The Water Industry Commission for Scotland (WICS) has published its latest performance report on Scottish Water. In the report, the economic regulator of the Scottish water industry said that Scottish Water is performing in line with the requirements of the Final Determination in 2023-24 while recognising there is likely to be £500m of less investment than was assumed when charge caps were set.
The regulator said that whilst Scottish Water has improved its performance on investment delivery to return within its target range for performance, there are some areas where Scottish Water is not meeting its own targets, including the delivery of a small number of projects due to be completed in previous regulatory periods, leakage and its new developer Customer Experience Measure.
The Final Determination set a charge cap of CPI plus 12.6% over the six-year regulatory period, which equates to a cap of CPI plus 2% on average in each year of the regulatory period. By the end of the first three years of the regulatory period, Scottish Water had raised charges by CPI minus 4.4%. This is 10.5% below the assumed position from the Final Determination, largely because Scottish Water responded to the cost-of-living crisis during 2021 and 2022. As a result of the profiling of charges, WICS expects Scottish Water to have £500m of lower funding available for investment than was assumed in its Final Determination.
Scottish Water incurred £975m (excluding completion investment) on capital investment in 2023-24, around £25m higher than the amount assumed in the Final Determination. This means that Scottish Water has invested around £80m less than forecast in the Final Determination during the first half of the regulatory period (2021-22 to 2023-24).
In last year’s report, WICS noted that Scottish Water was around a month behind schedule in the measure it uses to track overall progress on investment delivery and around six months behind in completing projects that had started on-site. Scottish Water has made good progress in recovering its position and is now within its target range (of +/-3 months around its forecast) for completing projects that started on-site. It also remains within its target range at an aggregate level.
In last year’s report, WICS noted that Scottish Water had not met its targets for delivering the investment projects carried forward from the previous regulatory control period covering 2015-21 (known as completion projects). WICS now notes that Scottish Water has delivered a further five projects in 2023-24, meaning that it has now delivered 64 of the 86 completion projects. However, this remains short of the 84 Scottish Water expected to deliver by March 2024. Through the Scottish Government Investment Group (SGIG), stakeholders continue to monitor Scottish Water’s progress in this area to ensure that customers get the benefits they have already paid for.
Scottish Water continues outperforming the allowance for operating expenditure and the charges for Private Finance Initiative contracts, with actual expenditure around 3% lower than the allowed-for expenditure. In 2023-24, the primary source of this outperformance relates to a one-off refund of around £25m. Without this one-off refund, Scottish Water’s expenditure would be broadly in line with the allowed-for expenditure.
Scottish Water has broadly maintained its levels of service performance in 2023-24. This includes its household and non-household Customer Experience Measures and Outcome Performance Assessment, which covers areas of operational performance such as water interruptions, water pressure, and sewer flooding. Performance in each of these areas is within its target range. However, for the first time in seven years, Scottish Water’s leakage from its network increased, falling outside the upper end of its target range by around 2%.
The full Scottish Water Performance Report 2023-24 can be read here.
