Official Report 177KB pdf
With us for our main item of business we have Sir Ian Byatt, the chairman of the Water Industry Commission for Scotland, and Craig MacKenzie, an analyst from that body. I welcome them both to the committee and invite them to make a few opening remarks.
It is a pleasure to be here, and we thank you for inviting us.
Thank you. We will move on with questioning.
I certainly think that our main job is a financial job. It is to ensure that customers pay the lowest reasonable cost of fulfilling ministerial objectives. However, those objectives will include sustainability, and I suggest that the operation works best if ministers define their sustainability objectives. Once that is done, it is our job to make sure that they are financed at the lowest reasonable cost. Of course, we work closely with the other regulators. The drinking water quality regulator and the Scottish Environment Protection Agency also define what needs to be done. If you like, we are the financial arm of an integrated system.
The draft determination states that it is
With respect, convener, I did not say that the Government needs to define its criteria better; I said that ministers will define them, and that that is their job. I am not suggesting that they do not do it well. Directions are set out and we follow the draft directions, which ministers firm up. We make sure that we work to getting the lowest reasonable cost of fulfilling ministerial objectives.
In what way, then, does the draft determination require Scottish Water to have regard to social and environmental factors as well as economic ones?
I will pitch in first on environmental matters. Leakage is a matter of considerable concern to a number of people. We have set Scottish Water targets for leakage, and we have also encouraged it to do a good deal of work to understand leakage, which is different in different parts of Scotland. There is a whole programme there, and we allocated money to Scottish Water in the last determination so that it would get on with leakage. That is one big area.
So whatever the extent to which the Rural Affairs and Environment Committee made fair comment in its report, it is a matter for the Scottish ministers to give clearer guidance or to set different objectives if that comment is to be acted on.
I remember talking to the chairman of SEPA, who pointed out that he has a sustainability objective whereas I do not. I replied that that was because we take the sustainability objectives from other people; our job is to finance them. So we are involved in sustainability.
How well has Scottish Water done in achieving its targets? There seems to have been relative success on that front in past years, but does that target-driven culture have a downside and, if so, what is it? Are services being neglected or not prioritised because they are not part of a target?
I will define three areas: Scottish Water's operational efficiency, its levels of service to customers, and its capital programme. A few years ago, Scottish Water's service to customers was not good, certainly compared with that in England and Wales. There is no reason why things should be done worse in Scotland than in England and Wales and I am glad to say that Scottish Water has greatly improved its levels of service as measured by our overall index of levels of service, which includes things such as water pressure and response to customer complaints. Things are going well, but we want Scottish Water to do even better. We are not really having problems with that, although whether all the right things are in the index is an interesting question. Waterwatch Scotland has said that the index should include something about engagement. I will park that issue for the moment, but will say something about it when I discuss the capital side.
When we have questioned Scottish Water representatives on issues that are outwith the current target regime, they have been adamant that their job is to meet their targets and objectives. You seem to be talking about the good practice that should apply to any business organisation. Is Scottish Water simply sticking to the targets that are laid down for it and failing to place sufficient priority on good practice?
The targets should reflect what customers want. It is most important that they do that. We inherited the Ofwat performance index and we are in consultation with Ofwat on what should happen to the index in future. We also have to take account of Waterwatch comments. The performance index should be a living document; indeed, it covers most of the things about which customers are concerned. The improved performance of Scottish Water against its targets is therefore a matter of satisfaction for the WIC. If anybody feels that the wrong things are being measured or that important things are not being measured, we will see how that can be taken into account.
In its submission, SEPA notes the improvement in
Craig MacKenzie may wish to say something on the matter. Basically, compliance with the environmental side is the area of the overall performance assessment—the OPA—on which Scottish Water is not doing well. Much of what falls into that area is operational. What can be done? SEPA should continue to press the point and we will continue to measure it. Essentially, SEPA and not the WIC knows whether that is being done properly; SEPA is the monitoring body. There is also an overall body, which the Scottish Government runs, which looks at investment results. Where SEPA is concerned about those things, I trust that it goes to that committee and makes the point.
I take your point that, in the main, targets have to be numerical things. That said, other organisations are able to measure service quality. Does the draft determination place sufficient emphasis on the quality of service that Scottish Water provides?
