 Da bwysig ar yr hynny, ond gwybod i gael gŷn gyfer llawer o ran y cyfrifedig Cymru Cymru i hefyd. Y Cymru Cymru Cymru i hefyd o'r blwysig yn cimraffydd. Gywe gwybod i'r ffawr i'r ffawr i'r ffawr yn cyfrifyng ofyn. Cymru Cymru yw'r wychilyniad ar gyfer gwaith yma ar y cyfrifedig Cymru Cymru Cymru, ac y cyfrifedig Cymru yw'r gysu'r cimrin gyda gyda'i cyfrifedig cymru你有chwyll Bellaith net zero targets are we all happy to take those items in private we are so they will will be taken in private and we'll move now on to agenda item two which is an evidence session on Scottish waters annual report and accounts for 2021-22 I refer members to the to the clerks and spice papers on this item on the 31st of May 2022 Scottish Water published its annual report and accounts for the previous year 21-22 setting out its financial and operational performance for the previous years earlier this year the committee agreed to hold a one-off evidence session with Scottish Water to consider its report it was also agreed for this session to include representatives of business stream and the water industry commission for Scotland to explore broader questions around water and sewerage in Scotland and I'd like to welcome the panelists who will join us today first of all Dame Susan Rice the chair of Scottish Water Douglas Millican the chief executive of Scottish Water Peter Farrah chief operating officer of Scottish Water Alan Sutherland the chief executive water industry commission for Scotland and Joanna Dyer the chief executive of business stream thank you all for accepting our invitation and we'll move straight into questions which are going to start today to come from the deputy convener Fiona Hyslop. Good morning and thank you for joining us this morning I want to focus on net zero initially and I'll direct my questions to Douglas Millican first and then probably Joanna Dyer if you think you can come in on this as well so fairly open question question is what progress has been made on Scottish Water's route map to net zero and what do you see as the key challenges ahead and you might want to break that down to short term medium term and long term Douglas are you happy to answer that one very much so thank you for that we've had a long term commitment to decarbonising our activities and we look at our operational emissions our operational carbon footprint is now about how I always like to admit when I'm wrong which doesn't happen very often I'm glad to say but I'm wrong in this case because I did promise some opening statements which is why Susan looked at me as if I was on a different planet and indeed Susan I would say that I was on a different planet this morning and I apologise profusely and I'm going to come back to your question if I may are you apologising to me or to the plan? Only this morning Susan would you like to give an opening statement? I thought I never gave anything away with my expressions but let me just say thank you to you and to the committee for having us and looking back and the key highlights from that latest annual report 21 to March 2022 which you mentioned we can all see that the last year really was quite extraordinary we faced as you all know we all know extreme weather intensifying climate change challenging economy with steep and quick cost rises like most organisations Scottish waters had to respond and adapt with speed and agility despite these challenges Scottish water and business stream had a successful year each while keeping focused on delivering for our customers that's always at the centre our dedicated teams had to work hard to keep customers in water as some of our reservoirs fell to previously unknown levels in 2021 whilst at the other extreme also managing the effects of storms Arwen Corrie and Malik which caused significant disruption to power supplies especially in the northeast of Scotland and for a prolonged period of time with inflation and the cost crisis continuing to show little sign of coming down and a growing need to manage these significant climate challenges as well as the challenge of aging assets we will need to continue to be innovative and resilient moving forward above all we have to keep moving forward we are under no illusion of how difficult this will be if income and future charge increases are not fully achievable due to wider considerations moving forward we'll need to continue to work with all industry stakeholders to make sure we continue to focus investment on key priorities and meet our net zero emissions ambition so i think that leads right back to the deputy convener's question well not quite because the one person there was another person who was offered a opening statement Alan Salmond did you want to make an opening statement i think it's probably best convener to just let the questions okay well all i can say is is i'm not going to play cards with you because you kept a very straight face when i obviously made an error so i will go back to the deputy convener and do you want to ask your question again clearly net zero is the most important ambition for for all of us if we're going to make a difference to our planet we've just come through cop 27 scottish water has key responsibilities in this area so my question is about your route mat to net zero and what progress has been made what do you see as the key challenges in the short, medium and long term to Douglas Millican first please okay thank you for that question so the you decarbonising our activities has been a really long term commitment and priority of scottish water and we're now in a position where in terms of our operational emissions footprint we've halved the level of carbon that's consumed in our operations but given the significance of the of the issue when we were setting our strategic plan looking out really towards the middle of the century we settled on three core ambitions that scottish water should be focusing on and one of those three core ambitions is about getting two net zero emissions and then beyond that and there are a number of different dimensions to it so let me start with the operational cycle we've got a really good story so far about halving the operational emissions footprint clearly we want to get that down to towards zero so there's a lot of further progress we can make in terms of driving energy efficiency into operations further increasing the extent of renewable energy generation that we either generate within our own assets or that is hosted within our land but one of the trickiest issues in trying to decarbonise our operational emissions are the emissions that effectively are a byproduct of the wastewater treatment process you things like methane for example and about a quarter of our operational emissions relate to those areas sitting today there is not existing technology to decarbonise these fugitive emissions but that is something that we and the wider water industry around the globe are engaged on and trying to see what could the art of the puzzle be in terms of decarbonising those and we're trialling different things out part of it is actually just trying to to measure where do these emissions actually occur across our wastewater treatment plants the next big area of our emissions is actually to do with our capital investment programme we are a major investor investing about three million pounds every day in replacement and upgrade infrastructure and that investment consumes significant elements of carbon in terms of abstracting raw materials from the ground transporting them processing them and descending them so probably for about three or four years now we know a lot of work upstream with the supply chain partners looking at what can be done in that space and first of all it's a hearts and minds challenge is actually ensuring that everybody shares in priority that we'll do about decarbonising but actually the human side is a really big part here because if you've got engineers who for 20 30 years in the careers have got a tried and tested way of building new assets and they know what works actually unlearning what works unlearning new ways of doing things is a massive challenge in terms of for people professionally it then plays into the commercial side because it has impacts on risk models but extensive work that we're doing that could simplify it into three key products at the moment firstly how can we have lower carbon designs avoid pumping use gravity build the ground and minimise the game secondly what could low carbon materials look like for example we're now using low carbon concrete in certain situations and thirdly how do we develop more low carbon approaches to construction such as reusing existing materials and using a lower mission plant and and equipment so maybe all this pause there but there's a huge amount that we're engaged in kind of year and year trying to get towards that goal thank you very much for that that was very informative and doanna have you got any aspects particularly in terms of your relationships as well because it's not just what you do it's what you your customers do as well isn't it very much so yes i think unlike scottage water we're not a huge consumer of electricity so we're an office based organisation we have about 350 people but nonetheless we're very focused on how we can reduce our carbon emissions as well so we set ourselves a target for the year past april to reduce our carbon emissions by 20 percent and we achieved a figure of 25.3 percent so we've had great support actually from the Scottish Water Group around this so how to determine what our starting position was what our carbon footprint was and then identifying what are the kind of key consumers of carbon within our business and i would say similar to most small organisations it's about travel costs and it's about use of electricity so we focus specifically on those and as douglas said i think that is the hearts and minds it's a behavioural change so trying to actually help encourage members of staff to use energy wisely at work but at home as well so it's the constant kind of process i think of reminding people of that i think the other role that we have is as a supplier to over 300 000 businesses across the UK we are actively trying to encourage those customers to use less water on the basis that if you use less water there's less energy consumption as well and it drives down carbon usage so a big focus on working with customers of all sizes from corner shops very small consumers of water right the way through to huge industrial plants and really helping to support them with water efficiency which as i say in turn drives down the consumption of electricity thank you and if i can right now move to peter farre i wonder if you could help with explaining how integrated scotter scottage water is in the wider public sector operational decisions for example round planning obviously major housing developments not least in my constituency overwhelming draining capacity you know drainage capacity that kind of area and can also ask following up from what douglas has said if we think emissions or other emissions are an issue we're moving to a circular economy what connections have you got with scottish funding council to try and ensure that the research that's been developed in our universities meets the practical operational needs of byproduct emissions because that would obviously be key so how central do you think scottage water is within the wider firm in the wider kind of public sector yeah well we we do a lot to make sure that we are completely integrated with the council particularly as you mentioned in the in housing developments we have close connections with all the councils right from early planning and the strategic plans right through to more specific working with the councils when we're actually making individual