 Good morning, everyone. Welcome to the 14th meeting of 2016 of the Environment, Climate Change and Land Reform Committee. We have apologies from Finlay Carson. Before we move to the first item on the agenda, I'd like to remind everyone present to switch off mobile phones and electronic devices as they may affect the broadcasting system. Agenda item 1 concerns taking items 4, 5, 6 and 7 in private. Are the committee agreed? We are agreed. We move to agenda item 2, which is Scottish Water's annual report, 2015-16. We have a panel of witnesses, Glynan Rydystyn, there's Lady Susan Rice, chair of Scottish Water, Joanna Dowd, chief executive of business stream, Douglas Millican, chief executive of Scottish Water and Peter Farrah, chief operating officer of Scottish Water. We will move immediately to questions. Welcome all of you. Dave Stewart. Thank you, convener, and good morning. It's nice to speak to you all again. The previous committee, I think, reported to the ICI committee, and we had a number of questions at that stage. Can I ask perhaps just some of the bigger picture question? First is trying to get an understanding of how you make difficult decisions between setting charges at the right level and having sufficient investment to invest in the business in the longer term. These are very difficult questions, but I think that the committee would find it very useful if we could have some understanding of that. It's a very important question as well, and I will ask Douglas to give you the detail, but I can assure you that this is an iterative and deep, a process of deep thinking that goes into those decisions. Douglas, you can go on. Okay. Thank you. The way that it works is effectively over a fairly medium-to-long-term planning cycle. We used to operate in five-year planning cycles and we're now in a six-year planning cycle. Effectively, if I start at the end and then I'll work back at the end of the process, ahead of the start of any new regulatory period, the Scottish Government effectively issue a direction to us of the improvements that we have to make in the upcoming six years and the principles to be applied in the way that charges are levied on customers, all in the context of a regulatory settlement or final determination provided by our economic regulator, the Water Industry Commission. That's at the end of the process. If I work back to the start, clearly many inputs into that are things like what are custom reviews of their priorities in terms of existing service, improvements to services, what are custom reviews on charge levels and the extent to which they are willing and choose to pay more or less for different levels of service. There's then the whole dynamic of what do we need to spend to invest just to maintain the existing infrastructure to deliver the broadly comparable level of service today into the future. There are then issues to be considered from a legal compliance angle about what we need to do primarily from an investment angle to comply with drinking water, legislative requirements or environmental compliance issues. The final aspect is the role that we play in supporting economic growth and extending the infrastructure to cope with new housing and additional business demands. All those inputs go in over a two or three-year period. As Susan said, it iterates between ourselves with custom reviews of the economic regulator and ministers and ultimately lands in that settlement set. For the time period that we're in now, we're in a six-year period that started in April 2015 and runs to March 21, when those priorities were confirmed at the end of 2014. Thank you. That's a very comprehensive answer. Could I ask another wider question? Does the current model that you have, which is effective for your public body and to the Scottish Government, work well for you as chief officers and board members? Obviously, looking across the UK, there are different models. I'm not recommending them. Obviously, in England, there is a private model. If I could refer members to my interests as a member of the co-op party, the co-op party would argue that mutualisation is another model. Have you had any discussions with senior ministers about a different way of operating and a different way of running? If I could give a general view to answer your question, you could speak to any specific conversations with ministers. I think that the track record of Scottish Water speaks for itself when you compare its customer service ratings, when you compare the effectiveness and productivity and its use of its investment funds compared to the other companies in the UK. It is absolutely outstanding. It wasn't always there, but it has worked and it has achieved that, which suggests that the current model has great merit. I can say this because I'm not an executive in the company. I chair the board that delivering it in that way depends on the right people and the executive roles. That is always the case in any business, in fact. I would also point out that, when you have water companies' utilities, which in particular are owned by investors who are looking for shorter-term returns, that can put a pressure on a business that has to be long-term, which has to look to the future. Its infrastructure projects take a long time to build. We have to look 25, 50 years ahead to make sure that we understand what Scotland might be like in the future and that we can deliver safe and adequate water and wastewater services. There is something positive about the ability with this structure to take that long-term view so far that it has worked well. In terms of alternate structures, Douglas, you could speak to that. There has been no discussion with ministers at all on alternatives. I would echo comments from an executive angle. The model that we have where, effectively, there is a strong alignment between the interests of the Scottish Government as an owner of Scottish Water with the interests of our customers means that, effectively, everything that we do is orientated to delivering our customers. For example, when we are engaging our people to drive forever higher performance, the whole rationale is that, whether it is higher service or greater efficiency, those benefits are all going back to our customers and to our community. From our perspective, the model works extremely well. Having said that, as every day and every year goes by, we always look at how we can enhance the way in which we operate to deliver ever higher service and become ever more efficient. Can I go from the bigger picture to very specific? Can you give the committee some indication of what will happen to domestic charges after 2018? If I put that into a little bit of context, I talked about the ministerial principles of charging that were set for this six-year period in the context of the regulatory determination. What that determination means is that, across the six years, prices to customers will fall relatively rate inflation and they will fall by 1.8 per cent relative to inflation. Because of where the price changes have happened over the past two years and, indeed, for next year, what that means is that, in 2018 to 2021, on average, prices per year will fall by one and a half per cent relative to the rate of inflation. To set an example, it will depend precisely on where inflation is at, but we are looking at continuing very modest levels of price change. Even that, again, was rooted in the work that we did in agreeing our business plan with the customer forum, where one of the key things that came out from our customer research was customers valuing predictability and stability in prices and to make sure that we weren't suddenly lurching to sudden price changes from one year to the next. For a technical point, the level of inflation that you are monitoring is the CPI. It is indeed. It is a price index, because there is a bit of a debate to be had about which measure you have on inflation for a variety of areas, but I won't go down the pedantic line, I just might want to go down the line. To be very clear, for the record, in terms of the commitment to customers, then customer price increases are rooted relative to CPI. My final point is that some of my colleagues will look at much more detail about your overall performance for 2015-16, but the general scorecard is very good, looking at the various indications on every indicator bar 1. Can I raise one point about customer service, which you may know that I have raised in the past? That relates to whole issues such as climate change, which is about water leakage. I think that the figure was roughly a third of all your water was lost in leakage. That might well have changed. The current figure is your target, which is 500 million litres a day, which is very hard to get that figure in terms of understanding what that means. Before I come out, I want to look at what has happened to make it easier to understand, particularly for me. That means that 100 commonwealth pools every day are lost in water leakage. Obviously, that has huge implications for climate change, because clearly you are providing energy for that third that is now being lost. First of all, the target seems to be extremely high. I acknowledge that there has been an improvement over the past three years, and it is not a third of your water anymore. Can you first tell us why that target is so high? 500 million litres a day is a phenomenal amount of water. I will do a bit of context, and I will let Peter pick up specifically what we do around leakage management. The target that we have for that regulated period, that 500, is all based off of the economics. Sitting behind that, and it is quite a high number, is a really good news story. It is a good news story that is rooted in history, that Scotland is blessed with having a lot of gravity-fed water supplies. That means that, relative to other parts of the UK, we consume far less energy in taking water from source to customers' taps. That really is at the heart of what drives, effectively, is the economic level of leakage. The second thing that I will say in overview is that we take leakage really seriously. That is why, last year, we achieved our target for the end of this regulatory period. It is our target for, effectively, 2020. We achieved it in our very first year, and while there still are the winter months to go of this year, sitting where we are at at the moment, we are in a better position at this time this year than we were at this time last year. We are absolutely continuing to bear down on the leakage. Douglass mentioned that we are working to what we call the economic level of leakage, which is effectively the point where the cost of reducing the leakage becomes greater than the savings from energy and chemicals of producing the water in the first place. That is the primary objective. However, as technology changes, we are continually developing new and more efficient means of fixing leaks. As technology develops, the economic cost of the leakage comes down as well, so that will drive further leakage reductions just through progression in the industry. I think that one of the key measures—we have been focusing on leakage for a number of years now and we have been extremely successful with that. Over the period from when we started this, we have reduced our leakage by about 500 million litres per day. That is the equivalent of the amount of water that goes in to supply the whole of Edinburgh four times. We have reduced that since we started in 2006. The big benefits of that, apart from reducing energy use and chemical production, are also providing a headroom at our treatment works for growth. By reducing that leakage, we can now extend the stretch of the water that we have to provide growth for businesses and for household customers. Before, if we had not reduced that leakage, we would have had to build new investment to provide that. I clearly ensure that all the committee would welcome those improvements. The point that I make is that there is still a horrendous amount of water to be losing. In the 2013 figure, it was one-third of all the water. I think that you had 1.3 billion litres, which is your total protection in that period. I am not sure what the current proportion is, but it is probably just about equivalent. However, I take my point that 100 commonwealth pools per day in loss is an issue for climate change. What would you see your aspirations for three or four years' time? As Peter said, it is a dynamic calculation and it is kept under review. The main issue from a climate change angle is in Scotland. The issues can be different in Scotland to other places, but in a Scottish context, the principal issue is the energy and chemicals that get consumed in treating water and to accept that water needs to be pumped. There is a huge amount of work that we have done to drive efficiency into the use of energy and to reduce the amount that we consume. We have done a huge amount to