Foreword from the Chair

Our work relies very much on the productive relationships that exist within the sector, and I would like to take this opportunity to thank our stakeholders for their challenge and support throughout the Strategic Review process.

I would also like to thank the Chief Executive and staff for their continuing commitment, particularly given that we have all had to work remotely this year. During that time, we have also welcomed several new graduate analysts to our team. Although starting their working lives during a difficult time and in a fully remote setting they have already made very valuable contributions, particularly to our international work. I very much look forward to thanking them in person as soon as circumstances allow.

 

Professor Donald MacRae OBE FRSE

Chairman

December 2021

Statement from the Chief Executive and Accountable Officer

I am pleased to present our annual report and to provide a summary of our performance for 2020-21. Since we were established some 20 years ago, we have become an industry-leading organisation – the first UK regulator to show that economic regulation could be applied successfully to a publicly-owned company. This has only been possible by making sure that we do not rest on our laurels, and by working with stakeholders to identify innovations – scanning the horizon for best practice and sharing and learning within the UK and internationally.

Our objective at all times is to establish the best outcomes for water and wastewater customers, communities and the Scottish environment – an approach firmly rooted in doing what is right for both current and future customers. Our decisions are within the context of the Scottish Ministers’ objective to transition to a net zero industry by 2040 and to ensure the sustainable long-term future of the water industry.

Our key achievements this year are summarised here, with more detailed information provided in the sections that follow.

Ensuring value for money for customers

This year marked the culmination of our Strategic Review of Charges 2021-27. We consulted on our draft determination (published in October 2020) and set out our decisions in the final determination (published in December 2020).

• The draft determination outlined the need for a long-term, sustainable and innovative approach to replacing Scottish Water’s assets. It also presented our analysis of the investment necessary to improve water quality and the environment further, and to support economic growth.
• The final determination considered the Ministers’ final objectives for the industry and their Principles of Charging. The determination also took account of the responses we had received to the draft determination.

The final determination allowed for the investment necessary for Scottish Water to start to transition becoming a more sustainable industry. It also set out our expectations in terms of the transformation that will be required of Scottish Water over the coming years, including a focus on openness and candour in its engagement with customers, communities and stakeholders, supported by high-quality evidence and analysis.

In the period since the determination was published, we have worked closely with Scottish Water as they develop their transformation plan, providing constructive feedback and challenge on their proposals.

Monitoring Scottish Water’s performance

We published our annual performance report for 2019-20 in December 2020. This was the penultimate year of the six-year regulatory period 2015-21.

The report showed that, overall, Scottish Water continued to perform well.

• The level of customer service (as measured by the Overall Performance Assessment (OPA) score) exceeded the target range.
• Scottish Water had achieved year-on-year improvements in the household customer experience measure.
• Scottish Water’s operating costs were in line with the level projected in its Delivery Plan.
• Overall progress in delivering the investment programme was broadly on target, although there were a small number of remaining projects that Scottish Water was finding challenging to deliver.

The report covered the period to March 2020, just before the full effects of the Covid-19 pandemic took hold in Scotland. It was clear at that time that Scottish Water was facing an output delivery challenge completing a relatively small number of remaining projects by the end of the regulatory period (2020-21). This has been exacerbated by the impacts of the pandemic. We have worked on an ongoing basis with Scottish Water, the Scottish Government and the other regulators to understand the full effects of the pandemic on delivery. We will report on this in our next annual performance report in autumn 2021.

Achieving greater value and choice through retail competition

Following a root and branch review of the competitive retail market, including extensive consultation and engagement with market participants, we have now put in place a series of measures in order to:

• Support a level playing field.
• Assist with implementing market health checks.
• Further protect customers (by removing the requirement for prepayments).
• Strengthen provisions relating to mergers and acquisitions between licensed providers.

We have also provided further information about our expectations in terms of behaviours from licensed providers. Another key area of our retail work this year has related to the support measures for non-household customers affected by the impacts of the pandemic on their businesses. Starting in March 2020, WICS put in place a series of market support measures, including a temporary suspension of wholesale prepayment requirements and a charge deferral scheme.

In March 2021 we consulted on these ongoing measures and on how the market might transition back to normal operations. We also consulted on measures to ensure that retailers are appropriately financially resilient.

Supporting Hydro Nation

This year we continued to develop and grow our relationships in the international arena, as part of our commitment to the Scottish Government’s Hydro Nation initiative. Our involvement helps ensure that we stay at the forefront of regulatory best practice while sharing our own expertise in water sector regulation with other countries. 