connections some of the things that we're working on in particular one of our biggest issues is surface water in our sewers causing flooding and pollution so we're working with a number of councils on specific schemes to try and take surface water out of our sewers so there's one not far from here actually at craigleith where we're working with council and developers to identify areas where we can remove surface water at source rather than trying to deal with it when it's actually in the sewers so we do have lots of integration with the councils all through the development planning process i think the second thing you asked me about the Scottish funding council i'm i'm actually the on the chair of the Scottish apprentice advisory board and through that we work with the skills development Scotland and the Scottish funding council to look at the funding for apprenticeships all across different categories and there's definitely a big move towards more environmental topics carbon net zero and trying to make sure that the policies up front are actually meeting the demand that's required from the businesses and the business leaders that are part of the the Scottish apprenticeship advisory board so that was helpful i was more interested in r and d but i'm happy for you to come back on that so we've got a lot of different interactions with different universities but probably the most significant is that we are the sponsors of the hydro nation chair which is based at sterling university but involving academics at a number of different universities and they're currently working but half a dozen different challenges but many of those have got a climate change related theme either from a from a decarbonisation or in terms of issues to do with how we adapt to climate change okay thank you and i just finally and again it might be peter who's best place to answer this what changes have you noticed in demand during the coven 19 pandemic following and also following increases in energy crisis i mean the two separate issues but in a kind of same time frame what influences have they had on demand for scottish water and with demand you're talking about demand customers water water demand or yeah yeah well it's interesting because as soon as coven started we saw a fairly immediate change in demand patterns from and joe joe will have some other evidence on this from businesses that had emptied out and people working from home so there was a big shift for us in seeing demand for water and for wastewater services switching over from business to household use that caused us a number of issues particularly in some of the small smaller rural areas particularly in wastewater where a small wastewater treatment works in a small rural area has got a certain capacity to deal with the number of people and that was significantly increased so we started to see some overload issues coming into wastewater treatment works which we had to work on and make sure that we had additional plant and equipment available to see us through that period but i'm pleased to say that we got through the coven two years of coven delivering and continuing to deliver the high levels of service that we delivered to customers before coven and i'm particularly proud of that because of and a shout out to our operational people in particular who kept going all the way through that delivering the service to customers and maintaining the high level that you see in the report and i think we all want to thank those Scottish Water Workers for what they did during that period in particular has there been anything particularly around energy the energy price increase has that caused any difference to your demand so our energy we we've been in a fortunate position in that we hedge our energy in advance of using it so this year our energy was a hundred percent hedged so we are still utilising energy this year at a weighted average price of about 55 pounds per megawatt hour when the market price is currently up near 300 so we have hedged that this year we have 47 percent of our energy so that's the total energy is 447 megawatt hours per year 47 percent of that is what we call tied up with private purchase arrangements that we've put in place to do with our large renewable schemes that we've hosted on our land and these run out for a number of years yet so we're hedged for 47 percent for a number of years yet the big issue is the 53 percent that's remaining we have to buy on the wholesale market as i said we're completely hedged for this year up until march but that 53 percent we have to start purchasing for next year and the estimate that we see for that is that it will probably be somewhere between 40 and 70 million pounds extra for the energy based on the current prices thank you and was convener maybe just join our ask about yes it's more of a customer demand if you can maybe give a perspective of that and then i'll hand back to the convener yeah happily do so we saw a fairly immediate reduction in consumption from our business customers of 20 percent following the first lockdown restrictions being introduced in march 2020 so vast majority of businesses across the UK had to close their doors overnight and what we've really seen since that is a steady recovery so it started to recover we went into lockdown again and it dipped off so where we're at today though i would say that we're almost back to pre-covid levels of consumption the slowest sector to recover was public sector and i think we probably all understand that's because there were a number of kind of large offices etc that remained closed and are now at partial occupancy so yeah fairly immediate impact from that and i guess what we're seeing now is haven't come through the worst of coved and through the recovery from that we're now facing into the worst economic crisis that the UK's seen in a number of years so from my perspective dealing with business customers we're anticipating quite challenging times for many particularly small businesses over the course of the next six months thank you sorry jenna could i'll just ask you i mean just looking at the accounts that the period in question the revenue during the first coved thing appears to be about 54 million down on what it is currently so that's a sort of 10% drop is was that all down to coved or was that down so it was and the thing is there's there's kind of consumption related charges that drive revenue but there's also fixed charges as well so what you don't see is that 20% reduction in consumption having a direct correlation on the reduction in revenue but it was significant yeah i mean that that was your revenue period was 54 million down that seems a 10% drop seems quite large significant yeah absolutely thank you um i think the next questions are from leon thank you convener good morning panel moving from demand to the supply peter farrow climate change appears to be having an increasing impact on the provision of presumably all utilities and indeed the cost of utilities this summer i think we saw record temperatures can you tell the committee what impact has that had on your reservoirs and given i think dame susan earlier said that some had fallen to record levels have they recovered and what can you proactively do to manage and mitigate and help to recover in those circumstances okay so yes we've seen some fairly significant impacts from weather over particularly this period of the report in fact i've been in the water industry for 38 years and last year was the worst weather impact that we've had because we were hit by cold weather at the start of the year really hot weather in early summer high storm rain storms in the summer going into a drought period at the tail end of the year and then storm arwin and friends came at the end of the year so it was a fairly significant year of impact for us but specifically on the hot weather we started to go into drought in the latter part of the the summer and we saw reservoir levels dropping to levels that we'd never seen before particularly south lannockshire was a couple of reservoirs there that had dropped down as i said to levels we hadn't seen the impact of that was that there were manganese issues so manganese is a naturally occurring element which is tied up in the silts in the reservoirs and when we got down to such low levels and it was the driest period we'd had in that area for 160 years that when we got down to those levels manganese was released went to the treatment works and because we'd never had manganese issues at those treatment works before Darren camps treatment works they didn't have the treatment to take the manganese out of the system so what we did do is we had a fairly we had a fairly major incident running with hundreds of scotish water people involved in that delivering bottled water out to customers who were experiencing dirty water but we also had some really smart process scientists that came up with a temporary treatment solution which was to inject chlorine into the water between two stages of the existing treatment processes which precipitated out the manganese and allowed us to take a lot of it out not all of it but a lot of it out in the treatment process and we were able to return our service to near normal but it didn't completely recover until the reservoir level started to rise picking up on on the point where are we just now we're currently sitting at 94 percent full of our reservoirs and we monitor we've got 300 reservoirs and we monitor these on a weekly basis and through drought conditions we implement lots of actions which can include tankering water moving water around about different distribution from different areas and different treatment works we can find additional raw water supplies and so we do all things that to try and make sure that we don't have specific drought impacting our customers and the final thing that we do when we're concerned is we put communications out to customers to ask customers to use water wisely very grateful i'll stay with you if you don't mind peter one of the challenges presumably that arises from climate change and these mitigations that you're having to put in place will be when you come to replace some of your aging infrastructure when you do that replacement and i'll ask about the capital expenditure in my next question but when you do the actual replacement what you are replacing it with how do you ensure that what you're putting in is future proofed against what appear to be increasing impacts from climate change okay so there's a there's a couple of things there so in terms of the materials that we use these are all governor of the strict regulations with the drinking water quality regulator so you can't use anything in our infrastructure unless it's been approved by the drinking water quality regulator to regulations second part so i mean i think this is this is a really big question for us right across all our infrastructure because we're not we're no longer dealing with a stable environment of a stable climate and i think the challenge is to understand what could be the myriad of different impacts over the lifetime of our assets so when we build new infrastructure i'll ask for 50 80 years or longer and it's very difficult to know precisely what the future path is for the climate we don't yet have an agreed path to climate stability so the question for us is what are the plausible impacts that we could have to deal with and trying to ensure that we make choices about investment that are that that are wise and that will be representing good value for money while giving us the reasonable confidence that they should enable us to deal with whatever future impacts come along so if i just pull the particular example that that peter was mentioning about Lanarkshire having discovered that the presence of manganese