Pwyllgor Newid Hinsawdd, yr Amgylchedd a Seilwaith

Climate Change, Environment, and Infrastructure Committee

09/11/2023

Aelodau'r Pwyllgor a oedd yn bresennol

Committee Members in Attendance

Delyth Jewell
Huw Irranca-Davies
Janet Finch-Saunders
Jenny Rathbone
Joyce Watson
Llyr Gruffydd Cadeirydd y Pwyllgor
Committee Chair

Y rhai eraill a oedd yn bresennol

Others in Attendance

David Black Ofwat
Ofwat
Gareth O’Shea Cyfoeth Naturiol Cymru
Natural Resources Wales
Gwenllian Roberts Ofwat
Ofwat
Mark Squire Cyfoeth Naturiol Cymru
Natural Resources Wales
Mike Davis Dŵr Cymru
Welsh Water
Peter Perry Dŵr Cymru
Welsh Water
Steve Wilson Dŵr Cymru
Welsh Water

Swyddogion y Senedd a oedd yn bresennol

Senedd Officials in Attendance

Elfyn Henderson Ymchwilydd
Researcher
Elizabeth Wilkinson Ail Glerc
Second Clerk
Katie Wyatt Cynghorydd Cyfreithiol
Legal Adviser
Lorna Scurlock Ymchwilydd
Researcher
Lukas Evans Santos Dirprwy Glerc
Deputy Clerk
Marc Wyn Jones Clerc
Clerk

Cofnodir y trafodion yn yr iaith y llefarwyd hwy ynddi yn y pwyllgor. Yn ogystal, cynhwysir trawsgrifiad o’r cyfieithu ar y pryd. Lle mae cyfranwyr wedi darparu cywiriadau i’w tystiolaeth, nodir y rheini yn y trawsgrifiad.

The proceedings are reported in the language in which they were spoken in the committee. In addition, a transcription of the simultaneous interpretation is included. Where contributors have supplied corrections to their evidence, these are noted in the transcript.

Cyfarfu’r pwyllgor yn y Senedd a thrwy gynhadledd fideo.

Dechreuodd y cyfarfod am 09:31.

The committee met in the Senedd and by video-conference.

The meeting began at 09:31.

1. Cyflwyniadau, ymddiheuriadau, dirprwyon a datgan buddiannau
1. Introductions, apologies, substitutions, and declarations of interest

Bore da i chi i gyd. Croeso i'r Pwyllgor Newid Hinsawdd, yr Amgylchedd a Seilwaith. Croeso i Aelodau i'r cyfarfod. Mae'r cyfarfod yn cael ei gynnal mewn fformat hybrid, wrth gwrs, ac, ar wahân i addasiadau yn ymwneud â chynnal y trafodion mewn fformat hybrid, mae'r holl ofynion eraill o ran y Rheolau Sefydlog yn aros yn eu lle. Mae eitemau cyhoeddus y cyfarfod yma'n cael eu darlledu'n fyw ar Senedd.tv, ac mi fydd cofnod o'r trafodion yn cael ei gyhoeddi yn ôl yr arfer. Mae'n gyfarfod dwyieithog, felly mae yna gyfieithu ar gael, wrth gwrs, o'r Gymraeg i'r Saesneg. Ond, cyn cychwyn, gaf i ofyn a oes gan unrhyw Aelodau unrhyw fuddiannau i'w datgan? Na, dim byd. Dyna ni, felly. Diolch yn fawr.

Good morning to you all. Welcome to the meeting of the Climate Change, Environment, and Infrastructure Committee. Welcome to Members to the meeting. It's a hybrid format meeting, of course, and, aside from the adaptations relating to conduct of proceedings in hybrid format, all other Standing Order requirements remain in place. The public items of this meeting are being broadcast live on Senedd.tv, and a record of proceedings will be published as usual. It's a bilingual meeting, so there is simultaneous translation available from Welsh to English. Before we start, could I ask if there are any declarations of interest from the Members? No, nothing. Okay. Thank you.

2. Ansawdd dŵr - Sesiwn dystiolaeth gyda Dwr Cymru Welsh Water
2. Water quality - Evidence session with Dwr Cymru Welsh Water

Awn ni ymlaen at yr ail eitem. Y bore yma, wrth gwrs, byddwn ni'n cynnal sesiwn graffu gyda Dŵr Cymru, Cyfoeth Naturiol Cymru ac Ofwat ar ansawdd dŵr. Mae'r panel cyntaf o'n blaenau ni; croeso cynnes i gynrychiolwyr Dŵr Cymru. Mae Peter Perry yma, sy'n brif swyddog gweithredol Dŵr Cymru, Mike Davis, prif swyddog ariannol, a Steve Wilson, sy'n rheolwr gyfarwyddwr gwasanaethau dŵr gwastraff. Croeso cynnes i'r tri ohonoch chi. Rhyw 50 munud sydd gyda ni, felly bydd yn rhaid inni i gyd, dwi'n meddwl, fod yn weddol fach o gryno, ond trio bod mor gynhwysfawr ag y gallwn ni wrth ateb y cwestiynau. Awn ni'n syth i gwestiynau hefyd, er mwyn inni gael cyfro cymaint o feysydd ag y gallwn ni. Gwnaf i wahodd Janet Finch-Saunders i gychwyn.

We'll go on to the second item. This morning, of course, we're having a scrutiny session with Dŵr Cymru Welsh Water, Natural Resources Wales and Ofwat on water quality. Our first panel consists of representatives from Dŵr Cymru Welsh Water. We have Peter Perry, chief executive officer of Dŵr Cymru Welsh Water, Mike Davis, chief financial officer, and Steve Wilson, managing director of waste water services. So, welcome to the three of you. We have about 50 minutes, so we'll all have to be as concise as we can, but also try to be as comprehensive as we can in answering questions. We will go straight to questions so that we can cover as many areas as we can. I'll invite Janet Finch-Saunders to start.

Thank you, Chair, and good morning. You'll be aware of the headlines we've all seen recently, and you'll be aware of the feisty debate that was held in the Senedd yesterday. So, could you please provide a good response to reports that there has been a significant amount of illegal combined sewer overflow operations?

Thank you very much. Thanks. Diolch yn fawr. Thank you for the opportunity to join you today. Yes, I think—. Can I bring some perspective to that? We have 3,500 permits in total, and the number of permits that we have flagged to Natural Resources Wales—and I emphasise we have flagged; this is not something that's been discovered by others, it's something that we've brought forward—represents around 6 per cent of that total. So, it's less than 200 out of that 3,500, and these relate to flow and they relate to issues where we've found a problem and we've used the regulatory process to get it in front of Natural Resources Wales to get them fixed. But, again, if I could be very clear about this, this is something that the company has discovered; we have a well-known and trod path with our regulators to deal with issues when we flag them up. So, in the sense that they're illegal, we have—. With that number of permits, with 36,000 km of sewers, 830 sewage works, 2,500 pumping stations and 2,300 CSOs, it's inevitable, with an imperfect infrastructure, you're going to find things. But we've always had a policy of being totally open and transparent. When we find those problems, we flag them. We then work with Natural Resources Wales to prioritise fixing them. So, the idea that they're illegal I would challenge on the basis of, yes, we don't comply with those permits, but this has never been treated in an underhand way; this is something we've brought into the public domain as soon as we've found them.

09:35

I cover Cardigan. I've lived there, know it well. So, I'm particularly interested in when the site's permit breaches were first reported to NRW and the action that was taken by yourselves and NRW.

Yes. Thank you. Again, this followed that route of us being open and transparent. As soon as we became aware, we raised this with Natural Resources Wales. The situation at Cardigan is unusual, because this isn't a matter of flow necessarily coming in to the works from our infrastructure; this is saline intrusion from the sea into the network surrounding Cardigan. What we've done there is, again, we've initiated the proper regulatory process—as soon as we were aware, informed NRW. Then we've embarked on a process of responding to enforcement from NRW, and that means we agree a set of actions. In total, what we've done there: we've relined sewers, we've relined and waterproofed pumping stations, we've carried out works on the membranes, we've improved cleaning of those membranes, and we've gone as far as testing pilot plants to fix them. All of that takes time. If you can imagine, this is not something you can do quickly. This is a complex process; it's a live treatment works. But, all the way through, we've agreed a series of actions with Natural Resources Wales in an attempt, as soon as we knew, to try and fix this. I want to emphasise that. We haven't been complacent about it. It's taken some time, but these things do, and we've attempted to fix them, doing those things. But, ultimately, we've arrived at a place, because of the saline intrusion, that we have to rebuild the plant. And that's a £20 million investment on top of the couple of million pounds we've already spent on those other improvements. And we've got that in design. We're now going to acquire the land and we plan to start work there in 2025.

How often do you report on discharges from storm overflows within an hour of the discharge occurring?

That's something—. I'll draw Steve in, because he's our expert on our monitors. But our system is there. We've got the best coverage, or one of the best levels of coverage, of monitors in the UK. We were the first to go with monitors; we were right at the head of the pack. But, Steve, on the hour point.

So, at the moment, the plan is that, starting in January 2024—so, in a couple of months' time—we're going live with real-time, within-the-hour reporting on all storm overflows that discharge on designated bathing beaches, which we already do, but, actually, non-designated bathing beaches and stretches of river where swimmers have told us, and water users have told us, that they use that water. This summer, we conducted the biggest exercise of engagement of swimming groups, water-user groups, to find out where they are using the water and where a real-time warning system would be of real value, and that system goes live in January 2024. All storm overflows will go live by 2025. But, with 2,300 of them and not the best mobile phone coverage, communications coverage, across Wales, the technical challenge of getting real-time signals from those into a system and then a warning system out to the public is taking a little bit longer than we would like.

We have been, for a number of years, providing real-time warnings to Surfers Against Sewage on a number of designated beaches. Those warnings go to Surfers Against Sewage and the beach managers, and we were the first company to carry on doing that all year round rather than just the bathing season as well. So, we've always been at the forefront of trying to get that data out to the public in terms of letting them understand when these storm overflows are operating.

Before I come back to Janet, can I just pick you up? You said, a moment ago, illegal but never done in an underhand way.

It is, prima facie, yes, you're absolutely right. But what I would say, Chair, is this: if you think that we've got an infrastructure, in part, which is over 100 years old, if you think of the scale of that infrastructure—I won't go into all that data again that I've already shared with you—we don't have a perfect system. Things like storm overflows should have been registered at privatisation. A couple of years ago, we found a load that hadn't been, and we put those in front of Natural Resources Wales. And that is the thing: if we had a perfect infrastructure and we had every record of every asset that we've got, then I would tend to with agree with your point. But I can't emphasise enough where we found these—this isn't anybody else coming along to us and saying, 'You've got a problem'; this is us. That's the openness and transparency of our culture, and that's what we've done in these instances. But there has been an agreed process, anywhere where we found non-compliance with permits, to deal with them. I have to say, when you think of our quality compliance, it's up at 90-odd per cent. When you look at flow, which is a new set of criteria that we're working on now with our regulators, again, we were at the forefront of, going back—. The best part of 10 years ago, we started this journey of identifying where there are problems, getting them prioritised with our regulator—not us prioritising them—doing it properly, and then getting the investment to follow.

09:40

—we agreed with our regulators in 2021 actually how to measure that flow compliance. So, it's only quite recently that an agreement of how to actually measure whether you're compliant or not was agreed. Secondly, we've installed 350 or so flow meters to be able to measure that. That investment, we were given up until 2025 to install those. We've front-end loaded those, so that we've got that data early, and that means that we've found far more problems because we've put the meters in to actually detect those problems, and we're working through it. Other companies are a long way behind in actually measuring this flow.

