Minutes of the 158th Board meeting of the Water Industry Commission for Scotland on 2 May 2024

Present:    

Donald MacRae (Chair)   
Ann Allen (Member)  (via MS Teams) until Item 6.1
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
Michelle Ashford, Chief Operating Officer
Shona Coan, Head of Finance

Apologies:    Robin McGill (Member) (Chair of ARC)        

Chair’s opening remarks

The Chair opened the 158th 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 apologies from Robin McGill.

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 157th meeting

The Board approved the minutes of the 157th meeting.

2.3    Summary of action points

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

• Action 1:   This action will continue.
• Actions 2:  This action is now complete.
• Action 3:   Regular updates are in place and will continue. 
• Action 4:  This action will remain and will include different expenditure scenarios to inform future decision making.
• Action 5:  This action will be covered at the June meeting.
• Action 6:  This action will be discussed at item 5.2 in the first instance.  The interim CEO explained that we will likely establish a small project team to take this work forward in close consultation with staff.  The Chair asked that any future project team reports to the Board regularly. 
• Action 7:  This action will remain. 
• Action 8: This action is now complete. The Head of IT Services has formally informed the Scottish Government that Robin McGill is the Board level nominee with overall responsibility for cyber resiliency. 
• Action 9:  This action will remain, and the timescales and resources will be agreed in due course.  
• Action 10:  This action is now complete.  
• Action 11:  This action is now complete.

2.4    Non-Executive Members Update

Ann Allen noted there is an increasing drive across sectors for employees to return to an office environment 3 days per week. The key motivation for this change is to support employee wellbeing and create a sense of belonging within organisations. It also aims to improve the way teams communicate and work together.

The Chief Operating Officer asked how employers are measuring well-being and whether there are any standard metrics available. Ann Allen explained that there is no single metric but that organisations are measuring impact in staff surveys and through other indicators such as absence, recruitment and retention levels.

The Interim CEO explained there is an expectation from Scottish Government that public bodies work in partnership with each other, for example in seeking out opportunities for space sharing. He added that we plan to engage with the wider office on how we can best implement new ways of working.

3.    Interim CEO update

3.1    Interim CEO update paper

The Strategic Review of Charges 2027-33

The Board noted we have now received the final Commissioning letter for the Strategic Review of Charges 2027-33.  A key difference from previous reviews, is the request from Ministers to consider a range of scenarios for investment, charges, and service levels.

The Director of Analysis reiterated that whilst this approach provides flexibility to consider a range of different scenarios, our expectations of Scottish Water in terms of efficiency and performance remain.

The Director of Price Review signalled that there is a need to create consensus with industry stakeholders around the governance process for any change to investment priorities. There needs to be a clear understanding of the impact of any changes during the regulatory control period and how these will be agreed collectively.  Such a process should allow for adequate flexibility without reducing the ownership or accountability of Scottish Water to deliver against clear expectations.

Board Members noted this approach places even more importance on the extent and quality of information provided by Scottish Water on the implications of different investment scenarios.

Members also noted the political developments of the last week and the potential impact this may have on prospective legislation and SRC27.  Members highlighted the importance of our regulatory independence and operating under the principles of Ethical Business Practice in the context of the heightened political environment.

International projects

The Director of Corporate and International Affairs confirmed we will not, at this time, participate in a project supporting the Romanian regulator ANRSC. However, we will continue to maintain our relationships with international stakeholders and engage with the Scottish Government’s sponsorship team on future project opportunities.

The Director of Price Review signalled the importance of demonstrating the value of future international project work, to our office, staff, and wider regulatory approach. It will be important to evidence that participating in commercial projects has no adverse impact on our core regulatory duties.

The Board noted the reference to WICS participating in revenue generating activity in proposed primary legislation.  The Board asked the leadership team to clarify with Scottish Government what this means for WICS in practice. 
All agreed that maintaining a robust resource plan for the office will assist in evidencing the capacity we have available to participate in revenue generating activities.

Action:  The Interim CEO to engage with the Scottish Government around expectations for WICS’ revenue generating activity. 
Action:  The Chair asked for an update from the leadership team on a resourcing plan for the office at the next board meeting.

