Official Report: Minutes of Evidence

The Deputy Chairperson (Mr Stewart): I welcome Dr Sara Venning, Ronan Larkin and Anthony Lynn from Northern Ireland Water. It does not feel that long since we visited you on-site. It is good to have you back in front of us to discuss the budget for next year. You submitted a written presentation in advance, and that has been circulated to members. Will you go through that for five or six minutes, and then we will open the session up to members' questions?

Dr Sara Venning (Northern Ireland Water): Excellent. Thank you very much. Ronan is our director of finance, regulation and commercial. The Committee asked for an update on the 2025-26 budget. To set the scene, NI Water prepares an outline operating plan and budget, which reflects our estimation of the operating and capital costs that are required to provide clean, safe drinking water and for the effective treatment of waste water across Northern Ireland. We submit that to the Department, and, ideally, we will have a budget, which covers all those necessary costs, agreed before the start of the financial year in April. At the end of this month, we will submit the operating plan and budget. Therefore, we are not talking about a budget; we are talking about our estimation of what we believe to be the necessary capital and operating costs.

This morning, we will talk about what investment need was set out for the resource departmental expenditure limit (RDEL) and the capital departmental expenditure limit (CDEL) — the operating costs and the capital costs — and what was allowed in the price control 21 (PC21) final determination. We will reflect on that for the current year — 2024-25 — which has almost finished. We will give you an update on storm Éowyn and the costs associated with that, and, then, take a bit of time to give you an overview of our forecasted costs for 2025-26.

As we prepared this deck, our permanent secretary and the Department of Finance reflected to me that, too often, NI Water talks about money — that it is all about "billions and millions of pounds" — and that it might be easy to lose sight of what that money actually delivers. Peppered through the presentation, you will see a series of photographs that try to bring to light what the money does. When we talk at Committee about waste water and connections to the network, or the capacity of our waste water treatment works, we are often talking about facilitating new homes, new houses and new businesses.

We all met in our water treatment works in mid-Ulster. Ronan and I updated you on the outworkings of the mid-term review by the Utility Regulator (UR). The review concluded that the schemes that we had submitted for construction during PC21 are still needed. That was positive. In the time between the PC21 plan being submitted and the review being carried out, we, as we all know, saw significant inflation, not least in energy costs. The mid-term review recognised that it would take another £180 million in opex to fund that cost in the final three years of the plan, and it recognised the higher input prices into the capital investments. The UR set £2·4 billion as the minimum level of investment that would be necessary. It also gave a commitment to do further work, because it could see additional price increases across areas of the capital plan. The UR has been clear that, in its estimation, the capital investment will likely increase. It is the view of NI Water that it would cost £2·7 billion to deliver everything that is in the six-year plan.

The next slide is really important. The mid-term review set out the level of expenditure included within PC21. This slide shows, in a graphical format, how much RDEL and how much CDEL is needed for each of the final three years of the price control: this year — 2024-25 — next year and the year after. On the graphs, the red dotted lines show the original budgets that were allocated, and the purple dotted lines on the current financial year bars show the impact of additional in-year allocations. At a very high level, what is stark from those graphs is the level of underfunding that is being signalled. Ronan will pick up on the detail of that.

Look, for example, at the CDEL graph — the green graph. The Committee is briefed that the living with water programme sits within the price control and that it is for NI Water to decide which of its projects it can deliver. It is important to flag to the Committee that, if we have a budget that is sitting at the red dotted line, and even if the budget rose to somewhere in the vicinity of the purple dotted line, there is still an investment gap of at least £800 million — there is no budget to fill it — and, therefore, that work cannot proceed. It is about the difference between knowing what needs to be done and being empowered to get on and deliver it. We are all clear on what needs to be done.

Ronan will talk through forecasts for the current year and next year, and give an update on the storm situation.

Mr Ronan Larkin (Northern Ireland Water): Good morning, Committee. The graphs take us up to speed. I will start with the graph on the right-hand side of the slide. When we put the budget together for this year — 2024-25 — we looked at all the indices and what was happening with energy prices and where they were sitting. We needed about £179 million RDEL to make it work in 2024-25. We, with the Department's support, committed to monitor and check in on that as we went through the year, and to continue to make any improvements that we could make. As of January 2025, through a whole series of things, including the fact that power prices came down — although there is a risk that they are wavering again — we got that £179 million down to just under £157 million. We improved on that and trimmed it back by taking action and working with the Department on a series of different things. Equally, the Department managed to get a little bit more RDEL into the picture for us, but, at this point, it can only get up to £149·4 million, so there is a gap. We have reduced that gap by £22 million. The Department has worked with us to try to improve on that and get some more funding for us.

The difficulty now, which we have to recognise, is that there is a gap and we do not have a final way to close that gap in the spending. The gap has been narrowed, but it still exists. We continue to work on whether we can or cannot close that gap between now and the end of March. The difficulty that we, as a service organisation, face is that we know that, if we were to say that the only way that we can close that gap is to stop some services for customers, that would have a direct consequence for water, the waste water service and, hence, consumers. We are not, right now, in the world of saying that we will stop services. I do not think that that would be appropriate or supported by the Committee, and customers would definitely not want to go through that, so we will not do it.

The good news is — we continue to strive towards this — that Northern Ireland now has pretty much an efficient water company. Water Service became Northern Ireland Water in 2007. We were regulated, targeted and driven for improvements, and we were measured and monitored. Northern Ireland now has an efficient and effective water company. The independent assessment continues with the regulator. We have closed the gap from just under 50% in 2007-08 to about 6% now, at the beginning of PC21. Cutting money from the budget does not make you more efficient; it just means that you have cut money from the budget, and you will probably have to catch up with that work at a higher price down the line. We continue to look at and examine that £7 million gap, but, at this point, we cannot guarantee its closure.

That leads us on to storm Éowyn. We incurred some costs as a result of Éowyn, as you can see from the graph. I do not need to describe Éowyn to any of you; I am sure that you are aware of it through your constituency work. We experienced major issues during that storm, but our teams worked very well to keep customers pretty much on service throughout. We lost some customers for a period, but we got them back on relatively quickly. Éowyn was our second major weather event of January 2025. Our indicative view of the cost, across capital and operating, that we incurred from Éowyn is approximately £5 million. There is an additional £5 million, therefore, to be covered from somewhere. Perhaps we will get a decent allocation from Stormont and so on for that. We had to do a lot of tree removal and property repairs. We had generators out on-site. We bought new generators and hired some. We supplied and transported bottled water to the parts that needed it. That was all about ensuring that customers had water. We had our staff in all the way through the incident — round the clock. We should give a shout-out to our staff this morning: they worked incredibly well to keep things moving. That £5 million for storm Éowyn is in addition to the gap that we have already identified.

On the CDEL side, there was some available funding. Again, the Department made funding available for us. That amount was probably lower than the planned view. There is limited investment to facilitate new-connections growth. That is one of the key things that, we know, the Committee wants to ask us about and talk about, and we know that it is a big issue for Northern Ireland.

For the wider regulatory programme, with the current budget allocations that Sara pointed out, £321 million is the reasonable worst-case scenario funding that has been provided by the Department. That will not cut the mustard to deliver the programme that is required for Northern Ireland and the programme set out and determined by the Utility Regulator. It is not sufficient to do that, and Sara described that gap. We simply cannot start some of the large construction contracts that, we know, Northern Ireland needs, be they in the north-west, Belfast, the south-east or mid-Ulster. We had to bring them to a certain point and close them until we know further what the funding may be. When we eventually get to the point where we understand the budget for next year — 2025-26 — and the implications of that, we will look again to see whether we can open some of them. Right now, those contracts are paused. Inevitably, that leads to decline in services as well as higher costs.