in a supply system that we that we'd never previously experienced before what we are now doing on the back of that in conjunction with the drinking water quality regulator is we're looking at what is our risk position right across scotland in relation to to manganese to make sure that in the way that we plan our assets and our infrastructure it takes account of that particular risk and that's just a subset of a broader thing that we're doing which is looking at all the different risks to a water supply systems that could be about availability of water it could be to do the quality of water and ensuring that when we plan asset interventions they're designed in the way that hopefully is most effective and cost effective to dealing with whatever the myriad of chances or hazards might be in the in that particular areas it's very hard to give a single answer to your question other than to say it's an integral part for planning peter did you want to come back in there's another another part there so as part of our sr15 regulatory contract we did quite a number of studies for climate change to feed into our 25-year supply demand balance so we carried out 54 water supply zone climate change modelling exercises to identify what the future impact of climate change would be on on water supply zones and out of the 54 that we did five showed an increase in water availability and 49 showed a decrease in water availability so on the back of that we make sure that our investment is targeted to the areas that will make sure that customer services today and in the future are protected so that's led to a number of resilience schemes that we've carried out we've got a big resilience scheme that's linking Glasgow and Ayrshire at the moment we've got us we've had a south Edinburgh resilience scheme and Blair Linnis to Mill Guy which which protected the supplies to 40 000 customers these are on the back of the studies that we carried out and there's a lot more investment planned very grateful final question for me I'll put to Douglas Millican and ask the same question to Joanna down a second Douglas you talked about capital investment earlier on as I understand that your income is basically government loans and the bills that you put out your costs for things like electricity will be going up significantly we heard notwithstanding that it's hedged I think you said 70 million pounds extra we've also heard about the cost of new treatments for manganese we've heard about drought supply vehicles and things so these are all putting extra costs on you what are the implications of those extra operating costs for the capital expenditure that you've presumably planned in for upgrades and for moving to net zero that we heard about earlier so probably a number of different elements I'll try and do with there in a very in a very broad sense the costs that we incur generally move broadly in line with inflation in the economy as a whole and that's why regulated industries like like water tend to have long-term regulatory settlements where the price limits that are set are related to a general pricing index historically the prices we could set for regulatory were used to be set by reference to rpi than I set by reference to to cpi and that is a it's a broad proxy but it's a pretty good hedge for the sort of costs that we will increases that we'll experience so in the same way that we might yes get a big increase in the costs we incur through energy we have an eligibility to then reflect that in prices to customers different questions to what in the extent to which we do but we have that eligibility so I think that broad regulatory setup serves the sector well and has done over a long time one element of that whole regulatory arrangement is how capital investment is defined and historically if I go to previous regulatory periods there were basically two two different categories of investment there was what was known as capital maintenance where we effectively got up and allowance to invest in replacing and maintaining our assets and then on the enhancement side there was a very detailed list of all the projects that we would deliver in the next five six years of by way of upgrades in this regulatory period in agreement with our economic regulator and with government we've now moved into a more flexible approach towards investment planning and delivery we're effectively at the start of the process we identify often with our quality regulator seep in the drinking water regulator where what improvements might be needed we then agree with Scottish ministers the needs that will be get investigated and then ultimately probably invest and then we go away and appraise the different options of meeting those needs and come up with the most cost effective solutions for delivering those objectives and our challenge is to make sure we can meet all the needs in front of us deliver ministers objectives for this period inside the financial allowance that has been set for the period understand do you have anything to add i guess slightly different context probably for my business because we don't invest in infrastructure so I think the challenge for us is how do we with that upward pressure on costs and knowing that that doesn't just impact us it impacts our customers as well how do we keep our prices for end users sufficiently low and recognising the challenges that they face so about in scotland about 80 to 90% of the amount of charge that we pass on to customers is as a result of treating the water taken away the kind of sewage for treatment as well so and i guess the other difference for us is we operate in a competitive market so we've got about 16 17 active competitors here in scotland so that's a further challenge for us as well so we know that we have to keep prices low for customers anyway but if a customer is not happy with the price that we offer or the quality of service that we offer they'll go somewhere else thank you pt have some yeah if i could just talk about costs and efficiencies since scotland water was formed in 2002 we've completely transformed the service that we provide to customers both in terms of customer service and cost so back at the start in 2002 we were benchmarked to be delivering one of the worst services to customers at the highest cost and we've completely transformed that over the 20 years to be delivering a leading service at one of the lowest costs and through that period we have focused significantly on efficiencies so yes there are cost increases that we get every year but we have a culture of driving efficiencies in our business and always looking for better ways to do it and even now we have a transformation plan that we are in the second year of which is going to deliver significant efficiencies for us going forward very grateful community just before we move on janna could i just ask and i ought to declare that i am a customer of business stream so that there we go just how do you do all your meter readings are they all are they all manually done does that require people to go out and is there any plans in the future to try and streamline that yeah so we supply customers the length and breadth of the uk and the meter and technology that's deployed in different regions is different so for some of the the meters that we read in the south of england for example they're all done by drive by meter reads so they don't require a physical visit that's not the case in scotland so yes we have to go out we use a third party service provider to go out and read meters on behalf of our customers plan to change again we don't own the meter and assets they're owned by scottish water but there is investment underway within scottish water at the moment looking at what we call smart meter technology which would allow for more automated provision of meter reads yeah so if i could maybe just just come on in that so we are we're looking at putting far more instrumentation and monitors on our networks and we're running a pilot at the moment up in inverness we're calling it smart city where we're putting loads of monitors out in the network including smart meters for businesses so that we can identify where the demand is where the water is going but also it'll help us operationally to predict where we're going to have failures of the network so that we can go and fix these before they have any impact on customers perfect i might see one in my constituency office then jackie uses the next question yeah good morning and thank you for coming along in your the scottish waters strategic plan it says that you're going to promote blue green approaches and drive innovative solutions to reduce flooding so with that in mind can i ask what progress has been made in adoption of the blue green infrastructure to manage surface water and do you have any examples of the projects uh douglas i'm going to look at you since you're looking at me okay well that's fine i mean it's it's i think either peter or i could have taken this peter actually cited one of the examples earlier which is craig leith nerdenborough i think this is one of these concepts it is when people when people hear about it people get really excited about it which is all about how can we hold more surface rainwater that falls on the surface and slow down the rate at which it comes into into sewers and reducing issues around for example flooding and it potentially use it as a source of place making on the surface it sounds really exciting and it is really exciting the challenge is in doing it in practice is that many many parties need to be involved and they need to agree that actually using land for storing rainwater in let's say a relatively congested urban area like edinburgh it's a better use of that land than developing it for industrial or for housing purposes so the first challenge actually is getting all the different interested parties on board and then all the green yes actually that makes the best sense in the interests of society as well as their particular organizations or businesses so i think it's one of these where the concept is really easy for people to grasp and i was for example i was at a meeting a couple of months ago here in edinburgh with a number of the chief executives of local authorities across scotland absolutely looking at how do we create water resilient places in the country i could point to craig leith nerdenborough working points at marys and dundee i could point to parts of glasgow where we're making progress and there are really encouraging green shoots but they are green shoots we've got a long way to go before we really have collectively transformed the urban environment to store surface water on the surface but we are absolutely committed to doing that and that's why we're engaging with so many other different parties in it and often in partnerships so we've had a long sunny partnership in glasgow for nearly 20 years called the met for both in glasgow's drainage partnership we've got one here in edinburgh and loathians with with edinburgh council east and midlothian councils i've got partnership working in dundee and abardine in particular as well so lots of encouraging signs but i think it will be some years before we really see a transformed urban landscape but no shortage of effort from our side towards it you were speaking about joined up working with with other partners can you maybe you spoke about local authorities can you maybe go into more detail about other public authorities like seaper for example you know what kind of work joined up work have you done with them and maybe others so seaper are are one of our sectoral regulators we have um very significant interactions with seaper from the most senior level to the most local level so there'll be a whole variety of various it may be peter will touch on in terms