Transport, Infrastructure and Climate Change Committee

Meeting date: Tuesday, September 14, 2010

Official Report 411KB pdf

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Water Industry Comission for Scotland Annual Report 2009-10

Item 2 is the first of our witness sessions. We are joined by Alan Sutherland, chief executive of the Water Industry Commission for Scotland. Welcome to the committee. Would you like to make some brief opening remarks before we begin questions?

Thank you for inviting me. I would like to say one or two quick words, if that is okay.

I am grateful to have the opportunity to discuss our annual report with the committee. It is a good time to do so, because we are 10 years into economic regulation of the water industry in Scotland. During that time, the industry has gone from a position in which its service was not of the best and its financial position was rather weak to one in which Scottish Water is one of the United Kingdom’s fastest-improving and financially strongest water companies.

I will give you two statistics. First, household customer bills are around £105 lower than they would have been, due to Scottish Water’s response to economic regulation. Secondly, Scottish Water’s on-going annual savings are well in excess of £200 million a year, which seems to me to be a good return on costs of regulation of less than £4 million a year.

I hope that those remarks are of some help to the committee. I am happy to try to answer any questions that members have.

I will begin by asking you about some of the issues that were new to MSPs last week when they were announced in the Scottish Government’s legislative programme. The intention is to introduce a bill to allow Scottish Water to

“evolve from a successful utility into a dynamic water agency”.—[Official Report, 8 September 2010; c 28251.]

The bill will give Scottish Water greater flexibility

“to develop commercial opportunities and to”

address

“some of the world’s water issues.”

Scrutinising the bill will take up a significant amount of parliamentary time. There is a reasonable expectation that the committee will have a particular interest in that process. What is likely to be the commission’s role in assessing, scrutinising or commenting on the proposals? What is the level of support in the industry for the Government’s agenda?

To be frank with you, I have no more to go on than the First Minister’s remarks of last week. I have not seen any draft provisions of the bill or anything else, and the commission has had no opportunity to discuss the matter. However, there are one or two things that I can say. First, we will welcome a new bill that contributes to a greener Scotland and does so in a way that is consistent with the customer interest. Secondly, if you look back at the record, you will note that I—and, I think, the commission—have said that we are not terribly keen on distractions from Scottish Water’s core business. That explains why we did not like section 25 of the Water Industry (Scotland) Act 2002, which gave Scottish Water very wide powers. Now that Scottish Water is performing as well as it is, that is much less of an issue for me. If opportunities have been identified in the legislative programme, I look forward to seeing what is in the bill, but at this stage I am afraid that I cannot be any more helpful than that.

Is it a matter of concern that there was no consultation before the announcement that a bill was imminent?

My understanding from what the First Minister said is that the bill is about a non-core activity of Scottish Water, not a core water-and-sewerage activity. Our responsibilities, which are clarified in the Water Services etc (Scotland) Act 2005, are to regulate the core activities of Scottish Water. If the bill deals with something that is entirely non core, it is of interest to us, but it does not impact directly on our work.

The question is the old chestnut about how any initiatives of the type in the proposed bill are to be funded. If it were to be done in a way that was detrimental to the household and non-household customers of Scottish Water, the commission would have to seek reassurances that it was something that customers should finance.

So at this point you would not say that there is a reason to worry that the agenda that is being promoted—which might get a lot of support in the Parliament, although we have not yet seen the proposals either—will impact negatively on the core business of Scottish Water.

If, for example, the proposals were to be about Scottish Water exploiting its land resources to partner with others and develop wind farms or something of that order, it is conceivable that that would have absolutely zero benefit or cost to the household and non-household customer and would therefore not excite our attention. It would be for the Scottish Water board to address.

Thank you. If there are no supplementary questions on the Scottish Water bill, we will move on.

Good afternoon, Mr Sutherland. Staff numbers have gone up, staff costs are up and operating costs have doubled since 2009 in WICS. Will you outline why that is so?

Staff numbers are up by one in the annual report. I think that you will see in the annual report a mix in the type of staff. Our administration head count has reduced through natural wastage—there has been one retiral and a couple of people have left the office—and we have added experienced analytical members of staff. The reason for that is that ultimately it is a lot cheaper for us to recruit good-quality analytical skills than to go to consultants to get work done. We have a full complement of staff at the moment. Since the end of the year, we have lost two analytical members of staff so we have fewer staff than before. We find it difficult to recruit, so when the opportunity comes we take people with the right qualifications when and from wherever we can get them.

