Minutes of the 164th Board meeting of the Water Industry Commission for Scotland on 22 May 2025
Present:
Ronnie Hinds (Interim Chair)
Robin McGill (Member)
Morag Sheppard (Interim Member)
David Satti, Interim Chief Executive
In attendance:
Colin McNaughton, Director - Item 4
Head of Finance - Item 3
Head of HR - Item 3.3
Jo Blewett, Scottish Government - Items 1-3 (Observer)
Chair’s opening remarks
The Chair opened the 164th meeting of the WICS Board and welcomed Members.
The Chair also welcomed Jo Blewett, on behalf of the Scottish Government Sponsorship team, participating as an observer for the three first items of this Board meeting.
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
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 163rd meeting
The Chair requested an update on the progress and planning of engagement with the Net Zero Parliamentary Committee. The ICEO informed that this activity is still pending and agreed to take this action under his responsibility.
The Board approved the minutes of the 163rd meeting.
2.3 Summary of action points
The Board noted the summary of actions and agreed that material updates would be covered in other agenda items in this meeting.
2.4 Members update
Recruitment
The Board received an update on recruitment of the Director of Markets and the Director of Finance and Corporate Services. The ICEO confirmed that both recruitment processes are progressing according to the revised schedule, following Scottish Government approval of salaries, but highlighted that hybrid working and commuting time was a theme that has impacted interest in the roles.
The Chair confirmed that panel interviews for the recruitment of new Board Members have concluded, and we await final appointment confirmations from the Scottish Government.
PAC report
The Board received an overview of the recently published Public Audit Committee report and the timeline for a response by both WICS and the Scottish Government. The Board agreed that WICS would submit an independent and comprehensive response to the Committee’s report. The ICEO agreed to draft this response and share it with the Board for comment before it is submitted to the PAC. The Board also noted that the final stage of the process was a debate in parliament which is scheduled for 26 June but that there was a risk that the debate is held after summer recess.
Cyber defence prevention
Morag Sheppard informed about recent phishing attempts in other organisations and thanked the IT team for their preventive work and communication with the Board in this area.
3. Finance and Corporate Services
3.1 Annual work plan progress update
The Board noted the update on the annual work plan. The ICEO advised that the review of Business Stream’s governance code will be delayed, but that all other activities are progressing as planned.
Morag Sheppard questioned whether Scottish Water’s upcoming draft Business Plan submission would include requisite environmental impact assessments and other statutory requirements and what assurance would be in place on such matters. The ICEO highlighted the focus of WICS on obtaining assurance from Scottish Water on all aspects of its Business Plan prior to analysis and determination of charges by WICS. He highlighted that the submission in August is an early draft ahead of a formal submission early 2026 and as such the assurance from the Scottish Water Board will be provided at this stage by Scottish Water’s CEO.
The Board discussed the policy development work underway by the Scottish Government with specific questions relating to “infrastructure charges”. The ICEO clarified the policy position in this area and the work underway in the “Long-term Charging Group” to help inform Minister’s Principles of Charging ahead of Scottish Water’s Final Business Plan submission.
3.2 Organisational change
Morag Sheppard introduced the progress update of the Board’s Organisational Change Sub-Committee (Organisational Change Assurance Group - OCAG). This report provided an overview of the activities completed in the past months and reviewed the activities planned for the following months as part of OCAG.
The Board noted the update presented and thanked ARC and members of staff delivering organisational change activities.
The ICEO noted that the project governance implemented for OCAG will also be applied to other projects, which the Board welcomed.
3.3 HSE staff survey
The Head of HR (HoHR) presented an overview of the results of the annual HSE workplace survey. The results show year on year improvements, but that role clarity and uncertainty are the main areas where WICS could improve which is why we are implementing the role review.
The Board discussed staff feedback and the organisation’s planned actions which include workshops and team-building ahead of new director appointments. The Board also offered to help support staff engagement which the ICEO welcomed.
The HoHR noted that this survey, while useful, is general and uses a series of standard questions. Robin McGill asked about a WICS specific survey and training sessions. The HoHR confirmed a tailored survey is in development and that other tools and training will be implemented to support staff understanding of roles and expectations.
