Net Zero, Energy and Transport Committee [Draft]

Meeting date: Tuesday, October 31, 2023

Official Report 719KB pdf

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Scottish Water Annual Report and Accounts 2022-23

Our next item of business is an evidence session with Scottish Water and Business Stream, which is a subsidiary of Scottish Water. This is a chance for the committee to check in with Scottish Water on its important role. We will consider its most recent annual report and look ahead to its main priorities and challenges.

Before I go any further, I welcome Sarah Boyack, who is attending the meeting and who will get to ask questions at the end, once committee members have had a chance to ask a few questions.

As a matter of information, I remind people that I, along with every other person in Scotland—or the majority of people in Scotland, although not everyone—am a client of Scottish Water in the sense that I get water, but I am also a client of Business Stream, in that I get water from it for my farm. I say that just so that there is no dubiety about that.

I am pleased to welcome Dame Susan Rice, the chair of Scottish Water; Alex Plant, the chief executive of Scottish Water; Peter Farrer, the chief operating officer of Scottish Water; and Johanna Dow, the chief executive of Business Stream. Thank you for joining us.

Before we move to questions, I believe, Dame Susan, that you wish to make an opening statement. That is very formal—do you mind if I call you Susan?

I was going to ask you to do that, please.

I think that you want to make a brief opening statement.

I do.

I thank you, convener, and the committee for inviting us to give evidence. I will say a few words at a high level, just to set the scene.

Looking at the highlights from our latest annual report, which went to March 2023, I am pleased to say that Scottish Water performed well across its key indicators, including water quality, environmental performance and customer service. We also made good progress on our net zero route map. We delivered £886 million of capital investment last year. That is our highest level ever, and I think that we all feel very positive about that. That was possible only with the hard work of all the teams across the organisation and our supply chain partners, who are integral to our success.

Business Stream, our retail business, delivered strong results in a competitive market and through what continue to be challenging economic times for many business customers. In Business Stream, we focused on supporting customers and promoting water efficiency measures, which is good for the environment and for customer costs. I was delighted that Business Stream was awarded a gold rating from the global sustainability assessor EcoVadis to recognise its achievements on the journey to net zero—it is very unusual to receive gold the first time you enter.

Looking to the future, our key challenges are undoubtedly how we adapt to climate change and maintain and replace our ageing physical assets. Those challenges are real and growing. They are complex and they are costly. During the winter, we dealt with massive swings in temperatures that caused significant water main damage and bursts across the country. In the early summer, we had an exceptionally long hot and dry spell, and we had to manage drought situations. Very recently, extensive flooding affected many customers across Scotland.

We are also seeing increased customer and societal expectations in the areas of improved environmental standards and net zero, and a greater demand for uninterrupted services, regardless of climate change pressures. To meet those challenges, we know that we need to transform and develop new ways of doing things. Some of that will involve capital investment to build resilience, and some of it will involve developing nature-based solutions, particularly around managing surface water, in partnership with others.

Water is a precious resource that needs to be carefully looked after by everyone. As a board, we focus on risks and how to manage them, and we continually try to understand and oversee mitigation of the escalating long-term risks that we face across our daily activities.

There are no easy solutions to the challenges, and we cannot avoid the difficult conversations about how they will need to be paid for. I know that, if we try to kick the can down the road, future generations will end up facing the consequences in poorer service levels and big hikes in bills. That simply would not be fair, and it is not our way. Our commitment is to constantly consider what can and should be done to help Scotland to flourish now and in the future.

We look forward to your questions.

Thank you very much.

My first question, which is a very easy one, is for Alex Plant. What do you see as the key challenges that Scottish Water faces, and what are your priorities now that you are in the role?

It is a great honour to be with the committee this morning.

Some of this touches on the opening comments that Susan Rice has just made. The single biggest challenge that Scottish Water and, indeed, water companies across the globe face is the impacts of our changing climate. The kinds of approaches that we used to be able to deploy will increasingly not be fit for purpose for the more aggressive climate that we are seeing—the more frequent severe weather events—and the impact on assets that we operate, lots of which are old. That issue is not unique to Scottish Water, but we see it in our assessments of the forward pressures on those assets and the state of those assets. How we ensure that we are investing appropriately to maintain and replace those assets in ways that can cope with those different weather conditions is probably the single biggest issue, and that is where I have been putting a lot of my focus in the opening few months of my time in the role.

Okay. Thank you.

I have looked at your previous year’s annual report and accounts. You will not be surprised that pages 116 to 118 caught my eye. That gives you a chance, but you will be able to answer this question off the top of your head. Your predecessor was paid a quarter of a million pounds. Are you on the same rate that he was on?

Issues relating to my remuneration are ones that Susan Rice is probably best placed to cover, given that the discussions about that took place before—

I will certainly ask her to cover the next bit. I think that I am asking you a straightforward question. Is the salary the same?

The salary that I was appointed on was higher than my predecessor’s.

Can you tell me how much that was, please?

I am afraid that I cannot remember the exact numbers. I cannot remember how much higher it was than Douglas Millican’s.

His basic salary was £245,000.

Yes. My basic salary is higher than that, and it is a matter of public record that that is—

You must know what it is.

I am trying to remember the exact number. It is £295,000.

How much?

£295,000.

Susan, there is a wonderful phrase in the annual report and accounts, which for simple people such as me seems to be gobbledygook. It is “annual out-performance incentive plan”. For most people, that is a bonus. What bonus do you expect Alex to be on if Douglas was paid £80,000 in bonus last year?

I do not have those numbers. I do not know whether you have the formula for the bonus, but it has not really changed.

I can add to that. The bonus arrangements are the same as they were in Douglas Millican’s time. They relate to the performance of the company. The bonus is up to a maximum amount, depending on the performance of the organisation during the year. That bonus payment position applies to me and to the executive directors.

What is the maximum amount that you can get?

From memory, 40 per cent is the maximum.

Of your salary?

Yes.

Wow. That could be a lot of money. It costs over £1 million to employ the three executive members and the non-executive directors. In the big scheme of things, that is quite a lot of money. My maths is not that good but, if your bonus is 40 per cent of your salary, it could take you up to £430,000.

If the full bonus were paid, that is the level that would accrue from that percentage.

The pension benefits are on top of that. Those could be another bit, so it could be up to £450,000.

