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We come to agenda item 2, under which we will hear further evidence on the bill at stage 1 from energy and environmental organisations. I welcome our witnesses: David Crookall, who is an environmental specialist adviser with SSE; Andy Limbrick, who is an environment consultant with Energy UK; and Stephen Freeland, who is a policy executive from the Scottish Environmental Services Association. I thank you all for submitting written evidence, on which some of our questions will be based.
I thought that the level of consultation was very good. We were pleased with the opportunity to submit evidence, and the summary of the consultation responses was good. However, part 2 of the bill, on water abstraction, appears to have come in out of the blue and appears not to have been covered in the consultation. That is an area of some concern to us, which we can pick up later on.
Yes, we will come to specific questions on that.
Yes, I thought that the initial consultation—there were two consultation documents—provided a good opportunity for us to feed back our comments and that the bill broadly reflects what we were expecting.
I echo what has been said. We were generally pleased with the two rounds of consultation. We provided feedback and I think that there were some small changes in the wording of the bill to reflect some of the concerns that we raised. Obviously, one of the main outstanding issues is part 2 of the bill, which was not part of either of those two rounds of consultation.
SSE highlighted its development of “inset” water infrastructure in England and asked that the bill be amended to allow competition for the provision of that type of service in Scotland. Can you explain what inset infrastructure is and why you think competition for the provision of such infrastructure and related services should be allowed in Scotland?
At SSE, we have a small but fairly active part of the business—active primarily in England and Wales—whereby we approach developers who are looking to build a housing estate or business park on a greenfield or brownfield site and offer to provide them with utility services for electricity, gas and water. We can deal with all the pipes and infrastructure on the site, and some developers find that quite an attractive option. We recognise that the provision of such infrastructure was not a key part of the consultation; we just wanted to raise a flag to say that, if that were possible in future, whether through this bill or another bill, then as a commercial organisation we would be keen to be involved in a market across the UK, rather than just in England and Wales.
What would be the benefits of that for the Scottish economy and for consumers and customers?
We offer that service to developers, so it would be down to developers whether they wanted to deal with those matters or whether they saw an advantage in having somebody take that work off their hands and do it for them. Generally, the service is provided for small-scale housing or business park developments. I am not particularly expert in the area but, if the committee wants more evidence on that, I am sure that my colleagues would be more than happy to write to you. We are just saying that that part of the business works in England and Wales and would like to work across the UK. However, we recognise that that is not a key feature of the bill.
How might the bill be amended to take account of the legislative developments that are currently under way in England and Wales to open the non-domestic water and sewerage market to competition?
Again, I am not expert in that, but I could ask colleagues to write to the committee if that would be helpful. I think that the bill to which you refer is still at the draft stage. There might be provisions that could read across, but I do not know.
That would be helpful.
One main concern that is raised in the evidence from SSE and SESA is that the bill could have a negative impact on private sector energy providers because it encourages Scottish Water to invest in areas such as the generation of renewable energy and waste management. What impact might the bill have on companies that operate in markets that Scottish Water targets as part of its non-core functions?
That is one of our key concerns about the bill. The Scottish Government has just published its zero waste plan and the supporting regulations that go along with it, so there is a drive for the development of infrastructure to treat organic waste, whether that be food waste from domestic properties or organic waste from industrial and commercial premises. If a publicly funded body such as Scottish Water enters that market, it has the potential to distort the market.
I echo that. There are two issues. Generally, we support anyone in developing renewable energy and using their existing assets in a way that maximises their value and benefit. The issue is about how that is funded and whether preferential treatment is given to any operator, whether it is Scottish Water or anyone else. Although the market is regulated fairly heavily, it is open and competitive. We are just looking for a level playing field.
I echo the previous two speakers’ points about market conditions. We have a highly competitive Great Britain market in electricity. We are certainly looking for a level playing field for the companies of all shapes and sizes that participate in that.
On non-core activities, the Scottish Government bill team gave an assurance that
We have no objections to Scottish Water entering the market, as long as that is done on a level playing field. However, we see no assurances in the bill to alleviate our concerns. We are looking for evidence of transparency and evidence of the commercial returns that are made on public sector investment.
I agree with Stephen Freeland. Obviously, I welcome that commitment, but the words in the bill matter and they are what will remain for the long term. How those words are interpreted and applied can change over time. If that is the commitment, it would be nice to have it clearly defined in the bill.