Very briefly. You know the reason why you're in front of us today, and why there's such public concern, is because of Surfers Against Sewage, and local groups as well, raising this issue and being appalled at what's going on. Do you welcome not only the scrutiny that you're now under, but the anger that's out there about the state of our rivers and the contribution of CSOs and illegal dumps into our rivers? And would the actions that you're taking—I genuinely ask this—would the actions you're now describing to us be happening unless there was such public outcry over this happening right now? Would those actions be happening? Were they happening already?

Let me answer those in reverse, if I may. Absolutely, they would, because the way the regulatory system works, and as a responsible environmental company, we want to make improvements. And if you look at river quality in Wales, we're in a better place than England, if you measure us against the water framework directive—still not good enough, for the avoidance of doubt, and we want to do more. The biggest contribution to improving river quality in Wales is to deal with nutrient pollution, and we already had plans—they've now been submitted to Ofwat—to deal with the special areas of conservation rivers. Ninety per cent of our nutrient loading will be removed by 2030. That is a very clear commitment from the organisation.

To go back to your other point, it's quite a complex issue to understand, but if you conflate the discharges or spills from storm overflows with pollution, they're not the same thing. Because the vast majority of discharge spills occur on days like today when rivers are in spate—not always. I don't want to say that it always does that—

So, what I would say is—. And those are the ones we're tackling, so those are in our plans. The ones that are causing environmental harm and harm from an amenity perspective are in our plans. In our PR24 plan, which we've just submitted to Ofwat, we've tripled the amount we're going to invest in storm overflows to over £350 million, compared to the current period. So, for us, this is something—. No-one in Welsh Water gets out of bed in the morning looking to cause pollution. From the top to the bottom, believe me, our front-line colleagues in particular, who don't get enough recognition in my mind, do a super job trying to stop pollution. So, yes, it's on our agenda. This hasn't been put on our agenda; it was already on our agenda.

Could I just add to that as well? Just to show our commitment to that, back in May of this year, we committed to spend £100 million, which is not going to be recovered from customers—that's part of the benefits of Welsh Water under Glas Cymru's ownership—to invest in addressing phosphates and CSOs.

Chair, if you'll allow me just for a moment. We rarely get an opportunity to have somebody like you in front of us, and we have others coming in front of us this morning. In your written submissions—when Joyce raised the issue of some of our western Wales rivers—you point to the fact that rural land use contributes 84 per cent of the phosphorous load for the eastern Cleddau and 65 per cent for the western Cleddau. Do you feel that you're unfairly in the dock here?

No. I think what I've been really impressed with, working with Welsh Government, is that there is a team Wales approach to this—

And you should. And you should. And what we're pleased to do is to play our part. We're a big environmental organisation in Wales. We have lots of expertise, and the reality is that we also think about our customers. Working with land managers and agriculture we would welcome, because we can come up with lower carbon, lower cost, lower energy solutions if we work together. So, whilst we might come here today and talk in our own right, for the avoidance of doubt, we are up for a team Wales approach, and we have a great relationship with agriculture.

On the Wye in Herefordshire, it's on the English side of the Wye at the moment, but we're doing all we can with the nutrient management boards to bring it into Wales. We are building wetlands jointly with agriculture, and that's the kind of way we will fix this problem. So, I don't think it's about blame, I don't think it's about justification in isolation. This has to be a team Wales fix. I've been very pleased when we've had these kinds of conversations with the Minister for Climate Change that that's the approach that she is advocating, and Dŵr Cymru is lined up to help or play our part and punch above our weight. A good example is the modelling on pollution on the SAC rivers. We've provided that free of charge to everybody, not just to ourselves. That's just an example of what we would like to do more of. 

09:45

Yes, okay. Can you tell us about the independence of that then, because obviously it is your own work? You're marking your own homework, effectively. And I'm aware that academics at Cardiff University have recently questioned the reliability of that in its water conference, so how do you respond to that?

Yes, I'll draw Steve in. He led on this for us and was involved in that assurance process that followed.

Yes. So, we us an industry-accepted methodology. So, the Environment Agency, Natural Resources Wales and the Centre for Economics and Public Administration all use the same methodology. We did the modelling work and NRW then audited that work. They got in some specialist consultants to audit that work. We know it's pretty accurate because also on the River Wye, interestingly, because the River Wye goes through Wales, into England, back to Wales, we had a situation where we were doing the modelling on the Welsh part, the Environment Agency decided to do the modelling on the English part, and then we were looking at the modelling back at Monmouth and downwards, and, actually, the three fitted together perfectly well. So, it's another good example of how we know that it's accurate. It is particularly accurate around working out water company contribution, because we've got pipes going into the river where we can actually sample and check against the model to make sure that it is calibrated.

Okay. Thank you. And the Environment Agency pay for that in England, I think, don't they, the assessment, so maybe you'll have a view on that, but we won't go there for a minute. Joyce very briefly, because Janet is extremely patient in fairness.

You said that you all work together. How often do you all meet together as a collective—all people concerned with this? And I'd like to add, do you ever have any discussions with construction and water run-off?

Yes, absolutely. Thank you. There's a couple of what I would call 'set piece events' that happen and the First Minister's phosphates summits—we've got the third now on 30 November. So, that brings everybody together, and, I must say, the action plan linked to that has a very clear path for all parties. So, that's that.

There's quite a bit of informal working together. We will attend events with the farming unions, and they attend our events. In addition to that, the new nutrient management boards have been established, and that's another forum as they begin to take effect that all of us will be brought around the table, particularly on the special areas of conversation rivers.

So, in answer to your question, there is dialogue. There's always more to do, isn't there, but I do get a sense that there's some momentum building with this team Wales approach.

I acknowledge the fact that of all the sites that you've got, fewer than 200 were operating in breach of their permits. So, I guess my main question is: how many of those have actually been addressed, and what action—? There must be some that are still breaching. So, what actual action are you taking on an immediate basis to address them?

Thank you. If I can start with the ones that were highlighted as part of the issues linked to Cardigan, there's around 50 in that space that need fixing, and we will have—

Yes, I'll come back to that, if I may. I was going to touch on those. But if I deal with those first and foremost, we will get to a point where somewhere between 15 and 20 is all that will be left by 2025, but we have investment to tackle those early in the next regulatory period from 2025 onwards. So, we’ve got funding to fix nearly half of them; the other half we will fix. And the reason I say this is that some of these will involve complex civil engineering work. This isn’t just a simple fix. This is where we will have to construct major civil engineering activity.

The others then relate to our unpermitted CSOs, and by and large we will be working through that process during the next regulatory period. We’re dealing with some now, but on the majority of those we will work with Natural Resources Wales, and a couple with the Environment Agency, to fix those during the following period.

09:50

So, can I ask you about the environmental performance assessment by NRW? Because obviously it reveals an increase in pollution incidents and a decrease in self-reporting, which suggests a very different trajectory to the one that you're portraying to us today.

Yes, sure. Thank you. And Steve may want to comment as well. Look, for the avoidance of doubt, we were very, very disappointed to drop down to 2 star, and what it relates to is one element of the environmental performance assessment, which is—. There's a distinction between low-level pollutions and serious pollutions. For scale, in 2021, we had three serious pollution incidents, and in 2022, we had five. So, this is not what I would call a massive increase. We don’t want any, to be honest with you—we don’t want any at all. But when you think of 36,000 km of sewer, to have five incidents on there—. It’s five too many, let me be clear—

But that's five serious incidents—five serious incidents that could have done massive damage to the river and watercourse.

They wouldn't have been massive, but I do take your point. I accept the point you make. Our risk of serious pollutions comes from a number of our strategic sewer assets—something known as the south-east Wales coastal main, which pumps sewage from Chepstow to Newport to be treated. That needs to be replaced. That's a £50 million scheme. That's in the next period. We've got another in Llanelli, we've got another up in the middle of north Wales, near Kinmel Bay. And that's where our risk comes from in terms of serious pollution incidents, and we are addressing those with over £150 million of planned investment going forward. That's where that serious risk comes from.

In terms of total pollution as an absolute number, we have the second-lowest number of pollutions in England and Wales. But again, too many, and we'd like to see them reduced. If we went back over eight or nine years ago, they were over 300. We’ve now got them down into the high 80s. We’re planning to reduce those more going forward.

Then, on self-reporting, what tends to happen—a couple of things have happened, in all honesty. No. 1, whilst our pollution incidents are reducing, that means we have fewer to report. Do you understand what I mean? Fewer in number, fewer to report. The other thing, which is a good thing, and we welcome, is that probably since the lockdown there is a lot more interest in what I would describe as localism, the idea that people are reconnecting with their local environment. So, there are instances where members of the public, angling groups, the Rivers Trust are picking these up and reporting them. So, that’s the dynamic that’s at play: a general number of reducing pollutions overall over time, and I think we’re seeing more being picked up.

We are changing our strategy here. We have telemetry at many of our 830 sewage works that remotely monitor, but the kind of thing we’re now doing is that a member of the public will see an aesthetic issue with a sewage works—it’ll be compliant; it will be within its compliance, but they will see that the effluent leaving could be grey—and we’re now beginning to do things like put CCTV on outfalls, so that we have 24-hour eyes on. Now, that’s going to take time, but we’re going to prioritise that where the risk lies. But those are the main reasons. Steve, have I missed anything?

No, you're spot on. And three of those five serious pollution incidents were blockages in summer, last summer—low flows, dry, hot weather, and of course they do cause big impacts in low-flow rivers. It's something we are striving to reduce. The blockage problem of the sewer network is still the biggest cause of pollution in Wales. Thankfully, the blockage count—the number of blockages per month—is coming down. We're working really hard to try and improve that: more regular flushing of the sewer network; better identification of blockage hotspots, where are the takeaways that are putting fat down, where are the places where we've got a history of wet wipes being detected and we're getting out to them; we're putting more monitors into the sewer network. We are challenged in that area, because of our mobile phone coverage, again, to make that work, but we are working hard to try and improve that area. So, they key to reducing pollutions in Wales is to reduce sewer blockages still. That is the main goal and that's what we're striving to do. 

09:55

If I can pick up on that point. Everybody needs to recognise that our sewer system is an open system. It's not like the water system where we control it from the minute the water goes into the process to when it comes out in people's taps. People can put virtually anything they want into the sewer system. So, it does require—to reduce these blockages—a wider societal effort as well, particularly on things like wet wipes, cotton buds, that sort of thing. 

Diolch, Cadeirydd. Good morning to you all. I wanted to ask you about what action you're taking in response to Ofwat’s performance report, and they've described you or categorised you as ‘lagging’. So, could you set out, please, what action you're taking in response to that, and also what effect you think that could have on customer bills? 

Yes, sure. Thank you. We’re not at all comfortable having our performance in a number of areas not where it should be, and I want to reassure the committee that not only do we take it seriously, but we have plans to address those. Primarily, the issues there relate to a couple of areas. One was water quality in 2021, and we’ve addressed that, and you will see an improvement in water quality in 2022. That was generally due to a number of bacteriological failures—low level, very low level, no public health risk—and in 2022 we halved those. So, that’s there.

One of our real challenges in Wales is supply interruptions. This is where people have a loss of their water supply. And I must say, Steve touched on what happened in 2022. It doesn’t feel like a drought year this year, but last year—highest temperatures, lowest levels of rainfall in living memory and all that—and down in west Wales, our water network down there was particularly badly affected. We have water mains that are nearing the end of their lives. We’ve also done some academic studies and what we’ve found is that the level of ground movement in west Wales last year, which was then exacerbated by the freeze thaw that came along in December, is causing those mains to fail at a rate we have never seen before. So, this, for me, has absolutely clear links to climate change, soil moisture deficits and ground movement.

The way we will address that is that we have about £75 million in our next investment period, and if we get that through the regulatory process, we will do that. At present, around 45 per cent of our supply interruptions occur on our network in the west, and that’s something we've got to seriously address. This isn’t just about fixing those mains, this is about replacing that infrastructure. So, we’ve got a clear plan. As soon as we get the green light from Ofwat for that investment, as part of the price review 2024 process, we will be starting. Design is under way, and we will be cracking on with that. So, those are the primary areas where we are off the pace.

