Price limits set for Scottish Water 2006-10

The charges that Scottish Water will be able to charge its customers for the next four years were announced on 30 November.1 The limits are slightly more generous than the draft limits put out for consultation in June, but the environmental programme remains unchanged, apart from a slight increase in spending on water treatment and reducing leakage.

The new charges will fix Scottish Water's investment programme at £2.15 billion for the four-year period - a modest increase on the draft price limits (ENDS Report 366, p 42 ). Following consultation, the Scottish water financial regulator, the Water Industry Commission, allowed the company extra spending to compensate for inflation, operating costs and capital expenditure.

The annual average price increase will now be 2% rather than the 1% previously proposed. However, the annual rise will be 0.5% less than the retail price index for domestic customers and 1.5% below the RPI for non-domestic customers. The price differential will wipe out a £44 million in cross subsidy for domestic customers.

The investment programme remains unchanged on the wastewater side, but the Commission has allowed some extra operational expenditure on drinking water treatment and on reducing leakage.

Scottish Water will receive an extra £45 million towards the operational costs of water treatment - largely prompted by a call from the Scottish Drinking Water Quality regulator.

The company will also be given a modest £8 million a year over the last two years of the settlement to begin to address its high leakage rates.

However, the investment programme remains too small to tackle all that needs to be done to bring Scottish standards up to those in England and Wales. The Scottish Executive estimated that some £6.3 billion needs to be spent between 2006 and 2013 (ENDS Report 355, pp 49-50 ). The settlement up to 2010 will not even go half way to meet that target.

The result is that Scottish Water's performance will not match companies south of the border. The failure to meet equivalent standards of compliance with consents will have knock-on effects on water quality.

Scottish Water has until the end of January to decide whether to appeal to the Competition Commission against the settlement.

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