I suppose that a question arises about who has the responsibility to review those “properly commercial terms”.
I have a couple of questions about SSE’s evidence, although Mr Crookall might have touched on the first one to an extent. First, why might Scottish Water’s status as a designated body that can be directed by the Scottish ministers give it an unfair competitive advantage in undertaking non-core duties? Secondly, you have asked that the ministerial directions should be subject to public consultation prior to being issued. Why do you think that would be beneficial?
On the first point, part 3 of the bill will give Scottish Water a right to do anything that it thinks is necessary. The bill provides
It was about ministerial direction. You say that there should be consultation on such directions and that the power would give Scottish Water an unfair advantage.
Under the bill, ministers, have the power to ensure
So you are thinking about specific consultation with interested or relevant people rather than a general public consultation.
Yes.
This question is for everyone. The committee has heard calls that the Scottish ministers should be required to consider social and environmental matters rather than just having an economic focus when developing the value of Scotland’s water resources. What would your view be on that suggestion?
From our perspective, abstraction, control and various other issues are dealt with under planning and the controlled activities regulations, which should pick up most if not all of the social and economic issues. The Scottish Environment Protection Agency has gone on record as saying that it is satisfied that CAR deals with all the environmental issues.
I see that the word “sustainable” has been introduced into the bill. In my view, sustainability would cover environmental and social aspects as well. The extent to which that happens would need to be teased out, and I say that in recognition of what David Crookall said about overlap with CAR. You might want to take a rather light touch on the environmental side, but the environment has to be taken into account if you are looking at sustainable employment of resources.
We can move on to water abstraction. Alex Johnstone has some questions on that.
The convener is laughing because it is my favourite subject.
I am not aware that, prior to the bill coming out, there were any. I think that there has since been contact with the bill team, and it is fair to say that we have had a positive response from them and that they are happy to discuss the matter further. However, it was a surprise to see it in the bill.
Can you outline your concerns about the new abstraction rules that have been proposed?
As I said, there is already planning, and there is CAR. There is already legislation in this area.
From the broader energy sector perspective, there are two big themes in part 2. One is about building and maintaining investor confidence by introducing a reasonable amount of certainty into policy and regulation, and there are a lot of things in part 2 that are quite open ended and which we might explore in more detail.
On the specifics in your written evidence, you note that there is an exemption for hydro generation, but you express a fear that ministers may choose to remove that exemption at a later date. What are your grounds for that fear? Is there any indication that that may happen, or is it simply that the bill leaves the possibility open?
It is simply that the bill leaves it open. Who knows how a future Administration might want to use those powers? If there is no intention to remove the exemption, the bill could be worded in such a way as to provide exemptions and to provide that ministers could add to those exemptions. If the bill allows an exemption to be removed—perhaps this is jumping at shadows—that adds to the uncertainty. As Andy Limbrick said, businesses are always looking for as much certainty as possible. If there is no intention ever to remove the exemption, why does the bill allow for it to be removed? If you were a fish farmer or whatever, you might feel the same.
You suggest that the Government should enter into negotiations over that as a matter of urgency. Is that to ensure that we can change the bill before it becomes an act?
We would certainly welcome discussions with the lead people on the bill just to get some confidence about what the bill is trying to achieve. We could then perhaps be more targeted in our responses. Is the wording in the current proposals necessary and appropriate for what the bill is trying to achieve? If it is not and if the wording can be tightened up in a way that still achieves the objective, perhaps it can be changed before the bill goes through. If our concerns are groundless—as I think we would both hope they are—perhaps the wording could just be removed from the bill.
Is that view shared across the panel?
Certainly. I look forward to some constructive dialogue on the detail if that is possible.
Abstraction is not an issue for us.
You are not required to have a view on it.
From an energy point of view, the obvious one would be an exemption for cooling water. Hydro generation is exempted, but if someone wanted to build a gas-fired power station or whatever, which is a major investment, that would not be included under any of the exemptions and would therefore be an additional issue. Whether someone can build a new power station is already covered by planning legislation, so it is not necessary to control it through legislation on abstraction control. That is one additional exemption, but Andy Limbrick may have others.
An exemption for thermal power stations is my favourite as well.
