Scottish Water Strategic Projections 2013

Your future water and waste water services Strategic Projections

October 2013 www.scottishwater.co.uk

Introduction Chief Executive’s statement

Providing continuous high quality drinking water

Protecting and enhancing the environment

Supporting Scotland’s economy and communities

Investing in future water services

01

About Scottish Water What might the future bring?

Listening to our customers Our strategy

The future of your water and waste water services in Scotland Scottish Water provides high quality drinking water, taken from sources such as reservoirs and rivers and treated in our works to remove impurities, for business and household needs.

We also take away and clean waste water to the highest standard before returning it safely to the environment.

Listening to customers

Providing continuous high quality drinking water page 24

Protecting and enhancing the environment page 30

Investing in future water services page 44

Supporting Scotland’s economy and communities page 36

Strategic Projections

Your future water and waste water services

Our timeline October-November 2012 WICS provides preliminary views on regulatory inputs

2013

14 November 2012 Your views count consultation starts and Draft Strategic Projections published

12 February 2013 Your views count consultation closes

30 October 2013 Final Strategic Projections

Scottish Water and the Customer Forum start customer engagement

Draft Business Plan 2015-21

2014

December 2013 WICS, Scottish Water, the Customer Forum, SEPA and DWQR start tri/quintipartite meetings

March 2014 WICS, Scottish Water, the Customer Forum, SEPA and DWQR end tri/quintipartite meetings

April 2014 WICS publishes its Draft Determination for consultation

Final Business Plan 2015-21 June 2014 Consultation on WICS’ Draft Determination closes

June 2014 Scottish Government publishes its final objectives, principles of charging and technical expression

November 2014 WICS publishes its Final Determination

2015 March 2015 Scottish Water publishes its Delivery Plan for 2015-2021

November 2013February 2014 WICS issues discussion papers

January 2015 Scottish Water decides whether or not to accept the Final Determination

1 April 2015 New price limits come into effect

Everyone in Scotland depends on high quality, clear, fresh drinking water and the safe return of waste water to the environment.

This document sets out the key challenges and opportunities facing Scotland’s water industry in the two to three decades to come.

To ensure we are prepared going forward, the document also sets out our long term strategy.

These projections take account of the feedback we have received from our customers through the Your Views Count consultation.

Contents Introduction 01 Chief Executive’s statement

03

About Scottish Water

04

What might the future bring?

08

Listening to our customers

18

Our strategy

23

Providing continuous high quality drinking water

24

Protecting and enhancing the environment

30

Supporting Scotland’s economy and communities

36

Investing in future water services

44

Introduction Chief Executive’s statement

Providing continuous high quality drinking water

Protecting and enhancing the environment

Supporting Scotland’s economy and communities

Investing in future water services

03

About Scottish Water What might the future bring?

Listening to our customers Our strategy

Chief Executive’s statement This document sets out our strategic projections for the future of your water and waste water services. It reflects the feedback from customers and stakeholders to our draft strategic projections and our ‘Your Views Count’ consultation earlier this year. I wish to thank all our customers and stakeholders who gave us valuable insight and feedback, which in turn has shaped our final strategic projections.

Our strategic projections support the achievement of our vision for Scottish Water to become Scotland’s most valued and trusted business, one that we can all be proud of. It also supports some of the wider ‘Hydro Nation’ opportunities, using Scotland’s water resources to support economic growth, that are being progressed by the Scottish Government.

We are very proud of the significant improvements we have made to your water and waste water services over the past 11 years, and we are equally proud that this has been achieved while reducing the costs of these services by 40% such that our average household charge at £334 is now the lowest in Great Britain (£54 per household below the average in England and Wales).

In preparing this document we have conducted extensive research and held discussions with customer groups and stakeholders. We believe it is important that we consult widely on our future strategy so that customers can influence the future of their water and waste water services.

We were very pleased to hear from our customers that they regard Scotland’s drinking water as one of the best in the world and think that Scottish Water provides good value for money. However, we can improve further and, with our customers’ support, take further steps to improve service levels across Scotland.

Most of our customers have never experienced an interruption to the services they receive and trust this will continue. We must not take this for granted as future uncertainties will present opportunities and challenges. It is important that we can adapt to challenges, and take advantage of opportunities, while ensuring that our immediate business plans are aligned with the long term aims set out in this document.

This document presents our current view of priorities for the future to meet legislative requirements, our customers’ expectations, and the potential challenges we may face. We will update this every 6 years to coincide with the regulatory business planning cycle. Updating our strategic projections every 6 years will be essential to consider new challenges and opportunities that emerge.

We aim to build on our track record for improving services to our customers and continue to develop new approaches to reliably deliver the services our customers expect.

Central to this are three key strategies: • Engaging with our customers and other parties to help deliver a better service; • Continuing to improve the efficient maintenance and operation of our assets to keep charges as low as possible for our customers while delivering the service that our customers expect; and • Improving the resilience of water supplies to ensure major towns and cities across Scotland never run out of water.

Our draft business plan for 2015-2021, which is published today, sets out our detailed plan for delivering the first phase of these strategies and progressing us towards being Scotland’s most valued and trusted business.

Douglas Millican Chief Executive

Douglas Millican, Chief Executive Strategic Projections

About Scottish Water At a glance Scottish Water was created in

2002 and is the

4th largest water and waste water service provider in the UK and is one of Scotland’s largest businesses.

Scottish Water provides over

1.3 billion litres of high quality drinking water every day and nearly one billion litres of waste water is taken away and treated before being returned to the rivers and seas for around

2.4 million domestic households and over

150,000 business users.

Draft Strategic Projections

Thousands of assets are operated and maintained to provide these services, including:

108 252 29,910 31,064 1,865

impounding reservoirs

water treatment works

miles of water pipes

miles of waste water pipes

waste water treatment works

plus numerous pumping stations, sludge treatment centres and service reservoirs.

Introduction Chief Executive’s statement

Providing continuous high quality drinking water

Protecting and enhancing the environment

Supporting Scotland’s economy and communities

Investing in future water services

05

About Scottish Water What might the future bring?

Listening to our customers Our strategy

Scottish Water provides vital services to the people of Scotland, providing high quality drinking water and waste water services for around 2.4 million domestic households and over 150,000 business premises.

To provide your water supply we capture rainwater in reservoirs, or take water from rivers or lochs which we then treat to ensure the water is clear and fresh. We distribute this high quality treated water through an extensive network of pipes and storage tanks to meet our customers’ essential household needs when they turn on their taps for drinking, cooking, bathing and washing; for business process requirements; and recreational uses such as car washing and watering the garden.

We collect the waste water and surface water from your homes and business premises along with some of the surface water run-off from your paved areas, roofs and roads, taking this away and treating it so that we can safely return it to rivers or the sea.

In providing these services we operate, maintain and invest in treatment works, pipelines and other assets that will last for many decades, serving both current and future generations.

It is therefore essential that in planning for the future we take the right actions today to meet our customers’ future requirements.

The water industry in Scotland is regulated as shown below. Regulators provide assurance that Scottish Water meets the interests of our customers, protects the quality of drinking water and the environment, and is accountable for our performance. Scottish Water, like other companies and utilities, is also regulated by a variety of bodies such as the Health and Safety Executive, Environmental Health Officers and the Roads Commissioner.

The Customer Forum has been created to ensure that customers have a clear voice in the business planning and price setting processes.

The water industry in Scotland

The Scottish Parliament www.scottish.parliament.uk

www.scotland.gov.uk

www.watercommission.co.uk www.dwqr.org.uk

www.customerforum.org.uk

www.sepa.org.uk

www.consumerfutures.org.uk

www.spso.org.uk

Strategic Projections

06

Scottish Water’s performance has been transformed since our formation in 2002, as shown below:

Scottish Water

Customer service experience

Protecting you from flooding

Our focus on improving our response to customer enquiries has resulted in a 40% improvement in customer satisfaction.

We have improved performance of our sewer networks such that today 70% fewer customers are affected by flooding than in 2002.

Improving drinking water quality

Continuity of water supplies

Drinking water quality at customers’ taps has been improved significantly since 2002 and is an ongoing focus for improvement.

We have reduced the number of properties affected by interruptions to supply for greater than 6 hours by two thirds.

Improving water pressure

Improving the environment

Through improved management of our water network we have reduced the number of customers affected by low pressure by almost 90%.

We have halved the number of environmental pollution incidents caused by our operations since 2008.

Introduction Chief Executive’s statement

Providing continuous high quality drinking water

Protecting and enhancing the environment

Supporting Scotland’s economy and communities

07

Investing in future water services

About Scottish Water What might the future bring?

Listening to our customers Our strategy

Performance improvements have resulted in a continuous increase in customer service levels, as measured by the Overall Performance Assessment score, the regulatory measure of our overall customer service.

By 2015 we expect our overall performance to match the best companies in England and Wales.

These performance improvements have been delivered while we have transformed our efficiency, reducing operating costs by 40%, and enabling us to provide increasingly good value for our customers.

Ten years ago, our average combined household water and waste water charges were the fourth highest in Great Britain, now they are the lowest, and £54 (14%) below the average charge in England and Wales.

Comparison with English and Welsh water companies based on OFWAT published average charge Water and sewerage companies South West Wessex Southern Welsh Anglian United Utilities England and Wales average Yorkshire Northumbrian (North East) Thames Severn Trent Scottish Water

Average household bill for 2013/14 £499 £478 £449 £434 £434 £406 £388 £368 £359 £354 £335 £334

Overall Performance Assessment Maximum

400

Upper quartile performance in England and Wales

350 300 250 200

2006-07

2007-08

2008-09

2009-10

2010-11

2011-12

2012-13

2013-14

2014-15

Actual performance Forecast performance

Strategic Projections

08

What might the future bring?

At a glance

In considering the key priorities for water and waste water services in Scotland, we need to understand the future opportunities and challenges we may face in the next 25 years. We have involved our stakeholders and our employees in developing potential future scenarios. This has identified the critical issues that we believe are most significant to the future of your water and waste water services in Scotland.

