Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020

Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 2 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 3 Contents About Us

Introduction 3 We’re one of the 11 regulated water and sewerage companies in England and Wales. Our Board, governance and compliance 8 We provide water and waste water services to • Statements from our non-financial assurers 22 • Risk and Compliance Statement 25 customers in North East Wales, from Wrexham and Bretton in the north to Llanidloes and Regulatory statements 27 Knighton in the south. • Disclosures required by RAG 3 28 • Ring Fencing Certificate (Condition K and P) 31 The Company was launched as Hafren Dyfrdwy Annual performance summary 32 on 1 July 2018 for customers in Wales who were

Regulatory accounts for the year ended 31 March 2020 59 previously in Severn Trent Water Limited and Dee Valley Water Limited. Independent auditor’s report 60

Ofwat data tables Section 1 Regulatory financial reporting 64 This aligned our operations around the England - Wales border with national boundaries. Hafren • Notes to the regulatory accounts 76 Dyfrdwy provides both water and waste water • Ofwat data tables Section 2 Price review and other segmental reporting 79 services to customers in Wales, providing clarity Additional regulatory information 89 to the market in the region. • Ofwat data tables Section 3 Performance summary 90 • Ofwat data tables Section 4 Additional regulatory information 93 Hafren Dyfrdwy is Welsh for ‘Severn Dee’ and • Supplementary disclosures 123 represents the two major rivers in the Welsh Appendix A - Assurance summary 2019/20 126 region that we proudly serve. 4 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 5

Ownership Litres of drinking water Hafren Dyfrdwy is a subsidiary of Severn Trent supplied each day Water Limited which is the principal subsidiary of Severn Trent Plc. The full ownership structure How Hafren Dyfrdwy of the Company within the Severn Trent Group 59 million can be found on the Severn Trent Plc website at was created from severntrent.com. Severn Trent Water Our Purpose and Values Litres of waste water and Dee Valley We believe that if we are united by a clear social treated per day Water purpose we will deliver better outcomes for all our stakeholders - our customers, our colleagues, our investors, the society we live in and the 19 million environment we depend on. So at Hafren Dyfrdwy, we are first and foremost driven by our purpose

“Taking care of one of life’s essentials” and we’re Number of households and guided by our values: business served • Having courage; • Embracing curiosity; 107,000 • Showing care; and • Taking pride. Serving our communities Average number Every five years we work with our customers to of employees develop new business plans which we agree with our economic regulator, Ofwat. Our plans include commitments to improve our performance. These 135 commitments are in the areas of service that are most import to our customers. Following the launch of Hafren Dyfrdwy and the licence changes on 1 July 2018 we’ve had to align targets previously agreed by Severn Trent Water and Dee Valley Water to Hafren Dyfrdwy.

Our average household bill for water and sewerage during the year was £296 per year, or just 81 pence per day. We’re proud to say that this is the lowest combined bill in Wales. 6 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 7 About this report

Clear and transparent This APR covers the period 1 April Reporting our performance The remainder of our 2019/20 APR is set out in the following sections: reporting 2019 to 31 March 2020. Following the boundary alignment Our Board, governance and Sets out our Board structure, vision and how we have met our regulatory duties Providing accurate, clear and To enhance the transparency of our on 1 July 2018, we’ve realigned compliance and obligations, including Ofwat’s 2019 Board leadership principles, to our understandable information which reporting we have extended the to targets previously agreed by customers during the year. This section includes statements from our non- can be trusted by our stakeholders scope of the 2019/20 APR to include Severn Trent Water and Dee Valley financial assurers and our Board’s annual risk and compliance statement reporting requirements which Water, to the new company Hafren is important to us. Our Annual Regulatory statements Contains the Regulatory statements approved by our Board Performance Report (‘APR’) is have previously been published Dyfrdwy. produced annually to ensure our separately. We believe that this will Annual performance Detailed commentary on our operational performance in 2019/20 To avoid making the reporting customers and stakeholders can support our customers and other summary unnecessarily complex, and to clearly see how we’ve performed. stakeholders to access and use Regulatory accounts Regulatory accounting data and disclosures including Ofwat’s data tables make sure customers in Wrexham It provides: the information which is relevant section 1 and section 2, and our Independent auditor’s report to them. We have included the and Powys remain protected by Additional regulatory Ofwat’s data tables section 3 and section 4 and supplementary disclosures • A clear and assured account of following additional sections: the targets originally agreed with information our financial performance for Ofwat, we have: each price control, based on • An overview of our Company Appendix 1 Assurance A summary of the assurance undertaken to support our regulatory reporting • For customers in Wrexham: Ofwat’s regulatory accounts performance and direction. summary and findings during the year and the findings of that assurance We’ve provided an update for each framework, to enable customers • A section which explains our of the 12 remaining performance and stakeholders to consistently Board structure and vision commitments originally agreed assess our relative and absolute Additional regulatory publications and outlines how we meet our by Dee Valley Water. The performance. In addition to the APR, we are publishing the following documents: statutory duties and obligations. targets reflect performance • A clear, detailed and assured This section includes our Board’s levels agreed for customers in • A customer summary which summarises our performance in a way that account of our performance annual Risk and Compliance Wrexham. meets our customers’ needs. This will be available in English and Welsh. across our performance statement. We’ll publish this later in the summer so that we can include comparative • For customers in Powys: commitments in the year. performance data. • Our annual assurance summary We’ve provided an update for the • In the areas where we’ve not is included as an Appendix. 45 performance commitments • A methodology statement which explains the systems and processes used performed well, the actions we’ve agreed by Severn Trent Water. to populate the data tables in the Regulatory accounts. taken to put things right. The targets reflect performance levels agreed for customers Hafren Dyfrdwy has also published its Annual Report and Accounts in Powys. (‘ARA’) for the year ended 31 March 2020 which is available on our website hdcymru.co.uk. The ARA of the Severn Trent Water Group, which include this company, are also available on stwater.co.uk.

Where disclosures in the Hafren Dyfrdwy ARA fulfil the requirements of the APR we have included a cross reference to the relevant section for further information. 8 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig - Annual Performance Report 2020 9 Providing robust governance, risk management and compliance led by Our Board, our Board Although the majority of the Articles of Association (where well-established governance financial year was unaffected by applicable) and Matters Reserved framework builds on our values governance COVID-19, the ongoing impact is to those Boards. and purpose to ensure there is significant. As for all organisations, • Doing the right thing policy. confidence in our reporting. the pandemic has caused a • Charter of Expectations. significant shift in the way we Our Board is responsible for operate and brings numerous and • Group Conflicts of Interest policy. establishing Hafren Dyfrdwy’s and serious risks. Our Board receives • Remuneration Policy. purpose, vision and strategy, and satisfying itself that its weekly updates on the provision • Our assurance summary, which culture is aligned. Our Purpose of core services, how we are can be found in Appendix A. supporting colleagues and the and Values set the cultural tone compliance community, and the mitigation of Our Board’s annual Risk and of our organisation, guide our the risks to our business. Following Compliance Statement as set out behaviours and express the intent the year end, our Board has under licence condition J (levels of behind what we do. This year we considered any potential impact service) is included at the end of undertook a consultative project to our compliance and compliance this section. involving people from across our processes and, where applicable, organisation - from the front line of this is noted in our risk and Our Board’s annual statement our operations to our Board - to re- compliance statement. focusing on how the Company has articulate our Purpose and Values set its aspirations and performed in a way that would be meaningful 1. About this section for all those it serves is included at and inspiring for everyone. Our the end of this section. new purpose - ‘Taking care of one This section sets out our Board of life’s essentials’ -reflects ‘why’ structure, its vision and how we 2. Board leadership, we do what we do. Our strategy meet our statutory duties and transparency and provides us with ‘what’ we do. But obligations to our customers. In governance the ‘how’ we deliver our purpose doing this we have considered and strategy is what differentiates Ofwat’s objectives set out in its Our Board is fully committed us and that is driven by our culture, January 2019 publication ‘Board to Ofwat’s principles for Board values and behaviours. leadership, transparency and leadership, transparency and governance - principles’ and governance with its emphasis Our four new values are ‘how’ we its Information Notice ‘IN20/03 on the importance of strong go about delivering our purpose. Expectations for monopoly Board leadership and the special They’re the principles that guide company annual performance responsibilities attached to our behaviour. They’re what makes reporting 2019-20’. regulated monopoly companies us Hafren Dyfrdwy. providing an essential public This understanding and recognition Throughout this section we service. As such, our disclosures of our social purpose has never reference a number of different have been revised to fully articulate been more important - our purpose documents where you can find how we apply the principles and connects us with our customers more detailed information on provide direction to additional and communities, inspires our Group-wide policies, which are published information where people and reinforces that in available on the Severn Trent Plc relevant. website. These include: the long term we all share the Our purpose, values and culture same interests. We believe that • Our Group company structure. transforming our services and At Hafren Dyfrdwy we embrace driving growth will lead to mutual • Detailed information about continuous improvement, learn benefit for all. The interests of our the Severn Trent Plc Board, from industry best practice, and stakeholders are often interlinked, Hafren Dyfrdwy Board, other listen to feedback to make sure with many of our employees also committees including our Severn that we improve year-on-year. being our customers. Trent Plc Audit Committee and Our Board leads this approach by Severn Trent Plc Remuneration setting the right behaviours, values Committee; and their respective and culture for our business. Our 10 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 11

Governance

Leadership and Effectiveness Our Purpose and Values have been Reinforcing our culture On behalf of all companies within course of presentations to the short and long-term needs to created to be relevant across the the Group, the Severn Trent Plc Board at their meetings. These manage our financial risk, share whole of the Severn Trent Group. Board has oversight of a number direct interactions with employees, returns with customers where we They are not solely for Hafren Severn Trent Plc's values support Doing the Right Thing and drives delivery of the of accompanying Group policies. specifically in relation to culture, outperform, and consider long- Hafren Dyfrdwy strategy

