Scottish Government Investment Group minutes: March 2024

Attendees and apologies

• Jon Rathjen, Scottish Government (SG), Chair
• Rosemary Greenhill, SG
• Darren Knox, SG
• Alex Plant, Scottish Water (SW)
• Rob Mustard, SW
• Wendy Kimpton, SW
• Simon Parsons, SW
• Aileen MacKenzie, SW
• David Harley, Scottish Environment Protection Agency (SEPA)
• Sharon Forrester, SEPA
• Michelle Ashford, Water Industry Commission for Scotland (WICS)
• David Satti, WICS
• Gail Walker, Consumer Scotland (CS)

Items and actions

Welcome and apologies for absence

There were apologies from Matt Bower, Drinking Water Quality Regulator (DWQR) and Nikki McLean, Scottish Public Services Ombudsman (SPSO).

Nikki McLean is leaving SPSO and they are reviewing their attendance at these meetings. They will still have open invite to attend and will receive the papers for the meetings but they may not attend in person.

Thanks for Nikki’s long service was noted by the group.

Minutes and actions arising from meeting of 13 December 2023

The previous Scottish Government Investment Group (SGIG) minutes were agreed to be an accurate record, minor corrections to a misspelt name were requested.

Review of SGIG actions

• Working Group (WG) 18.09 - (Transfers to Committed List) Include additional column showing associated outputs in future reports - Ongoing - Will be included in Quarter 4 (Q4) paper, this is to ensure the outputs in the Annual Return and the SGIG Reports align
• WG 18.13 - (Progress of Committed List) arrange session with Rosemary to help her understand graphs and what they tell her – this can also be offered to others - Ongoing - Meeting in the diary for 28th Feb
• Investment Group (IG) 18.01 - Add a topical issues item to future WG agendas to allow discussion on issues such as extreme weather which may have impacted service and delivery - Complete - Included at WG meeting
• IG 18.02 – Include dedicated time at the next Investment Group Working Group (IGWG) to discuss outputs in more detail - Complete - Included at WG meeting
• IG 18.03 - Urban Wastewater Treatment Directive (UWWTD) group to scope and feedback to this group at a future point. Some of answer may be in legislation - Ongoing - SG action
• IG 18.04 – Gate 110 (G110) / completion list project list to be included also including what is flowing into the next period e.g. Glenfarg will definitely go into the next period, so 50% might be in Strategic Review 2021(SR21), and 50 % in Strategic Review 2027 (SR27), commitment for next period - Ongoing - Propose to do for Q4 reporting
• IG 18.05 – Check if Howden project shown as £5.4m is an addition to the existing project at that site and confirm to DWQR - Complete - Complete, discussed at January Joint Development Group (JDG)
• IG 18.06 – set out time table for what Scottish Water will deliver in relation to understanding the impact of demand, inflation, asset replacement etc and how we can move towards the full answer of whether they are getting the same amount for the same money as before - Complete - Update will be provided at meeting
• IG 18.07 – add Urban Water Routemap to agenda for next WG meeting - Complete - Included at WG meeting

David Satti – Action 18.06 – good progress has been made by Scottish Water developing the baseline which has been sent to WICS. This is a step along the journey and will help towards answering this question. Once WICS have the agreed baseline this will be monitored going forward.

Action can be closed, and reporting will be discussed at WG once baseline agreed.

Working Group report

Rosemary Greenhill, introduced Darren Knox who has joined the Water Industry team. Darren will be working on investment planning, developing the Ministerial Objectives etc. In future he will be delivering this report.

David Satti – Through the updates on Management Approaches (MAs), there is a need to explain how much increased demand is real demand and what how much is related to inflation. Need to be able to show this to help inform future investment allocations. Would like to understand this in more depth at WG.

Alex Plant – Deirdre Michie has responded to the Scottish Government’s letter on the Private Water Supplies Connections Project.

There was discussion around how progress will be reported to this group and how much is considered core and non-core. It was noted that the Cabinet Secretary will want regular updates on this.

Jon Rathjen – the Strategic Review letter will be going to the Cabinet Secretary shortly. SG have taken the view to start where we left off, and will keep the same approach as SR21 initially. Areas that need review will be identified as work progresses. The timetable is currently being fine-tuned. The current mode of operation and Ethical Business Regulation approach will be retained. The bill will be flowing in parallel meaning water, wastewater and drainage will be considered separately.

Alex Plant – continuity with SR21, principles, Ethical Business Regulation etc are positive. But this will be a tricky process to manage as legislation evolves.

Jon Rathjen – SG recognise that it will evolve, we won’t know all the detail at the start or the full cost implications. Will have to consult on core objectives then iterate from there considering adjustments from bill to as it evolves.

Rosemary Greenhill – The Bill won’t be complete until towards the end of the process so the majority of the SR27 period will be about addressing current asset issues.

