Environment, Climate Change and Land Reform Committee

Meeting date: Tuesday, November 5, 2019

Official Report 699KB pdf

---

Scottish Water (Investment Priorities)

The next item on our agenda is to take evidence from two panels on Scottish Water’s future investment priorities.

I am delighted to welcome the witnesses on our first panel, who are Douglas Millican, chief executive, and Professor Simon Parsons, strategic customer services planning director, both of Scottish Water; Jo Dow, chief executive of Business Stream; and David Satti, assistant director, network regulation, with the Water Industry Commission for Scotland. Good morning to you all.

I begin by asking our witnesses to give the committee an update on where they are in the investment planning cycle.

Members will be familiar with the fact that Scottish Water operates in multiyear regulatory periods. We are currently moving towards the latter stage of the 2015-21 period, which sees us very much in delivery mode on the investment commitments that we made some years ago for that six-year period. We are also right in the middle of a planning exercise for the period that will begin in April 2021, in which we have been engaged for the past two or three years.

Has any of that timetable slipped or are you on track?

The overall timetable is very much on track, with a view to final decisions being made in the latter part of 2020.

11:00  

How long term are you looking for those investment plans? Are you factoring in changes for, say, 20 or 40 years? Are you looking that far ahead?

The approach that we will take in future will be quite different from the one that has been taken until now, in which our planning has focused on the needs for the coming six years—in the current case, that is the 2015-21 period. However, in the planning that we are doing for the period starting from April 2021, we will try to look towards the middle of the century and at all the challenges, pressures and opportunities that we can see for that time horizon. We will then take that into account in determining what to do over the next few years.

We have just heard from the Committee on Climate Change about the potential impact of climate change across all sectors, businesses and organisations. Is that very much on your mind?

Absolutely. Three major themes sit behind our investment planning, one of which is that we have a lot of assets that will need to be replaced at some point, so replacing ageing assets is a big driver. The other two big drivers are both climate change related, and one of them is adaptation. We are already seeing the impact of the changing climate on the delivery of our services. Clearly, that will only continue and it will potentially accelerate. The other driver is our commitment on the mitigation agenda and getting net zero emissions by 2040.

We have seen that your current capacity for dealing with, for example, big weather events, is probably insufficient. How are you building that aspect into your investment plans?

The approach goes across our whole system, from looking at issues of the availability of water and how water quality might change in some of our catchments, to whether our water treatment plants are adequate for dealing with the variable quality of the water coming in for treatment. There are also lots of pressures on the waste water side, with regard to whether the sewer systems can deal adequately with the additional amount of surface water as well as foul sewage, and the impact on our waste water treatment plants from changing influent. We are seeing impacts across our system and we are already adapting to deal with those changes. However, it is clear that a lot of that will require more investment in future.

I have a question about the interrelated drivers for investment and will use an example with regard to the bathing water quality directive. There is poor bathing water quality around Kinghorn harbour, and investment will be required to sort the storm water sewage and domestic sewage to ensure that there is no bacterial contamination. However, because there are no regulations in relation to rivers, we do not see investment to ensure that sewage does not get into rivers. As a result, there are various pollution problems in rivers across Scotland, including in the River Leven, which is not that far from Kinghorn.

How much do the EU directives and regulations drive investment decisions? I am sure that those who live near polluted beaches and rivers would prefer both types of water to be sorted so that dirty water did not come into the river or the beach. Clearly, though, there is an investment decision to be made there.

I will give you an overview and then let Professor Simon Parsons in to pick up on the specifics. One of the positive changes that we have made over time, in conjunction with SEPA, is to look holistically at all the pressures on water bodies and assess what is the optimal way of dealing with those, either by Scottish Water or other parties. The challenge for the future will be about not just what we need to do for the aquatic environment but what we need to do from a holistic environmental angle, and doing all that with a view to the notion of one-planet prosperity.

I invite Simon Parsons to speak specifically about the water issue.

Mr Ruskell is obviously familiar with the work that we have been doing on bathing water around Kinghorn, for example. In relation to the rivers that we discharge into across Scotland, we have very tightly agreed licences with SEPA. In essence, we operate to a recipe of contaminants that we need to remove from the waste waters. That is agreed, monitored and reported regularly to SEPA. We also look at what is changing in those rivers and whether the standards that we operate to will change.

Picking up on your point about discharges, we might have too much surface water going into our sewers, for example. The sewers are actually designed to overflow into rivers—that is the nature of how they are designed to operate—and we are working with SEPA to prioritise, across Scotland, where we need to put in the greatest investment, as part of a long-term investment programme, to deal with those overflows, as well as our work on individual waste water treatments.

Is there parity in terms of the drivers for investment decisions? Those who live next to the River Leven will see wet wipes getting into the river, and the same is true of the River Almond and various other rivers. It seems odd that action is being taken a couple of miles down the road to deal with bathing water quality, which is right and proper, but that there is not the same level of action when it comes to rivers.

We work with SEPA to agree which of those discharges we most need to deal with. As you know, SEPA is quite firm with us on enforcement actions if it believes that we are not operating equitably. Part of the solution to the problem of wipes in the Almond, for example, will be to work better with some of the non-governmental organisations around the Almond to educate people to not put wet wipes into the sewers. We are working with SEPA and other organisations around the Leven to help regenerate the river and to ensure that the water quality and the amenity value are improved.

Claudia, do you want to come in on that issue?

No, not on that one.

Finlay Carson has questions about Scottish Water’s engagement.

I want to ask about your aspiration to move towards engagement methods that will further empower communities and customers. I put that into the context of Scottish Water’s absolutely dreadful reputation in south-west Scotland currently, with disastrous public engagement actions underlying it. That includes issues with the new treatment works at Shawhead, Heathhall and Troqueer; real issues with flooding; and Scottish Water’s response to the community at Kirkcudbright—the list goes on. How are you currently engaging with customers and stakeholders as part of the process, and how can you improve on your current reputation and help build your social licence to deliver the service?

First, we take any failings in our customer service very seriously. I am certainly aware of some of the specific instances that you mentioned. If there are any areas where you feel that we are not taking action, please let me know and I will make sure that we follow that up. For example, on the Kirkcudbright incident that you mentioned, we are dealing with that from a long-term and a short-term angle.

To broaden it out, we as an organisation absolutely seek to put our customers and communities at the heart of what we do. I would not claim for a moment that we get everything right, but we have made significant strides in recent years in increasing the level of customer satisfaction with our services across Scotland. At the heart of our approach is understanding where we have let customers down, making sure that we resolve those issues, learning from that and building that learning into our processes.

