Official Report 220KB pdf
I welcome everyone to this meeting of the Transport, Infrastructure and Climate Change Committee, and remind you all to keep your mobile phones and BlackBerrys switched off.
It might be useful if I take a couple of minutes to introduce ourselves. First, I should point out that I have brought Charles Coulthard along with me because he is the chairman of the commission's audit committee.
Thank you, Mr Sutherland. I will kick off by asking about one issue that you mentioned: the preparation for competition in the market. It would be hard not to ask about it as it has been a major element of your work of late. The market is due to open in April. How much competition will there be at that point?
So far, the commission has licensed three entities, one of which is Scottish Water's separate retail entity Business Stream. The two other entrants are smaller, as the committee has been told previously. We are also in discussion with at least two other parties that are likely to seek licences. Whether they will be in place before 1 April is not certain, but it is not impossible. Some choice will be available, which is clearly better than no choice. What is most startling is the significant change in how Business Stream deals with its customers, as a consequence of the new framework.
I note the statement that some choice is better than no choice. There may be a range of political views about that but, given that your task is to prepare for competition in the market, are you satisfied that the asserted benefits of competition and choice will be adequately delivered by the actual level of competition that will take place?
We have recently conducted a cost-benefit analysis of the introduction of competition. Before we start talking about any service improvement, if we consider just the cost side of the equation, we see that costs for Scottish Water and Business Stream are lower than they would otherwise have been had we not had the new framework. Households as well as non-households will benefit because, as a consequence of the framework, costs will be lower than they would otherwise have been.
The costs will be lower as a result of the framework and not as a result of competition. Is that correct?
We have not yet seen what will happen as a result of competition. However, the threat of competition, the introduction of the new framework and the separation of the retail and wholesale sides of Scottish Water have led to an overall reduction in costs that we would not otherwise have achieved.
You said that the new entrants that have been licensed or with which you are in discussion are smaller. How much smaller are they? Will they compete across wide geographic areas or are they designed to supply known and pre-identified captive markets of specific buyers, for want of a better word?
Both companies are new entrants to the market, so it is inevitable that they are much smaller than Scottish Water, which will start with all the non-household customers. The new entrants have general licences that require them to be prepared to offer the default tariff—the maximum tariff, which must be made available to any business anywhere in Scotland—irrespective of whether or not they want to serve that customer.
So the new entrants are not bespoke suppliers for specific customers.
No. They cannot pick out all the newsagents in Edinburgh, for example, or customers that they consider would incur a lower cost to serve. The newsagent in Shetland or Stornoway has the same protection as the newsagent in Edinburgh.
I understand that, as you said, you have a giant—Business Stream—and two small operations that will take a lot to overcome the huge barriers to entry to competing in the market. Your remit covers Scotland, so you will probably not be able to answer my question, but I understand that Business Stream's meter reading operation already works at Heathrow airport. Do you see the general market extending to England and other parts of Europe, the economic advantage of which would be to build up large economies of scale so that companies can better compete and give a better service to their customers, as has happened in other utility markets? What is your general view of that analysis?
The regulator in England and Wales has made clear its view that competition is not yet working there and that it wants a number of steps to be taken to make the framework effective.
I presume that the market will follow more mature markets, such as telecommunications, water south of the border and gas, where market entrants have tried to differentiate according to either price or quality, but not both, because it is hard to achieve on both. Do you predict that you will follow the well-worn path of other utility providers in other markets?
I agree with that, but with one caveat. One of the fundamental differences between a water and waste water market and an energy market is that, in the former, there is no easily transportable commodity that is traded on world markets. You will not get the price volatility that we have seen recently in the energy markets. We are not talking about the kind of market in which household gas and electricity bills go up by 15 per cent or whatever as a function of wholesale prices. Will some people get price offers with a cheaper and more cheerful service? Yes. Will others get services such as aggregated billing and more advice on recycling or using grey water? There is almost no doubt.
