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Water mergers

This page is for material relating to the regulation of mergers between water companies in England and Wales, including:

Current statutory regime

The current legal regime is provided by Section 70 and Schedule 6 of the Enterprise Act 2002, brought into force by The Water Mergers (Modification of Enactments) Regulations 2004.

This provides for:

whether that merger may be expected to prejudice the ability of [Ofwat], in carrying out its functions by virtue of the Water Industry Act 1991, to make comparisons between different water enterprises.

the benefits which may be expected to accrue are substantially more important than the prejudice concerned.

History of the law

The current legal regime changed the one established by the Competition and Service (Utilities) Act 1992 by deleting references to a broader concept of public interest. Before the Enterprise Act 2002 (and implementing measures), the Commission was asked to consider the public interest and to:

have regard to the desirability of giving effect to the principle that [Ofwat's] ability [...] to make comparisons between different water enterprises should not be prejudiced.

Prior to that, the original wording under the Water Act 1989, reenacted as Section 34 of the Water Industry Act 1991 (before amendments), was:

have regard to the desirability of giving effect to the principle that the number of water enterprises which are under independent control should not be reduced so as to prejudice [Ofwat's] ability to make comparisons between different such water enterprises.

The prohibition on considering customer benefits that cannot be achieved without the prejudice unless they are “substantially more important” than the prejudice has remained in place throughout these changes. There is no such restriction for general merger inquiries under e.g. Section 41(5) of the Enterprise Act 2002.

Previous water merger cases

Competition Commission guidance

The Competition Commission has produced guidelines on water mergers.

Other relevant links

In the electricity sector, Ofgem has a policy to adjust price limits by a £32 million merger tax when electricity distribution companies merge. This applies in addition to the pass-through of deemed efficiency savings with a five-year lag. Franck Latrémolière led the consultancy team commissioned by electricity distribution companies (through the Electricity Association) to produce a critical review of Ofgem's draft policy. The report (35 pages, PDF) is available from the Europe Economics website.

The Commission consulted on a draft of its water merger guidance in the autumn of 2004 (see the draft for consultation and the responses on the CC website).

An article (4 pages, PDF) which was published by Reckon during the consultation period argued that the CC's draft risked focusing too much on the value of comparators to Ofwat, and that there are several other effects which ought to be taken into account, in particular:

This page is managed by Reckon LLP. Users are encouraged to contribute relevant views and links. Use the "Edit this page" or "Add a comment" button above to edit the text or to add comments and notes. Advice on making contributions (including trackback) is in the Guidelines.

Last changed by Franck at 5:19 PM on Thursday 7 February 2008.

Reference for this page:
Reckon Open "Water mergers" 2008-02-07T17:19:54
Link within Reckon Open: [[Water mergers]]