I was informed that the full-time equivalent staff in 2009 was 23 and that it is now 26. At the same time as there has been an increase of one or three, depending on how we look at it, the general operating costs have increased by 40 per cent and salaries by 17 per cent.

On salaries, I am afraid that analysts cost rather more to employ than administration personnel—that is the market for those skills. The general operating cost that you are looking at in the annual report is rather misleading. Audit Scotland asked us to change where we put the individual cost codes and how we aggregate them in the annual accounts. The underlying increase is more in line with the overall increase in our spending.

The other thing that ought to be taken into account is that our budget is cyclical. As we get towards the end of a regulatory period and get into the last stages of preparing price limits for the next period, we are at the peak of our workload and we incur more costs in those years. This year, you will see that our spend will probably be in excess of 15 per cent lower than it was last year.

We will see how that pans out. Why does WICS hold such a high cash reserve relative to its net assets and how does it intend to use it?

The cash reserve is essentially drawn from three things. At the end of the year, we had been delaying an upgrade to computer systems that had come to the end of their natural life, because we had a break clause in our quite expensive rent arrangement and we were trying to get to the point where we could move office and upgrade the information technology at the same time. We did not quite manage to last that long, but that is one of the reasons for the cash.

We foresaw the move, which will save £30,000 to £35,000 a year for the next 15 years. After all the up-front costs, that is the saving, which is sitting on our balance sheet at the moment. The balance of that money will be returned to Scottish Water during this financial year. We will take less levy from Scottish Water than agreed.

That is good to hear. Considerable emphasis has been placed on issues related to staff incentives and external hospitality, which in your view is a natural part of running the WICS functions. What hospitality spending is shown in the accounts?

I am not sure that there is a separate line in the accounts for that.

Are you concerned about it?

As the committee is aware, there has been quite a bit of coverage of that in one of the major newspapers. I personally have learned an important lesson, which is that the means are at least as important as the end. I hold my hands up and say that we did not get that right. Secondly, I assure the committee that we have substantially tightened up systems and processes within the office to ensure that all spending—the means and the ends—is scrutinised very carefully in relation to how it could be presented externally. I am not going to make arguments about value for money on the spend. With 20/20 hindsight, I can say that some of the venues and some of the types of event were probably not appropriate.

It is good to be able to talk about those here, especially in the context of your earlier remarks that we are looking at the regulation of Scottish Water in terms of a greener Scotland. Do you think that the way in which WICS operates would be an exemplar in a greener Scotland?

We are certainly trying to do our bit to contribute to a greener Scotland. We have an environmental programme in the office, and we are moving to a smaller office, which is located right next to Stirling railway station, so people will be able to go to work by rail rather than travel by rail and then face a walk of a mile and a half to get to the office. That will be a practical option. However, it is clear that our principal function relates to the financing of Scottish Water and challenging it to do the best that it can. No doubt we will talk about that later.

14:15

I guess that we will.

I want to stick with the internal workings of the commission. Have its staff been paid bonuses? If so, what have they been, and where are they shown in the audited accounts?

Staff bonuses are included in the staff remuneration line. They are calculated in two separate ways. The bonuses of administration staff are based strictly on performance. There is a mathematical relationship. There is no subjectivity in the bonus after the performance score has been determined. It is clear that all performance scores have an element of subjectivity, but the bonuses of administration staff are a function of their score.

The entitlement to bonuses of analysts whose basic salaries do not change in real terms over a whole regulatory period increases in each of the four years. That is partly a retention mechanism and partly a way for us to reward those who work hardest.

Earlier, you mentioned recruitment problems. Is there a problem with staff turnover, or is the bonus culture that you have identified and explained—

Staff turnover will always be an issue in a small office that is full of talented young people who are recruited from all parts of this country and overseas. Our staff have come from all parts of the world: there are Chinese, South African, American, Canadian and South American people in the office. Many of them have come to live and work here permanently; others have recently finished graduate degree courses in this country and are seeking further work experience. There will always be a churn of staff. I think that most people who leave the office do so with some regret, but they almost always go to jobs with considerably higher salaries.