More broadly, we have engaged extensively with customers and communities on future investment. We have spoken to about 25,000 people to inform our plans in a whole bunch of different ways. That has given us some very rich insights. We are working ever more effectively with communities when it comes to investment planning. I think that we are getting pretty good at working with communities on how we deliver and at taking community preferences into account. For the future, I want to go further and to increasingly involve communities, not just on how we deliver but on what we deliver.

I sometimes feel that, when it comes to looking after customers whose water supply has been disrupted, Scottish Water always has the excuse that we must recognise that it is using taxpayers’ money, whereas we often find that commercial companies such as Openreach go the extra mile in such situations. That issue was raised when you were at the committee last year. How does your current planning process seek to balance your ambitions for further investment with the economic hardship being experienced by business and domestic customers?

We work extensively through licensed providers in particular in dealing with business customers. We always seek to fulfil the expectations on us. We learn from our experience and from other organisations. If we can learn from good things that other companies are doing, we will take that on board.

I have a couple of questions for David Satti. What challenges are involved in regulating in a monopoly environment? How do you avoid the relationship becoming too close?

One of the main challenges that we were mindful of in opening and conducting our strategic review was the question of how we think in a much longer-term way. That has been alluded to in some of the initial questions. How do we think about the challenges and opportunities over a much longer period so that we can better put the next regulatory period in context?

At the start of the price review, WICS sought to use the principles of ethical-based regulation, which place an onus on Scottish Water to build trust and confidence with its customers and communities and with stakeholders. That level of engagement has resulted in open, frank and challenging discussions about the challenges and opportunities for the industry. It has also created a level of collaboration among all stakeholders. Recently, at the invitation of the Cabinet Secretary for Environment, Climate Change and Land Reform, the industry worked together to develop a transformational long-term vision for the sector.

We ensure that the relationship is not cosy—as Angus MacDonald alluded to—by ensuring that everyone is open and honest in their disagreements as well as their agreements.

Do you have many disagreements?

There are many challenges that we impose on Scottish Water on an on-going basis, and there is a lot of dialogue between each of the regulators about how we best create value for Scotland as a whole.

You talked about the need to think about the longer term. You have not mentioned climate change. Where does that feature in your priorities for Scottish Water, in particular in the strategic review of charges for 2021-27?

A lot of our work to date has been about understanding the investment requirements for the industry. We have been looking at Scottish Water’s asset base and, in the light of the net zero emissions target and the announcement of a climate emergency, trying to understand the impact that that would have on investment.

Finally, given that WICS was formed in 2005, would you say that it is still fit for purpose?

I would say not only that it is very much fit for purpose but that, given our hydro nation activities, many regulators throughout the world are knocking on our door to understand how they can do in their countries what we are doing in Scotland.

11:15  

Mr Satti, what weight do you attach to the importance of protecting the natural environment, biodiversity and so on when you are considering the need for a community to have a new water treatment facility? How do you balance that need against considerations such as the additional cost to the public purse and the need to ensure, for example, that national scenic areas are protected from the development of water infrastructure?

I will elaborate on the commission’s role. Ministers set objectives for the industry that cover service levels, compliance and the level of contribution to facilitating economic growth, and WICS determines the lowest overall reasonable cost of delivering those objectives. The trade-off that you mentioned would be covered in the ministerial objectives.

Back in 2005, there was a lot of debate about what WICS’s role should be and, in effect, what it should count. You are an economic regulator. Do you feel that the other aspects of sustainability are covered by other bodies such as SEPA and Scottish Natural Heritage? How do you look after the long-term public interest, which goes beyond the economic regulation of costs and investment?

One of the challenges that we have put to Scottish Water as part of the strategic review is how to incorporate the six capitals when future projects are assessed, so that it is not just about looking at the financial position and going for the lowest overall cost. We want to ensure that better value is achieved that incorporates the areas that you mentioned. Work on that is very active at the moment.

Does WICS have the expertise to do that or would you rely on SEPA to make a judgment about where the investment priority should be?

We would hope that Scottish Water, when it appraises proposed new projects, would incorporate each of those variables into its appraisal. It is very much the role of WICS, SEPA, the Drinking Water Quality Regulator for Scotland and other regulators to assess whether Scottish Water is doing that appropriately.

Does WICS have the right expertise on sustainable development to interpret its economic regulatory role through the lens of sustainable development objectives? Do you have environmental economists working for you? Do you have people who are looking at long-term investment in meeting the sustainable development priorities?

Yes, I would say that we have the right expertise in house to ensure that Scottish Water appraises projects in the way that we would hope.

We will move on to questions about capital investment.

Before we move on to capital investment, I have some brief follow-up questions for David Satti.

I understand that you set the charges for water customers. Given the climate emergency and the challenging economic situation that people who are served by Scottish Water face, is it challenging to keep charges affordable? How do you go about assessing affordability?

As I said, the role of the commission is to determine the lowest overall reasonable cost of delivering ministerial objectives. To do that, we determine the amount of revenue that is required in general terms for Scottish Water. The Customer Forum has researched and is understanding and analysing the preferences of customers in general terms with respect to investment relative to price. How the revenue is then apportioned to different segments of society, including people who are financially vulnerable, is a matter of Government policy, through its principles of charging.

In your view, is that being pursued in a way that is appropriate for vulnerable customers? Citizens advice bureaux are working with you—or perhaps more with the Customer Forum for Water. We will also hear from a panel including the forum. Are there concerns about customer vulnerability?

Citizens Advice Scotland is working with the Scottish Government as it develops its policy. The matter is always under consideration when future prices are being determined.

I have questions about capital investment for Scottish Water, but if David Satti feels that it is appropriate to comment, he is most welcome to do so.

We have already touched on the aspirations and determination to move towards net zero emissions in the climate emergency. I understand that Scottish Water has an assessment tool for delivery against mitigation and adaptation requirements. Is that tool working effectively? How will things move forward? Can you accurately know the costs and potential efficiencies that might come from developing ways to operate in the climate emergency?

First, I will give an update on the tool. Mark Williams spoke to the committee earlier in the year about it.

We look at our emissions in two ways. First, we look at operational emissions, which are relatively easy to understand and measure. There is also embodied carbon, which is much more difficult. Our tool has been built around best practice across the UK and was developed as part of the UK water industry research programme. It allows us to assess projects; at the moment, we use it for projects above £1 million. We look at the embodied carbon within the projects and at any other options that we choose. The idea is that, as we develop our understanding and our library of solutions, we will be able to identify the lowest-carbon solutions for projects. The tool is being used now on all projects above £1 million and has been in day-to-day action for six to nine months. We have already been capturing examples of where we have changed a material, for example from steel—

Could you give us an example of that, please?