We have provided further technical assistance to the Romanian regulator and have completed a collaborative project working with two of New Zealand’s water companies. We have also worked with the New Zealand Government’s Department of Internal Affairs (DIA) as it considered the case for reform of the country’s water sector.

In addition, we have continued to extend our links with other overseas regulators, including through attending international conferences and by participating in international organisations such as WAREG and the OECD’s Network of Economic Regulators.

We believe that our international work makes a real difference for those with whom we collaborate and brings benefits for Scottish customers in terms of the insights into best practice we gain. It also brings a direct financial benefit by reducing the levy that we would charge Scottish Water and provides interesting and valuable learning experiences for our staff (which supports our employee recruitment and retention).

To close, along with many other organisations we have been considering the options for our future working arrangements as we emerge from the pandemic. Towards the end of the year, we set up an internal working group to engage with staff and to understand their preferences and views on aspects of working arrangements and potential models. We will report on the outcome of this process in next year’s report.

Whatever the final operating model, I am very confident that we will continue to operate as a strongly coherent team. This reflects the shared commitment of our staff to deliver maximum benefits for Scotland’s water and sewerage customers.

Organisational review

Our purpose and strategy

We are a non-departmental public body with a statutory duty to promote the interests of customers of Scottish Water. We do this by challenging Scottish Water to achieve long-term value and best-in-class levels of service for its customers and communities.

We published our new Corporate Plan, covering the period 2021-27, in December 2020. The plan, which was agreed with Scottish Ministers, explains:

• our strategic objectives
• the outcomes we are setting out to achieve for customers, communities and other stakeholders
• the activities we will need to undertake to deliver these outcomes
• the resources necessary.

Underpinning our Corporate Plan was an acknowledgement that there is substantial value from moving to more flexible, transparent and collaborative ways of working and decision making. Our objectives are as follows:

• To support the sector to achieve its long-term vision and the Scottish Ministers’ Objectives for Scottish Water.
• To challenge Scottish Water to achieve best in class levels of service for its customers and communities.
• To become an international leader in the field of economic regulation.

Our Corporate Plan is focused on ensuring that we continue to meet our statutory obligations to current and future customers. It will also ensure that we contribute fully to the delivery of the water industry vision. This is particularly important given the need for Scottish Water to achieve net zero emissions by 2040 and to maintain service levels by repairing, refurbishing and replacing the industry’s assets in a timely way.

We will report our progress against the objectives set out in the Corporate Plan in future annual reports.

Our contribution to the Scottish Government’s purpose

The overall purpose of the Scottish Government’s National Performance Framework (NPF) is to focus government and public services on creating a more successful country, with opportunities for all of Scotland to flourish, including through creating sustainable growth. The NPF provides a clear vision for Scotland, with broad measures of national wellbeing covering a range of economic, health, social and environmental indicators and targets.

The elements of the NPF that we consider we can contribute towards, either directly as a result of our own actions, or indirectly through our statutory functions, are as follows:

NPF elements	How we contribute
We respect, protect and fulfil human rights and live free from discrimination.	We comply fully with diversity and equal opportunity legislation and are living wage accredited.
We are open, connected and make a positive contribution internationally.	By supporting the Scottish Government’s Hydro Nation programme, we collaborate with many other regulators and water industry stakeholders, sharing best practice and helping others to build capacity.
We are well educated, skilled and able to contribute to society.	We have a performance management process that identifies areas for development and encourages continual training and education of our staff. We have improved our graduate training and development programme, so that students are able to develop their careers by working with us.
We have thriving and innovative businesses, with quality jobs and fair work for everyone.	We promote a long-term, sustainable water industry. We ensure the smooth functioning of the retail market.
We value, enjoy, protect and enhance our environment.	We off-set our carbon footprint from our international travel by funding tree planting in Scotland. We support Scottish Water in its six-capital approach to investment appraisal and are supporting it to meet its target to deliver net zero emissions by 2040. Indirectly, by managing the retail market, we support retailers who provide water efficiency advice and other bespoke environmental services to customers.

Our organisational model

WICS is a non-departmental public body sponsored by the Scottish Government’s Directorate for Environment, Climate Change and Land Reform. We have 25 employees.

Our Board comprises four non-executive members (including the Chair) and the Chief Executive. The Board is responsible for overall governance. Further information about our Board members and about the role of our Audit and Risk Committee (ARC) is covered in the governance statement within the Accountability Report.

We are funded through a levy on Scottish Water and on the retailers that participate in the competitive non-household market. The size of these levies is set by Scottish Ministers in light of the objectives and key targets agreed through the corporate planning process. Where resources allow, we seek to supplement that income with income derived from the external projects that we undertake as part of our international work.

