The UK government has tabled reforms to UK competition law which could allow the removal of the “concurrent” powers of sector regulators to apply competition law. The proposed changes extend to the energy sector and beyond, raising significant issues regarding the proper allocation of functions between the competition authority and sector regulators amidst the ongoing overhaul of UK competition law.
The “concurrent” application of competition law by the competition authority – currently the Office of Fair Trading (OFT) – and various sector regulators includes:
- The Gas and Electricity Markets Authority (electricity and gas);
- The Office of Communications (communications and media);
- The Water Services Regulation Authority (water and sewerage);
- The Office of Rail Regulation (safety and economic regulator – railways);
- The Northern Ireland Authority for Utility Regulation (electricity, gas, water and sewerage – Northern Ireland);
- The Civil Aviation Authority (aviation).
These sector regulators share, broadly, the same powers as the OFT to enforce UK and EU competition law within their respective sectors. Additionally, they may make market investigation references to the UK’s second-stage competition authority, the Competition Commission (CC), and handle super complaints from designated bodies, similar to the OFT. The concurrent powers extend not only to the application and enforcement of substantive competition laws but also to the concurrent exercise of the OFT’s powers of investigation and the review of the sector regulators’ decisions under the UK Competition Act 1998 by the Competition Appeal Tribunal (CAT).
When concurrency was introduced, arguments were made both for and against the system. Proponents argued that sector regulators had developed specialist expertise and knowledge of their sectors that could be effectively applied in competition cases, there was overlap between sector licensing regimes and competition law, and concurrency would encourage sector regulators to shift from ex ante regulation to ex post competition law. Conversely, critics pointed out that concurrency is rare in other jurisdictions, including the EU, that sector regulators lacked expertise in EU competition law analysis and investigation experience, that regulatory resources would be less efficiently used given the number of bodies potentially applying competition powers, and that there was a risk of inconsistency in decision-making and “double jeopardy” for companies operating in multiple sectors. Initially, it was expected that reliance on regulatory powers would decrease in favour of a more general application of competition law. However, sector regulators have generally favoured using sector regulatory powers, with some exceptions.
The energy sector’s experience with competition law interventions has been mixed. A notable case involving National Grid plc highlights some challenges. In 2008, Ofgem fined National Grid £41.6 million for abusing its dominant position in the market for the supply of domestic gas meters in Great Britain, breaching the Chapter II prohibition of the Competition Act 1998 and Article 82 of the EC Treaty (now Article 102 TFEU). This case demonstrates that regulated companies should alert regulators to potential competition issues but compliance with regulatory responsibilities does not immunise against competition law risk.
Ofgem has also used the threat of competition law intervention to secure behavioural commitments from investigated companies. For instance, in 2009, Ofgem investigated alleged breaches of the Chapter II prohibition by Electricity North West Limited (ENW) and accepted binding commitments from ENW to revise its charging methodology.
However, Ofgem has not always considered competition powers as effective tools. In 2008, it investigated Scottish Power Limited and Scottish and Southern Energy plc for allegedly abusing their dominant positions but closed the investigation, deeming other regulatory mechanisms more effective in addressing the problem.
The proposed amendments to concurrency include provisions to streamline the regime and address concerns that sector regulators are not effectively using their competition powers. The Bill gives the CMA stronger power to coordinate competition cases and imposes more explicit duties on sector regulators to consider using their general competition law powers instead of sector-specific powers.
The concurrent powers of sector regulators have faced criticism since their introduction. Ofgem has generally preferred regulatory interventions over competition law powers, although it has shown a growing inclination towards competition law in recent years. Proponents of a more streamlined enforcement regime argue for shifting concurrent powers to the competition authority.
Assuming the proposed amendments become law, Ofgem and other sector regulators will have greater incentives to consider competition law over additional regulation to avoid the potential removal of their competition law enforcement powers. These reforms could be seen as a challenge to sector regulators to increase their use of competition powers or risk losing them entirely. At a time when it is crucial to encourage investment in energy markets, many argue that the most effective approach would be to reduce regulatory interventions and use regulatory powers only when ex post competition law is insufficient. However, others believe there is still a need for targeted market interventions in appropriate cases where competition law may not provide timely or effective solutions.
Update 2024: Since the previous update on UK competition law reforms, significant developments have occurred, particularly with the introduction and Royal Assent of the Digital Markets, Competition and Consumers Act 2024 (DMCC Act). This Act, which received Royal Assent on 24 May 2024, introduces sweeping changes to both competition and consumer law in the UK.
The DMCC Act strengthens the Competition and Markets Authority’s (CMA) investigatory powers, allowing it to impose substantial penalties for non-compliance with market investigation orders. It also enhances the CMA’s ability to enforce consumer law directly, including the imposition of fines up to 10% of global turnover for certain breaches, and awards compensation to consumers. Furthermore, the Act introduces new rules on “drip pricing” and fake reviews, which are now considered unfair trading practices under all circumstances.
In addition to these changes, the DMCC Act implements a bespoke regulatory regime for designated Big Tech companies, incorporating tailored codes of conduct and a specific merger control regime for these entities. The CMA’s powers have also been expanded to include the ability to conduct dawn raids on residential premises and seize evidence stored remotely, reflecting a significant increase in the authority’s enforcement capabilities .
Moreover, the reforms to the merger control regime now include an expanded de minimis exception, which allows the CMA discretion not to refer markets with a UK value of less than £30 million for in-depth review. This aims to address concerns about “killer acquisitions” by incumbents acquiring nascent competitors, particularly in digital and pharmaceutical sectors.
These reforms are expected to streamline and enhance the effectiveness of the UK’s competition and consumer protection frameworks, ensuring a more robust and agile regulatory environment. As these changes are implemented, businesses operating in the UK will need to carefully consider their compliance strategies to navigate the new regulatory landscape effectively.