of an operational side we engage with seaper but in strategic side we've been heavily engaged with them around the a sustainable growth agreement for the the whole water sector so everything that we look in terms of planning from water resource angle from improving the urban water environment is done in conjunction with seaper so for example about a year ago we published our urban water route map looking at how were we going to make yet further improvements to the urban water environment and that was very much developed in conjunction with seaper in it to support them with their river basin management planning objectives and i think it's a tribute to how well we've worked together over the past 20 years that the quality of scotland's water environment is knows now so much better than it was many years ago and is by far the best water environment across the UK yeah just just building on what douglas you said there so working very closely with seaper over the years we've been able to invest significant amounts of money to target that at the areas of the water environment that needs it the most and we've had significant impacts from that as douglas said the the quality of the of the receiving waters in scotland is significantly higher than in europe and the rest of the UK thank you thanks very much mark ruskell i think yours and the next questions yeah thanks morning to you i wanted to raise the issue of sewage discharge which has obviously been very high in the public minds this year it doesn't appear clear what that picture is in scotland around sewage discharge and i think that was a point that was raised by environmental standard scotland when they recently did a did a sector review a baseline review so i want to just to ask you a number of questions around what that picture actually is in scotland and if we could start with monitoring so at the moment only i think three percent of your combined sewage outflows overflows are actually monitored is that really enough to get a clear picture can i can i can i would you allow me just to give a little bit of context and i'll come on to the specific of the question so by way of of back and almost linking back to the last question we've worked really constructive with seaper ahead of any regular period to identify what are the priorities for improvement and if i go back about 20 years the big priority area was what are known as point sources of discharge the continuous outflows from sewage treatment works and we did a lot of work to improve those about 15 years ago seaper then said okay the next big air to start improving are the points of intermittent discharge in the sewer system which is where we have these emergency release valves that will go off at times of very heavy rainwater and one of the discussions that we had back then with seaper and indeed with the Scottish Government was clearly we've got a finite amount of money how should we spend that money between putting monitors on our discharge points on the intermittent discharge points or putting the money into actually making improvements and there was universal agreement across seaper and government we need to deploy our money to making the physical improvements that have now delivered the improvement in the water environment we've seen over the past 15 years so it's been a very conscious and collectively agreed decision to prioritise improvements over prioritising monitoring and that is the reason why today we have relatively low levels of monitors on the discharges in scotland however given now all the progress that we've made what we all absolutely recognise is part of the next stage of improvement is really having a much finer understanding of precisely what is what is going on with these discharges but what we've what we've agreed here again is not to take a blanket approach of putting monitors on all our discharge points it's actually to target those release valves that may be having the highest risk of an adverse impact on the on the water environment and those are the overflows in which we are going to be installing significantly more monitors over the coming years okay so to come back to the question then that's useful context but i asked you specifically about the 3% is it is that enough and do you have a figure for how many cso's you should be monitoring in order to capture that environmental impact to understand it so hopefully by my earlier answer vindicate notes it's not enough and we have now agreed that given where we're at now we need to be installing more monitors and we've got an agreed programme with sepa to install approximately a thousand monitors on approximately a thousand of our overflows and to give you a bit of context we've got about 3600 of these emergency overflows across scotland and what sepa said is that there's broadly about a third of them that are the highest priority to get to get monitors on and there'll be many benefits from that not least of which it'll give peers team much earlier insight is if an overflow is going off at a time when it shouldn't be so imagine a day when it's been continuous dry weather if an overflow is going off in those conditions it probably indicates that there's a blockage in the system and we need to get out and clear that blockage so that insight will enable peers team to get out there and fix those things much more quickly than we do today as well as giving information to members of the public as well so you've given me a proportion then a third you'll be moving towards introducing monitoring what about the two thirds then that are not monitored are you saying that those are not problematic and how do you know they're not problematic so this so we we are primarily relying on on sepa's views as to where are the the risks or the threats to the water environment i think one of the the really good things about the approach that sepa take is a loot they start from an outcome angle and they start from the angle of what is the condition of any water body in Scotland so what's the condition of the of the health of any of any of any river and then they work back upstream from that to say okay so what needs to happen to either maintain really good status or or improve it and as part of that thinking that they've done they've said okay these third are the priority to get monitors on now once we've got monitors on those and once we've delivered further improvements to overflow so you've got also an improvement programme place then we'll all determine is it effective and cost effective to put further monitors on just to just to build on that that the remaining 2000 odd monitors sepa have indicated that they do not believe that these areas are having any impact on the receiving water and as Douglas said the most the most important thing here is targeting the investment to have the biggest impact and that's why sepa start with the river quality they work back to what investment do you need and therefore what monitoring should we put in to identify the right investment to deliver the water quality um so okay that okay so in terms of the the discharges that you that you know that are happening and that you recognise are problematic and that you are monitoring what proportion of those are deliberate and what proportion of those are accidental discharges in broad terms well the way effectively the the way the sewer system operates their gravity systems so the any water that comes out of an overflow it's really a function of the amount of rain water that lands on the ground and finds its way into the sewer system and then at times of really heavy storm when the total water coming in the sewer system exceeds the downstream hydraulic capacity that is when the overflows um at you go off i don't know if that's deliberate or accidental but that's part of the design system behind the way that these are designed to operate so it's totally dependent on rainfall and there's no control there's no control over this you can't really predict when there is going to be a flow from the cso's because it's all dependent on the rain rainfall is a primary driver in terms of volume of rain water now in terms of prediction there's no we've now got much more sophisticated understanding of what is happening with weather patterns and then able to correlate that with our understanding of the sewer system so for example if we can see that a big storm is coming in and through the work of our intelligence control centre peter can mobilise his scores to get out and actually make sure that we try and prevent particularly customers from suffering problems with flooding the only other the only other situation where overflows will go off is if there is a effectively a material downstream blockage that means that the full flow of rain water can't get downstream in a sewer and will divert out through an overflow yeah okay it might be useful for the committee to get evidence of you know that work programme on the third of cso's and the investment for that and how that's going to be scheduled if i could just move briefly on to another related issue and that's about water quality i think those you said earlier you know scotland's water quality is is excellent despite that again environmental standard scotland as part of their sector review did highlight the fact that a number of the river basin management plan targets have been missed and that we still have an issue with barriers to fish migration lamprey migration and a number of other issues that are related to the operation of scotland's water assets can i ask you about how you prioritise environmental compliance and i'll give you an example with lachfenica i'm aware that sepa wrote you a letter i think last month confirming that four of your fish passes on the main channel not on the side channel but the main channel are not compliance with your permit so effectively you are acting out with your permit conditions which is you're operating illegally in other words can i ask how serious you take environmental compliance the general one and peter can probably talk to lachfenica we take compliance with all our legal obligations very very seriously indeed it's probably one of the the top on-going topics around our boardroom is to make sure that we are able to discharge a full suite of legal obligations that we that we have part of the reality however is we've got a huge infrastructure we've got about 100 000 kilometers of pipeline we've got thousands of above ground assets and with the best will in the world things will happen that things will go awry which peter's team are just super beginning on top of and dealing with but things will happen that might cause us to breach compliance with one aspect of our regulatory obligations but the mindset of the organisation the orientation the planning the investment planning is all geared to ensure that we comply with the suite of obligations that we face if i can just pick up on lachfenica lachfenica is an interesting structure that was built in the 1850s it's unusual in that we've got many many reservoirs but in this particular one it has a dual channel which is fed from from the reservoir into the river one of the channels is fed through the sluice gates from the reservoir which we operate and we do that in line with compensation flows that are set out in legislation by sepa and the other channel is fed from the spillway channel which is effectively the overflow from the reservoir when the reservoir is up at top level i'm sorry to interrupt you i don't i'm aware of the geography locally and everything else i think the issues are with the main the main flow so the general point here is around compliance if if sepa write you a letter like that what what do you then do you then say well actually there's still a problem here but you don't have to put it into investment