Environment, Climate Change and Land Reform Committee

Meeting date: Tuesday, April 17, 2018

Official Report 587KB pdf

---

Scottish Water Annual Report and Accounts 2016-17

The third item of business on our agenda this morning is to hear from Scottish Water and Business Stream on the “Annual Report & Accounts 2016-17”.

We have been joined by Johanna Dow, who is the chief executive of Business Stream. Peter Farrer is Scottish Water’s chief operating officer, Douglas Millican is its chief executive and Professor Simon Parsons is its director of strategic customer service planning. Dame Susan Rice is the chair of Scottish Water and of Business Stream.

Good morning and welcome. What measures have been taken to improve Scottish Water’s customer service record in recent years, and how can it be sustained?

I will give the committee an overview and then ask Peter Farrer to comment.

We focus on two key things: the physical service and our performance on quality of water, environmental protection, minimising interruptions to supply and minimising instances of sewer flooding; and the experiences of customers—how they feel about the service. I am pleased to be able to say that, having completed 2017-18, as well as the year that is under review today, we have continued our forward positive trajectory.

For physical measures of customer service, there is a measure that is known as the overall performance assessment, which covers 17 individual measures. The measures are weighted to reflect their importance to customers. As Douglas Millican said, they cover various things including water quality, environmental performance, flooding, pressure, interruptions to water supply, leakage and so on.

In our “Business Plan 2015-21”, we set a target to reach more than 382.5 points on the OPA on average. That level represents the threshold above which a score is recognised as leading performance in the UK. In 2016-17, we achieved 390 points on the OPA measure, which was a notable improvement on the target. This year, the improvement is continuing. Although numbers have not been finalised, it looks as though the total will be more than 400 points.

As an indication of the journey that we have been on, I will say that when the OPA measure was introduced 10 years ago, we were benchmarked as the worst-performing company in the UK. We are now recognised as one of the leading companies.

The second customer service measure—the more experiential one that Douglas Millican talked about—is the household customer experience measure. It is a combination of qualitative and quantitative measures that represent what is important to customers. It includes the number of contacts that we get from customers, abandoned calls in our contact centre, complaints—both first-tier complaints and second-tier complaints from the Scottish Public Services Ombudsman—customer experience scores and perception measures from customers who do not transact with us on a regular basis.

When we started on it two years ago, we had a target of 82.6 points for that measure. In 2016-17, we achieved 85.8 points, which represents a 20 per cent improvement in performance against the measure since we implemented it two years ago. This year, we are on a similar trajectory to improve performance further against the measure such that, over the three years since implementation, a 22 to 25 per cent improvement will have been achieved.

I want to pick up on a couple of the important measures within that.

Be brief, please.

Complaints are an important element of the household customer experience measure. In 2016-17, there was a 20 per cent reduction in the number of complaints from the number previous year. This year, it looks as though a 40 per cent reduction will have been achieved over a two-year period.

Thank you. That was very helpful.

What is Scottish Water’s approach to handling the sensitive community matters to which the chief executive referred?

In its daily operations and services, Scottish Water operates in communities the length and breadth of the country. The most intrusive aspect of our work in communities is when we go about our capital investment programme. At any point in time, there will probably be 200 or 300 projects running live in Scotland. It is an area in which we have made enormous strides, but we can still do more.

When we embark on a project, we now work actively with communities to consider how we can maximise community involvement in what we do, and in how and when we do things. For example, if we want to do an infrastructure project around a primary school, we will look at how we can arrange traffic flows so that the impact on people going to and from school is minimal. That is our general position.

Given the amount of work that we do, we do not always get it right. When we create sensitivity in communities, we must recognise that and consider what we need to do to recover the situation and make progress. It is crucial that we always ask what insights we can obtain from such situations so that we can learn from them and build into our processes measures to improve what we do.

I will give a live example that relates to the capital city. We are doing a significant project in the Haymarket area of Edinburgh, just opposite Haymarket station. We are expanding the size of the sewer there to take away the risk of sewer flooding for some businesses on Haymarket Terrace. In that area alone, we have had to engage with half a dozen different communities, including businesses, households in the area and in the adjacent area to which traffic has been diverted, people who use the train station and cyclists. Community engagement is a multifaceted activity at which we are seeking to get better all the time.

Another example that could be cited is the massive infrastructure project in Glasgow that Angus MacDonald and I visited some time ago. Was not there a delay in completion of that project, which led to inconvenience for businesses in the area?

I would like to tease out a few points in that regard. I think that you are referring to the Shieldhall tunnel project, which is the largest project that we are running at the moment. An investment of £120 million has been provided to put in a new three-mile underground sewer of nearly 5m in diameter. It is a huge project that affects many communities.

I have noticed in my many visits to the project how close the physical infrastructure comes to people’s properties. For example, piling rigs as high as the ceiling were only feet away from people’s houses. I saw for myself the constructive way in which the team had engaged with the local community and kept it on board, which was tremendous.

I think that the issue to which the convener referred was in an area where businesses were affected by traffic diversions. We can say—with the benefit of glorious hindsight—that we were, in our great enthusiasm, probably too quick to give a commitment on the date by which we would be out of the area. As we do more and more complex infrastructure work in city areas, our understanding is growing that projects are often more complex than our ambitious engineers first estimate or hope.

Sometimes, the issue is what we find when we go underground. To take my Haymarket example, as we went in, we found old tram tracks for trams that had ceased in the 1950s, and we found other uncharted services. You get surprises when you go underground. Therefore, we can say with hindsight that we promised businesses there that we would be out on a date that was too early.

I will give a contrast with that. One of the other aspects of the project to which the convener referred was the closure of Aikenhead Road in Glasgow in order to do major sewer work. I was absolutely delighted that we could announce last week that we were out of there early. That is a good example of how we have tried to learn from aspects on which we had overpromised earlier.

To come back to the original question, I say that overall the project is running ahead of schedule, and we hope that the tunnel will be operational early in the summer.

That is all well and good, but did you compensate businesses on which your work had a negative impact?

As a matter of principle, recognising that we are a public body and that all our money comes from households and business customers throughout the country, we do not compensate customers for delay. Our challenge is to minimise interruptions for customers and to give businesses as much notification as possible of any impact. If our business model was to compensate businesses that are affected throughout the country, that would have an upward impact on the charges that everybody in Scotland would have to pay. Therefore, it is a matter of policy that we do not compensate.

This is perhaps an obvious question, but I want to get it on the record. Your written evidence says that “Written customer complaints” fell by “30% ... in 2016/17”. Do “Written customer complaints” include emails?

Yes, they do.

One would not have been surprised to see the number of letters falling by that amount in this day and age. It is good to get that on the record.

I have two questions. Page 13 of “Shaping the future of your water and wastewater services” says:

“We support the continued use of council tax bands as the basis for setting household customer charges as it is simple, cost effective and also provides a level of fairness.”

Are water charges the same for every household in council tax bands A and H?