The question is a good one. We have concentrated on the OPA, but perhaps we should do more to go into things such as engagement and the whole customer experience. It would take time for us to build up that work. When I was at Ofwat, we used the OPA, but I also encouraged the customer service committees to look into the experience of individual complaints. We also took in the qualitative side of things. Waterwatch is well placed to do that. It is working on qualitative assessment. I use the phrase "qualitative assessment" and not "qualitative measure", given that we are talking about broader assessment and not measurement. If you were to ask someone to measure the success of their marriage, they would not want to do that simply by way of one or two quantitative measures.
Thankfully we do not have to discuss that at committee, so we can leave it to one side.
For some people, I suppose that it might be some of both, would it not? Des McNulty has a supplementary question.
Scottish Water said in its initial submission to the Water Industry Commission for Scotland that it wanted to exclude certain projects from the OPA, but in your draft determination you have ruled that those projects should be included. One of the projects is the Dalmuir sewage works in my constituency, so I have a particular interest in the issue. What does the inclusion of such projects in the OPA mean in practice for people who might be exposed to environmental nuisance?
Dalmuir is a public-private partnership project. We have been concerned that some PPP projects have not performed well—one such project is not too far from here. It is all very well to say, "Oh, that's because of the PPP contractor," but the ultimate responsibility to deliver good service to customers falls on Scottish Water. That is what we have said in relation to Dalmuir. Scottish Water must get on with it and not be tempted to say that it is someone else's problem.
What is Scottish Water required to do in such circumstances?
It must get on with ensuring that works do what they are supposed to do. Craig MacKenzie might know more about Dalmuir than I do; in relation to Seafield, it is about stopping the smell.
Some things are written down in the PPP contract; other things could be done by Scottish Water's management through day-to-day negotiations. We have allowed for extra money in Scottish Water's PPP allowance to try to ensure that Dalmuir delivers the outputs that it is meant to deliver.
At this stage before the final determination four years ago, there was strong disagreement between the WIC and Scottish Water about whether the programme that you had set out was achievable. It seems that there is considerably more agreement between you and Scottish Water now. Is that because you have become less challenging or because Scottish Water has become more efficient? How would you contrast your position four years ago with your current position?
That is a good question. Four years ago there was a huge difference between our estimates of the cost of carrying out the programme. Scottish Water, which was being aided and abetted by, or supported by—I am feeling for the right verb—Scottish Water Solutions, said that it would cost £3.4 billion. We thought that £2.15 billion would be sufficient. I think that we have been proved right on that.
You mentioned the works at Seafield and Dalmuir and said that it is up to Scottish Water to get on with the job. If I understand correctly, the PPP at Seafield was such that the cost of solving the problem would be far greater than the total allocation for the odour problem. If that is so, how can we expect Scottish Water just to get on with it?
Craig MacKenzie will correct me if I get this wrong, as I might well do, but I think that more money has been allocated to Seafield.
Yes.
On this occasion, the important thing was to deal with the smell; if that required more money, we were able to do that.
As I understand it, a study has now been done on the extent of the work that is required at Seafield. Scottish Water included the bid for work, if you like, in its investment programme, which came to the commission in March. That has been fully financed in the final determination.
That is—
I apologise; it is the draft determination.
I might come back to sewage in the next set of questions. I will address borrowing now. The WICS staff paper 1 states:
Let us start with the history. When we were looking at prices four years ago, there were no real constraints on borrowing, but constraints have started to appear and the Scottish Government is saying that in the next five years the level will be no more than £150 million a year—that is £150 million a year cash. At the moment prices are not going up, but those may be special circumstances, so given that the United Kingdom Government is likely to continue with monetary targets related to inflation of 2.5 per cent a year, we assume that prices will rise. That £150 million, or £140 million, becomes smaller in real terms, so at the end of the five-year period there is a real issue. Will something happen before then? I do not know. You must ask the Scottish Government, because the budget is set for a short period ahead but not for five years.
I will pursue you on two points. First, what would the implications be for customer charges if the £150 million was not available from Government and had to be paid for by increasing customer charges? There must be an arithmetic value for that. Secondly, do you see any in-principle reasons why Scottish Water could not be treated in the same way as Network Rail in respect of borrowing arrangements?
