We currently charge most households less than £1 a day. We face increasing pressure on our finances, mainly because we will need to increase significantly the extent of asset replacement, but also because both our customers and regulators expect us to improve our services. However, we recognise too that many households and businesses are under financial pressure. Against this backdrop, we are setting a very stretching ambition of keeping customer prices low.
We propose to balance the rate of investment with the impact on customer prices by aiming to limit price increases from 2019 onwards to the rate of inflation, and by seeking continued access to appropriate levels of borrowing from the Scottish Government. Adjusting prices annually in line with inflation in the near term will be essential to seeking to limit longer term price changes to inflation.
To achieve our ambition of keeping customer prices low, we will also focus on keeping costs down by being ever-more efficient and innovative, delivering within our means and balancing investment priorities with the available financing.
Over the past 15 years, our efficiency and the service we provide to our customers have both greatly improved. We will continue to embrace lean management, operational excellence and research and development as ways to deliver improvements.
Twenty of Scotland’s waste water treatment works, and our largest sludge treatment centre, are currently operated under long term Private Finance Initiative (PFI) contracts. We will manage the end of our PFI contracts on a case by case basis to take advantage of cost saving opportunities and manage the risks. When we take back control of these assets, we will need to invest to maintain or replace them - whichever delivers the best value. We expect there to be scope for long term savings because of our lower financing cost and advantages from integration with our wider workforce and asset base.
As historic debt reaches the end of its term, it is replaced with new debt. We always try to minimise the interest costs on new debt, locking in low fixed rates for as long as possible, particularly in the current climate of low interest rates.
We will use our customer research to review and prioritise annual investment of around £550m to £650m over the next 25 years. We will work in partnership with regulators and stakeholders to identify projects that can deliver multiple benefits.
At the same time, we are embarking on joint working with our economic regulator, the Water Industry Commission for Scotland, to improve our understanding of the significant necessary increase in the long term levels and timing of investment to maintain and replace our ageing infrastructure and assets.
We expect Scotland’s population to keep growing. This initially puts pressure on expenditure as we expand our network to supply additional housing and ensure there is sufficient capacity in our systems.
The cost of this investment to support new developments is currently shared between existing customers and new customers/ developers. We propose to work with the Scottish Government to review the current arrangements to ensure a fair balance of cost sharing over the long term.
We support the continued use of council tax bands as the basis for setting household customers charges as it is simple, cost effective and also provides a level of fairness.
We will continue to work with stakeholders to understand how we can best help customers in the most vulnerable circumstances, who may struggle to afford their water charges while also exploring opportunities to broaden our revenue base.