Yes—I will find some in my notes. One example is our scheme up at Loch Ness, where we are building a new water treatment works to supply the communities there and in which we changed the pipe material from steel to plastic. We can reduce the embodied carbon by about 90 per cent for that part of the project.

We also have a project down in Howden, where we are putting in a new water main. We are using an existing water main, so we can significantly reduce the amount of pipe material that we put in, which reduces the embodied carbon in the overall scheme.

You are saying that you are moving from steel to plastic: I hope that you are considering opportunities to use Scottish companies that remanufacture using recycled plastic. Is the plastic recycled already?

I do not know exactly where the plastic material that we use comes from.

On the drinking water side, we are very closely regulated in terms of the materials that we can use within—

I am sorry to interrupt. Would you be able to look into what is being used and where?

Of course.

One of the benefits of the assessment tool is that it generates really good discussion—for example, about how we could reduce levels of embodied CO₂ in our schemes and in their component parts. The real benefit of the tool lies in generating discussions with our supply chain and colleagues in Scottish Water about what we could do differently. As we get more experience and generate a library of good ideas and examples, that will help us to drive down the embodied carbon in all our schemes.

Are you looking at natural flood control and filtration rather than hard engineering options? Also, can you work with local authorities on sustainable drainage systems? It would be useful if you could say something about those issues, which have been raised with me and others.

I heard your conversation with colleagues earlier about climate change. From rainfall predictions, it is clear that, because we have combined sewer systems, our ability to deal with the additional rainfall will be tested. We are looking at what blue-green infrastructure we can use and, in that regard, we have two strong partnerships. One is the Metropolitan Glasgow Strategic Drainage Partnership, which has been running for a number of years. There are some good examples of how blue-green infrastructure is working there—I will pick up on one in a moment.

Secondly, we have a newly formed drainage partnership here in Edinburgh, which comprises Scottish Water, East Lothian Council, Midlothian Council and the City of Edinburgh Council. We are looking at how we can plan for growth in the region such that we can deal with flooding with blue-green solutions rather than with conventional sewer systems with big underground pipes.

A good example is the smart canal that is being built in north Glasgow. It provides sustainable urban drainage system infrastructure for an area of north Glasgow of—from memory—about 3,500 houses. It involves good working between us, Scottish Canals and Glasgow City Council and is about using the canal as a final route for the water, rather than it going into the Clyde. The scheme also provides biodiversity and green spaces—multiple benefits are associated with such schemes. It is an example that we will demonstrate and then develop in the future in partnership with local authorities, which is the right route.

It would be helpful if you could send us some more detailed information on that. You will know that we visited an interesting scheme in Inverness involving removal of culverts. I will not go into detail on it now, but it was inspiring. It is particularly important for us to hear about how you can work in partnership with local authorities and SEPA to develop the protections and mitigation that we will need. Thank you.

All industries are looking at how they can make transformative changes in the light of climate change. That might mean investing in something that does not at first appear to be economically efficient in order to get over the hump of innovation. How would the WICS see it if Scottish Water were to invest in technology that might raise costs to consumers in the short term, in order to bring about something that can then be mainstreamed in the long term?

Perhaps I can comment on that first, before David Satti comes in. There was a question earlier about whether our economic regulator is challenging. I assure you that it is very challenging, and one aspect of the challenge that it has thrown to us is how we understand the long-term cost of carbon. When we do our investment appraisals, they are not just about understanding the cost of carbon today. For investments that might last for 20 or 30 years, how do we find out the future cost of carbon to ensure that we evaluate the real cost of carbon in our economic appraisals? We do not have the answer to that yet, but we are grappling with it.

That is an example of the challenge that we get from our economic regulator to ensure that we are robust in our economic assessments, and that we take account of the important environmental factors.

A key question for us is about how to create a regulatory framework that allows greater innovation and collaboration. One of the key components is the move away from a six-year list of projects and needs to a more dynamic and transparent process for prioritising projects.

11:30  

On occasion, Scottish Water will want to pilot a project on the basis that it might not be initially successful but is the right thing to do. That has happened: the Dalmarnock and Daldowie projects are examples. We would like to build on that success and create a regulatory environment that would allow for much more dynamic ongoing scrutiny of projects to enable innovation.

There have been, and will continue to be, more severe weather incidents. They have highlighted issues with, for example, unadopted legacy drainage systems, particularly under high streets and so on. Those problems are not managed by Scottish Water, but can cause issues for the network that Scottish Water manages. There are also unadopted SUDS. Are there plans for capital investment to deal with unadopted floodwater networks or SUDS to ensure that there is sufficient resilience to deal with more frequent adverse weather conditions?

That is a huge issue on which we are engaged at the moment. We have a team of 50 or 60 people who have been working for some years on what we can do to adopt infrastructure. It sounds simple, but there are all sorts of challenges, including technical challenges. There are lots of legal challenges because we do not own the infrastructure. We therefore have to get ownership of it, or get sufficient ownership, to enable us to operate. However, I assure you that we have a big team focused on that infrastructure issue. We are working particularly actively with the development community, which includes work with current developers and work on challenging situations in which house builders have become insolvent.

You have already made a commitment to offset some of your emissions by investment in peatland, catchments and, increasingly, woodland. How will that activity appear on your balance sheet? Will it appear in your balance sheet?

I do not know whether it will appear on our financial balance sheet, but we have committed to developing over the next year a clear route map for how we will achieve net zero emissions by 2040. We have lots of things in train and lots of ideas. It is basically about how we minimise carbon and other emissions that are associated with our operational and embodied activities—Simon Parsons spoke about that earlier—and how we maximise the positive contribution that we can make through, for example, peatland restoration or supporting renewables. We will seek to develop a suite of things as part of the route map.

On whether such things will appear on our balance sheet, investment in renewable energy will. Peatland restoration and the like have value, but I am not sure whether we would ascribe a financial value to those activities for our balance sheet.

Where can the committee and regulators see evidence of your offsetting of emissions for us to scrutinise?

First, I point out that we want to minimise what we offset and maximise what we reduce. The extent to which we need to invest to offset will be very transparent because we will be, in effect, investing customers’ money in that.

I will explain broadly, for the committee’s benefit, the nature of the new investment planning and prioritisation framework that is being developed. It involves a new process that has been put in place to support investment in 2021 and beyond. The first element of that is for us to identify needs that should be investigated. We will do that in conjunction with all the regulators. That work should pick up potential conflicts—for example, between river quality and bathing quality.