Yes. All those figures are matters of public record.

Yes, I know. I am just laying that out because we see questions about investment in the industry and about the salaries of people who work for you. You might be getting £450,000 and Peter Farrer might be getting a little bit less at roughly £350,000. That is a huge amount of money, and I am just laying that out so that the public are aware of it.

Yes.

The executive salaries are matters for the board remuneration committee, so I will reply with my board hat on.

You are looking at the numbers through one lens, convener, which is the lens of numbers. Let me give a bit of context because it is helpful for people to understand. Our chief executive’s salary is less than that of any comparable water company chief executive in the UK, so Alex Plant did not benefit by making the move and jumping in. You need to understand that. That gives you a context for the pool that we chose from. We ran a very wide search and looked at a lot of individuals.

The pay reflects the essential nature of water and waste water services to the daily lives of everybody in Scotland, as well as the relationship to public health and some relationship to economic prosperity. The role is a key one with a lot of responsibility. Scottish Water is the fourth-biggest water and waste water utility in the UK, and we have to attract suitable leadership. We cannot simply say, “Here’s someone who’s volunteering. Let’s put them in the role.” You cannot run an organisation as important as Scottish Water without having someone who has the personal leadership qualities and the knowledge and experience to bring to bear.

The reward packages for all the executive roles in Scottish Water are substantially below reasonable market expectations. They have been benchmarked. We do that regularly, and we are conscious that we are not playing at the same market levels that the other companies are. It is important to know that our concern was to find a high-calibre new chief executive in Alex Plant, who was willing to come to us and the package that we offered.

I take all those points on board. My only comment is that there is no other water company in the UK that is owned directly and underwritten by the Scottish Government and the people of Scotland. They are the owners, whereas other companies have different ownership structures.

I am interested to know whether Scottish Water sets a maximum ratio between the highest-paid and the lowest-paid workers and what that is.

We consider that issue. In the annual report and accounts, there is a comparison between the highest-paid person, which is me in the case of Scottish Water, and others. I would have to check the exact numbers, but the aim is to keep that in check so that it does not get beyond the ratios that you are talking about. We consider that partly for the reason that the convener mentioned. We recognise that, as a publicly owned entity, different approaches need to apply in our circumstances than would be true for a private company.

Okay. I would like to move on, convener.

Before we move on, I simply say that it will be up to the Scottish Government to answer that. As far as I am aware, its expectation for the public sector pay strategy is

“to deliver a 10 per cent reduction in the remuneration packages for all new Chief Executive appointments.”

I do not want to dwell too much on that—I want to bring in Mark Ruskell to ask some questions. However, if you really feel that it is important, Susan, I will let you in.

09:45  

I really do, because there is an implication that we operated outside Government policy, and I want to affirm publicly that we operated within Government policy. I have a quote from a Scottish Government spokesperson, which sets out what the policy has been since 2010. It says that the 10 per cent reduction applies unless certain circumstances prevail.

We were in the situation of having circumstances prevail, and we were within the Scottish Government policy in that regard. It is really important to state that, so that there is no misunderstanding.

I will just say, “Funny, that.”

Mark Ruskell has the next question.

I come back to the comments about extreme weather and the impact on Scottish Water’s infrastructure. I am interested to know exactly what the impact has been. Given what we have seen in recent months, with intensifying extreme weather, have you identified any changing patterns?

Has storm Babet thrown up any thinking around whether particular regions of Scotland are more vulnerable than others and need to be prioritised for investment? What are we learning as a result of the extreme weather events that we are seeing? How is that affecting your investment strategy, and how is it putting pressure on the assets that you have?

I will ask Peter Farrer to pick up on that. The one comment that I will make is that, in addition to the very recent impacts from extreme flood events that have caused extreme distress to residents in parts of north-east of Scotland in particular, we also had very severe dry-weather conditions earlier in the summer, which led to drought in parts of the country.

Before I ask Peter to come in on the specifics, it is important to note that both “too much” and “too little” are becoming more frequent, which is driving our underpinning approaches and strategies.

Notwithstanding the fact that, as Alex Plant said, weather events are changing significantly, we have many thousands of assets that require investment so that we can maintain them at the standards that we expect. We have in place an emergency planning process that is robust and very well tested, and allows us to manage events as well as possible. We have a full operational team that manages such events, and we learn from every single one.

We have just been through storm Babet, as Mark Ruskell mentioned. We do a lot proactively, including putting emergency generation out to our big assets to ensure that power outages do not impact on them. I am pleased to say that, through the robust planning that we do once we have been notified in advance of a storm, we had neither significant water quality issues nor major water supply disruptions throughout storm Babet.

Our biggest impact was a flooded waste water treatment works at Brechin, which was completely submerged. However, I am pleased to say that we immediately cleaned up all the mess and that, within six days, the treatment works was back up and running and delivering full environmental compliance.

One of the best previous examples involved storms Arwen, Malik and Corrie in 2021. We learned a lot from that experience, which was the most widespread power outage that I have experienced in 39 years in the industry: 1.5 million Scottish Water customers who were supplied by our assets lost power, but we managed to maintain supply all the way through the event because we had a emergency generation strategy and went out and turned the generators on beforehand, as we did with storm Babet. Throughout the event, that protected 1.5 million customers, who experienced no impact from it.

A small number of customers experienced outages for a couple of days; those were down to power losses at small water-pumping stations out in the network. We have learned from that and changed our emergency generation strategy. We have procured more generators, and we have gone round all the small pumping stations that do not have fixed generators on them and adapted them with electrical connections, so that we can easily plug in an emergency generator. That was one of the main things that we did.

We had an issue with not being able to communicate with our people, because the phone lines went down after a very short period. We have therefore purchased a number of satellite phones to allow us to deal with such situations.

We have started medium and long-term investment planning for generation across our whole asset stock. We could be talking about £200 million-worth to £300 million-worth of investment. That is going through the process.

One of the key things—

I am sorry to interrupt. It is good to get the detail on that, but I am thinking about what Alex Plant said about the other extreme, which is drought situations. It is clear that you are describing resilience and how plant is operating. What about drought and the bigger challenges around reservoir water levels and everything else?

One of the best examples was 2021, which was the worst year that I have experienced for different weather events throughout the year. We had a freeze period at the start of the year, a very hot early summer, storms later in the summer and then storm Arwen and wind issues in the winter. We experienced extreme drought in the late autumn and reservoir levels dropped to levels that we had never seen before.