Retail market

The Director of Price Review provided an overview of work to develop a retail market code of practice. He explained the next key phase of work will involve Consumer Scotland testing the code with customer research. Thereafter, there may be some edits to reflect these insights.  The focus of work will then turn to developing an assurance process which will test adherence to the code on an ongoing basis.

The Board noted this update and requested a further update on the progress of this work at the September meeting. 
Action:  An information paper on the retail market code of practice to be shared with the Board at the September meeting.

IT security policy

The Board noted the revised IT security policy which will soon be issued to all staff. Training for staff on cyber security will continue to support the implementation of the IT security policy.

Leadership coaching

The Director of Corporate and International Affairs and Chief Operating Officer met with three potential coaches to discuss requirements. An invitation to tender will be issued by the end of next week.  The Board noted that the intention is to have a supplier in place by June.

Risk 

The Interim Chief Executive explained that we intend to review our risk management framework and strategic risks which will include the updating of risk scores.  

4.1    Finance 

The Head of Finance provided an overview of financial results to 31 March 2024. She explained that these are our preliminary year-end results, pending some adjustments required by IAS19 relating to the pension scheme.

The Board noted the high cash balance but acknowledged that some work and associated expenditure which was planned for 2023-24 will now be completed in 2024-25.

Board Members also noted that factors such as public sector pay policy, increasing consultancy costs and our future working model are likely to significantly impact WICS’ costs in the future.

The Board discussed and approved the following items of expenditure which have also been considered and approved by the internal approvals panel:

Communications support
The Board approved up to £130,000 for the creative communications support required to deliver key messages throughout the Strategic Review of Charges 2027-33.

The Board noted this work will promote clear understanding of our key SRC27 documents, our role determining charges and the overall value WICS delivers for customers.

External audit services 
The Board approved £82,000 for external audit services for the years 2023 until 2027.  The Board noted that this level of expenditure is comparable with other small public bodies.

The Director of Analysis provided an update on the tender exercise to appoint a supplier for regulatory reporting advice. The Board noted that this expenditure has been considered by the approvals panel and approved by the Scottish Government. 

The Board agreed to consider this expenditure via email prior to the final contract award. 

5.1    Workplan and budget

The Interim Chief Executive provided an overview of the draft work plan for 2024-25. He outlined the six key priority areas and deliverables WICS will focus on throughout the year, and the resources that will be required.

The Board noted that this is an ambitious workplan and asked whether the leadership team has any concerns about delivery. The Interim Chief Executive explained that whilst the work plan is challenging, he and the leadership team are confident that it can be delivered.

The Head of Finance summarised the draft budget for 2024-25 and assured Board Members that all activities outlined in the workplan have been incorporated into the budget. Board Members questioned the assumptions underpinning the budget including the assumption that vacant positions will be filled during 2024-25.

Members noted that during this transitionary period, it will be important to monitor our budget closely and ensure any key learnings are taken forward to inform next year’s planning.

Board Members approved the 2024-25 workplan and budget.

5.2 Ways of working

The Interim Chief Executive provided a brief overview of our current thinking on WICS’ future ways of working. He explained that this is the first stage before wider engagement with the Board Members, staff and the Scottish Government.

Board Members were broadly supportive of the key areas of change identified but highlighted the significant time and resource required to deliver organisational change, especially during such a critical period of the regulatory cycle.

Members also reiterated the importance of engaging and communicating with staff throughout the process.  The Interim Chief Executive confirmed that communication and engagement will be a key priority as we develop this work.

Action: The Board requested a regular update on our work developing future ways of working. 

5.3 Thames Water licence revocation

The Board were satisfied that there were no significant legal risks or outstanding liabilities and approved the revocation of Thames Water’s water and sewerage licences.

6.1 CEO recruitment update

The Chair noted an update from the Director of Corporate and International Affairs on the process to appoint a permanent Chief Executive.

6.2 Clear Business Water complaint

The Chair noted recent complaints made against retail provider Clear Business Water and the steps being taken to investigate and respond.

The Director of Price Review confirmed that we have written to Clear Business Water to indicate our intention to open a formal investigation.  

We will update the Board as the investigation progresses.

6.3    Work plan response to external audit

The Chair noted that the majority of actions are now complete but that there are two actions remaining which will be covered as part of the internal audit management response.    

Meeting close

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