I am sorry, I am really struggling to follow that.

Sorry, I can try again.

I understand that that release of information came from the first-tier tribunal. Is that correct?

It came from?

The first-tier tribunal, not the Information Commissioner.

That came from the Information Commissioner.

Well, wherever it came from, the data released in June 2024—as we have been told; tell us if we are wrong here—was that the Whitburn pumping station discharged 1 million tonnes of raw sewage in 2023. Is that correct?

That is inferred. This was the debate that was going on. With the Whitburn system, we provide a lot of regulatory—

When you say it is inferred, is that another way of saying you do not actually know?

We managed the system in a different way—using different information—from how that customer specifically wanted.

How much discharge did you think there was on the basis of the figures you hold?

Not as high as that.

How much?

Would it be okay if I came back to you with the exact number? It is not as high as that.

Are we talking a tolerance of 5%, 10%, 50%?

I do not want to guess because I do not think that would be fair on the Committee. It is not 90/10, but there is a difference.

So there is a difference. How easy would it be for a customer to find the information that you think is the accurate figure using the interactive maps and the rest of it that you have spoken about?

The currency the country is using—if you like, the data the country is using—is typically spill numbers and spill duration, and that is on those maps. For any storm overflow on any day, customers can see when it last spilled and how long it spilled for, and we also publish that data in its entirety in a big file. Any customer can look at that any time. What was going on in this debate was trying to decide how much water might have gone out because of course sometimes it will be lower or higher depending on the rainfall. We are regulated on the number of spills and their duration. That is the regulatory information that we are typically working with, and the whole country is trying to bring the number of spills down with the Storm Overflows Discharge Reduction Plan that we are now all working to.

In terms of what you are describing, though, you say you have had conversations with the Information Commissioner. I am not hearing you talking about conversations with your customers.

We talk with the same customer as well; we have met with him many times, along with the local MP. He is very active in his interests, as of course he has every right to be. We meet with the customer on quite a number of occasions.

We do not really have time to dwell on this, but Ellie, did you want to come in at this point?

I am just conscious of time, and we have moved on.

We have dealt with it. In that case, we will move on to look at questions of ownership, returns to investors and executive pay. Andrew, can you lead the questioning, please?

Again, if I could take it in two separate parts. I would encourage you to look at the dividend profile across the five years because there are also years in which we did not pay a dividend, so we are looking at things in the round and over the long term. We have a very transparent and published dividend policy, which anybody can look at at any moment in time, and it looks at how we make those decisions about what is appropriate and against the performance we are delivering to our customers at the same time. Across the five years, you would see we have a dividend yield of about 5.3%, which is more or less in line with Ofwat expectations. This is a regulated sector with regulated returns, and we are broadly in that scope with some ups and downs over time. When we are publishing those actual numbers—all very transparent; you can find them on our website—you will also see the dialogue that sits behind that about why we think our performance is improving. Our customers will tell us that the environment is important, but that customer service is also important, as is clean, clear drinking water. The goals and targets we have set our decisions against are wider, and we look at that performance in the round. You might come on to pay, and you may have seen recently that Ofwat has not typically challenged that we are following our dividend policy correctly in any of that period of time, or that we are not making reasonable decisions with regards to pay, but that we are setting stretching targets in line with customer expectations and matching up to them. There are ups and downs, but it is about 5.3% over the period of time, which is in line with regulatory expectations.

No.

The dividend policy links the dividend paid to service performance delivered for customers directly. We cannot pay a dividend. It would be very difficult to pay a dividend in a circumstance where we were overspending materially against the allowance, getting big service performance penalties in the round, and having to raise finance at higher rates than had been allowed in the determination. A much lower value would certainly be allowed under the policy. The reason we have been able to pay a dividend at that level is that service performance to customers has been met. For example, in the service performance area, we look at the ODI, Ofwat’s Outcome Delivery Incentive position; that is meant to reflect customer preferences in the valuation for those, which then feeds through to the dividend, so there is a direct link. If we had really bad service performance years in the round, that would come off the dividend.

The direct link is we look at service performance in the round. To Heidi’s point, that includes environmental measures as well as other measures, such as customer service and so on.

I would probably say no.

As I have said, the dividend is directly linked to all the other service performance metrics that customers care about, which were set in 2020, the last time prices were set. To Heidi’s earlier point, we are doing everything we can to try to improve performance in that area, including a lot of additional investment funded by shareholders beyond what was allowed. That does come off the dividend.

What we are trying to say to you is that we have been taking all the services we provide into account rather than one particular thing. Although I understand the strength of feeling around spills, if we ask customers what their most important thing is, they typically tell us it is the reliable provision of clean, clear drinking water and customer service, so there are other things. Rightly or wrongly, we have been taking everything into account rather than, say, one criterion, everything goes. We think it is important to listen to all customers’ views and take them into account in the round. Obviously, over that time, the issue of sewage spills has become more prevalent. Prior to that, our bigger focus on this pressure on the sewage system was whether properties were flooded, and we have reduced that number by 70% in this corresponding time, which is a really positive thing. This is a system under pressure because of the rain. First, we went to try to fix it in properties and then started to look at when it comes into rivers as well, which is also important. We are on a journey with this, which is why we have more investment coming in the next five years to work more on that, and why our shareholders said to us, “Get going on that early, on our expense,” and that is what we are doing. I would like the Committee to understand that we worked very hard to reduce flooding in properties. We then observed that that pressure was still going on and water was coming out elsewhere. We started working on that early. So we are very much on this journey and working very hard to get ahead of the game because we do recognise the issue. We also recognise that other service provisions are important to customers, and it is important to listen to those and not just to say it is all about one thing; it is about all these things that we have to do. I do not want to look at one and forget others because that would not be right, and you would not want us to do that; we look at them all.