There is a reservoir in Lanarkshire called Daer reservoir, and its level dropped to the lowest that we have recorded in 160 years. There was still water available, but it started to pull manganese out of the silts at the bottom of the reservoir. The treatment works were not able to deal with that, because we have never experienced manganese at that works before. On the back of that, we are having to consider big investment at Daer in order that we can deal with manganese and such events in the future. That is an example of what we have to deal with.

It is good to get a flavour of those challenges. Is your blue-green infrastructure for managing surface water or pluvial and fluvial flooding events? Will your blue-green infrastructure be able to manage events such as storm Babet? Will you need to change your thinking on that?

On blue-green infrastructure and how we best adapt to the future climate, we recognise that we will need to have a lot more nature-based solutions in place, so that we work with the grain of what is happening.

To be fair, there will probably be some grey as well as blue-green solutions, because we will still need engineering solutions to address what we have to deal with, alongside better approaches on blue-green infrastructure. Getting that kind of approach right allows alleviation of a problem at source.

In relation to the extreme rain events that we have just had, the environment that now receives such extreme rain is different to that of 150 years ago, because so many more surfaces are hard paved, so there is very quick run-off into storm drains and overloading of sewage systems, which leads to the kind of situation that happened in Brechin.

When you get blue-green infrastructure right, you create more means by which surface water can be managed in the environment before it hits the sewage and storm-water systems, and you can store water more effectively on the land when you do those kinds of things. There are examples of that very close to here in work that we do in partnership with the City of Edinburgh Council and the Scottish Government at Craigleith, where we are looking at how to remodel the area so that in extreme events we can hold more water in the landscape.

We are very aware of that approach; the question is whether what you have planned will be enough in the future. If you think that there will be even more extreme weather events, do you need to scale that up? Will that be adequate?

We will need to scale up, is the short answer.

My last question is on the legislative framework. Is there a need for any change in the legislation to enable you to adapt to the impacts of climate change?

The policy proposals that have been discussed with the Scottish Government and consulted on are partly about recognising the different future climate. There are helpful things in the proposed changes that would ease the situation. In the past, the mindset has been that we, as Scottish Water, will deal with such issues and try to find a way in which our engineering assets can cope with the issues. The reality is that the scale of the climate challenges that we are facing means that we need lots of bodies to work together effectively to try to mitigate the impacts and adapt. Some of what is in the legislation is very much about looking at surface water differently and the different contributions that are made. To go back to the point about drought, it is also about all sectors looking at water resources collectively, so that we understand the likely future demands for water resources and where we have supply to meet that demand.

The changes that are foreseen in the policy proposals will give us more tools as a nation, if you like, rather than just as Scottish Water, to address the issues that we are seeing more frequently.

Thank you.

Thank you, and good morning to the panel. This question is for Alex Plant. I would be interested to hear more about your experience of the water industry in England and to understand what lessons can be learned by drawing on your experience. We have heard that you worked for Anglian Water, which is probably one of the worst polluters in England, on record. I have in front of me examples of the Environment Agency calling for water company bosses to be jailed for serious offences against the environment. Incidents of “ecocide” have been described. Drawing on that experience in that context, what hope can you give us for the situation in Scotland?

That is quite a wide question. One of the key lessons that I learned from my time working in England is that some of the issues that we have seen and some of those that you have described almost go back to the point about how we need to make sure that we keep ahead of the investment curve so that we can maintain environmental and drinking water quality standards in the face of more complex climate challenges and, indeed, increased customer expectations, which I welcome. It is good that people expect higher quality in the environment.

For whatever reason, England has seen insufficient investment for quite a number of years, and the consequences of that have come through in the quality of service. If you look at the plans that the English water companies are now putting forward to their economic regulator, you will see that a very large increase in bills is proposed. On average, the increase will be around 29 per cent in real terms, to try to catch up with some of that lost time in investment to deal with the issues.

The first lesson is, therefore, that we should not let ourselves get to that position. Scotland has the opportunity to not put itself there, but we need to make sure that we keep investment steady so that we do not end up needing cliff-edge increases in bills, which is what we are seeing in England, and so that we do not see the diminution of water quality standards that has meant that customers in England have somewhat lost faith in their system of water provision, which is very sad. We need to make sure that we focus as hard as we can on delivering the service quality that Peter Farrer was talking about, and that the investment programme keeps pace with the changing demands of the climate.

Thank you for that response. The situation in England is, or has been, pretty bleak, but I am sure that we do not want to gloss over some of the media coverage that we had in Scotland at the weekend. Some really hard-hitting statements were made and Scottish Water has contested some of the analysis, but let us just look at people’s perception and what they are saying.

10:00  

Surfers Against Sewage has accused Scottish Water of “appalling behaviour”. Campaigners and politicians—I will not name them all here—fear that the lack of spill monitoring could mean that dry spilling is a bigger issue than the data indicates. Scottish Water is accused of illegally discharging hundreds of times during dry weather, and soiling beauty spots, much-loved beaches and so on with human waste. We have seen the media coverage and heard the reaction from politicians, communities and key campaigners. As chief executive officer, what is your assessment of that?

First, as you said, we dispute the methodology that sits behind some of the reports that you just described. Indeed, from our initial look at some of the material, we have seen that in more than 80 per cent of the instances that are claimed storm tanks are discharged from. Storm tanks operate only in extreme weather: they are for storm events. Something is therefore not correct in what is being put forward by some of those—

We can come back to the methodology, which is in dispute, but, for clarity, do you dispute the impact on communities and the environment? Are people exaggerating the impact?

We are never sanguine about negative environmental impacts from what we do as a waste water provider. Whenever there is an issue, we seek to improve the position. I am absolutely not saying that it is all right for such things to happen, when they happen. However, as I said, I dispute the findings that were set out in the media at the weekend. They are not correct.

We, in Scotland, start from a much better position than the rest of the UK. We have among the best environmental water quality in Europe: 87 per cent of our water bodies are at good, or better, ecological status. We want to go further, so part of our £500 million investment in improving urban waterways will take us higher—to around 92 per cent.