Ultimately, what we identify goes to ministers for approval, who then agree the needs that we should investigate. Once we have ministerial approval, we will appraise how best to meet those needs and develop solutions that will be subject to scrutiny. All the solutions will be appraised and the appraisals will be reviewed by our economic regulator. They will all have pound signs attached to them—they will cost something to deliver, so they will be included in our record of what we have invested as part of our investment programme or through other activities.

We will move on to questions about household behaviour change.

We are told that Dunkeld and Birnam is the first water-efficient community in Scotland. How did that happen and what role did Scottish Water play in that? How can we make it happen elsewhere?

We have a significant focus on water efficiency and trying to reduce per capita consumption of water by all our customers, every day. That is about ensuring that we have a sustainable supply of water now and in the future. For the last few years we have been working with the Energy Saving Trust on how to deliver water-efficiency advice and how to change customers’ behaviour. We are thinking about how we will change customer behaviour in the long term. Part of that is about considering the link between water use and energy use, which would deliver a multiple benefit. We have been carrying out trials to implement physical changes, but we have also distributed leaflets and information.

As you mentioned, this summer we named Dunkeld and Birnam Scotland’s first water efficient community. The people there reached out to us and asked for our support to achieve water efficiency, because they had set themselves some very positive sustainability goals. We worked with the community to put in water-saving measures and we shared information. On the back of that, the community has saved more than 1 million litres of water. We have just had a conversation about carbon—the committee might be interested to know that that is the equivalent of 3.5 tonnes of CO₂ that has been saved. That approach is now embedded in the community and we hope that it will be a long-term saving.

The question is how we get other communities across Scotland to build on that. We have done some work with Galashiels and other communities, but it will be a long journey to get water-efficient behaviour embedded in all our lives.

I am going to ask about the non-domestic sector in a moment, but I have a little comment on what has just been said. I have done a quick calculation and, if the community has saved 1 million litres of water, that is about 2.5 million tonnes of water—something like that—that Scottish Water is now not having to pay to move around. As well as a huge environmental benefit, it presumably represents a significant reduction in costs for Scottish Water, which is the biggest energy user in Scotland. How are you sharing that benefit with communities? If you are sharing that benefit, will that encourage other communities to follow Dunkeld and Birnam?

I will deal with the economic side. The whole regulatory framework is designed to drive up the service that we deliver for customers and to minimise the costs that we incur. The benefits of any financial savings that we make go back to customers, ultimately in the form of the charge level that they pay or additional investment that we are able to deliver. Although the benefit might not go directly back into Dunkeld and Birnam, the benefit of that is shared across the country, as is the benefit of any other saving that we make.

We were talking earlier about working in partnership, and working with our customers is something that we have been doing more successfully. It is a ripe area for the future. For example, we have made very good progress in driving down instances of blockages in our sewers by reducing the number of wet wipes and other inappropriate items being flushed down sewers. Although we have made good progress, there is still more to do. That provides benefits to customers and savings for us, which can be shared across our customer base.

I have decided that a million litres is actually 2,500 tonnes—I was wrong by three orders of magnitude in my first estimate, so I offer my apologies. I could not quite remember, in doing the calculation, that a gallon of water is 10 pounds. Never mind—that is neither here nor there.

I turn to Business Stream, with a question for Jo Dow. What role does Business Stream, which is essentially selling the services of Scottish Water to business customers, have in driving efficiencies in the non-domestic sector? For that matter, as I believe that you have business outwith Scotland, are you also doing that for businesses elsewhere?

As a responsible business, we recognise the importance of ensuring that our own business is adopting sustainable practices. To that end, we use the Business in the Community responsible business map to define how our contribution to society, the environment, local communities and so on sits within our organisation

Earlier this year, we launched a new vision for making a positive difference. As a retailer to business customers, we recognise that we have a key leadership role to play. Approximately 25 per cent of all the water that is consumed in the UK is consumed by business customers. We now have 340,000 business customers across the UK, which is about 20 per cent of the total market. We recognise that we have a key role to play there in helping to encourage our customers to use less water.

To that end, about a year ago we launched a pledge whereby we committed to support all our customers to help them to use 20 per cent less water. That is a bold statement, but we do that on the basis of an understanding that the average business in the UK is using 30 per cent more water than it should be.

For us, the benefits are twofold. If we can encourage businesses to use less water, they are not only helping the environment but significantly reducing their water bills. A sustainable year-on-year reduction has applied.

I was going to come to the point about bills. It is clear that, if you are selling 20 per cent less product to your customers, and you charge on the basis of metering, rather than charging through service delivery, as Scottish Water essentially does, that represents a direct hit to your income. How do you deal with that?

We do it knowing that it will have an impact on our income and our profitability, but we do it because it is the right thing to do. If we do not encourage our customers to use less water, somebody else will. A key aspect of our vision as a responsible business is doing the right thing, and that is about more than financial returns—it is about how we make a positive contribution to the environment and to society as a whole.

If you do the right thing better than everyone else, your business may grow.

Absolutely.

However, we will park that issue for now.

Can you give us an example of what you do to encourage people to use less water in their businesses?

Often, it involves really simple measures. Approximately 80 per cent of our customers across the UK are small and medium-sized enterprises, and—more often than not—they may just have a tap and a toilet. By fitting aerators to the taps and dual-flush mechanisms to the toilets, they can save a huge amount of water.

The other area that we tackle is hidden leaks. If a customer has a leak, that means that an awful lot of water is being wasted. We can help on that side too. For some of our larger industrial customers, we look at a whole range of options, including things such as grey rainwater harvesting. There is a wide spectrum of things that we can do to help our customers to use less water.

I have a final question before we let you go. It relates to population growth and movement. How do you factor those things into your economic strategy?

We are at both a strategic and a specific location. There is no doubt that we are seeing a trend, as everyone is, of a growing population and a general move from west to east in the country. In addition—this is especially relevant to our business—the growth in the number of households is exceeding the growth in population. We are very aware of those trends, and they inform how we work strategically with local authorities and developers to understand where future development is likely and how we can support that effectively. We are very much engaging with local authorities and major developers in a strategic sense, looking at a two-year to a 10-year or 15-year horizon.

When we look at a specific investment proposal, we will very much factor into account what we envisage as credible growth in an area within a foreseeable time horizon.

11:45  

Now that digital connectivity is much better, we might find that large companies decide to locate in smaller towns or outlying areas rather than in cities. That will have a big impact on water capacity and use. How are you factoring in that element?

With business in particular, we have to look at such things case by case. In recent years, with the support of the Scottish Government, we have changed our policy to make it much more pro-business in supporting the water supply side.