Scottish Water

Climate change

Demographics

A changing climate could impact on water and waste water services in a variety of ways. We must be able to adapt to potential changes if we are to continue to meet customers’ expectations for reliable services. Possible climate impacts include changing quality of water sources, availability of water resources, increased rainfall in our sewers and restrictions to discharging waste water back to the environment.

By 2035, Scotland’s population is expected to grow by 10% overall and the number of households by 21%, as well as some movement in the population from the west to the east of Scotland. Scotland’s population is continuing to age, with a 50% increase in over 60s projected by 2035. We are currently seeing a reduction in business users’ water demand and expect this to continue in the short to medium term.

Legislation

Resource availability

A number of pieces of both European and Scottish legislation – such as the Water Framework Directive and Water Resources (Scotland) Bill – mean that continued investment will be required to meet new standards. The Scottish Government has ambitious plans to develop Scotland as a Hydro Nation. This has the potential to further use Scotland’s valuable water resources to support economic growth.

Frequent rainfall means Scotland generally has enjoyed a significant supply of water, which is stored in natural lochs, rivers and man-made reservoirs then treated to remove impurities and supplied for drinking. Given the potential effects of climate and population change we need to consider whether we will have enough capacity to store water in the future to provide continuous treated drinking water for Scotland’s homes and businesses.

Political, economic and regulatory environment

Science and technology

There will always be a requirement for essential water and waste water services in Scotland. With pressures on public spending likely to remain for several years to come, the level of borrowing available from the Scottish Government for future water and waste water services could be lower. We expect regulation to continue to evolve assuring customers of the quality of Scottish Water’s service and performance.

Significant advances in science and technology in recent years have had a positive impact on the quality and efficiency of water and waste water services in Scotland. Science and technology will continue to provide opportunities to improve services and reduce costs.

Providing continuous high quality drinking water

Introduction Chief Executive’s statement

Protecting and enhancing the environment

Supporting Scotland’s economy and communities

Investing in future water services

09

About Scottish Water What might the future bring?

Listening to our customers Our strategy

Climate change

From this we expect that:

Our understanding of climate change and how it may impact on us has improved significantly over the last two decades but uncertainties remain.

Projections (UK 2012 Climate Change Risk Assessment) indicate that rainfall patterns will change and that temperatures are likely to rise in both summer and winter. Sea levels are also projected to rise around the Scottish coastline.

How might climate change affect your services?

Our assessment of the impact of climate change demonstrates that a number of our assets and services may be affected as shown in the picture below.

Climate change will create greater variability of weather patterns which could impact on the reliability of our services; and We need to adapt our assets and operations to ensure that our services can always be delivered, irrespective of the effect of a changing climate.

Climate change impacts

1

3

2

Water treatment and pumping station

Reservoir

Ground water infiltration Waste water treatment works 3 5 Drain

8 4

Treated outlet

Storm outlet

6

7

1. Changing rainfall patterns may affect the available quantity of raw water supplies.

2. Changing raw water quality (algae, colour) may affect ability of existing assets to treat to the required drinking water quality standards.

3. Potential flooding of assets, or landslides that affect access to operate assets, or in some locations coastal erosion.

4. Lower river flows in dry periods may reduce our ability to abstract water and the ability of the environment to accept our waste water discharges.

Additional treatment may be required.

5. Increased rainfall frequency and intensity results in more property flooding from sewers.

6. Periods of dry weather result in siltation leading to blockages in sewers or increased sewer cleaning activities.

7. Increased rainfall frequency and intensity may result in more storm water spills to the environment.

8. Increased run-off from agricultural land may lead to greater pollution of rivers.

Strategic Projections

10

Demographics

The key points in the projections of significance to Scottish Water are:

Changes in the size and structure of the population will have important implications for economic growth in Scotland and the demand for our services.

The Scottish population is expected to grow by 10% by 2035, primarily due to net inward migration from other areas of Europe;

The Office for National Statistics (ONS), on behalf of the Registrars General, prepares population projections which indicate that there will be continuing overall growth in the Scottish population and relatively greater growth in the east of Scotland, suggesting a general migration from west to east as shown in the chart below.

There will be a general shift in the population from west to east of Scotland; The number of households is expected to grow by 21% by 2035 as the average household occupancy rate reduces from 2.18 to 1.93;

Unless water consumption or industrial demand reduces and/or further action is taken

by Scottish Water, this projected population growth could affect the availability of the water supply in some areas due to current capacity limits, which could also be further affected by climate change.

Scotland’s population is continuing to age, with a 50% increase in over 60s projected by 2033 which could have consequences for the affordability of water charges; and

In the current economic climate it is difficult to obtain reliable forecasts for demand for water and waste water services in the business sector.

In recent years we have seen a reduction in the demand for water as businesses drive to reduce their costs and become more efficient in their use of water; we expect this to continue for the next few years. Given the many uncertainties facing business customers and the opportunities that Hydro Nation – using Scotland’s water resources to boost economic growth – may bring, we have assumed that overall demand will remain stable in the longer term.

We expect to see some further reduction in business demand over the next few years and little growth in demand for water and waste water services in the longer term.

Projected demographic change (2010-based), by Council area, 2010-2035 40

Western councils Central councils

Percentage changed

30

Eastern councils © Crown copyright

20 10 0

Scottish Water

East Lothian

Perth & Kinross

Aberdeen City

Edinburgh, City of

Aberdeenshire

Stirling

West Lothian

Highland

Midlothian

Clackmannanshire

Glasgow City

Scottish Borders

Falkirk

SCOTLAND

Fife

Moray

Dundee City

Orkney Islands

Angus

South Lanarkshire

East Ayrshire

North Lanarkshire

Shetland Islands

Renfrewshire

East Renfrewshire

South Ayrshire

North Ayrshire

Dumfries & Galloway

Argyll & Bute

West Dunbartonshire

East Dunbartonshire

Inverclyde

-20

Eilean Siar

-10

Introduction Chief Executive’s statement

Providing continuous high quality drinking water

Protecting and enhancing the environment

Supporting Scotland’s economy and communities

Investing in future water services

11

About Scottish Water What might the future bring?

Listening to our customers Our strategy

Legislation Extensive legislation governs the quality of the products that we supply and the impact of our activities on the environment.

We have invested over £2 billion in the past 10 years on new treatment works and infrastructure to meet the standards set out in drinking water quality and environmental legislation. As we look to the future, legislative obligations will continue to have implications for the way we provide our services as summarised below.

European legislation Urban Wastewater Treatment regulations These regulations aim to protect the environment from the adverse effect of waste water discharges by regulating the collection and treatment of waste water from our homes and from industry.

Bathing Waters Directive The revised Directive sets more stringent bathing water quality standards and puts a stronger emphasis on beach management and the provision of information to the public.

Our waste water treatment works and networks have the potential to impact on 70 of the 83 designated bathing waters in Scotland.

Water Framework Directive This is a wide ranging Directive that establishes a framework for action to protect and enhance the water environment through river basin planning which brings together all of the activities that impact on the water environment.

Birds and Habitats Directives The Birds and Habitats Directives establish requirements for the designation and protection of ‘special areas of conservation’ and specified protected species. This can place requirements on Scottish Water’s discharges and abstractions to and from the water environment.

Blueprint for water The blueprint will integrate the implementation of action to deliver EU water policy objectives and is likely to focus on better land management, economic cost signals to influence behaviours, efficient use of water resources and further the improvement of the knowledge base for water policy making.

European Union drinking water standards We do not expect that any further standards for drinking water will be introduced, but we continue to actively monitor any developments.

Our understanding: We expect to continue to invest in and improve our activities to meet environmental standards laid down, or being developed, by the European Union and the Scottish Government; and Hydro Nation could create additional demands for services and opportunities for Scottish Water.

Strategic Projections

12

Scottish legislation Reservoirs (Scotland) Act 2011 The Act represents a significant change in the way reservoirs will be regulated and includes measures to increase protection of the public from the risk of flooding from reservoirs.

This will result in some smaller reservoirs being brought under the regulatory regime.

Flood Risk Management (Scotland) Act 2009 The Flood Risk Management (Scotland) Act 2009 aims to reduce the risk of adverse consequences of flooding. The illustration below shows how managing the risk of flooding sustainably means considering all sources of flooding and the integrated actions that can be taken to reduce the impact of flooding.

Water Resources (Scotland) Act 2013 The Scottish Government has ambitious plans to develop Scotland as a Hydro Nation. In the competitive global markets, Scotland’s valuable water resources have the capacity to position Scotland well to support the success of many water dependent sectors and play a part in attracting new businesses to Scotland. This Act brings greater focus on good stewardship of our valuable water resources in Scotland, modernises the law in relation to the management of shortages in the public supply, and allows for more proactive and collaborative approaches to prevent substances entering the network that can be harmful or costly to remove.

Climate Change (Scotland) Act 2009 The Act introduced a statutory target to reduce Scotland’s greenhouse gas emissions by at least 80% by 2050 (and at least 42% by 2020). Scottish Water is expected to deliver a continuing decrease in energy usage and reduction in carbon footprint in support of the Scottish Government’s objective.

Flood Risk Management

2 1

4 3 5

Groundwater

1. Land management and restoration of natural habitats, such as wetlands and woodlands can create more space for water and help reduce the flow of flood water to areas downstream.

Scottish Water

2. Where flood defence structures are necessary, they play a critical role in protecting communities and infrastructure from floods.

3. Good planning policies will ensure that homes and businesses are located away from high flood risk areas.

4. Sustainable urban drainage systems will reduce pressure on drainage and sewer systems.

Flood warnings help communities to respond to flood risks.

5. Using the natural capacity of our coastal areas and restoring saltmarsh will improve the protection of coastal areas.

Introduction Chief Executive’s statement

Providing continuous high quality drinking water

Protecting and enhancing the environment

Supporting Scotland’s economy and communities

Investing in future water services

13

About Scottish Water What might the future bring?

