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Baroness Miller of Chilthorne Domer: On page 42, lines 6 and 7, the Government specify that the

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companies must be able to secure reasonable returns on their capital for shareholders. The noble Baroness, Lady O'Cathain, disagrees.

Baroness O'Cathain: The reasonable returns are not only for shareholders but for investment in maintenance and infrastructure. A high level of capital investment is required to enable the infrastructure to continue to supply fresh clean water to every household. It is not necessarily a shareholders' perk. It is not money to be given in dividends to shareholders.

Baroness Miller of Chilthorne Domer: I thank the noble Baronesses for that explanation. I should like the Minister in his reply to confirm that interpretation of what the Government have put on the face of the Bill. Some definition of where the reasonable returns on capital are expected to go is helpful and perhaps, for that reason, this amendment would also be helpful. There probably needs to be a hierarchy of interest of consumers, infrastructure, and so forth, that is clearly understood. I know that the pricing mechanism and the water authorities' duties include that. But as the Bill seems to go into great detail on some of these points, spelling out that hierarchy would be helpful.

Lord Whitty: In relation to this particular discussion, the reference to "reasonable return" in paragraph (c) is part of a sentence which refers to the proper carrying out of those functions. Therefore, it is fairly much as the noble Baroness, Lady O'Cathain, indicated. As regards hierarchy of objectives, the problem with Amendment No. 95—with which I have some sympathy—is that it appears to give primacy to the long term and to long-term investment over other provisions. Clearly, in some circumstances, the regulator would have to pay attention to the short-term impact. An immediate and draconian price rise, for example, could be something to which the regulator would have to pay attention, while also giving consideration overall to the longer term. It could override, in terms of its effect on the consumer, the long-term position.

This clause is fairly inoperable; it does not indicate the period of long term to which it refers. Of course, throughout the regulatory structure we will have periodic reviews. That could imply that there would always be a trade-off of the long term against the short term, whereas clearly the regulator and the other authorities would need to have a balanced approach.

The Secretary of State issued guidance to Ofwat earlier this year stating that,

XThe Government would expect regulators and companies to take a long view, not confined to the limits of the periodic cycle, in devising and recommending solutions".

That general guidance stands and achieves the objectives that the slightly difficult formulation in the amendment might not.

Amendment No. 99 concerns the question of the financial costs that might be imposed on water companies and their customers. I support the aim that the costs and benefits of any guidance issued under this clause must be assessed and properly considered. The

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Government are committed in this and in other contexts to producing regulatory impact assessments for that reason. In addition, in the impact assessment which accompanied this Bill, the Government said that where there might be significant financial implications, they should be taken forward by means of new legal provision.

I do not think that the way in which Amendment No. 99 is directed to undertakers' and consumers' costs is appropriate. However, I am prepared to take Amendment No. 99 away and try to come back with something more appropriate.

Baroness Byford: I am grateful to the Minister for his last comment on Amendment No. 99. As he knows, it is difficult to propose amendments that fit, that are relevant and with which the Government may have sympathy, even though the wording is perhaps not quite right or unacceptable. I thank the Minister.

With regard to Amendment No. 95, the Minister said that it might put in jeopardy a short-term need that needs addressing if we look too much at the long term. I should like to take this issue away and perhaps return to it at a later stage. I accept that the general guidance given to Ofwat is in being. But the amendment, particularly as regards methodology and the duty to publish it, has not been addressed. Therefore, we may need to look at this again.

I believe that these amendments would help the Bill. A two-stage approach helps to ensure that the price review process is more transparent and predictable to characteristics of good regulation. Price determinations are undertaken on the basis of published and agreed methodologies. I thought that that was something which the Government would support. We believe a two-stage approach achieves early resolution to disputes on methodology and policy. It has the potential that lengthy and costly appeals could be reduced. Therefore, it would be of benefit to customers who currently have to bear the full costs of appeals to the Competition Commission.

In the mean time, the Minister has said that he will look again at Amendment No. 99. He might also have a look at Amendment No. 95. I am not tying him to a commitment to do that as he has not given any indication of doing that. We are trying to ensure that all determinations are common to all companies. It seems much more logical to go down that line than perhaps to have different concepts for different companies in different areas. If the Government want to go down that latter course—a bad pun; another pound in the Water Aid bucket—I think that that and the implications that it might have on individual water companies should be made clearer. At this stage, I beg leave to withdraw Amendment No. 95.

Amendment, by leave, withdrawn.

The Duke of Montrose moved Amendment No. 96:

Page 43, leave out lines 24 to 26.

The noble Duke said: This is another probing amendment. Subsection (4) contains various references to companies holding an appointment

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under Chapter 1 of Part 2 of the Water Industry Act. Suddenly, in sub-paragraph (iii), there is a reference to "the person" who is the licensed water supplier. The Secretary of State or the authority is to ensure that this person's licence does not authorise it to carry on any activities in the area of "the company". Frankly, I am unsure what the Government intend by this provision and would appreciate clarification from the Minister.

In speaking to Amendment No. 96, I shall speak also to Amendment No. 100, which is linked to it. Under new Section 2A, the Secretary of State may issue guidance to the authority concerning its contribution towards the attainment of any social or environmental policies. We welcome this provision, particularly the requirement that the Secretary of State and the assembly consult the necessary stakeholders.

I am also pleased that the draft guidance will be laid before Parliament, but I am unsure whether the guidance will have the same status as a statutory instrument subject to the negative procedure. It appears that there is the usual 40 days' time for consideration of content, during which either House can resolve that the guidance should not be issued. Does that mean that the draft guidance could be rejected or amended, if any Member wished to do so? Will the draft guidance be subject to a substantive debate in each House? I should appreciate some clarification on the parliamentary status of draft guidance. I beg to move.

4.30 p.m.

Baroness Farrington of Ribbleton: Amendment No. 96 seeks to remove the prohibition on licensed water suppliers associated with an undertaker from operating in that particular undertaker's area. This provision is needed to ensure consumers are protected and to promote competition.

We expect undertakers to compete in their areas of appointment against licensees by offering better prices and services and operating at higher efficiencies. At the same time, we expect undertakers to create associated companies so that they can enter the competitive market in other parts of England and Wales.

If these associated licensees were able to operate in their parent undertaker's area, the undertaker could find ways of encouraging customers to transfer to its associates in order to remove them from their regulated activities and the price control mechanism. This could be done only at the expense of the customers remaining with the regulated business.

The prohibition has also been put in place to ensure that when licensed water suppliers operate in an area they are competing with each other and the undertaker on a level playing field. I hope that I have given the explanation that the noble Duke sought.

As has been said, Amendment No. 100 seeks to redefine the duration for which any draft social and environmental guidance must be laid before Parliament for approval from "40 days" to "40 working days".

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Although the social and environmental guidance is not a statutory instrument, the Bill replicates the negative procedure for parliamentary scrutiny, including the usual exclusions. The 40 days are therefore calendar days in exactly the same way. Forty working days would depart from the normal parliamentary procedure and would extend the time that the draft guidance has to lie before both Houses to beyond the time allowed for statutory instruments. We believe that that would not be appropriate. If a matter is raised, there could be a debate if the usual channels agree.

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