Oxera is delighted to provide its thoughts on the application of competition law to the water sector in England and Wales, in response to Ofwat’s consultation document on its draft guidance (as published in November 2016).
As highlighted in the consultation, the water sector in England and Wales is undergoing substantial change. This includes the introduction of non-domestic retail competition in April 2017, as well as upstream reforms over the coming years. The latter include initiatives envisaged in Water 2020 (direct procurement, bidding-in markets, water trading and bio-resources markets) and changes from 2019 onwards envisaged in the Water Act 2014 (in particular, bilateral water markets).
Existing forms of competition will continue to develop in parallel—including self-lay, new appointments variations (NAVs, or ‘insets’), and competition through contracting relationships at various stages in the supply chain.
As noted in the consultation, some of these arrangements will involve sector-specific codes and protocols that participants in the markets will need to adhere to. However, in as far as companies have discretion, it is their responsibility to ensure that they comply with the requirements of competition law.
Oxera has written previously on the application of competition law to the water sector and has been monitoring developments. A copy of our Agenda article ‘In a fluid state? Competition policy in the water sector’ accompanies this note, in which we discuss margin squeeze, discrimination with anticompetitive effects, and predation. With the coming changes, it is almost inevitable that there will be complaints that trigger more of these kinds of investigations. Ofwat’s guidance on its approach to competition law therefore provides welcome clarity. It also serves as a deterrent to those who might (deliberately or otherwise) engage in anticompetitive behaviour.
However, there are some gaps in the guidance where further explanation would be helpful (while we recognise that being over-prescriptive can also lead to unintended consequences). We also note here some other observations and suggestions. Finally, we have identified an instance where we believe there is the potential for reader confusion, which can be reviewed and potentially corrected in the final version.
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