On RDEL for 2025-26, Sara described the mid-term review and what that does. It reflected that there are higher power prices on the way. Our initial 2025-26 overview is that we need an allocation that is £4 million more than the PC21 assessment. You might ask, "Why has your cost gone up from PC21's assessment?". Quite simply, the increase in employers' National Insurance contributions that organisations will have to pay was not in the PC21 mid-term review, because it had not yet been announced by the UK Treasury. The regulated charges in the overall tariffs for power that Northern Ireland Water buys from the electricity companies have gone up since as well. That £4 million is reflected there. If those were stripped out, we would probably bring it in a little bit under the figure in the mid-term review, which is good. That goes back to looking at efficiencies and at whether we can reduce costs. However, those costs, inevitably, get to a net £4 million increase. You can see £156·5 million for 2024-25 on the graph. Our assessment of what our budget allocation might look like in 2025-26 is closer to £171·7 million. The mid-term review states that it is just under £168 million. That gap is due to employers' National Insurance contributions and the power tariff price increase.

Sara described the CDEL piece. The graph shows that, in 2024-25, we have got to about £359 million. As shown by the black bar on that graph, the Department has found a way to allocate some additional money. Credit to the Department for the work that it did through the monitoring rounds; it got us from £321 million up to £349 million. Next year, in order to make some of the things happen that need to happen, particularly to open up some of the new connections and start some of the schemes, we estimate that we could use and invest £405 million. The Department's reasonable worst-case allowance is £321 million; we think that that should be £405 million. We could not use the PC21 mid-term review because the programmes had lost momentum — we would have had to build that momentum back up — but we definitely could allocate and use, on behalf of customers, £405 million to get that investment running again, to open up some of those schemes and to allow new connections to come through.

Dr Venning: Thank you, all, for your patience. We might have taken slightly more than five minutes, but we are finishing now. When we met in November in Moyola, I heard resoundingly from the Committee that you recognise the importance of the investment needs that we outlined, but you were also vocal about the financial constraints under which the wider Northern Ireland Executive operate, which we understand.

We are, first and foremost, a delivery organisation. We are charged with providing clean, safe drinking water and treating waste water to return to the environment, ensuring that we serve today's customers as well as those who want to avail themselves of our services in the future — our children and grandchildren. That means that we have to continue to strive to secure the capital that is needed to maintain and grow our assets, and the operating costs that are needed to run them. Not funding the water utility leads to cuts in service, which has the potential to lead to regulatory enforcement. In the immediate future, we are absolutely committed to working with the Minister, the Department and the Environment Agency to do all that we can to facilitate new connections to the waste water network. It is our belief that unlocking economic growth and protecting the environment need not be mutually exclusive. However, to deliver that, we will need additional capital to the reasonable worst-case scenario allowance.

It is clear to all of us in the room that we are unable to provide the water and waste water capacity that is needed across Northern Ireland. In order to be able to do that, we have to set out secure and certain access to funds on a continuous, longer-term basis. The challenges are not lessening; the growth ambition for Northern Ireland is not diminishing; and, worryingly, for all of us in the room, the cost of infrastructure is increasing. We need to act now.

The Deputy Chairperson (Mr Stewart): Thank you very much, Dr Venning. There was a lot to cover. We appreciate your briefing being so detailed. When we met you most recently, I was keen to put on record — I am sure that other members will be keen to do this, as I am again — that we want to see Northern Ireland Water fully funded. It is an integral and essential public service that needs to have the correct level of funding. I hope that we can get to that point. I also place on record, as has already been done, our thanks to all your staff for their response during the recent storm. A lot of people who were impacted on by the storm contacted me. I know that people were impacted on across the country. Your staff often went above and beyond, both on the ground and through the communications channels, and we are appreciative of that.

I have a couple of questions, before I open it up to members. You said that the CDEL funding is substantially lower than was originally planned. We have been conscious of that for quite some time. Will you outline what investments in new areas of growth are possible, and which areas of growth have been most impacted on by the shortfall?

Dr Venning: As I said, as we sit here today, we do not actually have a budget, so, in some ways, my answer is somewhat theoretical.

The Deputy Chairperson (Mr Stewart): I appreciate that.

Dr Venning: If we get a £321 million allocation for capital, only a very small amount of investment would be available for growth. The money would be spent on keeping what you have running, and making sure that clean, safe drinking water can be produced. There would be very little left to be spent on the waste water network. That is why we have set out that, with a fairly modest increase, there would be the potential to look at what was originally planned in PC21 and pull forward some of the programmes that have an environmental and, importantly, a connections benefit. It will be for the Minister to decide how much can be afforded and where that money will be allocated. We have tried to set out that opportunity. In reality, any additional money that we are asking for would be spent on pieces of work across Northern Ireland that facilitate growth and new connections.

The Deputy Chairperson (Mr Stewart): That is how those capital projects will be triaged, effectively: environmental and capacity issues. Are there key areas across the country?

Dr Venning: Yes.

The Deputy Chairperson (Mr Stewart): We are aware of the constraints, particularly in my constituency of East Antrim, around Belfast lough and pretty much across the country. Are there key areas where you want to see capacity upgraded so that we can start to —

Dr Venning: You have all seen the maps; in essence, it is every area of the —.

The Deputy Chairperson (Mr Stewart): I appreciate that, but how do the priorities compete with each other in the budget? That is what I am getting at.

Dr Venning: Was it in the PC21 plan? Has it been progressed to a stage where we could start construction? Those are the key determinants, and that is why we have identified a series of schemes that the Minister can decide on.

The Deputy Chairperson (Mr Stewart): That is useful. Ronan, you talked about contracts being paused. I am keen to dive into the cost implication of that. Money has already been invested, and, as you mentioned, the longer we take, the more it costs to do infrastructure projects. How do we quantify that? Alongside that, how do we quantify the cost to Northern Ireland Water's network of not investing in it? Every year, it gets older and costs more money to keep going, but we are not putting the necessary amount of money into it. How do we quantify that? What impact is that having?

Mr Larkin: There is an allocation in PC21 of what is known as base maintenance, which is to keep the pipes fixed, to prevent bursts and to repair bursts when they happen. It is about maintaining the asset base so that it runs as well as it can and is safe for our staff and contract workers to come in and do their work. That base maintenance keeps the assets maintained to the point that they can be. However, all those assets need big base maintenance programmes. Part of the efficiency is whereby, if you are in doing a base maintenance programme on a large asset like that, you want to minimise the disruption as much as you can and try to get it all done at once. Quite often, when you go in with a plan, you will say, "That also needs done, so we might as well replace that while we are here, because that will keep it running better". That is part of that plan.

One of the key priorities is to maintain the safety and processing at those plants. If you start compromising on that, you have to go into the plant more often. There are factors that we can use in econometric models that give us an assessment of what that might cost. I will give you some examples of the big programmes of work across Northern Ireland that, as Sara said, were identified when we put the PC21 investment proposal to the Department and to the regulator. They were designed to improve and put more waste water capacity in place, in some cases. They were designed to fix unsatisfactory intermittent discharges (UIDs). We do not want discharges to happen, so we need to get those fixed and stopped.

Equally, the living with water programme, which we included on an earlier slide, was designed to intervene in greater Belfast's sewerage network: to start the work to make it fit for the 21st century and for Belfast today, and to allow it to meet the growth projections for Belfast as the regional city. Projects at the big plants around Belfast lough — from Kinnegar on the south shore to Duncrue Street at the docks, and all the way to Whitehouse, Greencastle and Carrickfergus — have largely been paused. We know that there is pollution going into the lough in a lot of cases. That programme was designed to begin the work to eradicate that pollution and take it away, and to increase the processing ability of those big plants. That work has been paused. In the meantime, we have tried to find the best way to bring that to a natural point. We have said, "Right, we know that we have to stop these programmes, but we can bring them to a certain point, whether that is a feasibility stage or initial phases of early works". At that stage, we have had to pause those contracts and works pending the outcome of further budget discussions vis-à-vis the reasonable worst-case scenario that the Department has had to work with. That means that, when we go back to do that work in the future, those projects are likely to cost more money. There is a possibility that contractors applying for those contracts through tendering processes will seek to factor in the risk of the project being started and then stopped, because that costs them money in a project. Some of that money will have to come back to us, as we have to pay the cost of closing up and finishing a site to a certain point and making it safe. If we have to open the site again, there is a cost to that as well. That is all in the mix.