program over time or do you do you jump and actually then take action on the mark absolutely jump sorry can i can me just hear from peter to to in answer to your question and then i'm sort of giving him pre warning i'd really like to hear from alan if he's got anything that he'd like to add to that because he may have a role yep so yes absolutely we jump when our regulator tells us i can assure you we do jump and what we're doing in this we've worked with sepa on this to find the right solution and at the moment sepa have requested that we carry out a longer study to try and come to a joint solution on this so absolutely we've got actions in place to deal with us okay and then so in terms of investment what we have changed as Douglas mentioned earlier um is we've moved away from a very heavily defined ex ante list of projects and made broader allowances for scottish water to spend on priorities as and when they develop and as and when they're needed so scottish water now has much more flexibility as to how it can respond to a situation so had investment for that fish for the fish pass you mentioned being required in the past what would have had to happen would have had to mean a change in what we call the technical expression the long list of projects and once that change was made then that investment could go ahead now that wouldn't have to happen so now scottish water can reprioritise money based on appraisal of the situation that it faces thanks that's it okay sorry thanks very much mark monica i think you've got some questions you like to ask thank you convener and good morning to our panel we heard in the opening statement that inflation and the cost crisis are showing little signs of slowing down so it's in that context that i'll ask my questions so first of all to Douglas Millican is it fair to hike household bills by 4.2 percent sorry during a cost of living crisis we we've got clearly nearly everybody in scotland is one of our customers i think about 97 percent of the scottish population are customers of scottish water and we do a huge amount to engage with our customers to try and understand what is it that's really important to them about the services that scottish water provides in the way we we do that and what comes through absolutely loud and clear is that people have an incredibly high expectation of the service that we will provide for them they just expect that every day they can turn on the tap and they will get good clear high quality drinking water the taps or that they can flush your toilets or the industrial equipment and we will take care of that to a really high standard and then on the very occasional time when something goes a bit awry that will get on top and deal with it and that is the undoubtedly is the overwhelming priority of of our customers across scotland and that is the thing that we have got to have the greatest attention to that might would be my first point my second point is we were discussing in answer some earlier questions we have got a whole range of of legal obligations that we need to meet a lot of those are to do with protecting water quality or protecting environmental performance but then crucially with anything but how do we do all of that in a way that is always sensitive to the position that our customers are in and there is no doubt that customers are in a really challenging position at the moment as it have been for many months now but equally as we look into the future unfortunately it doesn't look as though there's a better day coming in the immediate future so when we were looking at what did we need to do for charge setting for this current year that we are in it was very much with a view to well what do we need to do for not just for this year but this year in the context of future years and that is exactly the same approach that we will take towards charge setting for next year trying to ensure that we are firstly fulfilling the expectations on us around the level of service that our customers expect and secondly making sure that we are being really sensitive to the pressures on customers today but recognizing too there'll be pressures on customers the following year and the years thereafter and those mix of factors will all go into how we think about charging decisions. Okay a lot in that answer Mr Millican my question was is it fair to put up prices by 4.2% so he didn't answer that but he did say something about not a better day coming in the immediate future so that sounds quite gloomy does that mean that household should brace themselves for further increases because the 4.2% increase is pegged to CPI but we know that inflation is now around 11% I think it's possibly higher than that so what should future years look like then what increases you talked about high expectations of customers but are we going to see higher prices so the my comment about the things look quite challenging I'm just looking at the general economic forecast that seemed to be all around us at the moment are just predicting that across the economy and for people and society that there are some really tough periods ahead over the next two or three years so that was a context not to do with water to do with the pressures that undoubtedly are on households and businesses across the country okay do you have a view on the fairness of the charging scheme so the way the charging scheme is set up is is fundamentally is a a matter for Scottish ministers they set the principles that apply to water charging Scotland what I can say is that there is the the we have a far more significant differentiation of charge levels between those who are in the most vulnerable position in society and those perhaps of a greater ability to pay we've got a much greater differentiation in Scotland than there is elsewhere in the UK and coming into this price review ministers took further steps to strengthen the protection for those who find it most difficult to pay by increasingly discount that is available under the water charges reduction scheme so to give you a sense there is effectively more than half of Scottish households receive some form of discount reduction on their water charges so I'm sure this is a matter that the the Scottish government will keep under review as we we go forward but there have been huge strides taken to try and think very carefully about how do we ensure that water charges can be as affordable as possible for people okay you mentioned Scottish ministers I was looking back at what the the cabinet secretary said about the the price increase and he said that every pound raised is reinvested in our water industry that was back in February of this year um you know many customers will be wondering why your cash reserves are 500 million pounds I know you'll be able to give some explanation for that but have you looked to see what more can be done to support customers you clearly understand that many people in Scotland are struggling with affordability of household bills regardless of their expectations around the quality of service um I wonder if you can just talk to that a little bit more about the reserves my understanding reading some of these papers is that it's sitting I think around double what you would normally have in reserve is that something we can expect in coming years or are you going to be using these reserves in any way to help customers with their bills okay so probably a number of different elements there one of the things that we do is as Peter was answering earlier is we have a continual drive for efficiency so how do we spend the the lease that we need on delivering whatever it is whether it's a new investment project or whether it's day-to-day service so continual drive for efficiency and that's part of the motivation behind the transformation programme that Peter referred to earlier but in terms of if you think about the financing of of Scottish water ultimately everything that we do is paid for by customers now we might borrow money to fund some of the investment programme but there's interest in that ultimately just all paid for by customers and the easiest way to think about our cash balances which can vary a bit from year to year is that's primarily a function of when we borrow from the government relative to when we invest so there's probably there is a level of cash balance that we always need to have just to manage the kind of the bumps in the road that come in running a large organization and our current view of that is we should probably always have a minimum of about £200 million just so we can deal with whatever pressures come along but if you like all the cash that we have at the moment in excess of £200 million that will all be invested over the coming years as we exit this regulatory period those cash balances will come down so to give you a sense we're ramping up our investment very significantly so in this regulatory period the in agreement with the with the water industry commission we've been financed for a 30% increase in investment and we're getting on delivering that so if I look at our planned investment last year we delivered a little over £620 million this year will be at least 10% higher than that so as our investment programme ramps up those cash balances will over time get get get drawn down I'm keen to come to Alan Sutherland in a moment but just to ask Joanna Dow in terms of known domestic customers what increase will they see in their bills for the new year I can't honestly say yet because it's dependent on the wholesale cost of water being agreed first so what I would say though is back to my earlier point we know that we're facing into a really challenging time so about 70 to 80% of our customers are SMEs so really small businesses and they are akin to domestic users of water so they might have a tap in a toilet in their operation so from our perspective it's trying to keep prices as low as we can but the other big factor there is how do we encourage the customer to use less water because if you're a metered customer which the majority of ours are if they use less water they pay less and obviously it's better for the environment as well so I think we're trying to tackle it on a number of different fronts but there's no denying it is going to be a really challenging few months for small businesses okay thank you um Alan in terms of the the view of the water industry commission for Scotland I was asking Douglas Millican about the fairness of um these charges um what is your view um I'm not allowed to actually have a view on that really um I can have a personal view but I can't have a corporate view because the situation essentially is that um my job is to take the objectives of the Scottish ministers and the principles of charging of the Scottish ministers and tease out how much that needs to cost and I have to do that in a way that has regard to the interests of future customers so what in the settlement for 2021-27 we did was started journey towards what the levels of investment that we think we can see being required in the future and the price caps that we set are there now Scottish Water has to operate within those price caps and Scottish Water has to deliver the objectives that the Scottish ministers have set out and that's what we will then monitor their performance on. Are these price caps fit for purpose is it appropriate so if the maximum charge is consumer price index plus 2% and we're looking at inflation of around 11% and it may increase is that still going to be the best way to do this? Well the question is how do you want to understand what the future obligations that we will have to meet are so if you want to have a water industry that is sustainable and able to replace its assets when the time comes if you want it to meet net zero challenges if you want it to be able to adapt to