Now, in terms of our environmental performance, clearly a slight increase in pollutions in 2022 has also been under the ‘lagging’ category, and we have very, very strong plans to deal with those. That’s much more linked to those serious pollution incidents and the investment I touched on a little earlier, but it’s also about the operational things we can do: use of data science, target where we’re likely to get blockages. A wet wipe ban would be more than welcome, because 90 per cent of our first-time pollutions come from sewer blockages.

So, very, very clear plans, all funded, and we’re ready to deliver them. But I must emphasise, this is not going to be a turnaround in one year. Those mains that I’m talking about, we are talking about hundreds of kilometres that need to be replaced, and that will take time. So, getting back to the place that we’ve been in the past, in terms of performance, is probably going to have a trajectory of at least a couple of years.

10:00

And just on the point of the impact on bills, that sort of investment we're talking about isn't going to be paid for by customers when we spend it, it's going to be recovered over a 25-year period. So, it's smoother. So, the actual bill impact is quite small.

On the question of bills, I suppose my question is in two parts. Could you set out again, please—because I know you've already covered this—how you try to make sure that the people who are struggling most in society are not the people who pay for these things, particularly in the context of the cost-of-living crisis? But as well as that, do you think that, for people who can afford to pay, as a society, we should be maybe looking again at how we value water?

I'll take the vulnerable customers one first, Mike, if I may. We have the biggest scheme by proportion of customers of any utility in the UK to help vulnerable customers. That's across any sector, whether you measure it across gas, electricity or water. We have around 135,000 customers on those schemes and, at an all-up level, we broadly halve their bills. Within Wales, we're working with 300 other organisations to get this message to those who are difficult to reach. You'll see us in supermarket car parks, you'll see us with Citizens Advice and, in total, we're working with 300 organisations, so we want to expand that. We've also brought a scheme in recently, Cymuned, which is for the working poor. This is for that group who don't receive state means-tested benefits, but who have negative budgets. So, what we've got is a scheme that we launched initially in Rhondda Cynon Taf and Denbighshire with Citizens Advice, and effectively, if you're referred to a foodbank, you can be referred to us and we'll give you up to a three-month break in terms of payments. Again, we're looking to promote that scheme as much as we possibly can to help as widely as we can. Mike, do you want to—?

There's one point I really wanted to get across. There's a lot of reference to the fact that our bills are amongst the highest in the sector—that's very true—but our water bill is the third lowest of the companies; it's the waste water bill, the sewage bill, that is the highest. The reason for that goes back to privatisation. Inland treatment of sewage was done pre privatisation and paid for by the taxpayer. Coastal discharges to sea, sewage treatment going into the sea, was undertaken post privatisation and paid for by customers. The two companies with the highest proportion of customers being served by coastal discharges are ourselves and South West Water and the two of us have the highest waste water bills.

Okay. Before I come to Huw, I'm trying to be objective here, but the facts tell us that you have been downgraded for two years in a row by Natural Resources Wales and Ofwat are describing you as lagging. So, what does that tell us about the performance of Dŵr Cymru and who takes responsibility for that?

Well, the accountability is mine and our board, for the avoidance of doubt. We have plans to recover our performance, and we're absolutely clear that they're the areas that Delyth just touched on and the environment, which I responded to earlier. In terms of that, I think some of those impacts are from an ageing infrastructure—that's why we're proposing such a big increase in investment—and I think the water main issue that I addressed is a clear example of that.

The other thing I would say is that we need to look at what's been happening. We are an industry, we're a company that's on the western seaboard of the UK, so climate change hits us. If you go back to 2018 and you go back to the drought that we had last year, these are significant events impacting an infrastructure that was never built to deal with those kinds of conditions. A good example was last year. If you look at the freeze thaw—we do a lot of research into weather, because it's clearly a factor that can impact our performance. There were only two areas of the UK that suffered sustained -10 degree temperatures. One was Ceredigion and across into the Elan valley and the other was the Scottish highlands. So, those are the kinds of extreme temperatures that we saw. If you look at last year's drought, 1976 is often quoted, but 2022 was right up there, if not worse.

So, in terms of much of what we're dealing with, this isn't about what I would call simple operational response, although I do take the point that we're always looking to do better in those places, this is about a fundamental challenge to the performance of our infrastructure, and that's what we're targeting. We have plans for the areas—we're off the pace. Our quality and safety committee of our board review this monthly with the executive—they put us through our paces, that's their job. I've been an operator all my working life, and we have plans in place to deal with this, but it's not going to be a quick fix. I wouldn't want to lead you down that road that by this time next year it will be done, but where we can replace that infrastructure and get it to a standard that can deal with these conditions, we will see performance improvement.

10:05

Thank you, Chair. I'm going to go slightly off-piste, if it's okay. I just want to pursue this line of questioning here. The investment plans that you've laid out with the regulator, are they sufficient to deliver success in improving the qualities of our rivers?

Against the measures, it will take time. In terms of dealing with harm from things like overflows, because of the cost of dealing with this, you have to spread it to be able to deal with those vulnerable customers. So, that will take us as far as 2040, but things like water supply interruptions, things like pollution incidents—we will make a significant change over the next five to 10 years. So, some of it will be much sooner, some of it will be longer term, but we are talking—. I think if you saw the Stantec report from Welsh Government recently, that sets out the kind of scale of investment that we will need over the long term.

So, recognising the mountain you have to climb—I do want to come to you in an a moment, Mike, but recognising the mountain you have to climb, you have to acknowledge that we're going to see, from what you're saying, massive investment.

Hopefully, transformative investment for the next decade and more. But there are going to be some communities and some stretches of rivers that are not going to see it, because they're not going to be the top priority, they're not going to see the big investment, and your argument is going to be, like you've got in the written submissions there, 'Well, some rivers just flush it out to the sea and it's done.' It's not a high risk to the ecology, it's not a high risk to bathers.

No, but I think, in answer to that, I wouldn't like you to think for one second that we're dismissive of any of that. Let me give you a couple of examples, the kinds of things we're looking at. Yes, there's some big investment where we need to rebuild infrastructure, but there are a couple of coastal communities that we're engaging with at the moment where, although, if you take the statistics—not produced by us, by the way, but by our environmental regulator—they have excellent bathing water, but we know now people want to use bathing waters year round. So, the kinds of thing we're looking at are things like smart water butt trials. Now, they are relatively low in terms of capital expenditure, in the low millions. So, we're not being dismissive of areas where we would like to make other changes that, ordinarily, if we waited for the regulatory process, would take much longer.

So, I think there's a lot we can do operationally, there are lots of things we can do from an innovation perspective, and we get this. People now use the seas and bathing waters year round, and we want to work with that. We've got a team of river quality and coastal quality liaison managers. They are working with the bathing groups, they're liaising with angling groups. We're picking this up, and, where we can, we will try and do our damnedest to try and not say, 'We're not coming to you for 20 years, because the regulatory process doesn't do it.' We're trying to be innovative with the funding we have available.

Your colleague wanted to come in. It's, I think, on the issue of investment, and I do remember back in 2009, Lord Lamont, at the time, was advocating a tax on visitors to the south-west of England in order to put the historical underinvestment into the water system and the sewerage system there, but—

I'll just give you an idea of—. Our capital programme that we're proposing for the next five-year period is £3.5 billion. That's a 58 per cent increase on where we are, over an extra £1 billion going in. The issue that we have—we could spend much more than that, but we have to prioritise, and the reason we have to prioritise—there are two reasons. As we were talking earlier, our bills are high, we are serving some of the most deprived communities anywhere in England and Wales. Bill increases have to be a balance for us, and if you look at the bill increases we've proposed compared with other companies, they're much more modest than, let's say, for example, Southern Water. But it's because of that trade-off that we have to do. The second one, which is a vitally important one, is the supply chain. You can have the money, but can you actually spend it and construct all of these things? The supply chain—I mean, this is happening all over, all water companies—the supply chain, as it currently is, isn't geared up for this. So, there's an awful lot of effort going into securing contracts to be able to deliver the programme. For us to have big increases in the programme, we need to have almost a signal from Government saying that, 'This is going to be a steady increase in investment over decades', and that gives the supply chain, then, the ability to say, 'Oh, well, we understand that and we'll gear up.' Then you compare that to the past 15 years or so where it's all been about keeping bills to a minimum.

10:10

We've got the regulator in front of us later on this morning. This is my final question, Chair. Do you think you've been given a fair shake by the regulator, or would you like to see something else happening that allows you to give that certainty of investment?

And the flipside of this argument is—I've mentioned this to you before—when you're challenged on, 'What's the benefit of having a not-for-profit organisation?', you say, 'Look at what we're doing with the social tariff'. And you are doing stuff in the social tariff that is beyond what other water companies are doing; I get that, okay, I get that. [Interruption.] I'm just saying that's not enough. Historically, that's not enough. That's not enough to explain the underinvestment. Now, I have a note of optimism, because we turned round what we did with bathing water, as of course we did; so, we can do this. But it was a step change in response to regulatory framework, public pressure, and so on and so forth. So, genuinely, do we get that dividend from the the structure of your company?

There are a couple of points. I'll start, and Mike may want to add as well. First and foremost, what we've always done as a company is act in a financially prudent manner. Our gearing was at 93 per cent back in 2001. It's now at 58 per cent, so £2 billion of what we would generate as, let's describe it as 'customer dividend', we have used to do that. We've used it to reduce bills and we've used it to provide for those who struggle to pay, and we've also used it to invest in our infrastructure. We've done things like take over £40 million and invest in dam safety. We've used that to—. In fact, we did a flood scheme in Cardiff, so we have used that dividend that we generate as a commercial business and we've ploughed it back in. And if you look at the rate of what we've done, if you choose to say, 'Well, how much dividend did you generate?', we've generated what the others have done, but we've put it back into our customers and the infrastructure.

The other points you made earlier about questions for the regulator: I think I sense a sea change in the view that we have not invested at the rate collectively that we should, and I think that's what lies ahead of us in PR24. So, we're sat here on the basis that we've put a plan in that increases investment at the scale Mike outlined to you, and we believe the regulators are listening, but ultimately, it'll be their call. They're independent, of course, but our view is that we've got a plan that will start to address some of the deficit that we've had in the past.

Since May 2001 when the company was acquired, we've created around about £3.6 billion of value: £600 billion of that has been returned, £290-odd million to reduce customer bills, and a similar amount then on discretionary investment. The bulk of it has been retained within the company, lowering that level of indebtedness.

Now, I know there have been a lot of people saying, 'Why have you kept that low level of indebtedness, the low level of gearing?' There's one benefit: we have the highest credit rating of any water company. To give you an example, then: our interest costs are about 0.3 per cent lower than Severn Trent's and a massive 1.5 per cent lower than Thames Water.

But the only benefit of that is that you can now borrow more at a lower rate in order to invest more.

But by having lower interest, we then have more value available to be able to return to customers.

The second thing is, if you look at all the issues earlier this summer, particularly with Thames Water, the financial distress, and Ofwat's report that was published last week about financial resilience, we are so safe compared to any other water company, and that's what's attractive to investors about us. So, keeping that financial discipline I think is absolutely key, and we can do that because we don't have shareholders either sitting on our board or shareholders sitting as members of the company looking for returns. The only return that we give is for the benefit of customers.

10:15

Okay, thank you for that. Did you want to come in? I know we might have touched on—

Yes, well, I'm mindful that we have five minutes left and I know that Jenny and Janet want to come back in as well.

I'll be very quick. You can write to me if you want. You mentioned Llanelli as a term of investment, well, that's been an ongoing problem for very many, many years, affecting people's livelihoods in some cases, and I know there's a huge dispute. So, if you want to give me a note on that. 