The Chair noted differences from previous results and asked for a follow-up on actions taken before the next survey in 2026. The Board discussed ensuring a clear “feedback loop” (survey, action, response) is in place. The HoHR added that regular check-ins and a staff engagement plan support this.
3.4 Governance framework
The ICEO introduced the proposed changes to sections C, D, and G of the governance framework, with a particular focus on the scheme of delegation. He noted that the paper aims to prompt discussion on the role of a Commission, internal approval processes, and the delegated authorities.
The Chair emphasised the material shift that these proposals have in strengthening the governance at WICS and commended the ICEO for putting them forward.
Board secretary role
The Board requested further consideration of a dedicated Legal Secretary position, independent of the executive and reporting directly to the Board. The CEO and future Director of Finance and Corporate Services will consider this role’s requirements as part of the organisational change programme and role review exercise.
Organisation wide scheme of delegation
Morag Sheppard asked about the CEO’s delegation powers and whether an organisation wide scheme of delegation exists that clearly sets out the distribution of responsibilities. The Interim CEO explained that the intention is to clarify the role and delegations of the Board before then looking at the delegations to the Directors but that the current proposal gives an indication of what could be delegated to the Directors.
Conflict of interest
Morag Sheppard asked about the implications if the Chair were to have a conflict of interest, and why responsibilities would be delegated to the CEO rather than another Board Member. The Chair recommended introducing a Deputy Chair role and, in the current absence of such a role, proposed that the Chair of the Audit and Risk Committee assume the Chair’s responsibilities in such situations.
During the discussion, the Chair requested the following changes in specific sections of the text:
- In section D, subsection 2.3. of the governance framework, the Board agreed that there should be a de minimis for approval of expenditure not originally included in the corporate plan. This threshold should take into consideration both the value and ‘novel’ or ‘contentious’ nature of expenditure.
- In section D, subsection 2.4 of the governance framework, the Chair requested clarifying that the terms of conditions of service for Directors are approved by Scottish Government, and the appointment is approved by the Board.
- In section D, subsection 4.1, the last item of this subsection, the Board agreed that approval of WICS’ annual assessment of Scottish Water’s performance should be a matter reserved to the Board. The ICEO confirmed that this should also apply to the approval of Scottish Water’s delivery plan.
Morag Sheppard queried the role of the Board with regards to staffing matters in subsection 2.4 of section D of the Governance Framework. The ICEO informed that the role of the Board is to approve policies, and it is the role of the executive to operate in line with those policies and provide assurance and reporting to the Board that this is the case.
The Board endorsed the direction of travel and requested that changes be implemented ahead of legal review. Members requested a short summary of the changes made following the Board’s discussion and legal review.
3.5 Moray House
The ICEO provided an update on the agreement concerning the shared use of office space and presented the considerations related to the proposed two-year extension of the Head Lease with Stirling Council, following the expiry of the current agreement.
The Board discussed the current use of the existing offices, the importance of finding sharing opportunities for the office space and whether better terms have been sought with Stirling Council given vacancies in the area.
The Board approved proceeding with the extension of the head lease subject to engaging with Stirling Council on lease terms. The Board also requested a further update on the conditions of the Licence to Occupy agreement.
3.6 Finance update and financial results
The Board received an update on the financial results and an overview on the training activities planned for the rest of the year. The HoF advised that the Counter Fraud training was shared with staff to complete by the end of the month.
The Chair acknowledged the inclusion of the comments of the recently appointed internal auditors and requested that this is added to the PAC response.
The Board then discussed the impact of the unfilled vacancies and uncertain organisational structure on the budget. The HoF highlighted noted that employing a full complement of staff would significantly increase costs, which would be reflected in the forecasting work forming part of the financial sustainability review. The ICEO clarified that the additional changes proposed as part of the phase 2 of the role review are not included in these assumptions.
The HoF provided clarifications to Morag Sheppard’s questions on the HMRC review, Corporation Tax, and sensitives to pension valuation assumptions and suggested that these areas are discussed in greater detail as part of the financial sustainability review.