I will answer those questions separately. As far as the consequences are concerned, because the return on capital is related to the risk and therefore to what companies south of the border have to pay, the borrowing could come from non-Government sources without any direct effect on customers' bills. If, however, the money was not available in any circumstances, and customers were paying for the capital programme pound for pound, their bills would start to rise quite steeply, although that would depend on how much of the programme customers were paying for pound for pound.
I do not think that I have had a direct answer to either of my questions. Do you have a figure that we will all have to stump up in our bills if we have to fund £150 million of investment that is not covered by borrowing?
I do not have a figure now because we have not done such a calculation. You can see the way it would go; you would be adding £150 million a year to the costs, which would cause bills to rise.
Is it possible to get such a figure?
Scottish Water's revenue is roughly £1 billion, so if you add £150 million to that—assuming that it is only £150 million—that would mean 15 per cent going on bills. That is a very rough estimate.
Right. That is interesting.
As a matter of principle, I cannot at this point comment on what other people have said in their representations. We will look at all those together; it would not be fair to do it otherwise.
Are there legitimate concerns about the sewerage network that feeds into the plants as opposed to the plants themselves?
Now you are taking me into technical matters that I am not particularly competent to judge. Scottish Water's submission as a whole shows what it thinks needs to be done. If SEPA believes that more should be done on the sewerage system as opposed to the sewage plants, it is for SEPA to tell Scottish Water that.
I will move on to things that you have identified. In the section "Key messages", you highlight the need to address
We are where we are—the comments reflect what SEPA is saying to us. I think that SEPA feels that, because the programme has been carried out at high speed, Scottish Water has often been concerned to get on with short-term rather than longer-term jobs. SEPA would like to see a longer-term, more comprehensive approach, which seems right to us.
It is perfectly reasonable and fair to say that studies should be done and that we need to spend money wisely, but we have already heard that the length of the draft determination period is going to be a year longer, so we are really talking about a five-year period before action can be taken. Is it not possible for the studies to be done more quickly and for the determination to be adjusted in the context of the need for implementation? The metropolitan drainage problems in Glasgow have been known about for a very long time. I do not think that it is ideal to wait five years—that is the determination period—until the work is started.
We are not saying that. We are saying that the studies should be done faster than that. We have said by what point the studies have to be completed.
It is 2012.
So we are not waiting until 2015. We are saying that we want to get on with these studies. Some of them should be completed by 2011 and some by 2012. We have a timetable for that. If people meet that timetable—that is not in our hands, because we are not the people doing the studies—the money is available.
So the money will be available to take the work forward.
Definitely. However, if the study is not done and people come along and say, "Terribly sorry, it's taking us longer than we thought," it would not be wise of us to say that they should get on with the work before the study is complete.
Could the studies have been carried out in the previous determination period? Could we already be at the stage of completing the works if the studies had already been done in previous years? It has been said that the problems have been known about for some time, but nobody seems to have done anything about them. We are where we are because the problems were not tackled in a previous period.
Some things were tackled in previous periods. In the current price review, we financed certain studies, which included the Ayrshire coast, Glasgow and Edinburgh, so a certain amount of work has been done. However, SEPA believes that there is a bigger problem and that more should be done. We think that that is fine, and the finance is provided under the draft determination; the process can fit in thereafter.
In the draft determination, you state that you are
I will have to turn to Craig for help on that one.
The statement relates to Scottish Water's claim that, if premises are added to the sewer network, investment is required because more capacity is required. The company gave no output figure; what customers are getting for their money is therefore unclear. Our usual rule before sanctioning the use of customers' money is that there must be a clear and measurable output figure. That did not happen in this case. Our view is that issues of sewer capacity and so forth are best dealt with when connections are made.
Scottish Water may want to come back to us on that one.
The issue relates to development planning. Developers who wish to build new houses or whatever are being asked to make payments to Scottish Water for sewer capacity. Despite being asked to do that, they cannot reserve capacity. They are being asked to pay for something that may not necessarily benefit them. In some ways, the closer someone is to a sewage plant, the less certain they are to benefit. Is investment management an issue?
We believe that Scottish Water is financed adequately to provide strategic development capacity. People can now see Scottish Water's strategic capacity on its website. Before the last determination, there was a lot of concern about development constraints and a lack of capacity. We have been trying to keep an eye on that one, although I cannot say that there are no further issues in that regard. Having travelled to Orkney, Shetland and Stornoway, I would say that the cries have gone away, notwithstanding that special factors apply in those places.
