Competition Commission
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CC provisionally clears water merger

The Competition Commission (CC) has recently provisionally cleared South Staffordshire Plc’s (SS Plc’s) completed acquisition of Cambridge Water PLC (CAM).

The CC was asked in January to decide whether the merger may be expected to prejudice the ability of the Water Services Regulation Authority (Ofwat) to make comparisons between water enterprises for the purposes of assessing performance and setting price controls.

CC Deputy Chairman and Chairman of the SS Plc/CAM Inquiry Group, Simon Polito, said:

'On balance, we do not believe the merger will significantly hinder Ofwat’s task of assessing water companies’ performance and setting price controls.
'The use of comparisons between companies has been central to the regulation of the industry, and is likely to play a significant role for the foreseeable future, although we recognize that there are likely to be changes arising from both the Government Water White Paper and Ofwat’s proposed changes to regulating the sector.

'We have looked at how having one fewer company could affect the precision of Ofwat’s quantitative assessments and to what extent the companies’ performance in areas such as efficiency and service quality could be used as benchmarks to challenge and improve the performance of other water companies. Whereas CAM’s approach to customer service has provided a benchmark for some other water companies, there are areas where the merged company would be able to set higher standards than before.
'In coming to a provisional clearance decision, we were conscious that there will still be 18 independently-managed water companies to compare, including companies which could provide a small company’s perspective to regulatory debates and customer service.'
South Staffordshire Water PLC (SST) supplies water to close to 550,000 customers. CAM is one of the smallest water companies in England and Wales, supplying water to fewer than 130,000 customers.
A full copy of the provisional findings report is available on the
inquiry home page, along with full details of the investigation.

The CC is expected to publish its final decision by 20 June 2012.

The CC would like to hear from all interested parties about the provisional findings, in writing, by 11 May 2012. To submit evidence, please email or write to:

Inquiry Manager (SS Plc/CAM merger inquiry)
Competition Commission
Victoria House
Southampton Row

Notes for editors

1. The Reference Test—under the Water Industry Act 1991 (as amended by the Enterprise Act 2002)—the Office of Fair Trading (OFT) has a duty to make a reference to the CC if the OFT believes that it is or may be the case that a merger of any two or more water enterprises has taken place or arrangements are in progress which would result in such a merger. The duty does not apply if the value of the turnover of the water enterprise being taken over or the value of the turnover of each of the water enterprises belonging to the person making the takeover does not or would not exceed £10 million.

2. The statutory questions the CC has to answer in respect of the merger are:

(a) whether a water merger has taken place; and

(b) if so, whether that merger has prejudiced, or 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.

3. The CC last looked at a water merger in 2006/07 when it investigated a merger between Mid Kent Water and South East Water (PDF, 100 Kb) .

4. The members of the SS Plc/CAM merger Inquiry Group are: Simon Polito (CC Deputy Chairman and Chairman of the Inquiry Group), Ivar Grey, John Smith, and Professor Michael Waterson.

5. The CC has a 24-week period in which it is required to publish its report, which may be extended by no more than eight weeks if it considers that there are special reasons why the report cannot be published within that period.

6. Enquiries should be directed to Rory Taylor or Siobhan Allen on 020 7271 0242.

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