Our operating environment

We work closely with many stakeholders, and these relationships are summarised below. We acknowledge and appreciate the continued support of all our stakeholders in the development of the Strategic Review of Charges 2021-27 and in working with us to transition to our new regulatory approach, based on candid and transparent behaviours and high-quality evidence and analysis.

Stakeholder	Interaction with our work
Scottish Parliament	We are accountable to the Scottish Parliament through Scottish Ministers.
Scottish Government	The Scottish Government sets the overall objectives and principles of charging for the water industry in Scotland.
Scottish Water	We have a duty to protect the interests of both current and future customers by making sure that: Scottish Water is sustainably funded for the long-term and delivers value for money. Scottish Water is as efficient and effective as it can be so that customers pay no more than is necessary.
Scottish Environment Protection Authority (SEPA)	SEPA regulates Scottish Water’s performance regarding compliance with environmental standards and investment in improvements.
Drinking Water Quality Regulator (DWQR)	The DWQR regulates Scottish Water’s compliance with drinking water quality and investment to protect public health.
Citizens Advice Scotland (CAS)	CAS undertakes advocacy and research on behalf of consumers in relation to Scottish Water’s operations and investment planning.
Central Market Agency (CMA)	The CMA administers the competitive non-household retail market.
Scottish Public Services Ombudsman (SPSO)	With responsibility for complaints and dispute resolution in the water sector, the SPSO provides insights into levels of trust and confidence among consumers.

Key challenges and risks

Challenges for the industry

In undertaking our work, we must consider several challenges that have an impact on the industry:

• The effects of climate change, as reflected in the climate emergency that was declared by the Scottish Government in May 2019. The water industry will have a vital role to play in helping deliver the Scottish Government’s overall target of achieving net zero emissions by 2045. Scottish Water has a substantial operational and embodied carbon footprint and has been set a demanding challenge by Scottish Ministers to achieve net zero five years earlier, by 2040.
• The need to operate, refurbish and replace Scottish Water’s very large asset base (including the extensive network of pipes, sewers and treatment works) in an economically optimal way. This will be necessary to maintain service and help Scottish Water achieve its net zero target. Joint work with Scottish Water has identified that expenditure on asset replacement may eventually have to increase three-fold from current levels.
• The response to the pandemic, which will continue to affect businesses and households across Scotland for some time. Our next annual performance report, in autumn 2021, will report on the impacts of the pandemic in relation to output delivery.

Regulatory approach

At the Strategic Review of Charges 2021-27 we explained that the sector is moving to a new regulatory approach. The approach is based on candid and open communication, strong collaboration between all stakeholders, and high-quality evidence and analysis on Scottish Water’s part. This combination of candour and analysis will give stakeholders the confidence they need in relation to Scottish Water’s performance.  

It is important that we continue to communicate to stakeholders why the change in approach is necessary, how it will work, and the benefits it will bring. We must also support Scottish Water and the retailers as they adopt the approach.

This year we have worked with Scottish Water as it has begun to consider the cultural and operational changes that will be required for it to undergo the scale of transformation envisaged.

Attracting and retaining staff

It is important that we plan properly for the succession of key roles and adequality manage our resources and staff retention.

We seek to attract and retain the best talent and to ensure that our employees have the skills and expertise they need. We also make sure that we maintain our pool of high-quality analytical talent.

Our pay structure is in line with the Scottish Government’s pay policy, which provides a clear grading structure that promotes staff development. All employees are provided with a career-average pension as a core component of the reward package, and this is highly valued by employees. We provide high standards of training and learning and development opportunities, which not only helps with employee retainment but also supports our succession planning.

Managing the retail market

We are responsible for managing the competitive market for retail, non-household services. In this regard we must ensure that the market continues to work in an orderly way and in the interests of customers. We manage the risk that this does not happen by engaging with retailers to develop their understanding of the business practices and behaviours that are required and by being clear about our expectations.

International work

We have a statutory requirement to support the Scottish Government’s Hydro Nation initiative. During the past four years we have had an increasing number of contacts from regulatory colleagues across Europe and internationally who wish to learn more from us about the Scottish water industry’s journey and experience. This has led to several engagements to assist with improving water sector regulation in other countries, including in Romania and New Zealand.

As a small office, with limited resources, we need to ensure that we can take full advantage of this demand. Our challenges include managing our resources – including staffing and financial, ensuring the welfare of our employees (once they are again able to travel overseas), and managing the general operations and project management for funded projects.