I do not have the figures to hand, but we could supply some information to the Committee, if that would be helpful. Studies across not just Northern Ireland but Scotland and the UK generally have examined the cost and implications of that — I would use the word stop-start — stop-pause process. Civil engineers and others have estimated those costs. I will not quote those figures, because I am likely to misquote them, but I can get back to the Committee with some information that gives a sense of what that would cost. Inevitably, it will cost more; the plant projects will not become cheaper. If we do not get started, they will become more expensive, yet we know that Northern Ireland needs those pieces of work.

The Deputy Chairperson (Mr Stewart): That is another clear example of investing to save. Kicking it into touch, throwing some money at it now and spending more when we have a chance to invest in it is not a good business model. I appreciate that there is a discussion to be had on the budget, but are you saying that, to unpause those projects and get them going, we would need to have at least £405 million of capital investment?

Dr Venning: No. Far more.

Mr Larkin: No. It would take more than that to open those, but the £405 million would let us get into some of the things that are still in the plan and, maybe, to touch on some of the housing schemes. To put those bigger plans back on the table and get them up and running, however, we would need to go back to the PC21 mid-term review levels that were determined by the Utility Regulator.

Dr Venning: We also need to be able to start the work knowing that we can finish it in year 2 or year 3. It is about having not one year of funding but a continuous view over a few years. They cost tens if not hundreds of millions of pounds and span more than one year.

The Deputy Chairperson (Mr Stewart): I appreciate that. In the draft Budget, the Finance Minister highlighted reinvestment and reform initiative (RRI) borrowing of £105·7 million that is earmarked for Northern Ireland Water. I appreciate that that has not been handed over yet, but there is an anticipation that it will be. Has it yet been identified what infrastructure projects that money could be used for?

Mr Larkin: We mentioned that in a previous presentation to the Committee. My understanding is that the £105 million RRI money will be used to make up the £321 million — it will sit within the £321 million.

The Deputy Chairperson (Mr Stewart): It is not new money, then.

Mr Larkin: Our understanding is that that money is not on top of the £321 million. If it were, that would be great, because that might get us to the £405 million. If that were the case, we would be very pleased, because it would get us to that £405 million. My understanding, however, is that that RRI money takes the figure up to £321 million.

The Deputy Chairperson (Mr Stewart): It is disappointing, if that is the case. When I heard it being announced, it seemed that it was being sold as an additional block of funding that would come Northern Ireland Water's way. There is a bit of ambiguity there. It might be interesting to get clarity from the Minister on that next week.

Mr Larkin: We can take a look at that as well. The Department might know. Perhaps it was used to make up some of the increase from £321 million to £349 million in 2024-25, but I think that it is being used to make up the core £321 million.

The Deputy Chairperson (Mr Stewart): OK. You referred to the reduction of £122 million in the RDEL funding gap and to a shortfall of circa £7 million. What engagement have you had with the Department on your concerns about that shortfall? How do you plan to manage the resources that you have and to look at making any savings in that budget?

Mr Larkin: First, credit goes to the Department for the work that it has done with us on that. We have highlighted that gap throughout the financial year, so it is not a new piece that is coming to the table. We have interacted with the Department, and it has interacted with us. To the Infrastructure Department and DOF's credit, some additional moneys were allocated to help us to close the gap. The gap of £7 million still exists, however, and we continue to make representations around that gap. We do not want to interrupt the service to customers in the final few weeks of the 2024-25 financial year — it would not be appropriate to do that. We will continue to explore ways to close that gap, even partly, if we can. We should be honest and open with you guys that we do not have a plan to close that £7 million gap.

We have to make sure that we report our numbers openly and we report the right numbers. We are still in discussion internally about that, and we will keep the Department updated if there are any changes. In addition to the £7 million, the £5 million pressure came through on the back of storm Éowyn's impact on assets and on our ability to get out and keep customers served. The gap sits at £7 million, and, separately, there is the £5 million resulting from Éowyn. We will continue to look to close that gap if we can, so, if anything comes through in the next six weeks that we can use to do that, we will declare it and put it on the table. However, we should probably set an appropriate expectation now and say that we do not have a plan that will allow us to close the gap.

The Deputy Chairperson (Mr Stewart): There is the danger of an overspend.

Mr Larkin: You are absolutely right, and that is a risk that we do not take lightly.

The Deputy Chairperson (Mr Stewart): I appreciate that. That is why we want to get it on record.

Mr Larkin: That is why we are still focused on it and why we need to be open with all stakeholders. We have been open, I hope, with you guys on the Committee.

The Deputy Chairperson (Mr Stewart): Absolutely.

Mr Larkin: We will continue to look at and examine it. If we can close the gap to a degree, we will. If we were to get a magic bullet that would close the whole lot, we would let everybody know. Right now, it is appropriate that we set the correct expectation about it.

The Deputy Chairperson (Mr Stewart): I might come back to you later on, but I will open it up to members first. I will bring in Deborah Erskine, the Chair.

The Chairperson (Mrs Erskine): Apologies that I am not in the room in person today, but, like the Deputy Chair, I thank NI Water staff for their work during the recent storm. In future sessions, we will no doubt look at that, but today is about the budget. What you provide to the Committee each time about funding levels and the ability to do things on the ground with the money that has been allocated is concerning. I will pick up on a few points that were made during the presentation. Dr Venning, you said that the permanent secretary said to you that all that NI Water talks about is money.

Dr Venning: It was not said as starkly as that. He was trying to be helpful. People can sometimes get lost in the sheer quantum of the numbers, so the figures need help to be brought to life. That is what some of the pictures in the presentation were about. You might have seen Warrenpoint treatment works, for example. We deliver huge capital schemes, and, too often, people do not see that. The perm sec was just trying to encourage me to bring the thing to life, and that is what I tried to do for the Committee.

Mr Larkin: It is important that we do that. When we get budgetary allocation, we use it and get assets built. Across Northern Ireland, there are really good examples of those assets. The example on the slide was the Warrenpoint waste water treatment works, which goes into Carlingford lough. That was a joint INTERREG scheme. The perm sec was urging us on by saying, "Let people know what you do with the money so that they can see what it is used for", rather than focusing on the numbers all the time. The money is put to good use when we get the allocations.

The Chairperson (Mrs Erskine): Thank you. I have a couple of further questions. You talked about the direct consequences of stopping up services. I agree with you. There is a health and environmental health aspect to the issue, so it is important that we keep services running. Clean drinking water is a priority. Are there any circumstances in which you might have to consider stopping up services as a result of the budget allocations that you are given?

Dr Venning: It is a stark choice. If there is a gap to be closed and if power costs are among the only elements against which costs can readily be reduced, for example, reducing your power costs will mean that you have to switch something off, and that impacts on services. That is the discussion. It is a choice for the Minister, almost, but the Minister has been clear with us about wanting services to be preserved, as do we, so we would like to think that that would not be countenanced. We have seen with the storm what an essential service water is for citizens, so that is not, I think, an option.

The Chairperson (Mrs Erskine): OK. In the October monitoring round, you received £19·5 million to connect 2,300 homes. Will that be fully delivered, do you foresee slippage in that amount and do you recognise those figures as being correct?

Dr Venning: Yes. We recognise the figures. It might be £19·3 million — we will not fall out over that — and 2,300 homes. It is important to recognise that that money, which was allocated to the company in an October monitoring round and which probably came through in November or December, means that we will start that work. The £19·3 million will be spent over this year, next year and the year after. Importantly, it will open up the ability for 2,300 homes to connect to our waste water network. We were very grateful for the allocation, and we have worked on our capital programme to ensure that the spends that will happen next year and the year after can be accommodated in a £321 million envelope, which the Department asked us to plan for. We brought base maintenance work forward into this year to create the space in the following years in order to allow that construction to happen naturally and efficiently. As you know, you have to mobilise people and get them on site so that they can begin their construction work. It is being managed. We are very pleased to have received the money and to be able to do that work.

