The CMA has for the first time used its new power to make recommendations to the UK government about the potential effect of the Energy Bill on competition.

The new power

The Small Business, Enterprise and Employment Act 2015 gives the Competition and Markets Authority (CMA) the power to make written recommendations to ministers on the impact of proposals for legislation on competition within any UK market(s).  This came into force earlier this year, on 26 May 2015.  The CMA proposes to use this power sparingly and where it expects to be able to influence the legislative proposals and believes it appropriate to make its written recommendations on the public record.

The Energy Bill

The CMA is not proposing to change the Energy Bill itself.  What it is concerned with is how the new Oil and Gas Authority (OGA) that is established as an independent regulator by the Bill, will discharge its responsibilities.  Our article from July 2015, Energy Bill 2015 aims to complete Wood Review, gives more background on the Bill's provisions.

The risks to competition

The OGA is set up to maximise the economic recovery of oil and gas from the UK Continental Shelf and will collaborate with both government and the industry.  This could involve anti-competitive practices if the OGA is not careful in how it conducts its operations.  Key risks the CMA identifies include:

  • Facilitating the anti-competitive exchange of information among competitors
  • Anti-competitive agreements arising out of the OGA encouraging collaboration between government and the industry
  • Agreements that distort competition even if they do not breach competition law, for example limiting distribution channels or setting industry standards
  • The way the OGA exercises its regulatory powers could deter entry to the market or stifle innovation

Recommendations

To address these risks, and to make sure the OGA uses its powers to encourage, rather than stifle, competition, the CMA makes four key recommendations to the government:

  • Consider how to ensure that the OGA does not inadvertently facilitate the exchange of sensitive information or the formation of anti-competitive agreements among industry parties
  • Consider how to ensure that the OGA conducts an assessment of agreements (both those it designs and those between industry parties that it becomes aware of) to make sure that the benefits outweigh the potential harm from any restrictions on competition
  • Ensure that the ways in which the OGA exercises its powers (e.g. its licensing conditions and processes) have a pro-competitive impact
  • Ensure that the OGA considers whether and how market incentives and mechanisms can be used in pursuit of its objective to maximise economic recovery.  The awards and competitions that the OGA has already initiated are good examples of this.

What happens now

The Government will respond to the CMA's recommendations within 90 days and it is likely to take account of them when drafting guidance for the OGA.