Official Report: Minutes of Evidence

The Chairperson (Mr Martin): I welcome John French, Ciaran MacCann and Elaine Cassidy to the Committee. I met you guys a couple of weeks ago, when we had a cup of coffee up in room 115. It is great to see you again. We have all been provided with a booklet, which has lots of pictures. Well done; I am a graphic learner, and there are lots of infographics in there.

Are members content that this session is recorded by Hansard?

The Chairperson (Mr Martin): I invite John and his colleagues to make an opening statement. That can be up to 10 minutes, John, after which you can expect some questions from the Committee. We are in your hands.

Mr John French (Utility Regulator Northern Ireland): I am chief executive of the Utility Regulator (UR). Elaine Cassidy is our director of price controls, and Ciaran MacCann is our head of water and gas price control. Thanks very much, Chair and Committee members, for the opportunity to update you on our work since we last met in November 2024, particularly in relation to the next water price control for Northern Ireland Water (NIW), which is known as PC28.

As the independent economic regulator for water and sewerage services, our role is defined in statute under the Water and Sewerage Services (Northern Ireland) Order 2006, which sets out the regulator's two primary duties: first, to protect the interests of consumers in Northern Ireland; and secondly, to ensure that Northern Ireland Water can properly carry out and finance its functions. We deliver those duties through four main processes. We set price controls, of which PC28 is one. No water and sewerage services activities can be undertaken unless they are licensed by the regulator. We also look at disputes and appeals, which include determinations on new connections and sewer adoptions. Finally, we have an enforcement activity by which, if necessary, we need to ensure that Northern Ireland Water complies with its statutory and licence requirements. Each year, we monitor Northern Ireland Water's performance through its annual information returns and publish independent assessments of costs and performance. PC28 is the fifth water price control and will cover the period from 1 April 2028 to 31 March 2033. Our objective within that is to set a revenue allowance that enables us to have an efficient and resilient water and waste water system that meets the statutory obligations.

While we determine the efficient level of funding required, the extent to which that funding is provided through public expenditure lies outside our control. We carry out our work collaboratively with the drinking water inspectorate, the Northern Ireland Environment Agency (NIEA), the Consumer Council and the Department for Infrastructure. Having a one-to-one relationship with those bodies ensures that our decisions properly reflect the full range of Northern Ireland Water's statutory responsibilities, environmental obligations and policy requirements.

The Department for Infrastructure has three important roles in this: first, it develops water policy; secondly, it funds domestic water charges on behalf of consumers in Northern Ireland; and finally, it is the shareholder and owner of Northern Ireland Water. Under PC21, the Department for Infrastructure fully funded the first two years of the price control, and additional strategic projects were supported by other Departments, such as the Department for the Economy. However, funding shortfalls emerged in year 3 of the price control period. From 2023-24 onwards, we saw shortfalls of £54 million in year 3 and approximately £135 million in 2024-25, which brought a cumulative shortfall of around £147 million at the end of year 4 of PC21.

It is important to emphasise that, under our statutory duties, funding reductions cannot influence our PC28 determinations. Our task is to independently set a revenue allowance that reflects what Northern Ireland Water needs to fulfil its statutory obligations effectively and efficiently. The same approach was taken in PC21. How that revenue is funded is, ultimately, a matter for government. It is for Northern Ireland Water and its shareholder to decide how they will meet the revenue requirements that are necessary to ensure clean drinking water and a compliant waste water system.

Chair, those are my opening remarks. My colleagues and I are happy to take questions.

The Chairperson (Mr Martin): That is great. Thank you very much for that and for your written evidence on your role as the Utility Regulator.

I will start with three questions. I refer to your 'Approach Decision' document. At paragraph 2.8, which is on climate change, you set the context:

It would be unfair of me to ask how close Northern Ireland Water is to meeting that target, as I imagine that that is outside your remit. However, I would be interested in asking Northern Ireland Water that question; we can make a note to do so after this evidence session. Is it fair to say, John, that the climate change target will put additional pressure on Northern Ireland Water? That seems to be the tenor of that paragraph.

Mr French: The cost of energy needed to meet the climate change target is likely to increase as we invest more to bring our network up to standard and bring on more renewables. Energy prices are likely to go up, so that will be a cost of the target.

Elaine, have you any comments on the other elements of PC21 and PC28?

Ms Elaine Cassidy (Utility Regulator Northern Ireland): Yes. Without having looked at the detail, I think that that is a fair assumption. The Climate Change Act (Northern Ireland) 2022 in its entirety puts obligations on a number of entities across Northern Ireland and, in fact, the whole UK. It is a fair assumption that those obligations will increase costs for NI Water, not least through the energy costs that it has to pay, which make up the vast majority of its costs; in fact, that is what we found at the midterm review in PC21. Without having the detail to hand, I think that it is fair and valid to assume that that will only add to the costs and therefore the shortfall.

The Chairperson (Mr Martin): OK. Elaine, am I right to say that Northern Ireland Water is one of the largest consumers of electricity in Northern Ireland?

Ms Cassidy: Yes.

Mr French: It is the largest.

The Chairperson (Mr Martin): I will park that for a second and take you to paragraph 2.19 of the document, where you say:

No one on the Committee would disagree with that statement, but I will give you a chance to elaborate on it. How significant, in your view, is the challenge to increase the capacity of the waste water network?

Mr French: Ultimately, it comes down to funding. Northern Ireland Water needs to catch up in its waste water systems. The idea was that PC21, PC28 and the following price control would bring Northern Ireland Water up to where it needed to be. It is a challenge. As people know, across Northern Ireland, there are loads of developments that are not being undertaken because of the lack of waste water capacity. Many plants are at capacity or beyond capacity. It will be a matter of how Northern Ireland Water prioritises that for the next price control period. Funding will be essential.

