspection'.
There is considerable variation between companies in the charge they make. Most companies use a standard charges scheme. The charge for a particular connection can vary significantly. For example the charge for a 5 metre standard domestic connection varies between £310 and £826.
Where standard charges are made companies charging at the lower end of the scale are Northumbrian and South Staffordshire. At the upper end of the scale are South West and Mid Kent.
While standard charges are administratively simple they inevitably involve a form of averaging. The cases investigated by Ofwat showed that some companies' standard charges schemes do not adequately take account of the circumstances and cost of individual connections. Ofwat would like to see charges more directly related to costs and has suggested that companies need to include provision in their procedures for checking that charges are not out of line with actual costs. Ofwat is also critical of the limited use made by companies of competitive tendering in awarding work to contractors.
Ian Byatt said: 'In over 70% of the determinations which I have made, the company's own labour has been used to do the work. Some companies' costs for their own labour compare well with market rates; others do not.
'Companies should use market testing to ensure that the work is being done at competitive rates. This includes those companies where associated companies are used instead of work being put out to competitive tender. Competitive tendering is the method of market testing which generally provides the most valid results'.
Ofwat has also told the companies to ensure that any literature relating to connection charges includes reference to the director general's powers to resolve any disputes about the reasonableness of the connection charge or any undertakings or securities associated with the connection. In general it seems that most customers are unaware that disputes can be referred to the director for determination.