Water Bill

Lord Moynihan Excerpts

Thursday 6th February 2014 Lords Chamber

Moved by

[Lord Moynihan]

115:After Clause 23, insert the following new Clause—
“Duty to facilitate competition
(1) Section 37 of the Water Industry Act 1991 (general duty to maintain water supply system etc.) is amended as follows.
(2) In the heading, after “system” insert “and facilitate competition”.
(3) After subsection (1) insert—
“(1A) It shall be the duty of every water undertaker—
(a) to fulfil its duties under Chapter 2A of Part 3 in a way which does not prevent, restrict or distort competition in the provision of water services; and(b) without prejudice to the generality of subsection (1A)(a), to ensure that no undue preference is shown (including for itself) and that there is no undue discrimination in the relationship between its monopoly business, its competitive business and a water supply licensee.(1B) For the purposes of subsection (1A) above—
(a) an undertaker’s monopoly business comprises all of the activities carried on by it within the scope of its appointment, with the exception of its competitive business;(b) an undertaker’s competitive business comprises those activities carried on by it within the scope of its appointment, but which, in the absence of such an appointment, could only be carried on by it with the benefit of a water supply licence and the business of any associated water supply licensee; and(c) a water supply licence is a licence granted under section 17A, water supply licensee shall be construed accordingly and associated shall have the meaning set out in paragraph 11 of Schedule 2A.”(4) In subsection (2) for “duty” there is inserted “duties”.”

[Lord Moynihan (Con)]

My Lords, in moving Amendment 115, I wish to speak also to Amendments 116, 138, 139, 140, 141, 142, 143, 144 and 145.

This set of amendments brings us back to the central issue of creating through this legislation a clear, unequivocal market framework for competition. The amendments would provide a duty to facilitate competition. All participants must have access to clear and accessible prices, clearly defined and common levels of service and standard terms and conditions. As I have mentioned before to your Lordships, the Bill is based on the premise that parties within the retail market should conclude bilateral relationships subject to industry codes that will be developed. This could require some negotiation between market participants on service and price. It is this element of negotiation which I believe, if not addressed by us, will lead to the inefficient operation of the marketplace with unintended consequences.

The Bill is about regulated access and should not be blurred by a heavy dose of negotiated access. Allowing parties to negotiate could open the door for a current incumbent to discriminate against new retailers by offering them less preferable terms or poorer service levels or simply by being slow to respond to requests. This would limit the effectiveness of the market and increase costs for new entrants and customers. In my view, the relatively minor clarifications that I propose could usefully be made to the Bill. These are designed to ensure that the market can be opened in a timely way and that, once open, customers will enjoy benefits that are the same as, or greater than, for example, those which have been achieved in Scotland.

Amendments 138, 139, 140, 141, 142, 143 and 144 would ensure that Ofwat’s implementation licence modification powers are fit for purpose. In Scotland, the Water Industry Commission had a power of direction to ensure that activities that needed to be done were completed in time for market opening. For example, WICS was able to say to Business Stream, Scottish Water’s retail subsidiary, that the market would open irrespective of whether it was ready and that its customers would be reallocated to new entrants. I propose that Ofwat’s licence modification powers are made available for at least three years after Royal Assent to ensure that the entire period up to market opening is covered. I also suggest that they are clarified and strengthened, including by referring explicitly to market opening, as proposed in the group of amendments I have mentioned.

Amendment 145 would allow Ofwat to make common licence amendments in a single process. The potential retail market in England is much bigger than in Scotland. There will be more wholesalers and more incumbent retailers. The difference principally relates to the handling of the interests of the incumbent companies. In Scotland, the relevant people now have significant experience of dealing with a large number of—there are 12—active retailers. In their view, it would be sensible to ensure that Ofwat can make licence amendments that cover all companies if that is, in its judgment, the best approach. That has certainly been helpful in Scotland. However, there may also be circumstances where a more targeted approach to an individual company or a small group of companies would be better.

Amendments 115 and 116 would place a clear duty of non-discrimination on the wholesale businesses of the incumbent water suppliers. Clause 23 obligations to ensure no undue preference or discrimination would be carefully extended by these amendments. It seems to me that profit maximisation could be put forward as a reason to discriminate between suppliers. It may be worth looking at placing duties to help facilitate competition directly on incumbent businesses, making them also subject to a duty to ensure no undue preference or discrimination. This would make it easier to enforce competition law provisions, including the prohibition on margin squeeze. That would help ensure that new entrants are generally able to count on there being a level playing field.

As I had the good fortune to be the Minister responsible for taking the original privatisation Bill through the Commons, along with my noble friend Lord Howard of Lympne, I anticipate that the Minister will respond to my amendments by saying that Ofwat already has a duty to promote competition and therefore we do not need another duty. He may also say that Ofwat is the relevant competition authority for the sector and therefore we need to ensure under another piece of legislation that there is no anti-competitive behaviour in the sector, so we do not need another duty. He may have in mind the Competition Act and the Enterprise Act in that regard.

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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.