That could explain the remarks about a United Nations of expertise that appeared in your staff map. It is interesting that we have such wide expertise. The obvious question is, are we not generating that expertise in Scotland?

We have some Scots, including me, in the office. It is clear that our recruitment is done absolutely on merit. I must be honest: every time we have a recruitment initiative, the preponderance of applications that we receive comes from non-Scots. That is unfortunate, and it happens not for the lack of trying. We have given presentations to a number of universities in Scotland over time, but they have not been as successful as I would like them to be. As I say, it is unfortunate, as we can give young people very good training.

That is an interesting point, which we may take to other places.

Finally, given the state of the public purse, can the commission identify any plans to reduce its staffing or operating costs in the meantime?

As I have said, we are going to cut our budget by around 15 per cent this year, and we will give money back to Scottish Water this year. We have no plans to increase our budget; in fact, we have agreed with the Scottish Government that we will not increase our budget in nominal terms in any of the next five years. Whatever inflation might be—obviously, further quite high inflation numbers have been released today—we will not seek any increase in our budget during that period.

I will pick up on one or two of Rob Gibson’s points. You said that the hospitality issues that have received so much attention in the press do not have their own budget line. I assume that they are covered under the heading of general operating costs. Is that where—

Without checking, I assume that that is where they are.

Okay. So things such as the seminar at the spa hotel would appear under that line.

Yes. I understand the reaction to how that was presented. I have expressed my view—admittedly, it is a hindsight view—but I assure the committee that an awful lot of work was done at the event. A lot of people gave time for nothing. I want to make it clear that it was a working session.

I do not doubt that work was done, but perhaps less was done at the £9,000 Christmas party.

A trip was made to Hamilton races on which more than £14,000 was spent. I presume that that was not work related.

Press reports conflated an event to which we took staff and a two-and-a-half-day off-site working session on detailed planning of the price review. All the costs are included in that figure.

So you are saying that press reports conflated those two things.

If that is how you picked it up, they must have done, because that is not what was spent on the social bit of the session.

You acknowledge, with hindsight, that some presentation mistakes may have been made. In presenting next year’s accounts, will you have a budget line for hospitality, so that people can identify clearly what was spent on it?

Subject to working with Audit Scotland and how it wants things like that presented, I cannot see that being a problem. We will not hold any event that does not pass the tests and procedures that we have put in place.

So you will discuss with Audit Scotland the separate presentation of that budget line in next year’s accounts.

Yes. Audit Scotland comes to all our internal audit meetings, so we can easily raise that matter.

That is appreciated. I turn to travel expenses. It has been suggested that WICS uses the services of a company called CGL Chauffeur Drive. How much is spent on that?

If you will give me a minute, convener, I will give a little bit of background on the matter. The company is a sole trader who trades under a somewhat grand name. It is equivalent to a basic car service. Because he is a sole trader, our legal advice is that there are data protection issues in releasing information. We have used this individual to pick up me and others late at night from train stations or airports to take us home. We do not use the service other than when safety or logistics make it necessary to do so.

So you are saying that chauffeur services are used when logistics make it necessary.

Yes.

In situations when taxis are impossible to use.

We use it because of price. We have checked the price against Glasgow city taxis and others. For example, we incur no wait charge when using this individual.

Your usage must be frequent. Whether a contract for chauffeur services is with a small company or a large company, if it costs less than using taxis that implies that it is used very frequently.

I do not think that it does. It implies that he is a sole trader who does not have the other costs of a fully registered large company. It is literally an individual with two cars.

Okay. Just to be clear, you do not have a chauffeur-driven car on a daily basis.

I do not have a chauffeur-driven car, and since the press comment, to be honest the hassle of such insinuations being made against me means that when I leave train stations or airports at 10 o’clock at night, I drive myself home. I do not like having to do it, but given the public expenditure climate that is the way in which I will conduct myself—that is my choice.

I hope that you understand my keenness to pursue those questions. In the economic climate that you mentioned, many organisations will have to do things that they would rather not do.

I fully understand why you have asked those questions. I have already given the committee my view on the matter. All that I can do is assure you that any future spend will be scrutinised rigorously to ensure not just that it represents value for money, but that it is justifiable in every way.