Dyfrdwy. They apply across our We put our We are We act with We protect our We are inspired These policies, together with Doing allow our Board to understand term viability. We pay our taxes customers passionate integrity environment to create an other regulated water business, first about awesome the Right Thing, explain how to first-hand the key issues identified in full and on time, and employee Severn Trent Water, and our non- what we do company identify and deal with suspected by our workforce, and provide an bonuses are aligned and linked regulatory businesses. They reflect wrongdoing, fraud or malpractice; opportunity to feedback specific to the delivery of outcomes to our culture and were co-created how to ensure that the highest personal insights. Our focus on customers. We publicly report with employees from all areas of Educating our people, supporting and guiding them to demonstrate standards of safety are maintained; culture at HD has also taken into on our performance and hold the business. Our Purpose and positive behaviours in all they do and how to apply good ethics and consideration the importance ourselves to account where we do Doing the Right Thing has These policies are the To support understanding of Values strongly resonate with our supporting policies that apply strategic link between our our policies and standards, sound judgment. Doing the Right of local communities. We have not meet our commitments. to everyone who works for vision and how we manage there is programme of employees as demonstrated by our Severn Trent Group including our day-to-day business, targeted training, including Thing details the values we work introduced our Welsh language Hafren Dyfrdwy. and are underpinned by e-learning modules and The ownership structure of Hafren recent employee engagement score specific company standards practical training sessions. by, to help guide our people where programme, and we are proud that of 8 out of 10, placing us in the top and procedures. there are no hard rules in place. our commercial processes ensure Dyfrdwy within the Severn Trent 5% of Global Utilities. Our values apply to how we report fair and open competition for all Group can be found on our website. information just as much as any suppliers (including local suppliers) Our Board continually monitors, Board Membership Review mechanisms to further support and assess our culture other service we provide for our who can participate in tenders for assesses and reinforces our • J B Coghlan Our workforce can raise Reports from the respective Dedicated culture discussions customers. consideration within the supply values and culture to satisfy itself concerns at work through Chairs are provided to the are included at our Employee • A J Duff (retired on 31 March their line manager, senior Board at the outset of every Forum. This regular Forum is chain. We do not see corporate that the behaviours throughout management and through our meeting, with any serious attended by numerous Our Board monitors and assesses 2020) confidential and independent allegations being directly employee representatives, governance as something we do the business are aligned with whistleblowing helpline, reported to the Board. Unions and other stakeholders the culture of the Company by because we have to. We choose to ‘Safecall’. All investigations to enable the views throughout • C M Hodgson (appointed on 1 Our annual employee the Company’s purpose. Where are carried out independently the organisation to be regularly meeting with the Hafren engagement survey, ‘QUEST’, see it as something that should be with findings being reported considered at Board level. April 2020) provides data in a clear misalignment is identified by our directly to the Audit and Dyfrdwy Executive Committee and comprehensive form, ingrained in the way we behave, Corporate Responsibility identifying what’s going well • J Bowling Board, appropriate corrective Committees. The Audit and all levels of management, and where we can improve how we make decisions, how we Committee monitors and across the Company. QUEST is action is taken. Additional detail reviews the effectiveness of employees and reviewing the • O R Garfield conducted by an independent run our business and ultimately, whistleblowing arrangements research company to ensure can be found in our ARA. annually and provides outcomes of employee surveys. We the results are anonymous how we build trust. • A Beynon feedback to the Board. and the results are reported to believe that our strong culture is the Board. • S Jones-Evans Focus on culture a unique strength and we see the Group composition and To support the creation of long- benefits in employee engagement, responsibilities • M Mehmet term value for the mutual benefit retention and productivity. During Hafren Dyfrdwy is an operating A standalone regulated Company Feedback to the Board to deepen its understanding of the Hafren Dyfrdwy culture of our shareholders, employees, the year, the Board has focused subsidiary of the FTSE100 and our Board structure customers and communities, the Our established reporting mechanisms for company purpose and culture are essential tools in the on deepening its understanding of Board’s oversight of cultural matters. All feedback received deepens the Board’s understanding of Company Severn Trent Plc, which The differing interests of Board recognises the importance the Company’s culture and Board feedback is used to inform future areas of focus and ensure that the Group’s culture even further, local plans are consistent with feedback received. means we operate at the high stakeholders are considered in of building and promoting a culture through a dedicated Company standards expected of a publicly the business decisions we make of integrity and openness, where Purpose and Culture session in 76 Severn Trent Plc Annual Report and Accounts 2019 listed company. Severn Trent Plc across the Company, at all levels, inclusion and diversity are valued. January 2020. The session was also publishes its own ARA and and are reinforced by our Board At the heart of Hafren Dyfrdwy’s centred on the results of our a history of dividend payments setting the right tone from the culture is a closely held set of employee survey, ‘QUEST’, and by Severn Trent Plc going back to top. Our Board’s role is to ensure values. Our code of conduct, Doing Whistleblowing: Our Whistleblowing Policy ‘Speak Up’ sets out the other relevant data. The Board 1990 is available on the Severn the long-term success of Hafren the Right Thing was relaunched this ethical standards expected of everyone that works for, and with, us considered the positive and more Trent Plc website. Severn Trent Dyfrdwy. Responsibility to all our year. It sets out clear guidance on and includes the procedure for raising concerns in strict confidence. challenging aspects revealed Plc’s dividend policy is disclosed stakeholders for the approval and the standards of behaviour that we Our workforce can raise concerns through their line manager, by the survey and discussed the in its ARA to ensure clarity about delivery of the Company’s strategy expect from everyone who works senior management and through our confidential and independent Company’s approach to addressing how our investors are rewarded and for creating and overseeing the for us including our supply chain, whistleblowing helpline, ‘Safecall’. All investigations are carried out areas of employee focus. Members based on our performance through framework to support its delivery contractors and sub-contractors. independently with findings being reported directly to both the Audit of the Board routinely interact the Group’s activities. We ensure sits with our Board. The Board and Executive and Corporate Sustainability Committees. The Board as a whole with employees as part of their we are fair when balancing the Committee also recognise the monitors and reviews the effectiveness of the Group’s whistleblowing site visit programme and in the importance of their roles in setting arrangements annually, to ensure that it has sufficient oversight of the tone for the Company’s culture whistleblowing to support its work on culture, risk and stakeholder and that is why they complete a engagement and all significant whistleblowing matters are reported Doing the Right Thing e-learning directly to the Board. The Board has reviewed these arrangements Board/Board Committee Membership course every year together with all again this year and is satisfied that they are effective, facilitate the Hafren Dyfrdwy Cyfyngedig Board Chair (Non-Executive Director) employees. proportionate and independent investigation of reported matters and allow appropriate follow-up action to be taken. One Non-Executive Director Three Non-Executive Directors (Independent from ST Plc) Two Executive Directors 12 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 13

Maintaining the highest standards considers that there are no business succession, Trade Unions and an that all Directors fostered a culture of governance is integral to the or other circumstances that are overview of our Remuneration of open, high quality and balanced effective delivery of our strategy likely to affect the independence policy. debate, and was characterised by a and requires that our Board takes of any Non-Executive Director • Risk and audit, including the risk mutual sense of trust and respect decisions that create sustainable and that all Non-Executive profile and our approach to risk. between Executives and Non- long-term value for the mutual Directors continue to demonstrate Executives. The evaluation noted • Governance matters and Company benefit of our shareholders, independence. that the Board was considered policies. customers, employees and the to be of the right size and has communities we serve. The Board appointments and induction We continually enhance our Board’s an appropriately diverse and operation of our Board is supported Any new appointments to our Board induction process, building in complementary mix of background, by the collective experience of the result from a formal, rigorous feedback from new appointees and skills and cognitive thought. Directors and the diverse skills and and transparent procedure, the Board Effectiveness evaluation. Meetings were noted as being experience they possess. Details of responsibility for which is overseen well chaired, with all having an the experience of our Board or the by our Nominations Committee The Board remains focused on opportunity to contribute. The Chair Hafren Dyfrdwy Board can be found (although decisions on appointments promoting broader diversity, and was commended for the significant in the ARA on our website. are a matter reserved to our Board). creating an inclusive culture in time commitment made to Hafren Further information can be found line with the recommendations of Dyfrdwy and the way in which he Our Board’s collective experience in our ARA. We have an established the Parker and McGregor-Smith navigated the Board through the enables it to reach decisions induction programme in place which reviews. A diverse organisation recently implemented governance the Group as a whole include the Severn Trent Plc has a Conflicts in a focused and balanced way, is tailored to meet the requirements benefits from differences in skills, enhancements. Board dynamics Severn Trent Plc Audit Committee of Interest Policy in place for supported by independent thought of individual Directors and includes regional and industry experience, outside of formal meetings were and the Severn Trent Plc all Group companies, including and constructive debate between the following elements/details: background, race, gender, sexual considered to be excellent. our Directors. Trust and mutual Remuneration Committee. Details Hafren Dyfrdwy. Our Board and orientation, religion, belief and age, respect are the cornerstones of the respective Committees can its Committees consider potential • One to one meetings with the as well as culture and personality. Board and Committee membership of relationships between our be found in the Severn Trent Plc conflicts at the outset of every Chair and each of the existing and meeting attendance Directors, with a Board dynamic ARA. There is a clear division of meeting and the Board formally Non-Executive Directors. The Severn Trent Group Board Details of Board and Board responsibilities between the roles reviews the authorisation of any Diversity Policy (the ‘Policy’) that supports open and honest • One to one meetings with the CEO, Committee membership, the of Chair and CEO. To allow these potential conflicts of interest every was reviewed in April 2020, with conversations to ensure decisions CFO and the Company Secretary number of meetings held, and responsibilities to be discharged six months with any conflicts recommended updates approved are taken for the benefit of the along with other members of the attendance can be found in our ARA. effectively, our Chair and CEO being recorded in the Conflicts of by the Board. As part of Board Company in full consideration of Executive Team and the company’s maintain regular dialogue outside Interest Register. The Conflicts discussions, recognition was given the impact on all stakeholders. advisors. Our governance framework the Boardroom, to ensure an of Interest Register sets out any to the importance and benefits The Hafren Dyfrdwy Board is There are seven HD Board • New Directors receive a briefing effective flow of information. actual or potential conflict of of greater diversity, including supported by the Severn Trent Plc members. Two are Executive on the key duties of being a interest situations which a Director gender diversity, social and ethnic Governance Framework, which Directors and five are Non- The requirements of our Board Director of a regulated water and has disclosed to the Board in line background and cognitive and is set out below. The Governance Executive Directors. Two of the are clearly documented in the waste water company. with their statutory duties and the personal strengths throughout Framework comprises the Board, five Non-Executive Directors are Hafren Dyfrdwy Articles of practical steps that are to be taken • Ofwat pre-appointment process. the organisation, including on the Association, Schedule of Matters Executive Committee and their also Non-Executive Directors of to avoid conflict situations. When • Our business and how we are Hafren Dyfrdwy Board itself. The Reserved to the Board and respective Committees. Severn Trent Plc and Severn Trent reviewing conflict authorisations, regulated, including performance. objectives and targets of the Policy, Water Limited, and our Chair is also Charter of Expectations. These the Board considers any other • Our non-regulated business, and an update against each of them In line with the 2018 UK Corporate the Chair of the Severn Trent Plc set out matters that are reserved appointments held by the Director including performance. in respect of Hafren Dyfrdwy, are Governance Code, the Board Audit Committee. The Executive for shareholders and the parent as well as the findings of the Board set out below. A copy of the Policy delegates certain roles and Directors are also Executive Company (where applicable). They Effectiveness evaluation. The Policy • Strategy. is available on the Severn Trent Plc responsibilities to its various Directors of Severn Trent Plc also contain provisions in respect continues to be applied practically • Key operations and processes website. Committees. The Committees assist and Severn Trent Water Limited. of Hafren Dyfrdwy’s regulated throughout the year, such as including an immersive, practical the Board by fulfilling their roles We have a Conflicts of Interest business, including strategy and considering the potential conflict journey through the water and Board effectiveness and responsibilities, focusing on Policy in place to ensure that any management. presented by Directors having roles waste cycles. The effectiveness of our Board is their specific activities, reporting to potential conflict of interest as a on other Group companies. reviewed at least annually, and the Management of Conflicts of • Key stakeholder relationships. the Board on decisions and actions consequence of being a director 2019/20 evaluation was conducted taken, and making any necessary Interest • Customer delivery. of another Group company is The Hafren Dyfrdwy Board internally by the Chair with support recommendations to the Board in identified, disclosed and managed Our Board recognises that there is conducted an annual review • Capital delivery and commercial. from the Company Secretary line with their respective Terms appropriately. Further detail is potential for conflicts of interest to of individual Director conflict • How the business is financed and through a series of one-to-one of Reference. The Board regularly provided in our Management arise from the existence of shared authorisations as recorded in our financial performance. meetings in January and February reviews the Terms of Reference of of Conflicts of Interest section. directorships between Hafren Conflicts of Interest Register in • Our people and how we work, 2020. The key theme highlighted in each Committee. The Governance The membership of the Hafren Dyfrdwy, Severn Trent Plc and 2020. The independence of Directors including our Purpose and Values, the 2019/20 evaluation was positive Framework is also subject to Dyfrdwy Nominations Committee Severn Trent Water. is formally reviewed annually by Doing the Right Thing, health, Board dynamics and effective periodic review to ensure that it comprises Non-Executive Directors the Board and as part of the Board safety and wellbeing, talent and operation of the Board. It was noted remains appropriate. only. Certain Severn Trent Plc evaluation exercise. The Board Committees operate on behalf of 14 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 15

