Cynulliad Cenedlaethol Cymru

Diolch yn fawr. Bore da. We're very grateful for the opportunity to come before the committee again. For me, it'll be my last, as I retire after 46 years in the industry, having joined as an apprentice back in 1979. So, as ever, we welcome the opportunity to meet the committee. We know, as a company, we have a set of values, which are about openness and transparency, and we've always, and I've always, tried to come along and answer you in that manner. My successor, Roch Cheroux, he will do the same. I've spent the last part of a month with Roch. He's joined. He doesn't take up his post until 5 January. He's in his induction programme. For the last three weeks, we've met about 2,500 of our colleagues, and, in that time, Roch and I, I can tell you, have exactly the same values set, and no doubt you'll get to meet him in due course.

A few things I'd like to say briefly, and I do appreciate the opportunity to make some opening remarks. First and foremost, we've never forgotten at Dŵr Cymru the role that the Welsh Assembly Government, as it was then, played in the establishment of our not-for-profit, not-for-shareholder model, and I'd like to acknowledge that. What I would go on to say is, in my 46 years, I've never seen a time for the industry or the company where there is so much external focus, so much challenge. Customers are rightfully expecting better standards, there's an unparalleled interest in the environment, which we welcome both. But there are also considerable challenges, and we're going to talk about one of our ageing assets a little bit later on, I guess, at Flintshire, but also the challenge of climate change.

I was on the telephone this morning, on the way down, and there were reports of the flooding that's taken place overnight in the west. Again, some areas are badly impacted, and our thoughts are with any of our customers where that happened. We've got an awful lot to do, and I'm conscious that there are some bits of our performance that aren't where we would like them to be. We welcome the opportunity to be challenged and questioned about that, but what I would say is that this whole water industry, and water in Wales, the cultural significance of it, is going to need Government, it's going to need regulators, and it's going to need the companies in Wales to step up to the plate, I think, to meet the challenges of the future.

At this point, what I would like to say is we are going to talk to you today about Trawsnewid, our transformation plan, and that is impacting our people. We never take any solace at all from losing colleagues in the organisation, but we will do it with dignity, we will do it with absolute sensitivity and with respect. This is not a desired outcome; this is a necessity, and we will explain why in a few moments.

Just while I am making the opening address, I would like to say I want to put a huge ‘thank you’ to my colleagues. In 46 years in the business, I have had fantastic support at all hours of the day and night in every circumstance, but our people have an attitude that they tip out and they do the best for customers, so I would like to acknowledge their efforts.

That was pretty much what I was going to say to open up, and I’m happy to take your questions and challenges.

Thank you for that. It just gives us a nice context, really, to kick off with. You mentioned the Trawsnewid programme. Clearly, you’ve outlined how there is an expectation now on Dŵr Cymru to be doing more, but you expect to be able to do that with fewer people. Tell us a bit about why you think that the Trawsnewid programme is needed. 

Yes, absolutely. I’ll start off, and Sam may want to contribute to this. It’s really the coalescing of a couple of events that have put us in the place that we need to undertake this programme. You probably know that the water industry runs in five-year regulatory cycles. The last one ended on 31 March this year. That was known as AMP7. We’re now in AMP8. In AMP7, we incurred some significant additional costs that weren’t budgeted for, and we’ve had to cut our cloth to suit. No. 1 was COVID. You’ll all remember the cost of that, and that meant that our operation faced considerable bills.

We also had the drought of 2022. Having had the drought in 2022, we’ve obviously had the drought in 2025, which was considerably worse, I must tell you, but we had the warm-up act in 2022. We also then had the freeze-thaw of 2022-23, and we also had some significant asset failures. At one of our largest water treatment works at Felindre, supplying nearly 0.5 million people in south Wales, the filters collapsed. This was a worldwide issue with a particular type of treatment, and we had to rebuild that. That, just for context, was £60 million. The rest of it runs into hundreds of millions.

So, that’s the first part. We went into this period in a tough financial position. Then what happened? The price review, PR24, which sets the prices for the next five years, the final determination for that was announced back in December 2024, and, at that time, the credit rating agencies downgraded the sector and they downgraded the company, and what that meant was, if you look at the five years ahead, where we’ve got a £4 billion investment programme, the biggest we’ve ever had, if I simplify the implications, that impacts our creditworthiness in the eyes of the investors we have to borrow £4 billion from. So, if you look at it in terms of a mortgage, it’s as straightforward as this: if any of us applied for a mortgage to buy a home, then you'd have to pass a test that then allows the building society or the bank to make a loan to you. What that’s done to us, whilst our credit rating is still in good shape, is we’ve actually been downgraded, and so what it means is that we haven’t got the financial wriggle room in terms of our financial metrics, in terms of our gearing, the amount we can borrow, and in our all-interest credit rating, that we can not take responsible action now. So, those are the main things.

The third element of it is about wanting to do things better, and the whole idea of us facing this massive investment programme, we face the challenges that I outlined at the very beginning, greater demands from customers, greater demands in terms of environmental performance, if you put all those things together, we are not in the same strong financial position we would have been in five years previously. So, the whole idea of Trawsnewid is the company taking responsible action now to make sure we remain on a sustainable financial position for the coming five, 10, 15, 20 years. It’s about taking action that puts us back in a place we would like to be.

So, in saying that, you accept that you won't be able to do as much as you are currently doing, because you'll have considerably fewer people working for you.

No, that's not the case. That's not the case at all. I'll let Sam comment on what we're going to do, but we can absolutely—. No, that isn't the case at all.

Yes. I'll let you come in. Just for you to know my thinking here, obviously, you've been downgraded, people would say, because of poor performance in certain areas. That poor performance means that your credit rating has suffered, meaning that you have to reduce your staff numbers, meaning potentially—. As a layman, this is how I see it from outside. The risk then is that your performance continues to suffer because, obviously, you can't meet the demand out there, and it's a bit of a doom loop then, isn't it?

No. I'll respond first.

I'm asking so that you can put me straight on this.

I'll clarify. I'll draw Sam in on some of the specifics of why we can deal with it, but credit rating isn't downgraded because of poor performance; it's downgraded because of regulatory uncertainty with the current system. I've met investors regularly in the last number of years and the concern was that the current regulatory system, which is now being changed under the Sir Jon Cunliffe review, became volatile and it became uncertain. It also came with, in this period, substantial penalties for poor performance. Those are the drivers behind the programme. In terms of our response to that, we would not, for one second, look at service levels dropping. Our targets are all tightening, but what we're going to use are the opportunities that we have in looking forward, in terms of technology, in terms of changing our processes, about removing duplication, but I'll let Sam bring that to life a little bit more.