Alex Plant – need to have that flexibility for future of period and changes that may need to be made on this. Another thing the letter should mention is the ability to look at potential pathways / ranges.

Jon Rathjen – the Final Determination may look different in the future, potential to have charge cap in it that is there if needed but that wouldn’t be expected to be reached.

Rosemary Greenhill – the bill has to have an impact assessment, so costs will be discussed publicly.

David Satti – the more we can engage, discuss and have dialogue on this the better.

Progress report of performance against the Committed List 

Rob Mustard presented the paper noting that showing the Indicator of Progress of Overall Delivery (IPOD) graphs on the screen had helped WG members so he would do the same for this meeting.

At the end of Quarter 3 (Q3) 2023-24, SW have invested £589m on Tier 2 projects and sub-programmes. This investment includes £106m of enhancement (including flooding), £38m of Strategic Review 2015 (SR15) Completion, £57m of Growth, -£8m of support and £397m in asset replacement, planned repair and refurbishment. Responsive repair and refurbishment expenditure was £177m which takes the total investment to £766m. These investment levels are on track to deliver in line with our Delivery Plan forecast of between £855m to £995m.

Short interval control has been introduced on some projects and have been driving a quarterly mindset which has been helping drive performance. Deep dives have been undertaken for some of the more challenging projects. More focus on the G110’s at this point in the year.

Urge a level of caution on the IPOD graphs going forward as the proposed changes to Investment Planning Scenario (IPS)24.1 may have an impact and sensitivity analysis is required on this.

There are some projects such as Glenfarg within this which have got challenges. Other areas Invercannie and Mannofield also subject to deep dives.

SR15 completion position, still some outstanding power and third party issues still persisting e.g. at Burncrooks. Newmore Water Treatment Works (WTW) has come forward and is a positive to see this moving. There are some projects that will go out of this period e.g., Rockcliffe, where the costs are continuing to increase due to site conditions and community issues in the area, including planning. Heading towards £30m and need to revisit the solutions / options and need to review.

Jon Rathjen – Rockcliffe has got temporary treatment at present so is still compliant in the interim.

Londornoch WTW is another challenge, and the current solution is no longer the right solution so in process of agreeing with DWQR the need to stop and review.

Progress with the closure of the SR15 projects remains a focus on this but some schemes still a challenge.

David Satti - last time at IG and WG, some focus on the equal weighting of Start on Site (SOS), Gate 100 (G100), G110, as almost seen as equal measure. Question over G100 forecasting getting into the green line but G110 going beyond this. Not working in same way that previous gates work. Need to review IPOD for SR27 discussed at the WG.

Trying to understand how much this is likely to settle out, impact of allocation in IPS, what would we be doing otherwise, value for money and what would we be able to do if not doing some of these things.

Rob Mustard – Every project has 3 points and overall a cumulative effect of work is shown. Worthy of further review for SR27 and consideration of whether IPOD has it driven the right behaviours. Do take the points on the optimism bias and that is a concern. Rising costs, community impact etc.

Alex Plant – on reviewing IPOD. For SR27 it’s right, to consider what’s worked and what hasn’t. Would bring Investment Forecast Against Commitment (IFAC) into that review too, drawing learning into the SR27.

David Satti - need to be able to go out as a group with consistent messages and views from this data. Focus on measure being reflective of what is happening.

Gail Walker – trying to understand changes in costs. Rockcliffe session tomorrow on developing community engagement. Tensions of balancing outcomes between environment, community, right value for money etc. Will include this tomorrow. What is role of the community and to what can community do / influence. Want to take community with you but need guidance on what can influence this.

Rob Mustard – would encourage everyone to have a look at SW’s CLANN magazine which covers a wide range of what SW are currently investing in.

SW are on track and progressing with supply chain procurement. This will go to Board at the end of June. SW will provide a subsequent update to this group.

Jon Rathjen – Useful update and felt showing graphs was useful addition.

IPS 24.1 update

Simon Parsons – The IPS is updated on a 6 monthly basis. It is built bottom up from MAs, new demands coming in and changes to costs for individual projects. The latest update, IPS24.1, went to Executive Leadership Team (ELT) yesterday and goes to SW Board in two weeks. Once it has been approved by the SW Board, SW will share full version with this group. Today is a summary of the key changes and some of the consequences of these changes.

The key highlights are.

• IPS24.1 refresh has increased the funding available by £50m to £4.45bn
• overall forecast investment demand in SR21 is currently c£0.9bn greater than our available funding and in addition we have £1.2bn forecast in SR27
• every quarter the trade-off choices we have available to use are reducing as more work is added to the Committed List

This is all based on getting the full increase of charges for the next two years. Every quarter less choices available.

