Energy industry probe to test competition regulator’s powers

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The investigation of the UK energy market will be the first big test of the powers of the Competition & Markets Authority, legal experts have said.

The CMA, which launches on April 1, replaces the Office of Fair Trading and the Competition Commission in the biggest overhaul of UK competition regulators for decades.

One former regulator said the probe will put the CMA under “massive pressure”.

“Everyone will think, ‘Great. the CMA will fix this market’, but can they really? What possible remedies could it apply?”

The CMA’s powers to review entire markets and demand the break-up of companies even if they find no antitrust infringement – merely economic evidence that a market is not working for consumers – are much the same as those of the old Competition Commission.

But they remain almost unique among antitrust regulators in developed economies, lawyers say.

“It’s not that the CMA has more power than the [Competition Commission], as that would have been pretty difficult to achieve,” said Mike Pullen, an antitrust partner at law firm DLA Piper. “But this will be the first big test: you can bet that this will be a clash of the titans because it will be defended to the hilt by the companies.”

One additional power the CMA has been given is to conduct market reviews if a secretary of state refers a sector on the basis of public interest concerns, over and above questions about whether competition is sufficiently robust. The Competition Commission was able to accept reviews of potentially monopolistic mergers on public interest grounds.

The Commission was respected and feared around the world but its remedies have been increasingly under attack, the former competition regulator said. “For that reason I can only think that the energy investigation will be hugely contentious.”

The CC’s investigations were criticised for their glacial pace. The CMA has said it will be more streamlined and organised, with an 18-month deadline for market investigations, with one six-month extension permitted.

It also has enhanced powers to fine companies if they do not co-operate or hand over information.

While Thursday’s decision by Ofgem to refer the UK energy market to the CMA is only provisional, with a final decision due in July, the new competition regulator had the sector in its sights as it prepared to launch.

David Currie, the CMA chairman, told the Financial Times in July that the energy market, along with banking and transport, could be targets of the revamped and tougher regulator.

These markets are overseen by sectoral regulators such as Ofgem. Traditionally, they have not used competition enforcement powers; equally, antitrust regulators have shied away from investigating how well these markets are working, Lord Currie of Marylebone said.

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