Ofwat has today opened a consultation on proposals to accept the offer of Severn Trent to divest its laboratory services in response to a complaint that it had engaged in anti-competitive practice.
In April 2010 Ofwat received a complaint alleging that Severn Trent Laboratories had won contracts to supply water analysis to South Staffs Water and Yorkshire Water by pricing below any relevant measure of cost, thanks to the structural links between the water analysis business and Severn Trent Water’s core regulated business.
The complainant alleged that the below cost pricing had been funded by higher levels of pricing by Severn Trent Laboratories to Severn Trent Water, Severn Trent Laboratories’ sister company. The complainant considered that the result was the withdrawal of a competitor from the market, thereby substantially reducing competition in the market for water analysis services and increasing Severn Trent Laboratories’ market power.
Ofwat suspected a breach of the Chapter II Prohibition of the Competition Act 1998 and opened a formal investigation in December 2010. It was in the process of investigating when Severn Trent offered to divest its laboratory service.
By making “binding commitments” to sell off its laboratory service, Severn Trent would avoid any penalties if Ofwat had found evidence of wrongdoing.
Ofwat said that it is minded to accept the commitments as they address the concerns around the alleged predation by Severn Trent Laboratories.
The consultation, which runs for four weeks from 8 August 2012, seeks views from interested parties on the appropriateness of Ofwat accepting the commitments offered by Severn Trent.
Read the consultation here
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