Supporting Scotland's economy and communities

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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

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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

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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