No problem. I just want to add something else in terms of the ratings agencies. Not only was the sector downgraded, they tightened the thresholds around gearing and interest cover ratio, which puts more pressure on our financial plan so that we need to make sure that we deliver profitability to cover those thresholds. I think it's important to understand that. Again, in the mortgage scenario, it's about going—. The banks would reduce the debt-to-equity threshold that you're allowed to have. That's what was also being placed on us as a sector, not just us as a company.

In terms of Trawsnewid, it's a company-wide programme. It's not simply restructuring. We're looking at how we can improve efficiency, but equally improve service and environmental performance. There are a number of strands to the programme. We're looking at how we deliver our capital programme and get more out of it. We're looking at how we improve operations and maintenance of our assets. We're looking at how we buy. We buy an awful lot through our supply chain. If you look at our cost base for running day-to-day services, about half of it is people and half of it is what we buy through the supply chain. So, it's not simply about having fewer people, but it's about doing more with the people that we have. How do we make it easier for people to do their job? There's still a lot of manual data processing, for example. How do we automate that so our people are doing more, servicing our customers, where it's really important? We're a business that is about people. We don't succeed without good people doing the right things for our customers. It's about maintaining that ethos as an organisation.

We'll be looking at how we can use AI, for example. We're already starting to use it in parts of our wastewater business to identify blockages on our network. How do we use the strong data science capability that we have to predict when things are going to go wrong, so we can act in a proactive manner? And then how do we, to go back to that point about manual effort, use technology to automate things, which can just make life easier? So, it's much broader than simply restructuring and reducing the number of jobs that we have.

Okay. Thank you for that. Can I just ask—? Obviously, you say that you launched the Trawsnewid programme at the start of the year, but it only became public, I suppose, in September. To what extent were your employees, for example, aware of this programme prior to September?

Sure. Every month, I undertake a live video call with all our colleagues. Very often, there'll be a couple of thousand on that call. If you go back to November last year, that's when we were beginning to see how challenging the current AMP period was going to be. We also started to pick up at that time, let's call it, 'the background noise' from the credit rating agencies. Every single month since November, I've been explaining the challenge the company is going to face. I have a literally ask-any-question session. So, there's nothing people can't ask me. People started asking about jobs, literally, from November, December of last year. Now, at that stage, because we hadn't formulated our detailed plans, my answer was, 'You're absolutely right—unfortunately, we will have to lose colleagues in the organisation'. But the one thing I've learned in my experience is that the worst thing you can do to people in an organisation is to give them uncertainty and not certainty around what we are going to do.

Now, understanding the Trawsnewid programme has taken us six months. So, we used from December of last year not only to do the high-level planning around our financials, but to start scoping the transformation plan we call Trawsnewid. Then, in September this year, as we promised—I promised all the way through, and Martin had joined me on a number of these calls to the organisation—we said, 'When we have got certainty about the scale of the impact—'. I think there's a horrible expression, isn't there, known as death by a thousand cuts? We wanted to avoid that scenario. My experience tells me it's better to be open and honest, which I've done through all my calls with the organisation. Then, when we got to September, when we knew that we'd done all the examination of the opportunities Sam has just outlined, we were able to give the organisation certainty.

So, in summary, we've talked about this for the best part of a year. I couldn't give the detail, for the reasons I've just explained, but absolutely open and with honesty, and with our trade unions as well, there were likely to be reductions in colleagues in the organisation. We always said, 'In September, we will come back to you'. We made a commitment to do that, and that's exactly what we did.

Okay. Diolch yn fawr. We'll move on to Delyth.

Diolch, Cadeirydd. Good morning. Thank you very much for taking the time to be with us. I want to focus on what you've just been talking about, about the workforce. I was struck that, Sam, you'd said that you're a business that is about people. Evidently, we would appreciate that you wouldn't want to be in the situation that you're in—you've made that very clear. Could you tell us, please, what proportion of the job losses, of the 500 job losses that are predicted, what proportion of them would you expect would be met with voluntary exits, or with retraining and redevelopment?

I'll ask Martin. He's been leading on this for us.

Thank you. The first thing we did post 11 September announcement was launch a VR scheme—voluntary redundancy. So, we asked everyone in the organisation, all 4,000 employees, 'Would you want to be considered for exit via a voluntary redundancy package?' We have an enhanced scheme, so it can be the right thing for the right person at the right time. As of this week, we have 316 people who have put their name forward, and that will continue—[Interruption.] Yes, to leave via redundancy—so, 316 of the target of 500.

We have given ourselves some time here to say, 'Look, this is something'—obviously, for reasons that Peter has already indicated, for financial reasons, but also uncertainty—'we'd like to do quickly, but we want to do it in the most careful manner we can possibly do.' So, what we have said to the organisation is, 'If you want to leave by volunteering, we will do everything we can to facilitate that'. That will mean that we're going to have to do some quite creative processes around moving people around. Obviously, we have 4,000 people working across the whole of Wales, and, therefore, where people have volunteered might not be where necessarily we want to make reductions. So, how can we cross-match, move people around, so we can do this in the least impactful way?

We will continue this scheme for the coming months, and, equally, since we started the programme, probably from the spring, in terms of really tracking our workforce numbers, through natural wastage you see people going down. So, we have tried to be very, very careful in our recruitment profiles. So, we are not recruiting at the levels we had been recruiting at in previous years. That said, we still brought in 40 trainees this September, because we still want a pipeline of talent. So, it's a careful balancing game to get the right outcome for the least impact, to look after our people in the way our values dictate that we want to do, and we communicate that with the organisation. And we're working incredibly closely with the trade union bodies. So, I meet with the trade unions on a fortnightly basis now, on this battle rhythm of achieving what we need to achieve through Trawsnewid, and making sure we do it in the most careful possible way.

Thank you very much for that. Would you be concerned that one of the perverse outcomes from relying on voluntary exits might be that you could lose some of the people with the most experience, some of the older people who have been with you—not necessarily by age, but in terms of their longevity in the company? Is that one of the perverse outcomes? How could you guard against it?