On the waste water side, we have to be a bit more careful, because the nature of one company’s effluent may be quite different in its characteristics from that of another company’s effluent. Although we very much want to accommodate the growth ambitions of any individual company, we have to ensure that we do so in a way that, from a financial angle, is fair to the generality of our customer base. A cost-sharing mechanism may be required there. We try to be as pro-business growth as we can, as well as supporting household growth.

I want to ask you about what you see as the threats or potential opportunities from trade deals. Obviously, you are a regulated state utility. Could that be challenged, or could Business Stream see an opportunity to supply water to business customers in the United States, perhaps? How does that sit within your corporate understanding of the risks and opportunities going forward?

We are trying to keep abreast of all the different possibilities that we can see around all things Brexit related, and what could flow thereafter. We are looking at the most credible scenarios and think about how we plan for those and respond to the rest. At present, we have not considered any particular threats from trade deals specifically, but a lot might depend on what the nature of such deals might be.

I have to round up this session just now. Thank you very much for your time this morning. I suspend the meeting to allow for a change in panel.

11:47 Meeting suspended.  

10:50 On resuming—  

Welcome back. We are continuing to hear evidence on Scottish Water’s future investment priorities and I am delighted to welcome Peter Peacock and Sam Ghibaldan, the chair and the director of the Customer Forum for Water, respectively. Sam, did I pronounce your name correctly?

Close.

Apologies.

To be fair, it was closer than most.

Finlay Carson will ask the first question.

I apologise—I have to leave straight after this question, so thank you for letting me in, convener.

The forum was set up to try to achieve the highest possible level of customer and community focus within Scottish Water’s practice. Can you explain to the committee exactly what your role is within that and how you approach the job of representing customers? How does the public engage with you? At what level do they engage and under what circumstances?

Essentially, we were created to put the customer voice right at the heart of the process that Douglas Millican and his colleagues were describing. The question that we constantly ask Scottish Water is, how is what you are proposing in the interests of customers? If it can give us convincing answers, we will go along with that. If it cannot, we will ask it to go and reconsider, to come back with different proposals, to drop a proposal or to maybe introduce a new proposal. That is the kind of disposition we take.

We are just individuals, like any other citizens, so how do we have legitimacy in making any points to Scottish Water? We try to do that by putting ourselves in the place of customers and asking the questions that they would ask if they had the chance to quiz Scottish Water, as we do every month. We try to get some rigour into all that and represent customers in that way. However, our real legitimacy comes from understanding what customers themselves think. To that end, we do a lot of research with other stakeholders in the industry. One of the members of the forum chairs a body called the research co-ordinating group, on which we sit, and on which Citizens Advice Scotland, Scottish Water, SEPA, the DWQR, the Scottish Government and the WIC also sit. Sometimes the organisations in the group commission research jointly and sometimes they commission research individually, in co-ordination with the other organisations in the group, who also check it out. We have done something like 20 research exercises in the last couple of years, through which we have engaged many hundreds, if not thousands, of customers. On top of that, Scottish Water conducts regular customer engagement and feedback, and we get access to all of that data if we want it. There is a big process of engagement in that sense.

Let me mention one of our more recent exercises. We do quantitative surveys of people and recently we did a big exercise involving about 100 people, with groups of citizens in Hawick, Falkirk, Fort William, Glasgow and Dundee, I think. We spent a day with them—not us personally, but people on our behalf—talking about issues around the water industry and what they might mean for people, and then working out whether people’s opinions are shifting on the basis of the further information that they get. We wanted to find out what are they actually saying about their water service and what they think about it. We try to get an understanding of a series of issues in that way and then we come back to our regular meetings with all the stakeholders to develop the strategic plan, and we use that data to articulate and argue quite strongly, on occasion, for positions on behalf of customers in that process. That is, essentially, how we work.

One thing that has guided our work—the committee might want to see this—is a document that we put into the conversation that was happening just over a year ago about the social contract between the people who pay their bills and Scottish Water, in terms of the services that the company offers them. It covers a range of things, starting from the premise that, because Scottish Water is a publicly owned company, the citizens have high expectations of it. High ethical standards are required. It must be open and transparent in all that it does. Not only does it have to deliver clean water and take our waste away and clean it before it puts it back into the environment, it has to relate to its communities more effectively in future. In particular, it has to pursue a one-planet approach to prosperity, increasingly cutting carbon emissions and so on. We made about 20-odd points in that document, which the committee might find quite helpful. It states what customers want in return for the money that we pay for the service. I hope that that answers your question.

That is a very good answer. You mentioned the social contract. Do you benchmark Scottish Water against other utility companies, even if they are not publicly owned, to find out whether it is delivering the same level of service—or a higher one—as those other companies and organisations?

Yes. I chaired the forum during the last period of review as well and, during that time, we argued strongly for what we called the high esteem test. We wanted to know how Scottish Water compared with a range of organisations, not only with other utilities, because comparing with other utilities is not a very high benchmark—utilities often have low scores compared to, say, Amazon and other commercial organisations. On the back of that, Scottish Water introduced a customer experience measure for households and business customers so that it can monitor the direct customer experience of its services. That is an internal thing within Scottish Water. It is also part of the UK customer satisfaction index, which looks at all utilities and other companies, so it can benchmark itself against those.

We had a meeting with Scottish Water in the past six weeks to consider its performance against other industries. It has been improving. In the utility sector, Scottish Water is seen as a very good performer, but it is still not as high as some of the best performers in the private sector. Scottish Water is alert to that and that bit of the organisation is keen to ensure that it continues to perform well on that. So, there are means of starting to do what you are talking about.

I have a quick question: what are the main issues coming from consumers? Is that too broad a question?

It is a big, complex subject. We have many surveys looking at different things but, if you boil it right down, customers want to see maintenance of their current service levels. By and large, people have a very high regard for what they get from Scottish Water. Despite what Mr Carson said earlier, it largely provides an uninterrupted service of high quality, and it has a reputation for being pretty responsive. We know from survey work that, by and large, the public in Scotland trust Scottish Water. Indeed, they have pride not only in the product—water to drink—but in the company as well. They want to maintain that high regard. That is the first key thing. Within that, there are big challenges, because, unless you replace your assets, you cannot maintain your service, and that is one of the big cost pressures that is coming through.