Because of our dividend policy going forward, that is absolutely how it will play.

Because we are transitioning from looking at a broader set of criteria to having that element in that criterion as well because of the way the public feel about it; that is absolutely right. I still do not think it was wrong to have other service criteria in that decision-making process as well because if we do not keep all those things in balance, something else will not go right, and nobody wants that, right? We can multitask but we are giving greater weight now to that than we did previously because of the direction of travel we have gone in. As I said, going back five, six, seven years, we were definitely focused on property protection first, then storm overflows, and I would still argue that property protection is really important.

The Chair asked us the question about elevated concern earlier and we explained how we believe the level at which we keep our gearing is sustainable for an infrastructure company, so we have probably touched on that. Regarding our bonuses, we set very stretching targets. As I said right at the beginning, we are aiming to be industry-leading. On more than one occasion, Ofwat has commended us that our targets are stretching because we do not only set them at the regulatory level; we set them higher to push our people to be industry leading, and we are all moving in that direction and doing well together as a team. Our bonuses are linked to performing either at a regulatory level or better.

I should remind the Committee that this is managed by an independent committee to the executive; we do not manage this process. You will find that very common in many companies. We have an independent remuneration committee that has chosen the broad suite of indicators that it believes is indicative of what customers want the company to do. You can see this; as I said, it is incredibly transparent. Ofwat has looked at them and said, “Yes, they’re aligned with what we believe customers want, they’re a balanced scorecard, and the targets are stretching.” We have to then meet them.

I have explained the process we have gone through. In that bonus, more weight would be given to internal sewer flooding because we believed that was the most important thing for us to focus on first. I think the remuneration committee—I am not in control of this and its making of these decisions—will transition to now going to spills because we have managed a 70% reduction.

But it is a measure because the environmental elements in our bonus take into account the performance of the sewer network, particularly in relation to the impact on properties. We have to manage the network such that we do not have impact on properties, which is right. We also have a boundary for the environmental criteria that unless we get three stars in the EPA assessment, which covers a whole range of environmental factors, we cannot access that either. So we are focused on the management of the sewer network—particularly related to properties and I think the remuneration committee—because we have managed to reduce that significantly, which we should all say is a really good thing. People are not suffering impacts into their homes, which nobody would want. We are now transitioning that to spills.

No, I am trying to explain why the system has been devised the way it has by the remuneration committee and there is some merit in that. The starting point is what customers say is important to them, and we have a lot of research about that. Is the executive group charged at meeting stretching targets for all those things? You can see this all written down and see Ofwat agrees with the list we have and the fact that we set stretching targets. There are things to do with the sewer network in there, albeit it was focused on customers’ properties. The reason it has been going up is we have been getting better at that. I only get the pay award that the staff get, but if we improve, the performance bonus could potentially make that look a bit bigger.

Yes, because the performance bonus is increasing, but my base pay only increases by the same as the employees’ base pay.

I fear we have probably got as much out of this as we are going to today, although clearly some questions remain. Heidi, Andrew, can I thank you for your attendance this morning? As you know, this is part of an ongoing inquiry. We will return to it with some of your colleagues immediately, in fact, but in the meantime, I thank you for your attendance and participation today. Witnesses: Peter Perry and Samantha James.

Good morning, and apologies for having kept you; it is just sometimes how it works. The previous panel required a little more interrogation. Welcome to the Committee, Peter and Samantha. Just for the benefit of those who are following our proceedings and for our own official record, can I ask you to introduce yourselves and explain your role in Welsh Water?

Good morning, everybody. I am the interim chief financial officer for Welsh Water.

Good morning. I am the chief executive officer at Dŵr Cymru, Welsh Water.

As you know, we have been hearing evidence from a number of other companies in your sector. Can I ask you—as I have asked others—to give us a thumbnail of how you see your business operating? What is important to you? Is it financial performance, environmental performance, transparency or customer engagement? What is the culture that you seek to foster within Welsh Water in the execution of your duties?

Thanks for the opportunity to address you today. From the board through the whole organisation, our approach is very much one of a public service ethos. If I had our water treatment colleagues alongside me, it would be one of public health, and if I had our colleagues from our environmental business—our wastewater business—it would be very much around protecting the great environment we have in our operating area. In terms of openness and transparency—Glas model—the not-for-shareholder model has emphasised that from day one. A good example to bring this to life is the issues we had with leakage reporting. That was something we found ourselves and immediately went to our regulators with. We have done this on numerous occasions, and we try to make sure that that openness and transparency runs from the board right through the whole organisation. In terms of our people, we have just had our 2024 employee engagement survey, which scored 75%, and I pay tribute to our people because they deliver service for us on a day-to-day basis. The whole emphasis is on openness and transparency. We knew we were off the pace, and some of our performance is not where it should be, but it is one of always remembering, despite winds and weathers—we see a fair bit of that in our operating area on the western side of the UK—it is a public service ethos. Of course we run the business as a commercial entity; we have to do that and behave in a responsible way but overarching that is one of service and trust. Our vision for the company is to earn the trust of our customers every day. Although some of our measures are not where they should be, we were pleased that in the Consumer Council for Water survey for trust of companies, we came out first in 2024. We have always been in positions one, two or three. In the Ofwat customer satisfaction measure, we have tended to be in the top four companies. Again, that ethos of the business runs through the whole organisation.