climate change it's going to have to make the investment and we collectively as a society are going to have to pay for that in some way so that is a journey that is not a quick journey because as has been said frequently we're dealing with some very long life assets here and so we have to get ourselves into a situation where we're operating the fit for purpose way now what the price caps are doing essentially is giving you an indication of what the what a reasonable path between now and you know the middle of the century would be 2040 and 2040 plus the variations in charging can be significant within those caps but the caps are probably what is going to be required over time and just finally and I know it's never polite to talk about people's salaries and rumidation but I'm going to put this to to James who's in rice because it's not fair to put this to to the officers but you know just to get it on the public record there's obviously been a lot of interest in the bonus structure for senior officials so we're talking about the time when members of the public are really struggling to afford the absolute basics in life including water charges it was mentioned about looking at efficiencies is there any reflection or review on going into the the bonus structure for Scottish water officials so I would say that the bonus structure is one that was agreed some years ago and you know with government so that's been in place for for a while I would point out that the bonus structure for the executives and the organisation is based on what we call outperformance and outperformance is measured at a very fine level so there are expectations and goals and targets as all businesses have this is a business that strives for lots of reasons to outperform those and if they work hard at that and achieve the outperformance they will have there's a computation that will give you some some bonus it's not paid every year it's varied it's not just an assumption that people will get that I'd also point out that all people who work and are performing at an appropriate level in the organisation right throughout are eligible to receive something as well so it's a it's a pretty and in if one compared commercially it's a very modest I forgive me for saying that to my colleagues it's a very modest bonus programme but it is something that incentivises which is what that kind of programme should do the very hard work the creative work to go beyond what is considered sort of acceptable levels of performance and move this business further and faster Douglas spoke at the beginning about being high cost and low quality 20 years ago if you will 15 20 years ago and now complete reverse where we're one of the lowest cost providers in the UK and the service the quality of what is done is is just right at the top of the of the charts and that comes from the outperformance that we're rewarding so I think the judgment of the board is this is something that works we discuss it we have a remuneration committee and these matters are discussed at the full board as well and the feeling would be that this is actually effective in working thank you I'll conclude there I think because my initial questions were about fairness and the assessment of fairness I think it was important just to to take the temperature on that thank you thank you Monica I've got some questions on the accounts which form a huge part of your report and caused me a certain amount of heartache to understand Osnipa you're going to shed some light on it page 153 administrative expenses for the latest year were reduced by 16 million that's an 8% how did you manage that very briefly I have 20 seconds to just to refer to the underlying the underlying element the reason I'm just going to pause for a minute because that will be that is a consolidated number across Scottish Water and business stream and a lot can come down to the way that costs are are classified that's rather than put you on the spot flicking through that I'm very happy to take a written answer on that if you don't have it to hand I think I would prefer that because what we do within the financial commentary is effectively break it down to into a little bit more detail across Scottish Water and across business stream in terms of the key cost elements as I say 30 seconds and I could find the precise I'm happy if you're going to answer these that you can refer them all back to me in written answers to give you a chance but I'm also concerned about the taxation went from 7.9 million to 158 million now I understand there was some differentiation in tax due to corporation tax but that that is massive difference again you can write to the committee with an answer if you like no I think I think that one is that one is easier to answer because there's a particular note on page 168 to the accounts that the key thing to highlight is that we at the moment pay relatively little incorporation tax most of the tax charge relates to a deferred tax liability on taxation that may be payable in the future and it's all to do with the timing of when tax and profits are earned relative to the unwinding of capital ounces and the primary reason for the change there was it was effectively to do with the anticipated change in the corporation tax rate of of increasing it to 25 percent from 19 yeah so that was the primary reason it seems a huge jump it's all down to that is it yeah and that's affected our decisions of the UK government in terms of where they set corporation tax rates so if you were to track back this over many years we'd have had a favorable credit to our accounts when the UK government were reducing the rate of corporation tax when they then signalled the increase those favorable credits were then reversed okay but it went from one year to from 19 percent to 25 percent any increase was from 7 million to 158 million that's that's seems to be quite large but it's simply because we've got we've got a very significant deferred tax liability the good thing about that that that's tax it may be payable not yet paid and it's purely about how that is re revalued from 19 percent to 25 percent then on page 164 the operating surplus for um scottish water has gone from basically up 20 million and and business stream has gone from a loss to to a credit um it's quite substantial figures there changes again i'm happy to take a written answer or janner if you want to answer i'm happy to take it yeah no i think i can comment on the business dream aspect of it so um a couple of different drivers there but the key one was the recovery and consumption levels that we talked about earlier as a result of covid unwinding and the second one is that we'd carried fairly extensive provisions for bad debts on the back of covid in anticipation that a number of customers would really find it difficult to pay their bills so within our reported results for 21 22 it includes a release from the covid bad debt provision of almost 29 million pounds so that's obviously a significant driver in that swing from a a loss the previous year to a profit this year and then from our perspective as well there were additional efficiency savings that were generated as a result of synergies from the acquisitions that we've done in recent years too. Douglas Jamont yeah i mean i i think um probably the best way to answer is to is to provide something in writing by a slightly more granular answer but there can be a number of factors at play i think the key thing when you're looking at the finances of a water company is actually the cash flow statement because there can be some and i do say this as a as a charter account myself but accounting standards can have some strange impacts on the way that accounts of our utility are presented particularly the way that issues around the cost of service with long life assets can be reflected from year to year in the income statement so i always find that the cash flow statement is a key thing probably to to to look at but the the factors that will be at at play was that there was a two and a half percent increase in our our charge increase our charge income coming into that particular year we're typically seeing in terms of our customer base it growing by by nearly one percent a year really is a function of the new house building and house connections across scotland on the cost side there's a continuing drive for for for efficiency but there will be some of these one-off or these adjustments to do with the application of of accounting standards it probably we should give you just a written answer to your question okay thank you i'll take that and then the final question is under staff costs wages and salaries increase from 168.7 million to 173.4 million which i understand is a roughly a three percent increase understand that where are we predicting we're going to be after addressing the cost of living crisis is that going to be considerably more when do we when do you negotiate your wages and staff so so our pay deal for this financial year was agreed with employees through our three trade unions back in i think may may time and the pay uplift for all our people was was has been paid so that is all agreed for this year in terms of of next year clearly that is something that we will need to address with our three trade unions in the context of the relevant public sector pay policy for next financial year sorry sorry i missed the answer was it what was the increase that was agreed in me the average increase was 4.9 percent okay but it's likely to increase on that it was a one-off a one-year agreement that was that was a pay deal for last year it was an average of 4.9 percent but some differentiation across that so so typically people who are lower in their pay bands we get a higher level of increase but it's too early to say yet what the parameters are for next year's pay settlement okay there are some supplementary questions i'm going to come back to the deputy convener Fiona and then to Liam so i'd like to address the water industry's commission and ask you allen is do you think that the statutory responsibilities that you have provides sufficient scope to help you challenge Scottish water on delivering its net zero commitments i think the statute is is fine we have the ability to ask whatever questions we think we need to ask we're currently engaged in an iteration of questions and answers we haven't yet finished that process for this year that ended in in march there's a ways to go we're hoping to have it finished before the end of the year i'm not necessarily entirely holding my breath it will be finished by then because we had rather a lot of queries this year but um yeah so the powers are there i think we are of a view that the the triple challenge that i referred to earlier of um the investment to adapt to climate change to mitigate climate change and to replace assets in a in an optimised way um so the question of meters for example you know replacing meters you would you'd replace it with the modern variant not just with with what you had before um we regard that as a really really significant challenge um we went on record um with the last price review of saying that we thought the challenges that face Scottish water going forward are at least as significant as the ones that they um incredibly successfully addressed um when the three authorities were brought together um to create Scottish water back in 2002 um so there are real challenges there the monitoring will will continue to be robust and evidence based and um we'll report on that why did you have so many queries this year um that's a good question and um i would like to know the answer of that myself but um uh it's there's just been a lot um for the last two or three years it's been more queries queries from you and from elsewhere i mean oh well basically