Ofwat was in the process of investigating concerns the company had abused its dominant market position when Severn Trent proposed divesting the labs.
By making “binding commitments”, the company would dodge the risk of Ofwat finding against it and imposing a potentially significant penalty.
The regulator said Severn Trent’s proposal addressed its competition concerns and it was minded to accept, subject to a consultation launched today.
The allegation, first raised in April 2010, was that Severn Trent Water cross subsidised Severn Trent Laboratories, allowing the latter to price below cost to win contracts with Yorkshire Water and South Staffordshire Water. Such a predatory strategy would potentially have driven competitors from the market.
Ofwat’s preliminary investigation “raised some concerns” in the South Staffordshire case. It was continuing to look into the Yorkshire Water contract when Severn Trent approached it in March to suggest a deal. The probe was then put on hold.
Interested parties have four weeks to put across their views on whether Ofwat should accept the binding commitments from Severn Trent.