The second big issue is that climate change has moved to absolute centre stage. We have seen a big change in that regard over the past few years of surveying. People are anxious about climate change and they want to be sure that Scottish Water does the right thing and they want to be helped to do the right thing. There were earlier questions to Scottish Water about how customer behaviour can change, both to reduce their costs and to do the right thing by the environment. Customers are keen to learn more about that. The in-depth exercise that I just referred to involving about 100 customers showed that they are keen to understand much more about Scottish Water, partly because they know that there is upward pressure on prices because of climate change and because of the need to replace assets. How can they be guaranteed that they are getting value for money? How do you persuade people that it is right to pay slightly more to address the climate crisis, for example? It is not my job to persuade them of this, but do they themselves consider the issue? We are beginning to get some insights into that and to understand what it means.

Sam Ghibaldan can add another couple of things about customers.

As Peter Peacock said, the key message that came out of that in-depth research exercise, which involved a day and a half of active engagement, presentations and deliberations, was that people want to maintain their quality of drinking water and the reliability of waste water services. However, they also said that they wanted Scottish Water to play a leading role—I think that that is an important phrase—in tackling climate change. As Peter mentioned, that has become much more of a mainstream view.

12:00  

In this research, we were able to consider generations’ relative views on climate change. We assumed that the issue would probably be more important to the younger generation, for the obvious reasons that they have grown up with it and have had education about it at school, and that proved to be the case: we found that climate change is the most important thing to the younger generation, with reliability and quality of service close behind. However, it was interesting that the older generation also thought that climate change was an exceptionally important issue to deal with. That might represent a bit of a shift. It is hard to tell, but there is definite movement in that direction.

What also came out in the research was a desire for Scottish Water to be a publicly owned company delivering what we might call enhanced or additional public benefit. When it does things in communities or carries out capital investment work, it should think about how to do it in a way that might provide something, such as a footpath and access to somewhere, or should have partnerships with communities that are designed to deal with catchment area flooding or something like that.

Another key thing is people’s desire to know more, which I think that Peter Peacock mentioned. It was fascinating to observe the groups’ discussions because the more that people understood Scottish Water’s operations and how the water cycle works, the more they wanted to know about them. They could relate more to how Scottish Water works in their communities, and how they themselves could change what they do, which I think relates to the question about behaviour change that was asked in the previous session with Scottish Water.

On top of that, the research showed that part of the reason why they want to know more involves a concern about value for money. On the whole, people felt that they were paying a fairly reasonable cost, but they wanted to know that they were getting value for money and that they will continue to get value for money in the future.

I will add a further point, in the interests of balance. The issues around climate challenge and what it means for services are not immediately obvious to people. Some of the committee’s earlier conversations today have touched on that. However, when you explain the issues to them in depth, you find that people are remarkably sensible, sane, balanced and level-headed. They get it—they understand the challenges and are prepared to contemplate change on the back of that.

The data from customers who are not given that information is somewhat different, and we find that they are resistant to price changes above the rate of inflation. The evidence on that issue differs, but there is some quite strong evidence around that. When 600 customers who had not been given any information about anything were asked their position about water prices and the possibility of increases, more than 80 per cent did not want an increase above inflation. That is why we have done another exercise to determine whether engaging with people and communities and helping them to understand the issues will change their disposition on increases in water prices. We want to find out whether what might be coming down the track in terms of pressure on water prices and, no doubt, taxation, with regard to other services, becomes more acceptable if people understand the issues. The lesson that we are learning from that exercise is that no one should expect to be carried from the room shoulder high with adoring crowds cheering if they just put up water prices and do not explain the reasons for that but that, if, on the other hand, there is a serious and large engagement exercise, the signs are that people get it. That reflects your earlier conversations with the Committee on Climate Change about social engagement.

I try to represent customers in the process. Customers have a right to know where their money goes—to be told that and to be allowed to appreciate and understand that. If you do not give them that right, you will probably head into difficult territory. However, if you fulfil it, you will probably have a serious set of conversations with people about what are real challenges.

A short yes/no answer will probably suffice to this question.

You will be lucky.

Are your interventions with Scottish Water on behalf of communities conducted at a high level, or do you get involved in individual communities with individual projects?

We do not get involved with individual communities, but we have seen the scenario that you painted earlier. I will give three examples.

I live near the village of Ardersier, which still has signs outside it saying, “Scottish Water—keep out”. The village of Gairloch, in the west Highlands, hit the headlines a couple of years ago with its problems in that regard and Aviemore also had big problems. Those examples immediately come to mind and we have raised all those problems with Scottish Water. However, that Finlay Carson and I can name only four or five projects with problems in that regard, despite the fact that hundreds of projects are going on, shows that it is not the biggest issue.

We have done research jointly with Scottish Water and Citizens Advice Scotland on better community engagement methods, and we have recommended to Scottish Water that it needs to gear up its practices on that. Scottish Water is running, or is about to start, three pilots to examine how to engage communities more effectively and earlier in the delivery of capital projects. Douglas Millican made that point earlier. Once Scottish Water has decided what to do, it is good at telling a community that it will be coming in six weeks’ time to do it, for example, but it has not been so good at telling a community earlier in the process that work might require to be done in the community in the next decade, describing what it might be, asking how it can involve the community in deciding the best way to do it and assessing what wider public benefits can be obtained on the back of that.

That kind of engagement is a big culture change for Scottish Water, but we think that it is addressing that issue and is trying to build in community engagement rather than bolt it on as an afterthought. I am sorry for the length of that answer.

It is a good answer.

Just to add, in providing information and engaging with communities and people generally, companies such as Scottish Water will publish things on their website, write to people and put leaflets through people’s doors. However, there is clear evidence that companies sometimes have to be a bit more imaginative about how they do all that. I think that Scottish Water is learning that from its pilots. In relation to that, I have an example regarding a village—I am struggling to remember its name—where I went to a meeting to hear about the evaluation of a project last week or the week before. It was somewhere on the west coast and Scottish Water was looking at the issue of lead pipe replacement. The Scottish Water representatives found that going to the local pub quiz and talking to people there was one of the most effective ways of engaging with them.

There is a genuine appreciation in Scottish Water that it needs to think more imaginatively about how it undertakes that type of engagement process, and it is learning how to do that.

Thank you.

I am interested in the social contract, many aspects of which the witnesses have explored with us. If I remember correctly, Mr Peacock said that there was a 20-point plan. Is Scottish Water listening well to your forum on areas such as your emphasis on a social contract and the other aspects that you have described, and are there areas where it could improve?

We will send you a copy of the document, which makes about 17 different points. It has a very particular context, but we will send it to you, and you might find it helpful.