Board Diversity Policy - Objectives and progress against targets Policy Targets Progress against target 33% female share of 43% female representation on our Board as at 31 March 2020. Policy objectives Implementation Progress against objectives Board Directors by 2020. Ensure the Board comprises Annual review of the A formal review was undertaken in March with Minimum of one Board One ethnic minority Director on our Board as at 31 March 2020. an appropriate balance Board’s composition with regards to the composition of the Board and the Director from an ethnic of skills, experience and particular consideration performance, contribution and commitment of minority background by knowledge required to being given to the balance individual Directors in the context of the Board 2021. effectively oversee and of skills, experience and Effectiveness evaluation. No concerns were support the management of independence of the Board. raised in relation to the composition of the Board. the Company. The Board Effectiveness Business operations Internal second line Independent challenge assurance evaluation specifically Purpose Purpose Purpose considers the composition Responsible for performance Provide independent challenge of of the Board and the reporting and 1st line assurance 2nd line of assurance ensuring levels of assurance provided by that 1st line has undertaken 1st and 2nd lines contribution, commitment Activities its duties and independence of Activities Provision of source information Activities Review application of individual Directors. and reporting Ensure adequate 1st line methodologies, processes and Ensure consideration is The Board recognises the All recommendations in respect of Board Monitoring and improving assurance undertaken the ultimate integrity of the data performance where required given to candidates for Non- importance and benefits of appointments will be conducted in full Quality checks and reviews of Review of 1st and 2nd line Defining and documenting assurance activities Executive Director Board greater diversity, including consideration of the Policy, 2018 Code and systems and controls methodologies and processes Ensure that reported data is appointments from a wide gender diversity, social additional relevant guidance. Coordination of assurance In depth quality checks and activities between 1st and 3rd consistent with base data in the pool. and ethnic background No Board appointments were made during the reviews lines company’s systems and cognitive and personal year. Assist with production of Provide customer and stakeholder strengths, throughout the required documentation challenge (e.g. Water Forum) organisation, including on the Board itself. Ensure Board appointment The Board recognises the All recommendations in respect of Board ‘long lists’ include diverse importance and benefits of appointments will be conducted in full The Seven Trent Plc Disclosure assurance model. We target this • Internal Audit - used for financial candidates, including greater diversity, including consideration of the Policy, 2018 Code and Committee oversees the Group’s model using a risk-based approach data, process and other ad-hoc diversity of social and ethnic gender diversity, social additional relevant guidance, with a selection reporting obligations under the so areas that we know are of prime assurance. backgrounds and cognitive and ethnic background of diverse candidates being included in the long Companies Act 2006, the 2018 UK importance to customers, or may We use this model for our regulatory and personal strengths. and cognitive and personal lists. Corporate Governance Code, the have a significant financial value returns so that we, customers, strengths, throughout the No Board appointments were made during the UKLA Listing Rules, Disclosure or operational impact, receive and wider stakeholders have an organisation, including on year. Guidance and Transparency Rules the full three lines of assurance appropriate level of confidence that the Board itself. and the Company’s annual and while other areas may be targeted continuing regulatory reporting with first or second line only. This our submissions have been well Ensure the Board only The Company only engages We continue only to engage with executive search requirements, considering the approach ensures our assurance is prepared are consistent with our engages executive search with executive search firms firms that have signed up to the voluntary code of materiality, accuracy, reliability and proportionate and aligns to what our robust internal processes. These firms that have signed up to that have signed up to the conduct on gender and BAME diversity and best timeliness of information disclosed customers value most. The diagram processes are outlined below and the voluntary code of conduct voluntary code of conduct practice. and assessment of assurance above details the three lines and the further detail on the outcome of on gender diversity and best on gender and BAME received. typical activities for each. the assurance is set out in our practice. diversity and best practice. assurance summary in Appendix A. Ensure focus is given to the Regular Board Consideration was given during the year to Our Assurance framework We use a combination of assurance Overall accountability for the development of a pipeline consideration of the diversity and inclusion within the Company. To support our Governance providers for third line activity. preparation and production of the of diverse high calibre importance and benefits of Framework, we have a well- The majority of our assurance is APR (which includes reporting of candidates for Board level greater diversity including established and robust assurance provided by: performance against performance roles and report annually on gender diversity, social and performance reporting • Black & Veatch - review non- commitments and associated the diversity of the Executive and ethnic background framework. Our assurance plan financial operational performance Outcome Delivery Incentives pipeline as well as the and cognitive and personal for this financial year, 2019/20, processes and data. (‘ODIs’)) rests with the Chief diversity of the Board. strengths. This includes continues the high standard Financial Officer. The outcome of the representation of these processes we have developed and • Jacobs - review cost allocation assurance undertaken is reviewed cohorts in the Company’s implemented in previous years activities, financial reporting by the Severn Trent Plc Audit talent pipeline and on the for reporting our performance processes and non-financial Committee (the ‘Audit Committee’) Board itself. commitments in our ARA and operational performance on behalf of the Hafren Dyfrdwy Annual Performance Report (‘APR’). processes and data. Board and is reported by the Chair • Deloitte - our financial auditors to the HD Board. To ensure we’re applying an who mainly examine our statutory effective programme of assurance accounts. we operate a three lines of 16 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 17

3. Monitoring performance high standards, though it is sign-off against the requirements Severn Trent Plc Board and compliance important to understand that such of RAG5 via our licence to operate Report Delegated authority systems cannot provide absolute framework. Our RAG5 compliance Performance guarantees. framework was reviewed by Hafren Dyfrdwy Audit Committee Our performance commitments Ernst & Young (EY) this year to Cyfyngedig Board When Hafren Dyfrdwy joined matter to our customers, our wider determine if it was sufficiently Delegated authority the Severn Trent Group, we Report stakeholders and to us. Our Board robust taking into consideration implemented a new compliance is fully engaged in monitoring Ofwat guidance, Ministry of Justice Chief Executive Disclosure Committee framework to provide a robust and assessing the quality of (‘MoJ’) and HMRC principles process setting high levels of Report our performance and providing and the Competition Act 1998. compliance backed up with challenge through our established Ernst & Young concluded that Hafren Dyfrdwy Third line of assurance - rigorous risk-based assurance. governance arrangements which the compliance framework is Executive Committee External of Internal Audit We continue to refresh, build and will continue into 2020-2025 comprehensive in relation to develop on this process every to ensure delivery of our PR19 Ofwat’s requirements. Our RAG5 Second line of assurance - year and now monitor over 1,500 Inform and improve Inform and prioritise performance commitments. training has been expanded this Internal independent team duties and obligations in the Performance is reported to and year to include a broader audience framework. Our Group Compliance reviewed monthly by the Executive through face to face training and and Assurance team overseas First line of assurance - Committee and at every Board, an e-Learning module. We have an the framework and ensures that Business unit management and through the Severn Trent Plc established Steering Committee managers across the Company Executive Disclosure Committee responsible for overseeing RAG5 are aware of their statutory and and Severn Trent Plc Audit compliance who report directly regulatory duties. Each duty Oversight Committee at least twice at mid- to the Executive Disclosure and obligation is assigned to a year and year-end points in the Committee. In addition, we have responsible manager, a senior reporting cycle. established a RAG5 working leader and Director. The senior Internal audit and internal controls Committee; this is supported by To ensure continued efficiency, a group reporting directly to the Compliance leaders are responsible for the Steering Committee, ensuring The Severn Trent Plc Internal regular reporting that enables it to review of the effectiveness of the development, implementation As a regulated company we are that any improvement actions are Audit function is an independent monitor delivery of the audit plan. Internal Audit function was carried and testing of controls to ensure subject to statutory and regulatory undertaken at an operational level. assurance function available to The Audit Committee’s role is to out in January 2019. The review, compliance in areas such as duties and obligations, primarily the Board, the Audit Committee challenge the plan, specifically performed by BDO, concluded that policy and standards, procedures, As part of the licence to operate set out through the Water Industry which operates on behalf of whether the key risk areas identified the Internal Audit function is fit for training, management information framework, our Board has Act 1991 and our Instrument Hafren Dyfrwy, and all levels of as part of our ERM process are purpose, is operating efficiently as well as completing regular reviewed and considered any of Appointment (the ’Licence’). management. The Internal Audit being audited with appropriate and effectively, and in line with reviews of these controls. An potential departures from We will continue to use our function is supported by three frequency and depth. Following the good practice. This year the Audit annual process of self-certification our statutory and regulatory established processes, controls main co-sourcing partners, completion of each planned audit, Committee also reviewed the quality takes place to inform this obligations. Material departures and governance routes to continue PricewaterhouseCoopers, Internal Audit seeks feedback from and effectiveness of Internal Audit compliance statement, which is are set out at the end of this section to meet these obligations. Our Ernst & Young and BDO. These management and reports to the and approved the approach and called licence to operate and is set on page 26. AMP7 specific obligations were arrangements are reviewed Audit Committee on the findings of Internal Audit plan for 2020/21 out in our assurance summary in developed and defined through our annually and it is considered the audit, including any action that which was approved in March 2020. Appendix A. This year end we added PR19 Business Plan 2020-2025 and that this structure adds value, may be required. Where any failings an additional self-assessment The effectiveness of the controls further information relating to the through greater access to specific or weaknesses are identified during disclosure to consider any impact over financial reporting is also activities already underway can be areas of expertise, increased the review of internal control on compliance as a result of monitored by the Audit Committee, found in Appendix A. ability to flex resources, and the systems, management puts in place COVID-19. robust actions to address these which receives regular reports ability to challenge management The Licence also requires us to on a timely basis. Action closure is of the testing conducted by the In order to comply with the independently. Co-source perform duties imposed under reported to and monitored by the External Auditor. Internal Audit requirements of the Regulatory specialists continue to bring other statutory and regulatory Audit Committee and its review reports are presented to and Accounting Guidelines 5.07 expertise to support the team and obligations as necessary to established that management considered by the Committee, (‘RAG5’) we operate a RAG5 delivery of the audit plan where fully discharge our duties as a places a strong focus on closing to ensure that the Committee is compliance framework with relevant. water and sewerage undertaker. audit actions and ensuring timely satisfied that management have established processes including; Our approach to achieving The role of Internal Audit is to completion. resolved or are in the process of risk assessment and associated compliance with our statutory provide assurance that the Group’s resolving any outstanding issues or controls, guidance and policy and regulatory obligations is risk management and internal An internal control system can actions through to completion. documents, maintaining a based on our established and control systems are well designed provide only reasonable and transaction register, and cost robust governance and systems of and operate effectively and that not absolute assurance against allocation assurance; and includes internal controls. We set ourselves any corrective action is taken in a material misstatement or loss, as middle and senior management timely manner. Each year, Internal it is designed to manage rather Audit develops an annual risk-based than eliminate the risk of failure audit plan for approval by the Audit to achieve business objectives. 18 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 19