I am sorry, but I am not quite sure that I understood the final bit of the question.

Right. I will be very precise. Are the charges for each house in bands A through to H the same?

Okay. I will give a bit of the context behind the question and then discuss the specifics.

I think that Richard Lyle is referring to our consultation document on the long-term future for Scottish Water and the services that we provide to our customers. That will be available in hard document form and online for consultation and customer views over the next six months. We are going all round the country to try to engage customers and to get their views about what they want from Scottish Water in the future.

On the specific question, the council tax charges are the same in any individual band irrespective of where one lives in Scotland, so if a person lives in—

That is not what I asked you.

I am just coming on to that. In band A it is the same wherever you are in Scotland, and in band H it is the same wherever you are in Scotland. That goes for all points in between. The relationship of the charging structure between bands A to band H is exactly the same as the historical basis that was used for council tax in Scotland until the change was made recently to increase the council tax bands E to H.

That is not what I asked you. If I pay—I will take a figure out of the air—£300 in band A, is it £300 for every house in the country or is it £300 for band A and, say, £370 for band H?

It is £300 for every—

I will give you the actual figures.

I am sorry. Can I stop you? I want a precise answer to a precise question. Is the water charge for every house in Scotland the same?

No.

Thank you. I thought that, but I wanted to make sure.

Scottish Water is publicly owned. We, the public, are in effect your shareholders. Is that the case?

Yes.

11:30  

Given that Scottish Water has made £94.2 million in its current financial situation, is there scope to reduce the charges and to have every house in Scotland pay the same, so that, if I live in a band A house, I would pay £300, and if I live in a band H house, I would pay £300? We are all drinking the same water and using the same facilities, so why is there a difference? If you take on board that you have made that profit—I know that you are going to say that you have projects to do and that you have to pay for this and that—can you reduce your fees to local councils and local households so that everybody pays the same? As most councils collect water charges through household bills, dare I say—councils will love this—that you could increase their fees?

There are a number of different elements. First, the principles by which we charge are set by ministers for every six-year regulatory period. The charging structure that links to council tax bands was set in late 2014 to apply for 2015-21. Scottish Water implements ministers’ policy on charging.

My second point is on our activities and how we finance them. We do two things: first, we deliver the day-to-day services of providing clear, fresh drinking water, and taking away waste water, treating it safely and returning it to the natural environment. There is a cost for that. The second cost is for all our investment, which falls into two categories: repair of infrastructure and assets and replacement of infrastructure and assets that have come to the end of their lives; and enhancement and extension of our networks.

In very simple terms, the cash cost of delivering all our operations and our investment is more than the revenue that we generate. That is why we borrow from the Scottish Government to part-finance our investment programme. If we were to drop the charge levels, borrowing would need to go up.

Those are not our decisions. They are made through an independent regulatory process that is a reflection of the Water Services etc (Scotland) Act 2005, under which the economic regulator has a duty to set our charges at what is termed

“the lowest reasonable overall cost”

for us to deliver our services.

Yes—but every company in the world has to make a loss or a profit and has expenditures and so on. I used to work for the Royal Bank of Scotland and was a shareholder in the Royal Bank of Scotland. I sold the shares before their value crashed, by the way.

The physical situation is that, from a shareholder’s perspective, you have made a profit. Even with all your costs and your spending, you made a profit of £94 million. As a shareholder, should I not get some of that back, as shareholders do with other companies when they get a dividend?

In the model that we have, customers get the profit back in the form of its being reinvested in infrastructure so that we can keep delivering services for the future.

So, my dividend is paying for future projects.

It is used to keep on delivering services effectively into the future.

Thank you very much.

Further to that question, I say that local government tax reform is always sitting waiting in the wings. How closely linked to it is the charging methodology? Do you see it as being completely separate from the debate on where we go as regards council tax, or do you anticipate that a review of the charging methodology would take place automatically if there were to be a review of council tax and consideration of its potential replacements?

I have two or three thoughts on that. That is, fundamentally, an issue for ministers. I guess that it is clear that, to the extent that they think about changes in local government taxation, there is a flow through to thinking about what happens with water.

One of the great benefits of the current system is how efficient it is for billing and collection. The costs of billing and collection activity are shared between the local authorities and Scottish Water, which effectively helps to keep down council tax and water charges.

I want to talk about investment and new development. We have the Planning (Scotland) Bill going through Parliament just now and there is a need for major investment in housing. Take the example of a proposed housing estate of 900 houses. Does Scottish Water claim some of its investment in infrastructure back from the developer, or do you have to make that investment yourselves? Is the level of investment that you put in keeping up with the level of demand for investment in infrastructure, or are we storing up problems for the future?

I will take those questions in reverse order. We endeavour to be what we term ready just ahead of need. We do not want to create infrastructure that ultimately might not be required, because that would be what we call a stranded asset. It would be a sunk cost for us as a business. However, we do not want to be late and to hold up new development, so our strategic aim is to be ready just ahead of need. We have made a lot of progress in the past few years by working with developers and local authorities to try to get ourselves ready and, generally, we are in that position.

On the question of who pays for what, there is a model at the moment, which, in very simple terms, is a shared-cost model. We pay part of it and developers pay part of it. There is quite a bit of intricacy as to precisely how that works, but one of the questions that we pose in our consultation is whether that balance is right for the future. Do we have the right balance between what existing customers pay and what developers and new customers pay for the cost of new investment?

I come back to the point of whether we are storing up problems for the future. Are you satisfied that the level of investment in infrastructure and repairing it is meeting the pressure on the infrastructure?

That is a very topical question, because we are spending a lot of time with our regulators at the moment thinking about the next price review for 2021 and beyond. Probably the biggest issue that we are grappling with is the asset replacement challenge. We have spent a lot of time in Scotland over the past 20 to 25 years investing very significantly in upgraded infrastructure and assets, and putting in place waste water treatment plants where there were none before. As we look into the decades ahead, the big question for us is when we will need to replace that infrastructure. At one level, the challenge for us is how we can sweat the assets and make them last as long as possible. Equally, we need a good understanding of when we will need to replace them so that we have the financial capacity to do so. That is a live issue that is under review as we go through and work on our 2021 price review.

Let us move on to Business Stream. When you were last in front of the committee, we had a discussion about the concerns that some members had about your 14-day billing period for customers when you had a longer period for paying your own creditors. An undertaking was subsequently given that that would be looked at and that a 21-day period would be introduced for new customers. Has that been done? If so, what impact has that had?

When I wrote to the committee to provide additional evidence after the meeting, we made a commitment that we would move to 21-day payment terms, not just for new customers but for any customer who was not on a contract with us. We endeavoured to do that while undertaking a wider review of our debt recovery practices. We have subsequently done that, completed the review and implemented a range of changes, and our default position for payment terms for our customers is now 21 days unless they contract to do it differently. We have reviewed all our debt recovery practices and, for the majority of our customers, the first interaction that they would have with Business Stream would be 10 days after the 21-day period has elapsed.