I am going to look first at the company’s environmental performance. Henry, can I ask you to lead the questioning here?

You have touched on the environmental performance being one of your key metrics and of real importance to Welsh Water as a company. It has been reported that there has been an increasing amount of pollution incidents over the last four years. In the last reporting year, there were seven serious pollution incidents. You were rated by NRW with two out of four stars, which said it was one of the worst performances to date. What is going wrong and why is there such a difference between what you just set out there and the reality on the ground?

The first thing I would say is we are absolutely disappointed with our environmental performance. We are not comfortable at all where we are and are doing something about it. In terms of the drop, we were four-star back in 2020, and we dropped to three-star and then two. The way the environmental performance assessment is pulled together is it allows a certain number of pollution incidents. If you look at the serious incidents in the last couple of years—category 1 and 2—half are actually linked to a number of strategic assets that we are due to replace in the new AMP period, which starts in April. Where we have had serious incidents, we have a very clear investment plan. To bring this to life, about two or three of the seven occurred on something we call the southeastern coastal main, which is a pumping sewer from Chepstow to Newport. That runs through a SSSI; I am sure you understand what that is. If we get a leak on that sewer, it does not have to cause any environmental harm for it to be categorised as a serious incident. Thankfully, we have not had any fish kill incidents on that particular asset. So that is the one aspect of it, and we have investment to tackle that to pull pollutions back. The other element is the things we are doing operationally and we are now in the process of developing. We have great monitor coverage; just under 100% of our overflows are monitored. We are putting artificial intelligence into our wastewater network through something called StormHarvester, which is being deployed at a significant rate at the moment so we can actually get ahead of blockages and pollution incidents. I am not going to miss the opportunity, if I may, to ask parliamentarians to do all you can to ban plastic wet wipes because somewhere in the order of around 80% of our first-time pollutions on the sewerage network are linked to wet wipes. We are uncomfortable with where our performance is, but we have a clear plan in respect of category 1 and 2 pollution incidents, much of which is linked to future investment. In general, in terms of less serious pollution incidents, we are deploying operational strategies to get on top of that.

I would like to just touch upon the sewer overflows and the spills per storm overflow. It gets quite complicated because the measurements that NRW provide are different in respect of the industry, so the figures are difficult to compare. You can correct me if these figures are wrong: I have 53.5 spills per storm overflow compared with 33.1, which is the sector average in England. I hate doing these comparisons with England, but it helps for the present purposes. The average spill duration was 8.6 hours but the average in England was 7.8, and then if you look at all storm overflows in Wales—I appreciate there is a difference in respect to that—it is 19%, so 382 spilled between 100 and 299 times, and less than 1% spilled more than 300 times. If you then compare that to the average in respect of the industry, it is 7.4% over 100 times. There is a quite a big discrepancy there, and I was wondering whether you could explain that to the Committee.

This is something we are disappointed and not comfortable with, but I have to set out that the approach to storm overflows in Wales is very different from England, and it is different in terms of improvement. You will hopefully know that river quality in Wales is better than in England if you measure it under the European Union urban wastewater treatment directive. The focus we have in Wales—through Government and our regulator in Natural Resources Wales—is to focus on harm reduction, not spill numbers. If I try to explain our infrastructure, we have 825 wastewater treatment or sewage works. Over 750 of those actually serve communities of less than 1,000 population because of the sparsity of the population. When you talk of overflows in Wales, these are very often from less than 4 in or 100 mm diameter pipes. To compare it, we have more CSOs per kilometre of sewer than probably any other water company or utility in England and Wales. Tackling CSOs in Wales is a pretty challenging one for us to explain to our customers and more generally, but we are tackling harm because if we went for a spill number reduction per se, we would not see the improvement in ecological harm in rivers. As I say, we are in a very different comparative space to what is happening in England. Our AMP8 investment is £1 billion, the biggest CSO programme we have ever seen, and those improvements will be made to improve river quality and not reduce spills. If there was a government policy in Wales and a regulated policy to go after spill reduction, of course we would follow that, but our AMP8 plan is focused on river quality improvement, and because we have the advantage of rivers in Wales being of higher quality, we want to continue that. That has been the thoughtful process led by Welsh Government that we have followed with our investment. I absolutely get that it is difficult to try to explain that our focus is on quality and not on spills. Very often spills occur when rivers are in full spate. There are two other things to mention about Wales and CSOs. First, it rains a lot, and I am sure you will have experienced that. Secondly, we have about a 60% combined drainage system in Wales, which is one of the highest levels where you have fell water and surface water connected. Hopefully that gives you the background to why the numbers are very different.

The problem I am struggling to understand is that you are regulated by Ofwat, and you asked Ofwat for a bespoke harm reduction. Every other water company that has come in here is also regulated by Ofwat. Ofwat did not allow you to have that because you did not provide compelling evidence as to how that would lead to additional benefits for customers and the environment beyond the common spills performance commitment. So there is a sort of disconnect between what you are setting out in respect of saying, “We are slightly different because we sit within Wales. We have a different structure there,” but the reality is you are regulated by Ofwat, which is asking you to reduce your spills and you seem to not be providing it with a coherent strategy about how to do that.