David Harley – regulatory uncommitted. Why is this higher?

The Improving Urban Waters Routemap (IUWRM) and River Basin Management Plans 3 (RBMP3) are both backloaded programmes. There is a commitment in principle that SW will do the work, but the full funding is not yet committed. The deadline for this work is the end of 2027 not March 2027 so some of it will be out with this investment period.

Glenfarg and Black Esk also have a commitment to be delivered by 2027 but planning issues at both of these are likely to move them into SR27.

Once the IPS is fully approved at Board, SW will bring it to the WG.

David Harley – For enhancements and upgrades, how is it managed when upgrading? Is SW also taking opportunity to enhance?

Simon Parsons- that’s one of benefits of the current approach to investment, previously SW would have added on the enhancement elements to an existing works without looking at wider requirements. The investment appraisals looks around full site and catchment now and rarely only addresses purely enhancement now consider growth etc too. Blend of different works which will include maintenance activities at same time as growth where possible.

Michelle Ashford – There is a need to balance against infrastructure investment e.g., Recurring Customer Interruptions (RCI), there is obviously an increase in operational costs because of this. Do SW have view of deterioration of the supply? Less negative if get back into supply but there is a leakage impact too.

Simon Parsons - On Interruptions to Supply (ITS) and RCI, there are forecast to be 300 postcodes that will be outside approved policy because of the reduced investment in this area. These tend to be in rural areas and there is the risk of Customer Experience Measure (CEM) and customer complaint issues. Rural communities tend to be impacted by asbestos cement mains and power issues so this does link to the increased investment in those areas.

Michelle Ashford – SW are running a big water efficiency campaign, where is the balance between leakage and reduction in usage?

Simon Parsons- SW will be maintaining current levels of leakage and our focus will need to switch to addressing Asbestos Cement mains. Will be about 2 regulatory periods away from those pipes all needing to be replaced.

David Satti – how can we get to point where can articulate the Whole Life Cost (WLC)of not intervening. Need to be able to explain consequences of not doing and the impact on base service.

Alex Plant – The WLC mindset exactly what SW want to be able to get to. Avoid Capital Expenditure (CAPEX) / Operational Expenditure (OPEX) bias by looking at impact on service. As SW go into SR27 need to be able to decide where investment targeted on a WLC basis.

David Satti - decision on ITS are we able to articulate the WLC of doing this? Can we estimate the operational costs?

Simon Parsons - can do on likelihood of increased failure rate.

Action 19.01 - SW to set out impact of IPS24.1 allocations for water infrastructure on Tier 1 costs.

Q4–23/24 Proposed Needs List

Simon Parsons – SW appreciate the quick turn around by WG members reviewing the Proposed Needs offline to allow them to be presented to this meeting.

N3298 Raw water supplies. This need was briefly discussed at the WG. A potential solution is in testing at houses at Camps Reservoir. The results from this will be scaled up to be used at other sites. This can also be potentially used for private supplies over time. The need will be included in the Water Capability MA and has been built into IPS24.1.

N3297 Domestic smart metering trial – This need will support the climate adaptation plan. Climate Change will lead to a deficit of available water over time and Scotland needs to do things differently over time to reduce demand as Scotland is using more water than elsewhere. In England & Wales the biggest change in consumption was driven by the introduction of metering. SW are not looking to charge as a result of this trial. Propose is to pilot metering and its impact to help inform future approach.

Alex Plant – demand reduction, Per Capita Consumption (PCC) etc will be benefits of this but there is also a benefit of helping to identify network issues, customer side leakage etc too. Evidence suggests that real benefit of customer metering is in leakage reduction. Need to demonstrate this from a Scottish perspective and have data to support it.

Jon Rathjen – need to consider the term smart metering as it could have charging connotations. Really important that this is carefully managed, with regards to comms etc.

Gail Walker – education is a huge part of this. Without that it is hard to get that change in behaviour and understanding of impact of the changes.

Alex Plant – SW are using the smart networks in the Inverness area to try and do this for non-domestic but currently have not way of doing for domestic. Ability to tap into demand reduction through this, phenomenal amount to go for but we have to have leakage performance to get that buy in from consumers.

No objections to either of these needs coming forward, both are positive additions.

Members are keen to be involved in the development of the Domestic Smart Metering trial. The Cabinet Secretary will be keen to be engaged on this and it also links into policy development. This will be brought back to this group and through strategy group too.

Report on the progress of interventions to meet the needs on the Development List

Simon Parsons – This paper focuses on whether enough interventions are progressing into delivery and whether we are seeing this mature quarter on quarter. Figure 1, shows increasing maturity of investment over time. Starting to see investment into future years. Progress to the Committed List (PCL) is the measure that monitors progresses of interventions, at the end of Q3 PCL was 111.9% and currently on target.