To be clear, does that now also cover the customers you had at that earlier point?

It does. It covers any customer who is not on a separate contract with us. There are some customers who opt to have shorter payment terms in return for a discount, but any customer who is not on a contract will have the 21-day payment terms in place.

What has the feedback been on that?

It has been really positive. We do not get a huge amount of direct feedback from customers, but we have had feedback through some of the consumer bodies, and that suggests that it has been welcomed.

That is good news.

The committee has previously heard about a number of complaints about leakages, particularly on agricultural land. We have pursued the issue of how Business Stream is dealing with some of those cases. Has Business Stream seen a reduction in the number of complaints from businesses with regard to charging for leakages on agricultural land?

I cannot comment specifically on the number of complaints that relate to leakage, although I can get back to you with additional information. At a high level, I can say that, following our entry into the English market, the number of customers we serve has more than doubled from this time last year but the number of complaints that we have had in the past 12 months has been about 1,300, which is the same as the figure 12 months ago. That shows that we are definitely seeing a downward trend in the number of complaints that we are getting from customers overall.

With regard to the particular issues around leakage and the complaints that were raised by NFU Scotland in a meeting of this committee 18 months ago, I can say that we have worked through each of those cases systematically and have sought resolution for each of the customers. We have also been quite proactive with the NFUS, and have produced “how to” guides for its members in relation to a few common themes including leakage and shared supplies.

I do not believe that we have got the balance right with regard to the water industry. The stock excuse that we seem to hear is, “It’s taxpayers’ money.” That was the case with the answer that the convener got in reply to his question about compensating businesses. I could give you a list of complaints that I have received from constituents on issues such as sewage works being only part completed and farmers hitting water pipes that have not been buried to the prescribed depth and having to pay the subsequent bill. People often get the stock response, “Computer says no—we’re not going to deal with that and you are not going to get any compensation.” Do we have the right balance with regard to Scottish Water’s duty of care to its customers? Surely there cannot just be a rush to the bottom to reduce water charges, given that there is obviously an impact on some businesses as a result of some actions that Scottish Water has taken or has not taken.

Who wants to answer that? The question concerns both sides of the issue.

The first thing to say is that you should pass any constituency concerns to us, and we will look into them.

In general terms, I would say that we have got the right balance. The exception to that, which I mentioned to the committee last year, concerns the issue of a sewer bursting on farmland—it is something that we need to look at as we move into the next period. The reason why I think that the current practice in that regard is not up to date is that it reflects 1968 legislation, under which the liability on us is extremely restricted. This is my personal view, but my instinct is that we should be seeking to provide a level of compensation when we get a sewage issue on a farm that is similar to the level of compensation that we provide when there is a burst pipe on a farm. When I spoke to the committee last year, I gave a commitment to work with the Government to take that forward as part of the planning for the 2021 price review.

However, as I said, aside from that issue, I think that we have got the balance right. That is shown by the huge reduction in the level of complaints that we are getting and the fact that, when we get challenged on issues, we think hard about what is in the interests of the specific customer and of customers in general.

As we go into a period of consultation on our strategic projections, there is a great opportunity for you, your constituents and our customers to raise with us issues that we and the Scottish Government should think about in framing policy for the 2020s.

In a nutshell, do you have enough flexibility to offer the compensation that people would generally expect? I am talking about people whose houses have been flooded because the waste-water drains needed to be updated. The answer that we receive is, “Well, we don’t have the budget for that.” We are told, “Well, it’s public money, and we don’t think that that is value for money.” Do you have enough flexibility in your budget to address such individual concerns?

11:45  

There are two different issues there. I am pleased to put something on the record. When sewage gets into somebody’s house—fortunately, that happens very rarely—that is quite the worst impact that Scottish Water’s activities can have. As much as anything, that is a function of our growing urban areas, more paving over and more intense storms. When that rain lands in sewers, it has to go somewhere. We have made a huge priority with the Scottish Government because of that. For this regulatory period, we have trebled our level of investment to deal with sewer flooding issues. We have prioritised areas, people and properties at risk of having repeat sewer flooding inside their premises. It is clear that external sewer flooding issues—which could be in a driveway, a garden or a road—have a real impact on people’s lives but, relatively speaking, have less impact than flooding inside houses has. Therefore, that has not been prioritised for investment in this period.

When we look at the period of 2021 and beyond, we and our regulator and the Scottish Government will need to look at all the relative levels of priorities. However, I give an absolute assurance that, whenever anybody suffers a sewer flooding event, we will always go along and ensure that it is fully cleaned up.

I want to let in Angus MacDonald on sewage floods, but I will ask Johanna Dow a question first. We have moved away from the original question to Business Stream. Do you record data at the level of the number of your agricultural customers in Scotland? I ask that question because I understand that the NFUS has an arrangement with a rival provider that offers a metering service. Is there any evidence that you have been losing customers to it because of that?

We hold some information that would allow us to categorise the nature of the customer’s business, but it is not 100 per cent accurate, as it is based on the standard industrial classification codes that Her Majesty’s Revenue and Customs uses. I could not sit here and give members the number of farms that we supply, for example. However, from looking at recent trends in customer switching activity, I do not see a significant reduction in the number of farms that we supply. I can see information on who is transferring out to somewhere else on a monthly basis.

I want to pick up on the issue of sewage spills on farmland. I should declare an interest: I have a family member who is currently in dispute with Scottish Water at the Court of Session over alleged arsenic poisoning of a herd of cattle due to sewage spills on nearby land. Perhaps I should also declare that I am a customer of Business Stream on a non-domestic property in the Western Isles.

At the previous session with Scottish Water, I raised the issue of sewage sludge spills on farmland in general and highlighted the concerns of the NFUS, which had identified numerous incidents of sewage spilling on to farmland. Douglas Millican has referred to the comments that he made in December 2016, when he previously appeared before the committee. As I said then, the NFUS had

“flagged up the fact that current law puts the onus on the farmer to prove that Scottish Water is liable for any damage that is caused by sewage spills rather than on Scottish Water to prove that it is not liable ... The NFUS feels that that should be changed in law as it is the wrong way around.”

Mr Millican said in response to that:

“We have some sympathy for that.”

You have said today that you are still looking at that. That is disappointing, because you stated in 2016:

“the law, which was written nearly 50 years ago, is out of step with current customer service expectations and practice. We need to look at that with the Scottish Government either to consider formalising a change in approach for the next period or to decide whether such a change should be accompanied by a change in legislation. It is on our radar.”—[Official Report, Environment, Climate Change and Land Reform Committee, 6 December 2016; c 37-8.]

However, a year and a half later, we do not seem to be any further forward.

What progress has been made on sewage spills on farmland? Is that still on your radar and what progress has been made on the discussions with the Scottish Government on formalising a change of approach?