We agreed a spills number with Ofwat, which is 30 by 2030. Last year, we were at 47, so we have a challenging reduction. We also have to look at reducing spills through operational means through our maintenance and that is an area that we need to improve. Overarchingly, we have a Welsh Government policy on harm reduction, but we absolutely recognise that Ofwat is right in saying that we need a spills reduction target. Moving from 47 currently to 30—bearing in mind those other factors I have mentioned about the infrastructure, the weather and the inherited infrastructure—is quite a challenging number of reductions over the next five years.

I would like to go into some specific instances. The Cleddau Project, which operates in my constituency in Pembrokeshire, demonstrated that Picton in Haverfordwest is running at 80% capacity. That is 56,000 cubic metres—17 tankers a day—that should be going to a sewage treatment plant. Instead, it is going to a special conservation area in the Cleddau. Would you like to apologise to the residents of Haverfordwest for this happening?

Absolutely, and it will not be the first time we have apologised either. We have done that locally with river groups in that part of Pembrokeshire. Again, coming back to the culture of the organisation, Picton—a sewerage pumping station—was an issue that we discovered. We self-reported it to Natural Resources Wales, agreed a programme and a timescale to get it fixed, and we did it just ahead of the programme. The whole idea of the sewerage network is that we are increasing the amount of monitoring we have on the system, and this is not just the case for Dŵr Cymru. Traditionally, there has not been mass coverage of our treatment works and pumping stations. We are now working through that to get the best level of monitoring we can, and wherever we discover something proactively, we do not conceal it; we openly report it, which is what we did at Picton. But again, I apologise; we are sorry for what happened in that instance. It took us a while to fix it because the equipment we needed was specialist; we had to import it. We did not fix that as quickly as we would have liked, and I would re-emphasise the fact that we self-reported and that is the way we will always conduct ourselves in these circumstances.

I appreciate you saying it took you a while, but to be clear, it took you from July ’22 to February ’24. What steps are you taking to restore the environmental damage that has taken place?

That pumping station is now working within its allowed permits and we have had no problems since we have fixed it. On the Cleddau more generally, we are investing £60 million in the next investment period between 2025 and 2030. The most significant pollution issue on the Cleddau is nutrient pollution, which you probably know. By 2030, we will have reduced 90% of our phosphate load on the Cleddau, as we are going to do on all the special conservation rivers across Wales.

Are you confident that you are not going to see an incident like this happen again?

We have improved our monitoring at Picton; we have dealt with that. If I go through the other main assets in that area, we have done the same. We are now putting much more emphasis on ensuring we are delivering what we call full pass forward flow. That is now a weekly review for the organisation, so absolutely yes.

You are confident this kind of incident will not happen again?

With 36,000 km of sewers and 800 sewage works, there will always be an emergency of some form. But in terms of the things we can do proactively, I do not think we have ever been in such a continuous improvement place as we are now. We will do all we can, barring an emergency that we cannot foresee.

I am conscious of time, but there is reporting from the Wye and I want to detail some other specific instances. In the Wye in 2023, it was estimated that 23% of phosphorus in the Wye came from your own wastewater treatment works. To give you credit where credit is due, this is reporting from your organisation. In October ’23, you admitted to illegally spilling untreated sewage at dozens of treatment plants for several years, and there has been extensive work done by Windrush Against Sewage Pollution. Do you think this is a pattern in terms of these events?

If I can split those two issues, certainly on the River Wye—an iconic river in our operating area—in the last five years, we have invested over £80 million to reduce our phosphate load. In terms of the partnership approach we try to operate within the company with other sectors, we have funded, free of charge, pollution source modelling on all the special conservation rivers in Wales, including the Wye. We have shared that, and it was independently verified, so this is not us saying these figures are produced by us. On the Wye, we have brought forward investment that should have started this year, but we delivered last year—a year ahead of schedule—£80 million worth in total. If you look at the impact of pollution on the Wye, it comes from nutrient pollution, not storm overflows. Again, I am going to go back to my original answer on storm overflows and say to you that we are very conscious that we have a high number of CSO spills when you compare it to England, but again I come back to that policy of tackling pollution in agreement with our Government and our regulators.

I have talked about The Cleddau Project and mentioned the Windrush Against Sewage Pollution campaign and the work they have done. I was wondering whether you want to take the opportunity to commend them for their extensive continuing work in order to improve the water quality right across Wales.

Absolutely. To give you some idea of that openness that I touched on at the beginning, we are working with over 30 citizen science groups. The Windrush Against Sewage Pollution group is credible; it has certainly produced information. It highlighted the issues we had down at Cardigan back in 2023, and we have no truck with the information it put forward. We welcomed that information because if it allows us to improve what we are doing, we are open to using credible data to make things better.

I have two final questions. The first is about transparency. You said at the beginning to the Chair that transparency is incredibly important, but very recently in December ’24, it was reported that you were facing a large fine for not properly monitoring discharges from sewage and water treatment works. NRW—Natural Resources Wales—states you have committed the offence at 300 sites across Wales, which would lead to significant financial penalties. Could you comment on that?

This is something we regret and are concerned about. To give some perspective on this, it goes back to covid. We undertake something called operator self-monitoring, where we monitor our sewage works and pass those results on to NRW. In 2020-21 with the impact of covid, we missed about 1% to 2% of the samples that we should have taken, and that is what that relates to. Since then, within six months of knowing we had those problems, we recruited more people, and we now have the operator self-monitoring right up to literally 100% coverage. So we put our hands up; it was a mistake we made that has now been remedied. People will recall it was at a very difficult time during covid.