Cyber resilience, and records management and data protection

Protecting the confidentiality, integrity, and availability of our IT systems and information remains a critical element of our meeting our strategic objectives. As such we will continue to treat this area of our operations as a top priority. This year, we continued to remain compliant with the government-backed Cyber Essentials Plus standard. We recognise, however, that ongoing work is required to continue to protect us from the persistent threat of a cyber security incident.

To ensure that we continue to have a strong organisational focus on cyber resiliency all our staff, management and Board receive regular awareness training. We also make use of our membership of the Scottish Business Resilience Centre to support our Incident Management Planning and Business Continuity arrangements.

In relation to records management we remain committed to putting high-quality processes and procedures in place. This year we have continued to liaise with the National Records of Scotland, despite the difficulties faced during the pandemic.

We have also reviewed and revised our transparency statements to remain aligned with the UK GDPR following Brexit. We continue to work closely with our Data Protection Officer (DPO) to keep abreast of any legislative developments in this area.

In addition, we have carried out data protection impact assessments (DPIAs) on new technologies that were put in place to improve remote working. Our staff continue to receive regular training on data protection matters, with further steps taken in light of increased remote working. We have also involved our DPO in our project this year to develop our new corporate website, ensuring that a ‘privacy by design’ approach was considered from the outset. 

Managing risk

When it comes to risk our overall goal is to operate in an environment of ‘no surprises’. We do this by creating a culture focussed on assessment and maximum mitigation of risk. Some of the steps we have taken to manage risk include:

All employees are trained to be on alert for any risks that may impact on the delivery of our objectives.

Our Audit and Risk Committee provide the Board with assurances relating to strategic risks. The Committee is also responsible for reviewing the comprehensiveness and reliability of assurances on governance, operational risk management and the control environment.

Our risk strategy is supported by risk management software, an outsourced programme that integrates risk management processes.

Managing the impacts of the Covid-19 pandemic

In light of our business continuity planning we were in a strong position to respond swiftly to the need to move to remote working when the Covid-19 shutdown took place in March 2020.

We remained fully operational while moving to home working and have been able to maintain our usual levels of productivity during the year.

Our senior management and the Board continue to manage the risks associated with Covid-19 and focus on ensuring the ongoing safety and wellbeing of staff. In March this year, we amended the normal place of work in our employment contracts to be ‘from home’. We also introduced a home working policy to support all staff.

Looking ahead, we have sub-leased our office space for the next two and a half years and, consulting closely with all staff, have reviewed the options for our future working arrangements. We will report on the outcome of this process in next year’s report. Any steps that we do take will be in line with the Scottish Government’s guidelines for public bodies.

Performance Analysis

The year we are reporting on (2020-21) represents the final year covered by our previous Corporate Plan (2015-21). The plan explained the direction our work would take and what we planned to achieve during the period.

We have now published a new Corporate Plan (2021-27). The new Corporate Plan supports our revised strategy, which the Board agreed in May 2020. The strategy reflects the context in which we are operating and puts emphasis on implementing a framework that allows for long-term thinking and planning; supporting the sector to deliver a world-leading service for water and sewerage customers and communities in Scotland; and placing our work at the forefront of best practice in economic regulation.

The new Corporate Plan contains 11 specific and measurable key performance indicators (KPIs) that encompass all strands of our work. It also details the activities we will undertake in order to achieve the outcomes outlined in the Corporate Plan. Next year’s annual report will report in more detail on progress against the KPIs.

This following section provides commentary on how we have delivered against the objectives set out in our Corporate Plan for 2015-21.

Developing our approach: SRC21

Our Corporate Plan commitment

We made clear that customers’ views would be at the heart of decision-making when we set charges. We noted too that public legitimacy, which derives in large part from the central involvement of customers in the process, is of paramount importance.

We committed to ensuring that there would be no barriers within our regulatory approach that would get in the way of innovation. This enables Scottish Water to continually innovate to meet the expectations of customers both now and into the future.

Our performance in 2020-21

During the year we published two key documents relating to the outcome of the Strategic Review of Charges for 2021-27: the draft determination (October 2020) and final determination (December 2020).

The draft determination set out for consultation our proposals in relation to the charge caps that should apply to allow Scottish Water to deliver, at the lowest reasonable overall cost, Scottish Ministers’ Objectives for the industry, consistent with their Principles of Charging. The final determination set our decisions in relation to these charges.

Our final determination took account of the following:

• The challenges that Scottish Water is facing, including the target to deliver net zero emissions by 2040 and the need for increased investment in the industry’s water and wastewater assets.
• The fact that we will not want to minimise charges today if that means future customers paying higher prices. To do so would be inconsistent with our duty to look after the interests of both current and future customers.
• The responses we received to our draft determination. (We provided a summary of the themes that emerged from the responses, and published responses in full on our website.)