Thank you. No doubt the committee will want to keep an eye on whether the customers who receive the cheap service stay cheerful, but that remains to be seen.
There are two parts to that question. Household collection rates have been improving. For household water customers in Scotland, the total cost of administering and collecting bad debt is as low as it is for any company in England and Wales. In a sense, the debt issue is not impacting on customers as directly, so as well as the obvious headline non-payment issue there are benefits to customers in the current system. Any improvements in the household payment rates would feed straight through into bills, which would be good.
We will park that one for a while.
It is a big one.
I bring us back to competition. You spoke about the threat of competition. What is the Water Industry Commission for Scotland's view of further competition within the water industry in Scotland? Is it necessary?
At this stage, we want to show that the work that we have done over the past few years to introduce a framework is bringing benefits to customers. Once we show that those benefits are manifesting themselves—as the convener rightly said, the level of service is as important as price; there must be no shortcuts—it may be right to discuss having more competition, but let us first confirm that what we have done is working and is delivering the benefits that we think it will deliver. After a period, it might be right to come back and say that other things can be done. Competition is not an end; it is a means to an end. The end is a better deal for customers, the environment and society.
The chairman's foreword to the annual report states that Scottish Water
No, the commission does not have a view.
It is not our decision, anyway. In addition, if we seriously considered any change, we would be considering changing what is probably the most efficient company in the United Kingdom. Scottish Water has a way to go, but it is getting there. If we wanted it out, we would want it out on top.
Your answer is that, at the moment, public ownership is the best way forward.
The best way forward at the moment is a publicly owned company getting better.
I like that idea.
Is that compatible with the position, as reported in The Scotsman, that Sir Ian Byatt took in favour of mutualising Scottish Water?
I am not sure that that is what Sir Ian Byatt advocated.
The fact that the regulatory contract, if you will, between the regulator and the Scottish Government depends on all of us playing our part has been raised by us and by Sir Ian Byatt. It currently depends on the Scottish Government delivering some money every year. The only point that Sir Ian Byatt may have made was that, if the Scottish Government found that that became an ever-increasing burden, we might have to look for another way forward in which the regulatory contract would be satisfied and Scottish Water could undertake the investment that is needed if we are to have a better-quality service for all customers and the environment.
But the commission's position is that that ought not to be necessary.
It should not be necessary.
On page 10 of the report, in the chief executive's review section, you say:
We worded that carefully. Bills should be kept as low as possible. I return to what I said in my opening statement on the framework. It is for the Scottish Government to decide what outcomes it wants from the industry and to cast them in terms of environment improvement, customer service, reductions in carbon generation and so on. We assess the lowest cost at which that should be achievable and set prices at that level. This is not about saying prices cannot go up, or prices must go down, or prices can go up, but only by X or Y. This is about asking how much it will cost to deliver efficiently what ministers have specified. That is where we are at.
If I understood you correctly, you said that any change in the external environment, such as new legislation—as you know, we expect new legislation this year on climate change—will increase costs for the business. The other side of the equation is that that is understandable, to some extent at least.
Yes. Some of those changes might increase costs, and some might reduce them. Carbon reduction targets could increase costs in some areas, but they are likely to reduce them in others. In order to meet the Government's objectives, we have to look at the whole of Scottish Water and all its costs.
The chief executive's review in the report says that
The commission is doing a few things. I will first address the agreed programme, on which we are carefully monitoring delivery—I will give the committee some of the numbers. As I think Scottish Water told the committee, it spent £413 million in 2006-07 and I think the committee was told that that was £37 million less than had been forecast. The figure was actually £127 million less than what had been financed in that year. Scottish Water chose to use a different profile, which meant that things were more back-end loaded. Our view was that the £127 million was a reasonable profile in terms of the delivery of the capital expenditure programme: we raised our concerns at the time of our annual report and in our investment performance and we said that we wanted Scottish Water to accelerate things in order to deliver its very large investment programme.