You have touched on customer satisfaction and how important that is. I appreciate that you are comparing it with your competitors at a positive level, but the point that is quite concerning is the score is declining. Do you think that is in relation to your environmental performance and that it is affecting your customers’ satisfaction?

Potentially. There is much more focus these days on the environment, which is right and we welcome it. As we try to operate as transparently and openly as we can, there is much more information in the public domain, and that probably is the case. There will be some specifics; there will be some other areas of dissatisfaction like the supply interruptions, or where people receive poor service. I do not think it is entirely down to the environment, but the environment will play a part in that, I agree.

There is one bit that I missed out in my questioning, so if you will forgive me. The Cardigan plant spill that we talked about, according to Windrush Against Sewage Pollution, the number of days is something like 1,146 days from the start of 2018 to 2023. If you could just cover this off, why was that allowed to go on for so long?

I cannot speak on behalf of Natural Resources Wales, but I know through dialogue with their senior team, we would agree that if we were faced with something like Cardigan again, we would have tried to condense that timescale. We applied the regulatory process at the time because what we found at Cardigan, which is a coastal town—Cardigan Bay in west Wales—is that at the treatment works we were having saline intrusion from the seawater into the treatment works. That was affecting the treatment process. We have a membrane plant there which relies on bacteria, and the saline water getting back into the treatment works was killing the bacteria so we were not getting the treatment, and we were spilling more. The regulatory process determines that the first thing you do is to try to go through a process of fixing that problem. So the first thing we did was to try to stop the saline intrusion coming in; we tried to seal sewers in and around Cardigan. That did not work, so the next thing we did was try to fix the treatment process by applying increased levels of maintenance to the plant. That worked for a short while, but ultimately we have to rebuild that plant, and I am glad to say that in December we were granted planning permission and are now investing £20 million to fully upgrade Cardigan sewage works. When you look in from the outside, the time delay seems excessive, but what we did during that process is work through the regulatory process to try to fix the problem. You have to do that from an economic basis—to prove that what you are doing is the most cost-effective way of trying to fix it. We did that and we followed process, but it did not work so we have had to rebuild the works. That is what has taken the time.

Why did you not do that before it took place? Why was there not a more proactive approach?

There was. All the way through that time we were trying to—

But before 2018—before the spills took place—why was there not a more proactive approach in order to prevent that from happening in the first place?

Again, we self-reported this when we found it, and then we agreed a timescale with Natural Resources Wales to fix it; that is how it works. This is an engineering construction job that took time. So, unless I am misinterpreting what you are saying—

No, that is fine. Thank you for indulging me, Chair.

That is what I am here to do. Ellie, welcome to the Committee, guesting today from the Environmental Audit Committee.

Thank you very much, Alistair. It is good to be here. I should declare an interest as vice-chair of the All-Party Parliamentary Group on Water Pollution. We are segueing quite nicely into my questions, which are around asset health resilience, impacts on customers, investment and so forth. Welsh Water is meeting some targets in relation to assets—for example on asset outages—but is not meeting targets relating to mains repairs, and customers are experiencing some of the worst rates of supply interruptions in the whole sector. Mr Perry, what explains this variability in performance?

Again, I apologise to our customers who suffer supply interruptions because you are absolutely right: we are at the wrong end of the league table, and we are doing all we can to try to turn that around. One of the issues that heavily influences our supply interruptions are assets in west Wales, and in part in the north, which have essentially got to a place where we have seen them deteriorate in the last few years. We now have an investment plan from April this year to 2030 to address them. If you combine west Wales, in terms of our total customer minutes lost, they account for 50% of our mains bursts and nearly 50% of our unplanned interruptions on assets that need replacing. We have done quite a bit down there to control pressure because we have high pressures in Wales due to the topography, but this is broadly an asset replacement issue. The water network has historically had better monitoring: clever things like pressure management, the idea that we have data loggers that tell us when we have a suspected leak, and we will continue to deploy those sorts of issues, but that is it by and large. More latterly in January this year, we had a major supply interruption in north Wales at our Bryn Cowlyd treatment works, which affected just short of 80,000 properties. Again, I apologise to our customers for that. It was a catastrophic burst on a pumping main. We have carried out a very thorough investigation and the pipeline burst in an emergency situation. Through monitoring, we picked up a change in operating pressures and flows, but when you are dealing with 170 metres head of pressure on a pumping main, that main burst instantaneously. With hindsight, you could ask why we did not have two mains and why we were reliant on one. The main had no burst history, so with the available funding we have, we apply that in terms of supply interruptions to places where we can see deterioration and risk, and we did not see that at Bryn Cowlyd. But I entirely accept your point that we are off the pace in terms of supply interruptions. We are expending every effort, whether it is going to be investment or technological use. In the worst served areas, we also have repair teams round the clock with water tankers waiting for burst mains, essentially. We are getting to them faster, but there is much more for us to do in this space, and we are not in a good position; I fully accept that.

I wanted to ask about the Conwy incident because obviously it was disastrous for the households and businesses affected. You were saying this was not one that you were expecting to burst, which in a way is even more worrying because you are presumably putting contingencies in places for things where you know the infrastructure is a little flaky.

Yes.