Listening to our customers Our strategy

Resource availability Scotland’s rainfall provides significant potential natural raw water supplies. It is our responsibility to meet the needs of today’s customers through storing and taking water from the environment without compromising our ability to satisfy the requirements of future generations. In this way we are responsible for very valuable resources which could provide a key future economic advantage for Scotland.

Global position “There is an intrinsic link between the challenge the world faces to ensure food security through the 21st century and other global issues, most notably climate change, population growth and the need to sustainably manage the world’s rapidly growing demand for energy and water.”

Scotland’s opportunity Scottish Water currently uses a small percentage of Scotland’s natural water resources to provide drinking water for the majority of Scotland’s homes and business premises.

Scotland uses more of the world’s water through importing water intensive goods such as food and clothing, than Scottish Water provides for customers’ daily use. With growing pressure on water resources in many other nations, it is conceivable that new industries may be attracted to locate in Scotland to take advantage of the significant natural raw water resources, creating a major economic opportunity.

Increased demand 50% by 2030 (IEA)

Energy

Climate change Food

Water

Increased demand 50% by 2030 (FAO)

Increased demand 30% by 2030 (IFPRI)

© Food, Energy, Water and the Climate: A Perfect Storm of Global Events? – John Beddington CMG FRS Chief Scientific Adviser to HM Government 2009

Strategic Projections

14

Political, economic and regulatory environment Political While the political environment and issues such as taxation or constitutional changes may require business adjustments, these are likely to represent a low risk to Scottish Water as a provider of essential services. We will remain alert to how political change affects our business.

Economic The Scottish Government’s Chief Economic Adviser’s assessment of the medium to long term outlook for public expenditure in Scotland suggests that there will be significant pressures on the availability of government borrowing for the next 10-15 years. The Scottish Government has advised us that lower borrowing, which is used to finance part of our investment programme, will be available in 2015 to 2021 compared to the 2010 to 2015 period.

Regulatory The UK regulatory landscape is changing to encourage water companies to take greater accountability for their performance and governance with a move to more risk-based regulatory approaches that encourage innovation.

The UK Government has announced plans in its Water Bill for an extension of competition in the non-domestic market for water services in England. It is important that the existing Scottish market, created in 2008, and the emerging English market are able to co-operate as this will achieve the Bill’s aim of increasing choice and bringing added benefits for business customers.

Scottish Water

Our understanding: In any political environment we provide essential water and waste water services that will always be required by the people of Scotland; Borrowing availability from the Scottish Government will be lower than in the past; Uncertain economic growth prospects could have consequences for the longer term affordability of water charges; The extension of the retail water market to England may encourage greater innovation in the water industry; and Regulation will continue to move to a more risk-based approach, placing greater accountability on Scottish Water.

Introduction Chief Executive’s statement

Providing continuous high quality drinking water

Protecting and enhancing the environment

Supporting Scotland’s economy and communities

Investing in future water services

15

About Scottish Water What might the future bring?

Listening to our customers Our strategy

Science and technology There have been significant changes in the way water and waste water services are delivered thanks to technological advancements: • Internet and mobile communications have revolutionised how businesses can operate and engage with customers.

• Water treatment technology has moved on significantly providing a much higher quality of water.

• In waste water treatment we have seen significant improvements in technology and the introduction of enhanced sludge treatment and disposal.

• Computing technology has enabled automation and control systems and sophisticated hydraulic modelling of sewer and water networks as well as the real-time capture of data about our asset performance.

• The introduction of no-dig pipe repair and replacement techniques has significantly reduced costs and disruption to our customers.

So what might the future bring?

• What new treatment processes will be developed that reduce the costs of service provision and carbon emissions?

• Could developments in nanotechnology (engineering involving tiny particles) enable water pipes to repair themselves which will help to reduce interruptions to supply, water losses and long term maintenance costs?

• Will global shortages of water see significant advances in low cost desalination technology (to remove salt from water)?

• How far can we go towards zero waste, extracting value from recycling, heat recovery from sewers, as well as energy and minerals extraction from waste water sludge?

• How might future computing and telecommunications technology influence the development of control and monitoring systems allowing real-time management of smart water and waste water grids?

• How could changes in the way water is used in the home assist in meeting future demand challenges? For example, having specific water supplies for uses such as drinking and washing; greater local storage and recycling of grey water (waste water from laundry or dishwashing or surface water from roofs) for toilet flushing use and possibly treatment at point of use.

• Will advances in hydrogen fuel cell development change demand for water?

The diagram on page 16 shows a possible model of the future where we view the urban water cycle as a resource and look at ways of driving towards recycling and value realisation from the raw materials at our disposal.

Our understanding: Technology will continue to advance across all areas of our lives. We will identify the opportunities that this presents and will use these where appropriate for the benefit of our customers; Environmental science continues to develop and our understanding will continue to evolve regarding our impacts on the environment and mankind; and We will lead research and development that supports the achievement of our strategic aims.

• How will scientific knowledge influence the introduction of risk-based decision making that balances legislative objectives against carbon emissions resulting in a whole new approach to managing waste water discharges?

• What might the home of the future look like and how will that impact on the services that we provide?

Strategic Projections

16

Potential opportunities for reuse and value capture

1

5

3 2

4

6

7

Road drain Soakaway or community suds pond 8

Sewer

1. Bath and shower Water efficient shower heads and taps use less water.

2. Combined toilet and sink Combined unit reuses waste water from the sink for toilet flushing.

Scottish Water

3. Grey water storage tank Waste water from baths, showers and washing machines, stored, heat extracted and waste water used for toilet flushing.

4. Water efficient washing machine Uses beads combined with a small amount of water to clean clothes.

5. Customer engagement Providing advice to customers on water, energy efficiency and waste disposal.

6. Rainwater butt Captures water from roof and reused for garden watering, car cleaning and toilet flushing – reduces drinking water demand and volume of waste water in the network.

7. Permeable driveway or road surface Reduces flow to sewers and drains to soakaway/ suds pond.

8. Waste water treatment works Minerals extracted and recycled, waste water sludge converted to energy.

18

Listening to our customers At a glance

We have undertaken an extensive customer research programme seeking the views of household and business customers. Summarised below is our understanding of our customers’ overall priorities, as supported by the Customer Forum, for further service improvements.

Service Area

Overall Priority

Maintain drinking water quality

High

Long term interruptions to water supply

High

Internal flooding from sewers

High

External flooding from sewers

High

Short term interruptions to water supply

High

Visible leakage

High

Pollution incidents

Medium

Discolouration of water supply

Medium

Taste and odour of water supply

Medium

Bathing water quality

Medium

Carbon emissions

Medium

Sewer maintenance

Medium

Customer service

Medium

Business price issues

Medium

Communication Lower Iron works/covers

Lower

River water quality

Lower

Low pressure

Lower

Odour Lower

Scottish Water

Introduction Chief Executive’s statement

Providing continuous high quality drinking water

Protecting and enhancing the environment

Supporting Scotland’s economy and communities

Investing in future water services

19

About Scottish Water What might the future bring?

Listening to our customers Our strategy

Listening to customers’ views and building these into our plans is part of an ongoing customer engagement approach that allows Scottish Water to ensure that our customers’ needs are at the heart of our service delivery.

We have undertaken an extensive customer research programme which involved targeted research activities, speaking with our customers to find out what they think, listening to our customers’ views and building this into our plans.

Findings from the research show that overall, both household and business customers generally have positive perceptions of Scottish Water, even though their relationship with the brand is often a distant one.

The drinking water provided in Scotland is perceived to be of a superior quality to much of the rest of the world, and waste water services are conducted invisibly.

Customers generally view the services they receive from Scottish Water as representing good value for money. However, as Scottish Water does not bill its household customers directly, there is a low top of mind awareness of charge levels. Business customers are generally more price aware, and rainwater charges from both buildings and roads drainage caused a great deal of discussion regarding who should pay. Small businesses are concerned about the relatively high fixed charge element of their bills.

Unprompted feedback throughout the Customer Engagement Programme has shown that customers are keen to maintain the service levels they currently receive. As most customers experience 100% service reliability, and trust that they will continue to receive this, there is a lack of knowledge or understanding regarding many of the more complex aspects of the water and waste water services provided by Scottish Water.

Listening to our customers

Customer Experience Score

Household and Business Panel

Validation Focus Groups and Licensed Provider Discussions

UK Customer Satisfaction Index

Stated Preference Study

Brand Tracking Survey

Deliberative Groups + Tele-Depth Interviews

Community Engagement programme

Complaints & Contact Volumes and Root Cause Analysis

Internal Focus Groups

Outputs

Business as Usual Insight Activities Customer Engagement Programme Strategic Projections

20

In both the unprompted and quantitative research, household customers showed a willingness to invest to prevent service failures that may affect other customers or the wider environment.

The following summarises our understanding of customers’ expectations of Scottish Water: • Customers trust that they have a safe and reliable supply of drinking water and expect us to maintain current high standards.

• Customers expect that their waste water will be taken away and returned safely to the environment.

• Customers want the level of visible leakage reduced, but were not willing to pay extra to achieve this, and expect that repairs are carried out quickly.

• Both household and business customers have demonstrated that they have no desire to see service levels reduce in any area, and overall show desire, and place a value on, further service improvement once prompted with information about specific service areas.

• Customers want us to be more proactive in providing information about our Price Promise and Guaranteed Service Standards.

Some business customers raised tariff structures as an area for improvement.

Customers recognise that the quality of drinking water is high, and whilst investments are required in other areas to improve services, this should not be at the expense of drinking water quality.

Most of our customers currently receive 100% service reliability from Scottish Water. However, there are occasions when issues arise. In relation to specific areas for service improvement research from both business and household customers findings show that: • Minimising interruptions to water supplies is an important issue for customers due to the inconvenience that this may place on daily life, with long term interruptions having greater impact than short term interruptions. For certain business customers this would be a top priority due to their business being dependant on water to operate. Long term interruptions to supply due to extreme weather were thought to be difficult to prevent, but there is an expectation that Scottish Water should plan ahead to avoid or minimise the impact of these events.