To be honest, Scottish Water is a pretty remarkable company to deal with. When we meet its representatives in private, they are extraordinarily open with us. Further, one of the characteristics of the chief executive is that he will not promise to do anything unless he is actually prepared to do it. When we have engaged with Scottish Water, we often get a bit of pushback. We have come to learn that that is for a very good reason: it is the chief executive buying himself time because he had not previously heard of or thought of the issue that we brought up and needs to go away and think about it, so he will not promise us anything in that regard. Invariably, he comes back within a couple of months and indicates that, based on the previous conversation, he thinks that something could be done but perhaps not in the way that we had thought.

Scottish Water, therefore, listens, and I am genuinely impressed by its desire to do the right thing by customers and communities. We can debate what the right thing is, because we do not always agree with Scottish Water and we push it hard on some things and it will push back if it thinks that our ideas are wrong or not practical. Generally, though, Scottish Water is to be commended for taking matters seriously and trying to move forward on them.

Sam Ghibaldan, do you have a comment on that?

No. I agree entirely with what Peter Peacock said. Throughout the strategic review process, people at all levels of the company have been open and have engaged with us. One of the important and interesting things about the review is that it has gone into things in great depth. I have no idea how many meetings I and others have been to, but it is probably hundreds over the past two or three years, and we have considered lots of issues in great detail. That has meant that individuals at several different levels of Scottish Water have had to open up to a range of regulators, including the Customer Forum for Water. In fact, the process itself has made people at Scottish Water start to think about the wider context of what they do, rather than just saying, “We’re some engineers, and we need to build something.” That has meant a bit of a cultural shift, as the process is opening up Scottish Water to that kind of consideration. As Peter Peacock says, that is at the senior level, but it is also the case in other parts of the organisation. That has been very valuable.

We have perhaps already covered elements of the tone of the discussion between different partners on the development of the investment plan and the strategic review, but could you give us a bit more of a nuts-and-bolts answer on how you work with the Government, Scottish Water and the Water Industry Commission for Scotland on those two pieces of work? How does the process work? Where do the views from the Customer Forum for Water come into the process, and how do they get formally dealt with?

Our forum meets every month, and we will normally have an hour to two hours with Scottish Water every month—a representative will come and present to us on some aspect of Scottish Water’s work, giving us a chance to probe, to understand and so on. This time round, over the past few months, the focus has been more on the detail of the strategic plan and what is emerging. That is one mechanism.

The main mechanism throughout the review, however, has involved a group chaired by Scottish Water called the strategic advisory group. Round the table sit representatives of the Water Industry Commission, the Scottish Government, the Customer Forum for Water, Citizens Advice Scotland, Scottish Water itself, of course, the Drinking Water Quality Regulator for Scotland and SEPA. We meet every month, and we talk about all the things that require to be discussed in relation to the strategic plan.

Inevitably, that group has spawned many other groups. There are nine different groups, including that one. Groups have been examining the water service, the waste water service and what is called flourishing Scotland, which considers the wider role of Scottish Water in meeting national outcomes and the strategic development goals. A group has been looking at the investment prioritisation framework for the future, asking the sort of questions that David Satti referred to, about what criteria to appraise a project against in future. Another group is considering performance measures.

The forum has been part of all of that. There are three groups that the Scottish Government chairs that we are not part of. Apart from those, however, we are a full part of the process and full participants in the process. We try to bring a customer view into the process in the way that I described earlier. That describes the mechanics of what we do.

Does that model work? Is there anything that you would change about it? Is that an effective platform for feeding customer views in?

It has been hugely resource intensive.

It sounds it.

It has taken up a colossal amount of time. I was interested to hear the questions that Mr MacDonald was asking earlier. The Organisation for Economic Co-operation and Development has been sitting alongside the process, and it is independently evaluating it. It has not done that evaluation yet—it is observing the process, and it is considering the regulatory implications. At some point at the end of the process, the OECD will make a report, which will help people to think back: what have been the good things about the process, but what else might have been lost in the process compared with traditional regulation? The approach is all very new, but it is a matter of being reassured that there is an independent appraisal process running alongside. I would hope that questions would be asked, for instance on whether something similar would be sustainable again.

We have 10 members of the forum, and they have been participating in all the working groups that I have mentioned. Co-ordinating that creates big challenges for us. What are the lines to take? How do we feed back and brief our colleagues? There are big resource questions stemming from that. There are also wider questions of the sort that Mr MacDonald was getting into earlier, which I think the evaluation will begin to consider.

Will that evaluation also cover international examples? Is the situation in Scotland unique?

It is pretty unique.

What about other industries? Stockholm Vatten, for example, is a municipally owned water utility operating within a city. I do not know how it deals with such processes or whether it has a similar structure of engagement with the public and other stakeholders—or is such an approach a uniquely Scottish thing?

It is pretty unique. It is an evolution of the first process that ran up to 2015, which was also pretty unique. I was involved in that, and the evolution has involved the regulators and the Government more than in the past.

12:15  

The process was evaluated independently by an academic. I guess that the regulatory bit of the OECD is doing it for the precise reason that it will see whether lessons can be learned from other jurisdictions—it advises on regulatory policy internationally across all the sectors. A group of peer reviewers from the OECD comes every year; they are coming this month and they will interview all the stakeholders. They are regulators from other countries—they include Mexico, Italy, France and South Africa, and I could go on—so there is an international dimension to the evaluation.

What were your objectives for the strategic review of charges? What fed into the working groups?

If I give you the social contract document, it will give you a clue about what we were fishing for. The simple line is that we want to get the best level of service for the lowest possible cost, which is quite a tension.

We have played a fairly big role in raising questions about affordability for customers, because we want to make sure that the price is generally affordable as well as specifically affordable for those in the most vulnerable circumstances. That is a policy matter for the Government and we have not been involved in the detail, nor would we be. We make the more general point that customers are facing tough economic times and we are in the most uncertain political and economic circumstances that any of us have ever known. What it will mean for the economy and how we make sure that the services that come through are affordable for the general population is one dimension to what we have been doing.

We have pushed very hard on climate issues for 18 months or more. The First Minister’s climate emergency speech earlier in the year and then the programme for government have focused minds inside this sector wonderfully. We have seen the issue move from not being in the centre stage to being absolutely centre stage today—we have pushed a lot for that.

We have also pushed on other things. We have asked questions about rural supplies. Many people are still on private supplies—might they want the option to be connected to the mains supply? We have pushed about lead; a lot of households still suffer the consequences of lead, some of which is in their piping, not the public network—what should we do to sort that out? We have pushed for a whole range of things across service issues, and they are reflected in the document that we will send to you.

I do not know whether Mark Ruskell has seen the water industry vision, which was published last month. It encapsulates a lot of what we have pushed for. We were involved in writing it with other stakeholders. It puts up front the vision for Scottish Water for the next 20 to 25 years and it deals with things such as tackling climate change, providing better services to communities, ensuring that there is excellent quality water throughout Scotland and providing value for money.