[Lord Moynihan]

My Lords, I am deeply grateful to the Minister for his comprehensive response. I have to say that this has been a very friendly Committee stage. Reference was made earlier today by my noble friend to the importance of policy formulation in the Bishops’ Bar. No doubt the noble Lord, Lord Redesdale, and I will continue that discussion in the same venue at a later stage. Then, to top it all, I have to say that I regret the passing of the special relationship with my temporary noble friend the noble Lord, Lord Whitty, and hope that it will return very strongly when it comes to revisiting the question of exit at a later stage in our proceedings.

On a more serious note, I am grateful to my noble friend for his support of my amendments, in particular the importance that he, like me, attaches to facilitating competition. It is absolutely critical that new entrants to the market do not come up against the misplaced use of economic power by the incumbents. That is what we were seeking in these amendments. I did not anticipate that my noble friend would respond quite so quickly to the additional points I raised in that context in the second part of my speech. There were one or two other items I proposed which I hope that he will reflect on, but I would not anticipate that he could do more than that. I hope that, between now and the Report stage, we will have an opportunity to consider them in somewhat greater detail. In the mean time, however, I beg leave to withdraw the amendment.

Amendment 115 withdrawn.

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[Lord Spicer]

My Lords, I am inspired by my noble friend Lord Crickhowell, who said that his worry was that there is a process of intervention, greater control and centralisation taking place on a wider scale, of which the water industry may be part. I do not know much about the water industry, but I do know about the electricity industry—I declare an interest as chair of the trade association for the electricity industry—as I was the Minister who took the electricity privatisation Bill through Parliament some 20 years ago. In that industry, there is certainly increasing intervention by Government and by the regulator. There is a definite trend. What happens eventually we will have to see, but I suspect the same thing is going on with water.

Therefore, my slight reservation with my noble friend’s amendment is whether it would make the process of regulation more efficient, more centralised and more bureaucratic or whether, in some way, it would do the reverse. I hope that it would do the reverse, because that is what we want to see. If she could address that point, it would be very helpful to me in judging what is going on.

[Lord Moynihan]

My Lords, briefly, I support the amendment proposed, although again I anticipate that the Minister is not going to be able to accept it. I would like to echo the comments made by my noble friend Lord Selborne about the briefing notes, which have been outstandingly helpful. In a latter edition, there was a very helpful road map which draws together some of these key issues. In the spirit of being helpful to my noble friend on the Front Bench, if the Minister is not in a position to accept the amendment on the face of the Bill, I hope that he will encourage his officials to give prominence to that road map on the website, and therefore in part meet the suggestion in my noble friend’s amendment.

My second point is that this is a matter of wider significance in Government. I hope that the Minister agrees that this is a subject that the Cabinet Office should look at carefully, not just in the context of water but in the wider context of the utilities. There is a necessity for clarity for those who do not spend many hours sitting on your Lordships’ Benches going through the detail of these Bills but who nevertheless have an equal, if not a greater, interest in the key elements of the legislation before Parliament.

[Lord Whitty]

My Lords, I congratulate the noble Baroness on producing such an important amendment. I suspect that it is beyond the Minister’s pay grade to agree that, in accepting the amendment, we would at one and the same time get Parliament to rationalise the way in which we legislate, get Ministers to ensure regulators co-ordinate with each other and get departments to make their activities comprehensible to the public. Nevertheless, these are welcome ambitions. The noble Earl, Lord Selborne, added some rationalisation of the quangos as well. I am afraid that all this is indicative of the way in which we do business. From listening to the noble Lord, Lord Crickhowell, both at an earlier stage and today, I understand that this is not a new problem—I have noticed that the Water Industry Act 1991 is seven pages longer than the Bill we are considering.

However, to be serious about this, one of the great failings of Parliament has been the failure to produce consolidated legislation in any field. After 15 or 16 years in this House, I still fail to understand why Parliament has not devised a procedure for pulling together consolidation of Acts in all areas, so the noble Baroness’s amendment has wider implications. Whether the amendment should sit in the Bill I will leave to the Minister but, much more narrowly, the proposition that for each subject matter there should be a single website address which links to all the different bits of regulation, authorities and other government interventions, is very good. It is one which has been talked about in Whitehall but hardly delivered at all. The one point where Defra could probably take this amendment on board in the context of water is regarding that single website. I think practitioners, companies and consumers would be very pleased to see such a development. I congratulate the noble Baroness, but we will see what the Minister says.

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[Baroness Neville-Rolfe]

My Lords, we should look very carefully at this proposal for an increase in regulation. Water and sewerage are long-term matters and the great need is to have investment in resilience, with the right and proper regulatory framework. Ofwat seems to have got tougher in recent times. It is right to have a five-year timescale or we will not get the investment that is needed for resilience. The entrepreneurs involved will assume that if profits go up, perhaps because they have improved efficiency, they will immediately get a call from Ofwat reopening the five-year settlement, triggered perhaps by articles in tabloid newspapers—the sort of thing that will not be good for investment in this vital industry.

[Lord Moynihan]

I support that view. I completely understand where the noble Lord, Lord Whitty, is coming from, but there is a serious potential risk here to the confidence of the investment community in the water market. I hope that my noble friend takes that into account when considering extending the reasons for opening up price reviews.