4. Risk management position. The flightpaths help to threaten its business model, future Since Hafren Dyfrdwy became a facilitate a more thorough review of performance, solvency or liquidity. member of the Severn Trent Group, Risk is all about uncertainty. We the target risk positions, consider These have been categorised we have carried out extensive recognise that uncertainty can risk appetite and assess whether across: customer engagement to help manifest itself as both negative actions are on target with the shape our 2020-2025 business and positive impacts. Our goal is to correct prioritisation in place. In • Customer perception. plan. We consult every year with identify risk, minimise the threats addition, individual risks, emerging a range of stakeholders to help • Legal and regulatory and maximise the opportunities risks and overall risk landscape shape our assurance plan so that environment. for the benefit of our customers, were also discussed by the Board it reflects what is important to shareholders, employees, supply during the year. • Operations, assets and people. our stakeholders and so that we partners and the environment. can build the trust and confidence Changing risk landscape • Financial risks. placed in us. This year’s final Our Board has overall Emerging risks are reviewed assurance plan was published in accountability for ensuring that The principal risks, what they mean frequently as part of our horizon February 2020. From an external risk is effectively managed across for us and what we are doing to scanning process. We closely stakeholder perspective, we have Hafren Dyfrdwy. The Board’s manage them are set out on pages monitor changes in the global risk continued to share our operational mandate includes defining risk 22-25 of our ARA. landscape as climate change and performance with the Consumer appetite and monitoring risk the environment continue to be Council for Water (CCW) on a exposure to ensure significant 5. Customer expectations key areas of risk focus. Building quarterly basis and consult risks are aligned with the overall resilience to climate related risks and stakeholder with external stakeholders on strategy of the Company. On behalf is of key importance to the water engagement our assurance plans to ensure of the Board, the Severn Trent sector and we constantly review we receive appropriate levels Plc Audit Committee assesses We understand that businesses are how our business risks reflect and of customer challenge and the effectiveness of the Group’s more successful and sustainable work towards this. By the nature of scrutiny as well as shaping our Enterprise Risk Management when they balance the needs of what we do several of our Principal assurance plans to meet customer (‘ERM’) process and internal their stakeholders. Stakeholder Risks have a sustainability focus, expectations. engagement is central to the controls to identify, assess, and we monitor our social and mitigate and manage risk. formulation and execution of our Within Hafren Dyfrdwy our on a quarterly basis. Criteria are environmental impacts with Delivering for customers and strategy and is critical in achieving approach to risk reflects our status used to consider the likelihood of the same rigour as our broader stakeholders - Board engagement The Hafren Dyfrdwy Executive long-term sustainable success. Committee reviews strategic as a regulated utility providing occurrence and potential financial performance. This year we have Our Board recognises the objectives and assesses the essential services and operating and reputational impacts. The introduced a Group Strategic Risk We recognise the importance of importance of considering all level of risk taken in achieving as part of the Critical National potential causes and subsequent Forum to help provide a strategic our commitment to delivering stakeholders in its decision these objectives. This ‘top down’ Infrastructure for the UK. The impact of the risks are documented lens and review of our existing and outcomes that reflect our making, as set out in section 172 of risk process helps to ensure nature of these businesses is such to enable mitigating controls to emerging risks. The findings of the customers’ views and needs. In the Companies Act, and the positive the ‘bottom up’ ERM process, that there are some significant be assessed. This assessment Forum will help guide emerging serving our customers we want impact this has in promoting described below, is aligned to inherent risks. We have a strong allows us to put in place effective risk discussions and ensure to provide both value and a great the success of Hafren Dyfrdwy current strategy and objectives. control framework in place to strategies to remediate defective existing risks are continually peer experience; our customer ODIs as a whole. Our stakeholder The management of risk is enable us to understand and controls or implement additional reviewed. provide a transparent mechanism engagement processes enable our manage these risks in accordance controls. Business unit information by which we can demonstrate Board to understand what matters embedded in our everyday business Risk appetite activities. Across the Company, we with our risk tolerance and is combined to form a consolidated to our customers whether the to stakeholders and carefully manage risks within the overall appetite. view of risk. Our significant risks The Board keeps the relationship performance they have received consider all the relevant factors Governance Framework which are reported to the Executive between our strategic ambitions from us is subject to reward or and select the course of action that Our Enterprise Risk Management includes clear accountabilities, Committee for review and and the management of risk under penalty. We believe our customer best leads to the high standards of process delegated authority limits and challenge and reported to the Audit continual review. The ERM process ODIs provide strong incentives for business conduct and success of reward policies. These are We use an established ERM Committee and Board on a six- establishes target risk positions us to innovate and become more Hafren Dyfrdwy in the long term. designed to provide employees process to assess and manage our monthly basis. The report provides for each of our significant risks. efficient, protecting our customers The table below sets out details with a holistic view of effective risk significant risks. The process is an assessment of the effectiveness The Board formally discusses the against instances of under-delivery of key stakeholder engagement management. controlled by the Central ERM team of controls over each risk and an progress towards this position and, where merited, rewarding us undertaken by the Board during and underpinned by a standardised action plan to improve controls and the mitigating actions being for outperformance. the year. You can read more in our Hafren Dyfrdwy’s risk management methodology to ensure consistency. where necessary. To further undertaken every six months. dedicated s.172 and stakeholder governance process is based on the ERM champions and co-ordinators enhance our ERM information, We have expanded our engagement statements in our risk-based three lines of assurance operate throughout the business, we report ‘risk flightpaths’. These Our Principal Risks communication channels with ARA. model and is scrutinised by the with support and challenge demonstrate the level of risk the The Directors have carried out customers and use a number of Severn Trent Plc Audit Committee, from the ERM team, continually Company faces and the timeline a robust assessment of the platforms to engage, with our through delegated authority from identifying and assessing risks in for the key risk mitigation steps principal risks facing the Company website and social media providing the Board. their business units and reporting to manage the risk to the target including those that would additional means for customers to receive information and engage with us. Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 20 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 21

Board engagement and activities Board engagement and activities Customers Customer Delivery performance is discussed at every Suppliers and Contractors Commercial performance is discussed at every Board Board meeting. meeting. Customer engagement in shaping our Business Plan. Executive Director attendance at the Employee Forum The Board met with members of the Welsh assembly and feedback provided to the Board. to understand upcoming Welsh language standards Regulators and Government Regulatory matters are regularly considered by and their impact on customers. the Board, including PR19 plans, Water Resources Our engagement in partnership with organisations Management Plan and Scheme of Wholesale Charges. such as Powys Association of Voluntary Organisations, Regulatory stakeholders attend Board meetings Warm Wales and Newydd and Mid-Wales Housing has and dinners, including from Welsh Government and helped us reach 25% more customers struggling to Natural Resources Wales during the year. pay their bills. Regulatory consultation updates are considered by the Communities We created our COVID-19 Community Fund to benefit Board. organisations in our region. The Board receives Members of the Board attended the Welsh Government regular updates on the work of the Fund. - PR19 Water Forum. Employees who live and work in our communities met The Board met with the Welsh Government and members of the Board during the year. representatives from CCW, NRW and DWI to discuss Representatives from Welsh Government attended the AMP7 security programmes and resilience. Board Strategy Day to discuss environmental priorities Annual attendance at the CCW Wales Annual Board in Wales. meeting. Regular engagement with Government Representatives from Natural Resources Wales officials and elected representatives on water and attended the November 2019 Board meeting to discuss environment related issues. collaborative working and receive a dedicated update on the Company’s Lake Vyrnwy Project. The Board met with CBI Wales Council to discuss the Social Partners Act, supporting students and Carbon Neutral efforts in Wales. Environmental matters are regularly considered by the Board, including biodiversity. Members of the Board met with Public Health Wales to discuss our contribution to a healthier global community. Members of the Board attended a CBI event discussing Carbon Reduction. Employees Employee voice and workforce engagement are discussed at Board meetings. Diversity and Inclusion are regularly considered by the Board. Directors meet employees at site visits, both during and outside of the Board meeting calendar, including at our Llwyn Onn Water Treatment Works and Llandinam Water Treatment Works, where they observed water treatment processes first-hand and met the teams involved. Company purpose and culture discussed at Board meetings. Board considers QUEST survey results and steps taken to address feedback. 22 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 23

BLACK & VEATCH LIMITED 2019-20 Assurance Statement 60 HIGH STREET REDHILL, SURREY, RH1 1SH, UK +44-1737-774155

Independent201 9-2 0 Assurance Sta tem en tA ssurance Servic esClie nt N am e Technical Assurance Statement – HDD

To the Hafren Dyfrdwy Board ǣ ǡ Jacobs has been appointed by Hafren Dyfrdwy (HDD) to provide independent technical assurance of the data ǡ that feeds into their regulatory submissions. For the Annual Performance Report 2020 (APR20) submission we ǡ were asked to review the 2019-20 Legacy Severn Trent Water and some Legacy Dee Valley Water Performance ǡ Commitments, AMP7 Shadow Common Performance Commitments and non-financial section 4 data on a risk- ǡ based approach. ǡ ǡ Through a series of meetings and information exchanges, we have reviewed and tested the methodologies and ͳͶͶ processes on which the relevant statements in the APR20 are based, and we have considered the material Annual Performance Review 20 20 ͶʹͲʹͲ accuracy of the performance data presented. Our findings have been discussed with management and the ST Plc Independent Technical Assurance Statement Audit Committee.