Ms Cassidy: If the Committee allows, I will take you back to the start, because that will help to explain where we are at. In 2006, when NI Water was established and the legislation was put in place, the premise was that NI Water would mirror Scottish Water. That is the model that was set up. The 2006 Order, which is essentially the statutory rule book by which NI Water must live and how we must operate, was nearly a direct lift from the legislative framework in England and Wales. That was all done on the premise that domestic water charging would come in on a glide path of three years. That was in around 2010. In the first NI Water price controls — PC10, PC13 — the anticipation was that there would never be a funding issue. That glide path for charging has not come into effect, so, now, NI Water has been underfunded for a considerable period. We are at the midway point of PC21, and the underfunding over that glide path has become more and more apparent.

As we approach PC28, it is fair to say that there is a backlog caused by underfunding. There is also the matter of forward planning for PC28. As for how NI Water will upgrade, enhance and develop the waste water treatment, we have the backlog to deal with, but we also have to look forward. The NI Water PC28 business plan is due for submission to us in November this year. Only then will we know the full extent of NI Water's ask for waste water treatment and sewerage works. The figures are speculative until we receive that business plan. However, I can say with confidence that it will take a number of price controls to get NI Water back to the place that we all want it to be on waste water, drinking water and sewage treatment.

The Chairperson (Mr Martin): Elaine, that is great. Why will it take a number of PCs? It might be useful if you elaborate on that point.

Ms Cassidy: It is because of the underfunding thus far. NI Water is chasing its tail already. Because of the investment in assets — the capital investment in infrastructure — there are issues with supply and procurement. It is difficult to ramp up a capital investment programme really quickly. It requires certainty of funding and forward-planning. That also only helps to serve efficiencies. Even if all the money that NI Water needed was made available today, it would still take a ramp-up of assets, investment, procurement and supply to get us to where we need to be.

The Chairperson (Mr Martin): I kind of knew the answer to that question, but I wanted to get your answer in Hansard, because it illustrates nicely some of the issues that we have, why we need to start taking decisions and why I encourage the Minister to grasp this nettle.

At paragraph 3.5 of the 'Approach Decision' document, you say:

It is fair to say that there may well be a public funding expenditure shortfall; we can probably conclude that that is the case. However, in the earlier bit, you refer to concern that non-domestic customers will pay a charge:

What exactly are you saying there? What does that mean?

Mr French: If you take a pie, you expect to get the whole pie. Non-domestic customers take their portion. However, if the other 80% of the pie is not the size that you expect —. They are paying for their portion, but, unfortunately, at the moment, they pay 20% and domestic consumers pay 80%, which are not the levels that the current price control requires them to be. Non-domestic consumers are paying what a fully-funded price control charge would be, but they are not receiving the level of service that they should, overall, from Northern Ireland Water.

The Chairperson (Mr Martin): Those non-domestic customers are businesses.

This is my final question. Do you think that Northern Ireland Water would like to say to the Department, "This is what you give us, so this is what we're going to deliver", but cannot really do so? Is it a fair assumption, based on the evidence, that Northern Ireland Water would like to be able to say to the Department, "Look, you're funding us at this level, and this is what we can deliver"? Am I right in my understanding that Northern Ireland Water cannot really do that, even though it would probably like to? In other areas, it would be said, "This is what we can do with this much money, so we're going to do that", but Northern Ireland Water cannot say that. Do you want to pick up on that?

Mr French: That is 100% right. In statute and regulations, Northern Ireland Water has to provide a certain level of service for environmental reasons, clean water reasons etc, but the it funding level is below that required to do so. Northern Ireland Water would, ideally, like to be guided on how to meet that shortfall legally. Our duty, unfortunately, is to say, "They are the statutory duties that you have to fulfil, and this is the funding that you need to achieve that". Northern Ireland Water would like to be guided as to how it joins the dots on those two issues.

The Chairperson (Mr Martin): Who would do that guiding, in your eyes, John? Who should do the guiding, or who is responsible for it?

Mr French: It goes back to the role of the Department for Infrastructure. The Department is the shareholder and the owner of Northern Ireland Water, but it is also the policymaker. The Department sets the policy for environmental and water quality standards in the social and environmental guidance. That is a lever, but the funding is a lever as well.

The Chairperson (Mr Martin): OK. That is great. Thank you very much. I might have more questions at the end, depending on what other members ask.

Mr Stewart: John, Elaine and Ciaran, it is good to see you again. Thank you so much for coming along today and for your answers.

Elaine, you said that it might take two, three or more price controls to get back on track. We have seen serial underfunding over the past number of cycles, potentially amounting to, I think, roughly £250 million. What is the impact of that underfunding in terms of not doing something and not investing? What is the cost of doing nothing and, effectively, running to stand still? At paragraph 2.14 of your document, you refer to the asset base, which includes pipes and sewer facilities and would cost £5·7 billion to replace, and Northern Ireland Water's obligation to maintain it. Clearly, Northern Ireland Water is not investing enough, because it is being underfunded. Presumably, that comes at a cost, John: the cost of fixing something 10 years ago would have been lower than it is now, and, aside from not investing in new assets, the existing assets are ageing.

Mr French: We already see that with the likes of Lough Neagh, Belfast lough and Fermanagh lakes. We also see development constraints across Northern Ireland. The lack of funding is having a significant impact on waste water. Our concern is that clean water will be affected as we go into the future; at the moment, clean water, which is Northern Ireland Water's priority, is being funded. We already see the impacts of the lack of funding in waste water systems, which will not be addressed until we get to a sustainable funding level.

