Scottish Water is a statutory corporation. In essence this means that its duties are set out in statute. It does not have a licence nor is it a holding company similar to those created and privatised south of the border in 1989.
This created a quite awkward situation when we looked to establish a level playing field for the retail market in Scotland. It seemed to require a legal separation of the retail from the wholesale activities. How else could we give comfort to new entrants in what was a new and untested arrangement? Had ultimate responsibility been to a holding company, it may have been easier to work out governance arrangements that came up short of a full legal separation.
The Governance Code that we have in place is quite robust. It should reassure any entrant that Scottish Water will treat Business Stream as an arm's length trading party and that neither Business Stream nor Scottish Water can be privy to any information about the other that could, in any way, disadvantage either customers or any current or future retailer. Indeed we are likely shortly to clarify some elements of the Governance Code because it seems that both Scottish Water and Business Stream may have been so keen to demonstrate their arm's length relationship that they have found it difficult to discuss opportunities for innovation.
In considering the possible introduction of retail competition in England, it seems to me that the most important issue is to ensure that there is a level playing field. This could be achieved by governance arrangements short of a legal separation as exists in Scotland. But in such a case, the Governance Code would have to give confidence to both customers and retailers that a level playing field existed.
The decision on whether to separate does not need to be made by Government but Government does have to make it clear that it values the level playing field. It is this level playing field that underpins an effective market, which in turn should result in the keener prices, more tailored services and improved innovation that we all want to see.