The Chairperson (Mrs Erskine): OK. Thank you. Going back to NI Water's annual report, I note that it states:

which has been highlighted today, and:

In a previous session with the Utility Regulator, we heard about enforcement action in relation to NI Water. I want to unpack what that means for your budget and your ability to deliver services.

Dr Venning: I am not sure that it has a direct impact. Our budget probably has a direct impact on the Utility Regulator's enforcement action. Our budgets are lower, which means that we are unable to deliver all the work that is in the price control, and that is what may lead the Utility Regulator to take enforcement action. It is definitely considering that.

It is fair to say that we have now passed the point of being able to deliver PC21. PC21 will not be delivered. The opportunity exists for the stakeholders to work together to reduce the outputs of PC21, but that will be a matter for the Department to lead, along with the Utility Regulator, the Environment Agency, the drinking water inspectorate, the Consumer Council and us. In the absence of the final determination being changed, we will not deliver that price control.

Mr Larkin: We will deliver elements of it, but we cannot now deliver all of the six-year price control. We are heading into year 4, and we will not be able to deliver all the outcomes and outputs that were set out for the six-year window.

The Chairperson (Mrs Erskine): OK. I have been asking questions about consequential written agreements (CWAs) that have been made between the Utility Regulator and the Department. Four consequential written agreements have been made since 2007. What circumstances did those agreements put in place? What conversations about them or input to them did you have? How has that impacted on your budget?

Dr Venning: Those are good questions. Ronan will answer them.

Mr Larkin: Those are good questions. They came up at the previous Committee meeting. Thank you for raising them again. As you said correctly, there have been four consequential written agreements, which were for price control 10, price control 13, price control 15 and price control 21. Price control 10 and price control 13 were smaller; they were three-year and two-year price controls. PC15 and PC21 were six-year price controls.

The consequential written agreement is a mechanism for making changes to the regulator's determination on funding. That was the original concept design. They were agreements between the Department, as the key funder, and the regulator, which had an obligation to make sure that the determination was in place and that NI Water could be funded to do what it has to do. They were put in place so that, if something happened part way through a price control, there would be some kind of mechanism by which the two key stakeholders could come back and confer on what to do about it.

It was ordinarily seen like this: if costs go up and Northern Ireland Water has to pay more for electricity or a particular scheme — it was usually centred around opex — it could make an application under the consequential written agreement to the Utility Regulator and that would be considered by the regulator and the Department, as the funder. They could then examine the details and interview people at Northern Ireland Water. If they felt that there was a bona fide case, they would say, "We can issue some further budgetary cover to you. We can put that into the prices for the water tariffs that you have to charge, and you can recover that money but cover the cost". In the very early stages, it was designed that way. It was also backed up with additional cash or budget. It was a very real thing. It was used in anger once. It was used in a particular case when Northern Ireland Water was granted some additional funding in-year to go ahead and do a thing that it had to do within the confines of the price control.

At this point, there is a consequential written agreement for PC21, but, to be fair to the Department, it is working in a constrained environment. We have the figure of £321 million for capital as the reasonable worst case that the Department has to work with. We do not have the full extent of the price control. Equally, we know that there is a gap of £7 million, based on a whole series of things that have happened. We closed the gap that we had at the beginning of the year, but we cannot get that last £7 million closed.

Ordinarily, the CWA could have meant the two parties saying, "We will grant you some additional funding. That might be a way to close the gap in order to provide those services". At the moment, the CWA is not backed up with cash-backed or budgetary reserves. There are none. There is an agreement, but there is no mechanism in it by which we can apply for and get that money. Ordinarily, the price control would have to deal with that. The regulator carried out a mid-term review, which was on a much bigger scale across the whole piece. It looked at some of that and said, "Yes, the funding will have to go up to £2·4 billion or possibly £2·7 billion for capital, and Northern Ireland Water needs another £180 million not just for capital but to carry out the services until 2027".

That is the CWA. It is a good device and a good way of doing things, but it has to have some teeth, I guess. It usually has to have cash-backed or budgetary reserves. We have to apply and make our case. It is not a case of going to the hole in the wall and taking more money out. We have to apply through that process in the agreement, make our case, and the Department and the regulator can examine that. If they feel that it is a bona fide positive and good case, they can grant something additionally. That is a potted history of the CWA. It is a good concept and device that was put in place in Northern Ireland. It was used quite well in anger once to get over a particular situation back in 2013 or 2014 or whenever it was. Right now, however, additional budgetary reserves are not in it, and we know that we are looking at £349 million this year, not the higher number. Next year, we would like to see £405 million being allocated, if we can get it. At the moment, we are working to the guideline of the reasonable worst-case scenario of £321 million.

The Chairperson (Mrs Erskine): For complete clarity, were those four consequential written agreements for an uplift in funding to NI Water? Basically, you are saying that that funding has not been realised during PC21, because you have not been able to draw down that funding. Am I correct?

Mr Larkin: That is right.

The Chairperson (Mrs Erskine): OK. Lastly, I will turn to the statement of regulatory principles and intent (SORPI) arrangements. Are you concerned about those? Ministers said in the Chamber that they will look at the SORPI arrangements. It would have an impact on your budget as well if fines or enforcement were to come to NI Water. If we project that into the future, how concerned are you about it? Your presentation said that there are challenges in "regulatory enforcement and reporting".

Dr Venning: Yes. We are concerned. We will work very closely with the Northern Ireland Environment Agency (NIEA) to understand what it would like to do. It is very much our ambition to meet all our environmental standards. We recognise that Northern Ireland should not need a SORPI arrangement. The way to not have a SORPI arrangement is to have a transition plan whereby the waste water assets are brought up to the standard that means that they have the capability to deliver on what is asked of them environmentally. We all know right now that they do not have that capability.

We want to work with the Environment Agency to understand its timeline, and the Environment Agency, the Department and NI Water will need to work together on the transition plan. Simply removing a SORPI will not make the assets fit for purpose. We have to invest in the assets and increase their capabilities so that they are fit for purpose. That is our commitment. I am concerned that enforcement and prosecution alone will not increase the performance of the assets. That is where the longer-term funding comes in, because if the Environment Agency had the comfort of a plan to bring the assets up to standard, we could all be held to account. From my perspective, I have to be held to account for delivering against the plan. It costs money, and that is what we collectively have to go after and identify in the improvement plan.

The Chairperson (Mrs Erskine): Thank you.

Mr McReynolds: Thank you for coming in today. I brought an Adjournment debate off the back of correspondence that was sent to my constituents in Sydenham in East Belfast about the pause in the works for 'Living With Water in Belfast'. During that debate, the Minister said that NI Water had been:

and that it had been allocated nearly half billion for this financial year. Do you agree with those figures, and how much of what she referred to could be capital?

Dr Venning: I very much agree with the figures, and that is correct. On the part about NI Water being fully funded for the first three years of the price control, members might remember that there was significant ramping up in the last three years of the price control when the construction work started. We were fully funded for the first three years, but the bulk of the money was needed in the latter years and would have been invested in construction projects.

You asked about the half a billion for the current year and how much of it is capital. Of that, £349 million in the current year is capital. We must remember that £349 million is capital in the current year against the £550 million in PC21. There is a £200 million shortfall in the current year in capital. It goes back to the phrase about talking telephone numbers. I accept that half a billion pounds is a huge amount of money. A water company is a hugely asset-intensive business, and a significant amount of capital is required to run it. Whilst I fully recognise the figure of half a billion, it was a significant gap in what was in the PC21 determination for the current financial year.

