Committee publication · Correspondence · 1 April 2025
Correspondence from Dŵr Cymru (Welsh Water) regarding leakage and remuneration, dated 28 March 2025
From: Environment, Food and Rural Affairs Committee
Inquiry: Reforming the water sector
Summary
Welsh Water responds to the EFRA Committee's inquiry on water sector reform, addressing two commitments from oral evidence. On leakage, the company clarifies that its Final Determination target (circa 25%) remains unchanged from Draft Determination; what shifted was the profile of reductions, now spread across five years rather than concentrated in 2025/26, eliminating the predicted £64m penalty. On remuneration, Welsh Water outlines its executive pay policy across base salary, benefits, pension, Annual Variable Pay (AVP), and Long-Term Value Performance Scheme (LTVPS), with maximum AVP at 100% of salary and LTVPS capped at 500% for the CEO over five years.
Key findings
- Moody's identified a potential £121m penalty for outcome delivery incentives in Draft Determination, including £64m for leakage due to assumed step reduction in 2025/26; this was eliminated in Final Determination by spreading reductions across five years.
- Welsh Water's leakage target remains 25% in both Draft and Final Determinations; the penalty resulted from profile timing, not target change.
- Executive remuneration policy balances stakeholder expectations with competitive pay to attract and retain talent; approved by Glas Members in July 2023.
- AVP scheme delivers maximum 100% of salary based on performance against threshold, target, and maximum levels; FY 2024 outturn was 25.77% (CEO £91k, CFO £72k).
- LTVPS scheme offers CEO maximum 500% over five years (100% per annum capped); returned nil payment for last two years (2022/23 and 2023/24) for both CEO and CFO.
Tone
ProceduralTopics
Key actors
Welsh Water (Dŵr Cymru), Environment, Food and Rural Affairs Committee, Ofwat, Moody's, Alistair Carmichael MP, Peter Perry, Mike Davis, Glas Members
Notable line
“Rather than targeting the bulk of the leakage reductions in 2025/26, the reductions were spread over the 5 years.”
Key Quotes
“Rather than targeting the bulk of the leakage reductions in 2025/26, the reductions were spread over the 5 years. These reductions were consistent with our own business plan proposed leakage targets meaning that if we deliver our Business Plan we will not incur the leakage penalties in 2025/26 as previously expected at DD stage.”
“Our leakage target remains the same in the FD as it was for DD at circa 25% (it was the profile of leakage reductions that caused the penalty at DD).”
“Our Remuneration Policy for Executive Directors considers the perspectives of our internal and external stakeholders, including our customers, employees, Members, relevant regulatory bodies and wider society.”
“The overall performance achieved for FY 24 in the Executive Directors' AVP was 25.77%.”
Source · parliament.uk record ↗