Ofwat has launched a new consultation on its proposed revised approach to water and wastewater company mergers under the special merger regime set out in the Water Industry Act 1991 and its proposed updated statement of methods for the assessment of mergers.

The water sector regulator’s current approach to mergers and statement of methods was published in 2015 following the changes to the special merger regime introduced by the Water Act 2014.

Ofwat said it is proposing to update the guidance to reflect the fact that “the price review methodology and the regulatory landscape have evolved since then, and may further evolve in the future, and to incorporate the learning from previous merger assessments.”

Introducing the consultation document, Ofwat explains that a merger between water companies reduces the number of comparators can use, potentially harming its ability to use comparative regulation to regulate the water and wastewater sector.

“We use comparative regulation, among other tools, to ensure customers are paying fair prices, to identify good performance, and to incentivise improvements”, the paper says.

The Water Industry Act 1991 sets out a special regime for mergers between the regulated companies appointed by Ofwat in the water and wastewater sector. Under the legislation, the Competition and Markets Authority (CMA) decides whether to allow a merger between water and/or wastewater companies.

However, the CMA must request from Ofwat (which the regulator must provide) an opinion on whether a merger has prejudiced or is likely to prejudice its ability to make comparisons and whether there are relevant customer benefits that outweigh any prejudice identified.

Where a merger does not involve two or more regulated water companies, the CMA's general merger control regime under the Enterprise Act 2002 will apply to mergers between companies operating within the water and wastewater industry. Ofwat cites as an example the business retail market where companies provide retail water and wastewater services to non-household customers.

The consultation paper sets out Ofwat’s proposed Statement of Methods explaining how it proposes to assess relevant customer benefits and how it proposes to assess the impact of a merger on the regulator’s ability:

• to set efficient cost allowances
• to set appropriate service levels
• to regulate in other areas of the price review
• to regulate in areas outside the price review
• to assess any undertakings in lieu (UILs) offered by the merger parties.

Ofwat is seeking comments on any part of the consultation document, including its proposed revised approach to mergers and the updated statement of methods. Deadline to submit responses ( by email to: This e-mail address is being protected from spambots. You need JavaScript enabled to view it ) is 12 noon on 21 January 2025.

Click here to download the consultation paper