The Board noted the update and requested that WICS makes use of this update in its response to PAC.
3.7 ARC update
Robin Mcgill provided an overview of ARC’s recent work and informed on the engagement with the newly appointed internal auditors. The Chair thanked members of staff and Board that participated in the recent work reported to the auditors.
The Board discussed the request to approve the revised risk management strategy and how this will ensure risk is considered and managed at all levels within the organisation. The ICEO added that these changes are aligned with the role review process and that WICS will provide training to staff in this important area.
Morag Sheppard noted the addition of assurance mapping to this framework and how this will help contribute to a robust risk mitigation plan.
A risk appetite workshop will be scheduled for the second half of 2025/26 when the Board is operating with a full complement.
The Board approved the risk management strategy and thanked the team for the significant improvements made over the last eighteen months in this area.
3.8 Financial sustainability work plan
The Board discussed the Financial Sustainability Work Plan and noted that this piece of work will be managed as a project in a similar way to OCAG including Board reporting.
The Board welcomed the update and highlighted the importance of this work for considering the cost base of WICS and the implications this has on the levies required from Scottish Water and LPs in the 2027-33 Corporate Plan. The Board noted a particular interest in the interaction between a reserves policy, levy increase and potential refunds to Scottish Water and LPs given the current cash balance.
The Chair thanked Jo Blewett for her participation as an observer in this Board meeting and confirmed that the remaining items in the agenda will focus on regulatory matters.
4. Performance and reporting
4.1 Our performance monitoring role
The Director of Performance and Reporting introduced a paper outlining WICS' powers in monitoring Scottish Water’s (SW) performance, particularly in relation to performance-related pay. The paper, informed by legal advice and a review of WICS’ statutory duties, identified three potential mechanisms to support this work, including public comment and the setting of clear performance requirements.
The Board discussed WICS’ role historically in this area, its capacity, the associated risk in taking on a greater role in this area, and the role of other regulators. The Board agreed that establishing performance requirements as part of the SRC process is a critical first step to monitor and incentivise Scottish Water’s performance and that performance related pay can be a useful incentive to drive improvements.
The Board confirmed its willingness to play a greater role in performance related pay but had reservations around setting the amount or playing a wider role in remuneration more generally. The Board requested updates as this work continues.
4.2 Scottish Water's performance update
The Director of Performance and Reporting updated the Board on Scottish Water’s performance in delivering its capital investment programme, highlighting that this report is new and seeking feedback from the board on the format.
Scottish Water’s investment programme was on track for 2024/25 after having difficulties during the first half of the regulatory period at Gate 100. The ICEO highlighted that this gate is the most important of the three that is tracked because the risk of delays and overspend is greatest at this point when the project is in construction. Additionally, the ICEO and the Director of Performance and Reporting provided an overview of the performance and reporting procedures, including the level of detail received from SW from its data submissions to enable WICS analysis, and the role of the multistakeholder group WIIG in monitoring Scottish Water’s performance quarterly.
5. Markets
5.1 Market Health Check
The Board received an overview of the background, timeline and process for the Market Health Check project. The Markets team presented three options for how the project could be delivered.
The Interim CEO highlighted current resource constraints and noted that the Market Health Check is being developed in line with the new structure proposed in Phase 2 of the organisational change programme. It was confirmed that the work will be carried out in-house, with the exception of legal support to be provided by Shepperd and Wedderburn.
The Board approved Option 1 as the preferred approach for delivering the Market Health Check.
5.2 Quarterly retail report
The Markets team presented the Retail quarterly report and sought feedback on the formatting of this new report. The Board discussed the information presented and agreed to receiving this report quarterly.
The Board noted the report.
5.3 Business Stream Governance update
The markets team presented an information paper updating the Board on the delays to the Business Stream’s Governance project.
The Board also discussed developments in Business Stream’s governance including the recent annual compliance statement.
The Chair enquired on why the work between the governance matters should be finished before the MHC. The Markets team clarified that this consideration is exclusively made based on the FTE requirements for evaluating this piece of work and the MHC.
The Board noted the update without further recommendations.
Meeting close
The Chair closed the meeting by thanking participants for their valuable contributions.