The outcomes of the WICS review into regulatory methodology

A presentation given by

Chief ExecutiveWater Industry Commission for Scotland

Water 2010Alan SutherlandLondon, 13 October 2010

Alan Sutherland

Wate

r 2010

13 October 2010

Water 2010, Alan Sutherland, London2

Significant progress has been made in the Scottish Water Industry over the 2006-10 regulatory period...• Scottish Water outperformed the 2006-10 regulatory settlement.

• The “world’s first” competitive retail market for non-household water services opened in April 2008.

• Progress to date has been encouraging – c.40% of non-household customers are now on a better deal as a direct result.

• Experience from the market appears to show that customers are more interested in tailored, targeted services rather than price cuts.

But there is no room for complacency – legitimising customers’ bills means putting customers at the heart of the process

13 October 2010

Water 2010, Alan Sutherland, London3

We acknowledge that, at present, there are a number of barriers that may deter customer participation• Compexity: simplifying the price setting process could

facilitate greater participation.

• Too late to influence: involving customers earlier would allow their views to be reflected more effectively in any final deal.

• Relevance to the customer experience: customers need to understand the costs and benefits of environmental and public health improvements.

• Planning for the Long-term: looking beyond the five-year period could allow for more innovation to be realised – benefitting customers.

13 October 2010

Water 2010, Alan Sutherland, London4

Our provisional timeline envisages seven steps...

Step

When Milestone

Customer interaction

1 Q3 2011

The Commission sets out key regulatory principles and financial framework

Ongoing customer

negotiation

2 Q3 2011

The customer counterparty rules of engagement and strict governance functions in place

3 Q3 2012

Scottish Water will publish a draft strategic business plan covering the next 25 years

4 Q4 2012

The Commission reviews and comments on the plan

5 Q3 2013

Scottish Water issues final version of the 25 year strategic plan and a draft of a business plan for a proposed agreement period. The Commission sets out plausible ranges for key inputs.

6 Q4 2013

Final business plan generated for agreement of customers

7 Q4 2014

An agreement is formalised, or a determination is made by the regulator

13 October 2010

Water 2010, Alan Sutherland, London5

We are continuing to work with Scottish Water and other stakeholders to agree both the principles and the process that will sit behind these milestones...

• Scottish Water must own its Business Plan. It would then be obliged to seek agreement of its plan with customers.

• The Commission will comment on the plan, setting out indicative ranges for key inputs to help inform the customer negotiation.

• The Commission would have a “Plan B” if Scottish Water fails to reach an agreement with customers.

• There will be a change in the role of the Reporter.

• There will be a incentives to encourage longer term, more innovative approaches.

13 October 2010

Water 2010, Alan Sutherland, London6

There is, however, still work to be done...

• We need to define the governance arrangements for the customer counterparty.

• We need to develop our understanding of the economic costs of the industry. However, we remain of the view that the cost of water and wastewater treatment processes are higher than suggested.

• This may present opportunities for more asset rationalisation and, potentially also, reconfiguration better to suit customers’ needs.

• There may also be benefits in trading treated water in areas closer to the Scottish border...

Find out more at:

www.watercommission.co.uk

www.scotlandontap.gov.uk