Ms Cassidy: You asked about base maintenance. Sometimes, base maintenance is overlooked. We look at water quality and environmental quality, but base maintenance is fundamental — that is NI Water's view. If base maintenance is not invested in, the problem only gets worse. There are so many different facets in which it is important to invest or else the circular problem will get worse as the years progress.

We, as a regulator, set the revenue allowance that, we say, NI Water needs to fulfil all its legislative and licensed requirements. There is no fat on that. We do not gold-plate that number. Given the apparent funding gap — all the aspects that are not being funded — the decision as to how to prioritise that funding is for NI Water, its shareholder and the other quality regulators, including the drinking water inspectorate in the NIEA. We say the full revenue allowance that is required for everything to be funded, and there is no gold-plating in that.

Mr Stewart: That is really useful.

Mr Ciaran MacCann (Utility Regulator Northern Ireland): I will add a couple of other points. A lot of capex projects, which lead to really good outcomes for consumers and the Northern Ireland public, are very complex, multi-year projects, so they cannot be ramped up and down very easily. The process of ramping up and down can introduce inefficiencies, the costs of which the consumer then has to pick up. There are almost counterproductive costs.

The other point is that, if NI Water is continually underfunded, you are logging a big problem for the future that will have to be paid for and dealt with.

Mr Stewart: Exactly. Effectively, Northern Ireland Water is running to stand still in that funding model. Has your office assessed the cost of the lack of necessary investment in or routine maintenance of the system? We hear about millions of litres of fresh water being lost through broken pipes etc. I presume that there is a cost to that.

Mr MacCann: There is a cost. We set leakage targets. We set a price control determination. For example, in PC21, we allow revenue, and we set certain targets based on that revenue. They could be around leakage, for example. We can check and get you the information, but my understanding is that NI is meeting those targets — it is OK at the minute. However, over time, if there is underfunding and other problems, that could eat into the delivery of those targets. We monitor that.

Mr Stewart: It is difficult enough given the lack of capital that is being provided, but there is also the planning aspect. Northern Ireland Water cannot plan, as you have said, because it does not know how much it is getting. Time and time again, we have seen money being made available late on through monitoring rounds. For example, it was worrying to see fresh-water infrastructure being allocated funding only at the last possible moment. From your experience and from your correspondence with Northern Ireland Water, how impractical is it to deliver effective and efficient capital projects with funding levels unknown until the last possible minute?

Mr French: In 2007, for every pound that a GB company spent on water, Northern Ireland Water spent about £2. Now, for every pound that a GB company spends, NI Water spends probably £1·06. While NI Water has done a good job in making itself more efficient over that period, the 6p inefficiency is probably due to its not having long-term funding certainty.

Ms Cassidy: We have seen that during PC21. In this price control period, the lack of budgetary foresight has had a major impact in the form of inefficiencies.

Mr Stewart: Those inefficiencies and the lack of investment, along with the waste water aspect, will inevitably lead to breaches. You have an enforcement role that is a statutory obligation. Talk me through the enforcement actions that you have under way, including the number of actions and the areas of concern.

Ms Cassidy: We have a statutory obligation — it is not discretionary; it is a duty — to take enforcement action if we believe there to have been a breach or we believe that there is potential for a breach to occur. We have been looking proactively at NI Water with regard to enforcement-type action since late 2023, as we would with any licensee. That is not to say that we have given NI Water a glide path; if you look at our cost and performance reports for NI Water — reports on storms and whatever else — you will see that we have been actively looking at it. From the end of 2023 or early 2024, our enforcement directorate has been looking proactively at it.

In December 2024, we went public with our initial enquiries into one enforcement action. In December 2025, the formal proceedings of that action were published on our website. That is the one formal enforcement action that we have taken against NI Water. Our enforcement team looks at a myriad of things with NI Water, as it does with any licensee. We have a compliance reporting regime for all licensees. NI Water is subject to that regime and has to make annual returns on compliance. That works the same way for NI Water as it does for all licensees: the annual compliance report goes to the team that is responsible for, in this case, NI Water operations, and we consider the report and pass any escalations to the enforcement directorate. There is one live action, for which the documentation is on our website. For NI Water, as with any licensee, we proactively look at compliance across a range of legislative and licensing issues.

Mr Stewart: Are there any ongoing investigations into, or do you have any concerns about, the amount of raw sewage and pollution that is being pumped into Belfast lough?

Ms Cassidy: I am not aware of what the enforcement team is looking at, but you will understand that enforcement action is procedurally driven.

Mr Stewart: I can imagine that.

Ms Cassidy: We deliberately keep the directorates separate. I am not privy to all the information, but I can say that we take a proactive approach to enforcement action against NI Water, as we do for any licensee.

Mr French: Essentially, we become a County Court on enforcement action, so we have to be very procedural. There is that one investigation that is in the public domain at the moment.

Mr Stewart: OK. I have one final point to make. We talked about cost volatilities. As you said, Northern Ireland Water is the biggest consumer of electricity in the country, a massive consumer of energy and, I think, the second-biggest landowner, if our reservoir stock is included. Paragraph 2.32 refers to "widespread cost volatility" and global economic pressures during PC21. We have already seen huge cost volatilities over the past three days, in the time since volatilities have arisen. What is your assessment, if you have one, of what the impact of those volatilities will be on NI Water's cost of doing business effectively, given the amount of energy that it consumes and the amount of money that, ergo, it will spend on energy?

Mr French: It depends on how long the crisis continues.

Mr Stewart: Absolutely. I do not expect you to predict that, John. That would be a step too far for your office. It is, however, concerning.