Mr Larkin: It is important to break down the half a billion pounds into the two components, which Sara did. There is £349 million for capital funding and £149 million for RDEL for the everyday running costs and making the service work every day, and that is where we have the £7 million continued gap. When you take the capital piece down from half a billion to £349 million, you see that, because we do not have certainty of funding, we will see which schemes we have to dispense with. That takes you back to not being able to begin some of the larger schemes in earnest because of the need to prioritise clean, safe drinking water, base maintenance and the other pieces that come after that.

The half a billion pounds is an agreed number, but it has two components: running costs, which is RDEL; and CDEL for the capital. When you put those together, you see that they come to approximately half a billion pounds. We know that the Department, the Minister and others sought more funding and secured the £19 million that we discussed. That was welcome, but it does not get us off the blocks to deliver the programme and get it going and to put the contracts in place with the civil engineering partners and others to make sure that the new schemes will be delivered over the multi-year life of the contract.

Mr McReynolds: You touched on it already, and I commented on it loosely during the Adjournment debate. I have had this conversation multiple times with Naomi, who is an engineer and gets this stuff. Annual budgets are not great for delivering capital-heavy, resource-intensive projects to facilitate water management and treatment. A recent NI Water report said that you are "held hostage" by the funding arrangements.

You elucidated that, Sara, in your comments about funding on a longer-term basis. How do we square that circle? The graphs that I saw were quite stark on what is needed to deliver that. Ronan, you mentioned efficiencies in water management. Where do you start cutting?

I ask that on the back of the recent 'Spotlight' programme that showed that there was human waste 200 metres down the road from my mum's house. We directed the permanent secretary to that programme. That is the reality of what we are dealing with. How do we start trying to square that circle? If you start to reduce water quality or turn off waste water treatment sites, bad smells start to appear. Where do we try to make a change to benefit Northern Ireland Water and to deliver the world-class water that we all require?

Mr Larkin: If we in Northern Ireland Water have a very inefficient water company, you should hold us to account. We should be held to account. When we started our journey as Northern Ireland Water, there was a big efficiency gap, particularly in operating costs, between the English and Welsh companies. We will talk another time about where we think those are today. There was a big operating cost gap; there was an efficiency gap of about 50%. Through the work of all the stakeholders, including ourselves and our staff and workforce — I will give credit to them — we have closed that gap to about 5% or 6% as determined by the regulator when they looked at it for PC21.

The good news story is that Northern Ireland has now pretty much got an efficient water and waste water company. The key thing now is to keep it efficient and to not let it regress because of a lack of available funding for everyone. We know that budgets generally are constrained. We know that the Department gets an allocation and then has to make that allocation work across all its responsibility sets. Can the capital and DEL funding be ring-fenced in some way, shape or form for the service? It is an essential service that all of us use every day right across Northern Ireland. Is there some way of asking, when the block grant comes in, how we allocate an appropriate amount to water and waste water capital schemes and running costs and make sure that the regulator holds Northern Ireland Water to account so that it is efficient and will continue to be efficient in its delivery?

That might be one way to do it, because you could, in some ways, argue that it is maybe unfair to give it to one Department, such as DFI, and say, "You make it work within your constrained budget". Maybe it needs to become a whole-Executive thing that says, "Right, we have to find a way to ring-fence some of this money. We have to put this essential service at the front and centre and make sure that it is funded. Do not give Northern Ireland Water more money than it needs. Make sure that is delivering and hold it to account through regulatory processes". We can then get after that. Right now, the circle cannot be squared on the block grant in how it sits at the moment, despite everybody's very best efforts. As you say, some of the things that you are describing are not what any of us, as customers and citizens in Northern Ireland, want to encounter on almost a week-by-week basis.

The Deputy Chairperson (Mr Stewart): Before I bring Keith in, I will make a point that arises from that. Ronan, I discussed the cost implications of not doing work now and leaving it. Is there any indication of compensation or payouts to any companies that are affected by pausing works that were maybe contractually arranged? Is there nothing, as far as you are concerned, Dr Venning?

Dr Venning: Nothing substantive.

The Deputy Chairperson (Mr Stewart): Nothing that we should be concerned about.

Dr Venning: Our capital team has said, as Ronan described, that we have taken projects to natural pause points in order to minimise that element of it.

The Deputy Chairperson (Mr Stewart): OK. That is good to know.

Mr K Buchanan: Thanks for coming. We talked about the funding gap, and you indicated that the developer contribution consultation is coming in March. What are your thoughts on developer contribution? I would probably call it not "developer contribution" but "consumer contribution". It depends what way you look at it, because the developer is not going to pay for that; fundamentally, the consumer will pay for it. What are your thoughts on developer contribution? Have you had any conversations with the Department about what that could raise? Are there any figures or thought processes? What will that do to the issues that we saw in your graphs?

Dr Venning: There have not been any substantive discussions. There will be a discussion this week between the two teams in advance of the consultation's being issued. I do not have any detail. Look at the size of the gap. If you are building between 6,000 and 15,000 houses per annum — we know that we are not building anywhere near 15,000 houses per annum — the opportunity to raise additional revenue is fairly limited and will certainly not close a gap of that size. For some developers, it may be helpful to be able to fund waste water infrastructure that is ancillary to their site, but that is in the smaller order and is probably something that helps in the short term but is not a long-term solution. Of course, we think that we should do everything that is in our power and work with the Department to make sure that Northern Ireland can continue to grow in this period while we try to fix the longer-term solution. Very significant sums need to be invested in the waste water infrastructure, but they have been paused. We have now introduced a hiatus that has lasted for almost three years and that we have to catch up on. As I look forward to the next price control, I see even more pressures coming our way with the disposal of our waste water sludge. A significant capital scheme will be required for that as well. Those pressures are not going away.

The Department said that it will launch its consultation on developer contributions towards the end of the month. We will work with it in any way that we can. It will help in some areas, but it will not close the big gap.

Mr K Buchanan: Are you assisting the Department to some degree with a model for that? You are the experts on waste water. Are you helping the Department such that you are not framing the questions but helping with what that model could look like?

Mr Larkin: Not as yet. Discussions between the Department and us are at an early stage, but we are absolutely able to offer our help to give any insight and input into that model at it is developed in order to give the Department a sense of the relative impact that taking away a sum of money from property, for example, would have on closing the capital funding gap in particular.

Mr K Buchanan: Have you any thoughts about the sum that is needed to close the funding gap? Do you have a percentage in your head?

Mr Larkin: Without doing the retail modelling, no, but it is probably closer to the margins as opposed to being something substantial that would close the gap significantly.

Mr K Buchanan: You are a big user of electricity. How do you purchase electricity? What are your annual electricity costs, do you hedge-purchase up front, and, if so, what savings do you make by doing that?

Dr Venning: That is a good question.

Mr Larkin: Before the Russia-Ukraine war, we were spending about £30 million to £32 million on electricity. Post-COVID and then with the war, prices went sky-high. At one point in the past, we had some fixed-term contracts that locked in prices, and those served us well. When you come out of those contracts, however, you are back at the mercy of the markets unless you hedge. We did not have a vires to hedge at that stage, so we saw our prices rise in the peak year towards £90 million. They have come back somewhat since but not back to £32 million.

We have been working, with the Department's support, on a proposal that we should enter into some form of hedging ability or at least get permission to get a hedge in place. The Department gave us permission to hedge, and we got confirmation of that in the run-up to Christmas. We are now actively looking at what a hedge would look like for us and at when and how we could do it. Equally, we have to ask whether right now is a good time to hedge or whether energy prices might come down. We have to be careful about what we hedge or lock into. We are looking very carefully at those questions, and we have a team in-house comprising Sara, me and some others, as well as energy people, that takes stock of that.

I will give credit again to the Department. At one point, we proposed to a former permanent secretary building a solar farm near Dunore Point, which is near Aldergrove airport and the site of our largest water treatment works. The Department approved the business case in 2017, and we built that solar farm. That solar farm feeds into that plant, and it can also run into the grid if it needs to. Had that plant not been built when the Russia-Ukraine war came along, our electricity bill would have been much higher than £90 million, so that plant has paid for itself. It has a monetary payback benefit as well as being a climate resilience piece of work, and it helps us in our journey towards net zero.