To my mind, the issue that should be of most concern to us, as a society, is the quality of the water in the environment. Our waste water operations have an impact on the quality of water in the environment, so we should be looking at that. We are doing so, and we should not rest on our laurels. We should carry on improving it.

However, other elements contribute to the assessment of water quality. We should be looking at the issue in the round and trying to understand, catchment by catchment, what could be done to further improve our good position when it comes to river water quality. That requires thinking about catchments as organic ecosystems, which is what we are doing.

Some of the complaints that we hear are about examples of human waste being overflowed into rivers and on to beaches, even when the system is not under abnormal stress. We have heard about some of the good performance and benchmarking compared with other parts of Britain, but for people in Scotland right now, is there an acceptable level of human waste that could be overflowed in that way? What is an acceptable level to Scottish Water?

I ask Peter Farrer to pick that up.

I will take a couple of minutes to explain a couple of things. Everybody will have seen headlines saying things such as “Water Company Pumps Raw Sewage Into Watercourse, Causing Pollution”. Those have been standard headlines. There are a few things to clarify.

First, we never, ever pump overflows into watercourses. That sounds like a wilful act. We do not pump. Storm overflows are a necessary part of a combined sewerage system. They act like a relief valve so that, when it rains, the rainwater exits the system. That works in exactly the same way as an overflow from a water tank in the attic works to prevent your house from flooding. Storm overflows do exactly the same thing: they overflow rainwater to prevent people’s houses from flooding. That is the first point.

Secondly, the overflows are not raw sewage; they are 91 per cent rainwater.

Thirdly—to follow on from the points that Alex Plant made—the majority of the overflows do not cause pollution. The proof of that is that 87 per cent of Scotland’s rivers and water bodies have got good, or better, status.

That was helpful. Before I forget the number, you mentioned that overflows are 91 per cent rainwater, but I am not sure what the total volume is. Can you tell us the volume of human waste that is overflowed?

We cannot, because only a small number of our overflows are monitored. That is why—as Alex Plant said—as part of the urban waters route map we are spending £500 million on that, and why we have committed to putting 1,000 monitors into our assets by December 2024.

Let me be clear. The monitors tell us only how much overflow is going into the river, and it is 91 per cent rainwater. The fact that we have such good water quality in Scotland is an indication that those overflows generally do not cause pollution; it is dry spills that can cause pollution. We contested the report that came out at the weekend because we do not agree with the information in it.

Do you accept that we do not really know the full extent of the problem because of the lack of overflow monitors? That is why people have been calling for more electronic monitoring. You gave a figure, but perhaps you could update the committee on what progress has been made on the commitment to install 1,000 new overflow monitors.

We have taken quite a while—about a year—to prioritise areas and locations, because we have to ensure that we put the monitors in the areas that are most important. We have taken time to do that. We have installed 60 monitors so far, but we have a firm plan to have 1,000 in place by December 2024, and we are confident that we will do that.

You mentioned misleading media reporting and headlines. Is Scottish Water planning to take any legal action in that regard?

We are not planning to take legal action, at this stage. We would always prefer to resolve such things by pointing out what we think are errors in the calculations, and by working with the bodies involved. In the end, we agree with the things that groups such as Surfers Against Sewage want. We want to have the best possible water quality environment in Scotland, so we would start by pointing out errors and by trying to work with organisations, so that we can have a better public debate on the issue.

We want to ensure that we are focusing investment in areas where it will be most helpful. We are talking about the monitors; we did a huge programme with SEPA to target the areas that are of greatest concern and we have done a lot of hydraulic modelling to understand where there could be environmental harm so that we can target the available money to the right places. We want to continue to do that.

On what you said about targeting the most important areas for monitoring, I presume that those are designated bathing areas. I accept that, and acknowledge that there is investment going into that, but many people now use bodies of fresh water—rivers and lochs—for wild swimming, so they need information about whether those bathing places are safe to go into.

I have constituents who went for a wild swim in the River Tay, and everybody in that party—I think there were around 10 people—became ill a couple of days afterwards. It is very hard for them to pinpoint exactly what the cause was, but it was probably related to bacterial infection that they believe came from a combined sewer overflow incident in Stanley, in Perthshire. Their call to me and others has been for us to give them the information about that.

We realise that investment in the assets is needed to ensure that we do not get pollution but, at the very least, people need to know whether there has been an incident and whether they are putting their lives at risk by going into the water. That means that the issue is bigger than just our bathing waters, because there are lots of lochs and rivers where people go for a dip.

That is right. When we roll out the monitors, we also think carefully about how we can ensure that we give information that is meaningful and helpful to the public to address the issues that you talked about.

Is 1,000 monitors enough?

Let us see. We are at the early stages of rolling out—we have deployed about 60 monitors so far. We are confident that we will get the 1,000 installed ahead of the time that we targeted, which is the end of next year, I think.

It is worth saying that, for designated bathing waters in Scotland, 98 per cent pass the environmental standards. We have a system that we can build on to get to an even better position for people who want to wild swim. It will not be appropriate to wild swim everywhere, but the designated bathing water status approach is a mechanism by which we can ensure that we give the best possible information to the public. That is what we will be doing.

Do you want to come in on that, Peter?

I clarify that the event monitors that we are putting in will simply indicate how much water has gone into the water course; they will not tell us what the quality of that water is. SEPA determines the quality of water bodies—it provides the 87 per cent quality figure that we talk about. The quality of the receiving water bodies is very good in Scotland but, to determine every single water body’s quality and get that out to the public would be a massive exercise.

That would require joined-up working between you and SEPA.

Absolutely. We already do that with bathing water—SEPA reports the bathing water results. If we have a significant issue with an asset during storms, for example, we work with SEPA, and it will put a notification out to the public on bathing waters to tell them that it is potentially unsafe to swim.

There are only 90 designated bathing waters in Scotland, and there are a lot of other places that people go to wild swim these days.

That is helpful.

Peter, I am slightly confused by the figures that you used. You gave percentages but then said that there are no accurate figures, so I am not sure how you come up with figures of 91 per cent and 9 per cent.

When there are storms, there will be problems, but there is more water and therefore the pollution is more diffuse and can move out quickly. I am not saying that that is acceptable, and I am sure that you are not saying that it is acceptable. As I see it, however, the critical issue is when water is very low and therefore a smaller amount of pollution becomes more extreme.

