Minutes of the 157th Board meeting of the Water Industry Commission for Scotland on 4 April 2024

Present:

Donald MacRae (Chair)  
Robin McGill (Member) (Chair of ARC) - until item 4.4 
Ann Allen (Member)  - until item 4.3
David Satti, Interim Chief Executive
                  
In attendance:

Andrea Mancini, Director of Price Review
Colin McNaughton, Director of Analysis 
Donna Very, Director of Corporate and International Affairs
Shona Coan, Head of Finance 

Chair’s opening remarks

The Chair opened the 157th meeting of the WICS Board and welcomed Board Members. 

The Chair also extended welcome to David Satti in his new role of interim Chief Executive, Accountable Officer and as an executive member of the Board. 

1.    Apologies for absence

There were no apologies.

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 156th meeting

The Board approved the minutes of the 156th meeting.

2.3    Summary of action points

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

• Action 1: This action is ongoing.  

• Action 2: This action is currently scheduled for discussion at the Board’s May 2024 meeting.  The interim Chief Executive explained that a first step will be to agree a terms of reference for the leadership team and objectives for the interim Chief Executive.

  The leadership team intend to meet in April to discuss and agree a workplan and budget for the 2024-25 period.  Board Members asked that any future interim organisational structure is consistent with business needs and priorities, including those outlined in the 2021-27 corporate plan.

•  Action 4:  This action will be considered in the budgeting process for the remainder of this regulatory period. 
• Action 5:  This action will be covered as a key element of volume 2 of the draft methodology which will be discussed by the Board in June. 
• Action 10:   This action will remain and will form part of considering how we will work together moving forward. 

• Action 11:  This action will remain and will be considered by the Audit and Risk Committee (ARC) in the first instance.

  Board Members noted that the office is planning a review of its staff handbook and relevant policies to reflect recent changes in HR legislation.  The Head of Finance assured the Board that we have a retainer in place for HR support and that the business support function uses this support regularly.

  Board Members asked the leadership team to consider how it might use HR support at a strategic level. Members advised that the expertise and skillset for support on HR matters, cultural change and organisational structure are quite different and therefore support may not be best delivered by one individual.

  Board Members also noted there is a mechanism in place for monitoring and recording the training employees receive. 

• Actions 3, 6, 7, 8 and 9: Complete 

2.4    Non-Executive Members Update

Ann Allen noted the ongoing debate south of the border around water quality, the overall performance of water companies and customer charges.  Members agreed that this debate is important as we prepare for the 2027-33 Strategic Review of Charges and that this is considered in developing our approach to communicating SRC27. There is an opportunity to demonstrate the key strengths of the Scottish public sector model. 

3.    Discussion 

3.1    Business Stream governance

The Director of Price Review provided an overview of the options available to WICS in reviewing Business Stream’s Governance Code.

The Board noted that the overall aim of the review is to ensure market arrangements in relation to Business Stream continue to support a level playing field in the market and stand the course of time.

The Director of Price Review confirmed that the leadership team’s preferred option (2b) would be to undertake an internal review the Governance Code framework. 

The Board discussed each option and agreed that the proposed option (2b) provides the appropriate flexibility and demonstrates best value for money.

The Board approved option 2b at a cost of c.£40k.

3.2    Finance report

Revised financial procedures

The Head of Finance asked the Board to approve the revised financial procedures documentation which now take account of actions to address external audit recommendations.

The Board noted that the financial procedures have been through a detailed review by the Audit and Risk Committee and approved the final documentation.

Board Members asked that the financial policies and procedures are reviewed at an appropriate point in time to assess whether they are operating as expected.

Action:  The Chair requested that the governance framework, the scheme of delegation, and the revised financial policies and procedures be reviewed to ensure alignment.

Finance update 

The Head of Finance provided an overview of financial results to 31 January 2024. She noted that work is underway to prepare year end figures and that initial results suggest they are broadly in line with forecast.