The indications from that analysis are that a smaller annual programme could be delivered more efficiently.
Yes.
With such resources, over the term of the programme the aggregate investment in the industry would, however, be less and politicians might be tempted to push forward non-water priorities.
You will know what politicians might want to do.
Unfortunately, I am the wrong one to ask.
I guess that I am saying that it would not be in the customer's interest—or, indeed, anyone else's—if, at the margin, what we did about trying to spend more money was simply to bid up contracting rates because capacity was not available.
That is an issue, but is it not slightly separate from the one that you touched on a moment ago? You said that the analysis showed that it may be more efficient to have a £400-million-a-year programme rather than a £500-million-a-year programme.
Yes.
I understand that, but will you tell us a bit more about the other issue, which is the pressures from the contracting industry?
It is part of the same issue.
It is a different aspect, if not a separate issue.
Yes, it is. The report is on our website, but I can send it to you. It considers all such issues and it comments on them. The civil contracting market in Scotland is estimated to be worth about £1.2 billion a year. If we take up £500 million of that for water and sewerage, all the other elements of the civil contractors' build, such as roads, schools, hospitals, airports—
Is Scottish Water quite relaxed about the notion that it should have a smaller annual programme?
Most people in Scottish Water would say that the present programme represents the maximum that the organisation should ever have to deal with.
The commissioners met the board of Scottish Water to discuss the issue and discussions have taken place at senior executive level. Scottish Water is trying to overcome the problems of managing such a large investment programme, but it recognises that, ultimately, the present programme might be a bit too big to manage efficiently without increasing the inflationary pressures on the rest of the civil engineering industry in Scotland—which Mr Sutherland commented on—the spin-off from which affects schools, roads and hospitals. Everyone loses as a result of the money being wasted through inflation.
So you are looking at the problem—
Could you please conclude the line of questioning fairly briefly?
Okay—sorry. I will conclude there. Perhaps we can obtain the analysis that Mr Sutherland mentioned.
That is appreciated.
A section of your report mentions that in the four-year period 2006 to 2010,
That will happen only to customers whose circumstances change—for example if, for whatever reason, someone's house gets a new council tax band or the status of their household changes. A husband-and-wife household in which the wife was a student would qualify for the single-person discount, but if the wife were to start working, the single-person discount would no longer apply. In effect, that would amount to an above-inflation increase. Only in such circumstances will customers receive above-inflation increases.
There are no other circumstances in which you foresee people having that problem.
If the water usage of the 440 metered households in Scotland were to change, they might experience a bigger increase, but they probably ought to.
A variety of measures of inflation exist. Even though the increase in bills might be less than 3 per cent, that might represent an above-inflation increase, given some of the recent wage settlements. Have there been discussions about the measure of inflation that is used? Are you satisfied with the current mechanism?
Regulation—not just in the water industry in Scotland and south of the border, but in other sectors—has always used a link to retail price inflation, which seems to be a perfectly reasonable link to the costs that Scottish Water incurs. The increase is calculated on the basis of the September retail prices index statistics. As of 1 April, the increase in household bills will be 3.74 per cent. That is 0.5 per cent less than retail price inflation in September, which was 4.24 per cent.
The report says that the increase will be 0.5 per cent below inflation over the four-year period. Do you anticipate any changes within that four-year period? I am assuming that the figure is an average over the four years.
No—the figure applies to each year's increase. Bills will change by whatever the September RPI figure is, minus 0.5 per cent. That could change only if the commission conducted an interim determination, which could happen because it thought that some of what had been financed in the contract was not being delivered or because Scottish Water thought that it faced other costs that were outside its control and ought to be recognised. An interim determination should be a last resort—they are not meant to be triggered. There is meant to be visibility over the medium term for households and businesses.
Do you foresee the circumstances that you outlined arising or are you confident that changes will not be required?
We have continued to refer to the capital programme because there are issues relating to it. We want acceleration of that programme. We do not want large non-delivery in the capital programme at the end of the regulatory period because it would not be in customers' interests or in the interests of the Government in managing public finances.