And the other question is: you very briefly mentioned the impact of the freezing weather last year, but there were swathes of Ceredigion—Cardigan, again, being affected—that had no water for five days. Now, I know you've resolved those with works in situ, but can you guarantee that those people won't be without water for five days again? If I remember rightly, it was around Christmas time and across it.

It was, yes, and we apologised for that lack of service. Can I tell you, having been in this business for 43 years, what happened that weekend of 16 December, we saw the biggest swing in temperatures ever recorded. There was a 10 degree swing from -10 degrees C up to freezing literally in less than 24 hours. What that did to our infrastructure was cause significant bursts because of the ground movement. What it also did, 50 per cent of the loss of water in Ceredigion wasn't from our infrastructure; it was from public buildings, it was from people's hosepipes bursting—it was split between the two of us. 

So, what we will do, as we do every year, is up our communications now as we go into the winter to get customers to think about lagging pipes—there's a lot of value in that. But the other thing we're going to do in the next investment period is increase strategic storage of treated water in the Ceredigion area. We've done all of the preparatory work—the design, the modelling—that's ongoing as we speak. I can't guarantee it until we've built that extra storage, but we will do all we can to prevent—

That's going to happen from 2025 onwards.

Well, there's a lot we can do operationally. We can start to move our tanker fleet if we see this happening—we'll get it closer. We can get more repair teams in there, more leakage teams. So, there's an operational plan in place for that, but this does come down to us having more storage.

Thank you for that. Jenny, I'll come to you next, and then Janet can conclude the session for us.

Okay. I wonder if we need to talk about the team Wales approach to phosphate removal at your waste water treatment works.

Sure. Well, it started, I think, with the modelling, so we now know what we need to do. With sewage works, you can identify phosphate loadings from the outfalls. So, what we're doing with that at the moment is investing—it's well over £100 million before 2025—to address pretty much all the phosphate on the SAC rivers.

Where we've had experience of working with others, we've had particular success on the Wye, so it's been slightly outside team Wales, because it's been on the border land areas. And what we've done there—and it does come back to, I think, a point you asked earlier about the constructors—we've been able to work collectively with land managers, with agriculture, with developers to come up with schemes where, for example, rather than just undertake the phosphate reduction at our treatment works, we would look at agricultural loading in a locality and build a wetland. We've given up land to do that. It's in its infancy, and there's a lot more to do. What we would like to do is—and I know from our work with the nutrient management board chairs—we want to lift and shift that into Wales. So, there's more to do, it's in its infancy; we need to get momentum behind it.

Okay. So, would you say that, to date, although the First Minister has had all of these phosphate summits, there hasn't actually been a reduction in the amount of phosphate going into your treatment works?

Oh, there has, yes, absolutely. We're on—

It's pretty significant on the Wye. Steve, do you want to give the detail on that?

Yes. So, at the biggest sites on the River Wye—Hereford, Leominster, those kind of areas—we've taken a lot of phosphorus out, over 100 kg a day. On the other rivers, by us accepting new permits straight away, backstop limits, tighter permits—. Wrexham's another example on the Dee, where we've accepted a much tighter target straight away to allow that headroom to be created.

But on the wetlands point, there's a really interesting scheme on the Clwyd at Tremeirchion, where we've identified a scheme, working with farmers, to take out 60 per cent to 70 per cent of the phosphorus, combined with a big wetland, treating our waste water and some farm works. We've been in negotiation for three years with NRW about how to permit that. There's an area where we really need to get going on, allowing this nature-based approach. In England, I've had clear guidance for five years on how I can do that. I think—

10:20

On the Wrexham point, can I just mention that we've actually enabled 3,000 social houses to be built now, just by tightening our consent? So, that's a great example of—

Yes. Well—. Yes, they will have to do that, of course. But, in terms of our permit at Five Fords sewage works in Wrexham, we have voluntarily said, 'Tighten that, because we know our works can conform', and it has enabled 3,000 houses to be built. So, that's probably the best example of team Wales today.

I think it's fair to say as well, in terms of team Wales, there's a reluctance from people to get involved in this. One of the things that we're keen to do is to be the leader in this. So, by demonstrating we are tackling our own, even though on those rivers it may be other polluters we have that have the biggest impact, we want to show the way forward. And I think that's the key thing that we're doing at the moment. And hopefully everybody else will come with us. 

And just briefly, these smart water butts, are you concentrating them in the west of Wales, which is obviously where your biggest sewage problems—

We've got two communities that we're beginning to work with at the moment. There's Newport, Pembrokeshire, and we're looking at Solva. They're very much at the starting point. If we can pilot them there and make them work, we would look then to scale that. All this does is slow surface water from roofs into our system. It's rain water that—

Okay. We are out of time, more or less. I think Huw very, very briefly, then. I think Janet has indicated that we've already covered the area that she had. Yes. Okay. Huw. 

I just want to express one of the frustrations. There is certainly a great deal now of work that is being pulled together in Wales. You put it under the umbrella of 'team Wales', and I get that, but, simply speaking, the crisis we're facing has been serial underinvestment for decades in an industrial architecture that is Victorian, coupled with climate change impacts that I see in valleys like mine, narrow river valleys. So, I say this to you, in the same way that I would say it to NRW, that I would say it to the regulator: we have failed, because we should have been anticipating this. We should have known that the impacts were going to be greater because of climate change. We should have known that this was coming towards us because of the state of things. So, do you accept that we have failed?

Two things: the first thing I would say is that, in terms of our most immediate climate change risk, it's the dam safety, and Dŵr Cymru has the biggest dam safety programme of any water utility in England and Wales. So, we're addressing that and we're on with it. The second point is that, when we talk about the environment, and it's the right thing to do, I think sometimes what's forgotten is that we have another side to our business. We have a clean water business as well. So, the complexity for us—and it's not an excuse, but it is the realpolitik of all of this—is that we have to balance things. We have to balance our investment, we have to balance our bills, we have to balance our capital maintenance. And I think that's what's happened, but I think there is a growing realisation that, where we have been in a place where levels of investment haven't been right, it's never been what I would say is conscious negligence, it's because we have to balance those things. But, increasingly, and I think PR24, the next regulatory period, is the first time that I think we will see much more of these big issues being addressed.

Okay. Well, the clock has beaten us now, so can I sincerely thank the three of you for your attendance this morning and for the evidence that you've given us—plenty for us to reflect on, mull over and to test further with our next panel, Natural Resources Wales, and subsequently then after that, Ofwat.

So, gyda hynny, diolch yn fawr i'r tri ohonoch chi.

So with that, thank you very much. 

The committee will now break for just five minutes, and we'll reconvene for a 10:30 start. 

Diolch yn fawr. Thank you for your time as well. Thank you very much.

Gohiriwyd y cyfarfod rhwng 10:24 a 10:31.

The meeting adjourned between 10:24 and 10:31.

10:30
3. Ansawdd dŵr - Sesiwn dystiolaeth gyda Chyfoeth Naturiol Cymru
3. Water quality - Evidence session with Natural Resources Wales

Bore da, bawb. Croeso yn ôl i Bwyllgor Newid Hinsawdd, yr Amgylchedd a Seilwaith. Dŷn ni'n symud at y drydedd eitem ar ein hagenda. Rŷn ni'n parhau'r gwaith o dderbyn tystiolaeth ar ansawdd dŵr, ac, yn ymuno â ni ar gyfer y sesiwn nesaf, mae cynrychiolwyr o Gyfoeth Naturiol Cymru, a dwi eisiau estyn croeso cynnes i Gareth O'Shea, sy'n gyfarwyddwr gweithredol gweithrediadau gyda Chyfoeth Naturiol Cymru, a Mark Squire, sy'n brif gynghorydd prosiectau strategol gyda Chyfoeth Naturiol Cymru. Mae amser yn brin—40 munud sydd gennym ni ar gyfer y sesiwn yma—ond mi gychwynnwn ni'n syth felly gyda Janet Finch-Saunders.

Good morning, everyone. Welcome back to this meeting of the Climate Change, Environment, and Infrastructure Committee. We are moving on to the third item on our agenda. We are continuing with our work of receiving evidence on water quality, and, joining us for this next session, we have representatives from Natural Resources Wales, and I want to extend a warm welcome to Gareth O'Shea, executive director of operations at Natural Resources Wales, and to Mark Squire, who is principal adviser strategic projects with Natural Resources Wales. Time is against us—we only have 40 minutes for this session today—but we'll start straight away with Janet Finch-Saunders.

Thank you, Chair. Good morning. You'll be aware from the headlines, and also from our feisty debate yesterday, that there's a lot of unrest now about the number of illegal Dŵr Cymru CSO operations. So, what is your view and how are you working to ensure that these breaches are minimised considerably?

Thanks for the question. Just be to be really clear, we share the public's concern. We are concerned ourselves about the situation we're facing, and, obviously, as a regulator, we want to see that situation improving. There are several different aspects to the regulatory piece, so, if I focus particularly on—. There are two types of storm overflows—the one with the flap valve, which you all understand, and the one with the storm tanks at the sewage treatment works. So, if I focus on the latter, and we'll pick up our regulatory approach to storm overflows as we go through the session. We're in contact, obviously, in a regulatory capacity, with Dŵr Cymru Welsh Water; we've required them to put monitors on the works. They already have now 350 monitors on the 800 works. Not all will require monitors. We are investigating 51 of the sites, we know there are issues at a further 138—and I think these numbers were shared earlier—but, within those numbers, we have identified 45 sites where we've made improvements. Obviously, I've focused there on just that type of overflow, because I think that's what the question was on, but I'll come back to the wider performance later if I can.

And I'm sure will be picking up on those, yes. Joyce. Oh, sorry, Janet. Okay, briefly, Janet, yes.

Yes, just in terms of enforcement, though, there doesn't seem to be much to satisfy me that you're taking enforcement seriously on these.

I can come back on the enforcement stats later, probably, when we have the metric discussion.

And if I don't, please remind me to do so.

I'm going to ask you about Cardigan and the breaches that were well reported there. So, my question is this, to try and get underneath it: when were those first reported to you, and what action have you taken, not only just then, but going forward?

10:35

Thanks for the question. And I make no excuses in saying this, but Cardigan is a complicated site. We first became aware of it back in July 2015. We became aware of it via the operator self-monitoring process—so, the company were aware and we were made aware. We visited the site at the time, as you'd expect. It wasn't working, obviously, as we'd expected. There was an issue with sea water infiltration affecting the membrane, as you'll understand, and we ended up issuing, at that point, a warning letter to resolve the issue. In 2016, then, the issue still hadn't been resolved, and it required further investigation, so the water company were doing further investigation there. That led us to issuing what we call a regulation 36 notice—the first one to the company. They complied with the requirements of the notice, but it didn't resolve the issue at the plant. So, we subsequently issued another regulatory notice, requiring them to do further work at the site. Again, that didn't resolve the issue. We got to a position where we recognised the issue at the site was unresolvable without a full reconstruction of the plant and investment. I think you'll know now that that investment has been announced for the next asset management plan period.

So, our position would be that the regulatory process has worked in getting the investment into the system, and the plant will be delivered, but I do recognise that there will be a view that other regulatory processes, such as prosecution, as mentioned, is a tool. We chose not to do that at this site, on the factors available to us and on the fact that we believe this was the best way of securing the best outcome for the environment in Wales. All I would say is that the site obviously remains under investigation as well.

Can I just—? So, it took eight years to decide that you couldn't fix what you couldn't fix the year before, the year before and the year before that. I know work has happened, because we've just spoken about it, and I understand the reasons why you didn't fine them, because there's less money to invest—we get that. But why has it taken so long? The sea has been there all the time; I know the area well. So, that's not new. That didn't arrive in 2015. Why is it taking all this time to recognise that you've got a problem that you can't resolve unless you invest in it?