When there is low water, such as we had in June this year, especially around the Highlands, at my home and in places such as Loch Ewe, small pollution incidents could be much more problematic. Are you happy that Scottish Water is on top of that?

I will ask Peter Farrer to pick up on that particular question, but your general point is really good. The sort of events that you describe are much more environmentally harmful than when a combined sewer overflow is operating as it should do. In that situation, the combined sewer overflow provides a release valve and primarily rain water and storm water are discharged. The more intense environmental impacts are from exactly the kind of situation that you describe. They are often caused by blockages to sewers and so on. I will let Peter Farrer pick up on that point, but it is an important distinction with regard to where the environmental harm sits. That is where we should be deploying our efforts and investment.

You are absolutely right, convener. The biggest risk of pollution is when there is no rainfall and water levels are running low. As part of our transformation plan, we are implementing a project called intelligent waste water networks, which involves putting in another 1,200 monitors. Those are not event monitors that tell us how much goes into a river; they are monitors throughout the network that tell us when levels are starting to build up in the sewers. When we have blockages—we have 36,000 blockages a year, the majority of which are caused by wet wipes—the sewers rise and we get overflows, which can have a significant impact in dry weather.

Through our transformation programme, we are putting in smart networks, which will allow my operational team in our control centre to see events that are building up, so that we can get out there and clear blockages before they actually cause pollution.

Will those 1,200 monitors also be in place by the end of 2024?

Yes, they will be in place in 2024.

Gosh. A huge number of monitors will be installed by the end of next year.

Alex Plant, do you want to come in?

10:15  

I have a quick point that relates to the issue that Peter Farrer was just talking about. As he said, a lot of blockages are caused by wet wipes. The intelligent monitoring of our network means that we can get in ahead of the problem but progress on banning wet wipes that contain plastic would be massively helpful in reducing the effects of extreme weather events. We have been working with the Scottish and UK Governments to try to move that forward. I know that that has been an area of focus for the committee, but anything that the committee can do to keep pushing for that to happen as soon as possible would be very welcome.

The committee recognises that Scottish Water has taken the lead on tackling the problem of wet wipes and that it is pushing hard on the issue. However, the problem is also all the other things that people put down the drain, which I will not mention but can include cooking waste and toilet waste. I suggest that we also need to get on top of those other things, but that is a point well made.

I would like some clarification. When you talk about wet wipes, do you mean all wipes, including flushable wipes? It is quite important to get that message out, because some folk get confused.

The wet wipes that contain plastics cause the blockages. Those are the wipes that we are seeking to get banned.

You are not referring to flushable wipes. I know that you would prefer that no wipes are flushed at all.

“Flushable” is a very unhelpful label—

That is why I am asking you the question.

Peter Farrer might want to talk about that, but I understand why the question is being asked.

Some manufacturers decided to say that wipes are flushable because they biodegrade over a period of time, but that takes years and blockages happen within a matter of weeks of the wipes going down into the sewer. Therefore, being flushable, particularly if they contain plastic, is of no benefit from our perspective, because those wipes will still cause blockages.

It is helpful to get that message out, because some folk are trying to do their bit, but they do not realise that they are not helping.

Yes, exactly, which is why the label of “flushable” is unhelpful, as Peter Farrer described.

Thank you. If I may move on—

Yes, absolutely, move on. [Laughter.]

I will move on from sewage and pollution to questions about your net zero projects. In your annual report, you mention the challenges that you are facing in negotiating access to land for peatland restoration work. Can you expand on what barriers you are facing to gain that access and say what is being done to improve relationships with tenant farmers and landowners to deliver your net zero projects?

You are right that the issue that we have had in achieving the level of peatland restoration across the hectarage that we wanted has been down to the ability to negotiate access with tenant farmers. As a result of that, we reviewed how we were engaging with tenant farmers and third party landowners to try to understand their views and priorities earlier. That can help us to get to a better position to deliver some of the peatland opportunities that we think exist. Therefore, we realised that earlier engagement could get us to a win-win outcome, so that everybody’s interests are met and we can deliver some of those opportunities. We did that review over the course of this year.

How successful have you been? Are you beginning to see any benefits from that?

It is early to say whether we have got there. The learning from the land in question will be applicable when we look at that issue across the piece. I am confident that those ways of working will yield better outcomes but, at the moment, I cannot say, “And, with one bound, we have delivered all the things we wanted on peatland”, because it is an on-going issue.

We also had deliveries on woodland planting, which was the same sort of question. Some of our schemes have been slower than we wanted. However, again, we have taken the learning and tried to work with all the relevant parties. Although those woodland schemes have been slightly delayed, I am confident that they will be delivered during 2023-24. We wanted to do them during 2022-23.

There is an awful lot of willingness to understand what we are trying to do, but in some of the earlier schemes, we just did not get those conversations going early enough in the process to allow the plans to come to fruition sooner.

How are the economic global pressures that everybody is facing, such as inflation, supply chain issues and operating costs, affecting your ability to deliver on your net zero projects? Are they having a huge impact?

Yes, they are. As you rightly say, all those factors are affecting people, households and businesses across the economy and we are seeing the same pressures from cost inflation.

We have been seeking to keep making progress on our net zero plans, even with less funding than was expected at the beginning of the regulatory period that we are in, and the update that we released earlier this year demonstrates that we are on track to meet our net zero commitments. However, that is not easy and it is challenging to deliver the operational investment that we must deliver while trying to meet our net zero commitments. At the moment, we are on track.

I was going to ask if you are on track, but you have already answered that.

You mentioned tenant farmers and woodland. I have not taken part in any questions but I am a tenant farmer and I have woodlands. I say that so that there is no dubiety in the committee about my having correctly declared my interests, which are, of course, recorded in the parliamentary register.

Jim Fairlie wants to come in.

Alex Plant, you raised the issue of tenant farmers and permission. Can you be a bit more specific about exactly what the issues were? Had the landowners agreed to do something without consulting the tenant farmers? What was the issue with permissions?

[Inaudible.]

I cannot hear you.

I am sorry.

Do not touch the button. That will be done for you. That could cause confusion.

Can you hear me now Jim?

I can hear you.

My apologies.

I was not directly involved in the issue that we were dealing with, which was about peatland. It is my understanding that the issue was one of negotiating access with a tenant farmer and that things were not as clear as they could have been at tenant farmer level. I am hesitant to go further as I do not know the intimate details of the particular case.

