Water Industry Commission for Scotland - WICS (Scotland)

Regulation

Regulatory Model

The Water Industry Commission for Scotland (WICS) is the economic regulator for the Scottish water industry. WICS is a non-departmental public body with statutory responsibilities to promote the interests of customers. Its primary duty is to ensure an effective regulatory framework which encourages the Scottish water industry to provide a high quality service and value for money to customers. It does so by setting prices that deliver Ministers’ quality, environmental and customer service objectives for the water industry at the lowest reasonable overall cost. Other functions include, monitoring Scottish Water’s performance, setting targets to improve efficiency and facilitating competition in the retail market for water and sewerage services including licensing all participants in the market. The Water Industry commission also works closley with the Scottish Drinking Water Quality Regulator (DWQR) and the Environmental Regulator (SEPA).

Regulated sectors

The Water Industry Commission for Scotland is a water specific regulator responsible for regulating the core activities of the national supplier ‘Scottish Water’ as well as overseeing the competitive retail market through the issuing of licenses and setting default tariffs.

Main responsibilities

WICS regulates both the prices that Scottish Water can charge to household customers and the wholesale charges paid by licensed retailers. The Water Industry Commission for Scotland also sets default tariffs which are the maximum amount licensed providers may charge customers. These maximum tariffs are set at the level at what customers would have paid in the absence of competition ensuring that no customer is worse off.

Tariff Setting

The Water Industry Commission for Scotland (WICS) sets prices using incentive-based regulation to encourage efficiencies and drive down costs.
WICS sets price caps for a period of 6 years with a rolling review every three years. Prices are set by targeting a suite of financial indicators. ‘Financial tramlines’ provide a mechanism to share any outperformance with customers , monitor financial strength and reduce risk.
WICS sets household retail charges (the amount Scottish Water charges households), non-household charges (the amount that Scottish Water charges licensed retail suppliers) and ‘default tariffs’ (the maximum that any retail licensed provider can charge business and public sector organisations) to ensure no one is ‘worse off’ as a consequence of the introduction of a competitive retail market.
Most of household customers in Scotland pay a water charge based on the council tax value of their property whilst all non-household customers are fully metered.

Cost recovery levels of tariffs

Tariffs are set on a full cost recovery basis, meaning that the fulll cost of operating, maintaining and bulding new assets is recovered through charges.

Average household bill – Approx £339

Quality of Service

The Water Industry Commission for Scotland measures the quality of Scottish Water’s service through the overall performance assessment (OPA) and benchmarks Scottish Water’s performance against that of the companies in England and Wales. This also allows WICS to set OPA targets for Scottish Water to improve service quality.
Additionally, WICS is a member of the ‘Output Monitoring Group’ which meets quarterly to review progress against ministerial objectives, monitor the delivery of Scottish Water’s investment programme and of outcomes to customers.
The overall measure of delivery (OMD) is a single comprehensive measure of Scottish Water’s overall progress with investment delivery. Both OPA and OMD are linked to Scottish Water’s management performance assessment and remuneration.

Households served by public drinking water services : 2.4 million

% drinking water quality provided complying with EU standards-

Mean zone compliance: 99.93%
Compliance at customer taps: 99.89%

% wastewater treated according to EU standards -  99.72%

The Regulator

Characteristics:

The Water Industry Commission for Scotland was established in 2005.
Water specific  independent regulator
Non departmental public body
Regulates the national supplier (Scottish Water) as well as 14 licensed retailers

Legal basis:

Water Industry (Scotland) Act 2002
Water Services (Scotland) Act 2005
Climate Change (Scotland) Act 2009

Number of employees: 20

Budget

GBP 2.04 million, excl. levy on licensed operators

Contact

Water Industry Commission for Scotland (WICS)
First Floor - Moray House Forthside Way
Stirling FK8 1QZ - SCOTLAND

Email: enquiries@watercommission.co.uk
Website: www.watercommission.co.uk/

Other relevant entities

Scottish Government: www.scotland.gov.uk

The Scottish Government issues the ‘Principles of charging’ which is their statement about the principles they want the Water Commission for Scotland to apply in determining price limits and considering Scottish Water’s charges.
Scottish Environment Protection Agency (SEPA): www.sepa.org.uk    
SEPA is the environmental regulator in Scotland responsible for protecting and improving the environment, including the sustainable management of natural resources.
Drinking Water Quality Regulator (DWQR): www.dwqr.org.uk
The Drinking Water Quality Regulator for Scotland (DWQR) exists to ensure that drinking water in Scotland is safe to drink. This is done by ensuring that everything Scottish Water does safeguards the quality of the public supply, through a process of inspections and monitoring. DWQR enforces the requirements of the Water Supply (Water Quality)(Scotland) Regulations 2001 and takes action where these requirements are not met.

