Pennon Group plc (Pennon) and Sutton and East Surrey Water plc
(SES) are two water utility companies that provide water and
services, such as leak detection and water treatment, to
household and non-household customers in England.
A fast-track Phase 1 investigation by the Competition and Markets
Authority (CMA) has found that Pennon's purchase of SES could
impact Ofwat's ability to make comparisons between water
companies, as part of its regulation of the supply of water to
household customers – by removing SES from Ofwat's dataset and
reducing the number of comparators available for it to estimate
cost allowances and set service quality targets.
Ofwat regulates the supply of water and sewerage services to
household customers in England and Wales. Mergers between water
and sewerage companies are subject to a separate review
process to ensure that deals do not prejudice Ofwat's ability
to make comparisons in order to carry out its statutory functions
– such as setting price controls on regulated water companies,
monitoring and enforcement and setting best practices in the
industry. The CMA has engaged with Ofwat throughout its
investigation.
The merging businesses conceded that the deal could have a
detrimental impact on Ofwat's ability to make comparisons in
order to carry out its statutory functions.
Joel Bamford, Executive Director of Mergers at the CMA, said:
“Water services are vital to our day to day lives, whether at
home or in the workplace, and we're concerned that this deal
could impact Ofwat's ability to make comparisons and carry out
its role of regulating the water sector.
“We will now carefully consider the solutions put forward by the
companies and seek views from Ofwat to determine whether they
address our concerns.”
More information can be found on the Pennon / SES case
page.
Notes to editors:
- On 10 January 2024, Pennon acquired Sumisho Osaka Gas Water
UK Limited (SOGWUK). Following the Merger, SOGWUK's name was
changed to Sutton and East Surrey Group Holdings Limited
(SESGHL). SESGHL's subsidiaries include Sutton and East Surrey
Water plc (SES).
- SES operates as a water undertaker in parts of Surrey, Kent,
West Sussex, and South London, providing wholesale and retail
household water services.
- Pennon operates as a water and sewerage undertaker in the
Southwest of England through South West Water. It also operates
as a water undertaker in the Bournemouth and Bristol regions,
through Bournemouth Water and Bristol Water, respectively.
- Guidance on the CMA's procedure and assessment of water and
sewerage mergers can be found on its website.
- In reaching its Phase 1 decision, the CMA has taken into
account submissions made by Pennon, including modelling
undertaken by its economic advisors Oxera, Ofwat's opinion on the
Merger, and third-party views of the Merger.
- Where merging parties wish to offer proposed remedies to
avoid a Phase 2 reference (undertakings in lieu (UILs)), they
must do so within 5 working days after receiving the CMA's Phase
1 decision. The CMA then decides, within 10 working days after
the Phase 1 decision, whether to provisionally accept the UILs
offered. The CMA then has 50 working days from the date of the
Phase 1 decision (subject to an extension of up to 40 working
days) to consider whether to finally accept these remedies, which
includes a public consultation on the UILs.
- In order for UILs to be accepted in water mergers, they must
remedy, mitigate, or prevent the merger's prejudicial effect on
Ofwat's ability to make comparisons. When considering whether to
accept the proposed UILs, the CMA will request and consider
Ofwat's opinion on the effect of the solutions offered.