In terms of voluntary redundancy, there's an 'S' word, which is 'selective'. So, it's selective to make sure that we don't do that. We will be disappointing some colleagues who would like to go on the basis that we can't lose their expertise. And our focus, initially, is to focus on what you might describe as the overhead of the organisation, not the front line. So, yes, absolutely, it's a great question—that's at the front of our minds. We do not want our great people exiting. That give us problems, then, with service. Martin.

The only thing I would add to that is, because we have given ourselves some time, there's something called 'management of change', so we have to recognise that people will, in all circumstances, finish their career whenever they finish their career. We need to ensure that we have the experience and expertise passed on to the next generation. So, that's what we're doing as well. Whilst we obviously will have challenges around certain skill sets to say, 'Look, you've got a certain skill set in a certain location that I can't replace at the moment—you'll have to stay', we then think about, 'Well, thinking forward in the next 12, 18 months, what can we do when that person gets to the natural end of their career anyway?' So, that's something that we, in our succession planning, in our skills planning, in a workforce capacity, have to plan in anyway.

Joyce would like to come in.

Yes, of course.

We're talking about training and, obviously, that's a good thing. You've got to train people to take the jobs of the future, not the ones of yesterday. But I'm curious to know about, when people have retrained, taken those opportunities, two things: does that change their contract? Do they get a new contract of employment? And if it does change their contract of employment, does it change their terms and conditions, particularly pay?

So, the vast majority of our workforce is under collective bargaining. So, 3,700, which are represented by, or are negotiated through, the trade union body. That's under one collective agreement called the 'working together' agreement. There are grades and rates of pay relative to the jobs. All jobs are evaluated against what experience and skills are required, and have a rate of pay attached to that. So, if people move up, they obviously get enhanced pay. If people come down, redeployed, we protect them, and we can protect them for a period up to two years. [Interruption.] Two years, yes. Not Transfer of Undertakings (Protection of Employment) Regulations 2006, no, because it's internal. So, this is about redeployment from a job in the organisation to another job. So, if somebody takes a—. If their job is redundant and they want to continue working, but the job that they move to is a lesser graded job, we will protect them for a period in terms of salary.

Okay. And are you putting those into the assessment? These are the questions people need to know to plan their lives.

Absolutely. And I've been clear with my trade union colleagues: 'Look, we will do this in the most considered way. We want—.' One of the things Welsh Water has—and I can say this; I'm four years with the company—is an incredibly engaged workforce that wants to do the very best job they can for the organisation and for the customers they serve. Eighty-eight per cent of the workforce fill in the employment survey annually. We have a 76 per cent engagement rating, which is very, very high. We want to keep that. That is critical to us. So, the way we do that is by looking after our people in the best way we can. So, we will do everything we can, within the arrangements that we have, to give them the softest landings we can for employment in all circumstances.

Can I just add one point as well, if I may, which is our internal promotions are over 75 per cent from internal candidates? So, when we advertise jobs, nearly 75 per cent of our people, on average, move within the organisation.

That's a strategic aim. That's what we say. I've said it many, many times in Welsh Water: 'If you want to get on with the company, you can; we will train you, we will give you every opportunity.' I'm sitting next to a real-life example here. You can work through this organisation and get to the levels you aspire to.

Delyth.

Just one more thing, if I may. Diolch.

Yes.

In terms of almost the equity with which the losses are shared out, I understand that there have been a number of appointments to the board recently—quite highly paid members of the board. In terms of, I don't know, the optics of this with perhaps people who would've been making some of the financial decisions, losing some of the more junior members of staff, potentially, then facing those losses—. Would any members of the board be considered to ask to leave, I don't know, to correct—? If you see what I'm getting at? That uncomfortable—

Yes. We are in the process of reshaping the board. Clearly, this is commercially sensitive—

Of course. I understand.

—and it's announceable to, you know, the investors and the stock exchange, so we can't give you details, but we are doing that.

Okay. Thank you.

Diolch. Julie.

Thank you very much, and bore da. First of all, I'd just like to start by thanking you so much for what you've done at Llanishen and Lisvane reservoirs. Absolutely fantastic and a huge boost to the area.

I wanted to follow on with the questions, and with the questions that Joyce raised as well. How would you describe staff morale now? I mean, obviously, you say you have a really high engagement with staff; what does that engagement show? How are they feeling?

I'll start and I'm sure maybe Martin and Sam may want to comment as well. We've just completed 20 face-to-face roadshows across our operating area. Those sessions last an hour and a half to two hours. And, again, in the similar style that I mentioned my CEO call, which is open, and people can ask us anything—we've had that.

I would describe it in the main as people understand why we need to make the changes. I would say there is some uncertainty, of course, because people and their livelihoods potentially are in a place they wouldn't want to be and we wouldn't want them to be. We will tell—. We are running our employee engagement survey again at the end of this month. And, again, that's totally anonymised. We've used a system that's internationally recognised for its quality. I think, at the moment, what we're trying to do is get through this period of change as quickly but as sensitively as we possibly can.

I think it was mixed, if I'm honest, in terms of morale. I think there were, clearly, people we've identified in the first wave, where people know that their roles are likely to change. People want to know what's happening to them—that's the message I would come back with. Our service ethos is fantastic. People turn out. I was talking to colleagues this morning who'd been out all night last night working in Cwmbwrla, down in Swansea.

So, I think, at the moment, I would say there's clearly a concern about morale—something we are interested in. Our board, for example, hold independent meetings without the executive and employees; they've done two of those in the last two months. And, again, the message coming back is that uncertainty is a concern: 'Please tell us what's happening as quickly as you can. Please reinforce to us how people are going to be treated.' I don't think it's massively dented, if I'm honest, but what I do think is that we cannot—. And I know Roch is in exactly the same place. We have got to make sure that our people feel as valued going forward as they have been in the past, and we'll expend every effort.

I don't know whether—? These guys were with me on the roadshows; I don't know whether you want to add anything to that?