We want to reduce our use of energy, and the core components of our strategy for energy are to use less, generate some ourselves and buy better. We are constantly looking at those three things, and we now have the approval to look at hedging.

Mr K Buchanan: Were you not fit to hedge before?

Mr Larkin: We were not. We had locked in contracts and tariffs at favourable prices, but we could not hedge forward.

Mr K Buchanan: Is that hedging for a year or three years? Is there a degree of flexibility to how long you can hedge for?

Mr Larkin: Yes. We can decide how much of the load to hedge and for how long. That is the piece of detailed work that we are doing right now.

Mr K Buchanan: When you press the button on that is key.

Dr Venning: It is important to say that hedging does not always save you money. It merely gives you certainty of price. You know that it will cost a certain amount. If prices end up being lower, you will still pay that amount. It saves you money if prices go up, but prices can also go down, so you need to be careful.

Mr Larkin: The best example that I can give is this: if we had hedged and locked in prices at the top of the market, we would still be dealing with prices at the top of the market. We did not do that. We now have the vires to examine a hedge and, if it is appropriate, enter into one in order to give us price certainty.

The Deputy Chairperson (Mr Stewart): Do you have the flexibility to benefit from economies of scale through collaborating on purchasing fuel for your fleet, purchasing electricity and purchasing energy? We discussed that issue with Translink last week.

Mr Larkin: We look at all three across the Construction and Procurement Delivery (CPD) portfolio of products. Our head of procurement sits on that team, and we keep an eye on what is available. We are offered collaboration opportunities from time to time. Sometimes, there are contracts for which collaboration is not suitable. Equally, we share what we are doing with CPD when we go to buy energy in the market. CPD knows what we are doing, as we are open about it. There is therefore the opportunity to do it both ways.

The Deputy Chairperson (Mr Stewart): On Keith's point about developer fees, is it Northern Ireland Water's intention to respond to the public consultation that the Department is launching next month, or will that decision be taken once you have seen the consultation?

Dr Venning: We will have to see what the consultation brings and decide whether there is value in our responding to it.

The Deputy Chairperson (Mr Stewart): Would it not ordinarily be standard practice that you would respond to a consultation on something in an area that impacts on Northern Ireland Water so significantly?

Mr Larkin: Yes, it would.

The Deputy Chairperson (Mr Stewart): I appreciate that.

Mr Dunne: Thanks, folks, for your presentation. I will pick up on a couple of points. One of your slides states:

That line is concerning, and it is a big statement to make. What would that look like? How serious is the situation? We are very near the end of 2024-25.

Dr Venning: For me, as accounting officer, it is a very serious statement to have made. There is a gap between the budget that we have been allocated and our forecast of out-turn costs. That means that we have to work very closely with the Department in the coming weeks to understand the mechanisms by which we can close that gap.

One mechanism is to have additional budget cover, and the other is to determine where costs can be taken out. As Ronan described, we have taken significant costs out over the year, but we have probably reached the point at which we think that there is not another £7 million of costs coming out that we can identify.

Mr Dunne: I appreciate the challenges. Your points have been well made. It is not a new issue. Your financial challenges have been on the radar, and you know that more than anybody. Developer contributions are not a silver bullet, it is fair to say. With that in mind, what other innovative solutions can ultimately be considered, such as looking at good practice from across the world?

Dr Venning: We do that. If there is any area in which we can innovate, we will do so. We are doing lots, especially with our waste water network. Using small business research initiative (SBRI) funding, we are working with start-up companies to look at what sensors we can put in our sewers to see what they tell us about the water that is in our sewers, such as whether we are getting storm water ingress. If we could get that storm water out of our sewers, it would create more capacity. We do that routinely, but if you consider the size and scale of the investment that is required, that will help in smaller, discrete areas, but it certainly will not negate the need for a new waste water treatment works in Belfast and an upgrade to the Kinnegar works, or work further afield, whether that be in Newry or other parts of the country.

We do innovate. Our engineers are really good, and they are doing as much as they can, but I cannot make the gap in the investment that is required for those assets go away.

Mr Dunne: Every Department is on a similar page and is crying out for hundreds of millions of pounds more. We therefore have to look beyond the finances where we can and consider all options. I appreciate that you are doing that.

Mr Larkin: We agree that it is important to do that. You are absolutely right to say that we have to find different ways, even just to hold our position for a little while. The bigger picture is that Northern Ireland needs broader investment in its waste water network in particular but also in its water network in order to make sure that we continue to provide that service into the future, as well as today.

Mr Dunne: My final point is one that we have touched on a number of times. We have all seen the recent media coverage of the environmental issues and so on in Belfast lough. You mentioned Kinnegar, which, as you know, is in my constituency. About 10 years ago, a project to improve and upgrade that works was completed. You are aware of the historical issues with odours and so on. Where are we with the living with water programme? If, and hopefully when, money becomes available, which part of the living with water programme will be prioritised? Which part of the network is in greatest need? Is it the Kinnegar end or around the lough, or is it all of it?

The Deputy Chairperson (Mr Stewart): Where to start?

Dr Venning: Work needs to be done. It is likely that the Belfast scheme is at the most advanced stage, because it has been taken to its outline business case (OBC). The scheme has been designed, and we know what we need to do, so the situation is very clear. The work at Kinnegar has been paused. I will have to come back to you on whether the scheme has got to the outline business case stage, but we had teams mobilised. The team that would have done the work is running the treatment works, but we are in the process of taking the works back from it to run it ourselves, because we currently do not have a line of sight when it comes to being able to do the necessary upgrades. We will, out of our capital, do the base maintenance across the works around Belfast lough. That base maintenance is the things that are needed in order to make sure that the works do not fall over, but we will not be able to make improvements.

Mr Dunne: Can the good preparatory work that you have done be used in the future?

Mr Larkin: Yes.

Dr Venning: Yes.

Mr Dunne: The work in which you have invested will therefore not go to waste. OK. Thanks, folks.

Mr McMurray: Thank you for the presentation. I echo what some of my colleagues have said: I thank your staff, and not just for their work following storm Éowyn. They have been very helpful. There is an issue in Newcastle on which one of your area managers has been very helpful and proactive, so it is important that I pass on my thanks.

The evidence in your presentation painted a picture of your being hamstrung when trying to deal with the issues. You have one hand tied behind your back. There is a growing disconnect between the projects that need to be done and the funding that you receive. What can the Department do to rectify that situation? You touched on some of the wider issues and mentioned ring-fencing money, but are you considering making wider structural changes? Will you expand on what you said?

Dr Venning: That is probably not for us to consider. At the end of the day, we are set up to be the delivery arm. It feels as though a wider discussion is probably required about how the funding that is strictly necessary can be found and made available. We are happy to feed into that discussion in any shape, form or fashion. We have always said that we will make ourselves available. That is probably a very good question for next week.

Mr McMurray: Granted. Mrs Erskine talked about services being stopped. Is that on account of the RDEL? What services could be stopped as a result of the RDEL position? What would lead to that? Would it be as the result of a climatic event? I was at another session at which an "almighty incident" was discussed, if you get my meaning. What would cause services to be stopped, and what would the practical, on-the-ground consequences be from having to stop services?

Mr Larkin: The most obvious example to give is this: if we were to stop using power to pump water around the network and waste water around its separate network, people might not get water. If we were to stop pumping sewage through the network to the treatment works, where it could be treated, we would have pollution and out-of-sewer flooding issues. That is not at all appropriate. It would probably breach all kinds of environmental laws as well and our duty to provide services. To be fair to the Minister and the Department, they have said that they do not want to see a cessation of the service or to see it grind to a halt. They have said that customers must be served and are very firm about that. People sometimes ask us, "What if you cut back on some spend and left it until next year?" or, "What if you stopped your leakage programme that you manage for the water network?". If we were to stop the leakage programme today, in a few months' time — into spring and summer — people might say, "Why did you stop your leakage programme? Now you need more water to be available for people in the case of a high-demand event. If you had continued with the programme, you would have more capacity and would not have to produce as much".

