The draft guidance has been produced because of changes to the special water merger regime in the Water Act 2014 (the Act), which are expected to come into force in November this year.
In particular, to encourage beneficial water mergers, the Act removes the need for all water mergers to be automatically referred for an in-depth phase 2 investigation, gives the Water Services Regulation Authority (Ofwat) a statutory role in a phase 1 investigation and in line with the general merger regime, gives the Competition and Markets Authority (CMA) the power to accept undertakings in lieu of a reference to a phase 2 investigation. In light of these changes the CMA wants to ensure that it has good procedures in place to assist with the implementation of the new regime.
Unlike other mergers the CMA examines, the CMA’s role in water mergers is to assess whether the merger has a negative impact on Ofwat’s ability to make comparisons between water companies.
The new draft guidance explains the new water merger regime and how the CMA will approach its assessment of water mergers. This includes what procedures the CMA will follow and the approach it will take for the analysis.
Where the CMA finds that a water merger is likely to raise concerns this guidance will assist water companies to understand what actions can be taken (by the CMA or merger parties) and the likely approach of the CMA to address any concerns identified.
The guidance also explains how the CMA and Ofwat will work together in the new regime. It contains an appendix which details an agreement between the CMA and Ofwat on the working arrangements during the initial phase 1 investigation.
The consultation is open for 6 weeks and is due to end on 15 October 2015 after which the CMA will finalise the guidance.
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 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.
The Act makes changes to the regime which will remove the CMA’s duty to automatically refer water mergers for a phase 2 investigation. Once the new regime commences, water mergers will therefore include a phase 1 merger investigation to assess whether any concerns that the merger could prejudice Ofwat’s ability to carry out its regulatory functions merit a more in-depth investigation.
- The Department for Environment, Food, and Rural Affairs expects to commence the changes to the special water merger regime in the Water Industry Act 1991 (as amended by the Act) in November 2015.
Ofwat is the independent economic regulator for water and sewerage services in England and Wales. There are 18 incumbent water and/or sewerage regional monopolies which are regulated by Ofwat. Ofwat compares information between water enterprises (among other things) to regulate prices, identify good performance to encourage best practices, and set incentives for water companies to improve their quality of service.
Ofwat consulted on its future approach to mergers and statement of method in May 2015.
- The CMA and its predecessor bodies the Office of Fair Trading and the Competition Commission have examined 10 mergers between water companies since 1990.
- Enquiries should be directed to Simon Belgard (firstname.lastname@example.org, 020 3738 6472) or Siobhan Allen (email@example.com, 020 3738 6460).
- For more information on the CMA, see our homepage or follow us on Twitter @CMAgovuk, Flickr and LinkedIn. Sign up to our email alerts to receive updates on merger cases.