1. The Strategic Review of Charges 2010-15: The Final Determination 26 November 2009

2. Our Final Determination takes account of: − 22 representations received on June’s Draft Determination − revised and increased Scottish Government objectives − the Scottish Government’s Principles of Charging − the potential impact of the Climate Change (Scotland) Act, 2009 on the Scottish water industry − extra £8m of costs associated with mains diversions to allow progress on the Edinburgh Trams Project

3. For households we concluded that prices to households should increase at 5% less than the rate of inflation up to 2015: − prices will be frozen in April next year − prices could be frozen the year after depending on the rate of inflation − over each of the years 2012-15, charges should increase by less than the rate of retail price inflation − the outcome for water only customers is even better

4. For business and public sector organisations, we concluded: − all such organisations, except those in receipt of trade effluent services, should see their charges follow the same profile as for households – frozen for up to 2 years and thereafter increasing by less than inflation (2012-15) − But all organisations should be able to negotiate an improved level of service and/or lower charges because of the competition framework

5. Trade effluent customers have been in receipt of a cross-subsidy from both households and other non- household customers: But some trade effluent customers are still paying more than their fair share We will consult further on how these cross-subsidies should be unwound In the meantime, we have limited the increase in trade effluent charges to 1% above the rate of inflation

6. Scottish Water will remain in a strong financial position – notwithstanding the limits that we have placed on customer charges… It will be as financially strong as the best performing companies south of the border Total debt will remain around 50-55% of its regulatory capital value It could accumulate reserves of up to £80 million assuming it meets the terms of its regulatory contract Customers’ charges would not increase if the Scottish Parliament were to decide to require Scottish Water to borrow commercially

7. Scottish Water has been challenged to improve the service it provides to customers. OPA E&W WASC OPA2007-08Band Anglian402 >400 Wessex400 Yorkshire389 380-400 Thames380 South West380 Dŵr Cymru375 <380 Southern374 Northumbrian349 Severn Trent342 United Utilities341 2013-14 upper quartile range performance challenge 380 400

8. Scottish Water is also charged with delivering a further very large investment programme in the 2010-15 regulatory control period

9. This investment programme will bring many public health and environmental benefits whilst contributing to economic development: Water Protection from Cryptosporidium at 44 high priority sites A major programme of water mains refurbishment Waste Water Reduction of the number of unsatisfactory discharges to Scotland’s watercourses and beaches Growth Providing a supply wherever it is needed Reducing the risk of sewer flooding

10. It will also lead to a greener industry: − Household meter trials, including the use of new tariffs − Reducing leakage (by more than a third) to its economic level − Reducing the amount of rainwater that unnecessarily enters the sewerage system, hence mitigating the risk of flooding from sewers − Working in catchments to reduce the requirement for chemical intensive treatment processes − Incentivising water efficient housing developments − Development of renewable generation

11. Looking forward we intend to work with Scottish Water and other stakeholders: to improve understanding of how the industry incurs all its costs to develop regulation and implement a robust accounting separation of network and treatment activities to create incentives for Scottish Water to consider operational as well as capital intensive solutions to increase further the engagement of customers in future Strategic Reviews of Charges to draw on the experience of retailers in understanding the needs and priorities of customers

12. Questions ?