Board Members noted a high cash balance. The Head of Finance reiterated that there may be changes as we develop our financial plans for this year, until the end of the regulatory control period and beyond into the 2027-33 period.  The Board noted that the future of international work and staff remuneration are likely to be key considerations.

The Head of Finance informed the Board that HMRC will be conducting a compliance review of our payroll and expenses payment for the 2023-24 period.  The Chair reiterated that additional support will be made available to the finance team if required given the extent of workload generated by recent reviews.

Board Members also noted a summary of expenditure approvals from the internal approvals panel and an overview of the work to review financial transactions for the 2023-24 period.  

3.3    Methodology volume 1

The Interim Chief Executive explained our approach to developing the SRC27 methodology and receiving input from Board Members.   He asked that following discussion; the Board endorse the overall direction of travel of volume 1.

The Director of Analysis provided an overview of volume 1 of the methodology which covers the background of the strategic review of charges, the lessons we have learned during this regulatory period and a set of key principles that will underpin our approach.

The Board discussed the proposals set out in volume 1 of the methodology and made the following observations:

• The assurance approach should seek to improve the extent and quality of data and evidence available for the 2027-33 regulatory control period.  
• It will be important for Scottish Water’s plans to demonstrate how it will make progress towards achieving the sector vision. The Board noted that Scottish Water will require the support of key partners to deliver the vision. 
• It will be important that the approach ensures there is accountability for delivery whilst retaining an appropriate level of flexibility and adaptability to manage uncertainties in a timely and effective manner. 

The Board endorsed the overall direction of volume 1. 

Board Members agreed to approve the executive summary of the methodology in August with assurance from the leadership team that the content of the detailed methodology is consistent with the key messages set out in the executive summary.

The leadership team also agreed to make the full document and appendices available for Board Members should they wish to read the full detail.

3.4 WICS Hydro Nation role

The Interim Chief Executive introduced a paper on WICS’ future role supporting the Scottish Government’s Hydro Nation initiative.

The Board discussed the merits of each option in turn and agreed that WICS should participate in client driven projects (option 3) considering carefully the resources required to deliver our core regulatory activities.   The Board requested early sight of the scope of future work and a supporting business case which demonstrates value. This approach will facilitate discussion with Scottish Government on our role supporting Hydro Nation.

The Board recognised the significant effort made by staff in building and maintaining strong relationships with international stakeholders and the benefit that international projects bring to developing our own staff and regulatory approach.  

4.    Business update

4.1    CEO recruitment

The Director of Corporate and International Affairs provided an update on work to recruit a permanent Chief Executive.   She explained that a scope of work has been prepared alongside the invitation to tender documentation and a business case requesting approval from Scottish Government to appoint an executive search agency following SFPM guidelines.

A project team has been created including the Director of Corporate and International Affairs, Chief Operating Officer, Head of Finance and Interim Chief Executive (as required).  Progress will be reported regularly to the Chair and Interim Chief Executive.

The Director of Corporate and International Affairs confirmed that she plans to share the business case with Board Members ahead of the May Board meeting.

4.2    Workplan response to external audit

The Board noted an update on our workplan response to external audit. The interim CEO clarified that we have completed the vast majority of actions on this plan and will continue to provide updates as we complete the work plan.

4.3    Ofgem appeal

The Board noted a paper outlining key lessons for WICS from the recent CMA review of Ofwat’s decision on capital requirements in the energy market.

4.4    SRC27 Project Governance

The Board noted an update on project governance arrangements for SRC27 including the terms of reference for the project board. 

The Director of Price Review highlighted that we intend to develop a project budget for SRC27 and report regularly against this. We are also establishing more proactive project level risk management.

The Board was pleased to note the project approach to SRC27 and welcomed further updates in this area. 

4.5    Interim CEO update

The Chair noted the interim CEO update paper.  He noted the recent HSE staff survey on workplace stress and requested further updates on future survey results and associated actions.

Meeting close

The Chair closed the meeting and thanked Board Members and the leadership team for their contributions.