Strategic Review of Water Charges 2006-10
The UNISON Scotland response to the Water Industry
Commissioner for Scotland Draft Determination on the Strategic
review of Charges 2006-10
UNISON is Scotland's largest trade union representing
over 150,000 members. In addition to our membership in the water
industry, UNISON represents staff employed in many sectors that
rely on the effective delivery of water and wastewater services.
This paper constitutes UNISON Scotland's response
to the draft determination published by Water Industry Commissioner
for Scotland in June 2005.
We have not attempted to address all the issues
covered in the seven volumes of information that constitute the
Draft Determination. In practice only Scottish Water and the WIC
are resourced to do that. Instead our approach is to highlight
issues identified from consultations with our members who deliver
the service and have an understanding of the actual water and
wastewater facilities in Scotland. In addition we have included
our wider citizenship concerns over the impact the Draft Determination
will have on the publicly owned Scottish water industry.
When the Deputy Environment Minister announced his
priorities for the 2006-2014 investment programme we expressed
our concern that a massive investment programme, over a short
time scale, without real term increases in charges was a ‘magic
circle' that could not safely be delivered.
The WIC's draft determination goes even further.
In doing so it puts the successful Scottish public sector model
at grave risk. It is to be anticipated that there will be an expectation
gap between any regulator and the organisation they are regulating.
However, in this case the difference represents a yawning chasm.
Not just as we might expect over the scope for further efficiencies,
but over the scope of maintenance and replacement of water and
Given the previously expressed views of the Water
Industry Commissioner in favour of privatisation, the appointment
of a Chair and members to the new Water Industry Commission from
the privatised English system, we have an inevitable concern that
this charge determination is aimed at undermining the Scottish
model. The frequent references in the Draft Determination to the
largely privatised Welsh model (Glas Cymru) may also be significant
in this respect.
There is a massive gap between the Scottish Water
Draft Business Plan (SWDBP) and the Draft Determination (DD) in
respect of operational cost. Whilst the SWDBP provision for bad
debt would seem unnecessary if prices remain below inflation the
other differences are more difficult to understand.
In particular, the DD cut of £8m for the alleged
benefits of business separation. We can find no evidence to support
this figure and our experience in the energy industry together
with independent reviews (House of Lords Select Committee) would
indicate that this cut is based more on ideology than fact.
There also appears to be large differences in the
scope for new operational expenditure between the two documents.
The WIC's view appears to be that Scottish Water is ‘risk adverse'
in this and other areas. Customers facing supply interruptions
and sewer flooding may prefer a little less risk!
A significant element of new operational costs are
outwith the control of Scottish Water. Energy prices are rising
rapidly, SEPA charges and many others appear to have been given
insufficient weight. We have previously highlighted the many differences
between the English and Scottish water and wastewater systems.
These are identified as ‘special factors' in the DD. However,
some have been given no allowance and others an allowance well
below the assessment set out in the SWDBP.
Again there is a huge gap between the SWDBP and
the DD. Even allowing for very challenging efficiency savings
there are major scope reductions.
Scottish Water's approach is based on an understanding
(albeit not perfect) of real assets and their condition. The WIC's
approach uses econometric models. The water trade unions through
the STUC have previously commissioned research from Glasgow University
to highlight the limitations of this approach.
Our members on the ground are concerned that the
consequences of this reduced scoping will result in water quality
failures, unplanned interruptions to water supply and on the waste
water side a significant increase in internal flooding, sewer
collapse and the risk of pollution. Some of the anticipated asset
life estimates implied in the DD is simply not adequate to maintain
In addition, if insufficient allowance is made for
the maintenance of new investment then it will have to be replaced
that much earlier. Precisely what has happened in England, hence
further rounds of investment and associated costs having to be
picked up by charge payers.
On drinking water quality we note that the reporter
reached a view that the degree of over scoping was in the range
of 14-15%. The WIC then commissioned a further view from Faber
Maunsell (FM) that claims the over scoping was in the range 45-55%.
Our position is that the reporters view is at the extreme of achievable
scoping reductions. We are aware of a number of concerns over
the FM approach and would welcome independent analysis of that
Similarly on unsatisfactory intermittent discharges
(UID) investment the FM approach claims a 58% over scoping and
the WIC 64-83% based again on benchmarking with England. However,
reviews of actual UIDs and even the early costs in England supports
the UID expenditure set out in the SWDBP. The consequences of
the massive cuts proposed in the DD could be very serious, particularly
for Glasgow, where flooding and Clyde water quality is an important
We note that the DD includes the introduction of
the English Overall Performance Assessment (OPA). This includes
a range of targets relevant to the industry in England, but not
even consulted on in Scotland. We are unclear why this system
is being introduced in Scotland when it is for Scottish Ministers
to determine the targets. The regulator's task is to measure performance
against those targets, not to determine a whole new range of targets
of their own making. This appears, not for the first time, to
be a further attempt to introduce the English model to Scotland.
The risk in this approach is that it creates managerial incentives
for Scottish Water to focus on the regulators targets, not those
of democratically elected ministers.
The revenue calculations in the DD appear to make
a number of optimistic assumptions regarding growth in the customer
base. In particular the growth in SME customers which if it occurs
at all is likely to be at the sole trader end of the SME scale
with very little positive impact on Scottish Water's revenue base.
For the new licensed retail business almost no internal
preparation or restructuring costs have been allowed. Other additional
costs have been reduced and we have commented above on the absence
of evidence to justify the alleged ‘additional' efficiency that
business separation brings.
There are provisions for interim determinations
if material changes arise outwith management control. The DD appears
to import the English ‘Notified Items' approach that seeks to
limit the list of items that can trigger an interim determination.
Yet again this appears to introduce mechanisms outwith the Scottish
model. The WIC also appears to be proposing an involvement in
the management of reserves, an issue that is properly a matter
for Scottish Ministers and Scottish Water.
Our primary concern is the massive gap between the
SWDBP and the DD. The main reasons for this appear to be scoping
reductions brought about by a conflict between an assessment of
actual requirements and econometric models used by the WIC. To
this must be added over ambitious efficiency requirements and
the importation of inappropriate elements of the English regulatory
system to Scotland. The consequences are poor quality assets and
inadequate maintenance, all impacting on customer service and
UNISON Scotland believes that it may be possible
to achieve the overall price and investment objectives set by
Scottish Ministers but only over a longer time scale. We remain
concerned that the Draft Determination is an ideologically inspired
attempt to undermine the Scottish public sector model.
For further information please contact:
Matt Smith, Scottish Secretary
14, West Campbell Street,
Glasgow G2 6RX
Tel 0845 355 0845 Fax 0141 342 2835
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