In June 2015, the completed acquisition by Pennon Group plc (the owner of South West Water Limited) of Bournemouth Water Investments Limited (which operates Bournemouth Water) was referred for an automatic in-depth investigation. The CMA had to assess whether the merger could be expected to prejudice the ability of Ofwat to make comparisons between different water companies for the purpose of its regulatory functions.
In its final report published today, the CMA has concluded that the merger is not likely to prejudice the Water Services Regulation Authority’s (Ofwat) ability to compare water companies’ performance and set price controls.
During the inquiry it examined how the merger might affect Ofwat’s ability to make comparisons in each of the following areas: setting wholesale price controls; setting retail price controls; setting wholesale quality of service performance targets; improving retail quality of service; and spreading best practice.
A copy of the final report is available on the case page along with full details of the investigation.
Notes for editors
The CMA is the UK’s primary competition and consumer authority. It is an independent non-ministerial government department with responsibility for carrying out investigations into mergers, markets and the regulated industries and enforcing competition and consumer law.
Under the Water Industry Act 1991 (as amended by the Enterprise Act 2002) the CMA has a duty to make an automatic reference to a phase 2 investigation if it believes that it is or may be the case that a merger of any 2 or more water enterprises in England and Wales has taken place and (i) that the value of the turnover of the target water company exceeds £10 million; and (ii) that the acquiring firm already owns water companies that each has turnover exceeding £10 million.
In December 2014, the Water Services Regulation Authority (Ofwat) determined price controls and quality of service targets for 18 water companies in England and Wales. These came into force on 1 April 2015 and will apply until 31 March 2020. The next price determination will be in 2019, setting price controls for 2020 onwards.
The Water Act 2014 makes changes to the water merger regime which, once in force, will include a phase 1 merger investigation to assess whether a more in-depth investigation is required on account of any concerns that the merger could prejudice Ofwat’s ability to make comparisons between water companies. The relevant provisions are not yet in force and so this merger was subject to a mandatory reference.