Competition and Markets Authority (CMA): https://www.gov.uk/government/organisations/competition-and-markets-authority

The CMA works to promote competition for the benefit of consumers. They are responsible for considering regulatory references and appeals, conducting market studies and investigations in markets where there may be competition and consumer problems etc.

Citizens Advice Scotland (CAS): http://www.cas.org.uk/

Citizens Advice Scotland is a registered charity which supports Scottish Citizens Advice Bureau by providing expertise to the public on a whole range of issues.

Sector

Sector Description

In Scotland, public drinking water and sewerage services are provided by one water company, Scottish Water. Scottish Water operates within a regulatory framework established by the Scottish Parliament in which Scottish Ministers set the objectives for the industry to be delivered at least cost to customers. Scottish Water owns, operates and maintains all water and wastewater infrastructure serving around 2.4 million households across Scotland.

Service Coverage of Scottish Water

Water- 100%
Waste water – 100%

Number of operators - 1 national supplier and 18 licensed non-household retailers

Revenue of the national supplier

GBP 1080.8 million (2013-14)

Legal and institutional framework

Legislation

The legislation that is most pertinent to the Scottish water sector:

Institutional framework of the Scottish water sector

Scottish Ministers set the objectives for Scottish Water and appoint the chair and non executive members. Scottish Water is responsible for providing water and waste water services to household customers and licensed providers. It must deliver the investment priorities of Scottish Ministers within the funding allowed by the water regulator (The Water Industry Commission for Scotland). The Water Industry Commission for Scotland is the economic regulator and is responsible for setting charges subject to Scottish Ministers objectives as well as reporting on the costs and performance of Scottish Water. The Drinking Water Quality Regulator (DWQR) is responsible for protecting public health by ensuring compliance with drinking water quality regulations. The Scottish Environment Protection Agency (SEPA) ensures environmental compliance in the sector.

Market Structure

The provision of water supply and sewerage services in Scotland is a natural monopoly where one firm (Scottish Water) operates Scotland’s publicly owned network of pipes, mains and treatment works. Scottish Water provides water and wastewater services to more than 2.4 million households across Scotland. In April 2008, the water and sewerage industry in Scotland was opened up to competition. Now more than 150,000 business customers can choose their water and sewerage supplier (licensed provider) (www.scotlandontap.gov.uk). Scottish Water acts as the wholesaler in this competitive market supplying wholesale water and wastewater services to licensed providers. WICS regulates both the prices that Scottish Water can charge to household customers and the wholesale charges paid by these licensed suppliers. The Water Industry Commission for Scotland also sets default tariffs which are the maximum amount licensed providers may charge customers. These maximum tariffs are set at the level at what customers would have paid in the absence of competition ensuring that no customer is worse off.

Ownership and management of services

Scottish Water is a publicly owned water company and it provides both water and wastewater services to all households across Scotland. It is responsible for all water and wastewater infrastructure in Scotland. Licensed providers buy water from Scottish Water and sell it to business. Licensed providers are responsible for the billing and will often choose to offer additional services such as water efficiency advice and innovative billing options to customers to reduce customer bills and gain market share.

Country profile

Main indicators of the water sector

Delivered water to end users – 370.43 million l/h/d
Total leakage – 563 Ml/d
Total volume sewage water- 922.320 million Ml/d
Total load entering sewerage system BOD/yr – 146020.14 tonnes
Average consumption per person per day – 150 litres

Evolution

A brief history of water in Scotland

Pre 1975 there were 30 municipalities for waste water and many different boards for water in Scotland. In 1975 nine Scottish regional councils were set up to control public water supply and sewage disposal. Then in 1996, three new Scottish water authorities were created, East, West and North of Scotland water taking over the water and waste services from the former Scottish regional councils. In 2002 these three regional water authorities were merged to create one publicly owned company, Scottish Water. A new regulator, the Water Industry Commission for Scotland was set up to oversee the industry. At the formation of Scottish Water there was a considerable gap in terms of efficiency and levels of service compared to companies in England and Wales. Within six years, Scottish Water caught up with privately owned companies south of the border. Scottish Water’s operating costs fell by around 40 per cent in ten years and by 2012-13 household bills were around £50 lower than the average bill in England and Wales. In the same period, leakage has been reduced by over a third and drinking water quality has improved.

Recent developments

In April 2008 Scotland became the first country in the world to introduce competition into its water industry. The Water Services Act (2005) established a framework for competition and licensed suppliers can compete in the retail market for business customers. Competition has promoted an efficient use of water resources as it allows retailers to compete for customers by offering more competitive prices and seek out more cost effective and innovative ways to serve customers. Retailers are able to identify where inefficiencies exist and put pressure on Scottish Water to make improvements. Following the success of this retail market in Scotland, England and Wales will introduce retail competition which will create an Anglo-Scottish market due to open in 2017. This wider market will create more choice for business customers both in Scotland and South of the border.

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