We recognised that problem a couple of years ago, to be fair, which is why the last notice was issued, but we recognise that it is taking some time. As I said, it was a complex site. We thought the notices—or we wouldn't have served them at the time—would have resolved the problem, but obviously they didn't. But we kept going via that mechanism because we believed it was the best way of securing the outcome.

We know from speaking to Dŵr Cymru earlier—they said there were less than 200 sites known to be operating in breach of their permits. What do you believe is the real action to address these?

I think, if we look at the action that's been taken, as we say, we've brought 45 back into compliance through the action that we've taken through the monitoring. The action then that Welsh Water takes brings those sites back in. Of those 138, they're going through that process at the moment, so it's the monitoring, the assessment by Welsh Water, what stage will it then be resolved—is it a long-term capital maintenance programme, or can they do it through maintenance? We are looking and we are carrying our audits now, on the back of some of the sites that were highlighted. We were doing this anyway, I'd like to just add; it's not on the back of the article. So, in places like Cardigan, we've got 11 audits going to be carried out against those sites. That may then lead to regulatory or enforcement action. So, we are looking a lot closer at the sites, and I think Gareth also mentioned there are more monitors going in. So, in terms of the number of sites we need to look at, that will, potentially, exponentially increase over the next couple of years.

10:40

Yes, just a small follow-up. We've heard a lot this morning in our earlier evidence session about the team Wales approach going forward. Not only you, but the Environment Agency in England, have faced a lot of criticism for not being more assertive in enforcement and fines and so on. And, look, we know that fines ultimately come back onto the water bill payer, one way or another; they don't come off shareholders, if there are shareholders, or whatever. But let me just ask you genuinely: the team Wales approach, does that mean we will see less hard enforcement, fewer fines? Because if it's all working together for the greater good, who holds the feet of Dŵr Cymru to the fire?

So, for environmental regulation, Huw, it's ourselves. We clearly hold Welsh Water's feet to the fire. In a team Wales approach moving forward, it's a multi-sphere issue, as you will understand, and from your debate yesterday, and it needs far greater input than the water companies' input, as we know. But, for environmental regulation, we are the regulator. 

So, why do you and the Environment Agency seem to, for a lot of the public, take a step back from this, and say, 'Not yet; we're not ready to enforce, we're not ready to fine'?

You may have that impression; we don't feel like that. I've been going into water company performance reviews for the last six to eight years, and they are not the sort of conversations we have. I don't think the data we have supports that. Obviously, we can always do more regulation, and, as the situation has manifested, we'll need to change regulatory approaches.

But you asked the question about when we move forward. I can't predict what the enforcement levels will be, or what the outcome of enforcement levels will be, but what I can say to you is, where regulation needs to play its part, the team Wales approach doesn't change our role as a statutory regulator within Wales, and, where action needs to be taken to protect the environment, we will take action. 

Could I just add, in terms of the team Wales approach? If you look at the guidance we've just issued on storm overflows, we've done that collaboratively, but the water companies won't like it—the guidance and the direction of travel—but we all understand. So, to us, team Wales is not always about agreeing everything; it's about understanding the position of each of the organisations and moving that forward. And we will use our enforcement powers, and our range of them, as and when we need to. 

You've issued a report that there's a declining environmental performance of Dŵr Cymru. So, what are the plans to work with them to improve that situation? 

So, you'll be referring to the report that's in the evidence pack, and that you'll have discussed with the company earlier. As I said, I've been in there for several years, where the performance has oscillated between 3—. They've had one year of good, 4, performance, but, since, it's dropped to 3 and 2, for the reasons mentioned earlier. We'll make no excuses in there. We want the environmental outcomes. We don't agree with the water company on that their numbers are getting lower and so it's better. We want—. Our ambition for them is clear. We want zero serious pollution incidents. We want more self-reported incidents. So, we use that process. We have a tripartite meeting with Ofwat, a regulatory meeting, once a year. We're really clear on our position on that. We get invited to the sub-group of the Dŵr Cymru board, and we're quite challenging in that environment about what—. Now, we seek assurances. We want to assure the committee that we are not happy with a 2-star performing company, and we are not happy with the impact of that on the environment in Wales. 

Well, we're all unhappy, but what are you going to do about is the question. We can all say we're unhappy, because we are. 

So, what that has led to—and I know you've talked about the figures earlier on—is that—. That framework leads to the investment programme, the AMP programme, the five-year investment programme. Through that regulatory process, through that performance, that's led to record investment. I would say a figure of £1.2 billion of capital investment; I know why the water company would use a £3.5 billion figure, because they'd include maintenance. But that's at record levels to deal with some of the issues that we're getting, and it is that regulatory process that has got us to that. 

One point two billion pounds capital investment, yes. 

10:45

Let's face it, you are regulators. You also have enforcement powers. So, how do you respond to the fact that Dŵr Cymru has breached its permit conditions more than 200 times in the last six years, and they've only been fined twice? Why is that?

If I set out some figures for you that are kind of verified at our end and we've used previously. So, if I go back to 2016, and if you tie that in with the performance report that you'll have read, I'll answer the question, I hope, Janet. There have been 70 breaches of the numeric conditions on the permits, which are covered under the environmental performance assessment metric, since 2016. Our enforcement since 2016 has resulted in six prosecutions, 19 formal cautions, 8 enforcement undertakings, a civil sanction, and over 340 warning letters. So, there is a regulatory response there. Obviously, there's a lag between the incidents and the enforcement. So, there are some numbers in the most recent ones that won't have come through our enforcement processes yet.

But it takes me back to the question. There have been five serious incidents. But 340 warning letters to only have two fines tells me that the warning letters themselves may not be fit for purpose.

But your question talks to my point, really; the five recent incidents will still be in the system and under investigation. So you can't marry those two numbers, which is why I gave the numbers over—

Okay, let's go back to the basics then. You've sent 340 warning letters and there's been just under 200 breaches, but only two fines. It doesn't stack up.

No. There have been six prosecutions over that time.

Yes. There have been 19 formal cautions, and the evidence test for those is the same. 

Let's be honest, companies only start to really take things seriously if they feel that they are going to be fined. What was the result of those prosecutions then?

NRW's regulatory response has prosecutions as part of it, and rightly so, and prosecutions are a deterrent. But our toolbox is much broader than that.

What comes out of a prosecution will be reputational issues for the water company. The money, the fine, would go back into the central Government pot and go off to London. It wouldn't go back the environmental issue on the ground. That's different with enforcement undertakings, but we can only use enforcement undertakings at present in Wales where it's linked to a Salmon and Freshwater Fisheries Act 1975 offence. Sorry to get technical on it, but where it leads to a fish kill.

Doesn't the fact that the money goes back to Westminster—? That's academic, really, isn't it? If you're using that as a reason not to fine somebody, then what's the point of having a fine?

Sorry, I shouldn't have made that suggestion.

Thanks for correcting me. Obviously, the decision to prosecute or not comes down to a balance and a test of whether we have the evidence, whether the evidence justifies prosecution, and you do have to have evidence to get it to court to justify the prosecution.

And then, as part of that, there's a public interest test, and we make a judgement as to what's the best outcome in the case with the evidence we have. Sometimes it results in prosecution, sometimes it doesn't.

So, when we're told on television that that money’s better spent on infrastructure than on utilising a fine, you're suggesting a different approach there.

We would follow our enforcement and prosecution policy, so we wouldn't be afraid to take something through to prosecution if it was a serious breach or resulted in a fish kill or resulted in environmental harm. So, that option is always open to us. Officers will go through those steps of warning letters, serving notice. If they feel that the operator—Welsh Water, but if could be anybody—is taking it seriously, has got a plan in place for bringing back to compliance, it will probably stop at that point, and that may be done. We'd have to look at those 342 individual cases to see why it didn't go further from warning letter. It could be that it was resolved.

Okay. Delyth wants to come in on this point particularly, and then I'll come to Janet. But we are halfway through our time slot already. Delyth.

Diolch. And forgive me, Janet, if you were about to ask this, but it's often commented on that NRW is underfinanced, and you've said to us in the past that there are lots of things that you would like to be doing as an organisation if you had more funding. Has that had any implication for any of this? If you had more money, would there be more times when you might have taken a different action?

10:50

I don't think money is a factor in our decision making, as Mark has outlined there. But in terms of funding, we've been grateful to receive the £18 million gap in funding to our baseline. We've welcomed the extra funding over the next two years of £2.5 million for the control of agricultural pollution regs. We've welcomed the capital funding of £15 million that's led to some great water quality projects on the ground—

In our baseline services, if we call them that—our core monitoring, our core incident response and our enforcement—we recognise we sit in the context of the public sector. We have faced real challenges in this over the last decade, and we have considerably less in this area. But it doesn't affect our decision making on individual cases.

No. You're right, and it's absolutely fair that you make that point. Janet, did you want to have a final word? And then we'll come to Jenny.

I'm still not convinced that you've got the teeth, or you do have the power but you're not using that power. At the end of the day, the numbers just do not stack up. I was hoping today that you'd reassure me that, actually, you do have this criteria that's set. It just sounds to me as though Dŵr Cymru, and maybe other organisations that you're involved with where you are a regulator and where you are an enforcement body—. I don't think you're taking the enforcement side seriously enough. How can you convince me otherwise?

Okay. Sorry, Janet. I think what we're saying is, basically, there's a carrot-and-stick approach, but you never use the stick.

We would argue that we do use the stick; we believe we have the full range of regulatory tools. I mean, we've just outlined some of the approaches we've taken, and they are considerable cases. I can't go into other cases that will follow through, but they're under investigation at the minute because of the numbers involved. But we do have the tools available, and we will and do use them.

I agree with you that reputational risk is a more effective tool than fines, because it just reduces the amount of money in circulation. But I think the public is getting the impression that the citizen scientists are doing a better job than you are, because Professor Hammond and these environmental information regulation requests are revealing things that you ought to be knowing already. These Windrush Against Sewage Pollution figures are saying that most of the discharges were either on dry days—a small number—but mostly—96, nearly 97 per cent—were early discharges when the treatment flow was below capacity at some point during the spill—i.e. it wasn't raining so heavily and the capacity of the plant to process the sewage treatment didn't require them to chuck it into the river. So, did you not know about this, and if not, why not? What action were you taking before Professor Hammond revealed all this?

Professor Hammond has been great. We've talked to Professor Hammond about the sites and the work he's done and how that correlates with some of the work we've done. In honest truth, we were looking at some of the sites, but not all of the sites that he picked in the article that was done. We've tightened our guidance, which was sent as a pack, our new storm overflow guidance; it talks about when discharges are allowed, i.e. not on a dry day, and it sets those definitions, which are now being worked through by the company to assess the discharges but also then to categorise them—whether they're satisfactory, unsatisfactory, or substandard. That's a big piece of work that needs to be done. But the information that Professor Hammond requests is the same information that we use for our compliance. And as I said earlier, in instances like Cardigan, we've got 11 investigations under way using similar data, but obviously we have to look at that data separately to Professor Hammond. 

I understand that, but I think the impression that's been given is that you're simply not—. Basically, what we're trying to do here, isn't it, is not to chuck any untreated or partially treated water into the rivers and seas. And if we've got evidence that people are doing it on days when they're not overwhelmed by very large rainfall, it just feels like you're not doing your job properly.

10:55

If it's discharging on a dry day into a river and causing an impact and pollution, then we have the powers to take—. It would be a pollution incident and we would use those powers. If it's breaching its permit but we're not seeing the impact, then we're pushing the companies to do the assessment as to what the impact is, why it isn't 'working to modern standards'—that's the term we use—and bring that discharge up to modern standards. We have the right to take that to prosecution if we feel it meets all the tests to take it through the court system.

Okay. Can you just very briefly tell us what's your strategy for bringing all unpermitted overflows into the regulatory regime?