increase the amount of energy that we generate ourselves. For example, by the end of this year, by March next year, through our own renewable generation, either what we do directly or what we enable in our land, we will be supporting as much renewable generation as we consume ourselves. If I then roll that on into 2018-2019, we expect to be effectively generating or supporting generation that is equivalent to double the amount of electricity that we consume ourselves. In that whole area of carbon reduction, there is a whole bunch of things that we do, but it is a very important topic. Just for the purposes of clarity for the record, the figures, the improvements that we are talking about, relate to the public water supply, is that right? Do they take account of leakages on private supplies or when the supply is taking place on farmland? Yes, it does. The leakage that we measure is everything that is lost from the system, from the treatment works to the point of use with customers. Thanks, convener. I should declare for the record that I have a family member in the western Isles who is currently in dispute with Scottish Water through the court session over the alleged poisoning of livestock. We may turn to the issue of spills on farmland later. However, for the moment, I would like to continue looking at investment that has been touched on earlier. The convener and I were pleased to visit and see at first hand the progress at the shield hall tunnel in Glasgow a few months ago, and it was an impressive feat of engineering. Given the number of investments that you are making in 2015-16, and given the diverse and sometimes competing ministerial objectives, how does Scottish Water prioritise your investment decisions? I refer back to the first answer that I gave, which is that there is a huge amount of work done over many years through what is called the quality and standards process, which is a minister-led process to look at what all the different potential demands are from a customer service improvement from a maintenance angle, from drinking water quality and environmental protection. Those are all assessed. Ultimately, having gone through due process, it is ministers who decide that when looking at those issues relative to issues in terms of availability of borrowing and where customer charges should be, they then affect to determine the overall objectives that we need to achieve in a period. Sitting underneath that are details of all the individual projects that we need to deliver or outputs that we need to achieve. An output might be improved drinking water quality to a particular community or an upgrade to a wastewater treatment system. Effectively, the route of the prioritisation is all that ministerial-led quality and standards process. We know of the shield hall project that we mentioned already, but where in Scotland has the most investment taken place during the year and on what projects? One of the really strong features about the whole Scottish Water model—I do not just mean Scottish Water but the industry model that sits behind that and the process of setting ministerial objectives is that the heart of that is the ambition that every customer in Scotland, irrespective of wherever they are, should achieve the same level of service for the same price that they pay. What that means is that when I look at that back over the passage of history, what that means is that in different investment periods some communities have a significantly more investment than others. I could look back into prior periods and we had a huge amount of investment in the Highlands and Islands, for example. In this particular period, the single biggest area that is getting investment is Glasgow. The genesis of that was work that has been done to look at all the environmental upgrades in Glasgow, partly to comply with the various legal requirements for improvements to discharges to the client's tributaries, but also to deal with the challenges of flooding from sewers. That has been a programme of work that has been long in the making to study hard the interdependencies of flows in our sewers with other surface water flows in the Glasgow area. That is now leading effectively in this period to about £250 million investment in Glasgow, but I could look at it over probably a 10-year period and we will be investing probably about £500 million in environmental improvements in Glasgow. That is the largest at the moment, but it does vary from period to period. The investment and renewables that you mentioned earlier, how long will it take to get a return on that investment? There are different forms of investment that we have. In terms of things that we do directly, we have a lot of hydro turbines in water pipes, we have wind, small-scale wind that we have, we have large-scale wind where we effectively invite private developers on to our land to develop large-scale wind schemes, we have photovoltaics, we have energy being generated from food waste, we have now even got schemes where we are taking heat from our sewers to effectively provide the energy from a local college. There are a whole bunch of different ways and different commercial models, some of which we are investing directly, and typically in those the return might be in anything from a four to seven-year period. There are other models where effectively the commercial developers make an investment and we may be taking the return in the form of either a rental stream or reduced purchase prices for power that we buy. Can I just ask—there was a proposal for a very substantial wind project in my constituency at Backwater Reservoir that was shelved. Is that permanently shelved? Are there possibilities of that being resurrected? From a technical perspective, the proposed developer still has an option that they pay annual fee to us to keep live, but on the basis that that has not got planning consent, I think that that is a long way from ever being developed. If you would ask us at the moment, do we think that it is likely? No, we do not think that it is likely. Okay, thank you, that is useful. Alexander Burnett. Thank you, convener, and for a begin, I make reference to my register of interest, a number of dealings with Scottish Order from construction, development, fishing, private supplies, troughs and a few others. You mentioned the role of supporting economic growth and, from my previous dealings in the private sector, since being elected, a number of conversations with public bodies such as councils, people in infrastructure and groups such as Scottish Futures Trust. They all say that the biggest impediment to delivering growth in projects is Scottish Water. A particular area is some of the transparency and some of the delivery of those projects, where projects that are talked about as being delivered in the next two years are listed but not scheduled, which does not give clarity to people coming in to behind that to deliver projects. I am just wondering how you would respond to that. I see that you have decided to enter into three new strategic alliances, deliver investment. I believe that the process has taken longer than it has visaged. Has any investment slipped because of that? How do you expect to make up some of that ground? Let me give you a bit of an overview and I will talk about our investment programme, then Peter can talk about the work that we do to support the development community. Overall, in terms of our investment programme, our investment programme is absolutely motoring. Last year we delivered about £480 million of investment, which was very consistent with the prior years. In the current year, we will be up around £600 million. We are consistently delivering around £50 million a month, so the investment programme is absolutely moving right across the country. We have three new alliances that are in place and they are operating. They are really successful because they work with a number of contractors. For example, we have 58 contractors that we work with in rural areas. It is quite an elegant hybrid model. One project that I visited a few months ago in Strumnes in Orkney is a very challenging scheme about upgrading waste water infrastructure in the very tight streets of Strumnes, but our alliance partner ABV is working very effectively with a Kirkwall-based contractor to deliver that investment. If I come on to supporting economic growth, that is an absolute priority for us. There are various complexities that sit around that space. Sometimes it can be down to certainty about what developments will progress. Sometimes it can be down to clarity about who pays for what, but we are absolutely committed to supporting it. If there are any specific cases that you or indeed any other members are aware of that you want to pass away to look at, we will happily look at those. We have done a huge amount of work to up our game in this space. I will let Peter address that. As Douglas Douglas said, we want to make sure that we are not being a barrier to any economic growth and development through our processes. We have completely remodelled the part of the business that deals with that over the past 12 months in particular. We can impact on that through normal connections to our network. We are starting to see a significant increase in the number of connection applications that are coming through. There is absolutely no doubt that the housing market is starting to heat up. We are considerably above our predictions for household connections. For this year, we had predicted in our business plan that there would be about 16,500, and we are forecasting that there will be about 21,500 for this year. That is an indication of what has happened just over the past 18 months since we set the plan. We have completely redeveloped the group to look at that, because we did get some feedback from developers that our processes were not the easiest. We have taken that seriously and turned that around. Investment on our treatment works to facilitate growth. Over this regulatory period, we are investing about £220 million to support economic development. About £80 million of that is to increase the capacity of our strategic assets—that is our water and wastewater treatment work—to provide the new water capacity or the treatment capacity. There is a further £108 million, which contributes to the cost that the developers have of providing what we call part 2 and part 3 infrastructure, which are the pipes and the sewers in the ground. There is a significant amount of investment in terms of the improvements that we have focused on in the past 12 to 18 months. We are working closely with Homes for Scotland. In fact, Susan and the chair of Homes for Scotland have signed a memorandum of understanding, and we are focused on providing as good a service as we can to that community. We have picked up on improvements to our customer relationship model to make sure that we have the right people speaking to developers, particularly the big developers, who have significant strategic schemes across the country. We have also made some significant improvements to make sure that we are facilitating all the big strategic schemes that are on the go at the moment. For example, the A96 corridor, Aberdeen, Shelfair, Perth, Dundee. There are some significant big strategic schemes on the go, and we have changed our model to make sure that we are dealing with that in a much more customer-focused way than we have done before. Thank you for that. I welcome the answers and opportunities to come back with individual cases within the constituency. I should note that the Institute of Civil Engineers gives you a B, which I think is a good mark, so that should probably be noted as well in terms of delivery. Do you think that the problem is wider than that in that it goes to the planning process in Scotland of when projects or whether public sector or all private sector, when they become live, so to speak, for you to be able to consider them in your planning? Do you think that there is a problem that goes beyond or out with your just where you can statutory consideration? I am not sure that we would define that as a problem. I think that there is a reality and there is lots of complexity, and there are lots of competing priorities. competing priorities may be between what a local authority might want to achieve, what a developer might want to achieve, and the wishes and preferences of particular communities that might be affected. For me, it is all about how we work most effectively in a most integrated way, and in an anticipatory way with local authorities, particularly with the various different roles that they play as a planning authority, as a neighbour of growth, as a developer themselves. From a personal perspective, I try to make sure that I have a regular dialogue with the chief executives of all the local authorities, as that is specific. I was with the chief executive of the Stirling Council on Friday, very much in