Board minutes Jul 2023

Approved Minutes of 150th Commission Board meeting July 2023

Published •

Minutes of the 150th Board meeting of the Water Industry Commission for Scotland on 6 July 2023

Present:

Donald MacRae (Chair)
Alan Sutherland (Chief Executive) Agenda Items 1-4 
Ann Allen (Member) 
Robin McGill (Member) Agenda Items 1-3 and 5 via Teams link
Jo Armstrong (Member)   
                
In attendance:

David Satti Director of Strategy, Finance and Governance
Colin McNaughton, Director of Analysis (Agenda Items 1-4)
Andrea Mancini, Director of Price Review (Agenda Items 1-4 via Teams link)
Michelle Ashford, Chief Operating Officer (Agenda Items 1-4)

Chair’s opening remarks

The Chair opened the 150th meeting of the WICS Board and welcomed Board Members.

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 149th meeting

The Board approved the minutes of the 149th meeting and noted the May and June update meeting notes.  

2.3    Summary of action points

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

  • Action 1: This action is ongoing.  The Board noted that the Scottish Government are considering the future format of IPPG and DAG meetings. 
  • Action 2: The Director of Price Review provided an overview of the options open to WICS in responding to Business Stream’s structure and governance arrangements. The Board discussed and requested a paper at its August meeting which sets out the options and associated risks to help ensure a robust audit trail of WICS’ actions in this area.
    A separate paper on non-core funding and financing will also be brought to the Board for discussion at a later date.  

  • Action 3:  The Chief Executive explained that our work in New Zealand will complete at the end of July. It is unlikely that this work will resume until after the election period has concluded.  This gap in activity will provide the time and space to consider the future structure and governance required to support fully the international work. 

    The Chief Executive reiterated the importance of international income for the future sustainability of the office and committed to prepare a paper for discussion with the Board in October / November this year.

  • Action 4:  An update is provided in the CEO report. The Director of Strategy, Finance and Governance explained that further work is required to better capture staff time required to deliver each activity. He noted that the successful delivery of the NZ project alongside our domestic regulatory activities is a result of staff working beyond their contracted hours. This is out of choice due to the learning opportunity presented.

    Members asked whether staff who regularly work more than their contracted hours have opted out of the Working Time Directive. The Chief Executive explained that we have taken this approach in the past and would investigate for current staff members.

2.4    Non-Executive Members Update

There were no material updates from Members.

3.    Strategic discussion  

3.1    SRC27 timeline and approach   

The Chair informed Members that he had a very positive interaction with Scottish Water’s new Chief Executive, Alex Plant. He invited the Chief Executive to provide an overview of our current thinking on the Strategic Review timeline and approach. 

The Chief Executive provided a high-level outline of the current timeline for the 2027-33 Strategic Review of Charges and the challenges presented when overlaying the timelines of other relevant considerations for the SRC process. These include the timeline for the price review process for water companies in England and Wales. 

The Chief Executive explained the work required for Scottish Water to produce a well-evidenced business plan for the next regulatory period. This business plan would sit in the context of analysing the industry’s challenges and investment requirements like one would price a 25-year concession arrangement. There is concern that Scottish Water would need more time to build the evidence for such a business plan.  

The Board discussed and made the following observations: 

  • WICS require the bottom-up evidence to base future prices on. It took a top-down view during the 2021-27 final determination in the expectation that Scottish Water would provide this evidence in IPPG which hasn’t transpired. The evidence gap is limiting the ability to scrutinise Scottish Water’s investment programme in forums such as DAG.
  • Members agreed with the importance of a robust investment baseline to monitor Scottish Water. There is concern that Scottish Water is able and/or willing to produce such a baseline since we have been requesting this of them for some years now, including the formal information request in March 2022. Members reiterated the importance of formally documenting an audit trail which sets out what we have asked of Scottish Water and when. 
  • The Director of Analysis reassured Members that there will be significantly higher levels of investment than in previous regulatory control periods and we were working to ensure more clarity over what will be achieved during the period. 
  • Members requested a timeline for what we have asked Scottish Water for in this area.

The Chair thanked Members and Directors for their contributions.  He asked that a future paper is brought to the Board for discussion outlining the options and timeline for the strategic review of charges including an audit trail of key events to support decision making.  

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:  
 

SRC21 Review

The Director of Price Review explained that stakeholder interviews are ongoing and due to complete by the end of July.  It is too early to draw conclusions, but we are hearing some consistent views from our stakeholders.  We will report lessons learned to the Board in due course. 

Scottish Water monitoring 

The Director of Strategy, Finance and Governance provided an overview of Scottish Water’s performance as reported in IPPG and DAG. He noted that there have been delays to Scottish Water’s investment programme during the first quarters of the year but has begun to recover somewhat in this last quarter.  Our continued concern is that Scottish Water must be able to evidence what customers have received for this level of investment. 

We are also now beginning to analyse Scottish Water’s annual return information and we will provide an update to the Board when this is complete. 

International projects

The Chair noted the opportunity for WICS to be involved in an OECD PAFER review in Brazil. 

Members requested some further context on the success of the WICS seminar in Romania. The Director of Price Review explained that there was a significant increase in the number of attendees. We also received a number of follow up emails from stakeholders requesting further information about our work.  We agreed to include this detail in future reporting. 

Retail

The Director of Price Review informed Members that we are on track to receive a set of proposals for the Market Heath Check process from the senior stakeholder group by the end of this year.  We will provide further updates as this work progresses.

Cyber resiliency

The Board congratulated the office on achieving Cyber Essentials Plus accreditation. 

Organisation

The Director of Strategy, Finance and Governance provided a brief overview of our progress to review staff job descriptions and our intention to conduct a market weighting exercise for roles. He explained that the structure of the organisation is also under review and that key staff have now met with our HR consultant who is starting to build a picture of required roles and structure.

Members raised concern about the reference to understanding the morale of staff in the Chief Executive report.  They set out an expectation that there should be a much wider piece of work focusing on understanding the culture and values of the organisation. 

Finance

The Director of Strategy, Finance and Governance gave an overview of financial results.
Members congratulated the office but noted the challenging inflationary environment and the importance of international income.  Members requested a scenario analysis of WICS income and expenditure to show the impact of WICS levy from Scottish Water and Licensed Providers should cost risks materialise. 

The Board also noted an update from the Audit and Risk Committee which was provided by the Director of Strategy, Finance and Government in the absence of the Audit Committee Chair.

5.    Non-executive members meeting

The non-executive members of the board considered a financial request from a previous employee and decided not to accept this request.

Meeting close 

The Chair closed the formal meeting and thanked Board Members and the office for their contributions.
 

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