The House of Lords Committee on Regulators today criticised Ofwat for failing to match the success of other economic regulators in introducing competition to their market. The Committee's report UK Economic Regulators concludes that UK economic regulators perform well in promoting competition and competitiveness and argues that there is no need to re-write the legislation that established them, but stresses that Ofwat (the economic regulator for the water and sewerage industry in England and Wales) needs to do more to facilitate competition in the water market.

The consumer water market in England and Wales is identified by the Committee as one that has failed to deliver the same level of consumer choice of supplier as other regulated industries such as energy and telecoms. While in many of the regulated industries it is relatively easy for customers to change their supplier, of, for example gas or telecom services, it is still impossible for an individual or company to change water supplier. The Committee argue that there is nothing specific about the nature of water that prevents increased competition and criticise Ofwat for failing to be more proactive in developing a genuinely competitive market place.

One explanation for the failure of the water market to provide adequate consumer choice is Ofwat's interpretation of a provision of the Water Act 2003 which requires water undertakers to develop access codes to set out terms and indicate prices for allowing licensees access to their water supplies. The Committee do not accept Ofwat's position that the legislation itself must be amended and argue that the regulator must do more to ensure enhanced competition in the water market. The Committee support the Competition Appeal Tribunal's judgement that a change in Ofwat's interpretation of the legislation is necessary.

Commenting Lord McIntosh of Haringey, Chairman of the Committee, said:"Many of the UK's economic regulators have done an excellent job in ensuring their markets are competitive and provide good value for the customer. Unfortunately in the water industry this has not been the case. "Ofwat must do more to encourage competition amongst water suppliers. They have to start by looking again at how they interpret the legislation around access charges. We see no reason why the water industry cannot become just as competitive as energy or telecoms is now.

"Overall there needs to be more Parliamentary oversight of the role of regulators to ensure they don't pursue over regulation or become self serving. That is why we are recommending a new Joint Committee is established to regulate the regulators."

Ofwat has already responded by rejecting the criticism from the House of Lords.  Regina Finn, Ofwat Chief Executive said "Ofwat has been working within a very restricted regime to try and promote the development of vigorous competition in the water sector. That regime only creates the potential for fewer than one water customer in ten thousand to choose their supplier. With such a restriction it is impossible for the water sector to be as competitive as energy or telecommunications." Ofwat is currently carrying out a wide-ranging consultation on how to open up the water market to competition. It will be publishing its recommendations on how to improve the current regime in December.