Last Updated 30th April 2005

This page has the latest news from Unison's Scottish and National activities on issues about Scottish Water

 see Unison-Scotland's web site for more details and older items.

Current Items

UNISON Scotland: Scottish Council: 9 April 2005
Extract from Utilities Report

Joint Utilities

1. The Energy and Water service groups continue to meet together with many common elements to their objectives.

2. Branches are now fully engaged in the 2005 bargaining round. Scottish & Southern have been the first to settle with a good deal for members. A complex range of pay restructuring proposals continues to be a feature of the bargaining environment in utilities and an opportunity to address equal pay issues. Outwith pay and conditions attendance management, stress and drugs and alcohol polices remain key issues.

3. Recruitment in 2005 has started well, particularly in Scottish Electricity. A new UK recruitment campaign has been launched.

4. Further utilities news can be read in the latest edition of Scottish Utilities on the UNISON Scotland web site.

Water

1. The Water Services (Scotland) Bill has completed the parliamentary process. The Bill will establish a licensing regime for non-domestic customers, prohibit common carriage and other suppliers supplying domestic customers and restructure the regulatory arrangements. We welcome the restriction to competition but retain strong reservations over non-domestic competition and aspects of the regulatory arrangements.

2. The Scottish Executive has announced its guidance on financing the industry for the period 2006-10. In essence the Executive will require Scottish Water to deliver at least a £1bn per annum investment programme with no real increase in charges. A 'magic circle' that cannot be squared without further job cuts. There is a welcome introduction of development charges, something UNISON argued for.

3. The STUC water campaign continues to coordinate the trade union response to the challenges facing the industry. The service group has also published a leaflet setting out our position that has been circulated to MSPs and other opinion formers.

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The WIC and operating efficiency - want to comment?

Regulating the Scottish water industry: The scope for operating cost efficiency

Following criticism of the lack of transparency in the last charges review the WIC now appears to be using a new tactic of bombarding everyone with a mountain of papers!

The full consultation document "Our Work in regulating the Scottish water industry: The scope for operating cost efficiency ". (for those having difficulty sleeping!) is available at the following link:

http://www.watercommissioner.co.uk/SRC_2006-2010/scopeforoperatingcostefficiency.asp

An executive summary which by comparison is a modest 21 pages (recommended!) can also be obtained via the above link.

This is the fourth in a series of five information and consultation documents, which they are publishing between July and November this year.

This volume covers : how the regulatory regime can create incentives to improve performance; how they propose to decide on the level of operating costs that Scottish Water should be allowed to incur; and how best to ensure that customers receive an appropriate level of service.

They are seeking views by by 5 November 2004.

Obviously the cost regime will have a significant impact on both job security and pay as it sets Scottish Water's financial envelope. You might want to look at the employee incentive section in particular. The section on PPP costs is interesting as the WIC is recommending bringing the operation in-house!

Please send any comments to Branch Secretary Stephan Walker as soon as possible.

Unison will be making a detailed response to the consultation - so check this web page after 5th November!

Dave Watson
Scottish Organiser (Utilities)

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Water quality and staffing levels

This is the minister's spin on the Regulator's report. Not surprisingly he does not mention the regulator's criticism of inadequate staffing levels!
 
 Our press release last week did. Plus drew attention to regulatory conflict between the financial efficiency savings required by the economic regulator and quality standards required by this regulator.
 
 Drinking Water Quality annual report
 11/10/2004
 The annual report of the Drinking Water Quality Regulator, published today, highlights improvement in microbiological standards but also shows a slight increase in the number of failures for non-health related factors such as mild discolouration.
 
 It raises concerns over a shortfall in the number of tests that Scottish Water is obliged to carry out. This shortfall does not undermine the findings of the report or impact on human health.
 
  The Environment Minister said:
 "The Executive wants to see an efficient and effective publicly owned water industry that delivers high quality drinking water and protects the environment.
 
 "This report shows that Scotland's water industry is making progress in raising standards and the water in our taps is clean and healthy.
 
 "We are concerned about the criticism that the regulator makes over Scottish Water's failure to carry out the statutory sampling regime. This is unacceptable.
 
 "We look to the company to take action to address this and ensure that the regulatory requirements are met in future. We look to the regulator to ensure Scottish Water meets its obligations."
 