My question is on leakage. In the draft determination, you state:
The economic level of leakage can be found by comparing the cost of producing water with the water that we would not have to produce if the level of leakage was not so high. That work would involve a lot of measurement across the network in Scotland. Indeed, work is on-going in that respect and targets have been set, even before the work is completed. The amount of leakage in Scotland is so gross that something has to be done. We need to do that before we look at exactly what the economic level is.
I am pleased for the people of Yorkshire.
We have, in a sense, three marking places. First, there is our current position, which is that leakage is being reduced substantially year on year. When Scottish Water failed to meet the target the first year that it was introduced, we told the organisation that it had to put more effort into that.
Scottish Water could play an important role in helping Scotland to meet its greenhouse gas targets under the Climate Change (Scotland) Act 2009. However, I see nothing about climate change or indeed Scottish Water's public duty in that regard in the draft determination document or the "Key messages" document that you have circulated to members. I am aware that Scottish Water has made the duty priority 2, even though the Government has made it priority 1. What discussions have there been on climate change? You have talked about sustainability, emissions and carbon counting, but I see no vehicle for monitoring Scottish Water's intentions or, indeed, achievements in that respect.
If I may say so, those are very good questions, and we do not have all the answers to them yet. Some issues, such as the pumping costs, can be addressed. An interesting pumping issue has emerged on Loch Ryan, which we want to study because we think that the management of the loch will involve pumping some of the nastiness over a hill into another bit of sea. Because such a move will create carbon emissions, we have drawn attention to it and, as I say, want to carry out some research on it.
But this is a five-year draft determination. You cannot simply think about climate change; there is a public duty to do something about it, and I am interested in hearing how you intend to push that issue and ensure that the duty is fulfilled in the foreseeable future. The fact is that in five years' time it might be too late.
One question that arises from the Climate Change (Scotland) Act 2009 is: who is the enforcement authority? I assume that the Government is the main authority and that, as such, it will tell Scottish Water, which it owns, what it thinks it should do. I would be happier if the mechanism worked that way instead of making the commission, SEPA and everyone else sit around and think about what should be done. I entirely agree, however, that we have to get on with the matter.
So you accept that in the long run there is a cost to customers, in either on-costs or environmental costs, in achieving the climate change targets.
It will be our responsibility to examine the costs and to ensure that they are the lowest that is reasonable. However, in a way, we are following other people. We are happy to follow them and to do what we can but, given that we have no particular expertise in climate change, it may be confusing if there are too many cooks deciding where to go.
As a public organisation, surely you have a responsibility to get up to speed on the issue.
We accept that we have a responsibility—that is not in question. The question is: how will that responsibility be discharged? We will discharge it by being ready to examine any costings, to indicate what effect they may have on prices and, if it is the right thing to do, to pursue the mechanism for ensuring that whatever has been decided can be financed.
Have you had any discussions with ministers or Scottish Water about the nature of the public duty that will be imposed on Scottish Water as a result of the Climate Change (Scotland) Act 2009?
I have not been party to any such discussions, but I do not know about everything that goes on, I am glad to say.
Mr MacKenzie, are you aware of any such discussions?
I am. I would like to clarify some points in the draft determination and to indicate what remains to be clarified. Ministers have another bite at the cherry when setting the objectives for Scottish Water. Towards the end of this month, they are required to specify further objectives, which are the objectives that Scottish Water must deliver in the 2010 to 2015 period. Up to now, everything has been done in draft. The last round of draft determinations included priority 1 objectives that we are required to finance within the determination. Separately, there were priority 2 objectives, which we could finance but only if that did not disrupt prices in any way. As Cathy Peattie identified, the climate change objectives fell within the second category.
There is £245 million, but it cannot be spent on climate change as well as the work in Glasgow. We must think about the relativities. When ministers make decisions and send us the final determination, we will respond to their priorities.
It could be argued that, in Glasgow or anywhere else, climate change should affect every pound that we spend, instead of being seen as something additional. Even if ministers are reconsidering whether climate change should be made a priority 1 objective—we hope to hear something from them on that—it seems clear that a public duty will be imposed. It will appear as part of Scottish Water's objectives early on in the 2010 to 2015 period, which we are discussing. It seems reasonable that, not necessarily solely at the door of the commission, Scottish Water or ministers but somewhere between the three, we would put a ballpark figure on that to be discussed as part of the draft determination.