On the basis of our audit work, we are satisfied that the information we reviewed within and which supports the APR20 has been assembled using appropriate methodologies and processes and that the data provides a Ƭ reliable representation of Company performance. There is also good evidence of engagement from the teams ʹͲʹͲ ȋʹͲȌǤ involved in producing the performance data and of governance and programme management. We note that the Ǧ Board has included issues we noted during our review in its declared departures from compliance in its statement. Ǥ Yours sincerely Ǥ Ǥ Ǥ

Ǥ Alexandra Martin Ǥ Senior Associate Director ǡǦ Ǧ ʹͲǤ Ƭ Ǥ ǡ ʹͲ Ǥ Ǥ In our opinion, the company’s framework of three lines of assurance provides a good level of Ǥ Ǥ Ƭ

Registered in England & Wales No: 3163649 Registered Office: 60 High Street Redhill Surrey RH1 1SH United Kingdom

Document number 1 24 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 25 Setting aspirations and Risk and Compliance Statement performing for all those we serve

At Hafren Dyfrdwy we are first • A focus on resilience in our Through the employee engagement Having taken into consideration the information above, our Board approves and foremost driven by our regions, communities and natural methods above, our Purpose and the Annual Performance Report (‘APR’), the associated APR data tables, purpose ‘taking care of one of life’s environment, which aligns to Values have been put together by and the noted departures. essentials’. United by a clear social the Welsh Government’s Water our people, for our people. Our The Board confirms that: purpose we will deliver better Strategy for Wales. business culture of integrity and outcomes for all our stakeholders • A focus on our wider stakeholder openness is key to ensuring we - our customers, our colleagues, commitments including diversity remain a trusted company. Our • We have a full understanding of, and we meet all of our relevant our investors, the society we live in and equality opportunities in our Code of Conduct, Doing the Right statutory, licence and regulatory obligations in all material respects and the environment we rely on to workforce and supply chain. Thing, which has been relaunched except where indicated on page 26. deliver our services. • A focus on supporting our local this year, sets out the cultural • We have taken appropriate steps to understand and meet customer communities through our social norms and behaviour expected expectations. Our social purpose aligns with our tariffs, social dividend, and other of everyone at Hafren Dyfrdwy. • We have sufficient processes and internal systems of control to fully company strategy, which considers charitable contributions. Everyone who works for and with meet our obligations. short and long-term goals. These us is required to comply with this. • We have appropriate systems and processes in place to identify, manage, are focused on driving long-term We have undertaken a number of The Board also recognises the mitigate and review our risks. sustainable performance for the engagement activities this year to importance of its role in setting the benefit of all those we serve. We develop our understanding of the tone for the Company’s culture and • We meet the Ofwat objectives on board leadership, transparency and continue, as a Board, to oversee the Company’s culture and to ensure that is why we complete a Doing governance to and ensure that we explain clearly how we meet those delivery of our strategy through: we understand what matters most the Right Thing e-learning course objectives. to our people. This helps us develop every year alongside all employees. • We have reviewed our governance to ensure we conduct the regulated • Our five-year business plan: and promote the company purpose: company as if it were a public limited company separate from any other delivering the outcomes and Each and every person in the business. social purpose our customers • Participated in a dedicated company plays a key part in want. company purpose and culture delivering our business plan. The COVID-19 impacts have been considered when making our declaration • A focus on our climate change session. Company Purpose and Values are commitments to create long- • Employee engagement survey translated and embedded into term sustainable value. (QUEST) results reviewed and company objectives through each Signed for and on behalf of the Board: • Sharing our longer-term steps taken to address feedback. management level. These are ambitions that go beyond our • Met with employees at site visits focused on improving performance business plan for 2020-2025 both during and outside of the for all those we serve, in line with including our 30 year drought Board meeting calendar. our overall strategic objectives. Liv Garfield John Coghlan plan, and our long-term leakage • Company purpose and culture, This is also reflected in our Chief Executive Chair reduction targets. talent development and people employee bonus scheme, whereby Hafren Dyfrdwy Cyfyngedig Hafren Dyfrdwy Cyfyngedig • Sharing our commitments on our strategy discussed at Board 51% of measures are non- financial triple carbon pledge. meetings. and customer focused targets. • Fostering the engagement of • Participated in a strategy day employees to deliver our plans. specifically to consider our • Our future outlook approach has carbon and energy strategy and embedded the well-being goals the legitimacy of our sector. Mohammed Mehmet set out in the Well- Being of • Monitored and assessed the Non-Executive Director Future Generations (Wales) Act culture of the Group through Hafren Dyfrdwy Cyfyngedig 14 July 2020 2015. regular meetings with the Hafren Dyfrdwy Executive Committee and management. 26 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 2727 Departures from the statement

Description of duty/ Purpose of duty/ Disclosure Customer Impact Action Taken obligation obligation Regulatory Reservoirs Act 1975 Recording of Water We have identified that There is no direct We have carried out Section 11 Levels: For every there have been 3% of customer impact. an internal second line [high-risk reservoir] the instances during the year Reservoir safety has assurance and confirmed undertakers shall keep a where water levels have been maintained that overall there are record in the prescribed not been fully recorded in throughout. no material issues to Statements form of water levels and line with 1(a) of section 11 regulatory compliance. depth of water, including legislative requirement The independent Actions have been noted the flow of water over the between April 19 and Reservoir Review for further improvement waste weir or overflow December 19. While Panel has appraised and are being monitored this is not a material the situation in 2019 through to completion. engineering issue and and fully endorsed the In the interim, for the poses no risk to reservoir fact that there was no first four months of 2020, safety, we want to be compromise to reservoir a section 11 tracker has open and transparent safety. been distributed to team around issues identified managers on a weekly with reservoir processes basis to provide oversight and the corrective of tasks required to action taken as we be completed. Since recognise this is an the start of 2020, no area of importance breaches have been to our customers and identified. stakeholders. Our long-term technology solution was instigated through a project to automate SAP tasks which can be tracked instantly. This more substantial fix was completed in May. Non- financial-Cost Additional regulatory During a review we Although the error is Following identification Assessment Tables (RAG information which identified an error which small, the percentage of the error we have 4): 4R.24 Total measure forms part of the annual resulted in movements impact is large due to the reviewed our historical of sludge produced, performance report to a sludge site inlet overall small numbers data and corrected the treated by third party being included in our of sludge movements error. sludge service provider calculations. for HD. We are working We have restated in 4): 4R.32 Total measure on an automated system our APR and provided of intersiting ‘work’ done to prevent the error additional commentary. by tanker occurring in the future 4): 4R.35 Total measure which will be in place of intersiting ‘work’ done next year. by tanker (by volume transported)

Non- financial-Cost Additional regulatory During a review of our There is no impact on We are submitting permit Assessment Tables (RAG information which sewer overflows, we the ODI reward/ penalty applications this AMP for 4): Number of combined, forms part of the annual identified a variance in position. overflows that have been settled and emergency performance report the number of overflow flagged to the regulator. sewer overflows assets and the number We are liaising with of permits/ consents that the regulator providing we have, which impacts regular updates our asset data returns for with supporting data annual reporting. and ensuring that applications are processed in a timely manner. 28 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 29 Regulatory Statements

The following section contains the Their remuneration is The LTIP outcomes are reasonably practicable. These e. Statement of Directors’ f. Tax strategy statements required by the terms linked to the achievement measured over a three-year are the same principles that responsibilities (Condition F) We are committed to managing of our licence conditions and the of performance measures. period, and are based on a apply to listed companies. The Directors are responsible our tax affairs in a responsible statutory requirements set out in A recharge is made to single performance measure, for the preparation of the APR manner. This means paying the Details of how the Company has the Water Industry Act 1991 and Hafren Dyfrdwy in respect Return on Regulatory Equity and for its fair presentation in right amount of tax at the right applied the Code during the year where required is endorsed and of duties carried out by the (‘RoRE’). LTIP awards with a accordance with the basis of time in compliance with UK tax are set out in the Company’s signed by the Board. See also Executive Directors on behalf performance period beginning preparation and accounting rules and acting in accordance Annual Report and Accounts, our Board’s Risk and Compliance of the Company, based on a after 1 April 2018, are subject policies. with the values set out in which is available on the Statement on page 24. proportion of time spent. to an additional stretch target our corporate responsibility Company’s website. of upper quartile RoRE. In Further to the requirements of framework. 1. Disclosures required by In 2019/20 this amounted to determining the outcome Company law, the Directors are The Company’s Annual Report 1.3% for the Chief Executive of the incentive schemes, required to prepare financial References to ‘tax’ include taxes RAG 3 and Accounts includes a and 1.4% for the Chief standards of performance are statements which comply with that we incur (corporation tax, longterm viability statement in a. Link between directors’ pay and Financial Officer. assessed by the Severn Trent the requirements of Condition F business rates, employer’s NIC, the Strategic Report on page 26. standards of performance Plc Remuneration Committee of the Instrument of Appointment VAT and various environmental The 2019/20 bonus was based Our remuneration policy is to ascertain if targets have of the Company as a water and taxes) as well as taxes that upon four main components: The Company’s dividend policy aligned to our purpose, vision, been achieved. is to declare dividends which are sewerage undertaker under we administer and collect and strategy thereby incentivising • Group PBIT consistent with the Company’s the Water Industry Act 1991 on HMRC’s behalf (PAYE and great customer services and the b. Disclosure of information to and Regulatory Accounting employee’s NIC). • Customer, Asset Health and regulatory obligations and at a creation of long-term value for auditor level which is decided each year Guidelines issued by the Water Environmental ODIs The Companies Act requires Our approach to tax all our stakeholders. after consideration of a number Services Regulation Authority. • Customer service in the Directors to make a statement of factors, including customer This additionally requires the Our approach to tax is overseen We operate a unified year (measured through in the Company’s Annual Report service, regulatory uncertainty, Directors to: by the Severn Trent Plc Board remuneration structure at the % reduction in written and Accounts regarding the customer ODI rewards or and is governed by the following Severn Trent group level. The complaints); provision of information to the a) Confirm that, in their opinion, penalties, actual and potential key principles: Severn Trent Plc ARA provides auditor. RAG 3 requires an the Company has sufficient • Health and safety efficiencies, future cash flow detailed disclosures of our equivalent statement to also be financial and management • We will manage our tax affairs • Customer experience requirements and balance sheet renumeration policy and how this made in the Annual Performance resources for the next twelve responsibly, recognising considerations. has been applied in the year. Half of the annual bonus is Report. This statement is set out months; the interests of all our below. stakeholders; The policy and application to delivered as cash, and the The amount declared is expected b) Confirm that, in their opinion, balance is deferred into to vary each year as the impact the Company has sufficient • We will not undertake Hafren Dyfrdwy is summarised In the case of each of the shares for a further 3 years. of factors changes. No dividend rights and assets which would aggressive tax planning below: persons who are Directors of was paid in the current or prior enable a special administrator or any planning that is not the Company at the date when i) Non-executive directors: We have an established year and the Directors do not to manage the affairs, aligned with the economic and this report was approved, so The Chair and non-executive internal governance processes recommend a dividend in respect business and property of the commercial activities of our far as each of the Directors directors do not participate for setting performance of the year ended 31 March 2020. Company; business; are aware, there is no relevant in the Company’s incentive targets and reviewing audit information of which the c) Report to the Water Services • We will make use of widely arrangements (i.e. annual delivery. This process uses d. Long-term viability statement Company’s auditor is unaware; Regulation Authority changes claimed incentives offered bonus or share schemes) and cross company Executive The Directors’ full assessment and each of the Directors has in the Company’s activities by Government to encourage were paid no remuneration level meetings to review and of financial viability can be found taken all the steps that he/she which may be material in investment; and other than their respective challenge performance and in the Hafren Dyfrdwy Annual ought to have taken as a Director relation to the Company’s • We will maintain an open, Directors’ fees. Details can be delivery plans presented by Report and Accounts on page 31. in order to make himself/herself ability to finance its regulated transparent and collaborative found in the Hafren Dyfrdwy Strategic Leaders accountable aware of any relevant audit The Directors have assessed activities; relationship with HMRC Annual Report and Accounts. for each customer ODI. This process allows Executive level information and to establish that the viability of the Company over d) Undertake transactions consistent with maintaining ii) Executive directors: challenge, peer challenge and the Company’s auditor is aware a seven year period to March entered into by the appointed our good working relationship. Hafren Dyfrdwy has scrutiny from the Regulatory of that information. 2026, taking into account the business, with or for the Executive Directors who team which ensures there is a Company’s current position benefit of associated The effective management of our c. Governance and dividend policy have responsibility for both transparent link to customer and principal risks. Based on companies or other tax affairs is in the best interests As a subsidiary of a FTSE regulated entities with Severn expectations (as expressed by that assessment, the Directors businesses or activities of the of customers as it helps to keep 100 listed company, Hafren Trent Plc. As such at a Group customer ODI targets), wider have a reasonable expectation appointed business, at arm’s our bills as low as possible. Dyfrdwy has chosen to apply level, the Executive Directors regulatory expectations and that the Company will be able to length; and the principles of the April 2016 receive remuneration our licence conditions. continue in operation and meet e) Keep proper accounting version of the UK Corporate through the annual bonus its liabilities as they fall due over records which comply with Governance Code (the ‘Code’) to and longterm incentive plan the period to 31 March 2027. Condition F and the Regulatory its governance arrangements (‘LTIP’). Accounting Guidelines. where appropriate and 30 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 31