 The 2003 report shows:
 
 1. An improvement in microbiological standards. Down from 204 failures in levels of coliforms to 135 in the same period
 2. An increase in the number of failures from 0.76 to 0.83 due to colour and iron and had no significance for public health
 3. Failures due to trace amounts of faecal coliform also decreased from 30 in 2002 to 24 in 2003
 4. The number of failures due to trihalomethane (THM) also decreased
 
 The annual report is the 14th in a series since 1990 and is the second to be published by the Drinking Water Quality Regulator since his appointment in April 2002 under the Water Industry (Scotland) Act 2002.
 
 It provides a national overview of drinking water quality in Scotland together with a record of the quality of drinking water supplied within each local authority area.
 
 An assessment of the level of compliance during 2003 with the water quality regulations is made and, where appropriate, this is compared with the performance in previous years.
 
 Discoloured tap water experienced in many parts of Scotland was due to exceptionally high rainfall causing landslides or washing materials into the lochs and reservoirs from which drinking water is obtained.
 
 In all cases Scottish Water went to great lengths to ensure that proper disinfection was maintained and that there was no danger to public health.
 
 
 Dave Watson - Unison's Scottish Organiser

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Unison meet the Labour MSP trade union group

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Water Services Bill - Evidence to Scottish Parliament

Dave Watson, Unison's Scottish Organiser is to present evidence to the Scottish Parliament on behalf of the STUC. This will take place on 15 September at 10am and  will be the first Trade Union evidence session in the new parliament building.

The STUC broadly welcomes the provisions of the bill as being a more realistic recognition of the realities of the industry that those set out in the original Water Service Bill consultation in 2001.

The major problem relates to the proposals for non-household retail competition. We suspect that this more modest proposal reflects a concern to be seen to provide an element of competition in accordance with the philosophy inherent in the Competition Act. However, the proposals still constitute a major upheaval for little value to the consumer. It is also a further stage along the road to the full privatisation of Scotland’s water.

Full text of Evidence to the Environment and Rural Development Committee

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Scottish Water Annual Report

Scottish Water have published their annual report and accounts

Executive press release with the Environment Minister's spin
http://www.scotland.gov.uk/News/Releases/2004/08/19104709

Scottish Water spin
http://www.scottishwater.co.uk/portal/page?_pageid=93,64051&_dad=portal&_schema=PORTAL&p_calledfrom=1

I have resisted press efforts to comment on 'fat cat' director bonus payments. The reduction in the general wage bill reflecting fewer jobs is more important.

Be warned - you might not recognise the organisation you work for in all this!

Dave Watson  Scottish Organiser

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Consultation - investing and paying for water & sewerage

The Scottish Executive has launched the two key consultations on investing and paying for water and sewage.

Scotland’s water industry is facing a number of important decisions in the coming months. The Water Services (Scotland) Bill proposes significant changes to the regulatory regime together with further competition and privatisation. The Scottish Executive is also consulting on the level of investment required over the period 2006-14 and how that should be financed. This briefing covers the investment and charges consultation. It should be of concern not only to UNISON members in the industry but also to the wider membership who have a citizenship interest in the provision of safe drinking water and the treatment of wastewater together with the level of water charges they pay.

Full Text of Unison's Policy and Information Team Briefing:
http://www.unison-scotland.org.uk/briefings/waterbrief90.html

The full consultation papers can be viewed at:
 http://www.scotland.gov.uk/consultations/environment/pfws-00.asp
 

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The Water Services Bill has now been published.

The Bill makes a number of changes to the regulation and provision of water
and sewerage services, including to:

• Prohibit 'common carriage' by creating offences in relation to the unauthorised use of the public water and sewerage systems;
• Introduce a licensing system to limit retail competition for the provision of water and sewerage services for non-domestic customers only;
• Establish a Water Industry Commission for Scotland as a body corporate to replace the Water Industry Commissioner;
• Amend the system for fixing charges for services provided by Scottish Water;
• Change Scottish Ministers' powers to give directions on Scottish Water's functions.
• Provision in relation to dealing with coal mine water pollution.
   

The main changes since the draft bill relate to the role of the WIC and charge setting. We need to look at this closely as well as our previous concerns over non-household competition.

The Water Services etc (Scotland) Bill and its accompanying documents are
available on the Scottish Parliament website at:
<http://www.scottish.parliament.uk/bills/index.htm#23>.

