The Strategic Review of Charges 2010-15:

The Final Determination

26 November 2009

Our Final Determination takes account of:

− 22 representations received on June’s Draft Determination

− revised and increased Scottish Government objectives

− the Scottish Government’s Principles of Charging

− the potential impact of the Climate Change (Scotland) Act, 2009 on the Scottish water industry

− extra £8m of costs associated with mains diversions to allow progress on the Edinburgh Trams Project

For households we concluded that prices to households should increase at 5% less than the rate of inflation up to 2015:

− prices will be frozen in April next year

− prices could be frozen the year after depending on the rate of inflation

− over each of the years 2012-15, charges should increase byless than the rate of retail price inflation

− the outcome for water only customers is even better

For business and public sector organisations, we concluded:

− all such organisations, except those in receipt of trade effluent services, should see their charges follow the same

profile as for households – frozen for up to 2 years and thereafter increasing by less than inflation (2012-15)

− But all organisations should be able to negotiate an improved level of service and/or lower charges because of the competition framework

Trade effluent customers have been in receipt of a cross-subsidy from both households and other non-household customers:

• But some trade effluent customers are still paying more than their fair share

• We will consult further on how these cross-subsidies should be unwound

• In the meantime, we have limited the increase in trade effluent charges to 1% above the rate of inflation

Scottish Water will remain in a strong financial position – notwithstanding the limits that we have placed on customer charges…

• It will be as financially strong as the best performing companies south of the border• Total debt will remain around 50-55% of its regulatory

capital value• It could accumulate reserves of up to £80 million assuming it meets the terms of its regulatory contract• Customers’ charges would not increase if the Scottish

Parliament were to decide to require Scottish Water to borrow commercially

Scottish Water has been challenged to improve the service it provides to customers.

OPA

E&W WASC OPA 2007-08 Band

Anglian 402>400

Wessex 400

Yorkshire 389

380-400Thames 380

South West 380

Dŵr Cymru 375

<380

Southern 374

Northumbrian 349

Severn Trent 342

United Utilities 341

2013-14 upper quartile range performance challenge 380

400

Scottish Water is also charged with delivering a further very large investment programme in the 2010-15 regulatory control period

This investment programme will bring many public health and environmental benefits whilst contributing to economic development:

Water • Protection from Cryptosporidium at 44 high priority sites• A major programme of water mains refurbishment

Waste Water• Reduction of the number of unsatisfactory discharges to Scotland’s watercourses and beaches

Growth• Providing a supply wherever it is needed• Reducing the risk of sewer flooding

It will also lead to a greener industry:

− Household meter trials, including the use of new tariffs

− Reducing leakage (by more than a third) to its economic level

− Reducing the amount of rainwater that unnecessarily enters the sewerage system, hence mitigating the risk of flooding from sewers

− Working in catchments to reduce the requirement for chemical intensive treatment processes

− Incentivising water efficient housing developments

− Development of renewable generation

Looking forward we intend to work with Scottish Water and other stakeholders:

• to improve understanding of how the industry incurs all its costs

• to develop regulation and implement a robust accounting separation of network and treatment activities• to create incentives for Scottish Water to consider operational

as well as capital intensive solutions• to increase further the engagement of customers in future

Strategic Reviews of Charges• to draw on the experience of retailers in understanding the

needs and priorities of customers

Questions ?