Mr French: We have seen gas prices double in the past two or three days. Most companies in Northern Ireland do some sort of hedging of their energy, which smooths out that graph, so it is not like turning up at the petrol pump. It really depends on how long the crisis lasts. If it finishes by the end of the week, there should not be any impact. If it were to go on for four weeks, it would make a little impact. If it goes on longer than that, it will start to have an impact. It really just depends on how long inflated wholesale prices continue. That is what happened with the Ukraine crisis. That went on for about a year, and that was what caused the real impact.

Mr MacCann: I will add one point to that. One of our big roles is as the custodian of the price control framework and how it is set. We try to allow an element of flexibility in those frameworks, because we set the prices, and then the world changes. For PC28, we will look at the mechanisms that we can put in place to handle uncertainty around electricity prices. We are engaging with NI Water on that.

Mr Stewart: We will watch this space and hope that it is on the shorter side.

Mr Dunne: Thank you, folks. Apologies; I had to nip out for a few minutes. Hopefully, I did not miss too much. Just John.

The Chairperson (Mr Martin): You missed John. [Laughter.]

Mr Dunne: I appreciate that cost volatility is the major issue of the day. As John rightly said, that goes beyond your remit. In your document, you refer to building "uncertainty mechanisms" into PC28. I presume that that will include lessons and learning points from PC21. I am keen, if possible, to know more about what those will look like in PC28.

Mr MacCann: That is one of the points that I touched on a minute ago. We recognise that the world changes, sometimes. We set the price controls with a five- or six-year window. We like to have a bit of a window, because we do not want to have to revisit the price control all the time. It would be inefficient for the company and ourselves if we were rejigging things constantly, but we recognise that there is an element of uncertainty. One of the lessons learned from the previous price control was to have a more flexible mechanism during the price control to account for electricity prices. We had the midterm review (MTR) for the previous price control, which was a one-off opportunity, in the middle of the price control, for NI Water to submit its additional costs. We are looking at ways of having something that would be a bit more flexible.

Mr Dunne: Do you think that the length of the price control is about right, or could it be longer or shorter?

Mr French: It is about trying to get a balance. We are trying to give the company certainty that it can drive efficiencies, but we do not want it to be too long, because, as Ciaran said, the world might change. It is about trying to find the sweet spot. Most price controls are of roughly that length.

Mr Dunne: The constrained waste water system, with which we are all familiar, still has an impact across Northern Ireland. I know that, ultimately, it will come down to funding, but how confident are you that PC28 provides levers to start getting on top of the waste water crisis that we are still in? You have addressed this Committee and the Economy Committee for many years, John, and we are keen to hear how you think we are doing today compared with one or two years ago.

Mr French: It all comes down to funding. We designed PC21 very much on the basis that it would take at least three price controls to get Northern Ireland Water to where it needs to be. The first two years were fully funded. Unfortunately, there has been a shortfall since then, and that just escalates the issue. It is just a matter of funding.

Mr Dunne: You are probably familiar with the statement that Minister Muir made in the Chamber yesterday on trying to tackle the issues in our waterways and so on. I am keen to hear from you on getting the balance right around enforcement and NI Water's funding requirements not being fully met, which you mentioned. How do you foresee that working out in PC28 and beyond?

Mr French: The legislation sets out that we have to hold Northern Ireland Water to account to the existing environmental and clean water legislation. As it stands, we do that. Justice is blind, and we have to hold it to account to that legislation. It will be difficult to do that, but that is our statutory role.

Mr Dunne: OK. Thank you, folks.

Mr Boylan: You are very welcome to the Committee. Ciaran, we had a good chat in the Long Gallery about this stuff, so I am looking forward to this. I promise to stay within the time frame that the Chair has indicated.

I have a slight disagreement with Elaine when it comes to the first three price control periods, because I have been around for most of them, and we could argue about whether they were funded or non-funded. We could also ask whether waste water was the top priority in the first three, but I will not get into that with you. I understand your role in protecting the consumer as well.

John touched on the fact that the statement of regulatory principles and intent (SORPI) is an issue now. Nobody is arguing about the environmental stuff. As MLAs, we talk about housebuilding, young people not being able to get onto the property ladder and all the things associated with that. I brought that up with the Minister during questions on his statement yesterday. While I understand your role, I hope that the PC that we are going to bring forward will look realistically at all of that across the board. For the size of this place — I am talking about the northern part of the island, not the whole island — we have, in the past, pumped in substantial amounts of money to address some of those things. I will not get into the money argument.

Maybe you would like to respond on my point about SORPI. There was a recent programme, which you have heard about, in which good quotes were referred to.

Ms Cassidy: I have not seen it.

Mr Boylan: I do not want you to quote any prices, but, realistically, a substantial amount was quoted there. What engagement has there been with NIW on some of the quotes that were reflected in that latest news programme? Can you comment on that or not?

Mr French: We talk to NI Water constantly. As Elaine said, we will see the final figures only when it submits its business plan.

Ms Cassidy: There is engagement all along those price control processes, right up to the submission of the business plan. We will receive the business plan in November of this year, so any figures that are about at the minute, such as £3·5 billion, are indicative. We have not seen a quote of £3·5 billion. Going back to what we discussed about the continual lack of funding, I assume, although I am surmising and guessing, that we will get a request, in the business plan, for substantial investment in capital funding. Until we see that in black and white, however, I will not have the answer. Ciaran, you have engaged on that with NI Water more recently. Have there been any further indicative figures?