The Environment Committee is seeking written evidence by September which we will submit. The remit for their inquiry can be viewed at the Scottish Parliament website at:

<http://www.scottish.parliament.uk/environment/inquiries/env-wsb-call.htm>.

There are two other important consultations this summer:

Water Services: Principles of Charging
This consultation is about deciding how different groups of customers can contribute fairly to meeting Scottish Water's costs. It will seek views on principles to underpin how charges are shared between the various customer groups and responds to widespread customer concern about charges. It will be launched in early summer and run until the autumn. The outcome of the consultation will inform Ministers' decisions on the principles to be applied in setting future charge schemes.

Investing in Water Services 2006-2014 (Quality & Standards III)
Quality & Standards III will be the third post-devolution investment programme for the water industry in Scotland. Focusing upon the period beyond April 2006, it will advise on the investment required to meet public health and environmental requirements, alongside investment needs to improve and extend the existing network. The outcome of this approach will be the establishment of a prioritised, fully costed investment programme for the industry based upon a thorough assessment of legislative requirements and appraisal of costs and benefits of different options for meeting these requirements.

Any views on these issues to me please.

Dave Watson Scottish Organiser (Utilities)

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Privatisation Threat

There was an interesting story in the Scotsman on 24/02/04.

The WIC (Water Industry Commissioner for Scotland) has let slip his real agenda on privatisation.

Unison's  Response

Dave Watson (Unison Scottish Organiser for Utilities) Wrote to the Scotsman - here's what he said:

Dear Sir

"So the real reason for the Water Industry Commissioner’s bizarre decisions on the financing of Scottish Water has now been revealed (Scotsman 24 Feb) – he supports privatisation!

Many in the industry simply thought that his incomprehensible economic model that led to unrealistic targets and a charging structure that has brought misery to many, was based on inadequate data or, at worst on a misplaced ideology. It now appears to have been a deliberate strategy to prepare public opinion for privatisation.

Even so it is strange to base the case for privatisation on the cost of financing debt. In the private sector Scottish Water would have to pay far more for the huge borrowing required to replace our ageing water and sewage infrastructure. Bills would have to rise even faster.

Under the WIC’s direction Scottish Water is required to make efficiency savings that are not related to new investment, at a faster pace than the privatised industry in England. And they had greater resources. This is leading to real safety risks for staff and the public.

The harsh reality is that we have to pay for the modernisation of our infrastructure after years of neglect. We can either do that through charges or by taking public expenditure from schools, hospitals or other public services. There is a legitimate debate about the structure of charges but the overall cost remains the same. A new round of substantially increased bills in the privatised industry in England demonstrate that privatisation simply adds greater borrowing costs and private profit to the bill."


Dave Watson
UNISON Scottish Organiser (Utilities)

link to Scotsman article
 

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Unison's Water Campaign

it’s not just Scottish Water that needs to be convinced

Unison are campaigning to raise awareness with

• Ministers and civil servants who directly influence decisions

• MSP’s, T&E Committee and political parties

• General public to build pressure on the above

Unison is also leading the debate within the STUC to get support for a campaign with the following main objectives:

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Water Charges

More excitable headlines on water charges have contributed little to the need for a sensible debate on the future financing of the water industry in Scotland. Claims that non-domestic customers are paying an ‘inefficiency premium’ of 50% are clearly absurd. The Water Industry Commissioners (WIC) figures are based on misleading comparisons with England. Scotland’s water and sewage system as well as our coastline and environment are significantly different from England. Scottish water charges also reflect where we are in the investment cycle, which again is different to England. It is not surprising that wider enthusiasm for these comparisons have dimmed since the English water companies are now demanding a one-third increase in charges to cover their second wave of maintenance and infrastructure improvements since privatisation.

That is not to say that water charges should not be investigated. UNISON welcomes the inquiry launched by the Scottish Parliament Finance Committee and the paper Principles of Charging for Water and Wastewater published by the Water Customer Consultation Panels. UNISON’s responses to those inquiries can be viewed on our website. Particular elements of the WIC’s charging structure need to be investigated including the pace of harmonisation, standing charges and the treatment of debt.

