Minutes of the 149th Board meeting of the Water Industry Commission for Scotland 
on 6 April 2023

Present:

Donald MacRae (Chair) 
Alan Sutherland (Chief Executive) 
Ann Allen (Member)   

Apologies:

Robin McGill (Member)
Jo Armstrong (Member)
                 
In attendance:
    
David Satti (Director of Strategy and Governance)
Colin McNaughton (Director of Analysis) 
Andrea Mancini (Director of Price Review) 
Michelle Ashford (Chief Operating Officer)

Chair’s opening remarks

The Chair opened the 149th meeting of the WICS Board and welcomed Board members.

The Board thanked Stephanie Capaldi (Senior Manager) for her assistance to the Board.

1.    Apologies for absence

There were apologies from Robin McGill (Member) & Jo Armstrong (Member). 

2.    Minutes of the last meeting and regular updates

2.1    Declaration of conflicts of interest in relation to the agenda

No members declared any conflict of interest in relation to the agenda.

2.2    Minutes of the 147th meeting

The Board approved the minutes of the 148th meeting and noted the February update meeting note.  

The Chair clarified that WICS would seek to have Professor Bryan Adey attend a Board or update meeting at some point later this year.

2.3    Summary of action points

The Board noted the summary of actions. The following points were arising:

• Action 1: This action is ongoing.  IPPG will be covered in more detail in later in the agenda. 
• Action 2: This action will remain, and a further update given at the August Board meeting.
• Action 3: This action is ongoing, and the Board will be kept updated as the work progresses.
• Action 4:  This action is now complete and closed. 

2.4    Non-Executive Members Update

The Chair asked Members to provide an update on any particularly relevant areas of interest to WICS.

Ann Allen observed a recent article she had read about how Northumbrian Water has appointed a consortium to undertake an asset management review. There may be some outcomes from the work which could be of benefit to Scottish Water. Members also noted that there has been no publicity around Scottish Water’s performance report.

3.    Strategic discussion

3.1    SRC21 Review

The Director of Price Review provided an overview of the proposed scope and timeline for a review of our approach for the Strategic Review of Charges 2021-27, which will cover the first two years of the 2021-27 regulatory control period. This review is not intended to duplicate the work of the OECD in reviewing the SRC process. The primary focus of the review is understanding whether there are any learnings from the way in which WICS approach a price review process. It is not an assessment on Scottish Water’s performance or the way in which they engaged throughout the last SRC process. The work is due to be completed by the end of June 2023.

The Board discussed and made the following observations: 

• Consideration should be given to which (if any) stakeholders should be consulted and what external sources, outside of the OECD report, could help inform the work. The work will include interviews with Scottish Water’s senior leadership team and outgoing CEO. It will also include the parties involved at the start of the process (WICS, CAS/Consumer Scotland, DWQR, SEPA). 
• The review was clarified as being internal but open to publication if requested.
• The Board requested that the report identify a clear purpose for the review. 

The Chair offered the support of the Board in enabling this review and thanked the Director of Price Review for his work to date.

 4.    Business update

4.1    CEO update

The Chair asked Members to indicate any areas they would like to discuss or seek further clarification on. The Board made the following observations on the content of the CEO report:  

Scottish Water’s strategy

The Board reaffirmed its view that the Milngavie trunk main burst was a missed opportunity for Scottish Water to demonstrate the necessity to replace aging infrastructure. This view has been communicated to Scottish Water who have agreed that they can improve their communications in such circumstances. The Board highlighted that Scottish Water could better communicate their investment priorities more generally.

The Board discussed the level of evidence underpinning Scottish Water’s decisions and communications including the evidence underpinning its policies for asset replacement.  It was noted that this will be an area of challenge for the new Scottish Water CEO when he takes up post in June. 

The Board agreed that there is a critical role for WICS over the next six months in considering the path through this regulatory control period towards the methodology for the next regulatory control period. This will include challenging Scottish Water to evidence its strategy and reporting. 

The current thinking is that WICS will produce a methodology by the end of the year and will seek to produce a funding statement in advance of that. However, this is dependent on WICS receiving the Commissioning letter from the Scottish Ministers. 

It was agreed that further Board meetings may be required as there will be a need to meet several times in advance of the funding statement. The Board requested that they are kept engaged throughout the process by receiving regular updates and given time to review and consider the information prior to and between meetings.

The asset replacement group work has been temporarily suspended. It will be revisited when Scottish Water has available capacity.

International projects

The Director of Analysis provided an update on the New Zealand project. We have agreed a scope of work with the Department of Internal Affairs (DIA) relating to a water reform policy reset in light of the recent government leadership change. The New Zealand project work will likely slow down post-July due to the election period and reformation of government, but we expect to be involved from January 2024 on the new iteration of the reform policy.

There are many more opportunities for WICS to undertake international projects. The Board asked about the sustainability of intensive hours relating to international projects, and how we can manage expectations of our capabilities and ensure we do not undermine our core responsibilities. The Director of Price Review advised the work should be seen as capacity building for the future, and not just commitment of current resourcing.

The CEO provided an update on the Romania project. Work is expected to commence in the next few months following approval by the Romanian authorities.

The CEO noted that he is meeting with the EBRD next week to follow up on other potential pipeline projects.

The Board noted the success of the international work to date. The hard work and dedication of the analysts was noted by the Board, and it was requested that the analysts attend lunch at a future board meeting so they could thank them in person.

Retail

The Director of Price Review provided an update on the current work in the retail market.  The Market Health Check work is ongoing. Initial scoping work has been disappointing and we, along with retail market stakeholders, agreed to review our approach.

Cyber

It was noted that there is a tender process outstanding for cyber security support. The IT team plan to set up a training exercise by way of a simulated cyber security incident which Board Members will be invited to participate in in due course.

Organisation

The Director of Strategy and Governance provided a finance update.

It was noted that the dialogue between the Director General for Net Zero on public reform has been included in the papers.

It was noted that there is work ongoing to understand how to report time recording. The Board advised that caution must be exercised in ensuring we are undertaking our obligations in duty of care to our employees and ensuring HR legislation is adhered to in terms of working hours.

It was noted that the financial position is currently good but there is no room for complacency.

The Board enquired as to why the training budget has not been fully utilised. The senior team was asked to be mindful of ensuring staff are given ample opportunity to develop alongside on-the-job training.

Board Members noted this update. 

Further discussions with the Board on employee pay strategy and progression were taken separately.

5.    Decision papers

5.1     Annual work plan and budget

The Director of Strategy and Governance introduced the 2023-24 annual work plan and budget. 

The Board approved the 2023-24 annual work plan and budget. 

5.2    Internal Audit approval

The Director of Strategy and Governance asked the Board for authority to conclude a contract for provision of internal audit and tax advice services with a maximum cost of £200k for 4 years.  The Board agreed to give authority for the office to conclude the contract. 

Meeting close

The Chair thanked Board Members and the office for their contributions and brought the meeting to a close.