But if you can get such catastrophic incidents as this, that perhaps widens the scope of what you need to be preparing for. On the question of responding to unexpected catastrophic incidents like that, what lessons have you learned in terms of response?

There is a range of lessons we have learned. From the Bryn Cowlyd incident in Conwy, we have now reassessed all our risk assessments of what we call single pipelines in those circumstances, so where they cross rivers, railways or major roads. What happened with Conwy was the pipe failed in the bed of the river. If we were building that pipeline today—not back in the early ’90s—we would never have constructed it. Our asset standards have improved from what they were at the time that pipeline was in place. We are now particularly assessing the ones where the embankment has moved due to river flows that have changed and are going through a process of re-evaluating similar circumstances, and we will reassess our prioritisation. We have around £10 million of investment planned for those strategic crossings in the next period. We will now apply the lessons learned from Bryn Cowlyd, but that was very much an asset build issue as the specification at the time was nowhere near what we would build today, and there were probably some workmanship issues as well in terms of the way that pipeline was constructed.

I want to come back to the capital investment point in a minute, but just returning to the issue of the response to the incident, I understand there were some households without access to drinking water for several days. You have offered some compensation of £30 per household affected per 12 hours and £75 for businesses. Do you consider that is appropriate? What lessons have you learned in terms of speed of response and ensuring that people are able to access clean water as quickly as possible in an incident like this?

Again, I absolutely apologise to our customers. To have lost water for a number of days is something that should not happen and we very much regret that. In terms of compensation for domestic customers, for those worst affected, the level of compensation at £30 per 12 hours will actually mean that their water charges for 2023-24 will be written off, so we will more than compensate for their whole year’s charges. For businesses, £75 is the guaranteed standard. I will draw Sam in on this in a second. What we have now done is worked through all the business claims and we are actually paying their loss of profit, so the £75 was purely a guaranteed standard. The actual compensation was much more significant.

You have covered it perfectly well, Pete. As Pete explained, we have a process for businesses that when they can demonstrate loss of earnings, we will compensate them for that. We have had that with other incidents as well.

Moving on to drinking water discolouration, Welsh Water has twice the level of the industry average in terms of complaints about discolouration. How are you tackling the problems that cause these complaints?

I will come on to the solution, but it is worth having this very brief background on our infrastructure. We have about 28,000 km of water mains and broadly around 10,000 of those are actually cast iron historically, and if you combine that with our soft water, that is where the problem comes from. In the AMP8 period from April 2025 to March 2030, we are investing significantly in the root cause of that discolouration. There is around £20 million to £25 million going into water treatment works where we have naturally-occurring manganese that gets into the mains and causes discolouration. We are looking to get to just over one by 2030 from the two we are currently at, and we have investment based on either root-cause treatment, removal at treatment or mains replacement. We will be replacing over 600 km of mains in the next five years. In part, that will be targeted at water quality improvements to reduce discolouration, but going back to your supply interruption point, we will try to maximise the benefit of that investment to get the best return we can on both those failing areas.

What is your replacement rate currently? What are you expecting it to be in five years’ time?

It is broadly just over 1% and it will move to just over 3%.

That is significant, yet I understand you are underspending your allowances for enhancement expenditure currently.

Yes, and there are reasons for that. I will draw Samantha in in a second, but just to set the scene, historically, we have spent up and over. In terms of our base maintenance, we have actually spent over. On enhancement, we are short of where we should be in AMP7, but we will be making that up. Let me hand over to Samantha.

We are overspending on our total allowances, but a lot of that is our base maintenance spend—for example, the covid pandemic and the additional costs we had there, such as increased costs of power, and there have been the costs of addressing leakage, so we are over on our base maintenance. As you say, we are short on our enhancements, so that is what we are investing in. Predominantly, we are some way short in the water element of our investment plan. Again, we had some impact of covid where programmes were delayed, and we have experienced other delays that are not related to covid. Those schemes will move into the next AMP period. Most of them are on track to be completed by the end of the first year so they will be delivered, but we recognise that we have been underspending in this AMP.

Is there a bit of a chicken-and-egg problem? If you are not investing in the renewal of the infrastructure, you are going to have to spend more on ongoing maintenance, so why have you allowed yourselves to get into that situation?

I would not say it is a question of allowing. When you have a significant investment programme—we are spending over £1 million a day investing in our assets—things will happen where you have to make changes to schemes, and we have experienced that. We also recognise that in the first year of the AMP, we were significantly impacted by the covid lockdown restrictions with a number of our schemes.

I will just add that one of the things that happens when we evaluate our investment—whether it is in mains or treatment works—is we want to make sure we are getting the best value. We will make the investment; it is not as if we will not spend the money, but a couple of the schemes on enhancement that we had to delay by only a year was because the desktop-type analysis we did when we put the original investment plan in place has been improved. We are now changing that investment. So the delays are not to avoid the spend, but to make sure the investment gives us the best return.

Briefly, one final question. Recognising the impact of climate change on the environment in which you work, and certainly I see it face-up in my constituency of North Herefordshire all the time in terms of flood resilience, can you talk a bit about how you are taking into account the increasing frequency and severity of extreme weather incidents, and how that is affecting your choices about investment in infrastructure, in particular, managing flooding?

