Pennon secures CMA support for SES merger with a pledge on separate reporting

The Competition and Markets Authority (CMA) is consulting until 5 June on proposed undertakings in lieu of a reference to a Phase 2 merger investigation offered by Pennon Group, following its acquisition of SES Water.

Pennon has offered to provide separate reporting information for SES from the rest of its water businesses post-merger, and to maintain the existing separate reporting for Bristol Water previously agreed with the CMA. The proposed undertakings would enable Ofwat to maintain a separate wholesale water price control for SES, and provide the flexibility to maintain separate or combined performance targets and incentives.

The undertakings were offered after the CMA found a realistic prospect that the merger has prejudiced, or is likely to prejudice, Ofwat’s comparative competition abilities. Now the CMA has said it is satisfied Pennon’s proposals would remedy the prejudice and are readily implementable. Moreover, it reported Ofwat has confirmed it believes the undertakings offered adequately remedy the prejudice. “In particular, Ofwat submitted that it relies heavily on comparisons in order to set appropriate revenue limits and service packages. As a result, retaining separate cost, cost driver, performance and other information for the SES area is crucial. Ofwat also submitted that it requires separate reporting on both wholesale and retail activities, that it is also necessary for it to set separate wholesale price controls across the regions, but that it is not necessary to retain separate retail price controls.”

The CMA is therefore minded to accept the merger remedies, following consultation.