Scottish Water has highlighted the challenges of maintaining public water supplies to support health, hygiene and hydration during the year of the pandemic in a new performance report.

The water company has set out the challenges it has faced during the year in its annual Performance and Prospects report for 2020/21 published yesterday.

Chief Executive Douglas Millican said the pandemic  had presented unique challenges to the public body responsible for delivering 1.5 billion litres of water daily and treating more than 1 billion litres of waste water, before returning it safely to the environment.

Commenting in the report, Scottish Water Chair Dame Susan Rice said the Covid-19 pandemic had also posed challenges to one of its subsidiary businesses, Business Stream, which supplies water and waste water services to customers in the competitive non-domestic market.

“Business Stream acted responsibly and swiftly to provide a wide range of measures to help alleviate the financial pressures on customers, including the relaxation of payment terms introduced by the industry regulators. As anticipated, this has impacted its own cashflow and profits but current financial scenario forecasts are within the formal funding support facility put in place last year to meet the shorter-term liquidity impacts associated with the pandemic,” she said.

Public health and customer experience were prioritised throughout the year in the delivery of core services to maintain supplies and minimise any disruption.

Douglas Millican said:

“The impacts of the pandemic have been very significant for Scottish Water. Our role in providing people with clean and safe water and waste water services needed for good health and hygiene, means our responsibilities have never been so important.

“I am pleased that our performance throughout the year was strong despite experiencing some of our toughest ever circumstances.”

Performance on customer experience measures increased, despite the range of challenges which faced the organisation.

There were sustained periods of very dry weather, freezing conditions and severe flash flooding throughout the year – indicating continued impacts of the changing climate on water resources and ageing infrastructure - which affected customers and services.

“Many projects are behind where we and our regulators expected they would be"

During the early stage of the pandemic, Scottish Water’s multi-million-pound infrastructure investment programme was largely suspended for over three months as a result of the Scottish Government’s shutdown of construction sites in spring 2020.

“This means that many projects, needed to maintain or improve service to customers or the environment, are behind where we and our regulators expected they would be", the report says.

According to Scottish Water, while capital projects had been restarted with new Covid-19 safe ways of working, there has been an inevitable impact on productivity adding around 4% - 8% to project costs depending on the type of investment activity.

The pausing of the company’s investment programme meant that the overall level of investment for 2020/21 at £612 million is less than planned. However, following changes to government restrictions last summer, Scottish Water had returned to the majority of its capital investment sites.

During the last year, the utility also took additional steps to support businesses impacted by the pandemic by making payments to suppliers as soon as practicable and extending £59 million of working capital support to Licensed Providers (LPs) through the suspension of prepaid wholesale charges.

Although the multi-million-pound infrastructure investment programme was largely suspended in the early stage of the pandemic, it was safely brought back on-stream working closely with contractors, suppliers and partners. Additional financial support arrangements were also provided to businesses impacted by the pandemic.

During the pandemic Scottish Water also worked with partners to assist in early-warning tracking of virus hotspots through the waste water treatment network.

Focus kept on progressing with transformation plans for the next 40 years

Scottish Water’s Chief Executive said a focus was also kept on progressing with transformation plans for the next 40 years.

These include reducing carbon emissions to net zero, transforming waste water services and managing a vast ageing asset base which requires further investment. In September 2020, the Net Zero Emissions Routemap was published setting out how Scotland’s water and waste water services will transform over the next 20 years to reduce our contribution to global warming.

The report describes last summer as “a challenging period” for cases of external and internal sewer flooding. According to Scottish Water, while it’s possible to put this down to extreme weather at that time, the impact of climate change means such weather patterns are increasingly common –“ we face a growing problem of sewer flooding” the report says.

Together with the greater interest in open water swimming, this is also leading to a growing area of customer and community complaints and stakeholder requests for action.

” In response we are piloting new approaches to provide more immediate solutions and it will remain a challenging issue.

“This will most effectively be resolved by working over the long term to improve sewer system monitoring and reduce the volume of surface water entering our sewers.” the report states.

Pandemic placed a number of pressures on income and costs, impacting level of surplus Scottish Water can reinvest

According to the report, financially, the pandemic has placed a number of pressures on Scottish Water’s income and costs, impacting the level of surplus it can reinvest.

However, the strong cash position with which the utility entered this year enabled it “to weather the Covid-19 pressures” while it completes its commitments from the 2015-21 regulatory period.

Before the pandemic, the water company had determined that it should hold a minimum cash balance of £100 million, albeit its cash position was usually greater than this in practice. In light of the pandemic, Scottish Water has now determined it should now “always hold a minimum cash balance of £200 million, equivalent to approximately eight weeks expenditure.”

Scottish Water’s cash balance at 31 March 2021 was £428 million - around £290 million of this is already committed to complete outstanding investment from the 2015-21 investment programme with the balance required to contribute towards planned long-term level of minimum cash holdings to manage residual business risks.

The report says:

“Because of the long-term nature of what we do, some of our performance can only be fully understood over a longer timescale. Through a six-year lens, our performance has been strong and stands in good comparison against other water companies.

“Our levels of investment mean we are consistently one of the biggest investors in critical national infrastructure and a major provider of jobs, particularly in engineering and construction sectors.”

Efficiency of capital programme delivery a key area of focus in last two years

The efficiency of capital programme delivery has been an area of focus for the company in the last two years, with benchmarking against other companies highlighting a number of areas which can be improved. These include cost forecasting and management and on-site delivery.

One example of improvement cited in the report is Scottish Water’s “get to site in half the time” initiative which has set targets to reduce time taken by 50% and cost by 30% to get projects included in the initiative to site.

The company is still piloting this – the report says:

“As we scale this initiative more broadly, efficiency of delivery of our capital programme will remain a focus as our investment levels increase yet further in the next six years.”

Douglas Millican commented:

“This year has proved challenging for us all. As we move forward, we are committed to delivering the best for our customers across the country, providing value to them, supporting the wider economic recovery of the country and doing all we can to protect the environment.

“The twin challenges of climate change impacts and our aging infrastructure mean there is a real and pressing need for transforming our services. This means increased levels of investment delivered more efficiently, reducing our own emissions and going beyond that to help others do the same, and changing the we way operate to ensure future generations can have confidence in their water and waste water services. Our relationship with our customers is vital to all we do and they have a key role to play in supporting our future ambitions.”

The 12-month period covered by the report marked the end of the 2015-21 regulatory period -the new regulatory period started in April 2021. In February 2020 Scottish Water published its Strategic Plan: Our Future Together, seeting out how it will address the twin challenges of ageing assets and climate change.

Since the launch of Our Future Together and Scottish Water’s Net Zero Routemap in September 2020, economic regulator, the Water Industry Commission for Scotland (WICS), has published its Final Determination of charges. This set out the available financing that will support “a substantial increase in the level of investment we will make over the next six years, the report says.

The report says that only nine months on from the launch of the Net Zero plan, Scottish Water is moving ahead with some early wins, including energy efficiency measures and more renewable energy generation.

Click here to download the full Annual Report & Accounts: Performance and Prospects