that space, looking at the plans that they have for development in the Stirling area, both through the local authority and the prospective city deal, to make sure that we are totally joined up and that we do all that we can to support the ambitions and aspirations in that part of the country. At that point, I should declare interest as a councillor in Stirling, but I have a question that is slightly different. I was interested to hear your response to Alexander Burnett about alliances. Does that point towards perhaps more outsourcing of services over time to private contractors? It goes back partly to Dave Stewart's point about mutualisation, because one of the criticisms at the level at Welshwater is that it is effectively a shell company. It ostensibly acts in the public interest and has public stakeholders involved in that company, but at the same time, all those services pretty much are delivered by private contractors. That was one point. The second point was in relation to the WICS report, which is very positive in all areas, but one area that they did pick up on was around the underperformance of completing projects from previous Q&S investment rounds. I am just wondering if you have got thoughts on that as to what those reasons are. I am aware, for example, of one project in Kinghorn. There are quite complex reasons why that project has been delayed and it is going to be pushed forward to a later timescale. I am just wondering if there are lessons that can be learned around under-delivery of projects and how you then make sure that future Q&S investment rounds deliver in a timely fashion. I will start with that and then come on to the outsourcing question. The headline for me is that there is always opportunity to learn. As an organisation, we have got to be a learning organisation that always seems to be able to learn from things that go well or things that go less well. In terms of investment programme, to put the commission's comment into a bit of context, I referred in answer to an early question about the, under the ministerial objectives, than a set of projects, defined projects. For the last regulatory period, there were 1,080 of those, 1,080 at the start. At the end of the regulatory period in March 2015, we had 37 left to deliver. That was slightly more than we expected to have at that time, and that is why the commission called it out. However, I am pleased to note that, of those 37 projects in March 2015, 27 of them have now been completed. It was 22 at March 2016, and we have now taken that up to 27, so it is leaving 10 to go. If I then link that to the next point, from a learning angle, one of the things that we, I guess, we have always had a bit of a mixed economy model, things that we do in-house and things that get done by delivery partners in the private sector. We keep that under review as to what should be done by private companies and what should we do internally. Probably the most significant change that we have made coming into this period is that we have brought back in-house the upfront decision making and thinking around investment planning. A lot of that has come out of the learning that we have had from some of the lessons in the last investment period. It is incredibly key to maximise the volume of projects by trying to get the right scope, understanding all the ground conditions and so on, before you go to site and start working. We have brought a lot of that work in-house. Beyond that aspect that we have brought in-house, we will always keep under review where things should get delivered. However, we have got a pretty stable balance where we recognise that our core competence is very much in customer service, in looking after the whole water supply system and looking after the wastewater supply system. Looking ahead into the future, the most significant question that we will get into in the next decade is what happens when various PFI contracts come to an end? We have nearly half our wastewater treatment and about 80 per cent of our sludge disposal is handled through nine PFI contracts. The first one of those expires in the end of 2021. We will also go through quite a careful thought process. Do we extend those contracts? Do we, in some way, continue some form of private sector participation, or do we bring them back in-house? Fundamentally, wastewater treatment is part of our core competence. If I could just build on that, as you mentioned, customer service is to give some information. Clearly, our whole mantra is about putting customers at the heart of our business. We have developed customer end-to-end processes, and all that work is carried out by in-house resources. All the operational response to customer issues is all in-house. About 90 per cent of that work in total is carried out by in-house resources. We use some contracted resource as a peak lopping when volumes go up too much. Primarily, it is in-house resource. If you look at it over the years, and the WIC report is a perfect example of that, where the WIC is calling out that we are delivering a leading level of service for one of the lowest costs in the UK. That has been brought about by a real focus on driving up customer service and reducing costs and improving efficiency of our in-house people, as well as the external contractors that it forms. Going back briefly to the six-year investment programme, Scottish Water has stated that the three new alliances that we have already discussed have inevitably impacted on our rate of investment delivery and there has been refasing. Has that refasing had a budget impact on any individual projects or any individual projects now over a budget? The way that we look at the thing is that, in terms of the programme as a whole, the financing that we have is for delivering the programme. The marginal change in phasing is a very marginal change in phasing, as absolutely no impact at all on the total amount of financing that we are able to access to deliver that programme. There is no impact for Government or no impact for customers. In terms of individual projects, inevitably, within a portfolio of projects, some projects were able to deliver for much less than was originally anticipated. Inevitably, some projects, for whatever reasons, are just inherently more challenging. You get swings and roundabouts within individual projects, but our whole focus is about delivering the programme within the available financing. In terms of just that comment that it is inevitably impacted on the rate of investment delivery, why has it been that the three new alliances have had that impact? It is not so much the three new alliances. In fact, let me come back and say it in terms of the impact. The impact is so marginal that, notwithstanding the rebase signing that was done, we still hit our end of year, what is called the overall measure of delivery target, on the original profile for delivery. It was effectively during the year last year that things were off to a bit of a slow start that triggered the rebase lining, but actually by the time we got the end of the year, we were effectively back on track when looking at an aggregate level. What sat behind the recognition that this would be a sensible thing to do this rebase lining was that we had made a very major change in our whole approach to investment planning delivery. The whole move to bringing the investment planning activity back in-house so that we get the right solutions and understand all the various conditions before we get to site is a big change, as for example we brought additional resources into our business and got people trained up, and then we got the lances on board. The worst thing that we can do in delivering investment programmes like ours is to rush to site too quickly. It is much better to take the time to get the scopes right and then to go to site. It is one of those things with the glorious benefit of hindsight. We maybe should have allowed longer, in our early thinking, for how long it might take to make this major change in our mode of planning and delivery, but in reality we are still broadly on track to the original expectation. Good morning to you all. There are two specific questions that really relate to core competency, responsibility and investment, so I will put them in here, although I was not quite sure where to ask them. In the previous rural affairs committee, we had dialogue with Scottish Water about the purity of water for shellfish, and I wonder whether that is a competency that you could make any comment on and how that is developing, or whether it is still a responsibility and connected with that if you have any responsibilities in relation to the aquaculture industry. I do not know whether you do or not. I am sorry that I have not done that research, but I have not made the time, because there have been concerns from SEPA about pollution in that way. There is also something that has come up in the Parliament with a member's debate, and you referred this morning already to the sewage treatment. I am wondering what your responsibilities are in relation to sewage sludge and the spreading of sewage sludge on farmland and whether you have any responsibility or investment plans, if indeed you do have responsibility, for upgrading the only drying to heating so that the sewage sludge is more guaranteed not to have pathogens in it. I have put all those questions out there and whoever wants to answer them. I apologise if they may not be within your competency, but they are water-related. We will do our very best to answer them, and if there are specifics— If not, you could possibly write. To come back, please do. Let me just kick off on the shellfish one. Again, I will route back some of the stuff that was covered earlier. So, ahead of any investment period on the wastewater side, SEPA in particular will look at areas where we need to make upgrades to either our wastewater treatment facilities or, indeed, our networks to improve the quality of discharges to the aquatic environment. It is very much SEPA who has the responsibility for understanding what is the environmental capacity of any particular water body to say, okay, what does Scottish Water need to do or what do other landowners or other pressures on the environment, what do they need to do to play their part to make sure that that particular water body is protected. In the case of a shellfish water, SEPA will look at the quality of our existing wastewater discharges and will determine whether the licence that we have at the moment is fit for purpose or whether that needs to be enhanced. If that licence needs to be tightened, we would then assess whether we need to make further investment in our wastewater facilities to meet the licence standards that will enable SEPA to be satisfied that the shellfish can be protected. I will pass over to Peter to talk about what we do from an operational perspective to make sure that we can comply and then to pick up also on the issues on sludge. Firstly, I will clarify the point about the shellfish and the quality of water. Have there been any instances, and if you cannot say necessarily today, could you please write to us about that, because it is of concern to constituents as to the quality of water who are working in the industry, but also more generally for the estuary and marine environment? I do not have any specifics on impact on shellfish waters, but what I can tell you in general is that our wastewater treatment works compliance, that is the compliance of the wastewater at the point of discharge, has been improving significantly over the years. We have, I think, 1,827 wastewater treatment works all with discharge points, and last year in this period we had only six of those 1,827 that had failed apart of the SEPA compliance assessment that has carried out for that, and I am not aware that any of those have had an impact on any shellfish waters. It is obviously a very high level, I think that it is level A that it has to be. We will certainly look into it in a bit more detail and send you any details of that. That could have investment implications. On the sewage sludge issue? Sewage sludge has, for a long time, been a part of Scottish waters sludge strategy, and it has been long recognised in our industry as one of the best environmental options. If you look at our sludge outlets at the moment, land provides an outlet for about 60 per cent of our sewage sludge, and about 80 per cent of that 60 per cent goes to agriculture. The remaining amount is used as a fuel, so we have used that as a fuel at the Logannock power station and then for a fuel in a different process now. We do a lot to make sure that the quality of the sludge is of the right standard, but there are a significant number of improvements that we are looking at at the moment, in conjunction with Water UK. Water UK has implemented what they are calling the UK biosolids assurance scheme, and we are working with Water UK to make sure that, as