I have a final question on the same point. There is an issue that I want to clarify, before any other hare starts running. I imagine that if we are talking about a sole trader, the work in question will have formed a fairly significant part of his business. I assume that he has no connection with anyone in the commission.

No—none at all.

As there are no further comments on the accounts, we will move on.

We have come through a period in which WICS has kept increases in customer charges below inflation. What impact has that had on Scottish Water, how it has done its business and how it has invested or planned for the future?

There is a lot that I would like to say on that, so I will try to pick out the most important highlights.

I take my hat off to Scottish Water for what it has achieved over the past few years. It has consistently done better than what I have consistently regarded to be the fairly substantial challenges that have been laid before it. God knows, I have had my arguments with the organisation in the past about what it could do in what timeframe, but it has really delivered and done exceptionally well. That is why in Scotland, water bills are, on average, £20 lower than they are in England and Wales; it is why on levels of service, Scottish Water, having improved its performance by something like 40 per cent over the past four or five years, is now on a par with some of the better-performing companies south of the border; and it is why it is delivering a very substantial capital programme, whether that is measured in absolute or per-customer terms. In many ways, it is outperforming by doing more than it was originally asked to do, so all credit to it.

I freely admit that there have been times when I doubted that it would make the progress that it has made. For example, a few years ago, we expressed some doubts about its capital programme, but it has done extremely well in pulling that together and delivering one of the largest programmes in the whole of Great Britain.

Similarly, has WICS looked at alternative models for financing Scottish Water in the future? Has it looked at issues around debt and risk and where they might lie in the future?

At the time of the last parliamentary election, when the then Minister for Environment and Rural Development suggested that it could be Liberal Democrat policy to look at a public interest mutual model—I think that that was the phrase that was used at the time—for Scottish Water, we considered what the implications of that would be. I can tell you clearly that that would have no impact on charges. We could see no reason for there being any impact on charges, were Parliament to change the structure. However, I must emphasise that all the improvements that I have mentioned have been made in a public sector context.

I hate to refer to the press again, but the reason why I ask is that there has been some comment in the press about whether WICS has put money into advancing the case for privatisation. Could you comment on that suggestion?

14:30

There are times when you read things in the press and you wonder, “Where’s that come from?” No doubt you guys get that even more than I do. Those who have heard evidence from me over the past 11 years or so will know that the original reason why I took the job of water industry commissioner was to prove that it was possible for a public sector company to trade every bit as effectively as a private sector company. Given that that was my rationale for taking the job in the first place, I am hardly likely to suggest that privatisation is a better way forward.

Has WICS given any consideration to the value that might be placed on Scottish Water? I understand that a figure of £50 billion has been suggested. Is that the case?

You might have seen a figure for the replacement cost of Scottish Water’s assets, which is based on the situation in which we had to start again from nothing and had no reservoirs, pipes, treatment works and so on. It would probably cost somewhere between £40 billion and £50 billion to put all of that in. However, that is not what Scottish Water is worth in market terms.

I am thinking of a replacement value, am I?

Yes. You could not sell Scottish Water tomorrow for £50 billion. The price would be of a different order of magnitude.

I am sure that it could also not be sold for the figure of £3 billion that was floated as a sale price by those who favour privatisation.

The question of the sum for which you could refinance Scottish Water would be a matter for the debt markets and the level of prices and so on at the time. I do not think that you can come to a strong view on that. I have noted some of the valuations that have been included in the Beveridge group report and the Scottish Futures Trust’s work, but neither of those bodies consulted us on our view of what the value would be. I am sure that, if I spent some time, I could tell you what a comparative value would be, but it is not something that I have spent any time doing.

I want to ask about the overhang projects from the previous regulatory periods, which I believe are worth around £169 million. To be fair, against the scale of the overall programme, that is not a substantial sum to have built up over the two periods, but it seems like a lot to ordinary members of the public.

You seem more bullish about the ability of Scottish Water to spend up its programme, but we still have that overhang. What is being done to address that?

With some projects more than others, Scottish Water has encountered difficulties in getting planning permission, gaining the required consents and finding technical solutions, and that has led to some delays. However, your earlier words about the need to put that in some kind of context were important. We are talking about an organisation that has been delivering a capital expenditure programme of something like £5.5 billion over the past 10 years, so £169 million is not a huge amount of money. The situation is perfectly in line with the situation south of the border and with what is experienced by other utility companies.

