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Interview negotiation. havness plan reflects that engagement process, "It became very clear that ment will move towith [Scottish"We'll be over ing discussions Water] because the ground has shifted on a number of things. For example, one of the service water is less affordable now the next few months over whether that's the end point [on prices] or is there progress, improvement report discussions was about than it was in 2010" evolution that can be made. We'll certainly discretionary spending. We went through a want to explore that, as we want to explore process with Scottish Water when we went some other parts of the business plan." through every aspect of that, and agreed or disagreed, The spoke in the wheel could come from other quarasked for a bit more spend on that or a bit less on that, ters, however. The plan is based on various assumptions, relating back always to customer priorities." chief among which is the level of borrowing the Scottish The Water Industry Commission for Scotland's (Wics) Government will provide. Scottish Water has pencilled in ongoing comment and input has also been helpful. £120 million a year for each of the six years of the review "We're not working in the dark; we're working in the – lower than historic borrowing levels but significantly absolute light," says Peacock. "The Wic has been comhigher than this year's loan. Should that fail to materipletely up front in saying… we think more could be done alise, the plan would have to change. Clarity won't come on that or whatever. There would be no point in us comuntil the Scottish Government's spending review. ing to agreement with Scottish Water that was a million In the meantime, the forum is working out precisely miles away from what the Wic thinks." what in the draft plan it can sign off and what it wants to So how is the 2015-21 plan looking, and what has been raise for further exploration. What's Peacock's prognosis the forum's key input? The stand-out factor driven by the for March 2014 when the final plan is produced? "We're customer body has to be affordability. Scottish Water has aiming to find agreement. We don't want to go to the Wic a good record on this anyway; it was the only company if we can possibly avoid it without agreement." in 2010-15 to deliver sub-inflationary price rises. But this And what of the forum itself once this strategic review time around, the forum has pressed the issue hard. of charges is done and dusted? In the shorter term, PeaAs well as its joint research with Scottish Water, it cock wants to see a role for the customer through to 2021. commissioned independent research into affordability: a In particular, he thinks customer interests should be repreport from the Child Poverty Action Group and Citizens' resented at IR18, a mid-term investment planning review Advice on changes to the benefits system and its impact designed to offset risk resulting from the greater innovaon families; and an academic study on changes in the tion planned in the period. Similarly, he thinks customers Scottish economy. Says Peacock: "It became very clear should have a say if Scottish Water over or under performs that water is less affordable now than it was in 2010." significantly under the regulatory "tramlines" arrangeA significant resulting development is that Scottish ments. He gives an example: "If there's outperformance, Water has framed price changes for 2015-21 in the condo we accelerate investment in the customer's interest? text of the lower Consumer Prices Index (CPI) rather than Do we hold prices more firmly or reduce them? Does the the more traditional Retail Price Index. CPI is the inflacompany reduce its borrowing? What do we do?" tion measure used by the government and the index for In the longer term, regulatory specialist Stephen Litchanges to pensions and benefits, so a more relevant tlechild is conducting an independent evaluation of the measure for customers. Peacock comments: "In fact, Customer Forum. "How much value did it add? What can [Scottish Water's proposals] tuck under the CPI measwe learn from it? Is it worth continuing?" muses Peacock. ure (see box – Business plan highlights). I think that's Whatever the outcome, he notes: "Scottish Water is saya significant sharing of understanding between Scottish ing in their business plan, Wic is saying, we're saying, we Water and ourselves." He adds: "Down south, they're can see a role for customers right through. Whether it's still thinking in terms of RPI." in the form of this Forum or whatever, that's for somePeacock is keen to stress that far from being reluctant, one else to say. But the principle that customers should Scottish Water has been more than willing to listen and be intimately involved is pretty much beyond dispute." act on its customers' affordability problems. He gives a concrete example: "We've been saying internally to them there's only three ways you can get money. You can Customer Forum borrow more – and in Scotland, the government is the The Customer Forum is an independent entity championed and funded by banker and if you believe there's a lot more money there, Wics and run by – but autonomous within – Consumer Futures Scotland. The you're deluding yourself. Another way is to go to the role of the forum, established at the start of 2012, is to negotiate directly with customer's pocket [but] a lot of people have been there Scottish Water on behalf of domestic and business customers in the 2015-21 before you and there's not much left. The third way is to price-setting process, with a view to agreeing service levels and prices. It is be more innovative, more efficient over time, and that's hoped the forum and Scottish Water will be able to present a joint business where the customer would expect you to start… With plan to Wics in 2014. If the regulator is satisfied that all statutory duties have credit to Scottish Water, they are saying without any been met, it could approve the plan with the lightest touch. degree of reluctance, 'yes, we're going to go there first'." In fact Peacock is complimentary about the way the Scottish Water's draft business plan 2015-21 company has conducted itself across the board. "Scottish • o compromise on current standards. Service improvements at a rate N Water are highly expert in what they do… Under their new that allows price increases of 0.1 per cent below CPI (broadly equivalent to chief executive, they've also got a much tighter vision of 1 per cent below RPI) . Total revenue from customers of £7,169 million. how to engage with customers, and they've wanted to • £720 million of new government borrowing. hear and wanted to act where ever they could." • perating costs of £2,481 million. O So Peacock is very happy with progress to date and • apital investment of £3,484 million. C the draft plan. He says he is confident what's on the table • ncreased level of innovation and risk – addressed by updating investment I is not a bidding document from Scottish Water but as plan s on a "rolling" basis at three-yearly intervals. near to the final plan as is possible at this stage. Could • utperformance to be reinvested for customer benefit – particularly to O anything be improved? He won't give specifics away, tackle sewer flooding and increase resilience. though he concedes that in the coming months, engage10 | 13th - 19th December 2013 | UTILITY WEEK