The challenges facing the industry are considerable but not impossible to resolve given time. The key requirement is a more realistic financial framework rooted in the realities of Scotland’s water and sewage infrastructure. Not dubious economic models or false comparisons with England.
(note by Dave Watson - Unison Utilities Organiser)

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Customer consultation Response

Unison has recently written (October 3003) to the Water Customer Consultation Panel to comment on a report on the "Principles of Charging for Water and Wastewater"

The full text of Unison's letter is given below:

"Thank you for forwarding copies of the above report. As you will be aware UNISON is Scotland’s largest trade union and our members have a direct interest in this issue both as users of this essential public service as well as the main union representing staff in the industry.

We welcome the publication of this report as an important contribution to the debate over water charges. As your introduction makes clear there is real ignorance of the policy context and the regimes that determine prices. We would therefore support the main recommendation of the report that a public consultation exercise should be conducted on the principles of charging for water and wastewater services in Scotland.

I would make some initial observations on the contents of the report as follows:

• Comparisons with the water industry in England are at best misleading and at worst specious. The structure of the industry in Scotland, the significant technical differences in water provision and our coastline and environment are significantly different. Most importantly regarding charges, we are at a different stage in the investment cycle. I trust that the recent announcements of proposed price increases in England have highlighted this factor to many ill-informed critics of Scottish Water. In addition England does not enjoy a uniform approach to water services, a point that the excessive use of averages and economic models can sometimes hide.

• We agree with a number of your initial responders that there is a democratic deficit, a point UNISON Scotland made forcibly during the debate over the Water (S) Act. However, it is not quite as wide as some think. Minister’s have wide ranging powers under the Act, if they choose to exercise them.

• In terms of cross subsidy the report probably underplays the role regional cross subsidy played in the creation of Scottish Water. Had it not been for the projected increases in water charges in the North of Scotland, it is highly unlikely that Scottish Water would even have been created.

• The report does a great service in highlighting the very different application of standing charges in Scotland. Something that was given very little explanation at the time the Strategic Review of Charges was published. It has been a major cause of the headline increases that have caused much of the ill-informed debate around water charges. Similarly, there is a case for an open debate on the issue of separate surface water charges.

• The report’s analysis of charging systems against objectives is an interesting but somewhat academic debate. It is very subjective and I wonder how valuable it is in taking the debate forward.

• The debate around metered charges is a valuable one and introduces an environmental aspect to the debate often missing in Scotland with our natural abundance of water. However, it does have to be recognised that this is primarily an issue for business users, given the marginal application of metering in the domestic sector. UNISON has serious reservations over the extension of metering on social and health policy grounds, not to mention the economic efficiency of establishing expensive metering systems.

• A major omission in the report is any discussion of the treatment of debt. I would suggest that this is essential to the question of future charges. Particularly given the WICs views on the application of debt funding to customers between 2006 and 2016. UNISON believes that this could be restructured more efficiently, placing less burden on today’s customers for what is a long term investment in Scotland’s water and sewerage infrastructure.

• I would also suggest that any debate over water charges needs to be informed about the need for investment in our crumbling water and sewerage infrastructure. This has not been helped by the loss of large numbers of experienced staff whose expertise will now have to be replaced by expensive private sector provision in a competitive labour market.

• There is also the question of declining government financial support for the industry in recent years. UNISON recognises that this is not simply a case of asking the Scottish Executive for more support as that would have to be at the expense of other public services. Closely linked to this is the impact of potential changes to the EU internal market rules and the GATS negotiations, not to mention the Executive’s response to the Competition Act in the forthcoming bill.

• In conclusion, I have to say that there is a growing concern that the way water charges have been structured (and the consequent public outcry) together with the treatment of debt and the wider competition environment has been a deliberate strategy to promote the case for privatisation. This view may well be the triumph of conspiracy over incompetence, but it is none the less a strongly held perspective.

I hope the above is helpful and UNISON will be happy to contribute the debate as it unfolds."

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MSP Briefing - Protecting Bathing Water Quality

Introduction
On Thursday 4 December the Parliament will debate an Executive motion on protecting bathing water quality. This briefing covers this issue and related matters that may be raised during the debate.

Bathing Water Quality
The quality of Scotland’s bathing water is important not only for the public health of residents who use local beaches, but also for the nation’s credibility as a tourist destination. It is self evident that swimming in sewage or animal waste is a less than attractive prospect for tourists. The health consequences can involve stomach complaints, infections or more serious conditions.

