Watchdog gives Pennon deadline to remedy snags in SES Water purchase

The Competition and Markets Authority (CMA) has given Pennon Group and SES Water until 13 May to offer undertakings in lieu of a reference to a Phase 2 investigation, after concluding from Phase 1 that the merger, which took place in January, may prejudice Ofwat’s ability to make comparisons between water enterprises.

In particular, the CMA found the deal could lead to a loss of precision for Ofwat’s wholesale cost models; have a detrimental impact on Ofwat’s ability to set the industry cost allowance by removing a high or low performing company from its benchmarks; and lead to the loss of a company with important characteristics in residential retail.

Pennon is likely to proactively offer remedies to concerns about the merger to avoid a Phase 2 referral if possible. For these undertakings in lieu to be accepted in water mergers, they must remedy, mitigate, or prevent the merger’s prejudicial effect on Ofwat’s ability to make comparisons.