Scottish Water set for a new chair, as its chief calls for sustained increased investment
Scottish Water board member of six years,Deirdre Michie, will take on the role of chair from 1 January 2024, as Dame Susan Rice stands down after eight years at the helm.
The confirmation accompanied Scottish Water’s interim annual report last week. Writing in the report, new chief executive, Alex Plant, highlighted the impact of extreme weather in the first six months of the financial year on the business. This included a hot, dry period in May and June which saw average reservoir levels drop to just 72% capacity – 14% below average for that time of year – at one point leaving 29 reservoirs close to running short of supply. This was followed by multiple periods of very heavy rainfall and named storms, which caused sewer flooding and left some treatment works inaccessible.
Plant argued sustained increased investment is vital if Scottish Water is to tackle the impact of climate change on service provision, and meet increased public expectations of environmental quality amid high inflation and population growth. “Without this – and if we instead “kick the can down the road” – future service levels will be at risk and future generations will face very significant increases to bills, which would not be fair,” he said in a press release.
In the interim report, Plant noted that decisions to set charges below the level allowed in the SRC21 determination in light of cost of living pressures had cut £0.5bn from the funding available for investment over the 2021-2027 period. He explained the consequences: “Our revised Investment Planning Scenario therefore aims to ensure we maintain the increased levels of repairs and replacements required to our existing assets, whilst also balancing investment needs in other priority areas.
"This has meant that, this year, we have had to slow down the rate at which we can progress some of the regulatory and customer service improvements we planned to undertake. This includes less investment to reduce the risk of sewer flooding to properties, and reduced investment available to support new development in areas where waste water treatment capacity is currently constrained. These are not easy decisions to make and highlight our need for ongoing sustained higher levels of investment.”
He continued: “While we are yet to set customer charges for 2024/25, we know the level of cost pressures compared to available funding is going to be challenging for the rest of this year and beyond. Put simply, if we fall short of the funding we need, we will not be able to maintain the vital services we deliver, and we will see an increase in the number of our assets which fail. Investing even at the current increased level means we are not replacing assets at the rate we need to given the age of our assets and the increased pressure on them from a harsher climate.”
In the six months to September, Scottish Water said £400m of planned investment was delivered, £70m more than at the same time last year. The funding has enabled the opening of new treatment works, supported Scotland’s housing growth and safeguarded future water quality. It has also led to innovative green technology at many sites to offset energy usage.
Plant noted: "Our below inflation charge increases, and increased investment, mean our cash balances for the regulated business are reducing – from £390m at the start of this financial year to £259m at the end of this first six months.”
Beyond investment levels, Plant argued the company must change “the way we work and how we think”. He continued: “We need to be bolder, more innovative and more collaborative. More of what we do in the future will involve nature-based solutions alongside traditional engineering approaches. And I want us to work more effectively with our customers to help them to become active participants in the changes we need to make as a society, not just passive recipients of a service.”
Elsewhere, he praised the level of trust in Scottish Water from customers and the supply chain, and the “Team Scotland” approach taken across the sector. He pledged: “This is a time of intense scrutiny for the water sector across the UK and I am determined that Scottish Water should be recognised as an exemplary and innovative organisation, a leader in sustainability, a great employer and a trusted partner.”
Elsewhere, the Thames representatives confirmed Kemble does not currently have the funds to repay £190m of debt that will be due in April, and that it is planning to request an extension from lenders. They emphasised investor appetite to provide further finance going forwards hinges on the outcome of the PR24 determination.
• Moody’s has downgraded Kemble Finance’s £400m medium term notes, due in 2026, from B2 to B3, with negative outlook. This follows Ofwat’s scrutiny of the recent dividend payment from Thames to Kemble, given Kemble relies on Thames revenues for its debt service.
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