Scottish Water must ‘futureproof’ assets in the next regulatory price control, according to a document from the Scottish regulator which admits “insufficient attention has been paid (by both regulator and regulated company)” to the maintenance of long-term assets.
A document published this week, one of a series from the Water Industry Commission for Scotland (WICS) setting out its thinking for 2021-27 price control, says: “The price setting process has sought to ensure that the regulated company faces a hard budget constraint over the regulatory control period. While this has been very successful in improving operational efficiency, it appears that insufficient attention has been paid (by both regulator and regulated company) to futureproofing levels of service.”
The document sets out three ways in which long term maintenance could be approached: continuing with the current approach of spending in line with current need; providing an annual allowance for replacing major assets; or following the example of Welsh Water by reducing outstanding borrowing to free up borrowing capacity for when assets need replacing.
It says: “This is not necessarily about spending more now – it is about ensuring that sufficient resources are available when Scottish Water needs to replace its assets.”
In an earlier paper, WICS acknowledged that the need for Scottish Water to invest more in its assets would put “material upwards pressure on prices.” Water customers in Scotland currently pay considerably less than those in England, despite a 1.6 per cent bill rise in April this year.
In a separate document published this week, WICS set out a base assumption of 2 per cent inflation for the next price control.
The price control will be finalised in March 2020. Work began in May this year.