Scottish Water

• Reducing internal property flooding from sewers is consistently a high priority for improvement.

• E xternal flooding represents one of the highest volumes of contact received by Scottish Water, and customers who discussed this issue in qualitative research expected Scottish Water to take steps to reduce its impact both in terms of the overall number of customers affected and those impacted by recurring issues.

• Despite the low levels of customer contacts relating to pollution incidents, this is viewed as an area for improvement, with a focus to be placed on the more serious ‘category 1’ incidents.

• Reducing discolouration (the appearance) and poor taste or odour from drinking water supplies is a priority for improvement as these give concern to customers that water quality has been compromised.

• Coastal and inland bathing water quality is an important issue driven by the pride customers have in Scotland and its natural environment, but a relatively lower priority for improvement for customers who rarely bathe in Scotland’s water bodies.

• There was high agreement that everyone should be striving to cut down their carbon emissions, and therefore customers, in particular business customers, liked the idea of Scottish Water aiming to lower its carbon footprint. Customers expect Scottish Water to strive to be a climate champion and make a sustained effort towards reducing and mitigating the risks arising from climate change.

• While customers are keen for improvements to river water quality they thought that Scottish Water should prioritise investment where it will have the biggest impact on the river, and expect that other individuals or businesses should also address their environmental impact.

• Low pressure was of lower priority to both customer groups, with many feeling that those affected still receive a level of service and the issue would be more of an inconvenience than have a significant impact on daily life.

Introduction Chief Executive’s statement

Providing continuous high quality drinking water

Protecting and enhancing the environment

Supporting Scotland’s economy and communities

Investing in future water services

21

About Scottish Water What might the future bring?

Listening to our customers Our strategy

• Odour from waste water treatment facilities was also seen as a relatively minor issue, as it was considered to be primarily a temporary issue for those affected. However, we know that this can be a major concern for any community affected by malodour.

• Customer service was viewed as an important element, but customers are not willing to pay Scottish Water more to improve this as they expect good customer service as a matter of course.

We carried out research with secondary school pupils, our customers of the future, to understand their views. The research revealed that our customers of the future felt that we should be striving to become a climate champion and make a sustained effort towards combating climate change, and that innovation was necessary as a driver of progress.

Further details from our recent programme can be found on our website in the reports titled ‘Listening to our Customers’, November 2012 and ‘Listening to our Customers: Phase 2’, April 2013.

Your Views Count Our draft strategic projections consultation, ‘Your Views Count’, which ran from November 2012 to February 2013, revealed that the majority of customers who responded wished to see ongoing improvements to services with prices that rise in line with inflation over the longer term.

Customers ranked improvements to services as follows: 1. Avoiding interruptions to supply that could last longer than a few days; 2. Reducing internal flooding of properties from sewers towards zero; 3. Reducing external flooding of properties; and

From our overall research and engagement programme we understand that customers: Value receiving a safe and plentiful supply of drinking water, with their waste water taken away and returned safely to the natural environment; Do not wish to see service levels reduce in any area of service; Wish to see investment to further improve services across Scotland; Value reducing further the level of service failures associated with flooding from sewers; Value reducing further the inconvenience caused by interruptions to water supplies; Value reducing further discolouration and taste and odour problems in drinking water supplies; Expect a quick response and resolution when there are any problems; Expect Scottish Water to make a sustained effort towards reducing and mitigating the risks arising from climate change; and View some areas as a lesser priority for improvement due to the low number of customers affected, but acknowledged that these issues can be distressing for those affected.

4. Improving the speed of our response on occasions where services are interrupted.

Strategic Projections

Draft Strategic Projections

Introduction Chief Executive’s statement

Providing continuous high quality drinking water

Protecting and enhancing the environment

Supporting Scotland’s economy and communities

Investing in future water services

23

About Scottish Water What might the future bring?

Listening to our customers Our strategy

Our strategy We believe that everyone in Scotland should receive a safe and reliable supply of drinking water and have their waste water collected and safely returned to the environment.

We aim to be the most valued and trusted service provider, deliver ever improving value for money and support Scotland’s economic growth.

Building on our successes over the past 11 years, our strategies are geared to help us achieve these aims and further improve our performance and efficiency. In developing these strategies we have considered the potential future opportunities and challenges and our customers’ views as summarised on pages 8 to 21 of this document.

Providing continuous high quality drinking water page 24

Protecting and enhancing the environment page 30

Investing in future water services page 44

Supporting Scotland’s economy and communities page 36

Strategic Projections

24

Providing continuous high quality drinking water At a glance

Scottish Water customers are receiving the highest ever level of drinking water quality thanks to significant investment. But we need to do more to ensure we meet our statutory obligations in future. That’s why we want to improve water quality even further while ensuring every customer can always receive a safe and reliable supply of drinking water.

Our strategy to improve water quality: Scottish Water will monitor and maintain its network to provide high quality drinking water.

We will work to protect our water sources from pollution and, where necessary, invest in new treatment works and pipes to meet statutory drinking water standards, to improve the look and taste of water and address the challenge of climate change.

Our strategy to supply water whenever and wherever it is required: The challenges of climate change and population growth may increase the likelihood of a long term (more than a week) interruption to customers’ water supply.

We will take steps to ensure that all customers, regardless of where they live, are always able to turn on their taps and receive the best possible water.

Improving long term resilience could be achieved by importing water using road tankers in extreme circumstances and creating new links between supply systems for larger communities.

This will help ensure we can always provide our customers with water if there is a problem with their normal supply.

Scottish Water

Key Current supply Future network

Scottish Water is developing better links between our water treatment works to enhance the resilience of water supply to our customers’ properties.

We will work to reduce water leaks from our pipes and encourage customers to use water wisely – recognising that water is a precious resource.

Introduction Chief Executive’s statement

Providing continuous high quality drinking water

Protecting and enhancing the environment

Supporting Scotland’s economy and communities

Investing in future water services

25

About Scottish Water What might the future bring?

Listening to our customers Our strategy

Most customers trust that they will always have a safe and reliable supply of water that tastes and looks good and supports the use of modern appliances.

We aim to deliver this service for all our customers across Scotland every day, meeting the challenges of climate change and population growth, and embracing new technology to deliver services in the most efficient way possible.

Drinking water quality Drinking water quality levels have improved significantly since 2002 and now achieve 99.88% compliance with regulatory standards as a consequence of significant investment in water treatment over the past 20 years. While there are no proposals for changes to the statutory drinking water standards that we must achieve, we can improve water quality further and enhance the look, taste and smell of some drinking water supplies.

Challenges to drinking water quality fall into two categories: dealing with impurities that occur naturally in the environment from which source water is taken, and those that relate to maintaining the capability of our assets to continue to treat water to current high standards.

In the future climate change may increasingly affect the quality and quantity of our source water supplies.

Drinking water availability We have reduced short term interruptions to water supply by two thirds over the past 10 years. This has been achieved through improved response to potential and actual interruptions, and our ongoing programme to replace ageing water pipes. In addition we have improved our support to our customers when these events happen, providing alternative water supplies and better information about what is happening to restore supplies. We have also reduced leakage in our water networks by around 40% which has helped us to meet growth in customer demand without additional investment in new treatment works.

We know that there are some events that can potentially cause a long term disruption to water supply. For instance in early 2010 our water sources were under pressure in parts of Dumfries and Galloway due to a prolonged period of dry weather. At the end of 2010 we experienced a challenge in keeping all of our treatment works operational because of exceptionally cold weather which also caused freezing of pipes. Elsewhere in the water industry, a 1995 drought in Yorkshire had significant implications for customers, while severe flooding at Tewkesbury in 2007 resulted in the loss of water supplies to around 160,000 homes for a week.

Projected population growth and population movement in Scotland will increase pressure on some existing water supplies. This could require additional water to be taken from the environment and the construction of larger treatment works to meet customer demands in the east of Scotland.

Potentially, this could leave us with a surplus of water supplies in the west.

Our strategy To achieve our strategic aim of providing continuous high quality drinking water in the most efficient way we must focus on: • Monitoring the risk to service; • Maintaining compliance; • Improving the resilience of supplies; • Working with others to manage demand on the water environment; and • Investing to improve services and compliance.

Strategic Projections

26

Monitoring risk to service

Improving resilience of supplies

We are improving our operations by linking new monitoring systems to a central control system and weather data. This will allow us to proactively monitor performance of our assets and networks and take action or carry out repairs before there is any impact on services to our customers.

Resilience can be defined as the ability to maintain essential services under extreme circumstances. In many ways for water supply this can be considered as the ability to supply customers from an alternative supply. Our current estimates suggest that we have the capability to continue normal supplies in extreme events for around only 15% of our customers.

We use drinking water safety plans to understand and manage the underlying risks to public drinking water supplies, and to identify and implement measures to further improve drinking water quality. Using these plans we will identify and prioritise activities to move towards a proactive risk identification system so that customers never experience an avoidable water quality incident in the future.

Looking at the future availability and demands on the water supply allows us to understand the potential challenges that we face in relation to the resilience of water supplies because of population and climate change. We can then consider a range of options to meet the challenges identified, such as managing demand, reducing leakage, educating on using water wisely, tankering water and investing in new assets or connectivity between supply systems.

Maintaining compliance Central to our strategy for providing high quality drinking water supplies is the ongoing operation and maintenance of our assets.

We are forecasting increased asset maintenance as a consequence of investment in enhanced treatment works over the past 15 years to improve water quality.

We will continue to develop our approach to ‘fail-safe’ operations – where if problems arise with our assets we minimise their impact on our ability to provide services – and ensure employees are suitably trained and deliver the best operational practices.

Many parts of Scotland are served by small water treatment works. In the event of localised water shortages or supply issues we can provide alternative supplies by tankering water by road from larger treatment works.

