Minutes of the 162nd Board meeting of the Water Industry Commission for Scotland on 23 January 2025
Present:
Ronnie Hinds (Interim Chair)
Robin McGill (Member)
Morag Sheppard (Interim Member)
David Satti, Interim Chief Executive
In attendance:
Colin McNaughton, Director of Analysis – Items 5 and 6
Head of IT Services– Item 4.3
Head of Finance – Item 4
Experienced Analyst - Item 6 and 7 Analysis – Items 5 and 6
Competition Manager - Item 7
Chair’s opening remarks
The Chair opened the 162nd meeting of the WICS Board and welcomed Members.
1. Apologies for absence
There were apologies from Ann Allen.
2. Minutes of the last meeting and regular updates
2.1 Declaration of conflicts of interest in relation to the agenda
It was noted that Morag Sheppard is a Member of the Environmental Standards Scotland Board but that no conflicts of interest are present in relation to the agenda for this meeting.
2.2 Minutes of the 161st meeting
The Board approved the minutes of the 161st meeting and the note of the November 2024 Board update meeting.
2.3 Summary of action points
The Board noted the summary of actions. The following points were arising:
A040, A039, A179 and A023: These actions will be reallocated to the Interim CEO until further resources can be made available.
A103 and A106: These actions will be taken forward as part of the organisational change sub-committee.
A184: The Board noted the significant progress that the organisation has made in improving risk management within a short period. It was agreed to schedule the Board’s annual review of risk appetite during the second half of 2025.
2.4 Members update
The Chair provided an update on the Scottish Government’s progress appointing Non-Executive Board Members to fill current vacancies on the WICS Board, with appointments expected in the coming months. Members welcomed the progress and reiterated current resource constraints at Board level.
Morag Sheppard confirmed that the first meeting of the Board’s Organisational Change Sub-Committee is scheduled to take place next week.
The Chair expressed thanks to both Robin McGill and Morag Sheppard for their efforts to support the organisation in HR matters.
3. Annual work plan and organisational change
3.1 Annual work plan progress update
The Board noted a paper summarising the organisation’s progress delivering the 2024-25 work plan. The Interim CEO outlined plans to interview Project Manager candidates to support the organisational change programme. The Board welcomed this additional resource and suggested that the sub-committee’s membership could be broadened to include other staff as a development opportunity.
The Chair and Interim CEO confirmed their attendance at the Public Audit Committee scheduled for 19 February 2025 and Members discussed the recent Public Audit Committee appearances from the Auditor General and Permanent Secretary which referenced WICS.
Members agreed that key messaging should focus on WICS’ role as economic regulator and the benefits delivered to Scottish customers. Board Members commended the organisation for maintaining focus on its core regulatory role despite significant resource constraints.
The Interim CEO highlighted the need for external engineering expertise to support the Strategic Review of Charges 2027-33. Members noted that this expenditure would likely require both Board and Scottish Government approval.
The Board discussed its self-effectiveness review and agreed to complete the assessment in March 2025. It was acknowledged that the review would need to be conducted in a way that maximises the effective use of time, given current resource pressures.
The Chair requested that the leadership team prioritise finalising a revised recruitment policy, given the level of recruitment planned for the coming months.
3.2 Risk update
The Board reviewed the current risk reporting format noting that risk scores are actively being interrogated at each Leadership Team meeting.
The Interim CEO highlighted that the highest scoring risk is related to the organisation's resourcing. He explained that a number of actions, such as recruiting a permanent CEO and filling vacant director posts, are underway and should lead to a reduction in the risk score. While these steps are expected to bring the risk into the amber zone, further actions will be needed to reach the target score.
The Board discussed the frequency of risk reporting and agreed that commentary from the Audit and Risk Committee (ARC) should be included in the Board’s risk report. It was also agreed that Board reporting should be aligned with the frequency of ARC meetings.
Robin McGill suggested that future reports should include an assessment of how controllable each risk is.
The Board acknowledged the progress made in improving risk management and thanked all involved for their efforts.