We hope that Scottish Water will take full advantage of the opportunities of the new regulatory framework. At its core is the need for Scottish Water to transform the way it operates, taking full ownership of delivering its contribution to the industry vision, setting out a clear strategy for how this will be achieved – supported by analysis and evidence – and engaging fully with stakeholders, customers and the communities that it serves on how it will prioritise its resources.

Our expectation is that Scottish Water will ensure that customer and community views become as integral to organisational decision-making as the views of asset managers and operators. This will require a transformation in how its business operates but will be essential to meeting its 2040 obligations. 

In line with our commitment to making sure that our regulatory approach remains both innovative and appropriate for the challenges Scottish Water faces in the years ahead, we have supported a peer review by the OECD of SRC21 that will report this coming autumn. As part of the OECD peer review missions, we received ongoing feedback from the peers throughout the SRC21 process and this helped shape our thinking. We will report on progress with the recommendations made by the OECD at the conclusion of their work in future annual reports. 

Now that the SRC 2021-27 process has ended our focus is on supporting Scottish Water’s transformation to meet the expectations set out in the final determination, as well as starting to plan our activity for the next SRC (2027-33). We will report on activities in this area in next year’s annual report.

Monitoring Scottish Water’s performance

Our Corporate Plan commitment

During the 2015-21 regulatory control period, we expected Scottish Water to continue to improve its efficiency, to maintain, at a minimum, its levels of service and to deliver the £3.5 billion investment programme required to achieve drinking water, environmental and other objectives set for the industry by the Scottish Ministers.

In a number of areas, we work with other stakeholders to monitor and report on progress against these expectations and to report. Specifically, we are one of the members of the Delivery Assurance Group – formerly the Outputs Monitoring Group, which is chaired by the Scottish Government and brings together Scottish Water, WICS, the DWQR, SEPA and CAS.

The Delivery Assurance Group’s role is to ensure that Scottish Water is making appropriate progress towards the timely delivery of the Scottish Ministers’ Objectives. The group assesses Scottish Water’s progress in delivering the key milestones of the investment programme against its targets set out in the delivery plan and publishes reports on a quarterly basis. Such reporting helps give customers and other stakeholders confidence in Scottish Water’s delivery against its agreed targets.

Our performance in 2020-21

We published our annual report on Scottish Water’s performance in December 2020. It set out our assessment of Scottish Water’s performance delivery in 2019-20, the penultimate year of the six-year regulatory control period 2015-21.

The report comprised an overall rating alongside a summary comment on performance for each of the main areas that affect key outcomes for customers and the environment, as well as the company’s financial strength.

We assessed Scottish Water’s performance by comparing what was delivered in 2019-20 with Scottish Water’s Delivery Plan, originally published in March 2015 and updated annually to reflect changes to the delivery profile agreed through the DAG. The Delivery Plan sets out how Scottish Water plans to deliver its objectives, within the financial limits set in the final determination. The report showed that, overall, Scottish Water continued to perform well.

• The level of customer service (as measured by the OPA score) exceeded the target range. This compares very favourably with historic performance across the industry.
• Scottish Water had achieved year-on-year improvements in the household customer experience measure. This measure was introduced in 2015-16 to assess and report on Scottish Water’s interactions with its customers.
• Scottish Water’s operating costs were in line with the level projected in its Delivery Plan. Scottish Water’s capital expenditure of £665m in 2019-20 was 6% below its central forecast in the Delivery Plan. As in previous years, we can only judge how Scottish Water has performed on capital expenditure at the end of the regulatory control period.
• Overall progress in delivering the investment programme was broadly on target, although there were a small number of remaining projects that Scottish Water was finding challenging to deliver.

The report covered the period to March 2020, just before the full effects of the Covid-19 pandemic took hold in Scotland. It was clear at that time that Scottish Water was facing an output delivery challenge completing a relatively small number of remaining projects by the end of the regulatory period (2020-21). This has been exacerbated by the impacts of the pandemic. We have worked on an ongoing basis with Scottish Water, the Scottish Government and the other regulators to understand the full effects of the pandemic on delivery. We will report on this in our next annual performance report in autumn 2021.

Looking ahead, we have also been exploring with Scottish Water how it will report performance in the 2021-27 period, reflecting our new regulatory approach and Scottish Water’s anticipated transformation activity.

The non-household retail market

Our Corporate Plan commitment

We published our last Corporate Plan around two years before the non-household retail market opened south of the border. At that time, we said that we would contribute to the practical implementation of the UK Government’s Water Act 2014 and would work to ensure that, as far as possible, non-household customers in Scotland benefited from the competitive opportunities that would follow from this development of the retail markets.