Mr MacCann: As Elaine said, NI Water is in its business-planning phase and is refining the scope of what it needs. We will get what is called an outline capital submission in April, which is NI Water's first go at the envelope. When that is given to us, we will have our first glance at what the overall size and scope of the capital programme might be. It will be indicative even at that point, because we will not receive the business plan until November next year, but that submission will give us an early steer. What we do know is that NI Water needs a significant amount of capital expenditure, because it takes multiple price controls to deliver all the outputs.

Mr Boylan: I appreciate that. Let us cut to the chase. Elaine, you mentioned the figure of £3·5 billion, but we have had PC21, and it was interesting, John, when you spoke about the five-year period, to hear that it got money for the first two or three years, and then it did not. There is a question mark over whether it was able to spend the full amount over that period. We could argue, "Yeah, it didn't get the money but, by the way, it couldn't spend the money". That needs to be considered for this PC. It is my view that, when we come to decide, the decision will be made on the basis of whether NI Water will be able to spend whatever amount it asks for for that period. That has to be factored in, because that did not happen with PC21. It is all right to say, on reflection, "We didn't get enough money", but in year 3 or year 2, or whatever year it was, they could not spend it, I think, even if they got the full amount. There are question marks over whether they could spend it. That is my question, and it is the key question going forward.

Mr French: That is down to budget certainty. With PC28, NI Water has to work with its shareholder. There has to be a conversation with its shareholder about the business plan that it submits. Everyone has their role to play. Yes, we expect NI Water to engage with the Department, as its shareholder, on the submission of its business plan.

Mr Boylan: I appreciate that, but I am saying that there was one point — one year out of the five — when, even if NI Water had had all the money, it would not have had the capacity to spend it. When we address the next PC, and NI Water requests £450 million in, say, 2030, we will need to ensure that it is able to spend it. That is all that I am saying. That did not happen last time.

Ms Cassidy: We have reflected on PC21 as we have been developing PC28. We consulted on PC28 at the end of last year, and we published our approach document in December, just in time for Christmas. The key objective of PC28 is that NI Water should submit a business plan to us. That is essential to meeting statutory obligations. As you suggested, that business plan should be efficient and deliverable and meet established need from an affordability perspective. That is our overarching approach. That is what we have predicated PC28 on. PC28 is nuanced and based on PC21: we looked back, reflected and added statutory obligations and requirements for efficiency, deliverability and meeting established need. That is the premise upon which PC28 has been developed.

Mr Boylan: This is my final question, Deputy Chair. I want to talk about two things: safeguarding the future and flexibility and uncertainty, which the witnesses touched on a wee bit when answering Stephen's question. Going forward, how do we protect the most vulnerable and have safeguarding for them? Clearly, there are groups across the board that will be impacted on, and you have a duty, under the Utility Regulator's rules and regulations. Like I said to you, every other Department will be impacted on, as will the economy and everything else. It is a big programme, and, as I said to you when you were at the Committee previously, John, you will sign off on it, and we will all have to stand over it. That is all. What about safeguarding and protecting the most vulnerable?

Mr French: We are doing a lot of work on that. Northern Ireland will, hopefully, become the first region in the UK, and possibly further afield, to have one consumer protection register. At the moment, NI Water has a register, the energy network companies have a register and the energy supply companies have a register. That is the model, generally, across Europe and the UK. We are trying to develop, for the first time, one register for all those essential services so that, if someone were to register with NI Water, NIE would be informed. There would be just one register. It is a big project, and we are working with the Information Commissioner's Office (ICO) to make sure that we get GDPR considerations and everything such as that right. We want to ensure that, when something goes wrong, as happened during storm Éowyn, there is one register that everyone has bought into and through which all the utility companies have sight of who is vulnerable. We hope that Northern Ireland will be a leader on that, because no one else has managed to achieve it. We are working with Northern Ireland Water, Northern Ireland Electricity (NIE) and the supply companies to make sure that we can develop one register to make sure that vulnerable consumers are protected.

Mr Boylan: I have loads of questions, Chair, but I will leave it at that. Thank you very much.

Mr Harvey: How does your role as the Utility Regulator compare with that of equivalent bodies in other jurisdictions?

Mr French: We are the economic regulator for electricity, gas and water. That is unique in the United Kingdom: we are the only body in the United Kingdom that covers all three. In Great Britain, Ofwat is the water regulator for England and Wales, and Scotland has a separate regulator for water, which is the Water Industry Commission for Scotland (WICS). Ofgem covers energy in England, Scotland and Wales. In Ireland, there is a joint regulator, as there is here: the Commission for Regulation of Utilities (CRU) regulates both energy and water. Of those, we probably follow the Irish model closest.

Ms Cassidy: I will add some slight nuance to that. Under licence 1, we have the waste water and sewage water treatment licensee in Northern Ireland and, as the regulator, we work one-on-one with NI Water. I am sure that the Committee has seen the recommendations in the Cunliffe report and how they should be applied to water regulators. In Northern Ireland, we already carry out a lot of what Cunliffe has recommended for England. We have one of the most collaborative approaches to water regulation across Europe in how we engage with the NIEA's drinking water inspectorate, the Department, NI Water and the Consumer Council for Northern Ireland (CCNI). As John has explained, we are different in that we are a multiutility regulator, but we are also different in our approach to the regulation of NI Water.

Mr Harvey: Do you feel that you have sufficient powers to ensure that you can discharge your statutory functions effectively?

Mr French: For water, yes. It might be slightly different for energy. At the moment, we are not looking for any additional —. [Inaudible.]

Mr French: It is very different, yes.

Mr Harvey: OK. Thank you.

Mr McNulty: Thank you, Chair. Thank you, John, Ciaran and Elaine for your evidence. Guys, have you read the Turley report? That research proposes potential solutions to the waste water crisis in the North.

Mr MacCann: Yes, I have.