There are two aspects. There's the unpermitted, which is around 200 in number, and there is also the guidance, which is around storm overflows. The assessments that companies need to do are set out in that guidance, and that will ensure that they are assessing them, putting forward the criteria that they need to bring them up to standard, or if they are up to standard, that's fine. And any that are unsatisfactory, as I heard Peter say, need to be resolved in the next AMP. Alongside that sits the process for unpermitted discharges they need to go through, to bring them (1) up to modern standard, and (2) ensure that they're satisfactory. So, we won't be permitting them tomorrow, because if you permit something and you don't understand why you're permitting it, that is a perverse way to go about it. So, they need to do the assessment, and they will then be in a place where they can apply for the permit, with what action they need to take. And we will issue an enforcement notice alongside that to hold them to that.

Okay. So, the timescales: the public are saying they want action and they want to know by when you're going to put a stop to all this.

On anything unsatisfactory, we're expecting the company—and, obviously, there are cost and affordability implications—to do those assessments by 2027, and to look to ensure anything that's unsatisfactory is programmed to be resolved by 2030, on a 'prioritise harm reduction' basis.

And meanwhile, the biodiversity in our rivers and seas is just deteriorating by the day.

We've picked up, in the assessments that we're expecting the company to carry out, biological surveys, to help us prioritise those. We know, if you look at the Stantec report, in terms of the cost of delivering this, it's billions. So, as a fair regulator, we've got to take account of how long this would take to bring everything up to modern standard. But we will expect the company, as fast as they can, to deal with those that are unsatisfactory and have a programme, over the next couple of AMPs, to deal with the substandard assets.

Thank you, Chair. Can I just ask you a big, broad question right at the outset? We've seen remarkable success in previous decades in cleaning up things like bathing water quality and so on. You're sitting in front of us as the environment regulator in Wales—you're the only people we can go to on these issues. Not just you, but Dŵr Cymru, who were in front of us before, the regulator, ourselves as politicians, whatever, we have categorically failed on river quality, haven't we, on sewage and other aspects. We have not anticipated what could be foreseen, which is Victorian infrastructure, which are things that would break down and crumble, which is overloading of housing capacity on an already overloaded sewage system, which is climate change getting us to have more discharges into narrow river valleys. But we could have foreseen this. Do you accept, as the environmental regulator, that you have failed, but we have failed as well? This might be an unfair question for you; it should be to the chief executive, I guess. But we have failed.

I accept the broad point you make, Huw. I think it's right that you recognise the progress made with 100 per cent compliance of bathing waters and 40 per cent good WFD compliance, or 44 per cent in rivers. I don't think we've foreseen the speed of climate change and the impact it has on an antiquated system, as a society more generally, and I think everyone has to play a part in that. I think we are dealing with it now. I think we have to move quickly. I think the water company has to move quickly, the wider sector has to move quickly. That's why I'm really pleased that we're part of the phosphate summit, that we've got the better river water quality, because we do need to modernise, we do need to modernise responses. I wouldn't say we failed because of where we are today, but I would recognise more broadly that the pace of things has caught up with us.

11:00

Could I just add as well, if we look—? We've mentioned the data that Professor Hammond is using; all that data has gone in in the last 10 years. The regulator has asked for that information, because we know that the system needs to improve and we need to tackle the problems that we see now. So, I would say we haven't failed; we've come to a point where we know we need to now invest, and we probably need to invest quicker—

No, no—we have failed. Let's go on to the ecological status of our rivers, let's look at what's happening there. We have failed to take the pre-emptive action that could have mitigated some of this. You're saying we couldn't have seen as much this traumatic, rapid increase within climate change, but we certainly knew there was an antiquated sewerage system. Now, the regulator will have to answer for this as well.

The evidence on the ground is, and the indicators are, that our rivers are in dire straits—not all of them; every river catchment is different. We're focusing on sewage today, but, equally, I mentioned in the previous evidence session, in Joyce's area, the Cleddau river, and that's a different kettle of fish, then. Sorry, I'm mixing metaphors here. [Laughter.] But you've mentioned phosphorous, nitrate management schemes, and so on—all of this has to be tackled.

I think we need to recognise where we are. I think we need to recognise we're doing some really positive stuff, across the board, moving forward. We did make great strides over the last decades. It has been a difficult decade, hasn't it, on many fronts, but we are moving together forward now. It doesn't make any difference, but we are in a better position with the compliance figures in Wales, despite us facing some huge challenges as well in terms of topography and impact.

Okay. So, just tell me briefly, looking forward, where are we now on something that's close to my heart, which is this issue of driving up the ecological status of all our rivers, recognising that every one is different? And this will take us not only into the area of CSOs and discharges of sewage and the antiquated system, and whatever, but also phosphorous, nitrate management, and so on. Where are we on target setting and timelines for improvements to the ecological status of our rivers in Wales?

So, we've got the target demonstrator catchment, which is looking across everything within the catchment and how we tackle that. So, that will give us the evidence and a footprint, not just for SAC rivers, but for our other rivers. We've got our river restoration programme, which is a huge programme, looking at ecological impacts and what we can do there, and it's gathering the evidence then to feed that out, as regulator and in a team Wales approach, with other sectors, about how we move that forward.

We do recognise that our monitoring programme needs to be expanded. We do recognise and will publish something, as part of the better river water quality taskforce, around the better use of citizen science, et cetera, because we are an organisation that wants to be evidence led, and we need to follow the evidence, we need to follow the harmful impact. On the example that I think Jenny raised, we don't want plants discharging on dry days, which is why they need to discharge as they're designed to do, in higher flow conditions, where the impact is far less.

But I could reiterate, Huw—it probably wouldn't be helpful—we're playing on several different arenas here. The phosphate forum and the summit are really, really important. We'll be taking a proposal, and I think Mark alluded to it—. We're doing a piece of work in the Teifi, and we've picked the Teifi purposely because of the phosphorous issues, because of Dŵr Cymru's large role there. We're gathering stakeholders on the ground, to take a holistic and a collective view around how a team Wales approach may work. We'll be updating on that in the summer. We're implementing, as part of the separate storm overflow work, the work that Mark referred to, which has been done by gathering together the key players in the better river water quality taskforce. We'll keep pushing on that. We'll keep pushing with our regulatory framework, inside the PR24 process—the regulatory process—and we will continue with some terrific projects that I know some Members have been to on the ground, with the capital funding as part of our river restoration programme.

11:05

Okay. Thank you. Where am I going next? Bear with me. Joyce. Jenny. Jenny, apologies. 

Okay. I want to talk about the need to reduce phosphate going into the watercourses altogether. What is your view about the Minister's decision to have an enhanced nutrient management approach rather than the licensing scheme, and what is the significance of that decision on reducing phosphate in our waters? 

So, I take that to refer to the control of agri pollution regs.

We welcome the approach. I said we welcome the additional funding. We've set up a team—two teams, actually, in north and south Wales—that will get out into the farms. The training's been done. They'll get out into farms on the ground across Wales, and we think it will make a difference in working with farmers.

Okay. On the specific scheme that was mentioned by Dŵr Cymru, which was the Clwydian scheme, I'm not familiar with it, but they said they were waiting on your approval to get this going, because they were working with farmers to have an alternative way of dealing with this. 

Yes, there was specific reference to Clwyd and Tremeirchion, that they'd been waiting three years for permitting, so, you know—

So, why are they waiting? Or is it because you're not satisfied that it's actually going to do what it says on the tin? 

Partly. So, Tremeirchion works has a permit. We've got the proposals to replace the existing works with a wetland solution. So, there is a lot of evidence around the world around how wetlands work, and we want Wales evidence, so we've entered an agreement with Welsh Water to treat that and Pont-y-felin, which is a storm overflow, as a trial. So, we will look to gather the evidence from those sites. Tremeirchion will be run as a trial. If the wetland is successful, then that can be rolled out, and I think, off the top of my head, Welsh Water have got something like 30 or 40 more proposals. On the back of that, they want to look at catchment proposals and interventions, which we can't—. We wouldn't stop Welsh Water or anybody working with farmers or agriculture to do interventions, but linking them back to a permit is something we need to look at through the trial process.

So, it's potentially three years; it depends how we evaluate the evidence for Tremeirchion as it goes through, and we're just about to kick off those meetings with Welsh Water in terms of boots on the ground. They've acquired the land. It'll give us some good intel and evidence as to whether, for sewage treatment, wetlands are the way forward. We need to do it on a 'no regrets', because what we can't have, or we'll be back in the room here, is saying, 'It didn't work. Are we going to invest more? We're going to have to re-instigate works', and we want a 'no regrets' policy.

Okay. So, leaving that to one side, what else are you doing to actually really tackle this issue? We know it's really complicated and it's down to our propensity to chuck phosphate at absolutely everything, and that's going back 70 years. What else is happening? What's your contribution to this, given that it's such a significant issue? 

We're working as part of the nutrient management board. We're supporting each of the nutrient management boards. We've supported the Wales nutrient calculator work. We are, as I said, regulating in the water companies sphere. We are gathering partners together. I think you recognised in your debate yesterday that it's a wider societal and sectoral issue, so we're grabbing—. We are planning to use the Teifi to—

Yes, to give us a more holistic understanding and getting everyone to put their contribution on the table, and to see what other options we can use, et cetera. 

What role does NRW have in educating farmers as to when and whether it's necessary put phosphate on the land, given that there's so much of it stored out there already? 

That's part of the role of the new officers that are coming—I think there are 20 in total—through the funding. They'll be going out to farms to educate as well as enforce against inspections. And just to mention the other—. We are reviewing 170 of Welsh Water's permits that currently don't have phosphate limits, to ensure that they're—. We call them the 'backstop limit', so that the company then has to perform at that level so we don't see a deterioration. So, that work is under way and is due to complete in 12 months.

11:10

Okay. I think, basically, this committee, as opposed to the Economy, Trade and Rural Affairs Committee, is pretty upset at the watering down of the proposals to have a licensing scheme. I just wondered if you could just briefly tell us what is the impact of that decision, because the recommendation—. The Minister has now reflected on that and delayed that licensing scheme.

Could we take that away? I think both Gareth and I aren't close enough to some of that work and the recent announcements.

We are out of time, but I am going to take the liberty of asking one final question, because I've been reflecting on this balance between the carrot and the stick, and you've been telling us that you're confident that you have the tools in your box to be able to perform your role effectively. But then again, of course, you have downgraded NRW's environmental performance from four star to three star to two star—

Now, that suggests to me that either the tools are deficient or you're not using them effectively enough.

Well, I would argue that, in downgrading them, we are dealing with the issues that are in front of us. We don't think the water company is ambitious enough in addressing those issues, or the performance wouldn't be downgrading. But, as I said, if we look at the most recent data, you can't extrapolate an enforcement response, which is effectively what you're talking about, to some of the issues that would still be in the system. That's why I tried to drag the time frame out from 2016 to 2023, so you start to see a more rolling picture. But I would argue, Chair, that we're really clear on the performance in terms of the incidents. We're not happy with that performance. We think the ambition needs to be clear. There are instances—you can argue there should be more instances. Everyone's entitled to a perspective on that. We think that we have the tools to take action where we need to take action, and action that is proportionate in the cases that we come across.

Okay. Sincerely, thank you for appearing before us this morning. We really appreciate the evidence you've given us, and, again, it will all go into the melting pot with the other evidence that we've received. So, with that, can I thank you for your attendance and remind you that there will be a transcript of the Record, a draft copy, available for you to check for accuracy?

The committee will now break for another five minutes, if that's okay, so that we can reconvene at 11:20, when we'll be receiving evidence from Ofwat in our final session this morning. Diolch yn fawr iawn.

Gohiriwyd y cyfarfod rhwng 11:12 ac 11:20.

The meeting adjourned between 11:12 and 11:20.