I hope that the answer that I gave a few moments ago echoed the one that you have recalled from December 2016.

Yes, but we are now a year and a half down the line.

We are in a process of considering all the factors for the next strategic review of charges, which will come to a conclusion over the next 18 months or so. Only as it reaches a conclusion will we come to a definite position on what is agreed, what the priorities are for the future and whether there should be any changes in policy position. I hope that what you got from the sentiment behind my comments in December 2016 and today is that I believe that it is an issue that we should consider and therefore if it is not addressed through legislation, it would be in our gift, subject to Government support, to address that through our policy position.

I want to drill down into the pollution figures in more detail. There has been a slight decrease in minor category 3 incidents in the past year and there has been a slight increase in the small number—thankfully—of more serious category 1 and category 2 incidents. Can you tell us a little more about the consequences of those more serious incidents and, in particular, how your investment programme is ensuring that such incidents continue to decrease over time?

You refer to the environmental pollution incidents, for which categories 1 and 2 are the most serious and category 3 is more minor. You are right to say that the number of category 1 and category 2 incidents increased a bit this year. When something is categorised as a 1 or a 2, that means that it could lead to fish kill or other environmental impacts on rivers and so on. If the incident is really serious, the environmental regulator can take us to court and prosecute us in respect of the severity of the impact.

Could you pick one serious incident and tell us about that?

We had a prosecution at Dunswood. It is the only incident for which we have been prosecuted and it was down to the fact that one of our treatment works had a problem over the weekend: a large piece of electrical cable went down the sewer, blocked up some of the equipment and caused an untreated discharge into the river—the discharge had not gone through the works for proper treatment. At the same time, because of power issues, our telemetry unit failed, so we did not know about the discharge until the next morning when the operator arrived at the site at 7 am and the discharge had been running for a number of hours on the Sunday. That was classed as a serious incident.

Fortunately, incidents are not often as serious as that. We have looked at the impact of that incident in relation to our equipment and telemetry and we have made alterations to ensure that it does not happen again.

How does your investment programme address those particular issues? Is it a common theme for more serious incidents that there is a mechanical failure or some other unexpected failure that you have to go away and think about the reasons for before making reinvestments, or is such failure predictable? Is there something about asset management that Scottish Water needs to consider?

I will give a general answer. We have been focusing on pollution incidents for quite a while. Back in 2010, there were 825 pollution incidents and you will see from the document that that figure is now down to about 200, which is a significant improvement. We have achieved that by focusing on the whole network and on treatment works and what we can do to improve their controls.

If we look at the number of pollution incidents across the network, we can see that 70 per cent are caused by blockages in the sewer pipework. The committee has probably seen the campaigns that we have been running to engage with customers by telling them not to put inappropriate things down toilets, which can lead to such blockages. We have been working very hard over the years and are doing a number of things to minimise those incidents.

An inherently challenging area is that, at the moment, we do not always know when a discharge might be going out of a combined sewer overflow. Committee members might imagine the situation. Such overflows are designed to relieve excess surface water in times of storm. However, if there should be a blockage because of inappropriate material having been put down in dry weather, we might not know that that overflow is discharging. Therefore one of the things that we have agreed as a priority in our investment review for 2018 is to look at where we need to install greater sensors in our networks to give us insights into what is happening in our waste water system. For example, if there is a discharge from a combined sewer overflow on a sunny day, that would indicate that something is wrong and we need to get out there and attend to it. Over the years to come, we will have quite a bit more to do, where it is cost effective and environmentally worth while, so that we can get further real-time insight into what is happening in our sewer network.

I want to ask about longer-term pollution issues. I give the example of Kinghorn in Fife, where, last year, there was bacterial loading at the harbour. Again, that relates to overtopping and combined sewage getting into the storm water system and then into bathing water. Is that picked up in these figures? Are longer-term, low-level pollution problems—and, more so, dispersed pollution problems—picked up, acted on and fed back into the investment programme?

Yes—very much so.

I know that that happens in the case of Kinghorn, but I am interested in how you report and monitor that kind of stuff.

All pollution incidents, such as the one at Kinghorn, are reported to the Scottish Environment Protection Agency and then categorised. Kinghorn is a good example: we are working with SEPA, first, to make sure that we understand how that network works, what all its contributory parts are and how it impacts on bathing water, and then to work out what investment we will need to put in place. At Kinghorn, we are already working to put in investment that will control the discharges from that network into the bathing water.

In the longer term, by far one of our bigger challenges is controlling the amount of surface water or storm water that gets into our sewers. It is very much a case of making sure that the sewers are used for what they have been designed for. For example, we minimise wash-off from roads and paved areas and try to slow down that water to allow the sewer networks to work as they have been designed to do.

Finally, what is your planning horizon? Is the timescale adequate to make long-term changes in the system? The committee had a submission from Consumer Futures, which said that Scottish Water needs to adopt a 50-year strategic review. That might be difficult to do, given climate change, but—you know what—that is coming anyway. Are the current timescales for investment adequate for us to really look at where we want to be in 50 years’ time?

That is a really great provocation from the Consumer Futures unit. When we have pulled together all the work that has informed our shaping the future consultation, we have tried to look as far ahead as can reasonably be done. In some areas, we can have reasonable confidence as to how things might be decades down the track. In other areas, we might ask who knows what the world will be like in the 2020s, never mind the 2030s or 2040s. Therefore, quite intentionally, we have not put a date on it. We have not said, “This is 25 years ahead”, but we have tried to look as far ahead as we practically can. If there were to be an anchor, I guess that it would be 2050, but it is not limited to that. We are trying to stretch our thinking and planning as far ahead as we can. Even in active dialogues with Government and our regulators, looking at the next period, we are absolutely rooting our thinking in that—not just for even six years but trying to do the right things to make sure that the industry and our service to customers will be in the right place in the decades beyond that.

Does that assume regulatory alignment with European Union directives, even though we will be out of the European Union?

12:00  

In effect, it assumes that there will be a continuation of the standards that we currently have to achieve. We are already looking at possible changes in EU legislation. For example, there is a proposed new EU drinking water directive, and we are absolutely considering what we might need to do to comply with that.

I want to develop the climate change point, but I will let Alex Rowley in first.

I will take the liberty of homing in on a specific Fife question relating to a sewage treatment plant. You will be aware that the new Queensferry crossing is near a sewage treatment plant and that there have been real problems with smells coming from that site over a number of years. Given that the local communities in places such as North Queensferry and Rosyth want to take advantage of the iconic bridges, where are you at in trying to address those issues?

We had problems in the past with odour, which were to do with the way that the treatment was carried out. We carry out a treatment called lime stabilisation. Because of restrictions on the site, some of that had to be done outside, which led to odour issues. However, we have now changed that practice and we are doing treatment within a building, which has odour control, and the sludge is then removed from the site. We have changed the way that we do the treatment in order to minimise the odours that come from the site.

