On 13 December, WICS sent Scottish Water a letter highlighting its concerns about the quality and completeness of Scottish Water’s reporting and slower than expected progress in the key areas set out in the Final Determination. The letter can be found below.
Alongside the publication of the letter, WICS has published its assessment of Scottish Water’s performance in the financial year 2021-22, the first year of the new regulatory control period.
Douglas Millican
Chief Executive Officer
Scottish Water
The Bridge
6 Buchanan Gate
Stepps
Glasgow
G33 6FB
13 December 2022
Reporting quality and completeness
Dear Douglas
The WICS Final Determination for the Strategic Review of Charges 2021-27 (SRC21-27) was intended as a first step in ensuring that Scotland would benefit from a sustainably funded water industry, future-proofed and able to be a leader in how Scotland adapts to Climate Change.
In SRC 21-27, WICS recognised that levels of investment would have to increase significantly over the next two decades if the industry were to maintain levels of service in the face of a changing climate. WICS also set out its expectation that Scottish Water should seek both to improve the reporting that it had always provided to its economic regulator and to go further still: Scottish Water should pro-actively tell its economic regulator all that it could ever need to know. Specifically, WICS expected Scottish Water to provide a clear picture of the future investment that could be required and an assessment of the likelihood and timing of this investment. WICS set this out in the Investment Prioritisation and Planning Framework.
WICS saw this as a definitive move away from the previous practice of technical expressions, which Scottish Water ‘planned, prepared and delivered’ a fixed list of prioritised projects. In WICS’ view, such an approach was necessary to allow Scottish Water effectively and efficiently to address the triple, and in many ways conflicting, investment challenges of Climate Change, asset replacement and further improvement in levels of service and regulatory compliance.
Since the Final Determination, WICS has sought to support Scottish Water as it adapts to the new regulatory framework. Unfortunately, it has now had to conclude that Scottish Water is falling short of the expectations set out during the Strategic Review of Charges process.
There are three areas that now particularly concern WICS:
- Scottish Water’s reporting of performance has gone backwards in terms of its completeness, accuracy and governance;
- Scottish Water has not provided the expected visibility on future investment needs required by the Investment Prioritisation and Planning Framework; and
- Scottish Water has made limited progress in taking forward the high-level asset replacement work.
WICS intends to comment further on the regression in reporting standards in its Performance Report for 2021-22. WICS will also make some changes to its required regulatory reporting. In addition to requiring a very significant improvement in the quality of reporting included in the annual return, WICS will also define further its expectations around how Scottish Water reports the revenue and costs of the core business and its reporting of potential future investment needs.
Attached as an appendix to this letter is a fuller explanation of WICS’ views. WICS has previously provided an extensive list of its queries on information provided both in the Annual Return and the Information Request from March 2022.
In the meantime, WICS now expects Scottish Water to set out how it plans to gain its regulators trust in how it is applying regulatory accounting rules, pricing transactions between its core and non-core operations, and how it plans to improve its regulatory reporting. Such a plan for improving regulatory reporting should address the scope, completeness, accuracy and should evidence the scrutiny applied by senior management to the information provided to WICS. WICS expects to receive a draft of such a plan by the end of January 2023 such that it could be agreed before the start of the next annual information cycle.
We will be in contact to discuss the expectations set out in this letter and its Appendix in further detail.
Yours sincerely
Alan D A Sutherland
Chief Executive