an industry, we are improving procedures and protocols for sludge management to make sure that, when it goes out on to agriculture, it is absolutely of the right standard and quality. Probably one of the other things that we are doing is looking at different types of processes. There is a process that we have been trialling, which is called biothermic digestion, which is a high-temperature anaerobic digestion process that not only makes sure that the sludge is absolutely of the right quality, but it also significantly reduces the volume of the sludge down by about 85 to 90 per cent reduction in volume, which means that that also impacts on transportation to agricultural fields and reduces the amount of transportation and other environmental impacts. Angus MacDonald As in when the PFI contracts that you mentioned earlier come to an end, what is the likelihood of increasing incineration of sewage sludge pellets? I have looked at figures in Sweden and the Netherlands where we are behind with regard to the number of incineration plants that we have. What percentage of sewage is incinerated in Scotland at the moment and what is the prospect of increasing the number of incinerators around the country? As I said earlier, about 80 per cent of a sludge is treated under PFI contract. The single biggest one of those is a plant on the east side of Glasgow that takes about half of Scotland's sludge. It is a dryer process that creates a pellet and that pellet is then used as a fuel in kilns in a major manufacturing company as an energy substitute. That is a good example of the sludge being used effectively as a fuel source. That contract comes to an end in 2026. There is going to be a major question for us about what is the right way for us to progress beyond then. For example, how might technology move over the next five to ten years that have an impact on what is the most sustainable way and how do we get the most value from it? One of the longer-term challenges is that we have to move away from seeing wastewater activities as being a waste to be treated to seeing it as a resource. How can we maximise the value of recovery that we can get from the various waste streams? The starting point is how do we maximise the energy generation capacity from sludge? What scope might we have in wastewater treatment plants in the future for higher levels of nutrient removal? Some of the elements of certain wastewater are naturally occurring chemicals where there is a finite supply in the world. Can we, for example, start to recover phosphorus from wastewater streams? Some really interesting areas for us to look at in the future to try to enhance effectively the contribution that we can make to greater sustainability. Thank you. Joanna Dow has been sat patiently waiting for the last week while, so we have now moved to business stream. What the full impact on business stream has been of the loss of the public sector framework contract and the extent to which profits will be impacted going forward? Alongside that, I would be interested to hear on how you are preparing yourself for the opening of the English market and what benefits that might bring for Scottish consumers. Loss of the public sector, we obviously had a significant period of time to prepare ourselves for the outcome there. There was an extended period during which the contract was being considered, so that allowed us the opportunity to prepare ourselves for all outcomes. We used that time wisely and took the opportunity to restructure the business and to design processes that were, I would say, more customer focused and to position ourselves to be ready for the opening of the English market, but also to be able to compete more effectively within the Scottish market, too. There is no doubt that the loss of the public sector will have a significant impact on the business in the short term. However, as I say, we prepared for that as one potential outcome. In terms of readiness for the English market, the market in England opens now in four months time on 3 April 2017. That creates a huge opportunity for business stream. The size of the market in the south is roughly eight times the size of the market that exists today in Scotland. I believe that we are ideally placed as an organisation to secure market share in the south. We have got eight years of experience of operating in a competitive market here in Scotland. We know what customers want. We have taken the learnings from things that we haven't done that quite so well over the last eight years, and we will plough those into compelling propositions for the south. At the moment, we are going through a period of significant transformation as an organisation focused particularly around the quality of the customer experience that we deliver. I am cognisant of the fact that we are quite different from Scottish Water in that we operate in a commercial environment in Scotland, so if a non-household customer is not satisfied with the level of service that they get from business stream, they can choose to go to one of our 23 competitors. For me, having taken on the role of chief exec two years ago at business stream, my focus is very firmly on how do we raise the quality of the customer experience that we are delivering for our customers across the UK. Going back to England, I feel that we are ideally placed to secure market share, but we will do so in a very targeted manner. We have to recognise that there are some segments of that market that we have a very strong unique selling point to sell into. The geographical dispersity of where we secure customers will be really important as well. You touched on what you might not have done well over the past eight years. A very large proportion of the complaints that you receive relate to bills and charging. How do you respond to that stat and what are you doing about it? If I look again at the performance over the past two years and more specifically over the past six months, we have had annually, over the past 12 months, about 1,000 complaints. That is from 100,000 customers. The level of complaints that we have as an organisation is quite low. Having said that, my position on it is that we want to seek to deliver a quality of customer service so that we get it right for customers all the time. If I look even at our statistics on customer complaints, in the first six months of this year, relative to the same period last year, we have reduced the number of customer complaints by 53 per cent. In the latest figures that SPSO are reporting as well, the Ombudsman reports on a 50 per cent reduction in complaints that have been escalated to them on behalf of Business Room as well. If I go back to the point that I made earlier, my key focus is about enhancing that customer experience. I would love if we could do that overnight. The reality is quite different. It takes time to embed processes, systems to train individuals, but all of the indicators are moving in the right direction. We measure customer satisfaction independently on a biannual basis, and the last set of results that were published two months ago show that continued upward trajectory in customer experience. You said that it is moving in the right direction, but you will be aware of the evidence that has been given to the committee from the National Farmers Union and the Scottish Land and Estates. It is evidence that chimes with what many of us who represent rural areas here about your agricultural customers' experience with the company. How do you respond to the evidence that we have received? I take the concerns that are raised really seriously. I have reached out to NFU and asked for specific details on the five cases that they have provided, and I have also offered them a single point of contact to deal with any issues that they have in future. I have followed that up by saying that I am very keen personally to meet them to understand exactly what the concerns are that their constituents are raising. If you look without going into the detail of the five cases that they have provided, by and large, the issues that are being drawn to our attention are fairly complex issues. We find that particularly within the agricultural community, where there is often lengthy infrastructure that sits on the farmer's land. There are instances quoted there of leaks, and there are shared supply issues, where there is a joint supply that provides a domestic element in the farmhouse but also the agricultural side. Without wishing to make excuses, those particular issues are quite contentious and difficult to resolve. From that perspective, what we are doing now is working much more closely with Scottish Water to seek a resolution of those particular issues. I accept that, but there is a commonality about some of those complaints, particularly around the number of times that metres are being read around whether or not people receive a leakage allowance or don't. As I understand it, in the days of Scottish Water, they did. Can we get some clarity on the record around those points? I think that that is at the centre of much of the disgruntlement in the agricultural sector. I take the point on metre reading first. Over the past 12 months, we have attempted to read 84,000 metres. From those, there are only 9,000 metres that we have been unable to read. The reasons for not being able to get a read vary, but the three common themes are that the metre is located internally within a premise and we cannot get access to read it because maybe the property is vacant. There are access issues, so there may be a health and safety issue that actually prevents safe reading of the metre. The third category is where we are unable to locate the metre. We have an obligation under the market code that governs the non-household market to provide at least two reads per annum for every customer. One of those reads can be provided by the customer, so although the requirement is two, one customer read, we endeavour to read all of our metres at least twice a year. We recognise the challenges and the fact that, at the moment, 10 per cent of those metres we are not being able to read. What we are doing is introducing a series of different improvements there. We have introduced an improved metre read schedule. We have appointed a third party to recalibrate that metre read schedule to increase the chance of the likelihood of being able to get a read. We have introduced an online portal that allows customers to log into that and provide details of a time that is most suitable for them to be in the property to be able to access it to get a metre read. We have also introduced customer calling cards. Where we have been unable to get a metre read, we leave a card now with the business customer to give them alternative routes for being able to send us a metre read or indeed to be able to contact us to arrange a time and place that suits. That is everything that we are doing on the metre read side. I should say that our performance in that area has significantly improved in the past 12 months. On the subject of leaks, this is always a really contentious issue. The policy that we apply for leak allowances is a Scottish Water policy. It maintains the assets and grants the leakage allowance. That policy was formalised in 2008 but there really was not a change in the practice that was being employed. To summarise that, the customer is responsible for the pipe work that exists between the boundary of their property and inside that boundary. Scottish Water is responsible for maintaining the infrastructure between the water main and the property boundary. Where a leak occurs on a customer's property and it is found to be caused by Scottish Water or one of their contractors, the customer is eligible for a leak allowance on that full amount. Where the leak occurs within the boundary and it is in effect the customer's responsibility, the leakage allowance that gets applied is only to the wastewater element of that, not to the water element. A feature for many farmers is that, if they have a septic tank, they have no connection to the waste network and they will find themselves in a situation where they have not been eligible to apply for a leak allowance. How does that approach compare to prior to business stream in Scottish Water? Is there any change at all in approach? I think that we would need to be safer. We would need to check that out. That is fine, if you could write back to us because they are out there in the public domain, there is a belief that this is a different approach. We used to get clarity on that. I think that the further thing that I would say is that referred to the Scottish Water policy here and all of the policies that impact market rules but how we deal with not just business stream but other licensed providers, we keep under review. I think that the whole issue about purely applying to the wastewater element is something that is currently being reviewed at the present as