Competition Enforcement in Regulated Infrastructure - the CMA's Annual Report

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Competition Law Enforcement by Sector Regulators

On 28 April 2016, the UK Competition and Markets Authority (“CMA”) published its second annual concurrency report (the “Report”).  The Report summarises the competition law activities of each of the sector regulators for the last 12 months. 

This is the second concurrency report published by the CMA since reforms to strengthen the enforcement of competition law in the regulated sectors (such as aviation, energy, rail and water) took effect on 1 April 2014. 

As well as strengthening the enforcement powers of the concurrent regulators and the CMA, the enhanced concurrency arrangements also created the UK Competition Network (“UKCN”) which facilitates communication and cooperation between the sector regulators and the CMA.

The Report highlights that sector regulators will, where appropriate, continue to rely on their enhanced competition law powers to investigate suspected misconduct within their sectors.  It also demonstrates well that the CMA continues to focus on cross-regulator cooperation as a means of driving efficiency and competition in the regulated sectors. 

Highlights - A mixed year?

Enforcement – a decrease against the prior year

Year one of the enhanced concurrency regime saw a marked increase in Competition Act 1998 cases initiated in the regulated sectors as compared to the previous regime, something noted as a success in the CMA’s first annual concurrency report.  By contrast, Year two has seen only two formal investigations opened, despite five complaints having been received.  The Report suggests this is due to a clear focus on “delivery of ongoing competition cases”.   

The enhanced concurrent competition powers have been granted to sector regulators on a ‘use it or lose it’ basis.  It is therefore unsurprising that the CMA has stated that “we hope to see a greater number of cases opened during the year ahead.”

While fewer formal investigations have been opened, the Report notes the use of ‘softer’ enforcement methods such as warning and advisory letters.  For example, in October 2015 the ORR issued a warning letter in lieu of opening a formal investigation. 

These ‘non-enforcement’ methods do have teeth however.  If a business receives a warning letter, it must address the anti-competitive behaviour identified; if it receives an advisory letter, the business must self-assess its activities to ensure compliance with competition law. 

These ‘softer’ enforcement methods require fewer resources than formal investigations, thereby arguably enabling regulators to engage with more cases overall.  It is therefore possible that, unless a suspected infringement is particularly serious, this will become a more usual approach used by the regulators.

Market investigations/studies – sectoral powers are being used

The CMA’s high profile energy market investigation continued its progress towards a final report, which is expected by 25 June 2016.  As part of this investigation, the “CMA has provisionally decided to introduce remedies which seek to recalibrate the roles of Ofgem and certain industry bodies”.  For further information on the CMA’s working proposals, please see our earlier article on the CMA's provisional findings.

Outside the energy market investigation, there have been a number of market reviews undertaken by various regulators using sector-specific powers.  For example, the CAA is examining surface access to airports under the Civil Aviation Act 2012, and Ofgem is reviewing non-domestic gas metering using its sectoral powers. 

However, there have been no formal competition market studies launched under the Enterprise Act 2002.   It is not entirely clear why the sector regulators have preferred to use their sectoral powers for competition-focused market reviews, although sector-specific rules tend to provide greater timing flexibility than the Enterprise Act 2002.  It is possible, therefore, the CMA could examine why sector regulators are choosing not to use their competition powers and are instead relying on sector rules to achieve a similar outcome.   

Cooperation – a central focus for the CMA

The Report notes there was “clear increase in joint working between the CMA and the sector regulators”.  This principally involved secondment of specialist staff from the sector regulators to the CMA to provide input for some of the CMA’s market investigations, as well as cooperation on a number of merger cases. 

In addition to case work, the Report identifies themes that are common to a number of regulated sectors, including:

  • low consumer engagement and switching;
  • promotion of competition for the benefit of SMEs; and
  • balancing cooperation and competition.

The  Report notes that CMA and sector regulators have, in particular via the UKCN, shared experiences of dealing with the same challenges, with a view to identifying best practice and sustainable solutions. 

The UKCN has also examined procedural challenges.  For example, the UKCN assessed arrangements for the handling of leniency applications in the context of concurrency and held a know-how sharing event on access to file and disclosure.

Such cooperation demonstrates well the benefits from enhanced collaboration between the CMA and sector regulators which the enhanced concurrency arrangements have encouraged. 

Cooperation – a case study in the passenger rail sector

The CMA reported on the joint “policy project” it carried out in collaboration with the ORR to examine the scope for increasing competition in passenger rail services in Great Britain.  

The final passenger rail report was published in March 2016.  It recommended that the current market structure increase its open access operations to generate greater competition with franchised operators.

The CMA also found that opening routes to multiple franchisees would be beneficial for certain routes and that, in the long-term, a licensing regime may generate the most competition. 

This passenger rail policy project is consistent with the high degree of CMA engagement in developing competition policy and focus in the regulated sectors since the enhanced concurrency regime came into effect on 1 April 2014.   

Get in touch

If you have any questions on the CMA’s Report, get in touch with the authors.
 

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