what what what happens is that we um uh we have what we call an annual return um it's a very detailed um um document originally developed in its in its in its baby form by the treasury um back in the 1980s um and it's it was taken forward by or fought in the 1990s and we adopted it here um back in um 1999 2000 um so that's um it basically looks at all aspects of performance assets levels of service um climate um and and that gets completed every year um it's very extensive it requires commentaries um and and what we go through um is pretty forensically um going through that document and asking um and checking the consistency of the report making sure that we're happy with it so can i also ask about your relationship with SEPA um clearly it's not just a net zero climate change emergency we've got a biodiversity um crisis to deal with as well so we've heard a lot um Peter particularly referring to SEPA and clearly there's different regulators do you think that that kind of regulatory setup facing those two uh two twin crisis is works and how do you work with SEPA in their regulatory role um you know we sit down with SEPA um regularly both um um as part of the wider stakeholder meetings that happen um you know probably a couple of times a month roughly on average um and have separate conversations with SEPA on a bilateral basis as well um to make sure that we understand what is important to them and and we share what our views of progress on investment and the like are with them and can just finally to ask Susan Rice if you can maybe talk about what is the priority for the board um going forward in terms of that strategic challenge and to what extent does biodiversity sit in with that as well as obviously the the climate change and and these things that the the board are addressing and are there any issues in that terms of that SEPA versus also water commissioner registry constraint you've raised a really important point which is around biodiversity and um it implied in that is relationship to net zero and targets so Scottish water has its own net zero target which um it has undertaken to achieve five years sooner than the Scottish government's target and actually we're working to try to get there even faster biodiversity and if you talk to pundits around this space externally no one will really achieve the net zero targets without dealing with biodiversity that is fundamental um to making all of this work so um Scottish water and this just have to say this is a real personal interest of mine and I do a lot of things um related to this outside of uh Scottish water but Scottish water for years not just since the climate emergency was declared here in Scotland some years ago but well before that has focused on biodiversity um it has for instance right now and that this doesn't solve all problems but it's important a massive tree planting operation but it's very interested in peatlands because um if peatlands are healthy and restored um that helps the quality of water if we get better quality water but then we have to expend less um by way of both money chemicals carbon and so forth in in treating the water so the these matters are just absolutely tied um tied together uh and for the board these are very important i've mentioned my own personal interest but um the whole board has an interest in several of our non-exex specifically have a background and experience in in that area um biodiversity and climate change and emissions thank you mark if you're very quick i'll bring you in or as your question been answered um it was a slightly different question it'd be very quick convener i just want to do us join a doubt about the the privatised markets of the billing and sale of water to business customers do you feel that that that is actually working as if there have been efficiencies or could you operate just as effectively as a state monopoly maybe i can answer the first part of that question not necessarily the second part so what i would say is we've operated now with a commercial competitive environment in scotland for 15 years and in england for five years and i can definitely attest to the fact that there's been significant benefits delivered for customers both in terms of reduced charges but also innovation better quality service experience as well so i'm a big advocate of a competitive market i think we can demonstrate quite clearly that it has delivered benefits for customers and will continue to do so okay Liam you wanted to come in thank you convener very briefly douglas millican you talked earlier about 97 of scotland getting high quality water but we've also heard about the cost of delivering that the cost is very challenging now it's been argued that as domestic water is not metered perhaps the true cost and value to the end user of the product is not sufficiently appreciated and also we've heard about the importance of encouraging people to use less so perhaps if it's not metered the argument would go people won't do so the flip side as i think we heard from joannadau earlier is that metering costs you've got insulation you've got maintenance you've got the actual reading of it what is scotland's current view on meters for domestic customers so the current view is that any domestic customer can ask for a meter and we will supply it but in accordance with the effective principles of charges that apply for this period is if you want a meter as a customer then you need to pay for the installation of that and i think the reality is there's quite a significant cost about installing reading maintaining meters and then issuing the bills on it so i think the setup that we have in scotland by having unmeasured customers apart from addressing issues around affordability allowing some of the the differentiation applies it also helps to to keep the cost of the whole system down but if i then get get to the whole issue around so how do you incentivise what water efficiency and i think i'm not wholly convinced that a meter per say does that i mean clearly if if you are somebody who is absolutely struggling on every penny counts then then and you're watching a water meter maybe it does have some bearing but for many customers they're not watching the their water meter so the approach we're taking is to try and inform and make people aware of the scope for them to save money by by saving water and largely through their energy bills so we've done some work over a number of years with the energy saving trust identifying the percentage of somebody's energy bill that is associated with heating water and we've been to various events over time and trying to engage customers in and around that but we've currently got a campaign running at the moment on mainstream media and social media under the title of water's always worth saving so peter referenced earlier that for example in times of drought we might go out to customers with messages encouraging them to save water but actually the key message and we intentionally launched this even in a wet scottish autumn was to actually convey to people across scotland that actually all year round water is always worth saving in particular we've tapped at the moment to the saving they can make on their energy bills by reducing the amount of water that they consume and eat. It's fascinating, thank you, convener. Thanks very much Liam and Jack has been sitting very quietly in the corner and I'm sure you've got some questions you want to put forward now. Thank you very much to the convener and the committee for allowing me to pose some questions I have indeed seen those adverts and they work very effectively but my questions are in the context of the cost of living crisis which I think is probably the worst in more than a generation. Can I turn first to the water industry commissioner? Your website reveals that you wrote to Scottish Water on the third of February 2022 after they set a charge level which was 2 per cent below that which you determined would be required. Your third of February letter makes clear and I quote our final determination set out a 2 per cent average annual real increase in charges from 21 22 to 26 27 so that's CPI plus 2 per cent. The letter goes on to demand an explanation of Scottish Water as to how it will deliver the required investment in a manner consistent with our final determination of charges. The letter also makes clear that charges would now need to increase by more than CPI plus 2 per cent. Further correspondence to Scottish Water on 10 March 25 April and 1 of July demands information to demonstrate Scottish Water is doing what you want. With inflation at 11.1 per cent that would imply would it not Scottish Water having to raise its charges by at least 14 per cent next year if they were to follow your approach. However a recent answer to a parliamentary question I tabled makes clear and I quote no powers to require a particular outcome in the charge setting process beyond setting the charge caps so it doesn't appear that you have the powers to demand what you're actually demanding of Scottish Water. Will you now withdraw the letter of the third of February and take the pressure off Scottish Water to have inflation busting rises forced on customers during a cost of living crisis? I think, Miss Bailey, as you've said, we have no power to compel Scottish Water to do anything. What we have said is a charge cap. Now what we have said is a charge cap which we believe is the lowest reasonable overall cost, which is the statutory test for Scottish Water to deliver all of the objectives of the Scottish Minister consistent with the Scottish Minister's principles of charging. If there is less revenue coming into the system unless there is offsetting efficiency and that's what we would want to understand, unless there is offsetting efficiency there will be less investment and if there is less investment we are simply wanting to understand how it is that Scottish Water is going to meet the full objective set out by the Scottish Minister and if there is going to be a shortfall then there needs to be a process to discuss that. Quite simply, the question is the objectives are there, there is an amount of money that is required in our view the lowest reasonable overall cost. What's giving in the system? If you're taking less money that's fine, it's under the charge cap, but how are you then delivering the objectives and how are you delivering the promises that have been made to the people of Scotland? Given that you acknowledge that you have no power to demand what you were demanding in your letter of 3 February, will you withdraw that letter and if ministers, because they ignored what you said last year, ignore you again and come down on the side of householders, isn't it the case that it really is up to ministers to act and not you? It's up for ministers, ministers ultimately through the Parliament own Scottish Water right, they get to work with Scottish Water and to decide whatever they want. The question is if you've set out a set of objectives we have in good faith costed that set of objectives and we've come to a conclusion as to how much money is required to do that having included a fairly substantial efficiency challenge 1% compounded in both operating costs and capital costs so if you are going to have less revenue in the system you are going to have less investment unless you're going to have efficiencies over and above the efficiencies which are very challenging ahead of anything that's been set south of the border. What's giving in the system is quite simple. Yes, we cannot pay now but we will then pay later or we won't get what we were told we were going to get. I think you'll acknowledge that circumstances can change though. We are now in a cost of living crisis that I don't think you anticipated when you put your determination