Mr McNulty: The report states that 6,150 homes are unable to be built over the next three years, which will add to rising rental costs and further increase the housing stress that, as we are all very aware, is prevalent here. That will result in 2,560 jobs not being available in construction and indirect employment and £1·3 billion in construction investment being forgone. That is in this price control period alone; the picture gets a whole lot worse going into the next price control period. What is your view on the position detailed in the Turley report? What is your view on the infrastructure levy that is proposed in that report?

Mr French: We do not get involved in how NI Water is funded. That is a matter for the Department and the Government, but, yes, we all see it. I am sure that, in all your constituencies, there are developments that cannot be undertaken because of a lack of waste water treatment works.

Ms Cassidy: We have seen the issues raised in the report and we understand them. However, it ultimately circles back to funding. We set the revenue allowance to ensure that NI Water can meet all the legislative needs, which one would assume would, in turn, mean that all those things can be done. The implication of the price control not being fully funded is that NI Water has to make decisions about where it spends and where it does not. The fallout from that is what is described in that report: there are things that cannot be done, because all the money to meet the established need is not available.

As John said, what NI Water decides to spend its money on is a matter entirely for it and its shareholder, if it wishes to engage on that. We take the point of view that all the money should be available. Whilst we are agnostic about where that money comes from, our position is clear: when we set the revenue allowance for the price control period, all that money should be made available. How that money is sourced and made available is a matter for other bodies. When we set the price control at a revenue allowance, our clear view is that all that money should be made available to NI Water so that we do not have the situation that is detailed in that report.

Mr McNulty: OK. Thanks, guys. We have become accustomed to obfuscation at our Committee. Sadly, that is the reality.

On proposals and solutions, the Minister has spoken about her three-pronged approach. To what degree would that three-pronged approach resolve the issues that are described in that report and end the crisis in waste water infrastructure, housing, job losses and the loss to our —

?

Ms Cassidy: The three-pronged approach is a matter for the Minister and the Government. However, we would be supportive of anything — any initiatives, policy decisions and incentives — that adds money to the pot to ensure that the revenue allowance is met. The regulator would support any of those measures. However, the development of those measures is not for us.

Mr McNulty: I do not envy you your task [Inaudible.]

I move now to the industrial levels of pollution that we are seeing by the Department, with 20 million tons of raw sewage being pumped into our waterways annually. That is a frightening figure. It is equivalent to 8,000 Olympic-sized swimming pools full of raw sewage. Where does the Utility Regulator sit on that front? What communication have you had with the Department on that? Are you in a position to comment?

Mr French: We have to hold Northern Ireland Water to account for that. As Elaine said, the price control sets out what is needed for Northern Ireland to meet its statutory social and environmental obligations. If the price controls are fully funded, our aim is that Northern Ireland Water should not find itself in the situation that you describe.

Mr McNulty: This has been a frightening evidence session, folks; there is a crisis with which people are not getting to grips. The Department is certainly not getting to grips with it. Thank you.

Mr McMurray: Thank you very much. We have the Holy Trinity of waste water: DFI, the Utility Regulator, and, at times, NI Water.

The Chairperson (Mr Martin): I would like to know what roles you are attributing to each of those. It is a theological matter, Andrew. I got to you before you got there.

Mr McMurray: That would be an ecumenical matter. [Laughter.]

As I understand it, NI Water decides how much it needs, and you guys say, "Yes, that's what's needed" or whatever. Is it purely an accounting exercise? Is it an engineering exercise? What technical knowledge comes into play in the process?

Mr French: It is all of that.

Mr MacCann: The processes are quite long-drawn-out. Before we set the price control, for example, we will be doing three years of work to come up with an appropriate revenue allowance. A lot of that happens through engagement with the company to try to understand its numbers and challenge its assumptions, because, ultimately, we have to come up with numbers that we can stand by. It is a long-drawn-out process.

We have a lot of experts in different areas in our team: accountants, economists, engineers and people who have worked in the industry who have a good understanding and grasp of all the bits. On the one hand, we try to benchmark against companies in GB, for example. If a water company in GB could do the same job more efficiently and, essentially, provide the same service as NI Water, we would benchmark the prices against it. That is one avenue that we go down, and it is a bit more of a financial accounting exercise — an economics exercise.

On the other hand, it is sometimes very difficult to benchmark because companies can be slightly different. For instance, NI Water does bits of work — on the capex side, for example — that are slightly different from the work undertaken in Great Britain. In such instances, we look at the company's submission and build a picture on its costs and efficiency from the bottom up. Typically, we use in-house engineers and industry experts to look at that. We also use consultants where we need to fill the expert gap. Do you want to explain the reporting?

Mr MacCann: We also have a reporter who is basically a third-party engineering technical auditor whose primary duty of care is to us. We ask them to provide independent technical engineering assurances on some of the stuff that is quite hard to benchmark. They look at the processes and costs in order to understand efficiencies from an engineering perspective.

Mr McMurray: That is interesting. In some senses, in a rudimentary way, NI Water is scrutinised four times. It scrutinises itself before it says, "Is this the right thing to do?". You guys come along and scrutinise it once. The reporter scrutinises it again, and then, presumably, DFI scrutinises it to the point where it concludes that the project is a good one. Is that fair?

Mr French: The order might be slightly different.

Mr McMurray: OK, but it is scrutinised four times. With that in mind, where can NI Water make further efficiencies?