to whether that should be extended on to the water side. I want to take those in a slightly different direction. Emma Harper has your question about metering, so I will let you in now then. Thank you, convener. Just a quick supplementary. I was at an NFU in Dumfrieshire meeting last night and they brought up similar issues about meters. One of the farmers said that his meter had been moved from the steadding to a more remote area where he had to climb a bank and then get over a dike to get to it. He thought that was a bit odd, especially if you are describing alternatives. Their problems are about poor communication, aggressive debt collection and meter placement. If you have any update on that, I know that you have said that in the past 12 months that you have done a difference. It might be that they just have not had the information yet. The issue on meter location, I will leave to Peter, but I will cover a bit about the debt recovery process. Again, we have had feedback from customers about the debt recovery process that we are following. We have worked extensively with Consumer Futures on that process to try to make that debt recovery policy much more equitable for customers and to make customers aware that there are alternative payment options available for them. I am quite happy to pick up on that specific issue if you want to drop me a note on it offline. In terms of the meter location, clearly the meters should be put in a place that is easy to read. I am concerned if you are saying that it is actually made it worse to read. However, we have to take into account that the meters need to be placed close to the point at which Scottish Waters pipe work finishes, because if it is far up the private pipe work, so if the farmer has a long private supply pipe up to the steading and the meter is up there, there is a significant length of pipe that there is no measurement of any potential leakages or loss on that. So, the meters are generally placed at the point where there is the interface between Scottish Waters pipe work and the farmers. However, I can look into that specific issue just to see if it has been put in a place that is not easy to read, because it should not be. Thank you. Do you want to know how you said that you would take on these particular cases that have been highlighted by the NFU? I would be grateful if you would look into the SLE one as well. That is a constituent of mine. I declare an interest. What is quite clear from the evidence that we have had is that there is a disconnect in the relationship that would appear between agriculture and their dealings with themselves, and it would be reassuring to be advised that this is a more general point that is going to be looked at in detail. If you can give us that commitment, can I add something else in? I am being contacted by a farmer who is telling me that, right or wrong, business streams are sending out reminders on the same day as invoices requiring payment within 14 days are going out. Would that be right? If that is happening, it will be an isolated instance. Our debt recovery process does not trigger a first recovery letter until 14 days after the bill has been issued. If the two things are landing consecutively, then clearly that is an isolated incident, not something that we are intending to do. I will discuss that with you later on about the specifics of that case. Also, the fact that 14-day payment terms seems rather short for a business, doesn't it? Under the market rules that we operate within, there is a default level of service standard and a default price that goes with that. For water customers, typically the payment terms, unless they negotiated something different, is payments due on demand. We allow 14-day period of grace before we would start that debt recovery process, but the invoices themselves are due and payable on demand unless the customer has negotiated something different with us. That is laid down for you to follow. That is the default service standard that applies for that default price that gets regulated by the industry. I suspect that Scottish Water and Business Stream take longer than 14 days to pay their customers. If I am perfectly honest with you, we allow tolerance around that as well. We start with a very gentle reminder on day 14, and the actual debt recovery process itself is very extended. How long do your organisations take to pay customers—suppliers, rather—set against that procedure? It would depend on the specific supplier that we were contracting with, but I would say that, typically, our average payment timescales are probably about 28 days. I would like Douglas McGill, and I do not give him the opportunity to respond. The precise number that is set out in our annual report on accounts—I am just trying to find it at the moment—is very prompt. An interesting reflection is that I recruited my finance director out of the private sector three years ago, and he was struck just how promptly we pay our suppliers. I think that that is absolutely right and proper that we do that. It is part of our duties as a public body, and it is part of the commitment that we have made as a business in signing up to the Scottish Business Pledge. That is welcome. I am just drawing the comparison between how quickly you may pay your suppliers and how quickly business stream are requiring their customers to pay up. Claudia Beamish? Just a brief supplementary on that for you, Joe. Could you just clarify when you say that that is the default situation? Is that something that Scottish Water, in view of if there is more evidence than what has been provided today about concerns, about the speedy expectation with which people are expected to pay, is there any way in which you might review that? If it is a default, I am not quite sure what you mean by a default. The default is a reference to the default set of retail charges that exist within the water industry in Scotland. If I go back to my earlier point about business stream being one of 24 competitors in that market, what the regulator does each year is to set a default price for retail charges under the expectation that retailers will charge less than that where they can. With that default price comes a default set of service standards, so that is the default position that I refer to. As I said before, we have been working very proactively with consumer futures in this space, looking at particular issues that customers have expressed about debt recovery practices, looking at payment terms as well. We would happily take on board any additional feedback that you have to put into that process. Mark Ruskell, if the WIC sets the default service standard, to what extent is the WIC open to the incidents that we have heard today and the concerns from customers? Do they take on board the views of customers and stakeholders, or is there a role for ministerial direction there? The WICs very much take on board the views of customers. The customers can contact WICs directly if they have specific concerns. I have already mentioned the SPSO as well and the Ombudsman who operates in this space, too. There are certainly numerous avenues for customers to explore. We are more than happy to address those issues directly if we understand exactly what the concerns are. That is an issue for the WIC, not an issue for you, because you are in a regulated market and they set the standards. There are default standards, but, as I said to you before, for us to retain customers, we need to be constantly raising the bar from a service perspective, so there is nothing preventing us from doing something different from those default standards. This section is about non-regulated businesses and the wider economic impact. I would like to ask you about Scottish Water Horizons. In particular, you have highlighted a number of renewable technologies that you are currently involved in, from hydroturbines to heat from sewers. I was wondering, firstly, that there have been lower profits over the past year versus previous years. What are the prospects going forward in terms of profit? For me and this committee, more importantly, your investment in those renewable technologies and their potential to impact positively on climate change? The horizons is an umbrella body through which we develop all the activities that exploit the assets, resources and the intellectual property that we have as an organisation that sits outside our core regulated service of water supply and wastewater services. There is quite a diversity of activities that sit there. There is quite an entrepreneurial culture. It is one where there is always in the business of looking at new opportunities. What I can talk to you about is what is on the horizon now, but equally that could change over time. In terms of the renewable side, it played a significant role in recent years in putting in photovoltaic panels, small-scale wind turbines and hydroturbine facilities. In the last year, the new one for them was heat from sewage. The pioneering scheme, which is a UK first, is in gallus heels, where, effectively, the sewer-feeding gallus heels wastewater treatment works is intercepted and a heat is taken out of that to power the Scottish Borders College in the town. What has emerged from that? We have now entered into a much wider partnership with the development of their communicable shark energy. Where else can we apply that across Scotland? The short answer is that there is lots of scope. The preconditions to make it work from a technical and commercial angle is that you need clearly access to a wastewater pipe or sewer in close proximity to customers, but it works best, probably with public sector customers, where there is a prospect that they will have longevity and that the investment can be made in the heat transfer technology against a secure income stream from a public sector customer. I was referencing earlier today to my meeting with the chief executive of Stirling Council, so, for example, in Stirling there is a very live scheme that is being looked at. There are a number across Scotland. How many of those will come off? Only time will tell, but, clearly, wherever there is scope to deploy the model in a commercially successful way, we will pursue that. Equally over time, as new innovations come in, you can either get access to new technologies or the cost of technology drops, so something that was not commercially viable yesterday becomes commercially viable in the future. When I look out into the medium term, I think that heat from sewage is the most exciting prospect that lies ahead of us in the next few years. It is quite interesting that you mentioned previously four to seven-year payback terms, and many other chief execs in a more commercial environment think that that is too long. In terms of water-based heat pumps or taking heat from sewage, are you willing—it seems that you are—to take that longer-term approach and allow the payback period to be extended? Is that going to reflect on the profitability overall of horizons? The model that we have here is that we are effectively, through horizons, in anabler. Is shark energy the company that is investing in technology and doing all the hook-up with the heating systems in the public sector body? It is for them to take a view on the period in which they require a commercial return. If they have public sector clients who are signing up to long-term contracts and with a secure revenue stream, that inherently reduces some of the risk associated with the scheme and therefore will allow them to take a much longer-term view in terms of the required period for payback. That is certainly the current commercial model that we have. Thanks for that. Secondly, looking at Scottish Water International, I thought that it was interesting that four strategic target markets and profit before taxes are down. How do you see that expanding? Also, in some of those nations, there are individual statutory bodies that are doing consultancy services of their own, such as my former colleagues in the Murray Darling River Basin Commission, now authority. I was just wondering how you see that expanding and how you can take, particularly some of the environmental technologies that you are leading in and exporting that across the globe. When I looked at it from a profit angle, the profit streams have historically come from two sources. They have come from people that we deploy and effectively the fees that we charge for those and they have come to a degree from the sale of intellectual property in the form of operating manuals and the like. That is what can contribute a wee bit to the lumpiness in the profit stream. However, when you look at the profits and ratio to turn over, they are strong. We have now been operating this business for four to five years. As time goes on, we will refine the approach that we take. In some sense, our unique selling point is that we are a commercially successful water company but in public