Whilst SEPA is responsible for monitoring our beaches the main causes of pollution are sewage and agricultural residues. In response to a number of EU Directives major efforts have been made to clean up Scotland’s beaches. The Executive can rightly claim credit for significant progress, with the 2003 results the best since monitoring began. Ayrshire has been a particular success given the previous negative publicity. However, we should not be complacent. Three beaches still failed the safety limits and five other popular beaches would have failed if they had been officially designated. The summer of 2003 was also relatively dry, which minimises the problems of land run-off and revisions to the EU Bathing Water Directive is likely to raise the standards.

Investment
Any debate on water issues at present is likely to inspire an outbreak of Scotland’s favourite political pastime - bashing Scottish Water. In this context it is important to emphasise that sewage is only part of the problem. Agricultural residues are in many ways a more difficult problem to address.

Sewage treatment is being addressed through a substantial investment programme. Not as substantial as is required to address all the bathing water quality issues as quickly as everyone would wish. That is because a programme of the size needed would have involved even higher water charges and it is doubtful that the industry, public or private, has the capacity to deliver a larger programme.

Water Charges
Bathing water quality is a good example of the need for investment in Scotland’s water and sewage infrastructure. However, this investment has to be paid for. Either through water charges or by diverting resources from other public services. Suggestions from the Water Industry Commissioner (WIC) that this could be reduced through further efficiency savings are a best misleading. His figures are based on inadequate data and erroneous comparisons with England. A country that has a very different environment and water structure, not to mention the benefits of years of additional expenditure. Even so they are now also facing substantial increases in water charges to meet the needs of their different investment cycle.

Conclusion
Good progress has been made on bathing water quality although there are no grounds for complacency. Like so much of the change required in the water industry, the structures and investment need much more time to have an impact.
 

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Evidence to Finance Committee

In July  Unison's Dave Watson presented a paper  as Evidence to the Scottish Parliament Finance Committee on behalf of  the STUC  outlining the views of all the union's in Scottish Water

The key points in our evidence was as follows:

• As anticipated the creation of Scottish Water has resulted in disruption to the industry. However, whatever the reservations at the time the structure now needs to be supported and given time to work.
• Scotland’s water and sewage infrastructure is in need of major investment to a level probably in excess of the current plans. However, the ‘central option’ is a reasonable compromise between infrastructure requirements, industry capacity and cost.
• The cost of upgrading the infrastructure is significant and can only be met by water charges or from the block grant. Given the Executive’s priorities it is unlikely that they would be prepared to divert funding from education, healthcare etc to the water industry. That is not however, justification for reducing grant support.
• Charges have risen faster than necessary due to the WIC’s charging structure. In particular, harmonisation, standing charges and the treatment of debt.
• The WIC’s comparisons with the industry in England are meaningless.
• The scale and pace of job losses has exceeded trade union estimates and is unsustainable if we are to maintain acceptable levels of safety and customer service.

The problems facing the industry are considerable but not impossible to resolve given time. The key requirement is a more realistic financial framework rooted in the realties of the water and sewage infrastructure in Scotland. Not economic theory or false comparisons with England.

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Evidence to the Environment and Rural Development Committee on the Water Services Etc. (Scotland) Bill.

Introduction

The STUC welcomes the opportunity to give evidence to the Scottish Parliament Environment and Rural Development Committee on the Water Services (Scotland) Bill. This response needs to be seen in the context of the STUC’s and our affiliates submissions to recent Scottish Executive consultations on the water industry and in particular the consultation on the Draft Water Services Bill.

This is the latest of a number of legislative developments affecting the water and sewage industry in Scotland including the establishment of a public water corporation, Scottish Water and a revised regulatory framework. This bill focuses on changes to the regulatory framework and the development of competition in networked water and sewage. Competition already exists in off-network services.

In this context it is important to recognise the scale and speed of change that has already taken place in the industry and the importance of a period of stability to bed in the current structure.

Part 1: Water Industry Commission for Scotland

The STUC welcomes the establishment of the Water Industry Commission for Scotland as a corporate body replacing the Water Industry Commissioner. Experience elsewhere has demonstrated that regulatory frameworks that rely on one person have not operated satisfactorily and we endorsed many of criticisms of the current arrangements in the recent Finance Committee report.