3.3 Organisational change update
The Interim CEO provided an update on the progress of WICS' organisational structure, confirming the successful appointments of the Director of Pricing and Director of Performance and Reporting. However, the positions of Director of Finance and Corporate Affairs and Director of Markets remain vacant. The Board noted that a market weighting exercise for director roles is due to complete this week, and approval is being sought for an executive search firm to assist with filling the vacant director-level roles.
The Board discussed the need for an interim appointment for the Director of Markets until a permanent appointment can be made. Given current resourcing and workload, the Board discounted Option 1, which would have involved the Interim CEO absorbing the role. Therefore, discussion focused on Options 2 and 3 which involve either a secondment of an interim director or using the Scottish Government’s interim professional services framework.
The Board agreed that flexibility would be crucial in any interim arrangement, particularly if a permanent Director of Markets can be appointed sooner. It was suggested that an initial three-month contract with the possibility of a three-month extension could provide the necessary flexibility.
The Board agreed on the need for an interim Director of Markets and broadly supported Option 2, subject to further market testing to confirm it offers the best value.
The Chair requested that greater clarity be incorporated into the governance framework to specify whether organisational structure and the recruitment of senior staff are matters reserved for the Board or delegated to the CEO and Chair.
4. Finance and Corporate Services
4.1 Finance update
The Head of Finance provided an update on the financial results for the period, highlighting a salary underspend due to current vacancies and a consultancy underspend, largely attributed to the revised approach to delivering the Strategic Review of Charges under new leadership. She also reported savings achieved through a revised strategy for the desktop computer refresh project.
In light of the current Director-level vacancies, the Board approved a temporary reduction in the approval panel quorum from three to two. This arrangement will be kept under review to ensure that expenditure continues to be appropriately scrutinised.
Members noted the high cash balance and welcomed the ongoing work to review financial sustainability. A detailed review, which will inform future budgeting, is scheduled for discussion at the March Board meeting. This will allow for a more thorough examination of the cash position.
The Board emphasised the importance of fully utilising the staff training budget. The Interim CEO confirmed that work is underway to implement role-specific training checklists, which will align with future training budgets. Members endorsed this structured approach, recognising its focus on developing professional and technical skills.
4.2 Moray House
The Board considered the options for securing office space at Moray House in Stirling to support hybrid working arrangements. Following discussion, the Board approved Option 2, which involves establishing a mutually beneficial agreement with Zero Waste Scotland (ZWS) to share office space at Moray House.
The Board approved the financial commitment associated with option 2 and delegated authority to the Interim CEO to finalise an agreement with ZWS.
4.3 Service contracts
The Board considered a paper outlining WICS’ current service contracts, likely future requirements and key gaps.
Members noted that consideration is being given to the most appropriate balance between recruiting in-house resource and consultancy services, recognising WICS’ size and the specialist nature of our regulatory role. Morag Sheppard highlighted the importance of evaluating the level of risk transfer embedded in contracts as a key factor in determining the optimal balance between internal and external resources, as well as ensuring best value.
Robin McGill queried the procurement approach for website hosting and maintenance services. The Head of IT Services explained that maintenance and hosting services are currently procured through the Scottish Government’s digital services framework which provides assurance on value for money. The Board noted there will be a requirement to test the market in a competitive tender exercise for website hosting and maintenance services within the next two years.
Members discussed the broader IT procurement strategy and questioned whether there is an opportunity to rationalise the number of contracts currently in place. The Head of IT Services and Head of Finance confirmed they are actively drafting an IT procurement strategy as part of the budgeting process. This work includes reviewing the options available to rationalise contracts where appropriate.
Members emphasised the need for clear accountability and transparency in consultancy spend while maintaining flexibility to address the more unpredictable aspects of regulatory work. The Interim CEO acknowledged these concerns, explaining that consultancy use has shifted under new leadership, contributing to the current underspend. The Board welcomed this more strategic approach but reiterated the importance of ensuring consultancy services are used effectively, provide tangible outputs, and represent best value.