Page 12 of the report clearly explains the effect of the efficiency targets that the commission set for the 2002-06 period. You have emphasised that you believe that bills were, on average, £90 a year lower than they would have been without the efficiency targets. In the foreword to the report, you noted that Scottish Water had not only met but had outperformed on its efficiency targets for 2002 to 2006. With hindsight, does that mean that the targets were not tough enough? How has that experience been taken into account in setting targets for 2006 to 2010?
We talk about setting incentives and incentive-based regulation, although those phrases probably ought to be in one of those business textbooks on bad old jargon. However, we are essentially talking about allowing management to look good if, as a result of hard work, it can do better than reach a target. Sometimes targets can be aspirational—if we get 95 per cent of the way to such targets, we can agree that we have done quite well—but the targets in question are not aspirational. In our determinations, we talked several times about the targets being the minimum acceptable level of performance. We mean that the targets are for things that we know can be done. We challenge people to go and do those things, but we know that if people are as determined as we think they can be, they can do better than reach such targets. No company ever likes such a thing to be said, just as none of us would ever like it to be said to us, as it is invasive.
Will you explain more clearly what efficiency targets have been set for 2006 to 2010? Do you expect Scottish Water to strive to outperform on those targets?
The efficiency target is 3 per cent a year. That was a good question. We need to be clear about what an efficiency target is: it is an improvement in the currently incurred cost for the level of service and level of compliance. When we add investment, for example in sewage treatment, some costs will go up because of the additional assets that are being operated. That is not included in that calculation. What tends to happen is that in real terms, the operating cost for a water company stays broadly the same over time. The costs that it incurs will go up broadly in line with inflation, but each year there are, through the investment programme, fairly substantial incremental improvements in respect of both waste water and public health compliance.
How appropriate is it to benchmark Scotland's water charges against those of England and Wales?
It depends what you mean by "appropriate". Most households would want to know how much they would pay if they lived in a different area of the country—in other words, whether they are paying far too much. Benchmarking tends to be an issue when a population considers—often with reason—that it is paying a lot more than are people in other parts of the country. There is an on-going issue in Devon and Cornwall, for example, where household water charges are very much higher than they are in Bristol, which is not far away.
You are not comparing one privatised company with another; you are comparing a public service company with privately owned companies. How can you compare them?
Does it matter to the customer whether the company is public or private? What matters to people—as customers rather than as citizens—is how much they are paying and what they are paying for. As citizens, they might well have views about whether they want water services to be public or private, but I suggest that as customers they are interested in what they are paying and what they are getting for it.
You said earlier, however, that the customer in Scotland is getting better value than the customer down south. How do you find it possible to make a direct comparison with what people receive down south? Customers might well be able to compare themselves with another country, but why compare a public company and a private one?
Why not?
I am not sure whether there is not an assumption behind Rob Gibson's question that public ownership must be inherently different from private ownership in delivery of services. I have said that we want Scottish Water to be the best company in the United Kingdom, regardless of ownership. When one makes comparisons, one considers differences in delivery service levels; in effect, what people are getting for their money and how they are getting it. Some of the privatised companies in England and Wales are doing the same things as Scottish Water, including providing water and sewerage services, and dealing with trade effluent. It is quite reasonable to compare how well Scottish Water and South West Water are delivering those services to their customers.
Do you think that the borrowing requirement that is available to Scottish Water is being used to the full?
Scottish Water is getting all that it needs at present.
Is the borrowing requirement being used to the full?
