Utility Week (24 June) reports some comments that I made to the Water UK Innovation Seminar and attempts to contrast these with those of Richard Flint of Yorkshire Water. This is a rather mischievous misrepresentation. Indeed, I do favour removing the bias that exists in favour of capital expenditure but this does not mean that I am biased against capital expenditure.

One of the points that I made in my talk (available here) is that capital expenditure was unlikely always to break down neatly into five year periods and, as such, we should be ready to consider committing funding for the duration of the project. I also noted that I would be pleased to see proposals for capital expenditure or other initiatives that had a positive net present value but paid back in longer than a standard regulatory control period.

Our approach for the next price review will be to consider the total expenditure of Scottish Water. Yes, we want to see Scottish Water become more innovative and to plan for the long term - but in our view the best way to do that is to allow Scottish Water the flexibility to choose the best solution available. It should not feel a bias in favour of capital expenditure or that experimentation in approach may lead to automatic criticism.

A clear and stable regulatory framework should help - particularly if we can remove the regulatory barriers to doing the best things for customers and for the environment.

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.