However, the majority of our customers receive their water supply from larger water treatment works through pipe networks with limited or no connections to water supplies from further afield. Should any of these water supplies fail (for example due to flooding, freezing, or unforeseen equipment failure) or water resources diminish in quality or quantity; we would then face difficulties in providing water supplies to a significant number of customers.

We have identified improved resilience of water supplies – to ensure the continuation of water supplies in challenging circumstances – as one of our key strategic priorities.

Our customers have told us in their responses to ‘Your Views Count’ that avoiding interruptions to supply that last longer than a few days is a top priority for improvement. By installing additional links between water supply systems for major towns and cities, we can develop a more comprehensive water network to serve the main urban areas of Scotland. This will allow us to provide operational flexibility to meet future demand requirements and climate change impacts. A more comprehensive water network may also allow us to protect our environment by using water more flexibly.

We estimate the cost of this to be in the order of £500 million to £750 million over the next 20 years, but require to do more work to confirm these costs.

2013 2015

2021

Engage customers Assess current service resilience Confirm and agree options Deliver agreed resilience improvements Scottish Water

2040

Introduction Chief Executive’s statement

Providing continuous high quality drinking water

Protecting and enhancing the environment

Supporting Scotland’s economy and communities

Investing in future water services

27

About Scottish Water What might the future bring?

Listening to our customers Our strategy

Our predecessors had great foresight when in 1859 the Katrine water supply was built to serve Glasgow. Since then several regional water supply schemes were introduced to meet significant growth in industrial and domestic demand.

Current water supply links

Dundee Perth

Our plans for extending the water network will allow us to join up our water supply networks in the central belt to significantly increase the resilience of water supplies, and are illustrated by the yellow arrows on the diagram to the right. We expect to phase this development over the next 20 years, taking advantage of opportunities to reduce other investment to meet new demand.

Customers in Aberdeen are largely served by water taken from the River Dee. To improve the resilience of supplies in the north east in the event of the loss of a water treatment works or water source pollution, we expect to develop a new upland storage reservoir and links that connect the water treatment works in this area.

As we develop proposals and costs for this option we will compare these with the cost of connecting to supplies from Perth and Dundee.

Glasgow

Stirling Grangemouth Edinburgh

Ayr

Potential additional water supply links Elgin Turriff Peterhead Inverness Aberdeen

Working with others An important part of our strategy is to encourage everyone to use water wisely and consider how their behaviour and usage impacts on the water environment.

While Scotland’s natural water resources are typically high quality, on occasion, substances such as pesticides, nitrates and colour can be found in water sources. Surface water run-off from land and farmland is often the cause of these impurities which can affect the quality of our raw water supplies. Working in partnership with the farming community and others to protect raw water sources by managing catchment areas has the potential to provide real, sustainable results for our customers across Scotland.

We are currently working with various agencies to encourage customers to use water wisely, explaining the positive effect that using water wisely can have on their energy bills and the water environment. We are also piloting a variety of incentives and water efficiency measures for the home to understand the relative benefits and costs of these and how customers respond to them. The findings from this pilot will inform our ongoing water efficiency plan.

Dundee Perth Stirling Grangemouth Edinburgh Glasgow

Ayr

Katrine Scheme (1859) Carron Valley & Turret Scheme (1939-1961) Lomond Scheme (1971) Ayrshire Scheme (1950) Lanarkshire Scheme (1956) Edinburgh & Lothian Scheme (1905/1983) Inverness System Badentinan System Turriff System Forehill System Aberdeen System Potential Interconnection Schemes Alternative Raw W ater Source

Strategic Projections

28

In addition to measures that will reduce demand there is significant potential to recycle water used in the home. For example, we will work with relevant industry stakeholders and organisations to encourage changes in bathroom fixtures and fittings and plumbing that will allow water used for showering and bathing to be reused for toilet flushing. We will encourage the use of water butts to capture rainwater to fill watering cans and wash cars. Such measures could reduce overall water demand by up to 30%, and therefore reduce the volumes of water taken from the environment and pumped through our water and sewer networks.

We continue to look for ways to efficiently reduce leakage levels in our water networks and are working with industry to improve prevention and detection measures.

We work with Licensed Providers to look at ways to reduce business customers’ demand for our water supplies in order to increase the resilience of our supplies and reduce the need for capital investment. This can create benefits for business customers through lower bills.

We are also working with planning authorities and developers to encourage development in locations with existing capacity to supply water and waste water services, and to encourage more sustainable use of water and waste water in buildings.

Typical use of water in the home Other (including drinking) Outdoor Toilet Washing up

7%

5% 31%

8%

14%

Clothes washing

13%

Showers Source: Waterwise

Scottish Water

22%

Baths and taps

Investing to improve services We will enhance our maintenance and operational activities, and invest in new treatment assets that reduce the risks identified through our drinking water safety plans to address impurities that occur naturally in the raw water environment.

We will also invest to deal with the risks associated with the reduction in performance of our assets as they get older, as well as: • Providing enhanced water treatment processes to ensure the quality of drinking water will consistently exceed 99.9%; • Ongoing cleaning, and where appropriate, relining or replacing cast iron water mains to improve the look of drinking water; • Improving the operational control of water disinfection and seeking new disinfection techniques that ensure there are minimal taste and odour issues; • Understanding and responding to the effects of climate change on raw water quality; and • Seeking innovative technology and real-time monitoring of water quality in our networks.

The majority of our future investment to improve drinking water services is to further improve drinking water quality and improve the look and taste of drinking water across Scotland.

The other main area of investment is to increase the resilience of water supplies against long term interruptions by extending the water network.

Introduction Chair’s statement About Scottish Water What might the future bring?

Listening to our customers Our strategy

Providing continuous high quality drinking water

Protecting and enhancing the environment

Supporting Scotland’s economy and communities

Investing in future water services

30

Protecting and enhancing the environment At a glance

Scottish Water’s environmental performance has been transformed over the last decade. But there is further work we must do to protect and enhance the environment, meet legislative requirements and achieve further reductions in flooding and pollution from sewers.

Our customers have told us to target investment in areas where we can achieve the biggest environmental benefit.

Our strategy to prevent flooding from sewers: If climate change results in even more wet weather, building bigger sewers would help deal with increased rainfall. However, we will explore more sustainable and lower cost ways of managing rainwater from roofs, roads and car parks, where feasible.

We will work with customers and promote the best ways of disposing of household and business waste such as nappies, wipes and used fats and oils to reduce the extent of flooding from sewers.

Our strategy to protect and enhance the environment: We will operate and maintain our waste water treatment works to reduce the likelihood of pollution and protect the natural environment.

We will play our part in tackling climate change by acting to reduce our carbon emissions.

We will encourage farmers and landowners to play their part in preventing pollution in the water environment.

We will reduce leaks from our pipes and encourage recycling of water to reduce demand on supplies stored in lochs and reservoirs.

We will look for ways to operate our treatment works and networks in greater harmony with the environment. We will seek to influence others to remove chemicals and substances that find their way into waste water to avoid expensive treatment.

Scottish Water

Over 80% of flooding from sewers is caused by inappropriate items being disposed of in toilets and drains. Encouraging customers to properly dispose of waste items will help prevent flooding of other customers’ properties and improve the environment.

Introduction Chief Executive’s statement

Providing continuous high quality drinking water

Protecting and enhancing the environment

Supporting Scotland’s economy and communities

Investing in future water services

31

About Scottish Water What might the future bring?

Listening to our customers Our strategy

We rely on the natural environment by using its resources to provide your drinking water. Environmental performance has been transformed over the past 15 years through investment of over £1 billion in waste water treatment and collection. Our discharges are no longer the principal environmental pressure on Scotland’s waters.

There remains significant work for us to further protect and enhance the environment. We need to reduce the instances of flooding and pollution caused by discharges from our sewers, meet the further environmental obligations set out in legislation, and find ways to further reduce the carbon footprint of our services.

Preventing flooding and pollution from our sewers Sewers are the main way of taking storm water from roads and pavements and waste water away from homes and business premises. Our sewer capacity is more and more under pressure because of increased rainfall, growth of our towns and cities and blockages caused by inappropriate items being flushed down toilets or put in drains.

We are starting to reduce the volume of surface water entering our sewers from new developments through the use of sustainable urban drainage systems (SUDS) where the excess surface water is returned locally to the natural environment.

While building bigger sewers may be part of the answer, we need to find more sustainable ways of managing surface water to deliver services to our customers at the lowest possible cost and minimise our carbon emissions.

Improving Scotland’s water environment We rely on a healthy water environment in providing water services. We must be responsible and control the amount of water we take from natural sources in the environment to protect the future sustainability of our water resources.

Historically, major environmental legislation such as the Urban Waste Water Treatment Directive set the required standards for waste water discharges to the water environment. We are moving towards a more sophisticated approach to environmental protection, where increasingly we are only part of the solution. Providing sustainable environmental protection and improvement will require us to work more closely with others to meet the challenge as set out in the River Basin Management Plans.

Our strategy We aspire to continue to improve the environment in Scotland by: • Improving waste water network management and controls; • Being responsible in the way we use Scotland’s water resources; • Using our knowledge and expertise to champion a ‘prevention is better than cure’ approach to protect the environment in a sustainable manner; • Delivering full compliance with environmental responsibilities and obligations in the operation and maintenance of our assets; and • Investing where appropriate to protect and enhance the natural environment in Scotland.

Strategic Projections

32

Network management and control We have made great progress in the past 10 years to deliver improved performance and we are working to introduce intelligent control and monitoring systems across our asset base linked to a central control system. This will allow us to proactively monitor the performance trends of our assets and networks and help us to take action or carry out repairs before there is any impact on services to our customers or the environment.

We have developed weather monitoring systems and other tools that give us early warning about rainfall that may be about to fall on our catchment areas across Scotland and how it may impact on our networks and customers.

Our modelling of sewer flows allows us to identify places where our sewers may become overloaded due to the effects of climate change or new development in towns and cities across Scotland.