A little bit, maybe. Look, we expected this year's roadshows to be a little bit more difficult than previous years because of the announcement. In truth, they weren't, really. What I saw was an organisation that understood why we were doing what we were doing, understood the backdrop to it because we'd been talking about it for such a long time. And I think there's an element of trust that we'll do it in the right way, and that's what we're going to try and do as best as we possibly can. And that trust is still there. So, I think, as long as we can continue to do this in the proper way, and we have the financial funding to do it in the proper way—. In my experience, people understand sometimes there's difficult decisions to be made in business, but the test will be how you manage those difficult decisions. And that's where we're at now, we're in that test period, and I think we'll have an outcome of that probably by mid next year. But by putting straight in the VR scheme—voluntary and redundancy scheme—and saying, 'Look, if you want to, please volunteer and we'll do everything we can to manage this through the VR scheme', and 316 people saying, 'We want to come forward'—and we're working on that now with cross-match committees, with the trade union group—they're seeing that that's what we're trying to do. So, the proof of the pudding will be in the eating.

And what about support to your employees? What are you doing to support them?

So, we have an employee assistance programme; that's in play at the moment. We will have an outplacement scheme; we're working with the trade union bodies to have a proper outplacement programme of support, where, if people—. Even if people are volunteering and they say, 'Look, I'm thinking of continuing my career, but outside of Welsh Water. Can I have help in developing my curriculum vitae, developing my interview skills, developing other skills to be able to get another job?'—we are putting that together with them as well.

Right. And then finally from me, which departments will be most affected by these changes?

It will be what we would determine as our enabling support services. So, this isn't front-line jobs. We will be looking at the front line in due course when Roch comes in, but it's primarily things like finance, things like procurement, human resources—business support areas that are central to the organisation, not our front-line colleagues.

Right. Thank you.

Diolch yn fawr. Okay. We'll move on to—

Can I just come in?

Yes, very briefly, then, because I'm just conscious of time.

You mentioned procurement as being cut—I understood you—and yet you said that there's a 50:50 split between what you procure. Is that a sensible option?

It'll be proportionate. It'll be absolutely proportionate. I think there's more efficiency gain than I would say headcount reduction. But in terms of some aspects of our procurement, we'll actually be strengthening the team, because with that level of expenditure, getting the best value from our suppliers and people who provide service to us will be a top priority. So, we will do it in a sensible and proportionate way.

Okay. Thank you. Carolyn.

Do you expect customers to notice any impact as a result of the changes brought under this new programme? I know there are a lot of concerns from residents regarding leaking pipes. I was contacted, as Chair of the Senedd's Petitions Committee, regarding, for example, Willow Park, a residential mobile home in Mancot, Flintshire, who say data they've collected from Welsh Water shows they've been charged over £350,000 for water leaks over the last five years, with up to 5 million gallons of water wasted each year on the site. That's just one example. They would like to know: can this level of environmental damage be justified, and why have residents continued to be charged for water, which Welsh Water knew was being lost through leaks? So, they're worried that there will be even less of a service, with the loss of workforce, to be able to deal with all these problems. So, how will you monitor that this will not happen?

Thank you for your question. First and foremost, a very straightforward answer to your first question, which is 'no', because targets are tightening, service levels are getting tougher, so we will not see that.

On the specific one you talk about at Mancot, I know the detail of that. That was quite unique, and it's not appropriate in a public environment to go into the detail of that. Happy—. I think we're just about to respond to you today in relation to the specifics, but this was a caravan site that was owned by a private individual who had problems with the network. We used all our powers to get that done. Thankfully, that's now been responded to, but I would say the circumstances you outlined there are unique, and that is not a general issue that we have across our network.

Okay. I remember, I used to be a councillor, and we were doing highway repairs another time, and there was a big hole underneath the road as well where there had been a leaking pipe. So, it's just something that's still in the back of my mind that could be an issue going forward, eroding the substructure.

We all make cuts that impact service. You do get that particular issue you're talking about; it can happen with any water infrastructure. But on the way we're going to protect the service, let me hand to Sam, who's going to take you through that.

Maybe it'll help if I can give you some oversight into how we will be monitoring this. We monitor customer feedback and customer sentiment on a daily, weekly and monthly basis. It's really important. We've got over 1 million contacts from customers every year, so we need to understand what it is that's driving it. So, we have things like all of the contacts into the contact centre are assessed, and we get the key themes that come from that, and that goes directly to the team leaders and the management of the contact centre to resolve. We do root-cause analysis of complaints to understand the themes coming through and what's changing. So, anything that comes through there as a result of changes that we've made to service will be identified really quickly. We do monthly trust trackers to understand how people feel about the company overall. We have regulatory surveys. The Consumer Council for Water will also do its own research. And we do ad hoc research ourselves, so things like, in advance of the price review, when we have specific incidents, we carry out our own research. So, we are very much looking at this in a lot of detail. That is at department level, it’s at the executive level, and it’s at board level. So, there’s a lot of scrutiny. We’re a strong performer on customer service. It’s something we hold very, very dear, and we do not want to see that drop at all.

Thank you. You say that in Trawsnewid, savings will come through staff cuts, but can you outline where the remaining 50 per cent of savings will come from, if just half of those savings are made through staff cuts? Again, another example when I was councillor was that we secured some money to improve a treatment facility through the sale of council-owned land for development, but that money was returned by Dŵr Cymru back to the council, saying that it wasn’t enough and that it would manage the treatment facility manually. I know lots of treatment facilities around Flintshire are still being managed manually, tanking away, I believe, the effluent. So, if you’re reducing the workforce, how are you going to manage these sites manually, and where are the rest of the savings going to be made when investment hasn’t been made in these facilities over numerous years?

I'll respond to that, if I may. Can I just clarify: are you talking about assets that we don't own when you say 'in Flintshire', council-owned assets?

No, it's a waste treatment facility. There was a site that was being developed—this was my example. Originally, they said that there could be no more development because the treatment facility could not cope. So, through the sale of the land, section 106 money was given to Dŵr Cymru Welsh Water to improve the treatment facility, so that the development could go ahead. That money was then returned, saying that they weren't going to do the investment, because they estimated that the costs to Dŵr Cymru Welsh Water for the treatment facility would be too expensive, so it would be managed manually.

I'd like to come back on the specifics of this, because that sort of level of detail—

I can write to you about it, but I was just concerned generally. If sites are being managed manually, will they be impacted by loss of jobs?

No, not at all. I think a general answer to you is that we are not cutting our front-line services where they would impact service. I think you're highlighting something that is, again, quite a unique situation. What happens with developers when they come to us is we want to support growth in Wales. We want to make sure that jobs are created. We want to make sure that housing goes ahead. But we also want to make sure that the burden of new development costs are appropriately shared between the developer and our existing customers. That sounds like the scenario you're talking about. The simple answer is no, there won't be any impact, but I'm more than happy offline to come back to you on the specifics, because I think you've picked on something that is quite unique there, rather than something that is general.