Mr French: As I said, there are always efficiencies. There is always benchmarking, and you are always trying to see whether there is constant improvement. As Ciaran said, you have to look at GB companies to see what technologies they have adopted and how they have done something. In 2006 and 2007, as I said earlier, Northern Ireland Water was spending £2 for every £1 that an efficient GB company spent. It is now spending £1·06 for every £1 that a GB company spends. Some of that is to do with funding certainty. If it had longer funding certainty, it could ensure that its contracts reflected that. There is an element of built-in efficiency with the current funding model. We are always looking to see how other companies have managed to do things better, faster, more cleverly and more efficiently.

Mr McMurray: That is something that is observed, in the sense that that 6p efficiency is determined by some of the short-term projects, if that makes sense. There is investment in Newry, for example, but while a longer-term solution would cost more money, it would lead to further efficiencies. Is that a fair assumption, or is that wrong? We are here to work out how to get the most bang for our buck and find the most efficient system.

Ms Cassidy: The lack of certainty on budgets has a detrimental impact on efficiencies and economies of scale. We are in a one-year Budget circular motion. Having certainty in securing supply chains and procuring contractors would help NI Water to build in economies of scale and drive efficiency.

Mr MacCann: We encourage NI Water to come up with business plans with whole-life cost solutions. We ask it to look to the long term and provide a solution or project that is efficient over its whole life, not just in the short term.

Mr McMurray: Is there not a juxtaposition there? We talked about long-term solutions that cannot be funded by NI Water, while it has to provide short-term solutions in order to do something rather than nothing. Does that not just push things further down the timeline? Is that a fair assessment?

Mr French: Potentially, yes. There will be times when Northern Ireland Water will have to prioritise some projects and make do and mend on others.

Mr McMurray: I go back to a previous question. It is not for you guys to say where NI Water should prioritise; that is not your gig. However, you can say that neither it nor you anticipated the funding issue being of such huge importance.

Do you think that, sometimes, there is a slight difference in the power dynamic that is at play? The Utility Regulator can hold NI Water to account on issues of enforcement or standards, but you cannot necessarily hold the Department to account. Yet, as we have discussed, it is the funding that is the issue here. We have seen that, in each of the next three years, there is an allocation of £321 million from DFI to NI Water, yet NI Water's needs go up every time. That is a demonstration of running not so much to stand still but to go backwards. Is there a power imbalance and a regulatory imbalance there?

Mr French: I do not know whether there is an imbalance, but, as Elaine said earlier, when Northern Ireland Water was set up in 2006 and the 2006 legislation was set out, it was copied from GB legislation. The GB legislation, as you know, envisaged private-sector companies operating, and that was Treasury's mindset when it drafted the 2006 legislation for Northern Ireland. The legislation kind of reflects a private ownership model. We have a public ownership model. On energy, we do not hold the shareholders of NIE Networks to account. We hold NIE Networks to account. Our contract, so to speak, is the licence. Our licence is with NI Water, so we hold NI Water to account for that licence.

Ms Cassidy: How NI Water subsequently deals with its shareholder is a matter for it, as it would be with any other regulated entity. Going back to its formation in 2006, NI Water was set up as a government-owned company. It was only when the three-year glide path to domestic water charging did not come into effect that the status of NI Water as a non-departmental public body (NDPB) had to change because its subsidy was from government. As John said, there may not be an imbalance on enforcement because all our enforcement and holding to account is with the licensee, which is the regulated entity. The overarching framework or statute or storybook is different.

Mr McMurray: I am back to the trinity now. Which one is grace and which one is forgiveness?

Mr Boylan: Go back to 2007, whatever you do.

Mr McMurray: The independent review of environmental governance says that SORPI has weakened the case for investment in NI Water. Given the commentary on and the direction of travel of SORPI, and the comments from Minister Muir and Minister Kimmins, has PC28 taken into account the removal of SORPI as a buffer? It has been a financial disincentive for investment in the waste water system. Is the Utility Regulator taking that into account with future price controls?

Ms Cassidy: Our SORPI was set up in 2007, and it was initially —.

Mr French: Sorry. There were three SORPIs.

Ms Cassidy: There were three SORPIs. Our SORPI — the UR's SORPI — is no longer in play. We informed DFI and NI Water that our SORPI was no longer in play, and we put that out in public. The rationale for that is that, as the regulation of NI Water has developed over the years, we, as the regulator, have had a number of other processes, procedures and guidance, including our enforcement procedure, that made the SORPI that we had null and void and, actually, confusing. Times, events and guidance have bettered the position from a UR perspective. From our perspective, there is no SORPI in play, and there will be no SORPI that the UR relies upon for PC28 or, in fact, for the remainder of PC21.

Mr McMurray: You mentioned pies. Sorry to go back to the pie. You talked about having the whole pie, and that is good. Realistically, however, by its own admission, NI Water has 90% of its resource departmental expenditure limit (RDEL) pie. We talked about climate change and financial pressures, and I think that the forensic report, essentially, said that current position is only down to a good weather period and that we should plan for the best weather period. What is your view on the fact that, 90% of the time, yes, we are sweet but that, 10% of the time, we do not have the resources? That is a back-of-a-fag-packet calculation. That is saying that, one weekend every month or whatever, we will turn the taps off. How do you look at that?

Mr French: It goes back to the overall issue: lack of funding. That is what we need to address. As Elaine said, the price control sets out what is needed for Northern Ireland Water to meet its statutory obligations in an effective and efficient manner. There will be efficiencies and such things, but shortfalls will mean that Northern Ireland Water will not able to achieve what it is setting out to achieve under the legislation.

Mr Boylan: Chicken pie one day and mince pie the next. That is the way it goes.

Mr McReynolds: Most of my questions have been answered. Apologies if I stray into spheres that you do not want to go into. Just say if that is the case.