Since the retail market opened in England in 2017, we have been keeping the regulatory framework under review to make sure that it continues to serve the interests of customers, licensed providers, and Scottish Water.

Our performance in 2020-21

In 2019 we initiated a root and branch review of the competitive retail market, to ensure that it continues to work well for customers, market participants and Scottish Water. Given the market’s maturity (it first opened in Scotland in 2008) this was a timely opportunity to undertake a comprehensive review of all market arrangements.

Following our review, and an extensive process of engagement, we made the necessary changes required to update and improve the market arrangements. We implemented the agreed policy changes in April 2021 (slightly later than originally planned due to the Covid-19 pandemic).

The comprehensive package of reforms encompassed measures to support a level playing field; to implement market health checks; to protect customers (by removing the requirement for prepayments); and in relation to mergers and acquisitions between licensed providers. We also provided further information about our expectations in terms of behaviours from licensed providers.

This year we also put in place support measures for non-household customers affected by the impacts of the pandemic on their businesses. These measures, which started in March 2020, included a temporary suspension of wholesale prepayment requirements and a charge deferral scheme.

We consulted on these ongoing measures in March 2021, and at the same time consulted on how the market might transition back to normal operations. We also consulted on measures to ensure that retailers are appropriately financially resilient.

International work

Our Corporate Plan commitment

The Scottish Government’s Hydro Nation vision seeks to raise Scotland’s international profile through knowledge exchange and developing trade opportunities for services, manufacturing and research. The vision was still in its early stages when we published our Corporate Plan.

In October 2018 the Scottish Parliament added us to the list of bodies specified in the Water Resource Act 2013 as having a statutory duty in this area.

Our performance in 2020-21

Our involvement in the Hydro Nation initiative helps ensure that we remain in touch with regulatory best practice while providing useful experience and opportunities for staff and an exposure to alternative regulatory approaches and techniques.

This year we continued to develop and grow our relationships in the international arena, as part of our commitment to the Scottish Government’s Hydro Nation initiative. We provided technical assistance to the Romanian regulator (ANRSC) as part of a wider consortium with BDO Romania and Giscan Associates. ANRSC has embarked on a journey to reform its regulatory remit, the underpinning legislative framework, and its technical capabilities in the water and wastewater industry.

We completed our collaborative project working with two of New Zealand’s water companies – Wellington Water and Watercare. The purpose of this project was to evidence a better understanding of current performance, assets, future investment requirements and costs for each company which would support New Zealand’s water reform agenda.

We worked with the New Zealand Government’s Department of Internal Affairs (DIA) as it has considered the case for regulatory reform of the country’s sector. We initially supported 47 councils to complete a regulatory data return. This informed our analysis of future investment requirements. We also undertook an assessment of the economic benefits of structural and regulatory reform, encompassing our analysis of the likely cost savings with and without industry aggregation.

We have been in contact with a number of sector colleagues in Australia, providing feedback on proposals and adding insights based on our regulatory experience. This has included Yara Valley Water and Sydney Water.

We participated remotely in several international conferences and continued to collaborate with international organisations such as the OECD’s Network of Economic Regulators and WAREG, a network of European Regulators focused on sharing knowledge and experience in regulation.

We believe that our international work makes a difference for those we collaborate with and brings benefits for Scottish customers in terms of the insights and best practice we gain. It also brings a financial benefit by reducing the levy that we would charge Scottish Water and provides interesting and valuable learning experiences for our staff (which supports our employee recruitment and retention).

Our work continues to be seen as a model for regulation of a public-sector entity – not only by the Scottish Government but also by organisations, academics and other commentators in the rest of the UK and abroad.

Financial performance

Our Corporate Plan commitment

We prepare a detailed annual budget, in line with our Corporate Plan, which is submitted to our Board for approval. We use a comprehensive budgeting and financial reporting system, which aligns with the Scottish Public Finance Manual (SPFM), to compare actual results to the budgets that our Board has approved. Management accounts are prepared each month, with significant variances from budget investigated and reported. Cash flow and other financial forecasts are prepared regularly throughout the year to ensure that we have sufficient cash to meet our operational needs.

Our total budget for the regulatory period 2015-21, as agreed with the Scottish Government in the Corporate Plan, was £23m, including cash carried forward from the previous regulatory period. Expenditure for the same period was £21.7m, being £1.4m (6%) below budget.

During the period, we received net income of £1.3m in relation to other activities, including our work in the international arena. This additional income and savings made during the period allowed us to make repayments to Scottish Water and the licensed provider’s totalling £1.8m during the period.