Tax governance Non-UK operations 2. Ring Fencing Certificate iii) In the opinion of the Directors, would impact the above factors. Responsibility for tax governance All of the Company’s revenues (Condition K and P) the Appointee will for at Details of matters considered sits with the Chief Financial and profits are generated in the least the next 12 months, and the conclusions reached are Officer, with oversight from the UK and are subject to UK tax. Licence conditions K (disposals have available to it rights set out in the viability statement Severn Trent Plc Board and of land) and P (ring fencing) and resources other than in the company’s Annual Report Audit Committee and day-to-day Tax transparency require the Company, at all financial resources, which are and Accounts which can be found support from a team of qualified We are supportive of measures times, to ensure that if a special sufficient to enable it to carry at stwater.co.uk. in-house tax professionals. aimed at enhancing tax administrator were appointed to out those functions. Management provide the Board transparency and are committed manage the regulated activities, In reaching this conclusion, the with evidence that each of the In accordance with Group risk to providing information on that administrator would have Board has considered: factors set out above have been management procedures, our tax affairs in a clear and sufficient control over the addressed in assessing whether tax risks are recorded and straightforward way that regulated business and assets • financial resources and the company has sufficient monitored throughout the year. enhances our stakeholders’ to be able to do so. In addition facilities; resources to enable it to carry If a material uncertainty is understanding and provides to the statement set out above • management resources; out its Regulated Activity for identified, external advice may confidence that we are paying under licence condition F and • systems of planning and the next 12 months. The Board, be sought to ensure that our our fair share of tax. In 2019/20, the Regulatory Accounting internal control; through its Audit Committee, interpretation of the relevant UK the Group received the Fair Tax Guidelines, the Company is • rights and resources other scrutinises and challenges the tax rules is appropriate. Mark accreditation. required to confirm that it is in We may also seek to resolve an compliance with these conditions than financial resources; evidence provided to ensure uncertain tax position directly Non-UK operations and make suitable sufficiency • contracting; and itself that the process is robust. with HMRC before a tax return is The Board is satisfied that All of the Company’s and its statements to that effect. This • the expected impact of filed, in accordance with HMRC’s in the current year a robust subsidiaries’ revenues and statement is set out here. This COVID-19. framework for co-operative process has been followed. profits are generated in the UK has been subject to third line The company is dependent on compliance. assurance by Deloitte. Further information relating to and are subject to UK tax. its contracts with Severn Trent our internal controls is detailed Any significant tax risk is Water to carry out its Regulated in our Board governance and Scope In accordance with the reported to, and overseen by, requirements of the Water Activities in its Powys region. compliance section and our the Audit Committee, who also This Tax Strategy covers the Services Regulation Authority, These contracts include the assurance summary. receive tax status updates as period ended 31 March 2020 and our Board confirmed that, as at necessary provisions and part of the interim and year end applies to Severn Trent Water 31 March 2020: requirements in respect of financial reporting programmes. Limited and its UK subsidiary the standard of service to be undertakings. It is published in i) In the opinion of the Directors, supplied to the company to Relationship with HMRC compliance with the requirement the Appointee will have ensure that the company is In maintaining a good working at Paragraph 16(2) of Schedule available to it sufficient able to carry out the Regulated relationship with HMRC, we 19 of Finance Act 2016 for large financial resources and Activities. seek to ensure that HMRC is businesses to publish their tax facilities to enable it to carry The Board has considered the kept up to date with business strategy. out, for at least the next 12 company’s prospects and the developments, including any months, the Regulated Activity potential impacts of the principal commercial transactions g. Claims arising from loss or (including the investment risks and uncertainties that with potentially significant tax damage relating to sewer programme necessary to fulfil implications. Where queries or flooding the Appointee’s obligations misunderstandings arise, then Our practice in dealing with under the Appointment); and these are managed on the basis claims arising out of loss or ii) In the opinion of the Directors, of full disclosure and we will damage alleged to have been the Appointee will for at least work with HMRC to bring any caused by sewer flooding can be the next 12 months, have items to resolution. We were found on our Code of Practice on available to it management also pleased to have our low risk our website. resources which are sufficient category rating renewed for a Liv Garfield John Coghlan to enable it to carry out those further three years by HMRC. Chief Executive Chair functions. Hafren Dyfrdwy Cyfyngedig Hafren Dyfrdwy Cyfyngedig

Mohammed Mehmet Non-Executive Director For and on behalf of the Board Hafren Dyfrdwy Cyfyngedig 14 July 2020 32 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 33 Summary

Our first full year operating as Hafren Dyfrdwy is notable for its successful delivery of critical investment programmes to secure the future water quality across our region. As a company Annual that covers a highly rural area, with a relatively small population base, it can be difficult to achieve our stretching targets, many of which are set in reference to levels achieved by more localised companies, or the larger sewerage companies. However we remain committed to seek performance more innovative and efficient ways to improve performance for our customers. We also closed out negotiations with our regulators to agree our final determination in the PR19 process, setting our revenue and performance measures for the 2020-25 period. This agreement is the culmination of nearly two years’ detailed work and conversations with summary hundreds of our customers and stakeholders. Delivering strategic schemes Delivering exceptional waste Over recent years this has been service performance a key focus area for us through Throughout the 2015-20 period targeting proactive work to keep we agreed with the Drinking We deliver wastewater services to the sewers clear, preventing Water Inspectorate that we would customers in the Powys region and the build up a fats, oils and complete a programme of work while incidents are rare, when they greases working with local food designed to replace existing do occur they are the worst failure establishments and a wide-scale reservoirs that were nearing the our customers can experience. It education programme aimed at end of their useful life with new can also impact on the environment understanding what should and assets, securing the water quality if that spillage occurs near a water should not be flushed down the in the area for generations to come. course or natural space. drain. We continue to see the This extensive programme of work benefits of these activities as we required large scale capital work The last 12 months have been recorded low levels of pollution with the replacement of Llwyn some of the wettest on record, incidents and external sewer Onn treated water tank, Sugn-y- with cumulative rainfall between flooding incidents. More customers Pwll service reservoir, Berwyn June 2019 and February 2020 in the experienced internal flooding (Llangollen) service reservoir, and whole Hafren Dyfrdwy region more than we consider acceptable and the completion of roof membranes than 150% of the long-term average we’ll continue to work to drive at eight service reservoirs. This (Parry et al., 2020). In February improvements in this moving year we completed the programme 2020 in parts of Wales, rainfall forward. with construction of two large exceed three and half times the capital reservoir schemes; the average. The timing of three severe Improving our water service replacement of Sugn-y-Pwll and a storms; Ciara, Dennis and Jorge, in performance new reservoir at Llangollen. quick succession is a critical factor in understanding the severity of the This is the last year we’re reporting Supporting our customers impact. our performance separately for our customers in Wrexham and This year we’ve been working in It’s the wastewater part of our Powys/Monmouthshire. We’ve seen partnership with organisations network that has been most notable year on year improvement such as Powys Association of impacted by the severe wet on some of the core water service Voluntary Organisations, Warm weather we experienced over the commitments such as leakage and Wales and Newydd and Mid- autumn and winter period. At times supply interruptions. Wales Housing. This collaboration the wastewater network would has helped us reach 25% more become overloaded as rainfall In Powys we’ve hit 100% on the customers that were struggling to fell on already saturated ground, Drinking Water Inspectorate’s pay their bills than we targeted. this increased the risk of flooding measures of water quality (mean for our customers. Our continued zonal compliance), and hit our We’re pleased to see a 26% focus from the operational teams leakage target putting us in a great reduction in the overall number of ensured that we minimised the position to deliver the stretching household complaints this year and impact this would have on our targets for the 2020-25 period. an even better 38% reduction in customers and the environment. stage 2 complaints, indicating that when customers are dissatisfied we’ve significantly improved our resolution. 34 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 35 Reporting our performance

