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The Topic: CMA investigations THE TOPIC 12 | 4TH - 10TH SEPTEMBER 2015 | UTILITY WEEK CMA INVESTIGATIONS I n December 2014, Ofwat published its final determinations for the period 2015- 20. For Bristol Water, this would have meant a £128 million cut on its business plan, where it stated it required a wholesale totex allowance of £537 million. Ofwat said £409 million was a reasonable amount, claiming Bristol Water had failed to provide suitable evidence to prove that a number of projects, such as the Cheddar 2 reservoir, were required. Two months later, Bristol Water rejected the determination, slamming "flawed model- ling" by Ofwat for producing a business plan that "disproportionately" hit it when compared with the other water companies. Bristol claimed it required a higher totex allowance, as well as a higher wholesale cost of capital, than that set by the regula- tor, to allow it to be financeable and for it to meet its basic statutory duties. Ofwat formally referred the case to the CMA on 4 March. Key outcomes so far • In its initial findings the CMA awarded Bristol Water an additional £20 million in wholesale totex allowance compared with Ofwat's final determination. • The weighted average cost of capital was marginally boosted to 3.65 per cent, up from Ofwat's 3.6 per cent, but short of Bristol's proposed 4.37 per cent. • The CMA put average customer bills for 2015-20 at £159 a year, above Ofwat's £155 but below Bristol Water's £187. • Bristol Water slammed the CMA findings as "unrealistic" and "too low" and has proposed a compromise bill level of £179 a year. It says this would be "comforta- ble" for customers, and allow for sustain- able revenues. • Ofwat has agreed a two-month extension to the inquiry, citing "special reasons" why the report cannot be made within the original period specified. What's next? The final decision from the CMA is due by 3 November 2015. The final hearings have been held, so it will be working through the evidence. It is thought unlikely that the CMA will significantly budge from its current posi- tion, unless new information and evidence justifying the need for new projects emerges from Bristol Water. MB BRISTOL WATER REBELLION While every other water company yielded to a tough price control, Bristol was adamant that the figures didn't add up… BAA airports market investigation The Office of Fair Trading (OFT) referred BAA Airports (formerly the British Airports Authority) to the Competition Commission in March 2007. The OFT said it had "reason- able grounds" for suspecting that a combination of features of the market in which airport services were supplied by BAA prevented, restricted or distorted competition in airport services in the UK. On 19 March 2009, aer an extensive inquiry, the Competi- tion Commission ordered BAA to sell three of its seven UK airports within two years. Car insurance mar- ket probe In September 2012, the OFT referred the car insurance mar- ket to the Competition Commis- sion because it was worried the structure of the market was mak- ing costs and premiums unnec- essarily high. During the investigation the Competition Commission was replaced by the CMA and, in September 2014, measures were published to increase competition. These measures included a ban on agreements between price comparison websites and insurers, better information for consumers on the costs and ben- efits of no-claims bonus protec- tion, and a look at how insurers inform consumers about other products sold as add-ons to car insurance policies. Audit market inquiry The audit market was referred to the Competition Commis- sion by the OFT in October 2011, amid concerns that it was highly concentrated, with low levels of switching and substantial barri- ers to entry. The OFT claimed the four largest firms – PwC, KPMG, Deloitte and EY – were dominat- ing the market, having earned 99 per cent of audit fees paid by FTSE 100 companies in 2010. The inquiry came to a head in October 2013, when the Com- petition Commission ruled that major UK-listed companies must allow accountancy firms to bid for their audit work every ten years. The progress of its consulta- tion was delayed while a deci- sion to approve the reforms was reached at EU level. Who's afraid of the CMA? To get an idea of just how big an impact the CMA can have on an industry where it finds competition and fair play to be failing, Utility Week looks at some of the key interventions made by the authority in the past, in its previous guise as the Competition Commission. Networks Energy Water 2014 All roads lead to the CMA Oct 2014: Hearings 12 Dec 2014: Ofwat publishes its PR14 final determinations Jul to Sep 2014: Initial information requests; initial submissions from main and third parties; publication of initial issues statement 26 Jun 2014: Reference made by Ofgem 2 Mar 2015: British Gas refers Ofgem's price settlement for five of the six electricity networks to the CMA 16 Mar 2015: Ofgem assures the industry that RIIO will push ahead as planned, with or without an inquiry 27 Mar 2014: Ofgem opens public consultation on provisional decision to refer energy market to the CMA