Project Investment Appraisals (PIAs) – SW will be reviewing the reporting PIA progress as more projects are phased and held at early gateways. Two examples included this quarter. Penicuik Wastewater Treatment Works (WWTW), where innovative BioMag technology will be used for the first time in Scotland. Perth Water strategy project and plan to take water from Gowans Terrace to a new SR to gravity feed into the Bertha Park development. Will build 6ML tank initially and then a future tank when required.

David Satti – a review of lessons learnt is mentioned, what were the lessons learnt?

Simon Parsons – we look at quality and time and are we hitting forecast? This is impacted by scope changes and new projects coming in. For example many of our growth and flooding projects are getting stopped at Gate 50 (G50) which has impact. Prof. Brian Adey has recently undertaken a review, he was positive on the progress with PIAs, and the revised water and wastewater MAs are going well. There is still work to do in support services teams to get their PIAs to the same level.

Gail Walker – slide on development and growth demands versus ongoing service issues for existing customers. Is there a view of need to revisit developer contribution to these and SW investing large amount in growth. What are consumers putting in versus what they are getting. What is reasonable cost.

Rosemary Greenhill – will need to do as part of policy review also the different elements e.g. the Resonable Cost of Connection (RCC)

Jon Rathjen – Need to consider migration etc too and assess impact over time. The elements driven by migration etc need to be funded by SW.

Simon Parsons – SW do review payback times for growth, overall growth positive over the 60-year period, rural communities won’t pay back but the larger ones will e.g. Perth.

Transfers to the Committed List

Simon Parsons – normal quarterly paper showing what has been added to the Committed List.

Note one of the other significant projects – North Lodge Rising Main which has repeatedly failed resulting in significant temporary works, these temporary works cost more than the replacement works to keep the sewage moving during it.

The policy for pump mains is that following a certain number of bursts they will be replaced. This one hadn’t triggered the required threshold but once it started bursting it failed faster and multiple times. Reality of doing this job meant bypass would have been needed whether proactive versus reactive.

The full list of additions is in the appendix.

There is currently an internal review of the Delegated Levels of authority. Currently any PIA over £3m would be added to the Committed List. This threshold is being reviewed and may increase, SW will provide an update when this is done.

Scottish Government Investment Group – Terms of Reference 2021-27

Darren Knox – Scottish Government Investment Group Terms of Reference (TOR) was shared with the group in advance, it combines the TOR from previous groups into a single TOR. Have included SPSO which may need to be amended once their attendance is confirmed. Have included that the TOR should be reviewed at least once during the regulatory period.

Alex Plant – good to have but one point missing, everything in context of committed projects, outputs etc but doesn’t refer to wider outcomes which are also discussed in this group. Considerations on how outcomes may change over time.

David Satti – build on that, negative outcomes of not doing work is also an element of this.

Simon Parsons – assumption that this group is focused on the current regulatory period, and what SW are delivering in this period. Then moves onto some of what should be part of the strategy group, need to be clearer that this group covers this period and the strategy group covers a wider period.

Jon Rathjen – this group should focus on this regulatory period and where relevant prior and subsequent periods.

David Harley – agree, is it also worth having a graphic of how it feeds into the wider governance?

Gail Walker – Keen to understand requirements from Consumer Scotland from the wider group, what level is needed at IG? Guidance on what level of thinking is required would be helpful. If not they make a judgment call on attendance.

Rosemary Greenhill – consider whether there should be a topical issues agenda item at this group too?

Action 19.02 – Scottish Government to update draft IG TOR base on feedback and consider adding to wider governance list to ensure periodic review.

Any other business

Rosemary Greenhill – Environment Standards Scotland (ESS) report. Need to study in detail. We have 3 weeks for fact checking. It has been sent to SG and SEPA have been asked to review. Note – SW also received after this meeting.
Scottish Government, SEPA and Scottish Water to collectively develop a response to ESS response to ensure consistent approach and understanding.

IUWRM Update – Simon Parsons. An update was provided at the WG and gave a short summary to the IG group. Discussion on progress towards monitor installation and Combined Sewer Overflow (CSO) upgrades. A paper will be provided to the WG on progress with high priority CSOs.

Flow data comes out on 27th March. Have discussions before that date.

The next meeting is scheduled for 3rd July, hosted by SG at St Andrews House.

Actions

• action 19.03 – Scottish Government to ask what powers ESS have e.g. are its recommendations advisory or mandatory? How do they align with regulatory powers?
• action 19.04 – Depending on the outcome of action 19.03 consider whether ESS should be included in these meetings on a similar basis to SPSO
• action 19.05 - Scottish Water and SEPA to discuss the commitment to address 108 high priority CSOs then bring an update paper to next WG on progress towards the High Priority CSOs

Investment Group Minutes March 2024

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