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The Consumer Council for Water (CCW) has warned that the takeover of Bournemouth Water by Pennon could be detrimental to service standards across the industry.
In a submission to the Competition and Markets Authority (CMA) inquiry into the £100.3 million deal, CCW said the loss of Bournemouth Water as a comparator for the rest of the industry, due to its high levels of operational and customer service, could “weaken Ofwat’s efficiency challenge”.
The watchdog warned the “precision” of the regulator’s comparison tool could be reduced by the takeover of Bournemouth Water and this would therefore have a detrimental impact on the service received by customers.
This is because an exemplar company in terms of wholesale cost efficiency could be lost and the benchmark standard to the rest of the industry may fall. “Over time this could reduce the incentive on companies to drive operational and service performance,” CCW said.
CCW also said the Pennon-Bournemouth Water takeover could “mask poorer performance of South West Water and make it more difficult to press the merged company to improve.”
The watchdog called on the CMA to ensure reporting for South West Water and Bournemouth Water remains separate to ensure “there is no deterioration in service as a result of the takeover”.
CCW added that Pennon should share and efficiency cost savings with customers from both the water companies within a year of them being realised, and to maintain separate price limits for South West Water and Bournemouth Water “to reflect the different environments they operate in”.
Wessex Water also raised concerns about the impact the deal could have on the Ofwat’s efficiency model.
In its submission to the CMA, Wessex Water said the “loss of a comparator company at the modelled efficiency frontier is likely to be of greater significance than that of another company”.
However, it did add the impact would “not prejudice Ofwat’s abilities to make comparisons between companies” due to the relatively small size of Bournemouth Water.
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