I'd like to take it up with you, maybe, at another time, because it's my experience as well from planning committees that developments would go ahead even if Dŵr Cymru Welsh Water was not able to have the treatment facility available at that time. So, it would be good to have that conversation with you another time about my experience. Thank you. 

I'm more than happy to do that. Thank you. 

You said that the Trawsnewid programme aims to improve Dŵr Cymru's use of data and artificial intelligence. Again, I know from experience that the mapping of pipelines isn't always that accurate, and I'm concerned that you will lose a lot of experience that many people who have worked there for a long time have. A lot of the pipelines and the mapping, and where water flows, is actually based in people's minds, and where it has been mapped in the system it's not always accurate. So, I'm worried, if you're just going to use data and AI, that some of that human input, which is really important, will be lost. Can you outline any examples of how it might help, and how it will work in practice?

Sure. Can I tackle your particular point first, though, and then come on to the use of AI? For 40 years of my 46-year career, we've been trying to get that information out of people's heads and into our systems. The obvious business benefit of that is that if you end up reliant on one district inspector who happens to be on holiday, that is bad service for our customers.

We have a programme. Each of our colleagues in the front line, whether it's water or wastewater, has an iPad. When we go out and we find a little bit of the network that isn't quite where it should be, we upgrade that, and we have a whole team that does that online. The other thing, of course, is that this is a huge health and safety issue, the accuracy of our assets. Some of our assets can be quite dangerous if people don't find out where they are and they dig them up. We're very conscious of that and there's a formal process for doing that.

The other thing that we've done in the business over the last 20 years is to improve what we call our modelling capability. Our modelling capability means that you take asset information and you use systems that are available at the time to maximise that information. For example, if I wanted to see where every bacteriological failure was in any of our treatment works or service reservoirs, 10 years ago that would have been a laborious manual process; today, it's the pressing of a button. I think that the point I'm trying to put over to you is that asset data has been a priority for the business for many, many years. What AI will do is take it to the next level. It will speed things up. It will allow us to do things like predictive analytics.

We have, in every town and village in Wales, things called service reservoirs. These are the equivalent of your header tank in your house. We have those on a town or a city scale. What we want to know is if those levels drop abnormally, is that a burst main. That’s where AI will be applied. It’s overlaying our current strategy. Sam already touched on it. We have 30 data scientists, and they will remain with us, because the opportunity we now have with computing power, with the grid, with AI, is enormous, but we will be applying it proportionately and sensibly.

We’ve just put a new telephony system into our contact centre, where people ring us if they have a problem. In the past, our colleagues there had to manually put in the transcript of what customers said to us. That was laborious. It took time. Very often it couldn’t always be as accurate as we’d like. That is now done automatically and that is proving incredible, because what we’re able to do is allow our contact centre colleagues to spend more time talking to customers who have the most difficult problems.

For AI, we have a steering group led by a managing director in the business. We have cyber security experts all over AI, because we know that, yes, there are benefits that we want to reap, but also we want to do it as sensibly and as proportionately as we can. We have no concerns about the application of AI, because we’re introducing it in a managed way, and that has the safeguards that I think that you’re alluding to.

Carolyn and others, we are well into our time allocation, and I'm conscious that there are a great deal more areas that we wish to cover. So, briefly, Carolyn; maybe one more question, if that's okay.

Actually, I was going to say that my other questions have been answered previously, so if we move on to the next section, that's fine. 

Thank you. I'm aware also, with apologies to Joyce, that Janet has to leave us at 10:30, so maybe, Janet, do you want to come in with your questions first and then we'll come to Joyce after?

That's incredibly kind. Thank you, Chair.

Well, I'm a good Chair, aren't I? Fair play. [Laughter.]

Can you summarise, please, the changes that were made to executive remuneration this year and why these were made? And Mr Perry, you must agree—well, you may not, actually—there has been so much concern about the level of executive pay and bonuses at a time when it is considered and felt by many people that there have been a lot of failings within the water industry, and in particular Dŵr Cymru.

Thank you for your question, Janet. First and foremost, any of the variable pay that the executive have is entirely based on performance, so there has been a proportionate reduction. But in terms of the details of the scheme, let me hand over to Martin.

I'm sure that colleagues are aware that our policy was around variable pay relative to fixed pay, and variable pay was on the basis of a lower fixed pay in comparison to other water companies in the UK. Over time, the regulators and others have not considered our scheme about variable pay to be anything other than a bonus. And whilst we've tried to explain that that's not the case, the reality is that we've failed in that regard. So, looking at how we can be competitive in the water arena to attract the talent that we need and retain the talent that we need, we need to move our fixed pay to a higher level. That policy was brought together by our remco, which is our non-exec directors, and endorsed by the membership this summer. What it also did was reduce the amount of bonus that could be earned, previously called 'variable pay', both in terms of annual and long-term incentives. So, both those levels came significantly down and the fixed pay came up to levels closer to other employers in the water sector. But we are still a long way away from most other companies.

Could you advise me and the committee, then, please? For the next financial year, what will be the guaranteed take-home pay for the chief exec, or any potential bonus as well? What kind of figures are we talking about? Because we have in the past been looking at around £800,000—goodness knows how many median wages that is. And when you've got people facing rising prices, all the pollution issues, things like that, there's been a lot of anger directed at us as politicians: 'What are you doing about this, Janet?' And it's really awkward. So, an estimation going forward would be handy.

Can I just come back to you on the £800,000? That number has been put into the public domain. I have never had a salary of £800,000. What's been quoted is my remuneration package back in 2021, which included, because I was promoted, a future accrual for my pension, and that amounted to nearly 50 per cent of that £800,000. So, I've never had a salary of £800,000, and I would, if I may, take this opportunity to say that. I acknowledge that I'm well paid, and I'm not going to win the argument on that, I guess, but what I would say is that the figure that's been in the public domain of an £800,000 salary is incorrect. As I say, nearly 50 per cent of that, certainly 40 per cent of it, was linked to an accounting practice for companies that put their accounts into the public domain, as we have always done, and that was for a future pension accrual. So, that is something that goes into a pension rather than take-home pay, so I've never had an £800,000 salary.