A couple of years back, my concern was that it looked like the figure could be an awful lot more than £169 million. Had it been, say, three or four times that amount, I would not be sitting here saying that Scottish Water had done a very good job in turning round its capital programme, but I have to say that I think that it has done a very good job. In some ways, doing a regulatory job, it is easier for me to sit and be critical of Scottish Water, but I have to give credit where it is due, and Scottish Water deserves credit for what it has done.

I was interested in your remark that the public corporation is delivering. Over the years, you have compared the performance of Scottish Water with that of the privatised companies in England and Wales. I wonder whether any other country has adopted water modernisation in the fashion that happened in England and Wales.

I am not aware of any other country in the world where there has been a wholesale privatisation of the businesses and assets in the way that was done in England and Wales. There are some elements of private water companies in South America, but there is also a substantial public service delivery element there. France has the two big French companies that manage concessions all round the world.

To judge from our contacts, most countries do not want to privatise their water services. We have had a number of visits from China, South Africa, New Zealand and various other places that are interested in what is happening in Scotland and how, in the Scottish context, we have been able to have a cost-efficient water company operating in the public sector, because other countries have not found it easy to achieve that. We sometimes beat ourselves up as a country, but it seems to me that this is an example of something that is going quite well.

Thank you.

You mentioned that you have moved to a smaller office next to Stirling railway station. I have some more general questions on sustainability. How easily can environmental considerations be integrated into the short-term, five-year regulatory timescale? How is the commission adapting to allow Scottish Water to plan for longer-term environmental sustainability?

That is genuinely a really good question. Up to now, the four or five-year regulatory periods have been good because there has been pressure on Scottish Water to up its game and deliver the environmental catch-up, and the pressure of that treadmill has been useful. You highlight an important point, which is something that we have genuinely begun to work on over the past year: a considerable number of projects are viable economically but have paybacks that are considerably in excess of the five-year regulatory period. The board of a company such as Scottish Water will clearly be a bit nervous about committing to such things when the payback depends on what the regulator might do in five years’ time.

There are any number of initiatives with longer-term paybacks, such as asset rationalisation in some areas and longer-term commitments to make better use of the assets that the company already has. We are trying to put in place a regulatory regime whereby, if Scottish Water identifies such things to us and states how much they will cost, we will give an undertaking that we will not take away the benefits that flow to Scottish Water before there has been full payback of the investment that it has made. It is clear that that is in our interests and ultimately in customers’ interests, because we want to encourage Scottish Water to take such initiatives. As I say, lots of them exist. We tried to set the ball rolling in the final determination by identifying several issues for which we gave Scottish Water a little money and said, “Please go away and have a look at this sort of issue. Come back to us with your proposals and we’ll see what else we can do in this area.”

At some point, we will know the range of public duties on climate change that arise from the Climate Change (Scotland) Act 2009. I assume that WICS will have an interest in ensuring that those duties can be met without detracting from the ability to maintain an effective and cost-effective public water agency.

Absolutely. I will give one example in which the committee might be interested. Scottish Water’s leakage rate has reduced by more than 450 million litres a day from its worst point. Extrapolating from data that were collected and published by Business Stream—Scottish Water’s retail subsidiary—shows that the carbon that reducing that leakage has saved is equivalent to taking 75,000 cars off the roads in Scotland. To put that into perspective, that is half of all the private cars in Edinburgh. The importance of the contribution to carbon reductions that that leakage reduction makes cannot be overstated.

I agree completely. Is it embarrassing that the WICS chairman is involved with a leading climate change denial think tank, the Global Warming Policy Foundation, which essentially recommends that the Government should broadly ignore the Intergovernmental Panel on Climate Change’s recommendations?

I do not get involved in whatever extra-curricular activities my chairman engages in. He is a busy man and he is involved in all sorts of things.

You can see that it would be hard to take seriously such a voice saying that Scottish Water is taking climate change seriously.