I presume that someone had agreed to allow you access to land to do some sort of peatland restoration without taking into account the person who was actually working the land.

That might have been the case. As I said, I do not have enough detail about the individual case to be able to give you a confident answer. I would be very happy to write to you after the meeting so that I can go back and get a bit more detail that will help me to understand the case and answer your question.

That would be appreciated; thank you.

Alex Plant, if you can write to the committee with your answer to that question so that we are all aware of it, we will ensure that Jim Fairlie gets a copy.

I have some questions about the Circular Economy (Scotland) Bill, but I will leave them until last because other members have lots of questions and I have asked quite a few.

Douglas Lumsden has some questions.

I am looking at the issue of charges to customers. Last year, there could have been an 11 per cent increase, but the increase was only 5 per cent—well, I say “only”. You spoke earlier about increases being lower in other parts of the country and I think that you talked about lost time and suggested that there might be a bigger increase later.

If last year’s increase was smaller than you were hoping, does that store up problems that might have to be addressed? Might bills have to increase sooner than they would have otherwise?

That question is central to how we keep on top of the issues that we are talking about. Although it was before my time, it is my understanding that the board’s decision recognised the particularly acute circumstances that households were facing, first because of Covid and then because of the cost of living crisis. So, rather than raising bills by the level that was expected in the 2021 strategic review of charges, the board decided to hold that back.

That has significant consequences. It means that we have about £500 million less than we expected to have in the investment pot to deliver, across a six-year period, all the necessary things that we have been talking about today. We recognise that shortfall and the need to manage it as best we can, but, as a result of that choice, we will not be able to deliver all the things that we thought we would deliver when we were at the start of the strategic review period in 2021.

I am not saying that that was the wrong choice. I completely understand the challenge of recognising the particularly difficult circumstances for households while also trying to ensure that we are delivering investment. However, there is a point about the problem becoming bigger each time, if you keep deferring investment. You are always trying to balance the needs of the current generation against the needs of the future generation and trying to plot a course that reaches the best possible balance.

With inflation still high, do you anticipate large increases this year? Obviously, water bills go out at the same time as council tax bills, which are going to be frozen. Do you anticipate that the water charges will be frozen or is that just unrealistic?

We are at the beginning of a process where we work through what the right answer is on annual charges, which is ultimately a decision for the board to take. However, our starting point is to say that, having made the choices that we made in previous years, we recognise that continuing not to recover the investment trajectory that we think we need will have significant impacts on service quality for customers and communities across Scotland. I do not want to foreshadow the discussions that will take place before we come to a conclusion on charges by the end of the year, but my starting point would certainly be to be wary of further deferring the necessary investment.

Just for clarity, you might have a figure in mind, but does that need agreement from Scottish Government? How does that work?

No, it is a decision of the board. We have a formal process whereby that is then worked through with our economic regulator, the Water Industry Commission for Scotland, but it is a board decision. Does Susan Rice wish to add anything on that?

You have basically said it, but for the regulatory review period, which is currently seven years, the overall amount, to put it in simple terms, that can be charged is set out by the economic regulator. It has a very responsible role in that. It is then our job to decide each year how much we should raise the charges. We took an exceptional decision last year and the year before to go in below what we were allocated by way of the raise, and we, including me personally, had a lot of conversations with the previous and current cabinet secretaries, so that they understood fully the implications of holding back. However, at some point you say, “This is in the best interests of the people of Scotland, given the other pressures that are around.”

We cannot do that any more. As Alex said, we do not have a number but we do not expect huge increases. They might be more than we have seen in the past couple of years. When any of those increases are translated to daily living, we are often talking about the cost of a cup of coffee a week. I cannot give you a number, but it is not something that should make the population fall over.

Do you anticipate trying to borrow more from the Scottish Government for the large capital project that you obviously have? It is often said that you are sitting on cash reserves. I do not know how much they are, but could they be used?

Cash reserves today are about £260 million, which is lower than the figure in the report because they were managed down this year. It is important just to step back and explain why we hold those cash balances. It is partly because Scottish Water is a very large business with lots of investment needs and the management of payments and receipts is somewhat volatile, as it would be for any large business of our scale. The cash reserve of about £260 million represents something like nine weeks of trading. That is the kind of buffer that it gives us. As Scottish Water is a public corporation, we do not have access to capital markets in the way that a private company would, to use that as a buffer, so cash becomes a more important buffer for us.

The board regularly reviews its risk appetite on the level of cash balances that it should hold. At the moment, that is around £200 million as a minimum, so the £259 million that I think we are at feels like a reasonable level. Essentially, there is little to play for in that level without getting to a point at which the company’s financial robustness would be at risk.

So, when there is a call for you to use more of your cash reserves, you would defend vigorously the position that you have taken.

The position that we are in now is a prudent one to hold at that sort of level. As chief executive, I would be uncomfortable if we were looking at anything much lower than that £200 million level, which starts to become more difficult.

We have heard that, during the coming months, you will be balancing the increase of costs to consumers and your capital plan, and I guess that increases in staff pay will also be taken into consideration. All of those issues will come into the mix before you decide on the increase and your capital spend going forward.

10:30  

That is right; all those things are interrelated.

The other thing that is worth saying is that about 80 per cent of our expenditure—historically and currently—is funded from customer charges, and about 20 per cent of it is funded from the Scottish Government debt that we hold. That is an 80-20 split on debt versus income, if you like.

Jim Fairlie wanted to come in on that, and then I have a brief question.

My question is directed to Alex Plant, and it is to do with the fact that I am new to the committee and I am filling in as a substitute member. I was sent a quote from the minutes of the 21 September 2022 meeting of the investment planning and prioritisation group, which Alex Plant sits on. David Satti, the director of strategy and governance of the Water Industry Commission for Scotland, stated that £799 million was invested in 2021-22, but there was no indication as to what had been delivered and whether that amount had been spent efficiently. Is Mr Satti’s comment fair? If it is fair, what have you done to improve that situation?

Thank you for that, Jim. I am new to the committee, too, so we are in the same boat from that point of view.