ownership. In most places in the world, water continues to be in public ownership. Therefore, there is quite a degree of interest in how you run a commercially successful water company with a focus on customer service and efficiency while in public ownership. A lot of that interest is not about having lots of people on the ground for extended periods of time. It is about the sharing of knowledge and expertise, often over quite short periods of time. We may move our model that might involve fewer people overseas and perhaps more people going for shorter durations on assignment. We have been working on Qatar for the last four to five years. That contract comes to an end in March next year. Ireland is a growth area for us at the moment because there is effectively the creation of a body of Irish water, which has got certain similarities to Scottish water in that it is in public ownership, albeit that its operations are currently spread through the local authorities. We are engaged in a number of different contracts in supporting Irish water with that core challenge of how do you become commercially successful while in public ownership? Can you consider link-ups with either Scottish-based SMEs or businesses as part of that export market so that you can provide, as well as the people and the expertise, further technological solutions and maximise the benefits that we have in terms of Scottish development international and building the portfolio up? Absolutely. There are many ways in which that could develop. It is absolutely the case of how we can maximise the volume of benefits that we have right across the broader water sector in Scotland to maximise the export potential for Scotland. Good morning to the panel. In terms of that longer-term view that you spoke of, Douglas, with regard to the workforce going forward, I understand that you offer a number of training opportunities for young people through STEM subjects and also to women, but you are cognisant that only a quarter of your workforce is currently female. First, how does Scottish water seek to tackle that gender segregation in the workforce? Secondly, with regard to STEM subjects and training, is any of that work at all tagged to Scottish Government ambitions with regard to closing the attainment gap? There is a huge amount of work that we do in this whole area and at many different levels, so I could pull many themes. For example, on diversity as a whole, we have a huge focus on trying to recognise and value diversity in our workforce. I will give you one example. Twice a year, as an executive team, we get face-to-face with everybody in a leadership position in Scottish Water. We have about 600 people in leadership positions across the business, and probably the single biggest topic that we focused on in our last month in November was the whole area of diversity and inclusion, and how we encourage diversity absolutely in gender but also in all the other aspects of the protected characteristics. If I stick specifically with the gender one, although the figures that you quoted are for the workforce as a whole, if I look at some of our first-level professional roles, 40 per cent of our people at that level are female. If I look at our future leadership development programme, 63 per cent of the participants are female. There is a huge amount that we do to encourage that. If I come back to STEM, we have a real focus on STEM in terms of the bias for our graduate intake, particularly looking to recruit people from STEM backgrounds. We do quite a lot of work right down into schools to encourage young people to consider careers in engineering as part of that. I take you back to the international question that Claudia Beamish has a brief supplementary. Just to ask you whether you have considered or would consider the possibility of opportunities to support countries, states or regions internationally in dialogue with the Scottish Government? For instance, in relation to the climate justice fund or anything like that, because while I appreciate that, especially in the context of slightly lower profits for the international aspects of your role, that would be a challenge, I think that it is important as a public body perhaps to send that kind of a message and an international opportunity might be available. I absolutely agree with that, so two or three different aspects of the tease-out. For a long, long time, we have had a strong commitment through the charity WaterAid, so there is a lot of work that we do through WaterAid to support international development work. In fact, we did a team out in Zambia in the last year or so, and we are actively in dialogue with the Scottish Government about what else we might formalise through international and with WaterAid to support work in any particular country. It is a rich area to pursue, but what we need to recognise is clearly the specific needs in many developing countries are quite different to the areas in which we have our core expertise, so it is probably how we work in partnership with people in another country that will be appropriate. Mark Ruskell, I know that one of your key international target markets is Canada, and I am wondering to what extent you have analysed the opportunities but also the threats that may arise from the comprehensive economic trade agreement. I am not going to comment on that latter point, so it is not something that I personally am familiar with. In terms of Canada, the work that we have done to date has all been in Alberta. We did work some years ago in helping to develop drinking water safety plans, and we recently worked with the City of Calgary in doing a review of how they could improve the efficiency of two different aspects of their water service activities. I should say that we are setting it up to respond to opportunities where they genuinely exist. We are not resourcing international with lots of people who we have to go and find work just simply to employ them and to ensure that their costs are covered. We are responding to where there are real market opportunities and bringing people in on secondment from Scottish Water to fulfil where there are real needs. Could your public sector status be challenged under CETA? Have you done any analysis on that? That is a question that I would need to take away and give a response to. Can it get signed in a couple of weeks' time? Time is running out of it. Do you think that there are opportunities or threats involved with it? That is fine. With a view on that, as quickly as you could. Moving on to the issue of vulnerable customers. I appreciate that Scottish Water does not build our customers directly, obviously that is through the local authority. However, I think that there is a level of confusion among those who perhaps are exempt from paying council tax, for example, and then assume that they are equally exempt from paying water charges. Indeed, the Citizens Advice report, which was published last year, flagged up that some authorities have been applying to the DWP to make additional deductions from people's benefits through the water direct scheme. Firstly, what do you see as Scottish Water's social responsibility in protecting vulnerable people? Secondly, are you aware of the extent to which the water direct scheme is being used by local authorities across the country? Probably a number of different points to tease out here. The first point that goes back to that point that I made at the very beginning, is that there are ministers who set the principles of charging that apply. At the heart of that is something that is very powerful, which is all about how we make sure that water charges are as low as possible and as affordable as possible for all our customers. There is a huge amount of protection built into the inherent charging structure, partly because of the way that it mirrors the council tax structure, but also the fact that the discounts can be accessed. Over 20 per cent of our household customers qualify for some form of support. That is not free. That comes at a cost. That comes at a cost of about £36 million that is borne by all our other customers. Secondly, I want to say that it is again to try and help to make things as affordable as possible. It is in all our customers' interests that we maximise the level of collection of water charges, because any uncollected water charges fall as a burden on those customers who do pay their bills. That is why we have been working with local authorities very successfully over many years to drive up the level of collections. In terms of the specifics of the water direct scheme, that has been a pilot in a couple of local authority areas. It has been rolled out to a few others, and certainly the feedback that we have had from one of the pilot areas is that they have had very little complaint about it. That will all be closely monitored by us and indeed by the Scottish Government. Finding it from that will feed into the long-term charging review that will inform principles of charging for the 2021-27 period. I am moving on to Claudia Beamish. Thank you, convener. We move on to climate change issues, and I will start by asking the panel some questions about mitigation before we move to adaptation with my committee colleague Mark. As you will know, the Part 4 of the Climate Change Act places duties on public bodies. Also, in 2014, the Scottish ministers gave additional direction to Scottish water in relation to climate change mitigation. That included as well as some direct greenhouse gas emissions. It also focused on energy use specifically. I am not sure who would like to answer that, or whether it is a range of the panel today. Could you please let us know what emissions reduction Scottish water has achieved to date and how those compare with Scotland's emissions target to cut emissions by at least 42 per cent by 2020? Where you consider that there is investment decisions might need to be made with the potential to reduce climate change emissions. Over what timescales do you consider cost-effectiveness of such a decision and what payback periods do you consider as cost-effective? I know that that is rather a broad and detailed question at the same time. If you want to write on some of those issues to us, it would be helpful to understand, especially in view of the sharing of information between public bodies. You will know the public sector form that you were represented on in the previous session and have made a big contribution to it. There are a number of different points here, so we will do our best to try to address them. The starting point to recognise is that the very act of providing really high-quality drinking water and the quality of treatment that we now provide to wastewater discharges are inherently energy-consumptive activities. If I even link that back to one of the earlier questions about protecting shellfish waters, when we had to make major investment in Strunrar to improve the quality of wastewater discharges to Loch Raiyan, very much with a view partly to complying with urban wastewater treatment directive, but also to deal with protecting the shellfish waters in Loch Raiyan, what that scheme has ended up doing is taking the treated wastewater up over the hill and down to the IRC, and that alone has got an energy consumption that has expressed in pound notes is a half a million pound a year energy consumption. It is really important to recognise that in our efforts to improve whether it is drinking water or improving quality discharges of the aquatic environment, there is inherently an energy consumption built into that. Notwithstanding that inherent increasing demand for energy over the last many years, we have achieved year-on-year reductions in effectively the carbon consumed in our activities. You are going back over a 10-year period. For example, just in the last year alone, we achieved a further three and a half percent reduction in carbon footprint. At the heart of the work that we do in this year—let Peter expand on that—we are looking at what we can do to improve the energy efficiency of activities. Liquead reduction is a good example of that. What can we do to improve the energy efficiency of activities? Secondly, what can we do to increase the amount of renewable energy that we consume, particularly renewable energy generated close to the point at which we need to consume it? We are doing a significant amount of energy efficiency, particularly at treatment works. For example, we can put in far more energy-efficient pumps and motors from a number of years ago. When we are doing capital maintenance to upgrade works, if we put in energy-efficient pumps and motors, that can produce a significant benefit. There are a number of control systems that we are putting in place to control our processes so that they only come on when absolutely needed. More automation of treatment works drives significant energy reductions. Significant things that we are doing to