Our approach to date
We are publishing this Corporate Plan at a key moment in the development of regulation of the Scottish water industry. Not only are we preparing for the start of the next regulatory control period (2021-27), but we are also taking steps to ensure that the industry is properly equipped to address the significant challenges ahead and to deliver the Scottish Ministers’ vision for the industry.
In response to these challenges the industry has jointly agreed to move to a new and very different regulatory approach, founded on behaviours that are in line with the principles of EBP, underpinned by a regulatory framework that aligns with the principles of EBR.
Within this context the Commission Board has reviewed its strategy and as a result developed and agreed new strategic objectives for the forthcoming regulatory control period.
Before we look ahead to how we will deliver these objectives, it is helpful to take stock of what has been achieved since economic regulation was introduced in the Scottish water sector in 1999. During this time, we have provided critical external challenge and scrutiny of Scottish Water’s performance and charges. We have also set fixed charge controls based on our forward-looking assessment of the efficient level of expenditure required to deliver the Objectives set by the Scottish Ministers within their Principles of Charging.
By limiting its cash budget, Scottish Water has had a strong incentive to operate efficiently. This, aligned with stringent performance targets, has delivered significant benefits to Scottish customers.
- Scottish Water’s service quality performance has more than tripled since 2002.
- Its customer service and operational efficiency are at least as good as the leading water companies in England and Wales.
- Household bills have fallen by 9% in real terms since 2002 – compared with an average increase of 11% in England and Wales. (The range in England and Wales is from a decrease of 2% to an increase of 24% in real terms.)
A changing environment
As we look to the future, however, it is clear that the sector faces new challenges. In undertaking our duties, we must take this into account as they affect, and will continue to affect, the industry:
- The economic impact of the COVID-19 pandemic will continue to affect businesses and households across Scotland for some time (leading to higher than expected levels of unemployment, poverty and business failures). The pandemic has already resulted in delays to Scottish Water’s investment delivery during the current 2015-21 regulatory period, and it appears inevitable that there will be a higher than expected ‘carry over’ of projects into the next regulatory period. The pandemic will also affect Scottish Water’s financial position as well as having significant and wide-ranging impacts on the Scottish economy and on growth. The extent and duration of all of these impacts are difficult to forecast with any accuracy at this stage.
- The water industry will have a vital role to play in helping deliver net zero emissions by 2045, the target declared by the Scottish Government in response to the climate emergency. Scottish Water has a substantial operational and embedded carbon footprint and has been set a highly demanding target by Scottish Ministers to achieve net zero by 2040. The Scottish Ministers have also required Scottish Water to increase the generation of renewable energy that it hosts from double to treble its actual use of energy.
- In future Scottish Water will need to operate, invest in new assets and refurbish and replace its existing assets in an economically optimal way (in other words, in a way that takes account not only of the cash costs, but also of the wider costs and benefits to society and the environment). This will be essential to maintaining service and helping Scottish Water achieve its net zero target. Jointly with Scottish Water we have undertaken innovative work which has identified that expenditure on asset replacement may eventually have to increase three-fold from current levels. Over the next decade there will be a need to replace many shorter life assets that were installed to improve water and wastewater compliance.
These long-term investment and performance outcome challenges are different from those of the past and will require a transformation in the way we approach regulation. They will also require Scottish Water to take full ownership of its strategy and be able to evidence to its customers and communities that it is delivering efficiently and effectively. A cash-based approach constrained by fixed, six-year price settlements is no longer fit for purpose.
Supporting the sector vision
To address the challenges facing the sector, and make the most of opportunities for excellence and shared learning, stakeholders have developed and now own a common industry vision: that the Scottish water sector will be “admired for excellence, secure a sustainable future and inspire a Hydro Nation”. This followed the call from the Cabinet Secretary for Environment, Climate Change and Land Reform for the industry to create a common understanding of what the sector should seek to achieve over the next three decades.
The vision was developed through a collaborative process involving a group that encompassed WICS, Scottish Water, Citizen’s Advice Scotland, the Customer Forum, the Scottish Environment Protection Agency and the Drinking Water Quality Regulator.
The Sector Vision
This is the first time in the industry’s history that a common vision has been owned by all stakeholders – marking new, collaborative ways of working between Scottish Water, its regulators and others.
Our strategy is focused on how, in a manner consistent with our statutory duties, we can support the sector to deliver this vision.