The meeting in September of last year was before my time in office, but I do sit on that group, and I have had conversations with colleagues at the Water Industry Commission for Scotland around their wanting to understand at a more granular level precisely what the investment plan has been delivering. Since Mr Satti’s comment last year, we have been trying to work through that, so that we give a much clearer sense of the delivery. There was a global figure of £799 million at that point, and we are delivering more than that this year. We are basically saying, “Here is the investment programme, here is what is being delivered, and here are the outcomes.” That is the issue that the regulator wanted a clearer line of sight to, and I believe that we have made progress on that in the year since that comment was made.

Okay. Can I ask one more question, convener?

It is hard to say no, Jim, because you have been very quiet so far.

My question is probably not high level enough for this conversation, but I will ask it anyway, on the basis of what you have just said about overall investment and the value of that investment.

I have a constituency issue right now involving the water that runs from the Glenfarg reservoir down to Glenrothes over a 17-mile distance. There are various leaks in that piping system. What is being proposed at the moment, and I am not sure whether it has actually been started or is still in the space—[Inaudible.]—ground stage—

Jim, I am sorry for being difficult, but I am trying to keep the questions away from constituency issues. I respectfully suggest that Alex Plant and Peter Farrer come back to you directly on that. Maybe Peter could make a brief comment on it. I know that the matter is really important, but I am quite strong on the need for this committee to look beyond the constituency. I will let Peter come back to you on that and then I will allow you to come back in briefly after you have thought about his response.

I am not sure which specific matter Jim Fairlie was going to go into, but I give him a commitment that I will take it offline with him and make sure that we answer all his questions.

Jim, I know that you will find that unsatisfactory, but you have an offer to take the matter offline straight after this committee meeting or as soon as possible. I would like to keep the discussion at a slightly higher level.

I have another question before we leave that area completely. Obviously, not putting up the charges for Scottish Water has implications for how people are remunerated.

Looking at the accounts, it seems that you had more employees at the end of the accounting period. I had not seen that the salaries had gone up significantly to replicate that. It is very difficult to see in the accounts how much of the salary increase on the previous year was due to extra employees or to pay. Is there a conflict between what you can pay your staff and what you can get in from the income that you raise from the public?

I go back to my earlier point about the way that we are financed as an organisation and that 80-20 split. That covers all our outgoings, whether our capital programme, salary bill, energy bill or whatever else it may be. There is obviously a relationship between those things. Part of the reason why the number of full-time employees has gone up is the scale of the capital programme. Although we work with our supply chain on some of the employee consequences that sit within it, in our kind of business we also need more people to cope with that much-increased level of activity. It is the biggest investment programme that we have ever had and we need people to help us deliver it. That is partly where that increase comes from.

Of course, there will also be an element that links to last year’s annual pay increase. The two things are both there.

There is a conflict in what you get in, what you can put your charges up by, and what you can pay your staff.

That is one of the outgoings. They are, of course, interrelated.

I turn to the next questions. Douglas, have you finished all your questions?

Yes, I have.

Okay. Monica, I think that you have some questions. I will then go to Sarah Boyack.

Yes, we are back to me, convener.

Alex, you mentioned pay. Can you give us an update on the current status of pay negotiations with the trade unions?

I will ask Peter Farrer to lead on that, because he leads our negotiating forum with the trade unions and has been in regular discussions over recent weeks—with some frequency, as you might imagine.

Before Peter Farrer answers, I remind the committee of my entry in the register of members’ interests, in that I am a member of the GMB and Unite.

First of all, I want to say how disappointed I am that we have not managed to reach agreement with our three unions, which are Unison, Unite and the GMB. We have put a proposal to the unions that would give all our Scottish Water employees a generous pay award by any public sector standard and a reasonable process for reshaping an outdated pay and rewards system. We went through a process with the Advisory, Conciliation and Arbitration Service over the two Mondays before this one but, unfortunately, that did not lead to an agreement either.

On Friday, we received notification from the three unions of industrial action that would commence on Friday 10 November. There are three elements to that: a full four-day strike from 10 to 13 November, no out-of-hours standby or contractual overtime for every weekend thereafter until January, and no voluntary overtime continuously until January.

As the committee can imagine, we are working to deal with that and have had a team in place. We have used our very successful Covid management plans, which have been put in place as a good starting point. Our main priority throughout will be to ensure that public health is maintained and that the environment is protected.

That is very disappointing to hear. Strike action that results in loss of take-home pay for workers is always a last resort. That is a pretty desperate place to be, with the cost of living crisis.

It is worth going over some of the things that the unions have said in the past couple of weeks. Some of the comments predate the ACAS meeting, but let us get them on the record.

Unison said that there has been no meaningful engagement with Scottish Water bosses—which I guess is the people in front of us just now—that there has been a withholding of information from trade unions, and that

“there is a feeling amongst members that Scottish Water bosses are behaving like Victorian Mill owners”.

Those are serious statements.

The GMB says that Scottish Water is acting like a “rogue employer”. It also said:

“It has been astonishing to watch and a masterclass in how to demolish good and productive industrial relations.”

I could continue with more quotations. All that is pretty damning, is it not?

With respect, Monica, this is not the forum where we will negotiate a deal with the unions. We have—

I am not a union negotiator. Given what we have heard about your annual report and your performance—

I know. I know.

[Inaudible.]

—and the impact on customers, it is all entirely relevant, with respect.

Monica and Peter, this is really difficult. I know how seriously you take this, Monica, and I am sure that Scottish Water take it extremely seriously. I do not want anything to be misquoted or for anyone to be misled, which could cause the negotiations to fail.

Monica, you have very much made your points and your comments, and I encourage Peter or Alex to come back on those. I am not asking you to set out a pay statement or to put a pay deal on the table, but the committee is making the point to you that it is very concerned about this issue, and Monica has eloquently made that point. The committee is looking for an undertaking from Scottish Water that it has heard what we have said and to say what it is going to do about it.

Let me come back on that, because what you are doing is setting out some things that have been said, including in the press, by our unions. I do not think that those representations are fair, but they come from a position of deep concern on the part of the unions, and unions exist to do the best deal that they can for the people who they represent. They are an important part of our negotiating forum, and they are critical to how we have worked in the past and will want to work in the future. I do not want to get into a “He said, she said” thing, because that is not helpful. However, I understand whence that comes.

