Scottish Water Performance Report 2020-21

Overview of performance

We are pleased to report that, overall, Scottish Water continued to perform well in 2020-21. Customer service (as measured by the overall performance assessment, or OPA, score) exceeded the target range. This compares very favourably with historic performance across the water industry. Scottish Water also achieved year-on-year improvements in the household and non-household customer experience measures. 

Scottish Water’s operating costs were 4% higher than the level projected in its Delivery Plan[3]. The increase is due in part to the impacts of the Covid-19 pandemic. It also reflects the higher than forecast costs for energy reported by Scottish Water, in spite of the significant progress it has made on renewables. Looking forward, we are increasingly focused on making sure that the information we collect from Scottish Water, and its reporting to us and other stakeholders, remain fit for purpose.

Scottish Water’s capital expenditure of £612m in 2020-21 was 16% below its central forecast in the Delivery Plan. This lower than planned level of investment reflects in large part the impact of the Covid-19 pandemic, which led to three months of site closures and a cautious restart to working ‘on site’. 

It is worth noting that even before the Covid-19 pandemic, some evidence was emerging (as reported in our previous performance reports) of an output delivery challenge for completing the remaining elements of the investment programme for the regulatory period. Scottish Water now expects that 86 projects (with a forecast cost of £290m) that were due to be completed by March 2021 will now be completed after that date.

While this is not particularly unusual for an investment programme involving several thousand projects and more than £3.6 billion[4] of investment, it will be important that Scottish Water delivers the expected customer benefits from these remaining projects as soon as possible. We will continue to monitor closely Scottish Water’s investment costs and progress on delivery in this area.

Transforming to meet the industry vision

We published our final determination for the six-year regulatory control period 2021-27[5] in December 2020. The determination set an expectation that Scottish Water will have to undergo a fundamental transformation if it is to deliver the ambitions set out in the long-term vision for the Scottish water sector[6] and achieve its ambitious net zero emissions target for 2040.

As the determination signalled, this transformation will include establishing the required organisational capacity, capabilities and strategic direction. In particular, Scottish Water will need to:  

• set out the outcomes and outputs necessary to deliver the vision, the profile for delivering those outputs, the timescales and expected costs – and involve stakeholders to build consensus around this work;
• establish the route-map and trajectory to achieving net zero emissions by 2040;
• develop a comprehensive understanding of future asset replacement needs;
• put in place an enhanced analytical capability that allows better decision making and takes account of the full range of impacts and benefits of investment; 
• develop a performance reporting regime that provides confidence to stakeholders, customers and communities that Scottish Water is delivering against their expectations;
• follow the principles of candour and openness, aligned with high-quality analysis, that will be necessary to build the confidence of customers, regulators and other stakeholders;[7]
• demonstrate how it will achieve its ambition of making the customer and community voice an integral part of their decision-making processes. 

The extent of the transformation that will be required was brought into focus by the outcomes of COP26 and by the recent challenges caused by storm events. It is clear that Scottish Water faces a number of significant challenges in setting out to achieve net zero emissions and in maintaining levels of service. Meeting these challenges will require a ‘laser like’ focus by Scottish Water on strategic prioritisation of investment.

We will support this process by continuing to monitor Scottish Water’s progress in transforming itself and, along with other stakeholders, will provide input into their proposals as they develop.

The extent of progress will be a key factor in determining our approach for the next regulatory period commencing in 2027. As such, we will look for Scottish Water to have made considerable progress over the next two years and will be reporting on this progress in future performance reports.