I will move on to climate change mitigation and adaption. Douglas Millican has highlighted three key areas in that regard, which are the capacity of our sewerage systems, assessing the flood risk to some of our critical assets and what we need to do from a drought resilience angle. What further progress has Scottish Water made on energy efficiency and climate change mitigation?

I will deal with the energy part of that. We have a number of approaches to renewable energy in our business. We already have a number of large wind schemes on our catchments, and we also have a number of hydro installations, small wind schemes and photovoltaic installations. Of course, we have recently started heat-from-sewage schemes. Over the years, we have increased our self-generation capacity and we now generate about 13 per cent of the electricity that we need each year. We use a significant amount of energy every year. The figure is about 440 gigawatt hours, which is a huge amount, and we self-generate 13 per cent of that. In March 2017, we reached a milestone when we announced that we were generating or hosting on our assets more renewable energy than we consume in a year.

We have continued with that programme. We are continuing to build renewable assets and we hope to announce more achievements in that area very soon.

As well as the renewable generation, we have a focus on reducing the amount of energy that we need to consume in our operations. A lot of that comes down to optimising our treatment technologies. We are on track to deliver 11GWh of energy efficiency savings by the end of this period.

Do you still consider capacity of the sewerage system, flood risk to critical assets and drought resilience to be the key issues arising from climate change?

Very much so. For example, there are issues about how we deal with storm water in our sewers, which are a very fixed asset, and about ensuring that we can always provide an adequate supply of drinking water, in terms of quantity and quality. Some of the biggest risks that we see from climate change relate to those issues.

One area on the list that is slightly different concerns the changing quality of some of our waters. A lot of our waters come from upland and very peaty sources, and we are seeing an increase in the amount of organic material in those waters. There are predictions that, given climate change, that situation could become worse for us. There is therefore a challenge for us over a very long term in ensuring that we are able to provide both the quantity and the quality of water.

Are you talking about increased turbidity?

We tend to see increased turbidity, but it is primarily about the colour of such water. Among other characteristics of Scottish waters, we are seeing increases in that colour. We do not want that to come through to the high-quality water that we provide.

Can you say a bit about external sewer flooding in Prestwick, in my constituency? Have you made any progress on that issue? Are you considering a pilot? How are you working with the local authority on it? Will it be 2021 before you get a resolution? My constituents are still very anxious about it.

A number of areas are firmly on my radar, including Prestwick, where we have particularly concerned customers because of the issue of repeated external sewer flooding. We are actively looking at what else we could do in the meantime short of formal investment. I cannot offer you specific solutions today, but I can reassure you that we are looking at whether we can do other things in the meantime. That is not a promise that there are other things that we can do, but we are certainly looking at whether there are. It is distressing for me that there is a big issue that impacts on people’s lives and that, apparently, we can do little about. For a business that prides itself on putting its customers at the heart of what it does, that is not a great place to be. I therefore want to make sure that we do all that we credibly can in that respect. Equally, however, we always operate in a world of constrained finance because there is ultimately a limit to how much our customers will be willing and able to pay. There will therefore always be difficult choices in any investment review as to what gets promoted and what we just have to manage as best we can.

Thank you. We move on to the issue of chloraminated water, on which a number of colleagues want to come in.

The witnesses might be aware that a petition on chloramination that is in front of this committee—it was referred to us by the Public Petitions Committee—was sparked by the situation of the water supplied from Aviemore to the Badenoch and Strathspey area. However, my first question is a general one. Why has Scottish Water decided to increase the number of areas that are being supplied with chloraminated water?

I will provide a bit of context. We draw water from many different sources across Scotland. We sometimes draw water from rivers and underground aquifers, but we predominantly draw it from upland lochs and reservoirs. We then need to get that water into a high-quality condition and deliver it safely to customers’ properties. The two main challenges for us are the nature or characteristics of that water from lochs and reservoirs and the nature of its distribution—the length and material of the pipes—from where we collect it to where we deliver it to customers’ premises. Those are the two main factors that drive our water treatment activities that ensure that the water that gets to customers’ premises across the network is of a high quality and safe to drink.

On chloramination, I will make a general point that does not deal specifically with the Badenoch and Strathspey issue. Over a quarter of Scotland’s water, including the water that we drink here in the Parliament, is now being chloraminated because, as Simon Parsons referenced earlier, a lot of our natural source waters come from upland areas where the soil is quite rich in organics and peat—more so than in most other places in Europe. When that organic material reacts with chlorine, water is produced that is safe to drink. However, there is always a risk that water from an area that is rich in organics might breach the regulatory standards that we are required to achieve.

The context is that the standards that we need to achieve are broadly three times more demanding than the World Health Organization’s guidelines for appropriate health parameters. When water that is rich in organic or peaty material is combined with chlorine, we are at risk of breaching one of those regulatory standards. However, a treatment of chloromine—a combination of chlorine and ammonia—means that that element is way below the regulatory standards and is even safer for people to drink.

When Scottish Water decides to chloraminate water in an area, does it engage with consumers prior to the introduction and during the initial phase? How far in advance are consumers notified, and is there a regulatory requirement to notify consumers about changes to their water?

Our principal engagement has been with the drinking water quality regulator and local health boards. Both the regulator and NHS Scotland recognise chloramination as very safe and appropriate for water treatment in Scotland. Typically, we engage with the NHS a year ahead of chloramination to make sure that, for any patients who have kidney issues, adjustments can be made to dialysis machines to deal with chloraminated water as opposed to chlorinated water.

Rightly or wrongly, we have intentionally taken a low-key approach to informing customers. The drinking water quality regulator said in evidence to the Public Petitions Committee that

“using a treatment process which involves the addition of ammonium sulphate to the water may sound alarming, but this is ... recognised,”

approved and safe. We have been low key about it because a person who gets a postcard about the addition of ammonium sulphate might be very anxious.

Most customers rely on the whole infrastructure of the national health service to protect public health. The Scottish drinking water quality regulator and Scottish Water work together to give the assurance that water is absolutely safe to drink and of a high quality. We do not alarm customers. Historically, we have restricted information to the organisations and people that need to do something about the change: the NHS, for dialysis, and people who keep fish as pets. However, whether that approach is right is an open question. Recently, in East and South Ayrshire, we had kick-back—for the first time—about why we did not do more to inform people in the area, which struck me and posed the question whether we should work with the drinking water quality regulator and Citizens Advice Scotland to look at the pros and cons of different approaches to the provision of information for customers.

On the issue of timing, information is provided a year ahead to the health board and three or four weeks’ ahead to customers. That is far enough ahead for them to take action, such as by getting the right filter for a pet fish, but not so far ahead that they may have forgotten about it by the time the change comes along.

How do you identify which customers keep fish as pets?

We do not try to identify them. We send out A5 postcards to draw the issue to the attention of people who have fish, asking them to look at what to do and to speak to someone at a pet shop or fish shop. The postcard makes it clear that the change is chloramination and includes links to a website with a question-and-answer section on all the issues.

