The price regulation conducted by economic regulators is a high-stakes process, with significant and lasting effects: prices are often set for a multi-year period and have wide, tangible impacts. Price regulation influences investment in infrastructure maintenance and upgrades, and can facilitate the transition to a low-carbon economy and society. Ultimately, price regulation affects the daily lives of citizens, impacting household bills and influencing the quality of services households receive. At its best, price regulation has the potential to position the regulated sector to contribute to long-term goals and policies, and remain resilient to future shocks.

The Water Industry Commission for Scotland (WICS) is the economic regulator of the Scottish water sector. Economic regulation has brought significant benefits to the sector, including improved efficiency and customer focus by the publicly owned Scottish Water, the single operator in the household market, and effective retail competition in the non-household market.

Since its launch in early 2017, SRC21 has progressed in the context of an evolving policy environment. The points below highlight key developments in and alongside the SRC process.

This chapter summarises the key insights and recommendations resulting from the multi-year peer review of Scotland’s price-setting process for the water sector (the Strategic Review of Charges for 2021-2027, or SRC21), launched in 2017. It draws lessons from the completed SRC21, identifies lessons for the delivery of SRC21 and looks ahead to next steps on the regulatory journey.

Since the initial regulatory framework in Scotland was established in 1999, the economic regulation of the water sector in Scotland has evolved considerably to address changing objectives and involve new actors. This chapter provides an overview of the market structure of the sector, the actors involved in economic regulation, and the regulatory approach over time.

During SRC21, WICS and other parties aimed to modify the approach to economic regulation in the sector to address a range of interrelated challenges: 1) the limitations of an adversarial approach, 2) challenges associated with long-life assets and time inconsistency, 3) lack of flexibility of investment, and 4) embedding the customer and community voice. This chapter summarises and analyses the components and major milestones of SRC21 within each of these four challenges. Each of the sections summarises the starting point at the outset of SRC21, explores how WICS and stakeholders made progress within this area, and looks ahead towards emerging challenges.

Through regular decision papers, WICS communicates its evolving understanding and expectations for the regulatory process. Between June 2017 and February 2020, WICS published a series of Decision Papers outlining its views on key parameters for the Strategic Review of Charges. The Decision Papers “sought to build a common understanding of the key regulatory inputs and the likely challenges the industry will face in 2020-21 period and long into the future” (WICS, 2020[1]). These papers, published on the regulator’s website, served to provide technical information to the stakeholders involved in the SRC.