This modelling allows us to consider areas where we should attempt to reduce surface water flows getting into the sewer network or invest to increase the capacity of our sewers.

We are developing integrated drainage plans for all major cities in Scotland, working with key stakeholders to allow us to understand the interaction between surface waters, burns and our sewers. This allows us to identify the most sustainable way of controlling the impacts on the built and natural environment, and managing the flooding that can arise from severe rainfall in partnership with other organisations.

We are developing models to allow us to identify and clean sewers to reduce blockages and flooding to customers’ properties or pollution of the water environment.

Responsible use of resources Water, waste water and the sludge produced in the treatment of these are resources that need to be managed effectively and efficiently on behalf of our customers to deliver greater value for money. In doing this, we aim to safeguard our water resources, minimise our need for chemicals and energy, recycle or recover value from our waste (such as heat extraction, mineral recovery) and minimise residual waste.

We will seek opportunities to recycle water both strategically (surface water management and reuse) and locally (water butts in homes and business premises) to reduce the demand on Scotland’s freshwater resources. We are also piloting a range of water efficiency measures that may help our customers to use water more wisely.

We will encourage housing associations and other large scale landlords to consider water efficient and water recycling measures when they are refurbishing their housing stock.

We will also seek to influence building standards for new homes and extensions to ensure there is an increasing focus on water efficiency.

We are also considering the incentives that may be appropriate to encourage customers to adopt water efficient measures.

We continue to work with industry partners to identify more efficient ways to prevent, detect and repair leaking underground pipes. Recent innovations to detect leaks in our pipe networks have reduced our costs of leak detection and repair. Trials of platelet technology (a way of locating and sealing leaks in pipes without digging them up) may, if successful allow us to efficiently reduce water losses and the costs of supplying treated water.

We also expect activities such as sustainable land management, surface water management and variable consenting of waste water discharges – giving us flexibility to meet our obligations – can further help to reduce our costs.

Scottish Water

Introduction Chief Executive’s statement

Providing continuous high quality drinking water

Protecting and enhancing the environment

Supporting Scotland’s economy and communities

Investing in future water services

33

About Scottish Water What might the future bring?

Listening to our customers Our strategy

Prevention rather than cure More than 80% of flooding incidents are due to blockages which have been caused by inappropriate items such as nappies and wipes being flushed down toilets, or cooking fats, oils and grease being poured down sinks or drains.

Helping our customers understand the proper ways to dispose of these items is essential to helping reduce flooding. We will empower our customers, and future generations through our engagement programme, to properly dispose of these items in their household waste to avoid causing flooding within their community.

The Water Resources (Scotland) Act makes it an offence to put fat, oil or grease into the public waste water network from business premises. This should help to encourage good behaviour from business customers and reduce property flooding.

Building bigger sewers will only be part of the solution to deal with the challenge of increased surface water run-off arising from climate change and the growth of communities. We also need to change how we manage surface water run-off, and reduce the amount entering the sewer network; otherwise the problem will continue to grow. We will therefore work with all relevant stakeholders in Scotland to look at how we create sustainable urban drainage systems, including permeable roads (which better absorb water), improved land drainage, surface water retention and reuse for flushing toilets, washing cars and watering the garden. We intend to pilot surface water management techniques to understand the practicality of implementing these; their effectiveness, costs and benefits to customers and the environment. These approaches provide opportunities to reduce the risk of flooding and uncontrolled waste water discharges to the environment as well as reducing our pumping costs, electricity demand and carbon emissions.

Maintaining compliance Maintaining our assets to prevent pollution in rivers and burns is a critical element of our environmental compliance strategy. We are forecasting an increasing demand for asset maintenance for the new and upgraded treatment works we have built over the past 15 years.

We are working on innovative pilots in the regulation and operation of waste water treatment. If these pilots are successful, they may provide opportunities to reduce our overall waste water treatment costs and carbon emissions, while operating in greater harmony with the environment.

2009-2012 sewer flooding incidents Hydraulic overloading Customers’ debris

Asset failure

4% 7%

23%

Tree roots Customers’ fat, oils, and grease

4% 14%

48% Customers’ sanitary products

Strategic Projections

34

Investing to enhance our environment In some instances we will need to invest in additional operations or assets to protect and enhance the environment.

Our future investment to protect and enhance the environment is driven by our current understanding of the legislative requirements facing Scottish Water. Before we invest, we will demonstrate that improving our assets is the most sustainable way of achieving the desired environmental outcomes for Scotland.

Our investment projections assume that sustainable land management will achieve significant improvements to the quality of Scotland’s rivers and burns, and protect our raw water sources by reducing the risk of contamination from pesticides and diffuse pollution.

We also assume that environmental objectives can be met by reducing the level of harmful chemicals that are found in waste water by encouraging industrial manufacturers to remove these from the source household products and medicines.

Along with these innovative approaches we will still require to invest to enhance the quality of the waste water discharges from our assets to help to continue to improve Scotland’s environment and meet our legislative obligations.

There are some significant exclusions from our investment projections in relation to environmental obligations as listed below.

• We assume that the Priority Substances Directive can be met mainly through removal of the substances at source (e.g. changing the chemicals used in certain household cleaning and pharmaceutical products). However, if it is established that the overall benefit to society is greater by continuing with certain pharmaceutical products because there is no substitute that causes less harm to the environment, we may need to install new treatment processes to remove these substances from waste water. If this were the case then we may require to invest up to £1.8 billion in additional waste water treatment processes.

• If new bathing waters are designated at locations where there are existing waste water discharges we may need to invest in additional waste water treatment or move discharges away.

• Historically we have stored sludge arising from drinking water treatment processes in lagoons near water treatment works sites, and we monitor these to ensure that they are not causing environmental harm to nearby rivers and burns. If this was to change we may require to remove all the sludge and dispose of this elsewhere (which could cost up to £170 million).

• The introduction of new hygiene standards for shellfish would result in a need for further enhanced waste water treatment to waste water discharges at or near designated shellfish waters (which could cost up to £360 million).

• Lower frequency spill standards for intermittent discharges from the waste water network could be introduced by the EU, requiring significant changes to our sewer networks (which could cost up to £14 billion).

We continue to work with SEPA and the Scottish Government to minimise the impact of these on future investment priorities and customers’ bills, ensuring that there is robust evidence and proactive challenge to the issue and a sustainable, proportionate and affordable solution going forward.

Scottish Water

36

Supporting Scotland’s economy and communities At a glance

Since 2002 Scottish Water has transformed Scotland’s water infrastructure, investing in the economy to support jobs and growth while reducing charges to customers. We plan to build on this while meeting new demand for our services and delivering a positive customer experience.

Our strategy to keep costs low: We will find new technologies and ways of working to further improve the efficiency of our activities. We will continue to pursue opportunities to develop renewable energy from our land and assets.

Our strategy to meet new demand quickly and effectively: Encouraging customers to use water efficiently and reducing leaks from pipes can help maximise available water resources. We will encourage the development of new homes and businesses in areas that are well served by existing water supplies.

We will invest to ensure our treatment works and networks can meet the demands of new development.

Scottish Water

Scottish Water is supporting the growing requirements for housing in Scotland by meeting the demand for new connections to the water and waste water networks.

Our strategy to support communities:

Our strategy to deliver a positive customer experience:

We will seek opportunities to share our knowledge to help communities prosper, while providing education resources that increase awareness of how valuable water and the environment are. To support employment we will continue to provide opportunities for training and apprenticeships.

We will continue to improve our communications with customers to keep them informed when problems occur and restore services as fast as possible. We will also seek to better understand our customers’ priorities and provide the services they want.

Introduction Chief Executive’s statement

Providing continuous high quality drinking water

Protecting and enhancing the environment

Supporting Scotland’s economy and communities

Investing in future water services

37

About Scottish Water What might the future bring?

Listening to our customers Our strategy

We seek to support economic growth in a way that protects the environment and maintains service levels for existing customers.

Forum the appropriate balance for customers between future price, investment and service levels.

We aim to always deliver a high quality service and a positive experience for our customers building value and trust in the services we provide and supporting local communities by;

To keep water charges affordable for customers and avoid significant fluctuations we must manage the phasing and level of capital investment over the long term and secure access to the necessary borrowing.

• Keeping charges as low as possible and affordable; • Meeting new demand quickly and efficiently; • Supporting communities across Scotland; • Providing an excellent response and resolution; • Engaging and empowering customers; • Increasing transparency of the costs and performance of our services; • Offering services that customers want; and • Reducing our carbon emissions.

Keeping charges as low as possible and affordable We always focus on delivering value for money, reducing our costs and improving our services.

The cost of water may become a more pressing matter in the coming years and we continue to look for ways to reduce our costs and pass these savings back to customers through the regulatory price control process.

As Scottish Water is a monopoly business, we are independently regulated by the Water Industry Commission for Scotland (WICS) which is responsible for assuring that Scottish Water delivers a high quality service and value for money to our customers. Periodically the WICS set limits on the prices that Scottish Water can charge by assessing the lowest reasonable overall cost of delivering our services, taking account of the efficiencies that Scottish Water have delivered in the previous period and the scope for further efficiencies in the future. WICS also monitors Scottish Water’s performance, to make sure that we deliver the services that customers are paying for.

With the creation of the Customer Forum we now have a greater opportunity to ensure that customers’ views regarding value for money are fully explored in the price setting process. Using the findings from our customer research, we are able to discuss and agree with the Customer

If, in future, Scottish Water borrows from the financial markets then our financial strength would dictate the interest rates that Scottish Water (and hence customers) would pay on the required borrowing. It is therefore important that Scottish Water has a strong financial position so that any borrowing that is required from the financial markets can be secured at competitive rates that minimise the cost to our customers.

Affordability of charges Average household charges in Scotland at £334 for 2013/14 are £54 less than the average in England and Wales and the lowest in Great Britain.

Scottish Water can only achieve this through being efficient in how it delivers its services and acknowledging the key differences in its financing and charging arrangements from elsewhere in Great Britain.