As part of our Corporate Plan for the regulatory control period 2021-27, we will look to support further the Scottish Government’s commitment to establishing Scotland as a Hydro Nation.

Financial performance 2020-21

As set out in the financial statements, there was a net deficit for the year of £577,200 before any adjustments for actuarial losses (2019-20: deficit of £543,056). As was the case last year, this was a planned deficit to utilise cash reserves.

Expenditure for the financial year 2020-21 was £4,003,025 (2019-20: £4,375,839), being around £322,000 below our internal budget for the year. Expenditure on travel and office related costs was limited as a result of the pandemic. There were no other material financial impacts arising as a result of Covid-19.

The balance on the General Reserve as at 31 March 2021 was a liability of £2,943,227 (2019-20: asset of £1,146,973). This significant movement was the result of the pension liability at 31 March 2021. The pension fund position at the end of 2020-21 was impacted by a rise in market derived consumer price indexation, resulting in an increase in the pension increase assumption rate by 1%. It was also affected by the recent formal valuation which allowed for any changes in financial and demographic assumptions and other changes over the period. The key movements in the pension fund are disclosed in full in note 3.5.12.

The purpose of the formal pension funding valuation, which is carried out every three years, is to assess the ongoing financial position of the Fund and to determine the cash contribution rates at which WICS should contribute in the future.  The aim of the funding valuation is to ensure that the existing assets alongside future expected investment returns and contributions will be sufficient to meet future benefit payments from the Fund.

The purpose of the accounting valuation as at 31 March 2021 is to facilitate consistent comparison of pension positions between employers. The accounting calculations can produce significantly different results from the formal funding valuation calculations. 

Based on the most recent formal pension valuation (as at 31 March 2020) the actuary estimates that the funding level as at 31 March 2021 is 113%.

Supplier payment policy

It is our policy to pay all supplier invoices that are not in dispute within the terms of the relevant contract and as soon as possible following receipt of an invoice. In line with the Scottish Government’s guidance, we aspire to a 10-working day target for paying bills to businesses in Scotland. Paying supplier bills promptly is seen as a key objective, and an important expression of our commitment to supporting business. The average time taken to pay suppliers in 2020-21 was 5 days (2019-20: 7 days).

The Public Services Reform (Scotland) Act 2010

The Public Services Reform (Scotland) Act 2010 imposed duties on the Scottish Government and on public bodies such as WICS to publish specific information about their expenditure. The Act also requires us to publish two statements outlining the steps we have taken to promote and increase sustainable growth and to improve efficiency, effectiveness and economy. The duties to publish this information are intended to promote greater openness and transparency. We publish an annual document on our website setting out our response to the requirements of the Act.

Social matters 

Our statutory purpose is designed to deliver environmental, social and economic success. We take our social responsibility seriously and ensure that all staff policies and procedures are up to date and comply with the most recent legislation.

Equality and diversity in our workplace

We are committed to valuing and promoting equal opportunities and diversity in all areas of recruitment, employment, training and managing people and to providing benefits to our employees. We are also committed to complying with our general public-sector duty to eliminate unlawful discrimination and promote equality of opportunity. In this respect, we promote and support a culture where all employees can develop their full potential, irrespective of any protected characteristics they may have. Our staff handbook outlines our policy regarding equal opportunities.

We follow the Scottish Government’s Pay Policy. This has prioritised protecting those on low pay through a progressive approach delivered through the application of tiered pay increases.

We offer a free, confidential Employee Assistance Programme to all staff. This service provides counselling, signposting and information to help staff with personal or work-related problems that may be affecting their health, wellbeing or performance. It is accessed either online or through a 24-hour Freephone service.

Anti-bribery and corruption

As part of our zero-tolerance approach towards fraud, bribery and corruption we have an employee code of conduct, whistleblowing policy and clear policies regarding acceptable levels of gifts and hospitality (both given and received). We actively encourage staff to be aware of appropriate behaviours with both customers and suppliers. We also maintain a gifts and hospitality register.

No frauds were detected in 2020-21.

We take malpractice very seriously and are committed to conducting our business with honesty and integrity. We encourage open communication from all those who work for us, and we want everyone to feel secure about raising concerns. Our whistleblowing policy makes it clear that staff should raise any concerns they may have. All staff are protected under whistleblowing laws if they raise concerns in the correct way.

Transparency of Information

We aim to be open in all that we do; our default approach is to publish information on our activities on our website whenever possible. We maintain frequent dialogue with industry stakeholders and regularly set out our approach and decisions in published papers.