Thank you for clarifying that point.

12:15  

You mentioned that a quarter of customers are drinking chloraminated water, which means that three quarters of customers are not. Do you plan a further roll-out of the process, or do you decide whether to use it on an area-by-area basis? What might be the challenges for areas that do not have chloraminated water?

Let us work back the way. Our approach is driven entirely by data on the quality of water at the premises of customers across Scotland. We do 140,000 tests a year on the water supply at customers’ premises and, in more than 99.9 per cent of those cases, the supply meets all the standards. When there is an area in which there is a fail or there might be a trend towards fail, we consider what more we need to do by way of operational practice or through investment to keep the water absolutely pure.

Interestingly, the major driver for chloramination is what are called trihalomethanes, which are one of the parameters that we test for. They are caused by the combination of chlorine with organic material. If there is an area in which, historically, the trihalomethanes standard has occasionally been exceeded or in which there might be a risk of that happening in the future—perhaps because of climate change, which, as Simon Parsons explained, leads to more storms, which in turn cause more organic material to run off—we will consider whether we might need to change our method of treatment from chlorination to chloramination, to make sure that we are always within the prescribed limit for trihalomethanes.

That is done on an area-by-area basis.

Yes. For example, later this year, we will turn on chloramination in the Oban area, where we are building a new treatment plant. One of the major drivers for doing that is the need to deal with this issue.

A number of colleagues want to come in on the same issue.

I have a very simple question: can other methods be used to make heavily peated water safe? Are decisions on whether to chloraminate the water taken on the ground of cost effectiveness? Are there alternatives? Could there be heavier screening or filtering of the water, which would remove the requirement to chloraminate?

Yes. We can look at a range of different options for the treatment of water and for the distribution part of the process, and we consider different approaches for removing such organic material from the water before we add the chlorine. Most of our water treatment works seek to remove 80 to 90-plus per cent of it, but many of our source waters contain such high levels of organic material that even removing 80 to 90 per cent of it is still not enough to enable us to guarantee that, when a customer turns on the tap, the water will be free from the by-products that we are talking about.

We always look at the range of options that exist. We actively engage in research and innovation that looks at new technologies, new approaches and new ways of controlling our processes. In the end, we will make a decision that is based on the best way of ensuring that the water is always of a high quality and great to drink. In doing so, we take a long-term view of the whole-life cost.

I am impressed by the fact that you carry out more than 400 tests a day to make sure that our water is safe. However, how many complaints have you received about the chloramination process in south and east Ayrshire? What action have you taken to address those complaints, some of which have been made by my constituents?

I do not have a figure for the number of complaints about chloramination, but I do not think that there have been many of them. We introduced chloramination a week past Monday, and it has taken a number of days to get right through the system. I think that, at the absolute peak, we had 20 contacts a day about issues to do with the taste or the smell of water. That figure has now dropped down to four or five a day in an area in which we serve more than 300,000 people.

I would say that it is a negligible level of inquiry. We get inquiries about water taste issues every day from customers across Scotland, so the fact that we are down to a handful of inquiries a day in an area of more than 300,000 people, just one week after putting in the supply, suggests that we have a so-far, so-good situation.

If possible, could you supply us with those figures?

I would be happy to do so.

When a decision is taken to change a water source or alter a customer’s supply, how do you ensure that you do not inadvertently create further problems?

All the approaches, processes, chemicals and treatment options that we use are highly regulated. That means that their impacts are well understood. A huge amount of sampling, in addition to the 400 samples a day that you mentioned, takes place as part of the commissioning of any new treatment process or putting any new chemical into the supply. That sampling analysis and science goes on in the background to ensure that, before the water goes into the supply, we fully understand that it is safe and of a high quality—and, we hope, that it tastes good. We then look at the impact that the chemical has as it travels through our networks.

There are definitely things that we can improve. Some of the learning from a treatment works that was put in this year has helped us to understand more about the interaction between certain types of water and our networks. We use pilot rigs and test methods to understand what any change in treatment or chemicals will have on customers’ supply.

Finally, is chloramination universally regarded as good practice worldwide?

The chloramination process is supported by the World Health Organization, and it is used widely across the United States, Canada, Australia and various places in Europe. It is one of a number of disinfection methods that we can select from and use, and it is widely acknowledged as being a suitable process.

You say that you

“Deliver high quality, great tasting drinking water, every minute of the day.”

What right do you have to change my water? I have noticed that water taste has changed in the 60 years that I have been on the planet. In Strathclyde, you tried to put in fluoridation. I do not know whether that has happened yet, but you have changed our water.

What scientific evidence do you have that what you have done in the new input into our water does not affect people? People have concerns and are putting in petitions that ask the simple question about the costs of water filters. I remind you that Scottish Water made £94 million profit in one year. If someone does not want their water to be affected, given that you have made the change, why should you not pay the cost to ensure that the water that they are drinking is to their taste?

I will let Simon Parsons deal with most of the question, but the first thing to say is that filters can give customers a superficial confidence. To be clear, it is absolutely the customer’s choice whether to put in a filter. Our concern is that, unless those filters are changed regularly, there is a risk of bacterial growth inside a customer’s property and that would undermine the safe, high-quality water that we supply.

The improvements in water quality since the formation of Scottish Water have been fairly significant. That improvement in water quality has been proven both from a scientific point of view and in the number of contacts and people’s concerns about the quality and taste of the water. We have had a tenfold decrease in the number of failures to meet drinking water standards and a significant reduction in the number of contacts from customers.

There is no doubt that the quality of the water that customers get across Scotland today is significantly better than it was 10 or 15 years ago, which is the result of significant investment in treatment processes, operations, skills and capabilities and science. There has been a significant improvement in the quality, from the perspective of safety and that of consistency across Scotland.

There is no doubt that the taste of water is affected by where it comes from. Anywhere else in the UK, the water tastes very different from the phenomenally good-tasting water that we have here today. The taste of water is affected by the source. We always look for the most sustainable source that can provide water for the long term.

The water in Scotland today is of an incredibly high standard and it is safe. I hope that we achieve the statement in the strategic projections that it is good to drink.

I agree that Scottish water is the best, but I have noticed a change in the taste over the years that I have been on the planet. In London, my goodness, the water down there is—well, I will leave it at that.

I will go back to my point, which is to address the petitions that are in front of us. There are products out there—I will not mention the brand name—that you put in your fridge to filter water, although those come at an extreme cost. If Scottish Water is changing people’s water and they do not want that because they are fearful of skin allergies, for their children or because of their dialysis, but it would cost them £2,000 to buy a filter and they do not have that, why can you not pay for that?

In very simple terms, it is because our obligation is to provide safe high-quality drinking water. There is a risk that providing filters would undermine the safety of the water because of the risk of bacterial formation on the filters.