of charges forward. Given that the minister has effectively overruled that for last year and one hopes would give this consideration this year, when circumstances change should you not change or have you had a discussion with ministers about revising their objectives? I'm finding this very interesting but the situation that I understand and correct me if I'm wrong I'm just looking for clarity is that what you're trying to point out is that Scottish Water won't be able to meet their objectives unless they put the prices up to the level that you've suggested so it's a balance between investment or non-investment so surely it would be for Scottish Water then to explain what projects they are unable to achieve if the price doesn't go up. Sorry, have I got this completely wrong? You're absolutely correct and that's what we were seeking to ascertain in issuing an information request in March to Scottish Water which is something that we are still working on so we are trying to understand exactly what is going to give in the system because there is less money in the system as of today. The charge caps are there, the facility is there to take the money, it may be that the decision is that that can't be afforded but then there will be less investment in the system less quickly and maybe that happens later, maybe it has to wait for a new recordry period, maybe ministers accept to shortfall in their objectives, that's for ministers to decide. What we're doing is simply saying what's happening and how much does it cost, right? We're just holding a mirror up to all of us in society. Okay, sorry, Jackie. I'm sorry, thank you for clarifying that, I thought I was off track, sorry. It might be helpful if I share with the committee a copy of the letter of 3 February which is quite specific and says as a result charges would now need to increase by more than CPI plus 2% in each of the next four years. There is very little mention of the narrative that we've just heard about what projects would require to be cut. I have made the point, I think, I wonder whether actually there has been a discussion with ministers about revisiting objectives before I turn to Scottish Water. You've not sought a conversation. It's for ministers to say to me what objectives they have and it's for ministers to say to me what period they want advice for. And sorry, presumably Scottish Water explained to you what projects they will be unable to deliver without those things, that's part of the discussion, is it? It's part of the discussion, it's a process that is on-going. And the flip side to that is it could be that they ask the Scottish Government for more money to fund the fact that they're not getting this investment from revenue to allow them to carry out those projects if the Scottish Government had the money. Scottish Water's going to have to answer for itself but the circle needs screening. Susan Orr Douglas, do you want to answer on that? Thank you. This is probably the dominant topic on our board agenda and has been for months. The references earlier to our annual report, so let me just anchor it back in our annual report. We're in my chief executive section on page 19. I did talk about what we did, the charging decision that we took last year and then recognised that this is really difficult territory because there is no doubt that the households and businesses that are under immense pressures in response to an early question will, I think, continue to be under pressure, not just for next year but beyond. And yet customers expect the services and because those services are delivered through infrastructure, the investment is required. And on top of that, we've got a whole raft of legal obligations on us in primary legislation and the minister's objectives. Therefore, we cannot resolve that on our own. We are accountable, obviously, to the new Parliament but through the Scottish ministers, so there is an active dialogue between our board and our cabinet secretary at the moment on how we move through here. Effectively, there are only so many different moving parts here. There is, to what extent can we reduce the financing burden in this period because of the success of our transformation programme and efficiency. We hope that there will be something in there, but, as Alan said, on top of the pre-stretching efficiency targets that he put in, we are looking at how we can contribute to lessening the demand. There may, and I do stress that there may, at the margins be scope for moving some investment from this period into the next period, but it will be at the margins and it would have to be if it was agreed with the quality regulators. If even that is agreed, all that is doing is shoving burden from the group of customers in this six-year period to the group of customers in the next six-year period. Big picture is that most of the money that is set out in the termination will be required across these six years. Arguably, through the limiting of price increase for this year, we have already foregone £140 million of the financing that we were eligible for. We have already effectively committed to £140 million of peddling harder. How do we fill the financing gap over the rest of the period? There are only three things that can move. What happens to charges next year? What happens, on average, with charges in the following three years—a year's four to six-year regular period—and a question of whether the Government would want to have the ability to or choose to put any additional boring into the system? Those are the only variabilities. The one thing that I would be just to be very clear about is the charges cap that the commission set is an average of CPI plus 2 across the period. That does not follow that every year is CPI plus 2. One of the other principles of charging is the importance of stability in charging for customers. Whatever we end up in this year, it will be cognizant of where my inflation will go over the balance of the period and make sure that we are not doing anything undue in this year just in a year of potentially peak inflation. We have to balance this and balance the different sensitivities and pressures. That is why there is an on-going dialogue with the Government on this. We have a bit of time because the charges ultimately need to go through a regulated process, but they do not need to be published until probably late January, February. Jackie, if you are very quick... I will certainly try, convener. It is to Scottish Water because last year you listened to the minister. You reduced the charge from 6.2 to 4.2 per cent. The Water Industry Commissioner, as I have explained, wrote to you on 3 February, basically trying to unpick that. The consequence of that would be that you could be in a position to place eye-watering rises on households and businesses that are all peddling harder of something like 14 per cent. I would like a commitment from you today that an above inflation price rise is off the table and that a price freeze remains open for consideration. No decision has been made by the board yet, but the factors that are under consideration are absolutely looking at what we need to do to be sensitive to customers this year and to be sensitive to customers' economic predicament in the following years of the price review and also to ensure that we meet the expectations of customers and the obligations that are on us. It is all those facts that we are going to the mix that will ultimately determine what percentage we land on for next year. I suppose that dissent depends on whose side you are on, whether it is the regulator or household. I think that is quite hard, Jackie. In fairness, I think that you should actually... I have given you a fair crack of the whip on it. It is a balance that they have got to achieve. I do not need to stick up for Scottish Water and I know that the regulator will do it and I know that the minister will also take an interest in it. I think that you have made your point about the difficulties of price rises and we all understand them. I think that you have heard from Scottish Water that they are trying to grapple with how to resolve what they need to raise to invest, run their business and take into account the customers. You have had a fair crack at it, if I may be so bothered to say. To say that, thank you very much everyone. Susan, I apologise profusely for not giving you your opening statement. I am in your debt for giving me on that but I would like to thank you all for the effort and the contributions that you have made this morning. Thank you very much indeed. I am going to suspend the meeting to allow us to set up for the next bit. Thank you. Welcome back. Our next item of consideration is a negative instrument, the electricity application for the consent and variation of consent fees, Scotland amendment regulations 2022. This instrument is laid under the negative procedure, which means that its provisions will come into force unless the Parliament agrees to a motion to annul them. Now, at this stage, no motions to annul have been laid. Do members wish to make any comments on the instrument? Yeah, sorry, Mark. Yeah, thanks, convener. I mean, Clidius is about resourcing the system, the application system, in a better way. I note the move to full cost recovery. I suppose the question that I would have is what will this do to performance? We have taken evidence in this committee where we have been told by the industry that it has taken seven years for an application to be determined. The whole system is very slow, whether that is applications going to local councils or going to the DPA in the Scottish Government. I suppose my question here would be around will this make a significant difference to those determination timescales? In a climate emergency, we need business certainty, we need to see applications either being approved or rejected within a reasonable timescale. I am interested to know whether that will properly resource the decision-making structure and process. Does anyone else have any comments? It is a fair point, but clearly the new NPF4 is partly about improving timescales for approvals and expenses. That is a question that we can come back to on the basis that let's see if that helps to improve. It will not be the only factor, but I think that in terms of recovering costs for support for planning applications, we know that we have to move there. It is a sensible thing to do, but the proof of that will be after the effect. We can monitor that together with the NPF4 changes and regulations. I think that where we are at is that these are sensible things, regulations to move through, but I think that there is nothing to stop us right into the minister and say that you have raised these concerns and then see if we get a response and then monitor it in the future to see as the deputy convener has suggested whether that has had the effect, that probably by alerting the minister and of course it is on the official record, that those points have been raised, would be the way forward. Mark, would you be… I mean, I have no concerns about supporting this SI. It's more about what it is trying to achieve, what will be the outcome of this, and I would expect the outcome would be better timescales for determination coming out of it, but I'd like to know from Government whether that will actually happen. Okay, so if the committee is happy, I will write as a result of this meeting to the minister to allay those points, but my question therefore substantially to you is, are you happy that we are not going to make any further recommendations or written recommendations regarding the instruments and that we're happy to allow them to go through? Agreed. Good, we are agreed. That concludes then the public part of the meeting and we'll now move into private session.