Our aim is to have a calm network. Improving our environment Hafren Dyfrdwy is a wholly owned subsidiary of Severn Trent Water Limited. The Company This mainly means reducing was launched on 1st July 2018 and is one of 11 water and wastewater companies operating in Our customers are placing an pressure changes which can England and Wales. lead to burst pipes. Every burst increasingly high value on the leads to water being lost through natural environment. We share The licence changes mean that we’ve had to realign targets previously agreed by Severn Trent this view and our commitments are leakage, a more turbulent flow Water and Dee Valley Water to the new company, Hafren Dyfrdwy - this ensure our customers leading to increased water quality aligned with Welsh Government’s complaints, bursts also bring a Well-being of Future Generations get at least the level of service agreed with their supplier for the 2015-20 period. risk of customers being off supply (Wales) Act 2015. Our aim is to and increase the likelihood of low operate in a way that considers To avoid making the reporting The groupings allow customers to understand performance both now and pressure. the impact of our operations on unnecessarily complex, and to for future generations: the environment. We are fully make sure customers in Wrexham It’s going to take time as we committed to protecting and and Powys remain protected by implement the improvements improving our environment and so the targets originally agreed with across our network, focussing on we’re particularly delighted with Ofwat, we have: Service now Asset health Resilience measures measures measures the areas of highest risk to our our performance in this area. customers. So we’re also looking • For customers in Wrexham and at how we can respond when things This year we’ve published our first the surrounding region: We’ve do go wrong to ensure the impact ever Sustainability Report as part provided an update for each of the Time of the Severn Trent Group. This on our customers is minimised. 13 performance commitments Today Short term Medium term Long term demonstrates our commitment to originally agreed by Dee Valley In Wrexham our water quality improving the natural environment Water. The targets reflect Operating conditions for the the proceeding nine months is a performance was slightly worse through activities such as performance levels agreed for year critical factor in understanding the with a mean zonal compliance improving biodiversity, reducing customers in Wrexham. severity of the impact. Cumulative score of 99.92% and a small year water use through leakage and per The last 12 months have been some rainfall between June 2019 and on year increase in drinking water capita consumption and committing • For customers in Powys and of the wettest on record for our February 2020 across the Hafren complaints. We did, however, hit to the carbon triple pledge. Monmouthshire: We’ve provided region which has resulted in the Dyfrdwy region was more than our target on leakage putting us in an update for the performance wastewater service being put under 150% of the long-term average a strong position for AMP7. commitments agreed by Severn real pressure. (Parry et al., 2020 ). Flooding Trent Water. The targets reflect associated with storm Dennis In February 2020 Storms Ciara, performance levels agreed significantly affected South Wales, Dennis and Jorge had a substantial for customers in Powys. To Worcestershire and Shropshire. and prolonged impact (Parry et al., make our performance more 2020). In parts of Wales, rainfall We recognise that it is our role to understandable, we have grouped exceed three and half times the ensure our service is as resilient commitments into eight areas: average. The impact and timing of as possible to all shocks including these storms in quick succession extreme weather. We continue to on already saturated ground from look for new ways to protect our persistent and heavy rainfall over customers.

Service Now Asset Health Resilience Environment - Waste -£0.102m £0.008m -£0.015m -£0.128m

Service Now Service Now - Serving our Responsible, - Water Retail community efficient -£0.178 Non-Financial Non-Financial investment

Record Breaking Rainfall, Met Office March 2020 (https://www.metoffice.gov.uk/about-us/press-office/news/weather-and-climate/2020/2020-winter-february-stats) https://nrfa.ceh.ac.uk/sites/default/files/Briefing_Note_V6.pdf. Published March 2020; accessed May 2020. Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 36 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 37 Our ambitions for AMP7

Adding value for the customers we serve, enhancing the environment whilst delivering wonderful core services.

Improving the well-being of customers and society Taking the first steps to a lead free Wales. Protecting pipes in 230 homes and schools by 2025.

Supporting those in need, creating a more equal society Doubling the number of customers we offer financial support to.

Severn Severn Trent Trent Severn Trent Academy An environmental leader in a resilient Wales Improve the biodiversity of 450ha of land by 2025. Reduce leakage by at least 12.4%. Affordable for everyone creating a prosperous Wales Reducing internal flooding by 60%. Lowest bills in Wales.

Severn Trent

Managing risk Reducing drinking water quality Improving resilience from catastrophic contacts by 34%. failure at all of our reservoirs.

Severn Trent

Investing in our Community and the A globally responsible Wales environment Contributing to Severn Trent Group commitment to the Improving 46km of river water quality - triple carbon pledge, ensuring that by 2030 we would largest statutory programme in this part use 100% renewable energy, have a fully electric fleet of of Wales for 20 years. vehicles and have net zero carbon emissions. 38 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 39

Clear and transparent reporting

It’s important that our customers, stakeholders and regulators can trust the information we Setting the baseline for from our partners Jacobs This has been an evolution over report; they need to be confident that they can trust us to act responsibly and always in our AMP7 reporting Consulting. They have undertaken the past three years as we updated customers’ best interests. This is particularly important where we have identified issues a full review of our data sources, our systems and methodologies in On the 1st April 2020 we entered a reporting process and the actual line with the guidance. Each year with data previously reported and need to restate our position. Where this impacts on ODI new five-year asset management performance data to confirm the we have reported our progress outperformance previously claimed we need to be clear and transparent about the changes we plan and a number of our reported outturn position is robust. to Ofwat as part of the shadow have made. regulatory commitments have reporting commitments. We will changed. Some measures are Leakage continue to make the necessary There are two specific area we wish to highlight this year as detailed in the table below: adjustments to our reporting brand new and have never been There are two key changes on how systems and methodology to reported before, others are an we report leakage: Code Measure Explanation Adjustment (£m) Reported evolution of existing measures as ensure we are compliant by APR21. ODI (£m) the industry works to standardise 1. Alignment with the consistent As requested, this year we are WB2 Leakage During the report year we have notified Ofwat of N/A N/A definitions. For a few measures definition for the industry restating our historic levels of an inconsistency between the licence separation we agreed with Ofwat that our leakage for 2017/18 and 2018/19 of July 2018 and the targets set at PR19. 2019/20 performance would set the 2. Move to a three-year rolling in line with the AMP7 reporting The July 2018 targets were apportioned between baseline that our targets for AMP7 average methodology. This ensures that the Severn Trent and Hafren Dyfrdwy at a high level, would be determined from. We can confirm that by 1st April baseline for AMP7 is set on a like- but more detailed analysis for PR19 identified To ensure a robust starting 2020 we were compliant with for-like basis as the future targets. 2.3 Ml/day was inadvertently allocated to Severn position, we have sought many of the components of the Trent, making Hafren Dyfrdwy’s targets too independent, third line assurance consistency definition for leakage. stretching. Following the conclusion of the PR19 programme, Ofwat has agreed to reset the 2017/18 2018/19 2019/20 Three-year average 2019/20 targets by reallocating 2.3 Ml/day from PR19 forecasts 14.6 14.6 14.5 N/A Severn Trent to Hafren Dyfrdwy. APR Actuals Reported 14.26 15.27 12.76 N/A In line with principles established for leakage (£0.070m) NIL reporting in AMP6 in Severn Trent Water and Shadow reported 12.36 15.76 13.03 N/A in HD Powys in APR19, we have based our value (Ml/d) incentive payment on the change in underlying Amended for AMP7 17.84 14.76 13.03 15.21 real loses. Real loses improved by 0.57 Ml/ definition (Ml/d) day generating an outperformance payment of £0.070m. Combined with the above change Differences between our PR19 forecasts (Table App2 line B30) can be explained by our company wide leakage we do not believe it is appropriate to claim an drive which has led us to beat our 2019/20 target. Further details can be found on page 44. As demonstrated outperformance payment this year. above the 2019/20 baseline from which AMP7 targets will be calculated is 15.21 Ml/day. Therefore our regulatory Further detail can be found on page 44. targets, in line with the annual percentage improvements stated in our PR19 Final Determination, are outlined SA1, SA2 Wastewater At PR14 a customer protection mechanism that SA1 (internal (£0.128m) below: and SC2 metrics limited the cumulative ODI outperformance sewer flooding) - (internal for a service to 2% of RORE was applied to all no adjustment sewer companies. Hafren Dyrdwy breached this cap on 2019/20 Outturn AMP 6 Was the 2019/20 Targets flooding, its wastewater service during the 2018/19 report Definition target met? external year. 2020/21 2021/22 2022/23 2023/24 2024/25 sewer Hafren Dyfrdwy did not apply to extend the cap SA2 (external Nil Powys: 6.87 Ml/d Yes 1.2% 3.4% 6.4% 9.4% 12.4% flooding and in Powys, so the targets agreed from 1st July sewer flooding ) - Wrexham: 85.6 l/prop/day 15.0 14.7 14.2 13.8 13.3 category 3 2018 remain in effect but we will not claim any (£0.534m) pollution outperformance rewards for wastewater. We incidents) will continue to pay any penalties that we incur. In 2019/20 the excellent performance on SC2 (cat 3 Nil external sewer floodings and category 3 pollutions) - pollutions would have resulted in a total (£0.323m) outperformance payment £0.857m. The cap has however resulted in no outperformance payment for these commitments. 40 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 41

Per capita consumption (PCC) We can confirm that by 1st April make the necessary adjustments Properties at risk of low pressure At the PR19 submission a top down Per capita consumption is a new 2020 we were compliant with to our reporting systems and We have reported the number of estimate was made for our 2019/20 regulatory commitment for AMP7, many of the components of the methodology to ensure we are properties at risk of low in the forecast out-turn based on the but we’ve been measuring it for consistency definition for per compliant by APR21. Powys region throughout AMP6. most up to date data available at a number of years as part of our capita consumption. This has been We are introducing it as a bespoke the time and local knowledge of As requested, this year we are leakage calculations. For AMP7 we an evolution over the past three commitment for AMP7 including the area to account for an uplift - restating our shadow reported have ensured: years as we updated our systems our Wrexham operating area. as we saw when we increased the values for 2017/18 and 2018/19 and methodologies in line with In Powys critical point logger logger fleet within Severn Trent. in line with the AMP7 reporting 1. Alignment with the consistent the guidance. Each year we have coverage is 100%. In Wrexham As requested in our PR19 Final methodology. This ensures that the definition for the industry reported our progress to Ofwat across AMP 6 we have increased Determination, this year we are baseline for AMP7 is set on a like- 2. Move to a three-year rolling as part of the shadow reporting the logger fleet from 8 to 129, and confirming our actual 2019/20 for-like basis as the future targets. average commitments. We will continue to in AMP7 we are continuing to install performance from which our AMP7 loggers across the network at improvements can be calculated. low points and in smaller discreet The baseline for AMP7 is set at 83, 2017/18 2018/19 2019/20 Three-year average pressure logged areas. the breakdown by region is show in PR19 forecasts 144.0 142.4 141.3 N/A the table below. Shadow reported 133.28 143.59 135.37 N/A value (L/head/day) 2019/20 Amended for AMP7 128.64 136.35 135.37 133.45 Powys 15 definition (L/head/day) Wrexham 68