It is inefficient to leak water. We have a leakage programme that helps us to be efficient, so stopping it is not the answer. Doing so would just pause the spend, and we would then have to spend more in the next accounting period, which adds to the problem for 2025-26. I do not think that anyone, in the Department or anywhere else, would be a proponent of stopping the leakage programme. What we hear is that we have to continue with the services.

Mr McMurray: It is in your slides that nine out of 13 waste water projects will not go ahead. What are the costs involved for some of those projects? We have touched on developer contributions, but what ballpark figures would be required from such contributions in order for the projects to proceed? Their not proceeding is the single biggest reason that development would be stopped, be that economic development, the building of housing or environmental progress. Plenty of recreational groups that use our waterways are having to stop their sessions. Olympic athletes are having to curtail their training sessions on account of the situation that we are in.

Dr Venning: Yes. We have stated that, if an additional £85 million were made available, the 13 projects would deliver 5,300 new connections to the network and 2,300 homes' worth of additional capacity in areas that we know of but for which do not have a request at this point. People have stopped submitting requests, because they know that there is no capacity. It is therefore a choice now, based on a sliding scale. If the decision is that £321 million of CDEL is to be made available, the opportunity to do nine of the 13 projects is taken away. Those nine projects have a price tag of £80-odd million.

Mr McMurray: The £80-odd million is for —.

Dr Venning: It is the difference between doing 13 of the projects and doing four of them. Without it, nine of them will not happen.

Mr McMurray: OK.

Mr Boylan: Thanks very much for the presentation. I have a couple of points to make. I do not understand the £7 million figure, Ronan. You are not going to shut down the company over £7 million.

Mr Larkin: Definitely not. I hope that we would not.

Mr Boylan: I appreciate that. You have given enough answers about that. Has there not been any communication with the Department on that issue, because there should be?

I will return to the issue of RRI borrowing. Are you saying that there is no clear indication yet that that extra money is available? You have not had that conversation with the Department yet, have you?

Mr Larkin: We are not clear at this point, Cathal. It is a good question to ask, however. We will go back to the Department and explore the position with it.

Mr Boylan: I understand 100%. The situation is concerning, because a lot of effort has been put into PC21. A review has been done, and we have seen the figures. Are you saying that it is not going to be realised? The total cost of storm Éowyn to NI Water is £5 million. There is then £4 million extra for the contributions. Is that correct?

Dr Venning: Where is the £4 million?

Mr Boylan: For this year.

Mr Larkin: For 2025-26, yes.

Mr Boylan: Yes. That is extra money that you will get.

Mr Larkin: For employers' National Insurance contributions, Sara.

Dr Venning: Oh, right.

Mr Boylan: Yes, for employers' National Insurance contributions. I appreciate that that storm was unusual, but what mitigating action do you take against storms to protect your assets in normal circumstances? You talked about consequences for hedging, for example. Is it the case that, in such situations, you have to go to the Utility Regulator to try to get mitigations built in for any future storm damage? It is clearly not built into the programme.

Mr Larkin: The first thing that we have to do is cost the storm. There was a cost to running the programme in the middle of the storm. We therefore had shifts in throughout the weekend, day and night, to make sure that the assets were working. We had to work to get the power back on alongside Northern Ireland Electricity (NIE), which, as far as we can see, did a great job of getting some of the big plants back up and running so that customers would not go without. We then undertook tankering operations to make sure that service reservoirs were with water. We also talked to customers, dealt with their queries and questions and got bottled water out to customers. Those were running costs.

Alongside those, we estimate that we incurred £1·5 million to £2 million of capital-type costs. Some of those will have been for the removal of damaged trees — that kind of stuff — and fixing things that the trees fell on across our broad network.

Mr Boylan: What mitigating actions do you take to protect your assets in that regard? Something has to be built in in order to do that.

Mr Larkin: That is a great question, Cathal. The best way in which to protect assets is to make sure that our asset base is resilient to what is effectively climate change, and we do that by examining and assessing our assets. We are seeing a change in weather patterns and so on, and we are getting more frequent storms. People used to talk about one-in-50-year storms and one-in-100-year storms. We are getting them a bit more frequently than we used to. When we are designing new assets, we look to see what we can do on climate mitigation and climate protection, and to do some of that work will mean that more investment is required.

PC21 was about beginning to deal with the legacy of underinvestment here, particularly on the waste water side, but, as we build and maintain assets, we have to look at whether there are things that we can do that will make them less susceptible to damage. We will never mitigate fully the effects of a storm or high-demand event, but what can we do to make our assets incrementally better? That is the kind of thing that we have to look at when considering asset resilience. We have to make sure that we are investing so that those assets remain resilient, so that telemetry systems and remote monitoring systems are robust and cyber-proofed and do not fall over. All of that ties into our spend on resilience.

Dr Venning: It is also as simple as cutting trees. The biggest thing that will come out of having gone through that storm is cut trees. As a landowner, we should probably be looking at cutting more trees, especially in and around areas where power lines are coming into our sites. If we were to say, however, that we wanted to spend money on cutting trees, somebody might say, "You haven't got enough money to do that".

Mr K Buchanan: Close your ears to that, Peter. [Laughter.]

Mr Boylan: I appreciate that. I have been through loads of PC programmes over the years. We have had the warnings about one-in-100-year storms. We have known them for 10 years, perhaps 20. "Resilience" is a good word to use. You therefore need to build it in.

There are loads more questions that I could ask, but my final one is —.

The Deputy Chairperson (Mr Stewart): We all could, but I am conscious of time.

Mr Boylan: PC21 is not going to be realised. You went for £2·5 billion and got £2·1 billion. You then went back and, after the review, ended up with £2·5 billion. Given the increases in energy costs and building material costs, where do you foresee PC21 being at when the programme ends in two years' time?

Dr Venning: Are you asking how much will have been invested? The figure could be as low as £1·2 billion.

Mr Larkin: Perhaps £1·2 billion or £1·3 billion.

Mr Boylan: And it could be as high as how much?

Mr Larkin: If we were to get everything that we needed, by which I mean that the money were made available, it would be £2·4 billion to £2·7 billion. As a result, a lot more schemes would be delivered, Cathal.

Dr Venning: The amount will not be as high as that, because PC21 has been underfunded this year, while there was a degree of underfunding last year. We are saying that the ramp-up for next year could be £400 million. It will never get up to £2·4 billion, because we could not deliver that.

Mr Boylan: This is definitely my final point, Chair. Where are we with the original 100 areas of constraint? You mentioned that nine out of 13 projects might not get finished.

Dr Venning: For the most part, they will remain constrained —

Mr Boylan: The majority of them, then.

Dr Venning: — because the programme has not been funded. A number of houses have, however, connected to the waste water network. If developers want to do the work on storm offsetting, there are 18,000 houses that could connect to the waste water network, and, over the next number of years, developers, working in conjunction with the Department to determine whether any additional funding can become available, will incrementally enable more connections. That is not addressing all the environmental considerations, however.

Mr Boylan: I appreciate that. We are getting housing developments and infrastructure on one side, so we have to take into account the environmental considerations as well. We have to get the balance right. As well as your running the company, those environmental considerations are part of the process that we are talking about today.

Dr Venning: That is what we are trying to do.

Mr Larkin: You asked earlier, Cathal, whether there is communication with the Department on the gap. There is always communication. We work closely with the Department. There is a team in the Department that has been looking at the issue as well. You are right. The previous Minister said that he did not want to see services stopping. There is a small funding gap at this point. We will ask everybody and anybody what we can do, other than stopping services, to close that gap. We are therefore looking at what we can do. We are asking ourselves whether that gap can be filled from elsewhere.