It is not being used fully at the moment, because Scottish Water is under-delivering on its capital programme. If it were delivering the programme, it would be borrowing rather more. As I recall, Scottish Water repaid borrowing in the previous financial year. That is purely a function of its being £127 million down on what it was forecast to have delivered. Our determination set out a total borrowing profile of £758 million, to be borrowed over four years, with £148 million to be borrowed in year 1. However, Scottish Water repaid money in year 1. Theoretically, had it been known how much of the capital programme would be delivered in that year, customer charges could have been lower and Scottish Water could have borrowed more. However, unless there had been an underlying change in the amount of capital investment that was to be delivered, customer prices would have moved around more. Customers would not have liked that much, because such movement makes it difficult to plan a household's or an organisation's budget.
Is not Scottish Water's ability to repay borrowing based on what it charges customers? Is the customer not paying for how the borrowing requirement is used?
Yes.
So the charges that the customer is paying in Scotland are higher than they might be if Scottish Water used its whole borrowing requirement instead of charging customers in order to meet its capital costs.
Yes—given the rate of delivery of the capital programme in year 1.
In effect, we produce a four-year forecast when we carry out a strategic price review. The company tells us what ministers want over the next four years and how much that will cost. We then tell Scottish Water what it can charge customers over the next four years, although what happens may differ from that. In the current price review period, Scottish Water has, for all sorts of good and bad reasons, underspent its capital allocation. In so far as that allocation affected the prices that customers were charged, it can be argued that customers have paid too much this year. Had we known two and a half years ago what we know now, we may have set a different price level.
We are concerned that customers should pay a fair amount.
Let me be absolutely clear. If we had set a lower charge for 2006-07 and the capital investment for that year had been delivered this year, we would be looking not at a year-on-year increase in the charge of the rate of inflation minus 0.5 per cent or the rate of inflation minus 1.5 per cent, but at a change of inflation minus 3 per cent in the previous year and of inflation plus 5 per cent in the current year, so there would have been a saw-tooth effect on household and non-household charges. There is strong research evidence that households and businesses like transparency in the profile of prices.
I am sure they do.
It is important to remember that that 20 per cent figure concerns the procurement of on-going capital projects—it is not about operation of those assets. It is purely about two things: first, replacement of old bits of kit that need to be replaced because they have reached the end of their normal life; and secondly, enhancement and investment, which might mean increasing the size of the works or an upgrade to meet the requirements of an environmental directive or whatever. We are talking purely about the capital elements, which is where the savings are.
That is perhaps for another day. Thank you for your explanation.
The Water Industry Commission for Scotland says that it is "taking steps" to ensure that Scottish Water is delivering what it is required to deliver under the 2002 to 2006 investment programme. What steps is the commission taking and what is the timescale for delivery of those?
At the time of the determination, we highlighted just how big a capital programme this was. We wrote to the Scottish ministers and suggested that they establish an output monitoring group, which would bring together all the stakeholders so that we would avoid any situation in which the Scottish Environment Protection Agency was being told one thing and the commission was being told another. If we were all on the group, we would all hear the explanation at the same time, and if there was a reason to act, then we could act. That was the first step that was taken.
Have you had any discussions about what you might do next if that is the case?
The commission has discussed the implications of that for customer service performance and compliance with the various objectives that ministers have set. The fall-back position is that we would have to write to the Government to say that it looked like Scottish Water could not deliver the outputs that it was contracted to deliver over the period, and to suggest that the Government might consider delaying or rescheduling the outputs, in which case customer charges should be adjusted downwards appropriately.
As we said, we have met the board of Scottish Water to discuss the issue—not to ask, "Why aren't you getting this right?" but to consider how things might be done better. Scottish Water is putting considerable effort into improving. It is all about planning and processes and the need for Scottish Water to have a better idea of where it is on various projects. The large amount of money that we are talking about is made up of tens of thousands of projects, all of which must be planned and procured and so on. We are doing a lot and we discuss the matter at every commission meeting, along the lines that Mr Sutherland suggested.
On page 16 of your annual report, you say that it looks like the efficiency savings that were achieved in 2002 to 2006 "were maintained in 2006-07" and you refer to
I have brought the report with me and members may have a copy of it. It confirmed not only that the efficiencies were maintained but that Scottish Water aspired to do better than I asked it to do.
