My Lords, my noble friend Lord Moynihan’s Amendments 115 and 116 would introduce a new duty on incumbent water companies to “facilitate competition”. This would sit alongside their primary duties to supply water and provide sewerage services to their appointed areas. Amendments 138 to 145 would change Ofwat’s powers to amend licences to introduce the market reforms set out in the Bill.
One part of the proposed new duty on incumbents would require them to act in a manner that did not “prevent, restrict or distort” competition. I think we can all agree that it is essential that incumbent water companies play by the rules of the market so that customers benefit from competition. That is why the Competition Act 1998 already prohibits business from making agreements that involve the prevention, restriction or distortion of competition, or from abusing a dominant position in the market. Both incumbents and licensees are subject to an overarching competition law regime that deals with the concerns that the amendments seek to address. As my noble friend thought I would say, Ofwat is able to enforce the Competition Act 1998 in the water sector because it has concurrent powers with the Competition and Markets Authority.
In some of our debates on Tuesday, noble Lords made comparisons with Scotland, as did my noble friend today, but I note that a facilitating competition duty was not imposed on Scottish Water, although it, too, is subject to the aforementioned Competition Act. It is worth noting here that WICS does not have the same powers as Ofwat under the Competition Act, which may explain some of the differences in the way Scottish Water is regulated.
Incumbents will be subject to enforceable licence conditions, market codes and charging rules which will ensure that they operate fairly in the competitive markets. I question why the amendments do not require licensees to be under the same or a similar duty because both licensees and incumbents operate within the retail market and some licensees are associates of incumbents.
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The second part of the proposed duty to facilitate competition would require incumbents not to act in a manner that unduly favours their own retail or wholesale businesses against licensees. Again, I agree that it is essential to ensure that licensees are confident that they will be treated fairly by incumbents in the competitive market. Ofwat already ensures that incumbents do not set discriminatory or preferential charges and Clause 23 provides the Secretary of State with a shared responsibility to ensure that incumbents do not discriminate in the provision of services. I believe that the regime in the Bill introduces more flexibility around facilitating competition in the market than the proposed new
duty. There is already sufficient regulation and Ofwat has the appropriate powers to deal with any concerns. A specific duty on incumbents is therefore unnecessary.
As my noble friend explained, Amendments 138 to 145 would extend Ofwat’s powers under Clause 43 to make changes to the licences of both incumbent water companies and licensees to supply water or provide sewerage services. Under Clause 43 as drafted, licences may be modified where it is necessary and expedient to do so to deliver the market reforms in the Bill. The amendment would enable Ofwat to make any changes it likes that relate to market reform. The amendments would also grant Ofwat this power for three years rather than two, as provided for in the Bill, and would automatically come into force at Royal Assent. These amendments are, I think, intended to increase Ofwat’s discretion to make changes to licences while limiting the time within which it will be able to deliver such changes. The Bill enables Ofwat to make changes to licences for two years, following commencement of the relevant clauses, where these changes are necessary to deliver the provisions of the Bill. This means that Ofwat can make changes up to April 2019, following commencement of the retail provisions in Clause 1 in 2017, for example, and changes relevant to the upstream market for two years following commencement of the relevant upstream clauses.
Under these amendments, the power to make changes will fall away in April 2017. This will mean that Ofwat will have to have all the changes it wants to make to facilitate upstream at least three years before that market opens or individually negotiate changes to licences at a later date. The Bill enables this to happen only where, as my noble friend Lord Moynihan said, these changes are necessary and expedient to deliver the provisions of the Bill. It is not carte blanche, as would be the case if the amendments were agreed. Investors and companies alike will be nervous about proposals to give Ofwat a free hand to impose whatever changes it wants ahead of market opening in April 2017. The amount of discretion given to Ofwat featured heavily in the debate during pre-legislative scrutiny of the Bill, and this licence change provision was one area where we decided to make changes to reflect the concerns that had been raised. Those changes were welcomed and I would be concerned about upsetting the balance. Others may be concerned that Ofwat will have to negotiate individually with all 21 incumbents to make changes beyond 2017. This will enable reluctant incumbents to delay implementation of upstream.
My noble friend asked about mis-selling. I should like to put it on the record that we will be working with Ofwat to produce a code of practice on mis-selling in the retail market. He also asked about regulated access. As I said on Tuesday, we are clear that regulated access to the retail market can and will be delivered in this Bill. The Open Water programme is working on this basis. Market codes will be a critical tool for setting the rules for the market. My noble friend asked about restriction of the market to water companies. We agree that it would be useful for other participants to be able to sell to water companies, and this is already possible. Clause 12 provides a formal framework for that.
If I have not answered all the questions put to me by my noble friend, I will certainly come back to him. In the mean time, I would ask him to agree to withdraw his amendment.