Elaine, you mentioned the Scottish model and its being looked at in 2006. What does that model look like? I have heard a lot of praise for it. I am interested in it, in a nerdy kind of way. John, you touched on this, but what does it look like for Scottish people? Who around the world funds their water like Northern Ireland?

Mr French: I used to live in Scotland. It is paid for through the rates — council tax. It is an element of that. I think that Scottish Water is, essentially, a government-owned company (Go-co), although I might have got that wrong. It walks with the Scottish regulator, the Water Industry Commission for Scotland (WICS). It is a similar kind of model, but funding comes from a different source.

Ms Cassidy: In 2007, NI Water was set up as a government-owned company that would operate on a commercial basis. That is how Scottish —.

Mr McReynolds: Earlier, we heard about the Northern Ireland Chamber report. There are a lot of reports coming out on approaching things differently. There was one, last week, from the Institute of Directors (IoD). The Fiscal Council was present for that. The Fiscal Council brought out a report, last year, in which it mentioned that, before 1973, the amount that we were spending on water, per household, was separated. It said that that practice had been lost in the rates process and now all the spending came out of the block grant, which is a contributory factor to the underfunding of Northern Ireland Water. Do you share that assessment from last year's Fiscal Council report?

Mr French: There was a hypothecated element in the rates bill, but that does not exist any more.

Mr McReynolds: Could it still exist? Are there any levers available to Ministers or politicians to show people what is being spent?

Mr French: That is essentially what the Scottish model is: it is paid through the council tax — rates. It is a decision for government.

Mr McReynolds: So, it could be done now.

Lastly, has there ever been an independent review of Northern Ireland Water and how it is funded? I raised that last year with the previous permanent secretary. I know that there has been a number of internal reports. Has there ever been an independent external review of how we are funding this? You have laid out quite nicely in the graphic the engineering and infrastructure required to deliver water. It is incredibly resource-intensive, so funding is crucial. I am an East Belfast MLA. The living with water in Belfast plan was cancelled — that is my view. There were jobs connected with it, engineers were required to deliver it and it required a year's finance. Has there ever been an independent review of how it is set up against the standards that you advise?

Mr French: There has been the Audit Office report and several internal reports, but I do not think that there has been an independent external report.

Mr MacCann: There was the Hillyard report, but that was a long time ago.

Mr McHugh: Tá fáilte romhaibh uilig. Míle buíochas as bhur ráitis fosta.

They were very informative. They have given me a lot of clarity on your role in relation to NI Water. As Peter said, you have covered nearly all the themes. I intended to ask you about SORPI. However, you are saying, in effect, that it really has no impact now, because it was not really in existence for you anyway, according to the recent statement by the Minister.

I move on from that to key themes in PC28: value for customers and safeguarding the future. What is your assessment of the ability of PC28 to protect the environment and the need for improved waste water infrastructure to increase development?

Mr French: PC28 will be set at a level that enables Northern Ireland Water to achieve all those goals, on consumer protection, waste water treatment works and everything like that. It is then a matter for the shareholders and the company to work out how it will be funded. That is the issue that remains today. PC28 will not be the blocker on that: it will set what is needed. It is just trying to work out how it will be funded.

Mr McHugh: In effect, it is a wee bit like a wish list, in that it sets what needs to be in place, depending on funding and, if the funding is not available, we are looking at a much more limited programme in every respect, as far as NI Water is concerned, because it has to adhere to the expectations of the regulator.

Mr French: I would not say that it is a wish list. It meets the minimum statutory requirements. However, if NI Water cannot afford it, it becomes a question of working out what it will prioritise and what it will drop. We will not give a gold-plated price control: we will give what is needed to meet the statutory requirements and the environmental legislation regarding waste water and everything behind it.

Mr McHugh: Thank you. I do not want to delay you any longer. There has been extensive coverage of all the issues by members. Go raibh míle maith agaibh .

The Chairperson (Mr Martin): All members have asked questions, and you have got something from everybody today. We are fortunate in this Committee: we get some excellent evidence. Yours was very detailed, and you were concise in your responses, which I particularly like.

I have one lateral question that you could answer by saying that it does not fall within your remit. NIW uses a lot of electricity — more than any other organisation in Northern Ireland. There is a link between that and renewables. NIW also has a lot of land. I think that I know the answer to this question, but I will check with you. What if Northern Ireland Water wanted to generate its own electricity? For example, it has a lot of land and could put in a lot of solar panels. Am I right in saying that, if Northern Ireland Water wants to invest in capital assets, do they appear on the DFI budget sheet? Is that beyond your knowledge? Would they show up in the DFI accounts? Say that you do not know if that is the case.

Mr French: That would be outside our price control remit.

Mr MacCann: That is what I was going to say. We only regulate in the areas in which NIW should be regulated. I am not sure whether such assets would be on the DFI register.

The Chairperson (Mr Martin): That is OK. It is a question for DFI. It is a nice simple one. I was thinking about cost savings. From your evidence, Northern Ireland Water has driven down expenditure from £2 to £1·06. There are always further efficiencies. I was just thinking that, if you are looking at efficiencies, and your major cost is electricity — which it is — how do you get cheaper electricity? You generate it yourself rather than pay for it. We are all looking at trying to move to more renewable sources. Anyway, that is maybe more of a thought from me. [Laughter.]

The Chairperson (Mr Martin): John, Ciaran and Elaine —. I do have thoughts, Cathal. I have thoughts, and they are all independent. [Laughter.]

Mr Boylan: No, Chair, I thought that you were going to ask what the bottom book figure was on the PC28, but you did not.

The Chairperson (Mr Martin): John, Elaine and Ciaran, thank you for coming today. That was really good evidence, and we always appreciate your time at the Committee.

Mr French: Thank you for the opportunity.