The point that I would make is that it feels to me that the issue at hand is the need to modernise a 21-year-old pay and grading system. Our colleagues in our unions and colleagues across Scottish Water recognise that that needs to be updated. In bringing in the new pay and grading system, Scottish Water sought to utilise the fact that, by linking it to the annual pay award, we could have greater flexibility than would normally apply in public sector pay policy. Normally, that would be a 3.5 per cent base, going up to 5 per cent if efficiencies could be demonstrated. By tying the two together, we felt that we could get an even better deal for our colleagues across Scottish Water. That is the deal of a minimum of 8 per cent that Peter Farrer described.

There were concerns about tying the two things together, and issues came through in feedback from colleagues, which we sought to recognise in order to go back with an improved offer through the ACAS negotiations. Unfortunately, those have not yet led to a conclusion, but the message that I want to give is that our door absolutely remains open at any time for continued discussions with our unions to reach a resolution and not then realise the very significant issues of take-home pay being lost by colleagues. Indeed, all our colleagues are facing the impacts of rising costs of living, which have been going on without the benefit of an annual pay award for many months. That is really difficult for people. It is in no one’s interest for the pay dispute not to be resolved. We are very keen to resolve it.

Monica, do you want to come back on that?

On that final point, I agree that this situation is in no one’s interest. It is not in the public interest or the interest of your very hard-working staff, to whom we are all very thankful.

Therefore, my final question is: given that Scottish Water is a signatory to the Scottish Government’s fair work convention, will you reflect on what has been said here today and elsewhere and demonstrate that there is an effective voice in the workplace for all staff and trade union partners, who play a critical role?

Yes, absolutely.

Thank you. I am sorry, Monica, to have cut you short.

Sarah, would you like to come in?

Yes, I would. Thank you, convener. I much appreciate being able to ask a question in an interesting session.

Earlier, there was a discussion about resilience and the impact of loss-of-power emergency generation investment, and there is also the renewable power generation programme. I wondered if you would talk a bit about those. There is obviously a benefit in the lowering of climate emissions, but is there also an opportunity for resilience and income generation?

Witnesses have talked about hydro, wind, solar and combined heat and power using organic waste. How does all of that fit into Scottish Water’s overall strategy? Are they income generators?

10:45  

That is a really good question. The different aspects have different elements to them, but increasing our energy resilience is part of what the net zero campaign is going to do. Reducing our energy needs is the first thing that can be done, and we have been doing well at that through considering different technologies that are less carbon hungry—particularly when we are delivering investment programmes.

As an example, we have just gone through a major refurbishment of our waste water treatment plant in Dalmarnock, and part of what we did there was to look at particular aspects of the waste water treatment; by shifting to a different technology, we reduced carbon emissions by about 80 per cent, and we reduced our energy consumption. We have also done things such as shift our fleet increasingly to EV rather than petrol vehicles, and we are doing many things that reduce demand at source, as well.

Sarah Boyack talked about solar power, hosted wind power and various other aspects. Those are starting to give us much more self-sufficiency for the energy demands that we still have, even with the reduction in demand.

There is income generation, too. We largely progressed those proposals and programmes through Scottish Water Horizons, which is our non-regulated subsidiary. That organisation has been doing quite a lot on renewable energy, including hydrogen.

We have one of the first pilots on utilising our resources into hydrogen production, which can then give us an income flow, and—going back to the earlier conversations—anything that comes in on that side can help us to offset the amount that we need to seek from customers to deliver resilience enhancements. That is quite an exciting area. There is quite a lot that we can do there, and I would like to do more.

We have an initial pilot on green hydrogen. The most exciting thing about it is the potential to use the final effluent from our treated waste water as an input into green hydrogen production. The key thing about that is co-location, because we need to partner with an energy company that is close enough to our waste water treatment works to make approaches of that kind economically viable.

That was very interesting. My final question is about heat and power networks. You mentioned energy from waste. What about the potential for more community-oriented projects, given the infrastructure of water heat networks that Scottish Water has, and which are currently being developed by local authorities?

We capture some heat from waste-water treatment processes, and that is linked into district heating. We have about three pilots around the country at the moment, which is not a large number, but they are interesting pilots that are giving us a sense of what can be done in that area.

A lot of that is based on the ability to partner effectively where the demand is. That applies for district heating, which could involve partnering with local authorities, housing providers or particular high-heat-demand installations such as swimming pools and so on.

We have three processes on capturing heat, but we could look to do more in that area.

I am interested to understand how you engage with stakeholders. There are obviously customer forums, and there is the role of the economic regulator, but I am interested in what your relationship is with environmental organisations and campaigners, in particular.

We heard earlier that Surfers Against Sewage has been very critical in recent media coverage. Do you engage with those organisations? Do you meet with the likes of Feargal Sharkey and others who are campaigning in that area? Do you take on board their concerns?

I have not met Feargal, but he was a hero of mine when I was growing up—I had pictures of him on my wall when I was 15—so I would be very pleased to meet him, or any of the environmental organisations that are arguing for improvements.

As I said, the outcome that we want is the same. We sometimes do not agree with the way in which the issue is presented by those groups, because sometimes it is not the most helpful way to help deliver the outcome that we are all seeking. Having moved up to this role in June, my sense is that the relations are generally pretty good. There is quite positive engagement between Scottish Water and environmental bodies, local community groups and so on, on a range of issues. I am sure that we can always be better, but I do not detect a problematic relationship. There might be differences of view, of course, but the engagement is pretty good.

I would love to be able to say that Feargal Sharkey was before my time, but everyone knows that that is not true.

Jackie Dunbar, did you want to say something?

Monica Lennon spoke about pay increases and about unions, and I would like to declare that I have a family member who works for Scottish Water. I have not taken part in anything, but in the interest of transparency, I thought that I would declare that to the committee.

That brings us to the end of our session. Johanna Dow, you are obviously sitting there feeling that Business Stream is perfect, because you have not been asked any questions; I apologise for that.

Alex Plant, Peter Farrer and Susan Rice, there are a couple of questions that we wanted to ask on the Circular Economy (Scotland) Bill, which is currently going through the Parliament, but sadly we have run out of time, so I am going to ask the clerks to write to you all with those questions. I ask respectfully if you could answer them as quickly as possible, because we are considering the bill as we speak.

Thank you all very much. It has been an extremely interesting session. I briefly suspend the meeting to allow for a changeover of witnesses.

10:51 Meeting suspended.  

10:59 On resuming—