11:20
4. Ansawdd dŵr - Sesiwn dystiolaeth gydag Ofwat
4. Water quality - Evidence session with Ofwat

Croeso nôl i'r Pwyllgor Newid Hinsawdd, yr Amgylchedd a Seilwaith. Dŷn ni'n dod at y pedwerydd eitem ar ein hagenda ni a sesiwn dystiolaeth bellach ar ansawdd dŵr. Yn ymuno â ni ar gyfer y sesiwn benodol yma mae Ofwat, a dwi'n estyn croeso cynnes i David Black, prif weithredwr, ac i Gwenllian Roberts hefyd, sy'n gyfarwyddwr Cymru.

Unwaith eto, mae hon yn mynd i fod yn sesiwn gymharol fer, ond mae hynny gobeithio'n mynd i helpu ni ffocysu ar gwestiynau siarp ac atebion miniog hefyd, gobeithio. Felly mi wnaf i gychwyn, os caf i. 

Welcome back to the Climate Change, Environment and Infrastructure Committee. We're coming to the fourth item on our agenda and a further evidence session on water quality. Joining us for this particular session are Ofwat, so welcome to David Black, chief executive, and Gwenllian Roberts, director of Wales. 

Again, this will be a fairly short session, but hopefully that will help us to focus on sharp questions and answers. So, I'll start. 

I'll just kick off with a general question, I suppose, about the price review process and the process's role, if you like, in driving investment in environmental improvement. Because, clearly, there are balances to be struck all over the place, and I suppose it's your call as to where those balances lie. 

Thank you. Every five years we set a price control for all water companies across Wales and England, and part of that is an investment package in terms of new investment that's made, as well as what we'd call base or routine running costs of a company, an allowed rate of return and a set of performance expectations.

We work in collaboration with Natural Resources Wales. As part of this process there's a 25-year planning process for both water resources and waste water management. In particular on the waste water side, there's the Natural Resources Wales national environment plan, and that will specify, scheme by scheme, every significant environmental investment that's to be made in that period. And then that is reflected in the company's business plan. They submit that to us, we assess those plans, issue a draft determination for consultation and then a final determination. 

So how would you characterise that process specifically in relation to Dŵr Cymru, maybe relative to your experience with other water companies?

We're obviously at the very beginnings of the process. There are some very specific issues in Wales that need to be addressed, particularly in the Dŵr Cymru area. Clearly they've got major issues to address in terms of their waste water investment, but equally some important investments on improving the resilience of their networks and treatment systems. 

Stepping back a little bit, we're concerned about the performance we're seeing from Dŵr Cymru. You may have seen that our recent water company performance reports identified them as a lagging company, alongside a number of other companies in England. And so there's a set of performance issues that need to be addressed, which we're engaging with them on.

But the price review is about looking forward, setting the investment package, and we've seen from Natural Resources Wales a huge step up in the environmental investment programme. So, we'll be looking at the business plan, looking at how Dŵr Cymru's addressing affordability issues, but equally important how they're managing the potential deliverability constraints on their supply chain.

So, it's not just about identifying the set of investments that are to be made, but we need to be satisfied that ultimately the supply chain's there and the skills are there to deliver on this investment programme. That's particularly an issue at the 2024 price review because of the scale of investment that's made in Wales but also across England, and also wider infrastructure as well.  

And we'll be digging into some of those specifics in a minute. But, just again, as a general observation, obviously you have accountability to the UK Government and the Welsh Government in different ways. There's always a risk with dancing to different tunes, but the Welsh Government has, of course, its strategic policy statement, so how are you utilising that and how is that being reflected in the assessment work that you're doing relating to Dŵr Cymru?

It's a vital part of the process. Unlike other economic regulators, the strategic policy statement is something we need to give effect to; it's not just something we give account to. So, it's something that we take very seriously. We obviously engage with the Welsh Government when they're setting the strategic policy statement so we understand both the context as well as the content of the statement. And we do see different priorities in Wales, so clearly focused on climate change, a focus on resilience, but also on the way that we set the price control as well. We can talk further about that, but in terms of the approach to PR24, we have something called the PR24 forum in Wales, and that's really designed to make sure that we are fully engaging with the Welsh Government but also stakeholder groups, that we're all working together as a team Wales approach. It's part of the way that we do the price review that's different in Wales to the way it's characterised in the English context. 

11:25

Now that you've found Dŵr Cymru to be 'lagging' in your recent water company performance report, how are you going to hold Dŵr Cymru to account for its missed performance measures? And will that current Dŵr Cymru performance be considered in evaluating its PR24 business plan? 

Excellent question. In terms of Dŵr Cymru's performance, you're right; they've met just 5 of their 12 key performance targets in the most recent year, delivering on their PR19 programme, and so that is a cause for concern. There are automatic awards and penalties built in to the price review process, and so, as part of that, we issue an annual determination of revenues, and that will claw back money for customers to reflect the failure of Dŵr Cymru to provide a service. We will also look at enforcement action, should we think that their failures actually cross the line and mean they're failing to comply with their legal obligations. We're interested in effecting change. We're interested in seeing Dŵr Cymru turn around its performance. It's not just about holding them to account; we want to see them improve, we want to see them deliver for customers and the environment in Wales. And so, as part of that, we require them to prepare for us a service improvement plan, which goes into what's driving their failures, really getting behind what's underlying their failures, and then getting Dŵr Cymru to commit to addressing those performance issues. 

Do you believe you are doing your very best in terms of robustness as a regulator? Or are there limitations to your regulatory role, given Dŵr Cymru's not-for-profit business model? 

We regulate a range of companies with different financial structures, different models. Dŵr Cymru do have a different model—the not-for-dividend model—so their holding company, or the company that owns Dŵr Cymru, is run on a not-for-dividend basis, and there are clearly some advantages to that model. It does mean that any returns, if you like, can be recycled back for the benefits of customers and the environment. But equally, it does raise risks around the absence of a shareholder to drive and hold managers to account, so that's obviously something that the board of Welsh Water attempts to address. We are looking in particular to make sure that Welsh customers are protected against any lack of efficiency or drive to improve performance. We think the regulatory framework we've got can and does work for Dŵr Cymru, but, equally, like any company, they can get into a situation where they're not performing as they ought to be for customers and the environment, and that's when we'll step in. We do that for Dŵr Cymru, but we also do it in England. We're also dealing, as you may well be aware, with a number of companies there that are not performing as they ought to be as well. 

My question goes back to you: do you believe that you're doing absolutely the very best that you can as a regulator? 

Yes. We're looking at every regulatory instrument we've got at our disposal. That's both in terms of the price review process itself but also the performance commitments that we're setting. So, as part of the price review process, we'll be looking at making sure that, looking ahead, Dŵr Cymru face stretching but achievable performance service levels, we'll be looking to make sure that they're understanding what's ultimately behind their performance issues, and we'll be looking at our tools around board governance and leadership to make sure that they've got the appropriate arrangements in place there. We'll leave no stone unturned to try to drive better performance in Wales, but ultimately, obviously, there is an element of this that is down to Dŵr Cymru and its leadership team to address these challenges. 

I just want to pick up something that you said. You talked about accountability, a board versus shareholders, and you said they haven't got shareholders to hold them to account. Everything I've read ever has told me that shareholders are actually interested in their shares and they're not particularly interested in investment, unless it increases the value of the share, of course. So I just want you to clarify that so that it isn't misunderstood when we look at the record.

11:30

Sure. You're right that there is a challenge with privately owned companies or listed companies. They've got shareholders and they've got duties to those shareholders, so that may lead them to focus on things like dividends and returns to shareholders. But equally, if we associate the shareholders' interests with good performance, then that creates a pressure on management to drive better performance. And the concern that we have is that, without shareholders around the table, there isn't any challenge or counter to—

There is a board, yes, but what sits behind the board in terms of driving the board?

We do, but it's just a difference in ownership model. So, I'm not saying that one ownership model is better than another, I'm just saying that each—

—and that is why I asked the question. It seems to me that you've repeated the same point.

I'm saying that there are differences between the two,—so there are differences between a for-profit ownership model and the Dŵr Cymru model. There are some benefits to the Dŵr Cymru model, which I've noted, in terms of the ability to recycle returns back to customers, but there are some gaps in the model as well. So, as a regulator, we need to be conscious of that when we're regulating the company, and we are.

This is about what's driving management to perform better, and so, if they're inefficient, what are the consequences. In a privately owned company, those consequences will come back to shareholders, and similarly, if they're falling short on performance commitments, that will be detrimental to shareholders' interests. In Dŵr Cymru's case, that doesn't happen, and so—

Okay. So, there's no explicit criticism of that; you're just noting the fact that there is something there that you, as a regulator, need to be mindful of.

In your PR24 framework, you say that you're going to be setting clear requirements for dividends and executive pay policies. There are no dividends going out the window with Dŵr Cymru, but executive pay policies—. I mean, the top man is getting about six times what the First Minister's getting. What's the justification for that and what do you do to try and ensure that all companies actually have the customer at the top of their priorities?

This is an important issue. Just yesterday, we released our view on companies' performance-related pay. We're very clear that companies' performance-related pay needs to be linked to performance for customers and the environment. We're not happy that, when we look across companies in both Wales and England, we see both insufficient linkages between company performance and the environment and insufficiently stretching performance requirements set. So, even when they've got commitments for customers and the environment, they're not sufficiently stretching enough. And we see a lack of transparency. So, we're changing our regime so that from next year onwards, when we see companies that fail to sufficiently demonstrate that what they're paying their executive team is linked to performance, we will intervene to stop customers paying for it. 

It's the role of the board to set executive remuneration, it's our role to make sure that the board is appropriately discharging those responsibilities, and that's our focus—to try to drive up the levels of governance around executive pay. In summary, our latest year's findings found that companies weren't sufficiently demonstrating how pay was linked to performance. They weren't setting sufficiently stretching performance requirements, and that was a particular problem with the Dŵr Cymru arrangements. Companies have committed, in all cases, to addressing these issues and we're expecting to see changes in the year ahead. The level of pay, though, is still a matter for the board and not for us as a regulator.

Okay, but some would say that Ofwat's been sleeping on the job, because this has been going on, this wholesale export of all the profits elsewhere—. They're gone. You know, these are all foreign companies in the main, apart from Dŵr Cymru. And so you're very late to the party. And meanwhile, these companies are depleted and full of debt.

I would challenge that characterisation. Indeed, it's interesting when you compare outcomes in Wales. Obviously, there haven't been any dividends back to shareholders since 2002 in Wales, so they've had 20 years. Yet when we look at the performance of Welsh Water, its bills are the third highest across the country and its environmental performance is lagging and nowhere near where it ought to be. So, I don't observe that the difference in those models provides that.

The second point I would make, when we look at that the the level of debt and look at what's happened, is there's been £200 billion of investment in both England and Wales over that period. Debt has risen to £64 billion, so there's been a huge amount of investment, the investment has been mainly financed by debt and, in some cases, we do point to companies where we've got concerns about our debt levels. But, in the main, that debt level has driven a huge amount of investment, and one of the successes, actually, of the private initiative model is that it has secured considerably more investment than was going into the sector in the decades ahead of that.

11:35

Okay, sticking with Dŵr Cymru, they told us that although they have very expensive bills, they have one of the cheapest water bills, that it's the sewage bills that drive up the costs, and that they and south-west England have these very high costs related to the particulars of where they are operating. I just wondered whether that has credibility, in your book.

Yes, there's definitely something in that, that their environmental investment programme is driven by the environmental challenges in their region, and there have been significant levels of investment, particularly in coastal areas, and that does explain the level of investments in Dŵr Cymru's area, but also in other parts of England, like South West Water face. So, there is certainly something in that in terms of, historically, there's been huge investment and then, ultimately, it's paid for by customers over time, and so the investment decisions of, say, 20 years ago are still reflected in bills now, and likewise, if we invest more today, it will raise bills in the future and in the long term as well. So, there's something in that.

Okay, and a related issue is that, in 2011, the UK Government transferred all these assets to Dŵr Cymru, but no money went with them, from what I got to understand yesterday from the Minister. What role do you have in ensuring that the UK Government is fairly reapportioning responsibility and the money follows with it?

