Lords slammed Ofwat for 'Failing to match the success of other economic regulators in introducing competition to their market,' in a report published today.
The statement comes from the Lords Committee on Regulators, established in December 2006, which reports today.
In a statement, the committee says 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 criticism comes from the lack of choice available to consumers. "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 Lords were critical in particular of Ofwat's interpretation of the Water Act 2003. In the act, Ofwat, "requires water undertakers to develop access codes to set out terms and indicate access prices for allowing licensees access to their water supplies."
The Lords say that Ofwat's access charges actively discourage entry and therefore competition. "The Committee support the Competition Appeal Tribunal's judgement that a change in Ofwat's interpretation of the legislation is necessary," reads the Lords statement.
Chairman of the Committee, Lord McIntosh of Haringey 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."
Responding to the criticisms, Ofwat Chief Executive Regina Finn 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."
Finn said that Ofwat was opened to competition only in December 2005, while the telecoms and energy industries were opened in 23 and 17 years ago respectively. Ofwat is carrying out its own investigation into how to increase competition in the water industry, which will report in December.
Finn said, "We are pleased that the Chancellor, in the pre-budget speech, announced the Government's intention to review competition in water and we know that Defra Ministers are open to considering our suggestions on ways to best develop competition in customers interests, including the interpretation of rules on access prices."