First, for a couple of investment periods, we have assessed all our assets in terms of their criticality, and that is what we are focusing on. We are working through a programme that targets areas which, for example, if they were flooded would mean mass outages of water or an environmental impact, and that is well over £150 million to £200 million in the next period to remove that flood risk. But we are finding that we cannot engineer our way out of this; the scale of some of these challenges is so big. A good example: you will remember Storm Callum, which hit about two or three years ago. It hit the mid and west Wales area the worst. During that period, around 50 wastewater treatment works were completely flooded. We will never harden them. One of our strategies is fixing them after they have flooded. What do we do? A good example is the treatment works in your constituency at Whitbourne. We carry critical spares because we know we cannot build flood defences high enough to stop the Teme flooding that site. The solutions are a combination of hardening—where it is appropriate—by flood defences and storage of critical space so we can fix plants quickly. That is probably going to be one of our main climate change responses because we will not be able to build flood defences big enough to stop some of these assets getting out of operation.

We are going to move back to water security.

Let us build on this point of resilience and particularly around the drought in 2022. About 3% of your infrastructure captures the rainfall—correct me if I am wrong. What did you learn about the resilience of Welsh Water in 2022 with that drought, and how has it affected your water security strategy?

The drought in 2022 was one of the worst droughts in living memory. We had around 60,000 properties, predominantly in Pembrokeshire, that were affected by our Llys-y-frân reservoir. Just to reassure you, this was unlikely to have been a loss of water supply to customers, but it was due to us putting the restrictions in for a number of months to protect the environment. I just wanted to be clear on that, so you have that background. What we have done there subsequently is rebuild our main pumping station so it takes water much more effectively from the Cleddau. We have dealt with the issues at Llys-y-frân and could deal with another 2022 situation in that part of the world should it ever occur; I am sure it will at some time in the future. Going back to one of my starting comments, in Wales more broadly, we have a lot of rainfall; we do not have a long-term supply issue. What I mean by that is that it is very unlikely will we need to build new reservoirs in Wales, so what we have to do is manage demand. We manage demand through leakage reduction. There is likely to be a significant increase in customer metering in the next period. So for us in Wales, we have a 25-year water resources management plan with no requirements to build new sources, but there is definitely a requirement for us to reduce our leakage, and there are other ways through smart water metering that we will reduce demand. That is where we are with supply.

On that leakage point, it has risen by 15% since 2019, which I think is one of the worst performers in the industry. What steps are you going to be taking in order to get that back on track?

We will be taking considerable steps. I touched on this a bit earlier: we discovered a problem with our leakage calculation through our second line audit. We reported that to Ofwat, and subsequently we have done what we can to get back to a level of leakage that complies with the rules on how you account for it. In the last two years, we have spent an extra £150 million on leakage to try to get to a point where our leakage matches the targets now set by Ofwat. In the last year alone, we have reduced leakage by about 20 megalitres, which is a pretty significant amount in that period. We are unlikely to hit the leakage target for 2024-25, but we have plans in place through pipe renewal, new assets, which I talked about quite a bit earlier on, and all the clever stuff around managing pressure, more monitoring, getting to leaks faster and fixing leaks on private supplies. All those things are in our future plan.

I am glad you have mentioned Ofwat because in December last year, the chief executive of Ofwat—who has given evidence before this Committee—said it was indefensible that for five years, you misled customers and regulators on your record for tackling leakage and saving water. You have talked about transparencies to this Committee and set out how important it is. To what extent do you agree with that assessment from Ofwat?

We hugely regret what happened with our leakage calculation, but I will take you back to the fact that we found it; it was not something that was discovered by a regulator and it was not covered up. As soon as we became aware through our second line auditing, through our own procedures, within a day or so, we reported that to Ofwat. So the transparency is that in many ways we regret the fact that we under-reported leakage, but as soon as we became aware of it, we did something about it. If I could turn the clock back, we would have found it sooner, but the second we did find it we reported it. We have made amends since by compensating customers, reducing bills and putting significant levels—over £100 million—into reducing leakage.

Finally on this water security point, there has been an increase in water consumption by over 3% when you compare that to the baseline. To what extent do you take responsibility for that?

What do you mean?

The three-year average target for 2023-24 was 130 litres per head per day.

Per capita consumption by customers is pretty difficult to control because ultimately it is what customers use in terms of water.

But there is a big discrepancy between the target and what you are actually achieving.

Yes, I will try to explain that. This is the amount of water people actually use. Since covid and home working, we have seen water consumption increase because habits have changed with that working practice. The other thing we are doing is running a number of national campaigns to promote water efficiency. We carry out free-of-charge water efficiency surveys, but ultimately, it is down to the amount of water people choose to use, so it is probably one of the most difficult measures for us to control because it is down to people’s individual use of water habits.

Finally, we are going to move on to some questions around the subject of your ownership, financial performance and executive pay.

I take it you are talking about our gearing level of 60%. It goes back to the formation of Glas Cymru. Going back to 2001, the former Welsh Water business was on the brink of collapse. The model was set up to effectively focus on driving best value and better service for customers and keeping down the cost of financing through raising debt. We have tried to build our reserves in the organisation since then. You could think of this a bit like a mortgage on a house; it is a very simplistic analogy, but it does fit the bill. As your house grows in value, you could borrow more against it, and at some point, you have to pay on that increased borrowing. What we have done is as the value of our house has gone up, we have tried to keep our borrowing as low as possible by keeping, effectively, money in the business. That is a model that has worked for us. It has helped us brave some considerable financial headwinds over the last 20 years, to fund investment in social tariffs and respond to additional investments that have not been funded through the allowed price controls.