You briefly mentioned overall performance assessment. Will you give more detail? In your annual report, you say:
I suspect that we said "fully embraced" because there had been a debate about whether Scottish Water should be held to account on the measure. It is encouraging that if you visit a Scottish Water facility now, you will see a thermometer-type chart, on which is written the OPA score and the level at which employees might receive their annual bonus. There are also warnings about how scores can go down as well as up and other such motivating tools. It is encouraging to see that staff at all levels are being incentivised to improve their performance.
I want to ask not only about what will happen up to 2010 but about the annual milestones. You said that the score had increased. Were you satisfied with the increase, or did Scottish Water fail to reach any annual milestones?
As I said, Scottish Water was given a target of 195 but scored 232.
But are there any particular areas about which you still have concerns?
Yes—continuous discharges from sewage treatment works. I do not want to overcomplicate this description but, for the measure for discharges, Scottish Water can score five points—the minimum—if it misses the range of targets or does not reach the appropriate performance levels, or it can score up to a maximum of 50 points if it does better. Scottish Water scored five points. There is substantial scope and a great need for improvement on discharges from sewage treatment works to our environment. Some money in the current investment programme is to improve performance in that area, but much more needs doing. Improvement will require not only capital investment but changes in operational practice.
You said that OPA in Scotland uses 11 out of the 15 measures that are used in England and Wales. Which ones are missed out? Is the difference simply a result of the different way in which the systems are set up?
Four measures are missed out, but all four will be included by 2010. So, as a result of the present exercise, all 15 measures will be considered in future. Three of the four are relatively minor but still important; they relate to differences in the definition of pollution incidents—on both the water and the waste water side—between Scotland and England and Wales. SEPA and the Environment Agency were measuring broadly the same thing but doing so differently. However, the two agencies seem to have worked out how they will make the measurements in future, so the issue seems to have resolved itself. The measures will now be the same.
How well is Scottish Water doing in reducing leakage? On page 17 of your report, you talk about a report from September 2007. I assume that you use the Water Services Regulation Authority—Ofwat—OPA measures for that.
Scottish Water is not doing well in that regard, but I do not think that the dunce's hat is entirely appropriate. If I may, I will take a couple of minutes to give the committee a bit of perspective on the matter. If we had asked the three former water authorities about leakage several years ago—as I did—we would have been told, "It's not important. We've got lots of the stuff in Scotland. It all comes downhill. What are you worried about?" That was the attitude—I kid you not; that is what I was told. "It all comes down from Loch Katrine to Glasgow and if a bit of it leaks out, so what?" You are right: there is a huge amount of leakage from the Scottish system. In 2004-05, we lost 1.139 billion litres every day. That is a lot of litres of water; it is getting on for half of all the water that is treated in Scotland.
That is careless, is it not?
It is quite profligate, yes. There is a level of water that it is appropriate to lose, where the costs of stopping it leaking might not justify doing so—although it depends how we want to define those costs. There are different ways to do the calculations. We might just consider the energy costs and the costs of maintenance, or we might extend that to a broader environmental view. There will be a level of leakage that is not inappropriate. However, we are a long way from that territory at the moment.
Would you say that leakage is the most difficult problem that you are facing with Scottish Water? What sanctions do you have if its performance continues to be as poor as has been identified?
We do not have any easy sanction. The initiative on leakage was the commission's. We thought that it was important to deal with the issue for environmental reasons, among others. All that water is treated and a lot of it is pumped around Scotland, so Scottish Water's energy use would be reduced markedly if it did not lose so much water. We were keen for the issue to be addressed, but that was not a specific ministerial objective.
Time is running out, so this will be my last question. You will probably answer by saying that the issue is for politicians rather than the commission, but if leakage is one of the most serious problems that Scottish Water faces and you—in effect, the watchdog on Scottish Water—cannot take any sanctions, there seems to be a gap in the market. Perhaps you need more teeth to deal with what is obviously a major problem. From a layman's perspective, the fact that half of all the treated water is lost is not very good. There should be more sanctions in the system to ensure that Scottish Water is much more efficient in future, particularly given the climate change perspective and the forthcoming legislation on that.