We would all be in favour of having a ballpark figure put on it, but one has to think of the mechanism by which that ballpark figure would be arrived at. The process would start with ministers outlining their priorities, whether in the statement that will be made later in the month or in some other way.
And ministers have not done that yet.
No. As Craig MacKenzie says, their final views on the priorities will come later. Do we have an exact date for that?
I think that it will be towards the end of the month. It will be around the same time that all the responses to the draft determination come in.
So there is that. However, even if ministers do not do something this time or want to do something later, there is a mechanism to deal with that. We would pursue the whole costing side: ministers would tell us what they thought that we should do—they might want various options and alternatives to be costed to see which would be the most economical from the point of view of the customers—and we would then do the work. There would be a mechanism for changing things; the first immediate mechanism, which Craig MacKenzie is correct to emphasise, is that money has already been allocated to these things within the price limits in the draft determination.
It is a matter that we will have to take up with ministers. However, I would have thought that some of the people who responded to the consultation—which, as we have noted, closes tomorrow—would benefit from ministers making their intentions clear before that period ends. They have clearly not done so yet.
I would not want to see action on climate change being set against action to deal with the metropolitan drainage issues in Glasgow—that would not be at all appropriate. Glasgow is already quite sensitive as a result of ministerial decisions, and we would not want to throw that one into the mix.
That is a useful suggestion.
Recent press reports have noted that effluent that goes into Pease Bay in East Lothian is treated by Scottish Water with ultraviolet disinfection techniques during the bathing season but not at other times of the year. It seems that part of the reason for that is to reduce carbon emissions. It is puzzling that Scottish Water, as has already been said, seems to be more interested in being green than in improving water quality in the area.
The question is really for Scottish Water, which has taken the action. As I understand it, the logic of its argument is that it is a bit cold to bathe in the sea in the winter in Scotland, although I hesitate to say that I would not bathe in the sea in Scotland in the winter.
I am told that there are surfers all year round—you learn something every day.
Scottish Water submits a business plan with certain objectives, and those objectives include the extent of tertiary treatment.
SEPA and Water UK are concerned about the possible implications of the transfer of trade effluent responsibilities. How would accountability and performance incentives work if the trade effluent responsibilities were transferred and what would be the ultimate impact on customers and the environment?
The suggestion is to transfer the responsibilities on advice on trade effluent. Enforcement in relation to what is put into the sewers would remain with Scottish Water.
SEPA's submission to the committee states:
We will respond to that in our final determination. I would rather not respond to it today, because I want to consider all the matters together, rather than pick them off one by one. SEPA makes an interesting point. I am not trying to have an argument with SEPA, but there is an interesting climate change issue as a result of the additional pumping. As committee members have said, we need to get on with the business of implementing the Climate Change (Scotland) Act 2009. However, we will see what other people have to say and we will put it all together. I assure everyone that we will take all the comments seriously.
I hope so.
Do you accept that the draft determination could have been more transparent in its reasoning and evidence? For example, why is there a disclaimer stating that staff papers cannot be relied upon?
That is a purely legal point, as there is a legal issue about who takes decisions. The commission takes the decisions and therefore it is those decisions that are in the draft determination and which have legal standing. Of course, we rely on staff papers greatly and on the excellent work that is done in our office. We could not operate without those. In terms of substance, we rely on them.
I will rise to your challenge, Sir Ian, and say that some people want a sweetie and others want a box of chocolates—I am more of a box-of-chocolates man, myself. I stress that we are not necessarily talking about appendices or whatever, as there has been criticism of the reasoning in the draft determination.
It is one thing to criticise the logic and reasoning; we are responsible for that. However, we tried to give you the sweetie and the box of chocolates by publishing the staff papers. I thought that those papers would have the same status, but the lawyers told us that they had to have a different status; nevertheless they are all available, they are jolly good and they have been well done.