I do not accept that. If I go to a doctor, I can get a prescription every so often. If I go to a pharmacy or a company that supplies me with something, they can send it to me every so often. If I get a filter from Scottish Water, you could supply me with a new filter. The operative word is a four-letter one: safe. Scottish Water says that it will deliver safe water to me. If I do not believe that that is happening, I should be safeguarded by your providing me with a means to get safe water.

I absolutely agree, and that is why it is so important that we have an independent drinking water quality regulator who gives that assurance to people across Scotland that the water, not just in aggregate but area by area, is safe to drink.

I will leave it there.

There are people who have concerns about the process, and we hear suggestions that difficulties arise in relation to skin conditions and breathing difficulties. Do you accept any of those claims as appropriate and accurate?

12:30  

Potentially, there are lots of complex issues. The area that probably caused me most distress was Badenoch and Strathspey, where there were issues for a whole bunch of reasons. Historically, we did not handle that situation well and we took too long to get on top of it.

The skin issue was a particular concern there. We had changed the source water from a loch in the Cairngorms to an aquifer under the River Spey. Undoubtedly, there were people who presented as having skin issues that they had not had before. The only way that we could deal with that properly was to engage NHS Highland, which looked really hard at the data. It spoke to all the local general practitioners in the area and compared the data on skin issues after the new supply came in with the data under the old supply and at the instance of skin issues in Badenoch and Strathspey compared with that elsewhere in the Highlands.

NHS Highland’s two key conclusions were that there was a negligible difference between the instance of skin issues under the new and old supplies and that, overall, the instance of issues was about 20 to 30 per cent lower in Badenoch and Strathspey than in the Highlands as a whole. That was part of the evidence that NHS Highland gave to the Public Petitions Committee in July 2017, and that is the area where we have looked hardest at the issue.

I was struck by the part of the evidence that showed the significant percentage of the population that suffers from skin issues. NHS Highland highlighted the complex interaction of factors that can give rise to such issues. It is very much a matter for the health services rather than for us.

What about the breathing issues?

I must say that that is not an issue that I have heard of.

The science behind chloramination is really well understood. There is a huge amount of academic research, as well as research by organisations such as the drinking water quality regulator and other health boards. There is a huge amount of data and information that gives us the confidence that the process is safe for us to use. I am not aware of specific concerns about breathing, but I take a lot from the research that was undertaken by NHS Highland that talks about the underlying science that says that monochloramine and chloramination are safe to use.

Is the need to chloraminate waters from a particular catchment in any way related to land management practices? For example, at Loch Katrine, which is a major drinking water supply for Glasgow, you took the sheep off the hills a number of years ago and you are reforesting the area. I understand that that is not just about biodiversity or economics; it is about improving drinking water quality. I am interested to know whether there is a link with the chloramination issue.

There is less of a link with chloramination; the specific issue that it is associated with is cryptosporidium, which is another thing that we have to control in the water and which is ubiquitous across landscapes in the UK. Those measures allow us to manage that catchment better.

Elsewhere, we look at the impact of peatland, for example, and whether the peat in the source has been deteriorated by sheep or other uses. That can lead to more organic material coming into the water, which means a different treatment challenge for us and, as such, we might consider how we control that. However, the measures at Loch Katrine are primarily driven by cryptosporidium rather than other issues.

We are very active in the whole area of land management. As much as anything, it is about trying to improve the source water, but it is also about stabilising it from further deterioration as the climate changes. A really good example is the super peatland restoration job that we did in the past year with the local community around our loch supplying Lerwick in Shetland.

Do you put money directly into peatland restoration?

Yes, we do that where it will deliver benefit to the source waters.

Could you write to us with the details of that?

Do you mean on the example in Shetland?

Yes, and on any other peat restoration projects that you are involved in, because they obviously have climate change benefits, too.

Absolutely—we can do that.

I have two questions. One is on Scottish Water Horizons, and the other is a local question.

Scottish Water Horizons had slightly lower profits in 2016-17 than in previous years. Will you explain why and say what is next for Scottish Water Horizons and Scottish Water International?

The profitability of Scottish Water Horizons and International moves about from year to year. Although, at one level, we set them up to be profitable, we ask them to be quite entrepreneurial and innovative, and to do things that benefit Scottish Water and the water sector as a whole. Maximising profit per se is not the primary driver for the business.

Scottish Water Horizons does a lot of work in supporting the development community with, for example, impact assessments and helping to construct new infrastructure for developers. It exports water offshore into the oil sector in the North Sea. It does quite a bit of work on waste management and it has its own food waste recycling facility at Cumbernauld. It is active in bringing waste from third parties into some of the waste water treatment plants. We look to bleed that waste in alongside the sewage. As long as we can manage that within our discharge licence standards, that is a great win-win situation—it is about getting more value out of our assets.

Increasingly, quite a lot of what Horizons does is around supporting other Scottish businesses. We have set up two innovation test centres—one is at Gorthleck in the Highlands doing water testing and the other is a waste water testing facility at Bo’ness. We typically work with Scottish small and medium-sized enterprises that want to test potentially innovative products. That is a great example of something that does not feed through to the bottom line particularly but is really good in relation to supporting the Scottish economy generally.

I will move on to a local question, on Gairloch in Wester Ross, which I am sure that you will be cognisant of. Scottish Water is currently reviewing the controversial planned changes to waste water treatment there in light of the serious concerns expressed by the local community. Do you accept that the local community’s concerns are justified?

I will start by referencing one of my earlier answers, which is that we work in hundreds of communities across Scotland and occasionally we do not get it right. I would put Gairloch in that category—we did not get it right.

The fundamental thing that we got wrong in Gairloch was that we approached it from our own technical and logical perspective about the required level of treatment to protect the sea around Gairloch and we did not understand sufficiently how it looked and felt from a community perspective.

In Gairloch, we have a bit of a Rolls-Royce waste water treatment plant. It is built to a far higher spec than is needed for that area but it is so advanced that it does not work as well as it needs to. That is why we were looking to replace it. Unfortunately if you say to the owner of a Rolls-Royce—even if it is a rather malfunctioning Rolls-Royce—that you want to replace it with a Ford Fiesta because that is what is appropriate, there is a feeling of loss.

Any person’s feelings are absolutely valid. If that is what the community feels, whether or not the basis for that feeling is right, we have failed to properly engage people and take them with us when looking at all the whys and wherefores around our proposed changes.

I have a couple of questions on gender and diversity. First, the Gender Representation on Public Boards (Scotland) Act 2018 now has royal assent. It requires boards to have representation of at least 50:50 by 2020. How are you getting on with that—are you on your way to achieving that?

Secondly, as an employer—as a public body—do you have proactive policies in place to encourage more girls in particular to look at a career with Scottish Water? Historically, in Britain—but not in Europe—it seems to be that trades such as engineering are predominantly seen as jobs for men or as jobs for the boys.

Are you doing anything to change that attitude? Can you demonstrate that women can have a good career within Scottish Water and encourage more women? I think that in terms of the balance between the men and women you employ, 27 per cent of your employees are women. What are you doing to address that? Are you encouraging support for women at every level, in all the jobs within your organisation?

