Too few competition probes from sector regulators

According to a recent CMA report, competition investigations by sector regulators are still thin on the ground, but regulators should be better equipped in the future, says Rebecca Owen-Howes.

Concurrency is the regime under which competition law is applied in parallel in the regulated sectors by the Competition and Markets Authority (CMA) and the sectoral regulators. In the utilities sector, the relevant regulators are Ofgem, Ofwat and the Northern Ireland Authority for Utility Regulation (NIAUR).

The concurrency arrangements were strengthened in 2014. The CMA’s 2017 concurrency report highlights competition enforcement by each of the utility regulators in the last year (see table).

The UK’s competition prohibitions are contained in the Competition Act 1998 (CA98) and prohibit:

•    anti-competitive agreements (Chapter I CA98);

•    the abuse of a dominant position (Chapter II CA98). There are equivalent EU prohibitions.

Headline points

The CMA’s general findings include that there was greater co-operation between the CMA and regulators – notably, an increase in staff secondments. There have been 17 secondments in total, including exchanges between the CMA and each of Ofgem and Ofwat.

It also said there had been fewer CA98 cases than hoped for. Only two new competition cases have been opened in 2016/17, including one case involving utilities opened by Ofgem. (This compares with two cases in 2015/16 and six in 2014/15.)

There has been significant market investigation work – this includes the CMA issuing its final report in the energy market investigation and working with Ofgem on appropriate remedies.

Promoting competitive outcomes – an example being the regulatory structures put in place by Ofwat for the opening of the new household retail market in England from April 2017.

Assessing effectiveness of concurrency arrangements – the CMA undertook a project to understand the barriers faced by regulators to opening a competition case. It found that there may be less scope for competition enforcement in the UK than in other EU member states because of the degree of sector regulation in the UK, the increase in private action, and Brexit. The CMA is continuing to work with regulators to tackle challenges such as efficient case management and prioritising resources, to help them take steps to deliver “more cases, more quickly”.

Sector-specific findings

Of the three utility regulators, only Ofgem has launched a competition investigation in 2016/17. It has also progressed two other investigations.

It opened one new competition investigation under Chapter I CA98, in the second part of 2016. The investigation in the energy sector concerns possible anti-competitive agreements and is limited to a small number of (undisclosed) parties.

The two other competition cases that Ofgem was already investigating were brought to an end in 2016. They explored:

1. Agreements for paid online search advertising. Ofgem launched this case in October 2015 and then transferred it to the CMA in June 2016 (to avoid any possible allegation of impropriety by the parties because of contact between Ofgem and the parties before the investigation). The CMA closed the case on the basis that it was no longer an ­administrative priority. In particular, price comparison websites in the energy sector would be affected by the remedies in the energy market investigation and also the CMA’s new market study into digital ­comparison tools.

2. Abuse by SSE in the electricity ­connections market. Ofgem closed its investigation in November 2016 without making a ­decision on whether or not SSE had infringed ­Chapter  II CA98. Instead, it accepted commitments from SSE that it would offer certain essential services to all parties on an ­equivalent basis.

Ofwat has no active competition cases. In January 2017 it launched a market study into how the market for new appointments and variations is working. It expects to report on the findings and any action it is taking in summer 2017.

NIAUR has not investigated any competition cases since April 2015. In August 2016 it received a complaint about a possible breach of Chapter II CA98 but did not launch a formal investigation, as the complainant subsequently informed NIAUR that it intended to bring a private action in the Competition Appeal Tribunal.

According to the CMA’s report, much new work has been done to enhance the operation of the concurrency arrangements. This should mean that, in practice, regulators are better equipped to launch a greater number of competition investigations in future, ­consistent with the CMA’s desire.