Water deal could harm regulation, says watchdog

The Pennon Group bought Sutton and East Surrey Water in a deal for £380m

A competition watchdog has said the buy-out of a South East water provider could damage the regulator's ability to compare water companies.

The Competition and Markets Authority (CMA) said the Pennon Group's buy-out of Sutton and East Surrey Water (SES) could undermine Ofwat’s authority as water regulator.

In a notice the CMA said the deal would wipe SES from Ofwat's data, thereby reducing the number of comparators available for it to estimate cost allowances and set service quality targets.

Susan Davy, Pennon Group chief executive, said: "It is important to us that this deal receives the appropriate level of scrutiny so that all of our stakeholders feel reassured of the benefits of the acquisition."

Could impact comparisons

Pennon bought Sumisho Osaka Gas Water UK, including its subsidiary SES, in January for £380 million.

SES supplies drinking water to south-east England, with about 845,000 customers across east Surrey, West Sussex, west Kent and south London.

Joel Bamford, executive director of mergers at the CMA, said: "We’re concerned that this deal could impact Ofwat’s ability to make comparisons and carry out its role of regulating the water sector."

Pennon was given until 13 May to respond to the CMA's concerns.

The CMA said it would start a new investigation into the deal unless it accepts the company's response.

Ms Davy says the Pennon is "confident" it will "be able to offer a compelling package of undertakings that will fully address the CMA and Ofwat’s concerns" while ensuring benefits of the acquisition for stakeholders.