reduce energy over our whole stock of assets. Within business stream, as well as being very aware of our own environmental footprint, what we have delivered over the past eight years has helped our customers to focus on using less water. As a consequence of that, we have helped our customers to deliver a 24 billion litre reduction in the amount of water that is used, which equates to 42,000 tonnes of carbon saved. As an organisation, we are very aware of the link between helping customers to use less water and the energy impact that goes with that. Just ask you, finally, for some detail, if not now, in writing about have you done any assessment of energy use and dropping energy use in possibly demanding buildings, your fleet and the workforce? Have you had any projects or intend to have projects about raising awareness of those issues with your workforce? No, absolutely. There is a lot of activity right across the board here. The heart of Scottish Water is in the business of protecting public health and protecting the environment. The sustainability aspects that flow right through our activities. There are many particular examples that we could give in response, and we can provide something in writing on that. Right, and they may be good stories in terms of your profits as well, if it was in relation to making they are not mutually exclusive. No, absolutely. The great benefit of the model that we have is the savings that we make, all for the back to our customers. Thank you. Mark Ruskell. Thanks, convener. Turning now to the flip side of climate change and adaptation, what is your approach as an organisation to assessing what those risks are? It is clearly a number of ones that are quite high profile around the capacity of the sewage system, around water shortages, around good ecological condition of our water resources as well. I see those as the main ones, but what kind of assessments do you, what kind of long-term thinking are you currently undertaking? I think that there are many challenges that the changing climate is already bringing us, never mind what will come in the years and decades to come. Probably the most obvious is in terms of the impact of more intense storms. As you highlighted, that is obviously the impact that it has on the adequacy of the capacity in our sewer systems, but it also has an impact in terms of what it does on run-off from hillsides into the water bodies where we abstract water from, from drinking water purposes. For example, if you take somewhere like Aberdeen, the two water treatment plants that we have serving Aberdeen abstract the water from the River Dee. When you get more intense storms upstream in the catchment there, you can get more organic material effectively being washed down off the hillsides and into the river, and that can create a greater load that we have to treat and deal with. That will cause changes over time in terms of additional filtration that we need to put in place to make sure that we can take out that organic load before it goes through the full treatment process. However, if I look at the main area, which is probably the sewer capacity, the first area that we looked at in earnest was Glasgow. I referenced earlier all the investment that we are doing in Glasgow, and the genesis of that was storms back in the summer of 2002, when the East End of Glasgow was inundated with excess surface water. Since then, we have worked in partnership—that is a really key aspect here—with other public bodies such as Glasgow City Council, SEPA, Clyde Gateway, to assess what are all the different issues that need to be looked at on a multi-agency basis to then come up with the right holistic solutions, whether we deliver them on our own with the city council, and what can be done by way of preventative measures to hold surface water source, as Clyde Gateway has done as part of its development. Taking the success of that partnership model in the 2010-15 period, we then developed five integrated catchment studies in five of the major other urban areas in Scotland, where we took a lead role in working with the local authorities, and again it is looking at the interplay between the sewer systems and surface water flows. Having done that in the 10-15 period, in this new period of 15-21, we are now doing a further 15 integrated catchment studies. With all those studies once they are completed, the next stage is then to look at what are the options that could be developed and then to progress those into future investment plans. The other area that we have looked at in the past, what we will need to keep looking at, is assessing the flood risk to some of our critical assets. We have done a lot of work to improve the ability of our water treatment plants or pumping stations to withstand major flood events. Clearly, in the context of a change in climate, what might be appropriate in 2016 might not be appropriate in 2036. We will need to keep that under review as we go forward. Probably the other area to highlight is what we need to do from a drought resilience angle. We have done quite a bit of work in recent years to improve the security of supply in a lot of our water resources. Clearly, the work that we have done, for example, on reducing leakages has helped with that, too. However, we have raised dam levels in some of our reservoirs to give us greater storage and greater resilience to extended periods of drought. That is another area that we will keep under review as we go forward. Some of the projects that you point to, there is a wider holistic benefit in particular at Lockhart Trin and some of the work that you have done there in terms of forestry. Is there a danger there that the WIC could turn around and say that it is all very well, but, at the end of the day, this is not delivering the lowest cost to consumers. This is not investing in what we want you to invest in in terms of a water supply system. How do you square that? Are there challenges in being an economically regulated industry that clearly has the opportunity to spread wider benefits into other areas of public policy? I think that that is quite an easy one to deal with. It comes back to part of the elegance of the Scottish water industry system, where it is effectively the ministers that sit at the pinnacle of the decision-making tree. It is ministers who set the investment objectives, the priorities, the service standards that we must achieve, and the responsibility of the economic regulator is to determine the lowest to reasonable overall cost of delivering ministers' objectives. So, their economic assessment is not in relation to their view of priorities, it is in relation to ministers' views of priorities. Just very briefly in relation to the adaptation, your water resource plan 2015, which I have looked at the summary report of, does have 11 different scenarios for the risks to water of climate change. It might seem a bit odd here in Scotland to talk about the lack of resource, but let's hope that we don't get to the most serious scenario, but that has very serious implications. I wonder how you are able to really rationalise planning for something that may never happen, because if it did, it would be very serious for the people of Scotland and their access to water. Well, I mean the heart of all of this is risk assessment. I think it's really important when we're looking at water supplies, it's not to think about Scotland, but you've got to think about individual areas. So, for example, in areas that tend to have naturally high rainfall, associated with natural rainfall, for example, the west Niles, we've seen in recent years when we've had extended dry periods that we've come across your particular challenges. So, you've got to look at what are appropriate solutions for particular areas, but over time, certainly in a mainland sense, we're going to look at how we can join up different water supply areas. For example, at the moment, we're currently got investment linking up the water supply system in Ayrshire to Glasgow, and we're doing that for a number of different resilience objectives, recognising the risks and can take different forms, and indeed the events can take different forms. But how can we build more resilience in the system to deal with whether it's weather issues or infrastructure failure issues? I guess that at heart, as a business, we plan to deliver a consistently great service, but there are two challenges that are ever before us, and that's the climate and infrastructure failure. Both of those will happen to different degrees, so our job is how can we cost effectively build as much resilience into the system as possible, but at the end of the day, we will never be able to invest, we'll never be able to afford to invest as a country to cater for every possible eventuality. I think that it's just something that we, together with our other regulars and government, just need to keep under review as we go forward to always keep determined, okay, so what's appropriate to do looking at the next time in five to 10 years? Okay, it's slightly a different subject, but peatland restoration is accepted as having climate change as well as biodiversity benefits, but it can also benefit water quality. I just want to explore briefly whether Scottish Water helps fund peatland restoration projects in the vicinity of reservoir catchments. Okay, I'll take that one. Presently, we've not undertaken any peatland restoration, but we have done significant investigations into areas that might be suitable for restoration projects. In SR-15, during this regulatory period, we've got a project currently on the go to survey and monitor 21 of our water treatment works with regard to the condition of peatlands, because it can have a big impact on organic carbon, THM, production and our treatment works, for example. So far, we've identified a few sites that we will take into our regulatory process. It's called IR-18, so there was a chunk of money that wasn't allocated to particular projects in our regulatory programme. We'll be taking issues like this to a review at this IR-18 process to make sure that we can get some funding to deal with these restoration issues in the latter part of this regulatory period. Okay, that's very good news, and that's very welcome. Moving on, Maurice Golden. Thank you, convener. We've heard a little bit about some of your circular economy activities already. I wonder if you could say a little bit more about any work that you've been conducting and you've mentioned some of that already on phosphorus and priority substance recovery and also around anaerobic digestion. I think that this is all fairly early-stage work, and it's looking at what is the art of the possum, particularly in terms of what can be done cost-effectively. There are countries that are further advanced in nutrient recovery than we are, but, certainly at the moment, it will be quite challenging for us from an economic perspective, but it's absolutely something that we're looking at as we look at our planning for the 2021-27 period. What scope is there, even scope in terms of potentially how we design wastewater treatment plants in the future to support that nutrient recovery? I think that one of the other things on that is to try and facilitate that. We've created two development centres on redundant assets that we have, one at Water Treatment Works and one at Wastewater Treatment Works, where we've opened those up to technology companies to work with us to try and find and pilot new technologies to deal with issues like that, but it's early stages of the process. I mean, there's a declare an interest because I set it up, but there's a small business research initiative at the moment that's live that's funded by Scottish Government Highlands and Islands Enterprise in Zeroway Scotland looking at phosphorus and priority substance. I think that Scottish Water is ideally a place to support that and particularly those Scottish small businesses that are currently looking at that. I think that it's welcome to hear that you'll incorporate that into your planning. In terms of deer dykes, I feel free to come back on that initial point, but in terms of deer dykes in particular, there's been some historic issues with respect to odour around that from 2012 that are now firmly in the past, as of October this year. I was just wondering if you see that as a technology that you'll continue to look at, particularly from a committee point of view for solutions in rural areas and with the use of food waste in our island and rural communities. I think that it's always important to recognise what is the core competence of a business and to really exploit the core competence, but to recognise where other people may be better placed to meet a particular market need or opportunity. We've got this waste facility at deer dykes. It takes food waste and converts it to energy. We've learned a lot about that operation over the past few years, and we're