The Deputy Chairperson (Mr Stewart): I am very conscious of the time. You have been generous with yours. Peter wants to come in with one final point, after which I will make a point.

Mr McReynolds: I will make a minor point off the back of what Stephen was saying about the smell at Kinnegar. It was mentioned at the Policing Board last week in advance of the meeting, was it not, Keith? My mum is from Whitehouse, in Newtownabbey in north Belfast, so I am interested in hearing about the Kinnegar smell. What is it? My mum used to refer to a Whitehouse smell. I think that I know what the smell is, but I am keen to know what you think it might be in those areas.

Dr Venning: Over the years, it has been attributed to various factors. There were lagoons there, and salt water was coming in. I do not know what it was that the salt water was reacting with, but it was creating a gas, and the gas was the source of the smell. That is one smell. At other times, it can be the smell of sewage.

Mr Dunne: The situation has improved significantly following the work that has been done.

Mr Larkin: Work was done previously on the new stations.

Dr Venning: Yes. The lagoons were cleaned, and a lot of work was done at that time to address odours.

Mr Dunne: The smell was more noticeable in the summer season.

Mr McReynolds: That is the reality.

The Deputy Chairperson (Mr Stewart): We could probably go constituency by constituency and highlight a few of them. We know that Northern Ireland Water is doing its very best, however.

Mr McReynolds: That is the reality of what we are dealing with here.

Dr Venning: Yes.

The Deputy Chairperson (Mr Stewart): Mark is looking in, as is Deborah.

Mr Durkan: Thank you, Chair, and thanks to the [Inaudible.]

Dr Venning: We cannot hear you, Mark.

The Deputy Chairperson (Mr Stewart): We have lost you, Mark.

Dr Venning: He is talking.

Mr Boylan: We will answer that question, Mark.

The Deputy Chairperson (Mr Stewart): That is you now, Mark.

Mr Durkan: Thank you, Chair. The host has unmuted me. That is not the first time that I have had a problem like that in the past few days. [Laughter.]

Mr Boylan: Give it your best now, Mark.

Mr Durkan: Thanks to the team for coming in. It has been very good of you to answer our questions. Some of the biggest questions are ones that Northern Ireland Water is not really best placed to answer. We need to get those answers from the Department. No one needs those answers more than Northern Ireland Water itself, never mind the Committee.

Andrew touched on the pausing of works and asked for examples of when that had been done. I was thinking of the living with water in Belfast scheme. You had pressed pause on it. Are you in a position to say when you can press play again? The Committee is well used to my being a bit parochial, but I use this as an example: what would that mean for the living with water in Derry plan, which is now out for consultation? Will it ever get going at all?

Dr Venning: We can press the restart button on the Belfast scheme when we get an indication that the funding package is available to sit alongside it. What is very useful is that we know exactly what needs to be done now. All that we need is the funding package. We were discussing that matter internally yesterday. The first chunk of the work in Belfast will cost £30 million, while the next chunk could cost £60 million. The cost of getting that work up and running is of that order of magnitude. If somebody were to say to you, "Great news, I've found £10 million", you could not start £30 million worth of work, because it is a discrete package. Once you start the work, it has to be seen through the whole way.

What does that mean for the living with water in Derry plan? As you said, Mark, that is at the consultation stage. We have a very successful means of designing what needs to be done. What we came up with through the living with Water in Belfast programme has been recognised across the UK as being best in class, and it has been adopted across the UK. What it means for Derry is that, before you decide on and design what you are going to do, you will need money to design what it is that you are going to do. You can do a consultation, but you are going to need funding to get you through the design stage, the business case stage and then the construction stage. Doing it is therefore very possible, but the plan needs to be funded.

Mr Larkin: I will return to a point made earlier. If you start one of the projects under the living with water programme in greater Belfast, you have to know that the funding will be there for the year in which you started it and for the following year. They are multi-year projects, and you have to know that, when you start the programme, you will get the funding to finish it and be able to commission the scheme eventually.

Mr Durkan: Thank you. There is a well-publicised and well-rehearsed argument made about the impediment to development being caused by the inability to invest in waste water infrastructure.

Last week, I met the chief executive of the Housing Executive, and she said that she meets regularly with you on these issues, Dr Venning. She said that there have not been any issues with this year's social housing development plan. I wonder whether that is down to a lack of ambition in the social housing development plan, rather than issues at your end. I think that it is fair enough to assume that that will not remain the case and that, pretty soon, it will become more of an issue. We have seen very public examples of that, such as the scheme on the Buncrana Road, Coshquin. I raise that example because it is in the public domain, not because it is in Derry.

Dr Venning: We work closely with the Housing Executive and its partners in the housing associations. This year's houses are being built because planning for them started a number of years ago. Building takes years to come through the system, and anything that had extant planning permission is being connected. Those kinds of things are working their way through the system. For sure, difficult conversations are happening across Northern Ireland in relation to social and private housing, where people have an ambition to build and the assets are just not there to facilitate that. On the very public Buncrana Road scheme, we know what we need to do: we just have to be able to secure the funding to move it forward. Our teams have reassured the Minister that they stand ready to do that work.

The Deputy Chairperson (Mr Stewart): Dr Venning, you highlighted the key costs of the living with water programme and the vast sums that are associated with it. I go back to the point about the RRI borrowing of £105·6 million. I think that it would be lamentable, having heard that announcement, if that turned out to be part of a package that was already there and was being plugged from a borrowing fund. I think that it is essential that that is additional money for you. As a Committee, we are going to try to quickly clear up the ambiguity around that. I am sure that you will be doing the same behind the scenes to confirm that that is additional money and not just part of the original packaged fund that you were expecting to get. That is key. I now bring in the Chair to finish.

The Chairperson (Mrs Erskine): Thank you, Deputy Chair. I will not be too long: I know what it is like when there are beads of sweat because you are running over time.

I want to pick up on two points. The first, going back to Keith's point, is on the conversations regarding developer-led contributions. You said that a conversation on that is happening this week. Correct me if I am wrong, but I think that the Minister made an announcement in October 2024 about developer-led contributions. Are you telling me that NI Water has not had any substantive conversations regarding that major policy change with the Department? It would have a major impact on NI Water, yet you are only having a conversation about it this week. Is that right?

Dr Venning: We have not gone into detail. We have not designed any schemes or made any proposals, but we have reached out to the Department, and we stand ready. It has access to our people, and we are willing to work with it in any shape or fashion that we can.

The Chairperson (Mrs Erskine): Is the first substantive conversation on that happening only this week?

Dr Venning: The Department was quite clear that it had its own ideas on what that consultation would look like. We have asked to have a further conversation to understand what that consultation might look like prior to its starting. We will assist in any way that we can when that is needed. The Department may feel that our input is not needed at this juncture.

The Chairperson (Mrs Erskine): The Committee needs to take that up with the Department to understand why, since the announcement in October 2024, it has not had those conversations on that policy change with NI Water, which is one of the major stakeholders. We need to try to understand what has happened there. Yes, the Department may have ideas, but NI Water might have ideas on that as well. We need to scope that out because it is important, when you are looking at the budget for NI Water, to know what the policy change will mean and what the knock-on impact will be on society, developers and the ability to build homes.

Another point that I want to raise goes back to the consequential written agreement. I hunted out the answer that I received from the Minister, which says:

Do you have the figures that were agreed for any funding? During the course of your answer, Ronan, you said that funding figures were attached to the price controls that had been mentioned.

Mr Larkin: I do not have those figures to hand, but we can revert to the Committee with them, if that is OK.

The Chairperson (Mrs Erskine): Perfect. That is super, thank you.

The Deputy Chairperson (Mr Stewart): That concludes the evidence session. Thank you for being so generous with your time. You, obviously, know that it is a massive topic, and we are keen to dive into the details. We look forward to welcoming you back soon and will follow up on a couple of issues in writing.

Dr Venning: Perfect.