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Water regulator Ofwat has let down consumers by failing to actively promote a competitive market, peers have concluded.

The House of Lords' committee on regulators says in its overview report, published today, that most watchdogs are performing well in ensuring consumers are offered choice of supply in their sectors.

But it says Ofwat, which governs the water and sewerage sectors in England and Wales, has failed to offer consumers a real choice of supply and that there is no real reason why any exception should be made for the water industry.

"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," committee chairman Lord McIntosh of Haringey said.

"Ofwat must do more to encourage competition amongst water suppliers."

Peers are demanding immediate action on Ofwat's attitude to legislation related to access charges.

The watchdog believes the law should be amended, but in today's report peers say a change of interpretation of existing legislation by Ofwat is all that is necessary.

Ofwat chief executive Regina Finn rejected the report's findings, insisting it had been working "within a very restricted [legal] regime".

"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," she said.

An Ofwat review of how to open up the water market to further competition is due for publication next month.