The 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 later this year. It follows a consultation on the draft guidance which started in September and the final version incorporates changes made as a result of the responses received.
The Act removes the need for all water mergers to be automatically referred for an in-depth phase 2 investigation – as is currently the case. It gives Ofwat a statutory role in phase 1 investigations and places the water merger review more in line with the general merger regime by giving the Competition and Markets Authority (CMA) the power to clear the merger at phase 1 – or to accept undertakings in lieu of a reference to a phase 2 investigation.
The CMA’s role in water mergers remains to assess whether the merger has a negative impact on Ofwat’s ability to make comparisons of costs and service standards between water companies.
The guidance provides clarity to the industry, and other interested parties, on what procedures the CMA will follow and the approach it will take for its analysis under the new regime.
The CMA remains the sole decision maker in water merger cases but will work closely with Ofwat on such investigations and the working relationships between the 2 agencies is set out in the guidance and a statement of intent. Ofwat has also published more guidance on its role in a transaction.
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 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 in the Act) in November 2015.
The Water Services Regulation Authority (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.