OFW – 0006160
Summary of case
Providing new water connections to the water mains owned by water companies is currently one of only a few areas where customers in England and Wales can choose their provider. In this market accredited self-lay providers (SLPs) are able to compete with water companies to provide certain services.
There are limits to what services SLOs can provide because of water companies’ duties in relation to:
- public safety
- the operation of the live network
- the legal requirement for a water company to adopt any water infrastructure provided by an SLP
As a result, an SLP always needs to commission some services that only the monopoly water company can provide (‘non-contestable services’) in order for the SLP itself to provide its own services (‘contestable services’).
Water companies provide both:
- non-contestable services for which they are the monopoly provider
- contestable services in which they compete with new entrants
As a result, where a developer customer asks a water company (rather than an SLP) to provide new water connections (‘a requisition’), the water company effectively provides non-contestable services to itself to enable those contestable services against which it competes with 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 that alleged 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 be offering non-contestable services to SLPs on different terms to its own developer services business. The two SLPs thought that this meant that developer customers would always find Bristol Water’s developers 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.
During the early stages of our investigation, 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 as follows
- Bristol Water potentially using their 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.
Under the CA98 we can accept commitments from parties that we investigate where we consider it appropriate and where the commitments offered address the competition concerns we have identify. 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, including changes to the structure and processes through which it delivers its developer services.
The CA98 requires us to give notice if we intend to accept binding commitments, so that interested parties can comment on this proposal. So, we consulted on our intention to accept binding commitments from Bristol Water plc between 22 May and 18 July 2014.
Summary of Ofwat’s final decision
We decided that it was appropriate to accept commitments in this case. We are satisfied that the commitments offered by Bristol Water:
- address the competition concerns that we identified
- are capable of being implemented effectively and within a short period of time
- would have the same effect as pursuing a full investigation in terms of deterring other water companies from potentially abusing their dominant position
The commitments will help ensure an effective and fair market for new water connections, which will protect customers and the local economy in Bristol Water’s area.
We also considered that accepting the commitments represents the most appropriate and timely use of our resources in line with our CA98 prioritisation principles.
In reaching our final decision we:
- considered the commitments offered by Bristol Water
- considered the seven consultation responses we received to our notice of intention to accept the commitments
- had regard to guidance on the Competition and Markets Authority’s (CMA) procedures in Competition Act 1998 cases
By accepting Bristol Water’s commitments we have now closed our investigation. This means we made no decision on whether or not Bristol Water infringed the CA98.
Bristol Water’s commitments are now legally binding. This means we can take enforcement action under the CA98 if the company fails to meet them. The package of commitments will continue to be in place until we review them – and we agree that there are reasonable grounds for them to be amended, terminated or replaced.
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.
- Water companies should already understand and manage their compliance with competition law. But they will need to increase their focus in this area given that competition will be increasing in the sector as a result of the Water Act 2014.
- 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 this issue in relation to both existing and new areas of competition in the sector.
Section 31A of the Competition Act 1998
Relevant Ofwat guidance
15 March 2013
23 March 2015
Final decision on Ofwat’s formal investigation under the Competition Act 1998 concerning the price and non-price terms Bristol Water applies when providing services to self-lay organisations, March 2015
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