The Competition and Markets Authority (CMA) has today opened a consultation on the draft of its new guidance covering the water mergers regime. Unlike other mergers the CMA examines, the CMA’s role in water mergers is to assess whether the merger has a negative impact on Ofwat’s ability to make comparisons between water companies.

The draft guidance has been produced because of changes to the special water merger regime in the Water Act 2014, which are expected to come into force in November this year. In particular, to encourage beneficial water mergers, the Act removes the need for all water mergers to be automatically referred for an in-depth phase 2 investigation, gives water industry regulator Ofwat a statutory role in a phase 1 investigation and gives the CMA the power to accept undertakings in lieu of a reference to a phase 2 investigation.

Currently, under the Water Industry Act 1991 the CMA has a duty to make an automatic reference to a phase 2 investigation if it believes that it is or may be the case that a merger of any 2 or more water enterprises has taken place and (i) that the value of the turnover of the target water company exceeds £10 million; and (ii) that the acquiring firm already owns water companies that each has turnover exceeding £10 million.

In light of the changes the CMA said it wants to ensure that it has good procedures in place to assist with the implementation of the new regime.

The new draft guidance explains the new water merger regime and how the CMA will approach its assessment of water mergers, including what procedures the CMA will follow and the approach it will take for the analysis.

Where the CMA finds that a water merger is likely to raise concerns the guidance is intended to  assist water companies to understand what actions can be taken – either by the CMA or merger parties-  and the likely approach of the CMA to address any concerns identified.

The guidance also explains how the CMA and Ofwat will work together in the new regime, including an appendix which details an agreement between the CMA and Ofwat on the working arrangements during the initial phase 1 investigation.

Deadline for responses to the consultation is 15 October 2015 after which the CMA will finalise the guidance. There are currently 18 incumbent water and/or sewerage regional monopolies which are regulated by Ofwat. The regulator separately consulted on its future approach to mergers and statement of method in May 2015.

There are currently 18 incumbent water and/or sewerage regional monopolies which are regulated by Ofwat. The regulator separately consulted on its future approach to mergers and statement of method in May 2015. The CMA and its predecessor bodies the Office of Fair Trading and the Competition Commission have examined 10 mergers between water companies since 1990.

Click here to access the draft guidance

Click here to access the consultation