The model proposed in the bill has many similarities to the regulatory framework that exists in private utilities. These have been subject to some criticism not only from the utility industry and trade unions but also as reflected in the recent House of Lords report on regulation. Other ideas from the think tank Demos include the concept of adding ‘public value’.

In essence the problem has been that regulators promote competition to the detriment of other factors. There has been an over emphasis on price and efficiency with little consideration of the impact their decisions may have on employment and other social and environmental concerns. These economic models can also be in conflict with government policy as we have seen recently over the transmission loss proposals from Ofgem that would have ended the nascent renewables industry in Scotland. Schedule 1 does not set out the type of person that should be appointed to the WIC. Membership should reflect the wider public policy considerations and not simple economic factors.
Getting the right framework and objectives is all the more important in a public service. The objectives of the water industry are of wider concern that simply those connected to the current system as defined in section 1 of the bill.

The STUC welcomes the provisions in section 3 allowing regulations to define how the balance of costs between Scottish Water and developers will be calculated. We believe there is a strong case for developers meeting a much greater share of the cost of new water and sewerage services so that new development can proceed without detracting from the urgent need to renew the existing infrastructure.
Part 2: Provision of Water and Sewerage Services

The driver for this legislation is the UK Parliament’s Competition Act 1998 that seeks to prevent the restriction or distortion of competition and the abuse of a dominant market position. The STUC and our affiliates have previously highlighted the danger of this ill thought out legislation for essential public services. In essence the Water Services (S) Bill seeks to implement the provisions of the Competition Act whilst minimising the adverse impact on Scotland. It should however, remind the Scottish Parliament to be vigilant about other international competition initiatives that impact on public services. In particular, reforms of the EU internal market and GATS.

The policy basis for this section of the bill takes a more realistic view, than the original Water Services Bill consultation in 2001, on the alleged benefits of competition. Experience in other utilities has shown that the alleged benefits are more apparent than real and comes at a significant cost to the consumer. The STUC rejects the view that competition in essential utilities brings benefits to consumers. There is no evidence to support this often-quoted position.

The Competition Act 1998 introduced a new framework for competition bringing into domestic law (this is a reserved power to the UK parliament) provisions which enact European law on this issue. In particular it introduces new sanctions for anti-competitive behaviour. The Act applies to Scottish Water and is enforced by the Director General of Fair Trading (DGFT) as the WIC in Scotland does not have the same powers as the water industry regulator in England and Wales, OFWAT.

The Act includes provisions for exemptions and exclusions on a number of grounds. The STUC believes that the provisions of Schedule 3 (7) remain a sound basis for an exclusion under the Competition Act. Water and sewerage is an essential service in a civilised society and competition puts that service at risk, particularly for disadvantaged customers. The public policy grounds could relate to rural, economic and social exclusion strategies under this heading. In addition the Executives environmental objectives will be difficult to achieve in a competitive framework and this provides a further public policy basis for an exclusion.

Prohibiting common carriage on the public networks

The STUC agrees that the risks to public health and the environment outweigh any foreseeable benefits from allowing access to public water and wastewater systems. Our affiliates have previously highlighted some of the many technical difficulties in achieving common carriage including:

 Many existing mains have no spare capacity for additional water
 The Fraser Report (Burncrooks) recommended the zoning of water from different sources as a precaution against contamination.
 Arrangements for proving and compensating for mains pipes fractures caused by third party supply e.g. pressure surges.
 Responsibility for boosting disinfectant residuals.
 Backflow protection to stop accidental or fraudulent back-syphonage
 Allocation of the cost of leakage or lost water e.g. misuse of fire hydrants.
 Pipe size incompatibility when new sources are attached to the mains.

Scottish Water would have to be responsible for managing a comprehensive access code to ensure that there was adequate supply. This code would be enormously complex covering all possible situations including seasonal demands, bursts, drought provision etc. There would also have to be costly physical systems in place to isolate new entrants supply and provision for ‘last resort’ supply.

We understand that the provisions of s4(5) are intended to cover contractors working for Scottish Water. The wording could however be interpreted to allow a somewhat wider private sector access.

The consequences of common carriage even with costly systems intervention could include at worst contamination of water supplies or at best interruption and damage to the water and sewage infrastructure. The public health consequences are obvious and therefore the provisions in the bill prohibiting common carriage are sensible.

Prohibiting retail competition for households.

The STUC agrees that retail competition poses risks for households.