But if I could just say, in terms of public affairs—

Janet, hang on, sorry, I think Martin wants to come in. You can come in after Martin.

You asked for numbers, so I think it's only fair that I share them. To be factual, I can't tell you what the numbers will be going forward, because that'll be determined by the remco, and, to some extent, by the regulator about whether we can pay bonuses or not, because that will depend upon the performance of the organisation. But the highest remuneration that's been achieved by our CEO in the past 15 years was in 2015, which was £690,000. The pay for our CEO in 2023 was £380,000—total pay. So, if you map our—and I've got the graph in front of me—. And it's all in the public domain, this. What the CEO has really earned over the last period of time, certainly for the last five or six years, has been tracking downward. So, that number of £890,000, or whatever the number was, is to some extent fictional. The reality is that, because we measure it against actual performance and where we sit relative to other companies and how we measure ourselves, the actual payment has dropped quite significantly over the last five years.

But can you confirm that it's £460,000 in this financial year?

Yes.

Perhaps in terms of public confidence, it might have been well advised for you, at the time those figures were being mooted, to have made a statement, but anyway, it's too late now isn't it—the water has run under the bridge, if you'll pardon the pun.

What is the evidence that executive leader candidates of the calibre required have declined or would decline roles if DCWW's executive salaries were lower than those of for-profit English water companies?

We've just been to the market extensively through this year to replace Pete, who's obviously retiring in spring of next year. Clearly, we have a significant challenge in terms of managing the business in the complexity it has, an investment programme of £4.2 billion over the next five years, the public scrutiny that these jobs are under. You have to pay a market rate so that you can attract the talent that you need to be able to sit in that seat. And it's not a seat that many people would want to sit in, if I'm honest.

Being part of the selection process and supporting the board in trying to find Pete's replacement, it was tremendously difficult, and we did a world search, and, indeed, the individual we found is an internationally renowned and experienced CEO, who's joining us from Australia, having worked all over all over the world. He's a French national, but he also has an Australian certificate to live there as well. So, we gave ourselves a real challenge, but we also recognise that we don't pay the salaries that other water companies pay in the UK, but you need to be able to be competitive in that arena so you can achieve the targets you need to achieve.

The board are incredibly sensitive to the whole scope and process around this, and they are in constant discussion with the membership about why we're doing what we're doing, what the policy is, and how we can land this in the most effective way, and we also recognise there's a regulatory position here as well that we have to acknowledge. So, that's the difficult balance we have to walk, and, I can tell you, there were a number of candidates who were interested in this role, but, when they saw the sort of salaries that we pay, said, 'I'm better off staying where I am. I'm actually in a lesser job in another water company, but I'm better rewarded.' And that's the truth of the matter.

Julie.

Okay, thank you. And then the final part of the question, about what is the evidence that executive leader candidates of the calibre required have declined or would decline roles—what real evidence have you got of that?

[Inaudible.] So, that's been answered. Thank you. Julie.

Well, not really. There's been a mention that—. You know, what numbers are we talking about that have declined those roles because they didn't feel the pay was enough? I find it rather amazing that—

Well, we've been told that somebody has. I mean, that's presumably—

[Inaudible.] I can't—

No, you can't.

I can't declare that, but we used a highly reputational headhunter in this space who approached lots and lots of people, in the hundreds, and lots of people said, 'I might be interested in the role. However, the remuneration is not where I need it to be.'

Okay. And then my final, tiny point is: is it correct that, whilst these 500 jobs are in the balance, then, that you may well be adding to your senior management team?

Absolutely not. No, no. The proportion of reductions in the senior management team will probably be greater than in the rest of the organisation.

Okay. Thank you. Julie.

I suppose, really, as a not-for-profit company, it is understandable that the public query what they see as enormous salaries, even if they're not competitive in the water industry. So, would you accept that, really?

Yes. Absolutely, yes. And I never shy away when I'm challenged on this. I earn a very good salary, yes. And we accept your point.

Is there anything you can do to give the public more confidence that, as a not-for-profit company, you are not paying excessively?

Yes, I'll draw Martin in, but one group we haven't mentioned today is our members. We have around 60 independent members made up from the communities that we serve across our operating area. We've got people from the third sector, public sector, business, environmentalists, and our remuneration policy is developed by the independent committee for the board, but that actually goes through our members as well. So, they have the opportunity to examine in detail what our proposed remuneration is, and the level of detail we go into there is considerable. Martin will support the independent chair of our remuneration committee, and the data that we get from the marketplace, by way of benchmarking, by way of comparative scale of organisation, because we're the sixth largest water company; it's worth bearing that in mind—. All of that is done, so we go through probably what I would say is a double dose of review in terms of our remuneration. It doesn't just happen through the board; it also happens through our members who are made up of the communities that we serve in our operating area.

And the only thing I'd add, Pete, if I may, is that they get to vote on the policy. They don't get to vote on the actual number, because that's determined by the remuneration committee, but the policy that drives that process, they vote on that annually, and 96 per cent of the members voted in favour of the policy change we made this summer.

Right. Well, thank you for that. Have you got any concerns, then, that your changes to executive remuneration will make improvements to your overall performance less likely?

No, not at all. I think, when you work for Glas, as a director, as a manger, as a front-line colleague, the whole ethos is ultimately underpinned by our commitment to service. And as I said, our performance-related pay is performance related in—. I think 30 per cent, for example, covers the environment. But that isn't the motivator for people in this organisation; the motivation is to provide a public health service and to do our very best to protect the environment in Wales. So, no, we don't get out of bed every morning as an executive team looking at where is the performance-related pay heading and turn down our performance if it's not going to the right place. Far from it. There are other, what I would say—to a certain extent, job satisfaction, and also I think our commitment to doing the right thing for the business and our customers. So, no, there is no linkage there at all.

Right, thank you. And then, finally, will executive pay be subject to any cuts as part of the Trawsnewid programme?

Can I answer? Martin may want to comment as well. Trawsnewid is not about cutting people's pay in the organisation at all. We're losing colleagues, which I've, hopefully, got over that we're doing regrettably. But we're not attacking people's terms and conditions. Our 'working together' agreement is 25 years plus old. That's our agreement with our colleagues. As that stands, that means that our colleagues get a guaranteed cost-of-living rise every year, linked to CPIH. So, people's terms and conditions are actually unaffected by this. We are not doing that. And again, I think, in terms of executive pay, what's at risk for us is when we don't deliver. So, no, there is no link to reducing pay in the organisation.