The talk of sanctions assumes that the company is reluctant or recalcitrant on the issue. You would need to ask Ronnie Mercer for the details, but I know that Scottish Water has applied a lot more resources on the issue—first, to establish the levels of leakage in various parts of the system and, secondly, to consider how best to deal with that. The company and the commission are not moving in different directions on the issue. While we are walking in the same direction, which we are now doing fairly quickly, I am not very worried about whether or not we have sanctions. If a problem arose, we would certainly not be slow in going to the Scottish ministers.
The important point is that, through annual reports and by publishing information and bringing it to people's attention, progress is likely to be made. Leakage is not the sort of issue that is talked about, but now that we have put it on the agenda, it will be talked about. I am sure that the committee, newspapers and various other stakeholders will watch the issue. We look forward to that.
You can be sure that we will.
We have published a governance code, which Scottish Water and Scottish Water Business Stream must abide by. I can send the committee a copy, if you are interested.
We would appreciate that.
The code explains exactly how much information should be available to each party about the other one. We have, I think, reassured the two new entrants into the market, and potential entrants, that Scottish Water Business Stream operates separately. On your question about the common chairman, there is often common management between one subsidiary company and another—there were examples of that among the original public electricity supply businesses. We will have to continue to monitor the situation. If the common chairman were to become an issue, either real or perceived, we might have to ask the companies to have another think about the issue. At present, we have ensured that the two companies operate separately. Non-executive directors are appointed to Scottish Water Business Stream independently of Scottish Water. They have the usual fiduciary duties that go with non-executive directorships and they have reputations to lose, which is important to the system.
You say that the governance should be seen to be separate. By whom?
By market participants and customers. Customers will want to ensure that they have a real choice, and new entrants into the market will want to know that the playing field is not tilted against them.
How does the commission satisfy itself that that is seen to be the case by those parties?
I can assure you that new entrants are quite keen on pointing out anything that they think is in any way, shape or form a breach of the published governance code. We have already looked at one or two little examples. Scottish Water has appointed a compliance officer and Scottish Water Business Stream has someone with similar responsibilities. If such an event happens, we ask them to tell us what has happened. It is a fairly robust arrangement.
Further, during the process of setting up the market, we had a body called a licensing implementation group, whose members included people who are now licensees as well as others who are not yet licensees, along with Scottish Water. The group was deeply involved in governance and compliance issues. Its members had a vested interest in ensuring that the structure that we put together was fit for purpose and they advised us right the way through the process.
Which is what we do.
Katherine is the lady in charge of it.
I knock on the door.
The annual report provides some financial information on the commissioner's office. What targets has the commission set itself for efficiency savings? With regard to future annual reports, can you give me an assurance that we will be able to compare and contrast that information from year to year?
Your last question is easy; the answer is yes.
In the statement of internal control on page 4 of the annual accounts, there is a line that states:
We are in better shape than I thought that we might be. Had you asked that question in December, it might have been rather more difficult to answer.
That is helpful.
The annual report refers to consultation with stakeholders undertaken in December 2006 on the proposed approach to the next regulatory control period of 2010 to 2014. Will you briefly explain the approach to be taken in conducting the next strategic review of charges and whether that is likely to be influenced by any of the feedback that you received in your consultation?
On 20 December, we published our response to the consultation. There are several issues on which we have amended our approach to take account of the different views. Some responses from stakeholders focused on one or two specific issues; others, such as that from Scottish Water, were more all-encompassing. The documents are available on our website, and I can let you have a copy of them.
I thank all three of our witnesses for the time that they have spent with us and the evidence that they have given. I doubt that it will be the last time that we discuss the water industry with them, but I thank them for the moment.
Meeting suspended.
On resuming—