The Board reinforced the need for a coherent strategy that balances internal expertise and external consultancy, while ensuring transparency and value for money in all procurement activities.
4.4 Media support
The Interim CEO presented a paper evaluating the continuation of external media support services until March 2025.
The Board discussed the value delivered by the current service contract and agreed with the recommendation to continue as planned. However, Members emphasised the need to develop a clear communications strategy for WICS as soon as possible.
The Interim CEO highlighted that the delivery of a communications strategy has been delayed due to ongoing resource constraints but provided assurance that this remains a priority.
5. Performance and reporting
5.1 Scottish Water's investment delivery
The Director of Performance and Reporting provided an update on Scottish Water’s investment programme, confirming that it is broadly on track. He highlighted that Scottish Water is likely to rephase some investment that was planned for the current period into the 2027-33 regulatory period, which will place upward pressure on Scottish Water’s future investment proposals.
The Board discussed the current IPOD calculation methodology, noting that milestones are currently treated with equal weight, despite project completion being the most impactful stage for customers. It was agreed that there should be greater focus on customer benefits within monitoring and reporting.
Board Members welcomed plans to review current Investment Group (IG) monitoring arrangements as part of a task and finish group involving WICS, Scottish Government and Scottish Water.
Board Members noted that approval will be required for engaging external support to assist in evaluating the efficient size of Scottish Water’s investment programme.
6. Pricing
6.1 Scheme of Charges
The Interim CEO presented an overview of Scottish Water’s 2025-26 Scheme of Charges, which is submitted annually to WICS for approval under Section 29A of the Water Industry (Scotland) Act. Board Members noted that Scottish Water has proposed a 9.9% nominal increase in primary charges for both household customers and Licensed Providers for the 2025-26 financial year.
Board Members welcomed the analysis provided in the paper, which highlights that this increase represents the lowest rise in household bills across the UK, with Scottish Water’s projected average household bill for 2025-26 the lowest in the country. It was also noted that almost half of Scottish households benefit from a discount on their water bills, compared to 10% in England and Wales.
Board Members highlighted that Scottish Water has to date, recovered less revenue than the level allowed for in the determination and plans to uplift the revenue to the amount set out in the determination by the end of the 2021-27 period.
Following this discussion, the Board approved Scottish Water’s 2025-25 Scheme of Charges as consistent with the overall price cap set in WICS’ Final Determination for the 2021-27 regulatory control period.
The Board also approved the increase in default tariffs in line with Scottish Water’s proposed increase in wholesale charges.
7. Markets
7.1 Code of Practice
The Board discussed the responses received to the recent consultant on implementing the Code of Practice (CoP) and Market Health Check (MHC) process, noting there were no material concerns raised that would impede the implementation of the Code.
Board Members were assured that there is a governance process and forum to discuss changes and make refinements to the CoP as required and as it develops over time.
The Board also considered the potential risk of WICS adopting an ombudsman or arbitrator role through the MHC process. The Interim CEO clarified that while WICS will have a more active role in monitoring compliance with the CoP on the MHC process, this function remains distinct from that of an ombudsman.
The Board requested an update at a future meeting on the full scope of the MHC process, including a forward plan of work and the resourcing needed to deliver the MHC.
The Board approved the publication of the final decision document, which will implement the CoP and MHC through a new voluntary standard licence condition.
7.2 Governance code
The Board noted an update on the ongoing review of Business Stream’s Governance Code.
The Markets Directorate confirmed that no material concerns were raised by market participants during the recent consultation. The Board noted that given no further material concerns were raised, progress will be made through three-party consultation between WICS, Scottish Water, and Business Stream. The Markets Directorate confirmed it will also engage with the Scottish Government at appropriate points during this process.
Following legal advice, we will develop a range of options and proposed changes to the governance code and intend to bring recommendations to the Board for decision in April 2025.
Meeting close
The Chair closed the meeting by thanking participants for their valuable contributions.