Thank you for clearing that up.

Thank you for that. Right, we'll move on to Joyce, and thank you, Joyce, for your patience.

I'm going to ask a final question in this section. Whilst you had a review that looked at executive pay—and I understand the figures in front of me—did that review also look more widely at the pay scales of everybody involved in your business? And did they compare more widely with, say, public sector or private sector people employed doing those particular jobs, beyond executive pay?

We do that regularly. Our policy is to pay at above median to upper quartile. And what we do, I have a team that regularly looks at where our pay scales are relative to the external market. So, we know, and we test ourselves in this space regularly, that we're in either upper median or upper quartile in terms of total pay. And we keep pace with that because we do—we have done this for the last number of years—pay at CPIH, and we will do this year. So, CPIH is running at 4.1 per cent at the moment, December, that will be paid in April. It's likely that we're going to be paying at 4 per cent or slightly above to our colleagues this year. And we're also committed to do progression in role. So, where we have bands, and every job is banded, people will move up the band annually based on their performance. So, not only do you get your cost-of-living increase, you get a progression-in-role increase until you get to the top of the band.

Okay, I found that interesting. I haven't got time to explore that, performance-related pay, but anyway. I think maybe we could ask further questions. because we haven't got time.

But you do talk about relationships with other regulators, and I'd be keen to explore those now, with the time that we've got. And you also mentioned possible inconsistencies between what Ofwat expect you to do and perhaps what Welsh Government expect you to do. Do you want to elaborate on those concerns and the impact?

Sure. What I would say is, going back to those five-year regulatory cycles, the last one we had was in 2024 that sets the price control until 2030—we call that 'PR24' in the jargon. And Welsh Government probably set up the most effective framework we've ever had to have those discussions with them and with regulators. It was known as the Wales PR24 forum. I think what we see there is, in the main, I would say, areas of strong alignment. But there were some areas, I think, where we have policy in Wales, the Welsh Government's strategic policy statement for water. For example, where we had probably the biggest misalignment was over storm overflows. And what we had with Welsh Government was a focus on harm in the environment, and it's worth remembering that Welsh rivers, we want to do more, we want to get better, but they are not the same as England. If you use the water framework directive good status measurement, which is important in this debate, we achieve around 44 per cent in Wales. England achieves around 14 per cent to 16 per cent. Interestingly, Germany and the Netherlands are 8 per cent. So, our focus from Welsh Government and Natural Resources Wales to focus on harm is exactly the right thing to do. What we have, though, and this is something I will expand on briefly, is a—. From Ofwat, we have a set of targets that are linked to spill numbers from combined storm overflows. So, what that means is we've got an investment programme of over £1 billion, we've got it for storm overflows, we've got a policy from Welsh Government and from NRW, yet we have a measure that is actually targeted on spills. So, we proposed a harm target, because we want to be held to account.

But what I would say is, and since the Independent Water Commission, the Cunliffe review, reported in July, there is a movement from Welsh Government and from the regulators to look at the recommendations of what that review looked at. So, I think we're beginning to close the gap on those differences. I think we need a transition to the post-Cunliffe Independent Water Commission environment, so that we're actually tackling the things that really matter for Wales. And what I'm seeing is Government and regulators now reopening, let's say, some of the contentious issues that we had in the price review PR24, to now be looked at in the lens of future benefits that the Independent Water Commission will bring. And if I may, just to bring that to life, for the first time ever, we will have a joined-up policy for water in Wales between Government, regulators and the water companies in Wales. At the moment, that tends to be done in quite a siloed way, and that's what causes this misalignment. But the commission, which is going to target, whether it's the next price review, or certainly a version of the next price review, will be based on alignment of Government, alignment of regulators and alignment of companies in a single long-term plan. So, the future, I think, will present us with a fantastic platform in Wales to do the right thing for our customers and the right thing for the environment.

So that review, of course, is a response to the Cunliffe report and that independent operator. Do you have any particular views on those proposals, whether they're positive or not quite so positive? Would you like to share them with us, but particularly any impact that it might have on the financial situation that you already are facing?

Yes, absolutely. The opportunities from the Independent Water Commission, or the Cunliffe review, as it's known, are mainly positive. In fact, 'largely positive' is the way I would describe them. And the reason for that, without repeating myself too much, is the whole issue of a single joined-up vision for the long-term: Government, regulators and companies. That's one. But there are other points in that review that are incredibly good as well. It points to more certainty and less regulatory volatility, which influenced the issues that we had with credit ratings that we touched on earlier. But what it does, it moves away from the current system, which looks at England and Wales on many levels. Things like levels of maintenance are set on an average basis across England and Wales.

If you think of the flatlands of East Anglia, compared to the beautiful mountains of Eryri, our maintenance requirements in Wales are very, very different indeed. What Cunliffe promises is that maintenance will be based on a country or a region. So, if you think of that, that straight away is a huge issue for us of benefit. Whilst we're making massive investments, £4.2 billion, double what we've ever done—I think it's probably the biggest public works investment in Wales at present—those are mainly new commitments. Those are new things. But where the Cunliffe review is coming in, I think, with huge benefit is that it wants to look at maintenance. We are going to talk about the burst up in north Wales that we had. That won't be affected by the £4.2 billion. That is a maintenance spend, and our maintenance at the moment is disproportionate to the commitment to new investment for new things. So, I think that that is hugely beneficial.

We have spoken to investors about the new regulatory system. What they would like to see is continuation of independence. That's important, so that it's not driven by Government, that it has its own voice, and that it's focused regionally, so that you get the right outcome for the operating area or country that you're in.

The Welsh Government, in the discussions that we've had, is keen that the new framework that it is developing as part of the Cunliffe review will return us to an 'A' rating for our credit rating. So, when you take all those things into account, I think that the future promises real benefit for our country. 

Okay.

Thank you, Joyce. Because of time, we'll have to move on. You mentioned Flintshire, so we'll come on to the water outages in Flintshire in August. I know that the final report has yet to be completed, but it would be good to hear of any initial lessons that you feel you may have learned from that episode—particularly, maybe, given that there wasn't a dissimilar episode a little bit further west along the coast prior to that. What lessons were learned there that maybe you were able to implement or utilise in Flintshire? 

