Formal investigation under the Competition Act 1998 concerning the price and non-price terms Bristol Water applies when providing services to self-lay organisations

Summary of our investigation

If customers’ need a new connection to the water and/or wastewater network they have a choice about who provides it. It can be provided by the local monopoly water company, a new appointee or an accredited self-lay provider (SLP). SLPs are contractors who work in the market for providing new connections. They typically provide developers with water supply infrastructure which the local water and/or wastewater company then adopts, taking responsibility for the assets and using them to provide serves to end-user customers.

Water companies provide contestable services, where they compete with new appointees and SLPs, and also non-contestable services, where they are the monopoly provider. For these non-contestable services, the water company effectively provides these to itself to enable those contestable services against which it competes with new appointees and SLPs. In practice both the contestable and non-contestable services are often provided by the same part of the water company’s organisation (developer services).

In March 2013, we received complaints from two SLPs alleging that Bristol Water was abusing its dominant position as a monopoly water company appointed under the Water Industry Act 1991. These complaints raised concerns that Bristol Water may have been offering non-contestable services to SLPs on different terms to its own developer services business. The two SLPs thought this meant that developer customers would always find Bristol Water’s developer services more attractive. As a result, they felt that they and other SLPs were unable to compete fairly with Bristol Water in its area.

In March 2013, we launched an investigation as we considered there were reasonable grounds for suspecting Bristol Water had infringed the Competition Act 1998 (CA98) by abusing its dominant position. We identified a number of competition concerns related to Bristol Water’s behaviour that could potentially restrict entry and expansion of competitors in the new water connections market in Bristol Water’s area. These competition concerns were:

Bristol Water potentially using its dominant position in non-contestable services to harm effective competition for contestable services.
Bristol Water treating costs differently in calculating quotes for self-lay and requisitions. This can result in customers perceiving that requisition from Bristol Water was cheaper than the self-lay option offered by SLPs.
Bristol Water requiring SLPs to pay additional charges without a clear reason for them. We were also concerned with the level of those charges and differences in how Bristol Water applied them between SLPs.
The way that Bristol Water communicated information to SLPs and developers on the processes and requirements they needed to satisfy to access the non-contestable services provided by Bristol Water.

Commitments

In July 2013, Bristol Water notified us that it wished to offer commitments to address the competition concerns we had identified. In January 2014, the company offered a comprehensive set of commitments against our concerns.

As required by CA98 we consulted on our intention to accept binding commitments from Bristol Water plc. We subsequently decided that it was appropriate to accept the legally binding commitments, and close our investigation.

We considered the commitments would help ensure an effective and fair market for new water connections and be the most appropriate and timely use of our resources, in line with our CA98 prioritisation principles. Accepting the commitments meant we made no decision on whether or not Bristol Water had infringed the CA98. At the time, we noted that the package of commitments would continue to be in place until we reviewed them and agreed that there were reasonable grounds for them to be amended, released or replaced. We monitored Bristol Water’s compliance with the commitments on an on-going basis.

Our decision to release the commitments

In November 2020 we consulted on a proposal to release Bristol Water from its CA98 commitments. Having considered the consultation responses we received, on 31 March 2021, we decided to release Bristol Water’s commitments. Our reasons for releasing the Commitments were:

We had reasonable grounds for considering our competition concerns no longer arise.
There has been a marked growth in SLP activity in Bristol Water’s area since our original investigation. This suggests a more effective market is now in place which would be unlikely to coincide with anti-competitive behaviour by Bristol Water.
The structural and cultural changes the commitments required appeared to be sufficiently embedded in Bristol Water’s behaviours in the new connections market, to be considered business as usual practice.
There had been a number of regulatory developments in the sector that have helped to improve transparency in this market and reduce the means and behaviours by which some of the competition concerns originally arose. These sector developments also newly require and incentive Bristol Water to treat SLPs in the same manner in which they would their own downstream business where services are equivalent.
Absent the Commitments, we consider there to be other regulatory tools (for example, the developer services measure of experience) as an alternative, more proportionate, means of providing early insight into similar concerns and addressing them should they re-emerge in the future. We, or the CMA, are also able to open a fresh investigation under the Act should new concerns give us cause to do so and meet our prioritisation principles for opening an investigation.

Our decision to release the commitments removes them as a binding and enforceable requirement on Bristol Water. This includes the requirement for Bristol Water to regularly report to Ofwat on its compliance with the commitments. Bristol Water continues to be required to comply with competition law in the new connections market and with the wider regulatory framework which has developed in relation to companies’ activities in this market.

As part of releasing the commitments, we also asked BRL to consider and respond to the issues raised in the consultation responses. In particular, to help further develop it’s charging arrangements for next year. Bristol Water will update us on its progress and it will form part of our monitoring of future charging rules compliance.

Wider lessons for companies and customers

Effective competition can deliver benefits for customers, offering choice and acting as a driver for more customer-focused, efficient and innovative services.
Water companies appointed under the Water Industry Act 1991 provide a mixture of both contestable and non-contestable services.
Water companies should understand which of their services are contestable and non-contestable. They should also understand who the potential customers and competitors for each of these services are.
Where contestable services relate to, and rely on, non-contestable services, water companies should fully consider and manage their competition law compliance, in terms of how they provide non-contestable services to themselves and their competitors.
We will continue to use our regulatory tools to highlight and address specific competition compliance issues as appropriate.
We expect all water companies to take ownership of managing their compliance with competition law in both existing and new areas of competition in the sector.