I regard the proposed new Customer Forum as having a vital role in communicating customers’ views during the price setting process. As such, I am committed to making sure that it has all the information it needs to play its role effectively. This role is to ensure that customers get the very best value for money within the broad policy framework set by Scottish Ministers.

I hope the forum will work with Scottish Water to define a programme of research – both quantitative and qualitative – to establish customers’ priorities for service level improvements and their expectations in terms of the level of charges.

In my view, Scottish Water and the forum should work to establish the gap between the desired level of service and that which was being provided. This would set a broad route map for the improvements required.

It may also be useful to make additional resources available so that the forum can, if necessary, test some of the conclusions being drawn from the research programme. I think it is likely to be more effective to do such testing jointly with Scottish Water, if at all possible. But it will be for the forum’s Board to decide how best to proceed.

The timetable for the 2010-15 price review allows for joint working between the regulator and Scottish Water on important inputs to the process, and for joint customer research between the Customer Forum and Scottish Water. This research should feed directly into Scottish Water’s long-term strategic plan and its business plan for the regulatory control period.

I do not want to see the long and overly detailed business plans that have characterised previous price reviews. Nor do I want to repeat the long and rather turgid sort of conclusions that I reached in June 2005. I want to see a business plan that is understandable on two levels:
• baseline levels of service and statutory investment requirements,
• discretionary customer service improvements.

This would facilitate Scottish Water, WICS and the Customer Forum participating in tri-partite meetings covering the cost of delivering the baseline levels of service. There should be further meetings on the delivery of the statutory investment requirements, which would involve the DWQR and SEPA. These meetings would not seek to question the required outcome – a process which can be done by individual organisations making direct representations to Ministers – but could consider, for example, alternative solutions, the efficiency of investment proposals and, in certain circumstances, the timing of delivery.

The purpose of these meetings is to discuss and expose the position that WICS could be minded to adopt in its draft determination. We would prepare a series of discussion papers to encourage this engagement. There would obviously be an opportunity for all parties to respond to these papers in advance of publication. Perhaps a radical thought, but it could be a step forward if discussions between Scottish Water and the Customer Forum lead to them proposing a different, though mutually satisfactory, outcome.

Separating the retail activities of non-households in Scotland has increased the focus on the customer and certainly led to an increase in the tailored service packages being offered to customers. The proposed new Customer Forum will seek to communicate the views of all customers, both household and non-household, and of customers of both retail and wholesale operations.
The forum’s founding members are proposed to be WICS, Scottish Water and Consumer Focus Scotland. These three parties will establish the forum’s remit and the selection process and criteria for its Board. They will also appoint the Chairman.
The forum itself is proposed to be established as a separate entity, with a ring-fenced remit within Consumer Focus Scotland. Once the forum is established, WICS and Scottish Water will play no role in its day-to-day operation.
Membership of the Board is expected to include appointees nominated by Consumer Focus Scotland, licensed providers and a cross-sectoral business organisation. Board members will be appointed provided they meet the Board selection criteria as determined at the outset by the founding members.
The plan is that the Board would establish an engagement team of three people, including the Chair. Having had regard to the expected price and level of baseline services, this team will engage with Scottish Water to determine which discretionary customer service improvements will be delivered. The engagement team will be able to reach agreement with Scottish Water provided its members reach a unanimous decision, and provided the agreement is within the remit given to it by the Board. Otherwise, the engagement team should return to the Board for further guidance and approval. 
In the event that no agreement can be reached, Scottish Water and the Customer Forum would prepare a document that sets out the areas on which they had agreed and any remaining areas of difference. Scottish Water and the forum may choose, either jointly or separately, to set out why they have not been able to agree on a way forward. We would consider this evidence in reaching our initial conclusions in the draft determination.

I am encouraged by the reactions of Scottish Water, the Scottish Government and other stakeholders in Scotland to our I3 (or ‘I cubed’) initiative.
This seeks to involve customers more extensively in the entire price setting process but most particularly in developing the priorities for improvements in broadly defined customer service issues – everything from security of supply to resolving water pressure or malodour problems.
The initiative also seeks to correct some of the perverse features of the current regulatory framework that can limit the opportunity for a regulated company to pursue NPV positive initiatives whose payback is greater than five years, or to favour capital expenditure solutions when other approaches may be economically more efficient. I am also keen that Scottish Water is encouraged to be innovative.
This will require a quite different approach from us as economic regulator. It will be a case of ‘away with the black box’. We will work with Scottish Water to identify and agree some of the key inputs to the price review – such as the level of ongoing operating costs, capital maintenance and the appropriate financial strength of the company. We will also encourage Scottish Water to take a longer term view of its strategy and to engage with customers on their priorities.
After the initial business plan is published we will facilitate meetings between a new Customer Forum, the quality regulators and Scottish Water and will publish our views on Scottish Water’s business plan for discussion. Hopefully this will ensure that our draft determination reflects our considered views. There should be no surprises. As such, we would hope that the final determination is much more similar to the draft than has, perhaps, historically been the case. The goal of reduced regulatory risk and greater upside for good management may be within our grasp!