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Ofwat's concerns over the merger of South West Water and Bournemouth Water were brushed aside by the Competition and Markets Authority (CMA) which has given the deal provisional clearance.
South West Water parent company Pennon completed the £100.3 million takeover of Bournemouth Water in April this year and the deal was automatically referred to the CMA for an in-depth investigation in June.
The initial CMA findings into the merger state it is not likely to prejudice Ofwat’s ability to compare water companies’ performance and set price controls.
The ruling comes despite concerns that were raised by the regulator that the merger could potentially cost the sector’s efficiency drive £119 million by 2025. However, the regulator did not oppose the deal, stating its priority “has been to ensure current and future customers in England and Wales remain properly protected”.
The Consumer Council for Water (CCW) also voiced concerns that the loss of Bournemouth Water could impact the regulator’s ability to compare performance and set future price controls.
Wessex Water in a submission to the CMA raised concerns about the impact the deal could have on the Ofwat’s efficiency model due to the loss of a company at the “efficiency frontier” but added the impact would “not prejudice Ofwat’s abilities to make comparisons between companies” due to the relatively small size of Bournemouth Water.
CMA chair of the Pennon/Bournemouth Water inquiry group Simon Polito said: “After the merger, Ofwat will be left with 17 water company comparators to use for benchmarking and in setting targets to improve performance.
“Our examination of Ofwat’s econometric modelling, and its wider use of comparisons, indicates that the merger is not likely to harm Ofwat’s ability to set appropriately demanding targets for the benefit of customers, given the number of different companies that will remain.”
South West Water chief executive and Pennon executive director Chris Loughlin said: “We are pleased to note the provisional clearance of the Bournemouth Water acquisition without condition.
“Subject to receiving final clearance, we intend to merge Bournemouth Water with South West Water. We strongly believe this merger will deliver tangible long-term benefits to customers and shareholders.”
The CMA is now consulting on the provisional decision and the final findings are due to be published on 22 November.
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