Complaints

This year, we have been working to review and revise our complaints handling procedure (CHP) to make sure that it aligns with the SPSO’s revised model CHP (launched in January 2020). Our revised CHP was approved by the SPSO in June 2020 and is available on our website.

We value and recognise the learning that complaints can generate, and we use complaints information to help us improve the services we provide. During 2020-21 we received two complaints from members of the public. These are outlined below.

2020-21 complaint statistics

Nature of complaint	Action taken by WICS	Stage of resolution
Dissatisfaction relating to our information provision on default charges; and in relation to our regulation of, and action against, retailers not adhering to default charge requirements.	Provided background information to the customer in relation to the recent changes to charging, based on rateable value.   Wrote to retailers to remind them of their responsibility to explain, in a clear manner, any changes to customers’ bills.   Developed a succinct information leaflet that explains default tariffs. We published the leaflet on our corporate website and on the Scotland on Tap website.	Stage 1
Dissatisfaction with new measures introduced to assist business customers during the Covid-19 pandemic. In particular, the deferral scheme.	We provided clear and detailed information to the customer about new measures introduced, specifically the Water Charges Relief Scheme and the Wholesale Charges Deferral Scheme.	Stage 1

Our environmental performance

Scotland has some of the most ambitious greenhouse gas reduction targets in the world and we wish to contribute as much as we can to help deliver this world-leading climate change action.

Public Bodies in Scotland are bound by the Climate Change Public Bodies Duties as set out in Part 4 of the Climate Change (Scotland) Act 2009. These duties require public bodies, in exercising their functions to:

• contribute to carbon emissions reduction (climate change mitigation);
• contribute to climate change adaption; and
• act sustainably.

As a small office, we recognise that the extent to which we can continually reduce our carbon footprint is limited. That said, we do all that we can to make sure that our internal office functions are delivered in a sustainable and carbon aware manner. Our internal policies encourage employees to make carbon aware decisions in relation to procurement, travel and recycling.

We were able to switch our office heating to the Stirling District Heating Scheme at the end of 2019. This project was the first in the UK to use a mix of cutting-edge renewable technologies to harness energy from wastewater, bringing cheap, low-carbon heat to Stirling through a district heating network, delivering a range of significant environmental and economic benefits.

Employees undertook negligible travel as a result of our Stirling office being closed and employees working from home. This reduced carbon emissions from running an office. Working from home provided an opportunity to carry out our functions remotely[1], without the need to travel. We are reviewing our future working arrangements and have sub-leased our office space for the next two and a half years. This will significantly reduce our environmental impact for the future.

Overseas travel is sometimes required as part of our contribution to the Hydro Nation initiative. We off-set our carbon footprint from international travel by funding tree planting in Scotland. As a result of the pandemic no international travel was undertaken by employees in the last year.

In addition to managing our own environmental performance, through our function as the economic regulator of Scottish Water, we play a key role in helping facilitate the delivery of Scottish Minister’s Objectives for the water industry in related areas such as environmental impact, carbon reduction and biodiversity. Details of our carbon footprint is provided below.

Area	Non-financial information	Financial information	Non-financial information	Financial information
	2020-21		2019-20
Energy	Electricity: 8.0 tonnes CO2 Gas: 8.5 tonnes CO2 Total carbon from energy: 16.5 tonnes CO2	Electricity: £4,979 Gas: £1,429	Electricity: 9.1 tonnes CO2 Gas: 9.3 tonnes CO2 Total carbon from energy: 18.4 tonnes CO2	Electricity: £7,171 Gas: £1,882
Waste	Waste to landfill: 0.1 tonnes CO2 Paper waste recycled: 0.0 tonne CO2 Total carbon from waste: 0.1 tonnes CO2	£634	Waste to landfill: 5.4 tonnes CO2 Paper waste recycled: 0.02 tonne CO2 Total carbon from waste: 5.4 tonnes CO2	£1,786
Water	0.04 tonnes CO2	£1,740	0.2 tonnes CO2	£2,231
Transport and travel	0.2 tonnes CO2	£283	77 tonnes CO2	£132,684

The information in this table is based on our best estimates. We used the following sources for the information:

Energy: all information based on actual usage as reported on gas and electricity invoices.

Waste: financial information taken from actual invoices received in relation to waste collection and shredding services; volume based on estimated average weekly volume of waste, multiplied by number of collections in year. Volume of recycled paper collated from recycling providers service report.

Water: information based on water consumption reports detailing water, sewage and drainage volume and financial charges.

Transport and travel: Financial and mileage volume relating to vehicles is based on mileage estimates of journeys taken by employees during the year and estimated expenditure.

All conversions to carbon consumption are calculated using data available from the Department for Environment, Food and Rural Affairs.