I ask you please to look at the commission’s final determination, which shows that we not only financed the climate change obligations that ministers asked for but added more money into the pot. We added money for looking at more sustainable solutions to address cryptosporidium problems. We added money for looking at the operation of sustainable water catchment management solutions, such as that at Forehill in Aberdeenshire. We also put in money for a metering trial. We have already begun a range of activities that I hope you will conclude are at least a small step in the right direction.

I am sure that much welcome work is happening. In brief, you do not feel that Sir Ian Byatt is compromised by his two conflicting roles.

Sir Ian Byatt plays a role in chairing the commission. He was one of the commission members who accepted and agreed the determination. As far as that role is concerned, we should be judged on that document and not on whatever else he is reported to have said or done.

In setting out in your final determination the indicators against which Scottish Water is monitored, you have used an indexed score tool called the overall performance assessment. This year, the overall measure of delivery is mentioned—an OMD alongside the OPA. The new overall measure of delivery tool uses information on the progress of projects and their associated expenditure to provide another score for delivery progress, which sits alongside the overall performance assessment. Why was the overall measure of delivery introduced? Was the overall performance assessment felt to be inadequate?

14:45

No, the two tools just do different things. The OPA measures a range of outputs that are important to customers, on matters such as contact experience, the performance of waste water treatment works, the likelihood of hosepipe bans and performance on leakage.

What the OMD does—I am sorry about all the acronyms—is say, “Scottish Water told us that it would deliver its capital programme at this rate; it set out the various stages of the capital programme, how quickly work would be done and how much would be spent in getting there.” The OMD mechanism allows us to track mathematically the relationship between Scottish Water’s actual progress and what it told us at the start of the year that would be.

The OMD allows us to be confident about whether progress is on track. It provides an objective number, which relates back to Scottish Water’s projections. It is a complementary tool and is not immediately relevant to the customer, because what is relevant to the customer is whether a project is completed, on stream and providing benefits to the community.

Have you considered whether there could be a downside to moving from an output-based approach to measurement to a more target-based approach? Our old friend the law of unintended consequences might kick in. There have been examples of that in the target-driven culture in the health service, when services that did not relate to a given target were neglected or not prioritised.

The last thing that an economic regulator wants to do is create an incentive to do the wrong thing. When we put together a price review or monitoring tools, we are acutely aware that we must ensure that Scottish Water is focused solely on increasing value to customers, through better services and lower bills. That is what we do.

Let me be clear. The measure of capital performance that we are talking about is not a target that we set for Scottish Water; it simply enables us to draw the relationship between what Scottish Water said that it would do and what it is actually doing. It measures Scottish Water’s performance against what the company said that it would do. There is no role for us to say, “You should have done this.” Scottish Water says, “We will get this number of projects through the first stage of the capital process by this point,” and the tool enables us to say, “Yes, you did that,” and weigh the importance of that against progress at a later stage of a project. No perverse incentives are built into the system.

I presume that none of your staff is required to sign an oath of allegiance to the science of climate change. Your staff are entitled to hold their own views and express them freely.

I assume so. I have never asked them to sign documents of that nature or any other.

I just asked, in case there was a sinister undertone to the suggestion that it would be incompatible for anyone who had not done that to work for WICS.

If the member is able to provide a draft of such an oath, I would be interested in seeing it.

No doubt.

Does Alan Sutherland have a view on Scottish Water’s marketing of insurance policies to domestic customers?

I know that I do not like getting those phone calls and letters. I have expressed that view.

Are you of the view that they are necessary?

My household contents insurance covers me for burst pipes. I cannot comment on anyone else’s insurance.

I understand that many people’s household insurance covers such situations. Is unfair advantage potentially being taken through the marketing of insurance policies to domestic customers along with lurid examples of the emergency situations in which people might find themselves? Householders might be unaware that the anticipated emergencies might be covered by their current policies. Have you investigated or considered the issue in your capacity as regulatory authority?

It is a non-core activity of Scottish Water, not something that would fall within our remit. I assume that Scottish Water has checked its legal position on doing that, but it is really not for me to comment further than to say that I do not like getting the letters.

I see. Okay. Thank you.

I get lots of them.

As do we all. I am interested in what you say and will pursue the matter elsewhere.

Although it is early days, over the past couple of years there has been a degree of competition in the business supply sector. Five bodies are now licensed to supply, including Business Stream, which currently has a 90 per cent market share. What are your observations on the period since that opportunity was made available?