We have touched on the issue with other sections of industry and we have further questions about it to ask others.
The use of water for cooling is the best environmental option for reducing carbon emissions. We would support an exemption for thermal power stations as well.
Do you agree with the general view that has been expressed by some that the upper limit should be based on consumption rather than abstraction? That is, if you are taking water out and putting it back immediately in a non-harmful way, that should not count as abstraction.
I think that there is room for improving the terminology and understanding of water use generally in power generation. There are several ways of cooling plants: some involve a once-through use of water, so there is no net use; others involve some evaporative cooling, which leads to the consumption of some water. In terms of valuing water, we are probably moving towards a world where we pay for what we consume rather than for rights to abstract.
We move on to consider Scottish Water’s functions.
A theme that seems to be emerging is Scottish Water’s impact on the commercial market. Will you expand on the concerns that were outlined in written evidence about the Scottish ministers awarding grant and loans directly to subsidiaries of Scottish Water?
Your question takes us back to what we said about open and competitive markets and the need for people to compete on fair terms. That is where our concerns begin and end. If Scottish Water can acquire finance for commercial investments at lower rates than its competitors can, that will give it an advantage.
Some of our members expressed concern about state aid implications. I am not an expert on the matter, so I could not allay their concerns, but I wanted to bring the issue to the committee and ask whether it will be considered as part of the bill process.
I have a very simple solution to the problem, if people want to hear it.
Perhaps you can ask a simple supplementary question later. Mr Limbrick, do you have a simple solution?
I can imagine what Mr Johnstone’s simple solution is, but I am not sure how politically acceptable it would be.
Do you have a desirable solution?
Our concern was to raise the spectre of Brussels intervention and ensure that the Scottish Government has given due consideration to the state aid rules.
There is a difference between Brussels intervention and other players in the market seeking such intervention. I am reminded of the alcohol minimum pricing policy in that regard.
I cannot comment at this stage. The matter would need to be given careful consideration.
Are there any other takers on that?
The decision would be way above my pay grade, but I think that we would try to avoid getting into that situation. I do not think that anyone wants to go there, given the costs and the political fall-out. No one wants that. I guess that it would depend on how the bill was implemented and whether people felt that they were being severely disadvantaged.
I commend you on what seems to be a responsible attitude, in contrast to what has been happening in an area that is outwith the remit of the committee.
The witnesses have raised a number of issues about which we undertake to ask the cabinet secretary on their behalf when she gives evidence.
I will ask about the potential for distortion of the market. In its written evidence, the Scottish Environmental Services Association referred to the Office of Fair Trading investigation into
That was highlighted as an example of work that is going on down south. Last September, the OFT published a report and it is important to flag up the two main recommendations in connection with your consideration of the bill. First, the report noted that waste water authorities have a planning advantage when they compete in the open market with the waste industry, as they have existing land banks and assets to utilise. Secondly, it noted that the economic framework provides another advantage to the waste water authorities over the waste industry.
In the written evidence, you also indicated that Scottish Water and its subsidiaries are able to
That probably centres on the fact that Scottish Water has full access not only to anaerobic digestion plants, but to the existing sewer network. For example, when Scottish Water and another company bid for a contract from a producer of organic waste, Scottish Water can make a more competitive bid because it has the back-up of being able to use the sewer network for certain wastes that might not always need to go to an anaerobic digestion plant. The waste management industry does not have the same access to the sewer network; a waste management company would, if it wanted to use the sewer network for any reason, have to pay a spot price, rather than building that into the overall contract.
Is that not just making efficient use of the sewer network?
That would be fine were Scottish Water and the waste management company able to use the sewer network at the same rates.
You have raised concerns that Business Stream’s dominant market position gives it
When Business Stream was set up as a branch of Scottish Water, all the customers, pretty much by default, went to that subsidiary. That makes it hard for a company that wants to be a new entrant to the market.
New folk are coming into the market and taking customers from Business Stream, so is it not just a question of time before there are new entrants and other competitors?
Yes, perhaps that may happen over time, but it is difficult for a company at the outset.
None of you has provided any written evidence on parts 4 to 7 of the bill. Are there any comments that you want to make about other proposals in the bill?
We have covered everything that we wanted to.
As members have no further questions, I thank the witnesses for attending and providing evidence, and ask them to send us the follow-up material that they promised.
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