increasing the efficiency and output that we're getting from it, but I'm not sure that we would ever view that as a core competence of Scottish Water that we would choose to invest in to scale up. I think that there are better places in which we can get a better return as Scottish Water. In future, if there was a genesis of that, it would be a redundant waste water treatment works that we convert into that. I think that if we were to come across similar circumstances in the future, we would look pretty hard at whether we were best placed to exploit that or, indeed, to bring in a private sector partner to exploit that. It's more difficult than it looks, the facilities are getting it right. In terms of any either support or, obviously, from a legislative point of view, that you think may help you to deliver a more circular approach going forward, I'm thinking in terms of either planning or in separate collections of food waste in rural areas or any other areas that may be of assistance. Is there anything that you'd like to highlight to the committee bearing in mind that there will be a circular economy and zero waste bill coming up? I don't think that we see any legal impediments to what we need to do. I think that the challenge for us is partly how innovative can we be but, crucially, how well connected can we be with other partners, whether those are public sector partners, whether it's academia or private sector companies and particularly early phase entrepreneurial companies, to make sure that we are working in as collaborative and joined up of ways that we can to maximise the opportunities that we can. As you've asked the question, and I may be, in a sense, slightly pre-empting another area that you want to come on to, but just as you asked the question on legislative change, I think that the only thing that strikes us from a legal angle that's maybe a bit out of step with where we need to be and is absent on our radar, is the current allocation of legal responsibilities to do with sewage spills on farmland. That's something that we recognise is probably a bit out of step with where it needs to be in 2016, as it is rooted in 1968 law, and that's something that we will be taking forward in discussion with the Scottish Government as we go forward. If I could just pick up as well on the issue of the circular economy, particularly you mentioned anaerobic digestion, we're doing a significant number of works in this area. So, for example, a really positive thing recently, so in September 2016 this year, we've just successfully connected up our Gervan wastewater treatment works down in Ayrshire to a local farmer who has built and developed an anaerobic digester using farm waste and other products to produce electricity, which we use at the treatment works, so it's reducing our need for fossil fuels and also reducing waste on sites. That's a perfect example there that we're working with the rural community with. Alexander Burnett. You mentioned there were six pollution incidents in the last year. There's been a slight increase in both higher and lower category pollution events between 2014 and 2015 to 2016. I think that as people who live downstream of some of these sewage works, live and work there, including myself, might contend that there are more incidents than are being reported. Can you comment on why there's a very slight increase? Why do you think there's low public confidence in the assessment and reporting of incidents? And how many pollution incidents actually went to the procurator fiscal and what, if any, fines were levied? Okay. The first part of that, there's a slight increase in 2015-16 in total pollution events. Douglas mentioned earlier about last year that our investment took a bit of time to kick off in the early parts of the year. I think that that potentially had an impact on our ability to quickly deal with some of the issues there. What I can say is that we've had some further reductions this year and we're on track for a 10 per cent reduction in the total number this year, so that has started to move at the pace that we would expect. If you look at that in the wider context, since we started looking at this back in 2010-11, over the five years, the total number of pollution incidents has reduced from 824 back in 1011 to 257 in this period. That's a 70 per cent reduction in pollution events over that period, so we have really been focusing on that and had significant benefits coming through on that. As I said, we are continuing the focus on that. We work very closely with CEPA in terms of the categorisation of the events. I would say that I'm fairly confident that we are now reporting all the majority of pollution events because they're self-reported by us. CEPA, through investigations and going around to catchment, picked them up, but we also get significant numbers reported by members of the public themselves. I'm fairly confident that the pollution events are certainly being notified to us and that we have some significant projects on the go to improve that even further. If I just talk about some of the improvements that we're focusing on, bearing in mind that we are a heavy asset-based industry. We've got 1,800 wastewater treatment works, each of them with the potential for pollution that discharges back to the environment, and we've got 50,000 kilometres of sewers across the whole of Scotland, again with relief points and overflows that are designed into the system. The majority of our pollution incidents are coming from the network themselves. I mentioned earlier 1,800 wastewater treatment works and only six of those are failing the parameters that are set for them just now. The majority are coming from the network. Some of the things that we're doing to improve that even further, we're looking at targeted proactive sewer maintenance, so we're going in and clearing out sewers to make sure that they are at full capacity. If they're at full capacity, they can deal with the flows a lot better and stop discharges. Obviously, if grit and debris is allowed to settle out in the sewers, it can impact on the capacity of the sewer and lead to discharges. We're increasing maintenance at pumping stations to take out more of the debris that goes into the sewer so that it doesn't deposit in the networks and cause discharges. You'll also probably be aware of our customer behavioural campaigns that have been on the TV. One of the main elements of that is to try and inform our customers about putting things down the toilets that shouldn't be going down the toilets because those cause significant numbers of blockages and therefore overflow and pollution events. That can be caused by wipes, fat soils and greases. Our campaign is all about trying to help our customers to help us to have a more efficient operating system. The final thing that we're looking at just now is putting low-cost sensors on our sewer network to detect flows and levels quickly through our 24-7 control centre so that, when levels start to rise in sewers, we can go out to them proactively and clear any blockages before they lead to an overflow or a pollution event that happens after the event. That's quite a big area for our focus going forward. Thank you. Having had to watch videos of sewage pipes, I've suddenly sympathised with your efforts to educate communities on what can go down the toilet. On the element that you mentioned about your self-reporting when it comes to incidents, do you think that that contributes to some of the public confidence that, if you're regulating yourself, how well thorough is it being done? Is there anything that you think you can do to improve the transparency of how you're reporting and what self-reporting is going on? I think that that's certainly something that gets mentioned to us. Two or three things on this. Firstly, the number of pollution incidents is a combination of what we identify, what's reported by members of the public and what gets reported through SIPA, so it's not just ourselves. The biggest challenge that we have here is that one that Peter referred to at the end, and that is us understanding what's happening, but this is the area of our network where we've got the least intelligence, so we don't know today when sewer overflows are going off with you at times, frankly, might be dry weather and they shouldn't be going off. That's why at the heart of this is how do we use smart technology to give us eyes and ears across all those overflows about when there may be pollution going on so that we can go and investigate. I think that that's going to be an investment that's going to take us well into the next regulatory period to secure the financing that we need to get that deployed, because that's going to be big. That's going to be the transformational step that we need to give us the intelligence so that we can go out and deal with things much more quickly than simply when we're responding to either things that we find ourselves or reported by customers. The NFUS has highlighted numerous issues in recent years where the sewage sludge has spilled on to farmland. The NFUS has flagged up that the current law puts the onus on the farmer to prove that Scottish water is liable when it comes to any damage caused by sewage spills on farmland rather than Scottish water to prove that they are not liable. NFUS feels, as you would expect, that the issue should be changed in law as the onus is the wrong way around. I'd be interested to hear your views on that. I think that this is an issue that we've got a fair degree of sympathy for. That's why I mentioned earlier when I asked about the question of did we anticipate the need for any legislative change. I think that this is the one area where I think that the law, because it was written nearly 50 years ago, is just out of step with what would be current customer service expectations and practice. It's something that we need to look up with the Scottish Government either to look at formalising a change in approach for the next period or whether that all gets accompanied by a legislative change as well. Is that something that is absolutely on our radar? I should draw to a conclusion what has been an incredibly comprehensive first session between the committee and yourselves. I welcome the evidence that you have given. Clearly, there are a number of matters that you have undertaken to write back to us on. Mr Milliken, that would be appreciated if it could be done as quickly as convenient. Joanna Dowd, we would welcome and update your discussions with the NFUS and SLE. Not only around the specific points that have been raised today but the broader issues that exist. If it were possible for you to write back and advise the committee on how that has worked out, I think that that would be good as well. I thank you for your time today. We now move to the third item on the agenda, which is subordinate legislation. This is for the committee to consider the air quality standard of Scotland amendment regulations SSI 2016-376. The details of this negative instrument are to be found in the papers. Can I ask members if they have any comments to make? Mark Ruskell. Thank you, convener. I have a brief comment, not so much about the statutory instrument itself, but more about the context in which it is being introduced. There was a recent High Court ruling. Client Earth First is the Secretary of State for the UK, in which the Scottish Government was cited in that case. The ruling was in broad terms that the UK as a whole state is failing to meet the current air quality standards and regulations that we have. There are obviously a number of implications from that. It would be useful to get some clarity on what the Scottish Government's responses to that ruling and the compliance that we have with existing air quality standards. Of course, that has an implication in terms of adopting more stringent ones. I think that it would be useful to see whether the Government could bring forward the low-emission zone policy suggestion, which has obviously been brought into parts of London, for example, where the money is then approximated back to helping local authorities. There are plans for that, but the two are related. Clearly, if you had low-emission zones, you might comply with the court case. I have two valid points, but they are not directly related to the SSI. Is anybody else comments to make? With the proviso that will write to the Scottish Government to hang up those two perfectly reasonable points, or asking for the views around those, is the committee agreed that it does not wish to make any recommendations in relation to the instrument? Agreed? Thank you. At its next meeting on 13 December, the committee will hold its second evidence session from a variety of stakeholders and academics on deer management in Scotland. As agreed earlier, we will now move into private session and I ask that the public gallery be cleared as the public part of the meeting is closed.