Water Act 2003 (Consequential and Supplementary Provisions) Regulations 2005

My Lords, I am very grateful to the noble   Baroness, Lady Byford, and the noble Lord, Lord   Greaves, for their contribution to this short debate. Their expertise in this field is much greater than mine. I shall do my best to answer all their questions, or as many as I can. The principle of introducing competition into this field in this way was established in the 2003 Act. We are deciding the details of the decisions that were made when the Bill was debated in both Houses. We believe that in general, a controlled approach to competition in this field is justified, and this is a pretty controlled approach. It is right, as the noble Lord and the noble Baroness suggested, to be careful when dealing with public water supply. If the regime works well, perhaps we can look at it in the future to see what we should do. One question that arose was whether the figure of 2,200 potential larger customers was too many. Indeed, I was quite expecting to be asked whether such a number was too small. The noble Baroness, not for the first time, took me slightly by surprise. We think that the figure is about right. The noble Lord, Lord Greaves, asked the sensible question of how many we think will take advantage of this. As he is probably expecting me to say, we do not know at this stage. We have no clear idea of numbers. Five prospective licensees have been taking a role in developing the regime with Ofwat. It depends, too, on how many undertakers set up associate companies to become licensees. In this case, the proof of the pudding will very much be in the eating. I was asked about the impact on household or other customers’ bills. If a valuable customer is lost to a licensee, there is unlikely to be any need for household customers’ bills to rise as a result because of the cost principle set out in the legislation. The cost principle requires undertakers to set wholesale or access charges—the charge for using the undertakers’ network—in such a way that their net revenue loss from losing a large customer matches their net reduction in costs from not having to do things that will in future be done by a licensee—in other words, meter reading and billing or, in the case of combined licensees, water abstraction and treatment. The noble Baroness asked whether the provisions for competition have a detrimental impact on the future provision of water supplies to the domestic consumers in the south east. That question was also asked in the   Chamber last week. The answer is no. Water undertakers have a duty to supply domestic consumers and must make provision for this in their 25-year water resource plans. We do not believe that competition will result in any net increase in water demand. I shall do my best to answer the other questions that were asked. We agree that we need to ensure that other customers do not suffer. That is why the legislation in the Water Industry Act 1999 says that the regulator must have special regard to the interests of customers outside the competitive market. That is set down. What costs will result from competition? The answer will not be a surprise—no figures are available. The answer depends on a number of factors and on the extent of competition. It will be a matter for the review which the regulators of various types will undertake in due course. The noble Baroness asked why the threshold was set at 20 per cent. As I hope I said in my speech earlier on, the thresholds are low enough that if a significant proportion of licensees either in number or market share object, the modification will not happen. However, the thresholds are not so low that it gives undue power to any particular licensee to block a modification agreed by the majority of licensees. Thresholds of 20 per cent are consistent with the current modification thresholds in other industries—the electricity and gas industries—and 20 per cent will certainly be kept to. I was asked about the consumer voice, which is an important issue. A new independent consumer council for water is being set up on 1 October 2005. It will be able to hold companies, regulators and the Government to account. It will have responsibility to look at the competitive market as well as the monopoly sector, so it will have quite wide powers. The noble Lord, Lord Greaves, asked how many customers would partake. As I said, there is no clear picture yet; it depends very much on the extent of licensee activity. He questioned whether there would be any environmental benefits as a result of these orders. We believe that the cost savings, of which there will be some, will allow Ofwat to take greater account of the cost of complying with environmental requirements when setting water prices—it allows Ofwat a greater margin for reflecting environmental costs. Therefore, we may expect the regulator to be tougher with the statutory undertakers as a consequence of the cost savings that will be made. I was asked whether competition would encourage over-abstraction and stress on water resources. The existing and proposed controls over abstraction will apply to undertakers and licensees. We think that competition should lead to the more efficient use of water resources. I have already dealt with the question of how many licensees there will be. I remind the noble Lord, Lord   Greaves, that licensees can apply for a water supply licence from 1 August. From 1 December, large water users will be able to switch if they choose to do so. I hope that the House will give this new competitive regime a fair run to see whether it works or not. If we find that there are difficulties with it, powers are available to deal with the situation as we then find it. In all the circumstances, I ask the House to accept these orders. I commend them to the House.