Question to the Department for Environment, Food and Rural Affairs:

To ask Her Majesty’s Government what assessment they have made of the risk of cross-subsidy issues in the deregulated water marketplace that would make the market unfair for new entrants.

The Government is committed to ensuring that there is a level playing field in the new retail market in order to make it attractive for new entrants and deliver the best deals for customers. The Water Act 2014 included provisions prohibiting discrimination between a wholesale water appointee and its retail arm; cross-subsidy would normally be seen as a form of discrimination.

Parties within the Open Water programme (the cross-sector programme responsible for implementing the new market for non-household retail services) are using a number of tools to ensure a fair and level playing field for all market participants.

Ofwat has set separate price caps for household and non-household customers and for wholesale and retail services in the 2014 Price Review. This stops cross-subsidy between household and non-household customers and between the wholesale and retail parts of companies’ businesses.

Ofwat is also proposing licence conditions for new retail licensees that prohibit discrimination and cross-subsidy. These will mirror conditions that already exist in the licences of water and sewerage undertakers.

Open Water Markets Ltd (the body currently representing all market participants) has developed detailed rules or ‘codes’ that require all interactions within the market between wholesalers and retailers to follow a common approach. This is designed to ensure a level playing field, principally on non-price issues.

Underpinning these new arrangements there is also an existing framework of competition law at both a UK and European level which prohibits discrimination by an incumbent in favour of one retailer over another, for example by offering preferential terms or prices or engaging in other anti-competitive behaviour. Ofwat has powers to investigate and fine companies up to 10% of their revenues where it finds such activity has occurred.