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Public Audit and Post-legislative Scrutiny Committee 18 March 2021

18 Mar 2021 · S5 · Public Audit and Post-legislative Scrutiny Committee

Item of business

Section 22 Report

“The 2019/20 audit of Scottish Water”

Dame Susan Rice (Scottish Water and Scottish Water Business Stream) Watch on SPTV

Good morning, convener and members. Thank you for inviting us to give evidence. We value the committee’s scrutiny, the Auditor General’s report and the overall audit process. The year 2020 and the effects of Covid-19 were not something that anyone, including the Scottish Water group, could have fully envisaged or planned for. Within Scottish Water, our main focus has been to keep water and waste water services flowing across the country for our customers and to do that in a safe and compliant way to protect staff and customers. At the same time, we have continued to deliver our crucial capital investment programme in line with all Scottish Government guidelines. Business Stream, which has also managed its operation activities well, acted quickly to go the extra mile to support those of its customers who were most affected by the pandemic. That help continues and will be required for many more months as the full economic effects continue to be felt. Business Stream believes that it is imperative to do what it can to assist its hardest-hit customers. As you will know from the previous evidence session, on 28 January, Business Stream is a company in the Scottish Water group, but in regulatory terms it is separate from Scottish Water. It provides water and waste water services to businesses, to the public sector and to not-for-profit customers. It does that in the regulated, competitive non-household retail markets in Scotland and England. It has its own board with independent directors, which I chair. It is funded and subject to Scottish Water group governance through its immediate parent company, Scottish Water Business Stream Holdings. Business Stream is one of the United Kingdom’s largest and most successful licensed water retailers, and its good reputation for quality and service has enabled it to grow significantly as the market has evolved. It works closely with business customers in all sectors, creating long-term relationships as it delivers value in a highly competitive market. It has also delivered positive cash returns for Scottish Water Business Stream Holdings—its parent company. Throughout the pandemic, Business Stream has provided a wide range of measures to help to alleviate the financial pressures on its customers. Therefore, as a direct consequence of Covid, Business Stream has seen an impact on its cash flow and profits, which we understand is similar to what other licensed water retailers have seen. Business Stream has developed financial forecasts for possible future scenarios, to predict what measures might be needed as the economic effects of the pandemic play out. There is no certainty that additional financial support will be required, but it is important to ensure that the right measures are in place, if needed. After careful consideration, including robust assessments and advice from external financial and legal experts, and in consultation with the Scottish Government and the WICS—the Water Industry Commission for Scotland—it was agreed that the parent company and its holdings should make a necessary Covid funding facility available to support Business Stream in these extreme circumstances, if and when required, with any borrowings to be repaid within a five-year period. At this time, Business Stream has not drawn down any of that funding and has no immediate plans to do so. No borrowing from the Scottish Government will be needed, because any moneys will come from overall Scottish Water group cash balances achieved by outperforming financial targets set out in the regulatory plan for the past six years. If that facility was used, there would be no effect at all on domestic customer charges or on Scottish Water’s capital programme activities. It has been an extremely challenging period for many organisations, and we have not been immune. However, I am confident that the support that is in place offers the best possible route for ensuring that Business Stream and its business customers continue to thrive in the future, which I hope and trust you will agree is the outcome that we all want.

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Public Audit and Post-legislative Scrutiny Committee 18 March 2021

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