Concerns Pennon deal could harm regulation

THE UK’s competition watchdog has said it will consider “solutions” put forward by utilities firm Pennon after raising concerns over a major takeover deal of Sutton and East Surrey Water (SES).

The Competitions and Markets Authority (CMA) launched an investigation earlier this year into the merger between the two businesses after Pennon – the owner of South West Water – acquired SES and certain other ancillary businesses from Sumisho Osaka Gas Water UK (SOGWUK) from Sumitomo Corporation and Osaka Gas for £89m.

The CMA said yesterday Pennon’s acquisition of SES could harm the UK water regulator’s ability to make comparisons between water companies. It said this was because the deal would remove SES from Ofwat’s dataset and reduce the number of comparators available for it to estimate cost allowances and set service quality targets.

The merging companies also conceded the deal could have a detrimental impact on the water regulator’s ability to make comparisons.

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.”

Pennon, which owns Bristol Water and Bournemouth Water, said yesterday it will offer up its solutions to the CMA by May 13.

The watchdog will then consider whether to provisionally accept the proposals. If it does, it will launch a consultation on the plans.

Susan Davy, group chief executive of Pennon, said: “We are encouraged by this positive and expedient step forward in the acquisition process. It is important to us that this deal receives the appropriate level of scrutiny so that all of our stakeholders feel reassured of the benefits of the acquisition and have trust in the outcome.

“While the undertakings have not yet been agreed, we have been through this process before with our acquisition of Bristol Water and are confident that we will be able to offer a compelling package of undertakings that will fully address the CMA and Ofwat’s concerns, and ensure that the benefits of the acquisition for all customers and stakeholders are delivered.”

Mr Bamford added: “We will now carefully consider the solutions put forward by the companies and seek views from Ofwat to determine whether they address our concerns.”

We’re concerned that this deal could impact Ofwat’s ability to make comparisons and carry out its role of regulating the water sector JOEL BAMFORD

Justin Sullivan Pennon’s acquisition of SES could harm the UK water regulator’s ability to make comparisons between water companies, fears the CMA