For household customers water charges, linked to Council tax bands, reflect broadly the ability to pay. The current arrangements include a discount for single adult households. The STUC notes that revisions to the current banding system will be considered as part of a wider review of local government finance. Competition would bring separate water charges and the loss of the essential progressive charge basis, which is in our view a requirement for an essential public service. There is no practical alternative to piped water and sewage disposal.

The arrangements in place in other competitive utilities for disadvantaged consumers are generally very limited. For example fuel poverty still impacts on one in six Scottish households despite the excellent measures taken by the Scottish Executive to address this issue.

The original consultation paper rightly identified the serious risk that new entrants to the market would ‘cherry-pick’ high-banded properties. This has also been the experience in other utilities where existing suppliers have been forced, because of competition, to chase ‘high value’ customers at the expense of other consumers. Not only would charges increase for most consumers but Scottish Water would be left with stranded assets brought about by off network provision.

The STUC therefore agrees that competition would develop in a way that would not benefit all customers and welcomes the provisions in the bill prohibiting this form of competition.

Licensing non-household retail competition

The STUC does not support the introduction of retail competition in non-households. The 160,000 premises covered by this competition are a significant part of Scottish Water’s operation. Business separation (s12) will be a further and unwelcome disruption to the corporation, which is attempting to address the long-standing problems facing the industry.

Some of the main problems include:

 Experience in the energy industry shows that business separation is an expensive business. The loss of integrated operations, economies of scale, rebranding etc all add to the costs charged to customers.

 The financial arrangements for business separation are crucial to the viability of the proposed retail arm and the wholesale organisation. The assumptions built into the Regulatory Impact Assessment give us considerable cause for concern. The efficiency gap calculations (para 14) are based on the 2002 estimates and the position has changed significantly (from a claimed 42% to less than 10%) since then. The size of the retail business is also crucial. Para 23 assumes the full retail segment is £109m (15%) compared with Ofwat’s estimate of 8% for England and Wales. This could lead to unnecessary burdens on the retail arm and a weakening of the core Scottish Water organisation. In essence both organisations would be set up to fail if this financial structure is put in place.

 A whole new industry is created with new customer service, billing, marketing and sales operations, all of which divert resources which could be more effectively deployed improving our water and sewage networks.

 Further systems will have to be established to allow switching between suppliers. This has caused chaos in the energy market and will inevitably do the same in water and sewage. The provisions in s10 are particularly vague and the costings in the financial memorandum are optimistic in the extreme.

 As Scottish Water will have a statutory obligation to supply everyone they will be left with disjointed operations. Many of the cherry-picking arguments set out above also apply to non-household competition. Most of the 160,000 properties are small businesses in high street locations. New entrants will inevitably focus on larger consumers or those in geographically concentrated areas such as out of town estates in urban areas. S15 will also place additional costs on Scottish Water that should be spread across all suppliers.

 The WIC will gain further powers to directly set wholesale charges. Current experience indicates that this may not be wholly beneficial to either customers or the industry. Unlike other utilities the water and wastewater systems are not organised into a cohesive network. The industry has not diverted essential investment resources into management information systems that are an integral part of a regulated market. This is reflected in the WIC’s reports on Scottish Water’s alleged performance. Despite the apparent detail the judgements are based on limited data. In the privatised utilities the companies establish extensive regulatory functions to engage with the regulator. Again all of this would be recharged to the customer.

 Whilst not set out in this bill (because it is a reserved function) it is intended that any differences over charges between the WIC and Scottish Water will be referred to the Competition Commission. This body has no experience in dealing with a public service and in particular interpreting the broader objectives that Scottish Ministers can set under s18. Their expertise is in the economic and competition sphere. The STUC takes the view that these are properly public policy interpretations that should be decided in Scotland and not handed over to an inappropriate London based organisation.


Conclusion
The STUC broadly welcomes the provisions of the bill as being a more realistic recognition of the realities of the industry that those set out in the original Water Service Bill consultation in 2001.

The major problem relates to the proposals for non-household retail competition. We suspect that this more modest proposal reflects a concern to be seen to provide an element of competition in accordance with the philosophy inherent in the Competition Act. However, the proposals still constitute a major upheaval for little value to the consumer. It is also a further stage along the road to the full privatisation of Scotland’s water.


STUC August 2004

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