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 Competition and Markets Authority (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 provisional findings today, the CMA has concluded that the merger is not likely to prejudice Ofwat’s ability to compare water companies’ performance and set price controls.
During the inquiry it examined how the merger might affect the Water Services Regulation Authority’s (Ofwat) 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.
Chair of the Pennon / Bournemouth Water inquiry group, Simon Polito, said:
The use of comparisons between water companies will continue to play a significant role in the regulation of this sector for some time to come. After the merger, Ofwat will be left with 17 water company comparators to use for benchmarking and in setting targets to improve performance.
Our examination of Ofwat’s econometric modelling, and its wider use of comparisons, indicates that the merger is not likely to harm Ofwat’s ability to set appropriately demanding targets for the benefit of customers, given the number of different companies that will remain. We are now consulting on this provisional decision and look forward to hearing the views of interested parties.
A full copy of the provisional findings report will be available shortly on the case page along with full details of the investigation.
The CMA is expected to publish its final report by 22 November 2015.
The CMA would like to hear from all interested parties about the provisional findings, in writing, by 21 October 2015. To submit evidence, please email email@example.com or write to:
Pennon / Bournemouth Water merger inquiry
Competition and Markets Authority
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, 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 regime which creates exceptions to 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 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.
- The CMA’s panel members of the merger Pennon / Bournemouth Water inquiry group are: Simon Polito (Chair), Sarah Chambers, Jayne Scott and Andrew Popham
- Enquiries should be directed to Simon Belgard (firstname.lastname@example.org, 020 3738 6472).
- For 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.