A lot of what I was going to ask about changing externalities and how they relate to your social contract and your role as the Customer Forum for Water have been answered—and very reassuringly, if I may say from my perspective, although I cannot speak for the whole committee. Are you able and empowered to relate to other organisations and public bodies, such as local authorities, to deal with the climate emergency or SUDs or urban creep, as it has been termed recently in the media, which involves lots of extensions? Those examples relate to private properties, but you may have others on the more general issues.

I completely get your point. I was fascinated by the earlier discussion with the Committee on Climate Change about some of that stuff, because we see the practicalities in the discussions that we are in the midst of. The short answer to your question is, “No, we do not have a locus to talk to those bodies.” We have said very firmly and clearly to Scottish Water that it sits in a unique position. It sees the implications of the policies of other agencies.

On your point about urban creep, as more roofs are put on over more land, so there is faster run-off of drainage. As more people tarmac or pave their drive with impervious surfaces, so there is faster run-off. From a customer point of view, we are saying to Scottish Water, “If you know that, you have an obligation to say that to the Government and to push for change in development control, planning regulations and so on.” Otherwise, the customers pay for the consequence in cash terms—they pay the price. That would be unnecessary if we could eliminate the problems upstream. If our building control was significantly different in some respects, so that water was held back around properties before being released into the system, that would help.

We have tried to say to Scottish Water that we think that it should be more active in the tying-up of policy. It has responded to that, and I think that you will see some stuff about that in its emerging strategic plan. So many things connect to this agenda. Scottish Water has a major challenge in thinking about how it delivers services over the next 40 and more years, because its answer to previous problems has been to engineer its way out of them. It is highly accomplished and very skilled at doing that, but it is probably not sustainable—in the full sense of the term—in the future. Douglas Millican made the point that it does not want to do a lot of offsetting, it wants to solve the problem and it will. It will probably have to do some offsetting as well, but a fundamental change is required and part of that is making sure—and we think that Scottish Water has a role in this—that wider Government policy connects. I thought that your conversation with the Committee on Climate Change today echoed exactly that in asking how we make sure, in delivering all this, that all public policy is joined up. Thankfully, that is not my job.

There was a question earlier about behaviour change. What we know about changing people’s behaviour is that you have to make change easy, and preferably aspirational. The way to achieve sustainable, long-term change is by making the new behaviour almost simpler than what was happening before. In addressing many of the issues Scottish Water faces, it is critical that it involves planning consent, planning authorities and local authorities, because Scottish Water will be working with developers to do things such as having permeable surfaces or putting things into new buildings for collecting rainwater or grey water for garden use. It is that kind of more imaginative thing that we need third parties and third agencies to act on.

Scottish Water and SEPA are working on some of that for the future. There is a very clear relationship. SEPA has a dual role here: it has an enforcement role in relation to licensing, regulating discharges and so on, and it also has its one-planet prosperity role. Sometimes, those are slightly in conflict, but SEPA and Scottish Water are doing some really positive work with each other to look at some of these issues more expansively for the future.

You have touched on the possibility that customers—if they are not vulnerable customers—might consider paying more for things that they understand to be part of the developing conversation on the climate emergency, for example. Do you see any role for yourselves in taking forward suggestions about incentivising customers—for instance, to put in systems for grey water, or any of the things that you have mentioned—or is that not really part of your role?

We have not looked at those particular things, although we have had conversations with Scottish Water about how it advises customers about using less water, which takes us into some of that territory. We have asked in the past whether Scottish Water could offer a service beyond the fence, into the private property. It could look at whether there is lead in a property and whether there is leakage. It could look at water use—there are some techniques to reduce water use—and it could look at how people can store more water on their property and how they can prevent flooding and so on. We have raised those questions with Scottish Water and I hope that, over time, it will continue to make progress on that. There is a range of complex things that it needs to look at, but there is much more.

It comes back to some of the points that committee members—Mr Carson in particular—made earlier to Scottish Water about engaging with communities. It would have been odd for Scottish Water in its past role to have considered having—and I am not suggesting that it do this—a member of staff with other agencies in a catchment area, where all this stuff begins to make sense, who would go around animating the community to do all these things. It could have more community partnerships to allow communities to have better control of all the things that affect all of us in the water system. It could look at it at catchment level and, as your committee does, bring together forestry policy, land use strategy, land ownership strategy and river basin management planning, as there is a whole series of synergies there. Communities potentially have a large part to play. That is a very new world for Scottish Water, and it will take time for it to think its way into that and to develop the skills fully to be able to do it in a more participatory way. We would like to see that happen, but I am not under any illusion—it is a difficult task.

I think that it is part of how we meet the wider climate challenge. Our evidence is that, if you engage people seriously in conversations and share the real challenges with them, they will respond. If you do not, I suspect that you will not make a lot of progress.

One thing to add is that the Customer Forum for Water represents business customers as well as domestic customers. Indeed, we have representatives of the licensed providers on the forum. There is perhaps more opportunity to incentivise positive behaviour from business customers, such as reducing their water use and installing permeable drainage and things of that nature. That is certainly something that we have raised with Scottish Water and, again, we have had a positive response.

We are rapidly running out of time but, before we close, is there anything we should be looking at in this area that we have not covered already?

That is a terribly open-ended invitation.

It is, but I am making it anyway.

There is a major tension at the heart of this strategic review: how do you make progress on replacing assets and meet the climate challenge while keeping charges affordable? We must think about both things. Somewhere, judgments have to be made about all that. We have been anxious about household economics and political uncertainty going forward. We need strong customer engagement in the future and we have been advocating that not only should there be a strong role for customers in future in checking that Scottish Water is delivering, offering value and giving the reassurance that customers need, there has to be serious engagement from Scottish Water. It is listening carefully to this, I know, and responding very positively. It needs a serious engagement exercise to explain the challenges that it is facing to the wider population. That is important. Then there are all the implications that come from being a publicly owned company: the need to be ethical, transparent and open, and to contribute to the wider national performance and the national outcomes that the Government wants to see. Those points are important.

Also, we need to keep all this under review. We need to have safeguards for customers so that, if we get some of the assumptions that we are making today wrong, because we have not fully accounted for climate change or we have overaccounted for it, it can be reviewed as we go forward. These things will remain important as we move on into the future.

Thank you both for your time this morning. That concludes the committee’s business in public today. At its next meeting, on 12 November, the committee will hear evidence from stakeholders on the proposed deposit return scheme regulations.

12:28 Meeting continued in private until 12:44.