When the assets were transferred, and this is the adoption of private sewers—

Yes. There was a process of working through, of saying what responsibilities companies were taking on and what funding they would need, and then that was included in the price review. So, we accept it's an issue for companies to address, but it was something that was done on an agreed basis, and it's not an excuse for poor performance. So, those assets, they do require upgrades. There was an explicit provision in the price reviews at the time for companies to invest in those assets.

Okay, so it is true that absolutely no money went with this additional responsibility.

So, they are part of companies' responsibilities that are funded by customers ultimately, yes.

Just coming back to this tension, then, between the different company models—the not-for-profit against the private shareholder model—to what extent would you say there's a greater societal tolerance or leeway given to Dŵr Cymru because of its model?

I think that may well be a factor. It's difficult to get hard evidence on that, but, certainly, I think customer perception of Dŵr Cymru is positive, and I think it is linked to their quality of customer service, which is generally good. But I do think there's something to be said in terms of people recognising that they feel that that model connects with their values, and so it's probably something that does work in Dŵr Cymru's favour.

And you would tell us that that has absolutely no bearing on your considerations, because your role is much more focused and clinical and it shuts all of that out, does it?

Ultimately, we do care about a company's reputation and performance, and so that's part of the broader context. What we're trying to do is make sure that they're going to deliver for customers and the environment, and there are certainly some benefits to the model, as we've referred to, and there are some challenges as well. We think it's a positive element, but it shouldn't excuse poor performance and it shouldn't excuse inefficiency.

No. So, is part of your role maximising the potential of the different model in Wales, or supporting them in realising all the potential benefits around that, and, conversely, maybe minimising any risks that come with it?

Yes. I think that's a good characterisation. So, for example, there are clearly benefits in terms of the money, in terms of generation of what would have been profits have been used to support social tariffs, and so social tariffs are stronger and better in Wales than they are elsewhere. That's obviously a great outcome from a customer perspective.

But that also reflects a necessity in terms of the demography that they represent, I suppose, does it?

11:40

It does, but, without that ability to draw on funding from what would have been shareholder funding, there would be greater costs, I guess, and so that would raise a challenge. So, I agree that, with higher bill levels and significant deprivation, to address its importance, and particularly as we look ahead, with bills likely to increase, we need to look at how that regime can support customers, many of whom are facing really challenging cost-of-living issues right now.

If I may, as well, on the point about society and the societal question, I think it's worth also highlighting that, at PR24, I think this is the price review where we've required the most genuine and meaningful customer engagement. We've set policies defining the minimum standard we expect of water companies in terms of how they are seeking customer views. That policy also explains what assurance we expect companies to be providing with regard to that customer engagement, and we ourselves as well are conducting a lot of research in that space. So, I think it's just important to flag that, in this price review, the voice of the customer and ensuring that companies are genuinely listening to that voice and that plans are reflecting what customers think is important is a key factor for us this time around.

That's an important point, because getting that sort of consultation and that engagement right in all spheres constantly comes to this committee, from planning and other things. It's very often people don't feel that they've had that opportunity to contribute. So, if you can ever find the perfect formula, let us know. But, certainly, that needs to be done to the greatest extent possible.

Just on the balance, then, between investing in the social tariff and investing in capital investment, Dŵr Cymru is right to make much of the fact that it does have a social tariff and that much of its return of value is earmarked towards that, but is there a danger sometimes that that can mask underinvestment elsewhere?

Yes, one of the challenges we do face at price review is not just assessing the investment that the company puts to us, if you like, and so what's the main business plan, but it's the investments that are not being made, I guess, that are probably the larger challenge we face as a regulator, because the company and the environmental regulator, in Natural Resources Wales, are well placed to assess investment needs. But it's obviously more difficult for us to ascertain what's not being invested. And so, in particular in the water sector, there are questions about asset health, asset management, and that's really important. So, these assets have very long lives. The way that they're maintained and operated obviously has a significant impact on that, and so one of our challenges is to make sure that companies are not just operating and managing for the near term, but they are addressing longer term challenges, and we do that through endeavouring to look and scrutinise companies' long-term plans. So, at PR24, we've required companies to prepare long-term delivery strategies. That's bringing all their plans together, looking ahead and looking at various scenarios, bringing in adaptive planning—so, what might trigger more investment, what might trigger changes in circumstances. We've also got a set of measures around asset health to try to understand the state of a company's assets, and where it's got issues and where they might be addressed. And then we're also working with the sector in terms of how we can get more forward-looking measures on areas like asset health.

In terms of resilience, we're obviously looking at the resilience of their services and systems. We have measures for that, but we're very interested in how companies assess the risks, what they are understanding the operational risks are, what are their risks from climate change, and how they build that into their investment plans as well. So, I think that's an important part of the process.

In terms of the social tariff itself, that is ultimately set in terms of Government guidance, in terms of the level that there can be a cross-subsidy from one group of customers to another, and then the ability of Dŵr Cymru to draw on returns to support that. And so, there is a question, which I think we look to Governments on, which is in terms of the scale and extent of social tariffs, and then I wouldn't see that as offsetting the need for investment, but I think the challenge with investment is to know whether they are investing in the right issues at the right time and do they really understand the risks that they're facing and are they putting in place appropriate mitigations over time.

Okay, diolch yn fawr. Delyth, you've been very patient. I'll come to you next.

Diolch, Cadeirydd. Good morning. I think we can all agree that Dŵr Cymru have to improve with this, but I wanted to ask you about some of the infrastructure and whether your targets are the most appropriate structure for them to be following, particularly because of, as I understand it, the relative size of some pipes. So, correct me if I've misunderstood this, please, but Dŵr Cymru has a lot of very small pipes and each spill, even if it’s through a very small pipe, will count for the same as a huge Thames Water mile-long pipe or something. Now, as I understand it, you have refused Dŵr Cymru’s proposals for their targets to be the Welsh Government standard of reducing environmental harm, and instead you’ve asked for their target to be 'reducing the number of spills', and that would coincide with the DEFRA and Westminster target. Do you think that, by refusing to allow Dŵr Cymru to follow that Welsh Government target instead, they’re complying with something that might not be the appropriate thing for them to be measured against, as much as, obviously, they do need to improve?

11:45

Sure. So, I think there are a number of issues there, so let's try to work through some of those issues. Firstly, in terms of the price review process, they've submitted a business plan to us and we're considering that, and as part of that, we will consider their performance package, so this is by no means the end of the story as yet.

In terms of spills targets, there are clearly spills targets set by the UK Government, and there is a different approach in Wales and we’re very mindful of that. But that’s not the only provision that applies on spills. So, as the economic regulator of Wales, we also have a set of requirements under the Water Industry Act 1991 and the associated 1994 regulations, and that applies to the companies' performance on storm overflows alongside sewage treatment works, and, in a nutshell, that says that companies should only discharge in exceptional circumstances, unless there’s a compelling economic case to say that that would be disproportionate to remedy those issues. So, there is a set of legal requirements that are on Dŵr Cymru now that we are responsible for enforcing, and that does relate to the volume and level of spills. Now, you’re absolutely right to say that the number of spills isn’t, clearly, the only measure that matters, and so the impact from spills matters—the volume and level of spills, and the duration of discharge matters as well. But, at present, across England and Wales, there is no comprehensive system of monitoring the impacts of spills. So, Dŵr Cymru point to the impacts of spills based on a very limited number of samples. So, they're talking about a limited number of samples. They've got spills operating three or four times a week, and the levels of samples are probably that amount of a year. So, the question is how much do we know about the harm from CSOs? And there's clearly some information on that, but it's far from complete. And so, in a world where we don't have good measures of impacts on the environment, and in a world where spills do matter under the law that we administer and the law that applies in Wales, then, we think a spill target is certainly a relevant consideration. It's not the only consideration and we should make sure that the environmental programme is addressing the environmental impact of spills.

The other point I would also make is that it's not just the environmental impact, or the ecological impact, if you want to put it that way, but you might have seen that Professor Sir Chris Whitty commented recently about the impacts on human health from sewage discharges into rivers. And so, that's something that needs to be taken into account in the mix as well. 

So, it's a complex issue. We think it's absolutely right to say that spill targets are not the only answer. But in a world where we've got information on spills—and we do now have 98, 99, 100 per cent of spills monitored—where we have limited information on the harm from spills, we think it's right that, among other targets, Dŵr Cymru do have a target to reduce the level and number of spills. And I am very concerned that they have been much less ambitious in this area than companies in England.

The topography and the climate in Wales do mean that Dŵr Cymru do start from a position where, with around 40 spills a year, if you look back at the data when they were first recorded, from each discharge, it doesn't seem like it's only discharging in exceptional circumstances. But, if we project forward, we do see meaningful reductions being made in England and further reductions promised. There's a question about whether that's going far enough, but we'll leave that for another day. And then, we're concerned that Dŵr Cymru don't really have a plan that will deliver meaningful reductions by 2030.

Thank you very much for that. That was a really comprehensive answer. And just to make clear, I absolutely agree with you that reducing spills has to be a measure to look at across all different water companies. But would you agree, then, because you had said that this is by no means the end of the conversation, would you agree to maybe look again at whether you could find a way of improving that data that you have about environmental harms alongside Dŵr Cymru to see if that could be another measure that could be added into the mix?

11:50

Yes, so, we're looking at—. One of the questions is: should there be monitoring installed at waste water treatment works and on storm overflows in terms of measuring the environmental impact? That's certainly something that's being looked at as part of PR24. There is a cost to doing that, of course. It would make sense certainly, I think, to get that monitoring equipment rolled out, particularly in areas where we have the most concerns about the potential impact on the environment. It's also true to say that there are quite a number of CSOs that are not discharging or discharging very rarely and so, in that case, there's a perfectly sensible case that you wouldn't prioritise those for either monitoring or for targeted action.

Just to highlight as well, I think the monitoring point is crucial, and it also reflects the need for a wider coming together as well. Clearly, there are requirements and expectations in terms of companies, but I think it is worth commending some very good work happening in Wales in terms of looking across sectors, linkages across the Welsh Government and academia in terms of how to combine monitoring and really target that effort. And also, as part of PR24, I think it's an enabling framework as well—a significant increase in the allocation of innovation funding, and that's certainly an area where we would very much expect and hope to see companies targeting to deliver those wider benefits. 

Finally from me, what would you say to the Office for Environmental Protection's finding that Ofwat may have failed to comply with environmental law?

Yes, so, the Office for Environmental Protection issued information notices to Ofwat, DEFRA and the Environment Agency in England about the enforcement of environmental law, and this relates to the provisions I was just talking about on CSOs. So, they issued an information notice alleging failures to comply. We have responded to that information notice; in our view, we are complying with the requirements. And to give evidence of that, we've got the largest ever investigation we have had and enforcement cases against six waste water companies in terms of their failure to comply with those explicit provisions. So, we are very active in enforcing the law, and it is a huge priority for us. We've secured more resources to expand our enforcement capacity, and we're very clear with companies that they do need to improve their performance in the space. We're very clear about the statutory obligations and the importance of companies responding to that. So, it's an ongoing issue. We've responded to the Office for Environmental Protection; the ball is now back in their court to reach a view on this issue. 

So, 'no' is the short answer, but obviously it's a live issue. We'll continue to engage with the Office for Environmental Protection and we'll hear from them in due course as to what their views are. Whatever position they reach, we'll obviously give very careful consideration to. They're an important part of the law and the enforcement process in England and, obviously, if there's any work with the Interim Environmental Protection Assessor for Wales, then we would also look to work closely with them to resolve any issues in this space. 

Would any of that be linked to a lack of resource for yourselves or also complicated by a lack of power?

So, I think the issue of storm overflows and spills is a challenging issue, a complex and challenging issue. Up until very recently, there simply wa