We will move on. You say in the draft determination:
The table on page 9 shows financial strength in terms of the net cash flow from operating activities, less tax paid, divided by net debt, which is an indicator that is used in the City to test utility companies' financial strength. Scottish Water comes out rather well compared with some other companies, partly because it is less geared than some other companies. For example, Anglian Water is incredibly geared—I think that its debt is around 85 per cent of the regulatory capital value, whereas in Scotland the proportion is around 55 per cent. Scottish Water is stronger than some of the companies that have borrowed—some people might think that they have overborrowed. We want to maintain that financial strength and we think that it is right and proper that it should be maintained.
Will you keep an eye on that throughout the regulatory control period?
We certainly will.
Why is the rate of return for Scottish Water lower than that allowed for other state-owned or state-funded enterprises?
It is not lower than the rate that is allowed for all state-owned enterprises. A 4.1 per cent return on the regulatory capital value is rather lower than the 4.5 per cent that Ofwat has allowed in its determination. There is quite an element of judgment in that regard. On the train on my way here I read an interesting article by someone from Halcrow, who argued that if the English companies go to the Competition Commission they might find that they get a lower cost of capital than the 4.5 per cent that Ofwat has suggested.
I want to press you on the comparators that you mentioned. The rate of return that is allowed for Scottish Water is lower than that for Network Rail, Royal Mail and Welsh Water.
Do you mean looking forward?
Yes.
Welsh Water will get whatever Ofwat decides is right for the industry as a whole. In respect of Network Rail, it depends on the borrowing conditions in the capital markets. Network Rail has a huge capital programme and there is a certain amount of political uncertainty around its case. You have to judge these matters according to the particular sector. Water is quite a low-risk sector, so it will tend to have returns at the lower end of the spectrum.
The commission takes into account
When I was a student many years ago, I was taught by Professor Modigliani. The article that I read did not allow for any taxation in the system, but there is taxation in the system. Debt is tax allowable, whereas equity is not, so the Modigliani-Miller theorem is fine as a piece of textbook economics, but there are problems applying it in the real world.
Why is your approach to inflation in the draft determination different from that taken by Ofwat?
That is an interesting question. We are seeing plunging inflation, although the numbers depend on which inflation index you take. I think that the retail prices index is the best indicator, because it measures what people really pay; it comes out of the old cost of living indices. We want to know what people are paying for their water compared with other things. At the moment, the different measures point in different directions.
And on the comparison with Ofwat?
I am not sure that I know. Ofwat might want to do something different. We could ask for a price reduction if the retail prices index comes out with a negative number when adjusted by the K factor. The money could be given back to customers or bills could be frozen. That is a policy option. One of the reasons why our determination is in draft is that we think that it would be sensible to freeze prices, but others might have different views, and we will listen to them.
I will turn to some of the issues that Waterwatch Scotland raised. It has pointed out that
Affordability is a wide and important problem, and is particularly acute in south-west England. I suspect that it is less acute in Scotland, where bills are much lower. The first thing, therefore, that we would argue is that we are generally keeping bills down to reasonable levels, so the affordability issue is diminishing rather than growing. Secondly, household customers are charged on the basis of their council tax bands, and the council tax is allegedly a redistributory tax; we do not operate it. We are keeping bills down and people who are living in low council tax bands will pay less.
The council tax has been frozen, but water charges have not.
Indeed, but it might be that water charges will be frozen. We have been discussing that.
That might become the case, but it is not the situation at the moment. Waterwatch Scotland has based its evidence on experience up to this point.
Indeed.
I will allow a supplementary question before we move on.
On affordability, my colleague's question was about households, but I would like to consider the voluntary sector, in particular small community organisations that are currently exempt from charges. It is felt that if they are faced with water charges, many organisations or the community facilities that they provide might have to end. I see no mention of the voluntary sector in the draft determination. Is it your submission that the exemption from charges for the voluntary sector should continue, and if not, why not?
No one is suggesting that the voluntary sector should be charged. It is a big issue in England and Wales—it is known in Manchester as the rain tax, where it is to do with surface drainage. I do not believe that this is an issue in Scotland. Is it?
The Scottish Government has confirmed that the exemption scheme will continue in its current form until 2015.
And beyond that?
That will be a matter for the Scottish Government.
That is helpful.