We want to deliver services that are affordable and offer excellent value to current and future generations of customers, and this requires that our overall charge levels reflect customers’ ability to pay. We fully support the current principles of charging for water and waste water services established by the Scottish Government which require that charges be set to: • Recover costs; • Be fair and equitable; • Provide stability of revenue; and • Be simple and predictable.

We believe that maintaining the current household charging arrangements with the use of council tax bandings and associated discounts and exemptions (e.g. single occupancy discounts, and a reduction scheme linked to Council Tax benefit) provides a high level of social protection for low income households. We will continue to work with the Scottish Government and other consumer bodies to review the affordability protection within the charging arrangements.

Strategic Projections

38

Efficiency and innovation in delivery of services There remain some further opportunities for improving the efficiency of our services. In some areas we will need to invest in reconfiguring our assets to allow longer term efficiencies to be realised; in others we will continue to improve the productivity of our processes, or take advantage of new innovations and technology to achieve better outcomes. We will continue to pursue these opportunities to help to minimise our total costs and therefore keep the charges for our customers as low as possible.

Some of the opportunities that exist are set out below.

Efficient water supply The creation of additional links in our water network across parts of Scotland will allow us to use our water treatment capacity more efficiently, by implementing production planning techniques that enable the use of cheaper water supplies to their maximum before topping-up to meet peak demands with relatively more expensive water supplies.

As our water supply networks currently have limited connectivity, our water treatment works are sized to meet peak demand of specific areas. As we develop greater connectivity between water supply systems, it may be possible to reduce the current number of water treatment works. This would allow us to reduce both operating and longer term maintenance costs as well as providing increased reliability of our supplies.

Our ongoing work to reduce leaks from our water network has created significant additional capacity for water supply across Scotland as well as reducing the costs of service for existing customers. Looking forward we are supporting research and development that may bring new technology and products that would allow us to make further reductions in leaks from our networks.

Our water efficiency plan sets out how we aim to encourage customers to use water wisely, taking opportunities to reduce their long term water consumption. We will also explore the scope for more water efficient buildings through influencing building standards and the refurbishment of social housing.

Scottish Water

Energy costs We use over ÂŁ40 million of electricity per year in delivering our services, especially in pumping water and waste water through our pipe networks. We have a pump efficiency programme underway and will continue to invest in the replacement of inefficient pumps.

Ongoing work to reduce leakage from our underground pipes plays a significant role in reducing the energy we consume in treating and pumping water. We will also assess the potential for surface water management schemes to reduce our waste water pumping and treatment costs.

We continue to pursue opportunities to generate renewable energy where appropriate on our own land or assets – for example hydro power, wind turbines and solar panels. We are exploring the possibility of extracting heat energy from our sewers and securing greater benefits from the energy in the waste by-products of waste water treatment.

Chemicals We use chemicals in our treatment processes to ensure that the water our customers receive is safe to drink and that our waste water discharges do not harm the environment. We are always looking for alternative ways of achieving these outcomes in a more sustainable manner. For example, our plan to reduce the chemicals used to treat water, where it is cost effective, by replacing lead pipes in some of our water networks instead of treating water. We are also involved in several research projects that are looking at new ways of treating water that may provide opportunities to reduce the costs of service.

Introduction Chief Executive’s statement

Providing continuous high quality drinking water

Protecting and enhancing the environment

Supporting Scotland’s economy and communities

Investing in future water services

39

About Scottish Water What might the future bring?

Listening to our customers Our strategy

Business process and innovation We continue to look for and deliver operational productivity improvements. For example, our squads are now inspecting sewers with cameras to resolve blocked sewers. This improves service to customers and reduces the likelihood of costly repeat visits. We continue to embrace the use of technology to support our employees being more efficient in their daily tasks, such as providing mobile communication tools linked to control and management systems, which allow us to efficiently schedule tasks for our teams.

The introduction of the intelligent control centre should create further productivity and efficiency opportunities, as work becomes increasingly planned and less reactive, and we can deliver faster responses.

Research and development We are working with universities and academic institutes on further innovative development in the water sector. Of particular interest are alternative low cost, low carbon forms of treatment and ways to help reduce leakage from our water network.

Maximising value from our assets As well as the energy generation initiatives there are many other opportunities for us to get additional value from our assets. Opportunities as varied as hiring our assets as film locations, developing biogas plants, renting our land for telephone masts, to installing broadband cables inside our sewers. We are always open to exploring new opportunities that in the long term will benefit our customers.

Meeting new demands quickly and efficiently Integrated development planning We work with planning authorities and developers to encourage sustainable development, such as encouraging new development in areas where there is surplus capacity in our existing assets. To assist this, we publish a capacity report that identifies the areas where new development can be readily supported. We work with local authorities on their local development plans to understand where there could be future constraints and identify the most efficient ways to resolve these.

We work closely with SEPA to ensure that we balance supporting new development with appropriate consideration of our impact on the environment. We will explore providing localised treatment to large industrial sites as a cost effective way of providing capacity for new developments.

Building on the sustainable urban drainage system approaches that are required for all new developments, there may be potential for retrofitting surface water management systems to free up capacity in the sewer networks to meet demand for growth. We plan to pilot this to understand the practicalities, costs and benefits of such approaches.

Strategic Projections

40

Investing to support economic growth Whilst we aim to work with other parties to find sustainable ways of supporting economic growth in Scotland, we expect to make investment that supports connection to our network at reasonable cost, increases the size of strategic infrastructure and provides additional treatment capacity particularly for waste water.

One of the biggest challenges we face is dealing with new waste water demand from customers arising through ‘urban creep’ (the increase in paving of the urban landscape which increases the surface water run-off into our sewers).

To maintain our current levels of service to our customers we need to increase the capacity of sewers or find other ways to deal with surface water, otherwise we will see an increase in flooding from sewers. Recent changes to planning legislation on permeable paving could help to reduce this demand, assuming that customer awareness grows and more households use permeable paving, which better absorbs water, or other sustainable materials for driveways etc.

We assume that we will not need to make significant investment in new water treatment capacity because we expect to see the individual demand for treated water supplies reduce by working with our customers to encourage everyone to use water wisely and reducing losses from our water supply network further.

Supporting communities across Scotland Our ongoing investment programme provides significant employment for the construction industry in Scotland, supporting wider employment in many communities.

Working with communities Currently much of our work with communities relates to investment projects in their local area.

Looking forward there are also opportunities for us to share our knowledge and skills to help communities to secure opportunities in areas such as renewable energy from mini hydro schemes, district heating systems – which take heat from within the sewers to heat homes or businesses – and sustainable land management.

Scottish Water

Supporting education in Scotland Scottish Water plays a part in the lives and education of our current and future customers through raising awareness that water is one of Scotland’s, and the world’s, most valuable resources.

We are working with Education Scotland to further develop our education programme to ensure this links with the Curriculum for Excellence, which helps future generations develop the skills they need for learning, life and work. We are also working with organisations such as Eco Schools, STEM and WaterAid to ensure our resources will complement, support and reinforce their educational messages.

This, in conjunction with exploring innovative educational opportunities and partnerships such as ‘Water Ways’, our exciting exhibit in The Big Explorer area at Glasgow Science Centre which has had over 320,000 visitors since it opened in 2010, ensures that we continue to play our part in educating future generations about the value of this important resource.

Our skills development strategy is also clearly linked to the national economic strategy and Curriculum for Excellence. As a major employer in Scotland, we are committed to inspiring the next generation of engineers, scientists and technicians and promoting the career opportunities within the water industry in Scotland, through our modern apprentice, graduate and work experience programmes.

We are committed to modern apprenticeships that support youth development in Scotland and have placed a focus on work experience in Scottish Water by supporting placements for 14-17 year old pupils across Scotland.

Introduction Chief Executive’s statement

Providing continuous high quality drinking water

Protecting and enhancing the environment

Supporting Scotland’s economy and communities

Investing in future water services

41

About Scottish Water What might the future bring?

Listening to our customers Our strategy

Providing an excellent response and resolution Our customers have told us that, when their services are interrupted, they expect us to attend and deal with the issue right away and inform them of the timescale to fix the issue and restore their normal service.

We are improving our response times and communications with our customers to ensure that we keep them informed about restoration of services when there is an operational incident. We are placing additional focus on preventing repeat issues by further investigating the root cause of service failures.

We have seen customer satisfaction levels improve significantly but believe we can achieve even more. We expect that the introduction of our new intelligent control centre will allow us to proactively monitor the performance of our assets and networks to help us take action and respond more quickly to carry out repairs before there is any impact on services to our customers or the environment.

Engaging customers As set out earlier in this document we wish to deepen our relationship with our customers through an engagement programme that supports education, provides tailored advice and, where appropriate, consultancy services that engage our customers to take different and mutually beneficial actions.

The introduction of the Customer Forum is a significant step in creating greater transparency in setting of prices and priorities for service. We are committed to building a deeper relationship with our customers as a whole, giving greater transparency of our plans and performance, and seeking customers’ feedback on these. We seek to provide more accessible information about our performance in terms of efficiency and service to allow our customers to assess the value they receive from Scottish Water.

We also believe that new approaches to monitoring financial performance during the price control period should allow a new level of engagement of customers, Scottish Water and the Scottish Government (owner) in discussing performance and potential use of out-performance benefits.

Our customer research has indicated that customers want more information from Scottish Water. We will publicise our services and ways customers can become more efficient in the use

of, and knowledgeable about, their water and waste water services. We will continue to engage with customers in local communities regarding investment in their area.

This includes, but is not restricted to, information on our Price Promise and Guaranteed Service Standards, and the supply pipe repair scheme.

Listening to customers As most of our customers benefit from 100% service reliability, they have no direct contact with us and happily use our products every day.

As we look to the future we want to involve our customers more in how we deliver sustainable services for all of Scotland. We want to understand better our customers’ needs and priorities for improving the services they receive, proactively inform our customers about their services, and encourage our customers to use our services sustainably.