Yes, absolutely. First of all, can I apologise to our customers who were impacted by both of those significant events? I think that we all know the value of water, and not having it for over 24 hours plus in some circumstances was a real concern.

On significant lessons, let me first of all—. Can I actually say, and I think that it alludes to a question that was asked earlier online, which is about asset information—? We risk assess our assets, so that we try to target our investment where the need is greatest, linked to risk—things like loss of supply, things like danger to life.

Interestingly, and I think that this is the changing world we're in, the incident at Bryn Cowlyd and the incident at Bretton, near Broughton—. Those two didn't appear on our risk list. They were there, but they weren't in the top 20. The river crossing at Bryn Cowlyd, where the main burst in the river—. The river had actually shifted over time. The standards of construction there weren't what we would have today. That was about number 70 on our prioritised list, but that burst in January.

What we have at Bretton, if I can move on to that, is a couple of circumstances. Both of these mains as well do not have a burst history in the last 15 years. So, in terms of us prioritising these, I hope that I can explain that, if they had been further up the list, then we would have been targeting them. But things happen with the scale of our infrastructure, and we are definitely seeing the impact of climate change.

At Bretton, the main failed on a joint, which was probably not—. It's held well for 30 years—again, not to the standard that we would lay today. The ground level on that main caused that burst. That had been increased by a local developer by over—. We normally have somewhere in the order of 2m over our mains. You start getting above that and you put stress on the pipeline. This had been increased to 5m. So, one of the things that we have learnt there is more liaison with developers to make sure that ground levels do not increase.

So, am I right in thinking that you were not aware of the raised height of the ground there? 

No, not to the extent that it was carried out.

And nothing in the planning system had taken account of this.

I think that we could have done it better. We could have done that better, and we're tightening our processes to make sure that we don't miss those sort of things, because that should have rung alarm bells.

Both for yourselves and the local authority, I'd imagine.

Yes, exactly. So, that was one lesson. What we did at Bryn Cowlyd—. That pipeline has been duplicated. So, under the river, we now have two pipelines. So, if one did burst, we could do that. At Bretton, we have emergency repair fittings, as we call them, in our local depot. So, if that pipeline ever went again, we could get in there and fix it much more quickly.

Just to bring it to life, in terms of what we're doing proactively, we're actually replacing around 20 km of large-diameter trunk mains in this period—a multi-million pound investment—and that's targeted on those priorities. We have eight river crossings in the current period that were way up the risk list compared to Bryn Cowlyd. We will deliver those in the next five years. And then, in terms of our other mains where we're seeing bursts, and they're predominantly in the west, on our network there, we're replacing 503 km. That's more than triple the amount we've ever replaced in the past.

Our risk assessment process will now be adapted from the learning at Bryn Cowlyd and the learning at Bretton, but, for the avoidance of doubt, those mains did not feature in our top list that we would have expected to have burst ahead of this. But what we're seeing this summer is the soil moisture deficit is so high in parts of Wales that our mains are bursting four times more today than they did in 2018. So, the idea of climate impact we are dealing with as a business and an industry literally on a daily basis.

That's quite a statistic. So, will the final full report be published?

Absolutely, yes, it will be, and we'll make sure the committee has that.

You've described the goodwill payments, obviously, which come in these situations, made to certain customers during that period. Can you just tell us a bit about the criteria you use for those payments? And can you confirm whether everybody who should have received them, as far as you are aware, has now received those payments? 

Yes, we can. If I can start with our domestic customers—and I again reiterate our apology for the breakdown in service—they get £30 for every 12 hours that they're off supply. We've made 20,600 payments to our domestic customers. They've already been paid in September and October. I think we're at something like 98 per cent plus of people who are entitled. There will always be ones we will look to mop up if customers contact us.

In terms of our business customers, there are two elements to the way we deal with them. No. 1, there is a guaranteed standard payment of £75 for every 12 hours that they're off, and we've made 1,000 of those payments to businesses in Flintshire. But, in addition to that, we also have a process where, if people have suffered significant impact as a result of water loss, they come to us. We've had 104 applications from other businesses over and above the £75 per 12 hours. Forty-five of those have been settled, 39 remain open and 20 were declined. So, we have a very active process. That's still live on our website for businesses to come to us. We did exactly the same in January for Bryn Cowlyd. And our aim is to get those payments automatically into people's bank accounts as quickly as we possibly can. That's totalled, for the Bretton burst alone, nearly £3.5 million that has been paid out.

I know Carolyn wants to come in—so you can have the last word on this, Carolyn—but just one more from me. Is that money a fund that you hold, or is that something that you insure against?

No, we can't insure against this.

So it's money that you have to put aside.

It's not a fund either. This hits our operating costs.

Yes, sure. Okay, thank you. Carolyn. Thank you.

Thanks, Chair. I'm aware that residents of Connah's Quay, some of whom live next door to each other, received differing amounts of compensation for the time the water was off. The neighbours were without water for exactly the same period, from Thursday to Sunday, and should have received the same amount of compensation. Do you agree this is unfair, considering how long they went without water? And were you aware of it?

We did—. We have made—. Those were the guaranteed standard payments that I talked about earlier, and our business compensation scheme. We also made goodwill payments to over—I'll just check the number—100 customers in the Ffynnongroyw area, which I think is near Connah's Quay. If we applied the strict regulatory rules to those customers who lost supply, they wouldn't have had compensation. If you've got any individual issues, we'd be happy to follow those up.

But the one thing we do have on our network—and it's quite interesting to go back, Carolyn, to you for this question—is we have very detailed monitoring of our water system. And it is hard sometimes to explain to a customer that you can be on one side of a road or a street and be fed from a different part of our network that wasn't as affected. So, I think we've gone beyond what I would say is the letter of the law on this, but if there are others that we need to follow up, then we would be more than willing to do that, and we'll contact you outside of this session to do that.

Thank you.

That brings us neatly to 10:45, which is exactly the time that we predicted we'd finish. Thank you for your attendance. Again, we appreciate the fact that you've come before us, and the opportunity to raise issues, as we have done this morning. Diolch yn fawr iawn. There may be a few follow up bits and bobs that we will ask you for, and we can go from there. Diolch yn fawr iawn.

Diolch yn fawr. On behalf of the business, thank you very much.

We will continue our meeting whilst you leave us.

There are papers to note, so I'll ask Members whether you're happy to note them collectively—yes.

Yes, all happy to move into private session.