When we plan for each five years as they come up, we are very prudent in the way we do that planning. We anticipate a certain level of ODI penalty. We think it would be imprudent to assume we will get an incentive because it is actually built for the majority of companies to pay a penalty. So by planning that carefully and then planning the cost of our operations, which is the strength of the model, it allows us to withstand some financial headwinds and a certain level of ODI payment, which we have been able to manage well within our plan.

Can I just add that if you think of many of those performance improvements, they are tied into regulatory commitments we have in the investment plan, so we do not miss those. If there are targets set that we have to deliver schemes that have been set by the Drinking Water Inspectorate, Natural Resources Wales or Ofwat, we will have to deliver those. So there is not a linear link between the penalties and reduced service.

It is an additional level. We attend Committees here in Westminster, but the Senedd has Committees as well. The predominant one in the Senedd is badged up as the Climate Change Committee but only last week we were there talking about our response to Storms Darragh and Bert. So for us, there is an additional level of scrutiny through the Senedd, but because we are regulated through England and Wales, we probably have two levels to deal with.

We may need to clarify this outside today, but I believe the issue here is the leakage recalculation that we did when we discovered we had a problem reset our leakage targets. Now we have the real level of leakage fully compliant with the Ofwat governance, it means that if we deliver those targets, there is a possibility for us to get incentives. I am not sure what the date of that Moody’s report is. If it followed the final determination or was before the final determination, we are probably more in a break-even, neutral position on leakage, not one of gaining incentives. But the fundamental point is that it is comparing two sets of leakage targets, one of which was post our restatement of leakage and the other was pre the restatement of leakage.

We will confirm it.

I would like to just ask one final question on pay. In 2021, Peter, your total remuneration was £892,000, and last year, you took a bonus of £91,000. If you take into consideration what we have talked about today around water security, environmental performance, and water quality with the public health element to it, do you think that level of pay is justified, and do you think it is in alignment with your not-for-profit model?

In terms of exact remuneration, one thing Glas Cymru has always done is that we do not have the term bonus; we have the term variable pay. Variable pay puts at risk potential earnings based on performance. If you go back to 2021, that was at a time when we had four-star environmental performance. Last year, my £91,000 bonus only paid out 25% because 100% of our variable pay is entirely based on performance. We have a system that is reflective of performance, and it pays out on that basis. I personally have no influence over my own pay; it is decided by an independent committee of the board. It is significant—I cannot say anything else about that—but it is very much linked to performance, and if we do not perform, we do not reach our earnings potential.

Except that there were 56,000 cubic metres of sewage being pumped into the Cleddau from 2022 to 2024. I appreciate there was no uptick in pay in 2023 but there was still an uptick in pay in 2024. During that time, there was the environmental performance and the effect on my constituents in Pembrokeshire, the impact on the Cleddau and the river quality, and the pay was still being reflected in terms of that increase in variable pay. You can call it what you like but it still amounts to the same thing.

That variable pay did not pay out on the environmental measures and has not since 2021 or 2022.

In terms of the public perception and the level of impact on people across not only my constituency but across Wales, the environmental degradation, and the importance of bringing the public back on side in respect of water quality, public health and resilience of the system, do you think you as a company—especially when you are in a not-for-profit model—should be more in tune in respect of when you deal with the executive pay, irrespective of whether you say that is one metric or another? The point is the public sees it as a whole, and it is not in line with the overall performance.

I wonder if I can just come in. You talk about our not-for-profit model. Just to give a little of context, and it probably follows from Andrew’s points earlier. This was something that was given a lot of consideration when Glas was originally formed about how you balance the need to have the right people with the right experience in the organisation and balance that against customers’ concerns, which is understandable because these are not insignificant sums, we absolutely acknowledge that. Where we landed was that there was to be a fixed and variable element of pay. If you look at the fixed element of pay, it is one of the lowest in the sector, and the variable only pays out when the business achieves certain levels of performance against key criteria about customers, operational performance and strategic deliverables. As Pete says, it has not paid out on environmental performance for some time. It was paid out at 25% of the overall total last year. It is a far smaller proportion of the other overall variable bit so is considered part of how Glas operates.

The chief executive of Pembrokeshire County Council, for example, is on £212,000. He is operating with a significant budget and has nearly 6,000 people working for him. The chief executive of Cardiff Council has a budget of £1.9 billion and is paid £229,000. When you compare that to the level in 2021 of £891,000, you can talk about the fact that the environmental performance bonus was not hit and so on, but they are wildly different figures for very similar levels of responsibility and impact over people’s lives and livelihoods.

We recognise these are large sums. Pete does not set the salary; it is set by an independent committee of our directors. It is then scrutinised by our 60 members every year who perform the same role as shareholders do in a PLC, for example. It gets a huge amount of coverage, probably far more than any PLC does except they are not in significant numbers. It goes through a lot of scrutiny.

Yes.

I am beginning to think that an evidence session involving some of the independent remuneration committees might be an informative one, so if you were able to provide us with that information that would be enormously helpful. Peter and Samantha, that concludes the questions we have for you today. Can I abuse the position of the Chair and thank you on behalf of the Committee for the very direct and clear way in which you have answered our questions. We genuinely appreciate it. We have another two companies that will be appearing for us tomorrow, and by then we will have seen nine of the water companies. I think we will then be able to come forward with a report in due course. In the meantime, we are grateful both for your attendance and indeed the manner of your engagement.