We are committed to using a variety of communications channels, to give our customers a choice in how they communicate with us.

We will continue to use traditional methods of communication such as letters and telephone, as well as using other channels such as our website, email and social and digital media as appropriate to communicate with our customers. We are also looking at the potential of applications for service reporting and information.

Offering services that customers want An underlying principle is that all household customers, regardless of where they live, should receive the same level of service, although businesses may choose to vary from the standard offering.

Given the competitive structure of the business market there will be differences in how we interact with different customer groups. We anticipate that most requests from the business sector will come through Licensed Providers and that how we communicate with them may be different from how we communicate with our household customers. We expect to see a greater desire for self-service systems from business customers.

We will seek to identify additional product offerings or tariff options that Licensed Providers and their customers would find valuable. We recognise that the uptake of such offerings will vary between sectors; e.g. a raw water supply may be offered where it is practicable, and may only be of value to a large industrial end-user.

Strategic Projections

42

It is conceivable that some of the ideas that emerge in the business market may lead to innovative offerings for the domestic market and we will always be open to making these available for our household customers if there is a clear appetite for new offerings.

We are currently developing online service options for septic tank emptying services.

As part of our water efficiency plan we will offer household customers advice about reducing their overall household costs through using water wisely (reducing water use is likely to result in lower energy bills through using less energy to heat water).

In 2010 we introduced our Price Promise, which goes beyond the normal water industry guaranteed standards of service payments.

Our Price Promise is an important strand of our value for money offering to customers. This provides a refund of charges when customers do not receive our usual high quality services under normal operating conditions, up to the maximum of charges paid in that year. Currently customers are required to apply for these refunds. However, we are looking to introduce automatic payment where possible to improve this offering for our customers.

Scottish Water

Reducing our carbon emissions We seek to deliver our services in a way that helps Scotland achieve its carbon reduction targets.

Currently, around 430,000 tonnes of CO2 (carbon dioxide) per annum are emitted in the delivery of services to our customers – mainly from the use of grid electricity to pump and treat water and waste water. It is important that we take steps to manage these greenhouse gas emissions.

Our overall forecasts suggest that our opportunities for further energy efficiency may match the new energy demands arising from the additional treatment and pumping required to improve services and the environment.

In our investment projections we have identified around ÂŁ85 million of investment associated with developing further renewable energy from within our assets (for example, hydro power from water mains and energy from sludge).

This, combined with energy produced from wind potential on our assets, could lead us to a position where we contribute more renewable energy to the grid than we consume, significantly reducing our net carbon footprint.

Overall, the major contribution to reducing our carbon footprint will be the anticipated decarbonisation of the electricity grid.

Introduction Chair’s statement

Providing continuous high quality drinking water

Protecting and enhancing the environment

Supporting Scotland’s economy and communities

Investing in future water services

43

About Scottish Water What might the future bring?

Listening to our customers Our strategy

Strategic Projections

44

Investing in future water services At a glance

Household water and waste water charges in Scotland are among the lowest in Great Britain. Customers have told us that their preference is to continue with stable charges (charges that increase no more than inflation) to allow investment to further improve services in the areas that customers have told us are a priority.

Most of Scottish Water’s annual budget – and the charges customers pay – is currently spent on maintaining existing service levels for customers and for paying interest costs for historic investment in their services.

Maintaining existing service levels

18p

Our expectation of future costs: We will continue to look for ways to be more efficient in how we deliver services and have taken these into account in our projections, but we expect that our maintenance costs will rise as existing treatment works – built in the last 15 to 20 years – are refurbished. However, we expect the number of customers will also rise, which could help to keep costs for everyone more stable while maintaining services.

In our projections we have assumed that investment to meet statutory obligations, based on known requirements, will reduce over the next 25 years. We expect that our future capital investment requirements will remain around £500 million per annum (in 2012/13 prices) as a result of increasing capital maintenance requirements and ongoing investment to improve services to meet customers’ expectations in areas of water supply resilience and the prevention of flooding from sewers.

Over the years Scottish Water has taken out loans to efficiently finance investment, to make improvements to services and meet statutory obligations. We will continue to incur interest costs on these loans over the coming years and on new loans taken out to finance our proposed statutory and service improvement plans.

Scottish Water

Interest costs for historic investment in your services

75p

4p 3p

Meeting new statutory obligations Improving our service provision

Every £1 of customers’ charges in the future contributes to these 4 areas.

Our strategy to improve services: We plan to increase investment for service improvement to around 3% of what you pay to further improve services in the areas of: • Reducing interruptions to water supplies • Reducing flooding from sewers • Investment to support reducing long-term costs • Encouraging water efficiency • Improving the customer experience of our services

Introduction Chief Executive’s statement

Providing continuous high quality drinking water

Protecting and enhancing the environment

Supporting Scotland’s economy and communities

Investing in future water services

45

About Scottish Water What might the future bring?

Listening to our customers Our strategy

Most customers trust that they will continue to receive 100% service reliability, and that we will make further improvements where required.

Our financial projections are therefore based on meeting those customer expectations and our anticipated statutory obligations.

We have reviewed long term investment requirements and efficiency opportunities.

We believe that we should be able to meet our statutory obligations and deliver the proposed improvements to services that our customers expect while keeping charges broadly constant in real terms (i.e. excluding the impact of inflation).

This assumes that the Scottish Government will make available facilities for net new borrowing of around £120 million per year to support an overall investment programme of around £500 million per annum (in 2012/13 prices).

Our projections are based on assumptions about future economic circumstances and the day to day costs of running the business. For example, the overall number of customers we serve can have a significant effect on the long term charges’ projection, as can significant cost increases such as business rates or long term interest costs.

If we are able to outperform a regulatory settlement, the benefits would be passed

to customers through lower prices and/or accelerated service improvements. Should circumstances be significantly adverse to our assumptions we would expect to adjust our investment levels, which could affect the rate at which we deliver the planned service improvements, or seek additional borrowing facilities to allow planned investment to continue.

Operations and maintenance costs Around two thirds of the total annual costs to deliver your water and waste water services is spent on operations and maintenance to deliver current service levels. Our forecast expenditure to operate and maintain our assets take account of expected efficiency opportunities and our strategies for asset rationalisation and productivity improvement.

We expect that the real terms cost of maintaining service levels will increase by around 0.5% per year. The main reason for this is the cost of refurbishing many of the new treatment works that were built over the past 15-20 years to improve the quality of services.

However, as our customer base is also forecast to increase by around 0.5% per annum, we expect that the real costs per customer will remain broadly the same.

Forecast average annual costs £m per annum (2012/13 prices)

1,200

Base operation and maintenance costs

1,000

Financing costs New demand costs New statutory obligations costs

800

Service improvements costs

600 400 200 0

2010-15

2015-20

2020-25

2025-30

2030-35

2035-40

Strategic Projections 1200

46

New demand costs

Improving services costs

We expect the costs of providing services to meet new demand from both households and business premises to remain broadly stable.

However, there remain significant opportunities and risks associated with our assessment and over time we will understand the scope of full benefits that can be realised from our water efficiency and surface water management approaches. If successful, these could reduce the longer term demand for investment to provide additional capacity to meet new demands.

The table on page 47 sets out our forecast service levels in the areas that customers have identified as a priority for further improvement that are not otherwise addressed by new statutory obligations investment. In our projections we have assumed that we will improve services in all these areas.

Many of our planned improvement approaches are innovative and require collaboration with customers and other stakeholders to achieve the outcomes shown.

New statutory obligations costs

In our projections we have planned service improvements at a rate that is supported by prices that rise slightly below the level of inflation.

We expect our investment to meet statutory obligations associated with environmental legislation to reduce over time allowing more investment for improving service levels in other areas and investing to reduce long term costs.

We expect our investment to meet statutory drinking water quality standards to continue over the next 25 years due to our programme of works to upgrade unlined iron water mains (the main cause of drinking water discolouration problems).

Financing Around 18% of bills paid by customers go towards paying for the historic and ongoing debt that underpins the historic investment in the assets that deliver your services today.

These costs may reduce as some of the debt is cleared and opportunities to refinance are realised. However, a rise in interest rates could affect longer term costs.

Scottish Water

Getting the balance right

Our customers have told us in their responses to Your Views Count that the majority wish to see further service improvements and that price increases around the level of inflation are acceptable in the long term. The Customer Forum has advised us that its research suggests there is an acceptance that prices will rise, but that we need to consider customers’ economic circumstances in each price control period when considering the appropriate balance between prices and the rate of service improvements.

47

Scottish Water’s 2010 to 2015 business plan sets out improvements in a number of areas. Set out below are some of the key service improvements we propose to deliver by 2040, as well as our expected service level in 2015.

Forecast service level 2015

Future service level 2040

Resilience of water supplies Currently we estimate that we have the capability to continue normal supplies in extreme events for around only 15% of our customers.

100%

By 2040 we plan to improve this to 100%.

15% Drinking water quality By 2015 we expect to have improved drinking water quality such that 99.88% of samples taken at customers’ taps are compliant.

By 2040 we plan to improve this to 100%.

99.88%

100%

Internal flooding from sewers By 2015 we expect the annual number of incidents of internal property flooding from sewers to be around 8001.

By 2040 we plan to work with customers to reduce this towards zero.

800

External flooding from sewers By 2015 we expect the annual number of incidents of flooding from sewers that affects gardens, roads and open spaces to be around 14,0001.

By 2040 we plan to work with customers to reduce this significantly.

1

14,000

ver 80% of flooding is caused by inappropriate O items being disposed of in toilets or drains (page 33).

Strategic Projections

48

Scottish Water

Designed by Tayburn

For more information on Scottish Water and our services contact our Customer Helpline on 0845 601 8855* or visit www.scottishwater.co.uk.

Alternative formats of this leaflet can be made available free of charge.

For information on Braille, large print, audio and a variety of languages, please call our Customer Helpline. * We record all calls for quality and training purposes.

SWFSP 10/13