To be honest, I am pleased with the way in which things have progressed. An article in one of the Sunday newspapers said that there was only a 50 per cent awareness among small and medium-sized enterprises in Scotland that they could choose their supplier of water, but I took great heart from that. A year ago, the equivalent survey said that 25 per cent were aware that they could choose and, two years ago, no one knew. The fact that, in two relatively short years, half of Scottish businesses—one assumes that the bigger ones know if the smaller ones do, although that is maybe an heroic assumption—know that they can renegotiate and get themselves a better deal on either price or level of service is good news.

I have been surprised, as I had expected competition to be all about price. I thought that water supply was a basic utility service and that the people who would benefit most from competition would be larger production enterprises—paper mills, chemical plants and things of that ilk—but that does not seem to have been the case. The businesses that seem to have benefited most are those with diverse, disparate sites—those with lots of small shops, pubs, bank branches and stuff like that. Most encouragingly—I speak as a taxpayer—the public sector in Scotland has taken advantage of the competition. The universities have fronted a contract whereby they have renegotiated to get a better price and a better level of service. I am pleased to say that the Scottish Parliament was part of that contract as well, so you are paying less for your water service than you otherwise would have done because of competition, which must be good news.

How uncomfortable a fact for my SNP colleagues, given what they said earlier.

I do not know whether it is uncomfortable or not.

A national health service board is now using smart metering at its different sites in order to understand how water use varies across its estate and it has been able to make fairly substantial reductions in its water use and effluent discharge because of that. What customers have wanted has been less about price and more about enhanced levels of service and more advice—particularly help in reducing their carbon and water footprints.

It is suggested that there is a certain amount of frustration about the process of making a change, with some businesses that are trying to switch still experiencing difficulty in getting connections. Is that insurmountable, or is that just the reality of something that is new?

To the extent that there is real evidence of problems, that is probably best ascribed to teething problems. I certainly do not think that we have had a repeat of some of the issues that have happened in the energy market with misselling or anything of that ilk and I am encouraged by that. The whole area of connections is getting better; it is a matter on which we are doing extensive work with Scottish Water and other stakeholders to ensure that we improve further. Over the next six to nine months, we will no doubt be in a position to announce some changes in that area, which I hope will make that easier. We are also involving the development community in that.

I am not aware of people having difficulty switching suppliers. I know that, with one or two of the suppliers, if I go on their website, I can do all that I need to do to switch my usage to them using a fairly simple web-based form.

To paraphrase a question from my colleagues on the left, can you think of any other Parliament anywhere in the world that is using a non-state-funded water supplier?

Sorry?

Any non-state supplier of water. You do not need to answer that question—I thought that that was the kind of partisan nonsense that we were indulging in previously.

Finally, do you have a view on whether your own roles as a market developer and a regulator are compatible?

I am glad that we do not have the concurrent powers under the Competition Act 1998 that some of the regulators have south of the border, because, if there is a competition complaint, it can be quite difficult to be judge and jury on in the higher court when one has already made the decision in the lower court, as it were. That is the situation that those powers cause to arise. In our case, that would not happen, because a substantive competition complaint would go to the Office of Fair Trading and it would deal with the complaint. Clearly, we want a framework that is sufficiently clear and understandable to anyone so that such complaints need not arise.

I am not sure whether Jackson Carlaw has a taker on the call for partisan nonsense, but Rob Gibson has indicated that he would like to ask a further question.

Heavens, no. With the experience of the past 11 years, would WICS expect Scottish Water to become cash positive at any point?

It depends what you mean by cash positive.

Have a stab at assuming that it could make a profit.

Will Scottish Water always be borrowing cash each year because it will be enhancing its asset base and addressing the environmental and public health challenges that we face, certainly for as far ahead as I can see, given that the timetable for the implementation of the water framework directive ends in 2027? There is a fair degree of visibility on some of this and I think that it is highly unlikely that Scottish Water will not need cash. What the implications of that are for Government public expenditure is probably a separate calculation. That is a question that, to be honest, you are probably better asking officials in the finance department in the Scottish Government rather than me, because they know the intricacies of that accounting and understand it rather better than I ever will.

There are no further questions, so I thank Alan Sutherland for his time.

14:59 Meeting suspended.

15:00 On resuming—