Waterwatch Scotland has pointed out that
Yes. We did a little piece of work, which is available on our website, in which we considered the costs. The division of Scottish Water into its retail and wholesale sides was done by identifying whether activities were retail or wholesale, but there were some activities that nobody wanted to own. The exercise was useful and Scottish Water saved quite a lot of money, although I do not have the exact numbers to hand. Scottish Water Business Stream also saved quite a lot of money. Over four years, the savings would have paid for the Central Market Agency and all the instruments of contestability.
You said that areas were identified
I do not know that I can do so now. People could see simpler ways of doing things, as is always the experience when one goes into how things are done. People say, "We've always done it this way," but there are different ways of doing things. As it turned out, Scottish Water agreed that things could be done differently and saved quite a lot of money. It could be called a special management review-type operation.
Can you say how much was saved, as a matter of interest?
I cannot. Craig MacKenzie might be able to do so. I think that it was millions of pounds.
I do not have the numbers to hand. We can send the committee a copy of the report that we published last year, if that would be helpful.
On regulatory reporting, Waterwatch Scotland said:
What will customers get from better regulatory reporting? The answer is lower bills, in due course, because regulatory reporting enables us to keep a firm grip on bills. In that regard, there are huge savings in Scotland compared with England and Wales. It was because of regulatory reporting that Scottish Water understood that it must do something about its operating costs and levels of service and took action. We want to develop regulatory reporting to ensure that that valuable benchmarking continues. I cannot tell you exactly how much the benefits will be, but they have been substantial so far and have outweighed by a great deal the costs of the reporting exercises.
I have often been at pains to dig into the potential for confusion when direct comparisons are made with water companies down south, because those companies work to a different timescale. Is the comparison now more obvious than it used to be?
I think so. The standard statistical work is always illuminated by an exercise in which consideration is given to whether there are special factors in Scotland, south-west England, Wales or wherever. That is gone over carefully with Scottish Water.
That is interesting. Thank you.
I would not want to say that at the moment, because there are other important priorities, but we will take seriously what Waterwatch Scotland has to say about the issue.
Des McNulty has one more supplementary.
I actually have two, but I hope that they will be short.
Indulge yourself.
First, I ask for an update from your perspective on the success or otherwise of the retail competition initiative, and on how it is delivering change in the water and sewerage industry in Scotland. We heard from Scottish Water on the issue relatively recently. I would like to hear, from a regulatory point of view, what your opinion is on the matter.
I never expected the initiative to move fast. There are now about five companies and another is in the pipeline. We are encouraged by the fact that companies are prepared to come in and it is interesting that they have gone for different sectors of the market. Some have gone in where there are specialist measuring devices and some have gone into other sectors.
My second question is about the perennial issue of rainwater run-off and the fact that it goes into the sewerage system and becomes a cost to the paying consumer. Is there any hope that the problems of rainwater run-off can be better managed through the regulatory system, or can it be designed out through how we will build infrastructure and housing in the future?
I will say a little bit about at least two aspects of that question. First, there is the issue of rainwater getting into the sewers, which is what the Scottish Environment Protection Agency refers to as sewer infiltration. It is leakage in reverse and it reduces the capacity of the treatment works to deal with foul waste. That is certainly on our horizon. I cannot tell you with authority to what extent it has been dealt with in the draft determination, but it is certainly one of the issues on which we have had representations.
Could metering tie in with what we were saying about our responsiveness to climate change?
It absolutely could. It is encouraging that we now have a carbon price, which is coming out of a market mechanism—the European emission trading scheme—which can be included in the economic calculations, as it should be.
Do members have further questions?
Forgive me if this seems trivial. I am concerned about the size of font in the draft determination. If we want people to comment on the draft, it needs to be readable. There is good practice in Parliament's approach to publishing reports. I ask that fonts and presentation be considered in the future. I am not happy with the draft, which would be difficult to read for anyone who has a problem with small print.
Do you mean that it is too densely written?
The font is too small.
I am sure that we can adjust that.
It is a minor issue, but it makes a difference. I had to find my other glasses last night.
I entirely agree. We will certainly consider the issue.
If there are no more questions from members, is there anything that witnesses want to add that has not been covered in our questioning?
You have interrogated us thoroughly. If the committee were minded to comment on the draft determination, we would look forward to hearing what you had to say. Comments should be received by tomorrow, but we could probably grant you a small extension.
That is much appreciated. I thank both witnesses. The committee has agreed to discuss in private the evidence that we have heard.
Meeting continued in private until 15:55.