I will start, because you asked about the board. I can tell you that, as the chair, I am very attuned to the issue, as I have been throughout my career in lots of different spaces, and particularly here.

When we have had searches for new board members, we have been very proactive in spelling out at the beginning of the search the kinds of diversity that we would like on the board. Diversity is more than gender. I realise that gender is the area that has been crystallised just now, but diversity of thought, background and experience is what makes a really strong board.

However—and I have no hesitation about doing this at any stage in a search—I have looked particularly at candidates who are female, and I have pushed and spoken to panel members or whoever is considering the candidates to see whether we have missed anything. I know, as a woman, that women often have quite different career paths than men do, so we need to be open-minded when we look at somebody’s experiences on a CV to see what value they might bring.

In recent searches, we have appointed two very strong women to our board—Samantha Barber and Deirdre Michie—who have very different backgrounds and they are contributing a good deal. I would love to get 50:50 representation. The thing about a board is that members cannot be changed at will; they have terms, so you change people when the time comes, but it is hard to have an instantaneous impact.

Douglas Millican can speak to encouraging younger women up through the organisation, but at board level, we talk about issues such as the gender mix and about what programmes the organisation has to encourage women to not only start but continue their careers, right through the decades of their lives, so that they have that chance to rise up.

There are women’s networks and I have spoken to one about being professional for my entire life and how to balance that with family matters and other factors.

There are a lot of things that one can do, but Alex Rowley is right that, at the end of the day, it should be a goal to have very senior women in the organisation. We are beginning to see that happen. Some of our strongest up-and-coming women have come and talked to us on the board, and as we become familiar with them, we give them exposure to us. Perhaps that is enough said from the board level.

The short answer to Alex Rowley’s question is yes. I know many different examples. In the interest of time, I will share just two.

We are bringing lots of new apprentices into business and, in our promotional work, we very consciously showcase female apprentices in technical roles as a way of showing that Scottish Water is a place where no matter what gender you are, you can come and have a great career in a technical area as well as anyone else can.

Secondly, I want to highlight that, on our operational side, which Peter Farrer runs, we have in the past year gone up to having eight female operational managers, whereas I think that a year ago there were two.

If you look at our whole future leadership programme, it is broadly 50:50. I had a succession planning discussion with the board in March, and of those whom we see as having the potential to be in executive-level positions 10 years out, three quarters are women.

Johanna Dow, I will allow you the opportunity to comment on that because, prior to your time in this post, I visited the Business Stream premises and was struck by the youthful nature of the staff. That seemed to be an emphasis in the early days. Is it still an emphasis?

Yes, that is still the case.

Moving on to the subject at hand, what work are you doing to encourage more women into Business Stream?

We are also doing a lot. Mirroring what Douglas Millican and Susan Rice said, we have a real focus on family-friendly policies. We try to encourage not only working women with children but working men who have families. We try to provide support for them.

Looking at our reported gender pay gap statistics for 2016-17, I think that we were one of the very few organisations in the United Kingdom that had a 50:50 balance for that year across both our board and our executive leadership team. Those statistics also showed that we were one of the very few organisations in which the mean pay gap was actually in favour of women, in our case by 1 per cent.

We are consciously trying to do as much as we can to provide family-friendly policies to try to keep women in the workforce throughout their careers.

I want to move on from that and ask about the customer forum. What work is the customer forum doing? How representative is it of customers? What are the future priorities for the customer forum in engaging with your shareholders, who are the public?

12:45  

The customer forum was a successful part of our previous price review. It was an innovative way of getting customer representation and views right at the centre of our price review. It was deemed to be successful and is now being mirrored elsewhere across the world. Douglas Millican and I met some people from Australia who are mirroring the process in the power industry. It was a successful model.

The new forum’s membership is about 50 per cent different from the previous version. We are working extensively with them on our next price review. Their focus is on the service that customers will receive now and into the future, how we will monitor our performance, what the prices and charges will be, and the range of different services and how we interact with our customers.

I am spending a significant amount of time with the forum members. The questions that they are asking are a welcome challenge and stimulation to us, and they make us really think about different types of customer, whether they are urban or rural, or whether the environment is a customer, or domestic customers versus business customers. We are getting a range of different challenges.

The key thing is that the forum works with us to try to understand the views of customers as a whole across the country. It is not about them bringing their own views as customers or representatives; it is about us wrestling with what matters to 5 million people across Scotland. We need to reflect that and the diversity of views within that as well as we can, and hopefully we can agree a business plan with them for the next regulatory period.

We have a final question from Mark Ruskell.

I will end on an easy question about private finance initiatives. Where do you go with those? I am aware that the first contracts will expire from 2021 and that you are going through a process of review and analysis. Where are you with that? Do you have any conclusions on whether PFI has a role in future?

To put the question into context, we have nine PFI contracts, and the one that I think that you are referring to is the one for Inverness and Fort William, which expires in December 2021. We have looked at the different options and are in discussion with the PFI company about the way forward.

What I am about to say is an expectation and not a commitment. If we are here in a year, I expect that I will be able to say definitively where we will be on PFI. However, if I was to give you a basic presumption, it would be against them all. Waste water treatment, which eight of the nine PFI contracts cover, is a core competence of Scottish Water so I expect that, over time, those projects will be absorbed back into our core waste water activities. Whether that happens on the date of contract expiry or whether we negotiate a small extension might vary from contract to contract but, in principle, eight of the nine will come back to us.

The biggest question is around the contract that we have in Glasgow for sludge treatment and disposal. It handles 50 per cent of Scotland’s sludge. That contract expires in 2026 and there is a much more open question about the right way forward. I am not saying that that will mean another PFI contract, but it is a much more open question because we have less core competence in that area and at that level.

Thank you for that clarification. What are the key reasons why you wish to effectively abandon PFI as quickly as possible and move services back in-house? Is that about core delivery, the core objective, or price?

There are many reasons. PFI has brought some benefits, but one of the downsides is that the works are all run as stand-alone works. The manning levels on any of those contracts are typically much higher than, for example, Peter Farrer would have in his operations, which manage assets on a portfolio basis.

Another aspect is that our finance costs are much lower than if we use private markets to pay for assets.

The witnesses have undertaken to write to the committee on a number of points and I want to make an observation. Members have raised a number of points about issues that were discussed a year ago but there has been no great movement on them, and you have indicated that there might be some movement on them. Please do not wait until a year from now. If there is some movement on the issues that members have seen fit to raise, please write to the committee and keep us updated. Thank you for your time.

At its next meeting on 24 April, the committee will take evidence on the Scottish Government’s national outcomes and the Scottish Crown Estate Bill from the Cabinet Secretary for Environment, Climate Change and Land Reform. As agreed earlier, the committee will now move into private.

12:50 Meeting continued in private until 13:16.