Investing in and paying for your water services from 2021: consultation

Introduction

Scottish Water - Performance since 2002

Scotland is enjoying the real benefits that have been delivered to drinking water quality, the environment and customer service since Scottish Water’s creation in 2002. As a result of the Scottish Government’s focus on the need to improve the quality and standards of services, the determination to keep charges affordable and the commitment shown by the Scottish water industry, drinking water quality, environmental performance and levels of service are at their highest levels ever.

The achievements in the previous regulatory period were published in a report by the water industry. Since then progress has continued. At 31 March 2018 – half-way through the 2015-21 regulatory period:

• Average household charges remained £42 lower than the average in England and Wales.
• Scottish Water’s service performance (as measured by the basket of measures including low pressure, leakage, drinking water quality and security of supply) in the Overall Performance Assessment is now comparable to the leading UK water companies – and on some measures it outperforms them.
• Scottish Water has reduced its energy consumption by 5% and has managed to cut its operational carbon emissions by more than 30% since it was first reported in 2006/07. Furthermore it now generates and facilitates more than double its electricity consumption from renewable sources.
• Scottish Water continued to reduce leakage from 738 to 492 megalitres per day. Leakage has now reached its economic level, that is where it costs more to make further reductions in leakage than to produce and supply water to customers.
• Scottish Water provided connections to 59,269 new homes and businesses since 1 April 2015. Additional capacity has been provided to cater for all new developments.
• Drinking Water continues to be at record levels of compliance at over 99.9%.
• There were no failing Wastewater Treatment Works in 2017. This compares to over 70 in 2002.

Looking to the future, it is important to build on these achievements and to ensure that the policy framework supports Scottish Water’s continuing improvement in the standards of service it provides all customers.

The Strategic Review of Charges

The Strategic Review of Charges is the process undertaken by the Water Industry Commission for Scotland – Scottish Water’s independent economic regulator - which determines the charges payable by Scottish Water’s customers for a defined regulatory period.

The Strategic Review of Charges for 2021-27 will be the sixth undertaken in the Scottish water industry. Ministers initiated the review by means of an official letter to the Water Industry Commission for Scotland ( WICS) in January 2017 ( Annex A). This set out the policy framework and timetable which WICS and stakeholders during the Review. A timetable showing the key dates for the review is shown below.

* These documents are the subject of the present consultation

A significant amount of preparatory work has now been undertaken by WICS and by Scottish Water including the publication by Scottish Water of its strategic projections [ http://www.scottishwater.co.uk/about-us/publications/strategic-projections/strategic-projections] and by WICS of its methodology and subsequently of a number of ‘Decision Papers’ [ https://www.watercommission.co.uk/view_Decision_Papers.aspx] which offer its initial view on issues key to the review. The Customer Forum has also been appointed to represent the views of customers generally and to promote and embed the customer interest within the Strategic Review of Charges process. It will have a formal role in facilitating effective customer engagement throughout the process. This builds on the innovative approach of the previous review and will ensure that customers’ priorities and views are fully considered in the Strategic Review of Charges.

Ministerial Inputs

Scottish Ministers must make 2 specific inputs to the Statutory Review in the form of statements which set out:

• the Principles that should underpin charges for water services; and
• the Investment Objectives which will define the standards of services to be delivered in the 2021-27 period.

The Scottish Government wishes to ensure that the policy framework set out at a strategic level in these two documents takes full account of the views and concerns of customers and stakeholders. This document therefore seeks views on drafts of these documents and a number of key issues arising.

Responses to this paper will complement other processes including the work of the Customer Forum and Scottish Water’s own engagement and research to ensure that the widest range of customer views is available to inform Ministers’ decisions on the finalisation of these documents. They will be issued in final form in December 2019.

Policy Framework

The following features of the policy framework have been key to previous regulatory periods and the Government considers that they remain appropriate.

Charges for Customers - Charges for all customers should ensure the sustainable funding of the water industry whilst remaining affordable and broadly stable.

Size and Nature of the Investment Programme - Overall, investment priorities must support the Scottish Government’s core purpose of creating a more successful country, with opportunities for all of Scotland to flourish, through increasing sustainable economic growth. In particular the investment programme should be:

• Developed such that the industry’s capacity for investment is recognised and efficiency of delivery is optimised.
• Programmed in a manner so as to avoid excessive peaks and troughs in investment.
• As indicated above include the development of well-informed plans for capital maintenance including repair, refurbishment and replacement, to ensure the continued serviceability of Scottish Water’s assets.

Government Financing - Scottish Water is financed from customer charges and borrowing from Government. For planning purposes it should be assumed that borrowing by Scottish Water will be at a similar level to that available in the present period. The levels will be confirmed at a later stage.

Consultation question

1. Do the key policy objectives provide a sound basis on which to plan the delivery of services from 2021?

Looking Beyond the Regulatory Period

The Government considers that the present 6 year regulatory period has proved effective in enabling better long-term planning for the industry and its supply chain; and giving customers certainty of pricing over a number of years. It is therefore requested that WICS determines prices for the 6 year period 2021-27.

In addition the Government is aware of significant longer term challenges presenting to the industry – many of which have been identified and analysed in Scottish Water’s Strategic Projections. Significant among these is the need to plan for the replacement of major assets in the years ahead. Work is underway to understand the detail of these requirements but stakeholders recognise that this challenge will present a significant additional investment requirement. The Government is keen to avoid any shocks or significant movement in charges to customers over future periods. It has therefore asked WICS as part of this review to give indicative profiles of prices for subsequent regulatory periods in the light of the developing understanding of continuing investment requirements.