As demonstrated above the 2019/20 baseline from which AMP7 targets will be calculated is 133.45 Ml/day. By setting our baseline we can then determine our annual targets. In line with the annual percentage Therefore our regulatory targets, in line with the annual percentage improvements stated in our PR19 Final improvements stated in our PR19 Final Determination, our targets are outlined below: Determination, are outlined below:

2019/20 Outturn Targets 2019/20 Outturn Targets 2020/21 2021/22 2022/23 2023/24 2024/25 2020/21 2021/22 2022/23 2023/24 2024/25 83 7% 28% 28% 28% 28% 133.45 0.9% 1.8% 2.7% 3.5% 4.2% 77 60 60 60 60 132.25 131.05 129.85 128.78 127.85

Effectiveness of the affordability As requested, this year we are of support setting the baseline for AMP 7 Effectiveness of the affordability based on our 2019/20 out-turn. The of support is a bespoke regulatory baseline for AMP7 is set 25.9%, measure new for AMP 7. It is based on nine months of data. designed to increase the quality Our regulatory target is a 10% and effectiveness of support increase in the effectiveness of given to customers on our social our support schemes by the end of tariff schemes. It tracks how AMP7. many customers stay out of debt following completion of their support scheme. 42 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 43

Service Now - Water

Taking care of one of life’s essentials means we look after every drop of water all the way Prevent We have also continued to increase Compliance Risk Index. In Hafren from our upland catchments to the customer’s tap. We want our product to arrive in the best Our aim is to calm the network to our logger fleet, our eyes on the Dyfrdwy our outturn position for condition, and as little as possible to be lost along the way. It means our customers get water reduce the risk of burst mains. network that can inform us of an 2019, including Wrexham, was issue so we can start to respond 0.325; which we expect to be one of great quality all the time. These metrics refer to our performance in Powys, where our One of the ways we’ve been doing this is by identifying and reducing before our customers feel any loss of the best results in the industry. customers are spread across a highly rural operating area. This changes the way we have to pressure transients; pressure of service. Disappointingly we’ve missed our operate, having a more dispersed asset base and longer network to deliver water to fewer shockwaves that travel along the target for drinking water quality Future Outlook customers. It can make it more difficult to monitor and respond to issues when they occur. Any pipes and can cause fractures in contacts in Powys. We have made reference to forward looking metrics relate to the entire Hafren Dyfrdwy operating area. weaker parts of the network. We We’re passionate about delivering positive progress across the AMP, can reduce the severity of these a continued improvement in our achieving a record low number of supply interruption performance complaints. Actual performance Outperformance payment/ pressure transients by being smarter with how we ramp up/ for our Welsh customers across Code Description Unit (with target in brackets) (Underperformance penalty) One of the key drivers of this down the pumping pressure. In HD AMP7. We’ve agreed some really 2018/19 2019/20 £m improved performance is by we have 36 booster stations /1,000 stretching targets for AMP7, but 67 124 proactive distribution network WA1 Drinking water quality complaints Number (0.0486) km of pipe, this is 158% more than delivering them will require us (38) (70) flushing. Through insourcing the Severn Trent which means the to find new and innovative ways 99.94% 100% team we’ve flushed 12% of our WA2 Mean zonal compliance Percentage NIL likelihood of us changing a pump to monitor our network and (100%) (100%) DMAs this year. Because this activity is higher and shocks could respond to issues. Building on 7.9 6.9 commitment runs on a calendar WB2 Leakage Ml/day NIL be more likely. the improvement activities we (5.50) (7.7) also need to identify innovative year basis, when Hafren Dyfrdwy 26% 27% was created on 1st July 2018 in APR WB3 Speed of response to visible leaks Percentage (0.009) Response opportunities in order to mitigate (100%) (100%) 19 we only reported on six months We’re making local improvements the volatility of this measure. A Number of minutes customers go 93.74 31.60 of performance for that year WB4 Minutes (0.125) to help respond much quicker, small number of events can have without supply (7.1) (8) (Severn Trent reported on the first including, introduction of a satellite a disproportionate impact due to 11 15 six months) - so the year on year WB7 Customers at risk of low pressure Number 0.005 depot and a specialist incident network design, population density (21) (21) comparison presented in the table response vehicle. and topography. isn’t on a like for like basis. Comparing performance year on 4 Communication Drinking Water Quality year is difficult as this is our first Leakage full year of operation. However, We understand that the loss of Our performance on mean zonal we believe we have seen a notable supply can be challenging for our compliance has been exceptional Customers have told us that customers, during all incidents it’s delivering lower levels of leakage improvement in many of the core 3 in 2019/20, achieving 100% water service commitments for our really important that we provide compliance; this means every one is high on their expectations, customers in Powys. customers with clear and accurate of the almost 3,500 tests we carried as it demonstrates that we’re information. out met all water quality conditions. minimising waste and playing our Supply Interruptions part to ensure there is enough Through the use of our website, 2 We’ll no longer be reporting this water to meet future demands. We report this measure as the social media channels and our measure in future as it’s being average number of minutes automated text messaging system replaced by the Drinking Water Transparent Reporting customers are off supply each we aim to provide our customers Inspectorates new measure, the When we split the English and year where the interruption is for (millions) minutes Property 1 with all the information they need. Welsh operating licenses in July at least three hours. This means 300 2018 the leakage targets were we add up all of the individual set using a high-level allocation interruptions and divide the total for Severn Trent between the number of minutes by the number 0 250 ‘Core’ operating area and the of households we service. 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 Powys region. The apportionment was based on a high-level Our target of 8 minutes was more in this measure. When a single, We’re committed to reducing the 200 analysis of the historic level of stretching than the PR14 upper large event impacts our customers impact of supply interruptions leakage between the two areas. quartile level of 12 minutes. Despite it can have a disproportionate and will continue to seek new, a 66% improvement year on year, impact on the normalised value as innovative ways to do this for our 150 and the best ever performance our customer base is significantly customers over the coming years. in Powys we have unfortunately smaller than other water and The focus of improvement activities 100 missed our target. sewerage companies. Even issues remains on preventing asset failure that affect a small number of where we can by maintaining As a company that serves a customers can occur in areas that a calm network, responding to small population, but covers a 50

make them hard to locate, respond events much quicker and keeping quality complaints Number of drinking water large geographical area, we are and repair quickly. our customers informed. particularly susceptible to volatility 0 2015/16 2016/17 2017/18 2018/19 2019/20 44 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 45

Service Now - Water

Complexities we faced included: Calculating Incentive Payments in All companies are adopting Future Outlook on Water more target investment on the 2019/20 a standard approach and We know it is fundamental to our network and inform our proactive • The configuration of our network We’ve improved on our methodology for calculating business to get the basics right, maintenance programme - crossing the boundary at multiple 2018/19 position by 13%, made leakage, so our future reported ensuring water is good to drink and preventing deterioration and locations, improvements in underlying real values may look slightly different. always there when customers need allowing us to prolong the life of our assets. • Water resource zone and district losses of 0.57 Ml/d, the second it most. In future we’ll combine our year in a row, and outperformed Speed of Response reporting for Powys and Wrexham meter areas overlapping, In order to meet the needs of our against our target. In normal to provide our customers with We’ve previously reported that long term water management • The complexities of the leakage circumstances, this could result a clear, transparent view of our this measure is not delivering plans, and the expectations of our MLE calculation. in an outperformance payment performance. for our customers in the way it is customers, we need to continue (reward) but we do not believe this intended to. This is particularly to innovate and invest in new A more detailed, bottom-up would be the right thing to do as we The scale of our operation means true in the rural area we operate technology alongside traditional approach reviewing leakage as a have agreed with Ofwat to adjust that our customers experience a where finding and identifying the tried and tested methodologies. For whole for Hafren Dyfrdwy (Powys the target agreed in the NAV for low number of absolute failures exact location of a leak can prove example, at a Severn Trent Group and Wrexham) was used for the Powys from 5.4Ml/d to 7.7Ml/d. on the service we provide, but final proposals submitted as part difficult. It is in customers’ best complex incidents can have a level we have recently launched of PR19 which ultimately set the Driver of Performance interests that we pay a penalty for disproportionate impact on our the World Water Innovation Fund our performance despite a small - joining forces with like-minded targets for 2024-25. These two With the introduction of the new customers. It is clear we still can improvement on last year. companies across the globe to approaches do not reconcile for leakage operating model and new make improvements. find new ways of working - pooling 2019/20. leakage management systems We have agreed with our customers Increasing the instrumentation and resources and ideas to develop the focus across the business We approached Ofwat during the that this will be the last year we telemetry on the network coupled and accelerate new technologies. has been hugely increased and report year to discuss alignment of report this metric, focussing in with data analytics will ensure Our £5 million investment in the improvements can be seen. the 2019/20 targets. Our analysis future on overall levels of leakage we have accurate and real-time Fund will make a real difference The new operating model is suggested that 2.3 Ml/day of the and reducing water usage. information, allowing us to know to peoples’ lives across the world. an ownership model putting target had been allocated to Severn about and respond to problems on The Fund’s initial focus will be on technicians at the heart of their Low Pressure Trent Water that should have been the network before our customers leakage, which is a key issue for neighbourhood and empowering assigned to Hafren Dyfrdwy. As feel any impact. It will also allow companies worldwide. them to deploy technology in We know that low water pressure is such, we have agreed with Ofwat to one of the key causes of customer align the 2019/20 targets with the a way that further builds our understanding of the network dissatisfaction. We are delighted to information submitted as part of be able to say that we’ve once again PR19. We have re-allocated 2.3 Ml/ and helps account for more of our precious product. out-performed our target and have day from Severn Trent to Hafren just 15 properties in the Powys Dyfrdwy. region on the low pressure risk register. This is a small proportion of the Leakage movement over target for Severn Trent (c0.5%) but the last 12 months has a much more significant impact 2018/19 outturn 7.89 Ml/day for Hafren Dyfrdwy (c43%). Unaccounted for -0.57 water change Data improvements -0.45 Methodology 0.00 Aligning the 2019/20 targets changes Original 2019/20 5.4Ml/day 2019/20 outturn 6.87 Ml/day target 2019/20 target 7.7 Ml/day Revision (2.3 Ml/day) Revised 2019/20 7.7 Ml/day target for Powys 46 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 47

Service Now - Waste

We know that an escape of sewage from our wastewater network is one of the worst service reduce the capacity of our sewers By reducing the number of category Taking a holistic view we will drive failures that can occur. Whether it’s in a customers’ property, or impacting the environment, and increase the risk of blockages three incidents we have seen an down the number of blockages it is clearly a priority for us to make improvements. Our operational area for wastewater is occurring. increase in category four incidents, by seeking to improve our the least serious. Because this customer education work on sewer very rural, and historically we have performed well in this area with low absolute levels of Our ‘be in a binner not a blocker’ commitment runs on a calendar misuse, whilst at the same time performance. In future some of these measures will be reported as a normalised measure, campaign has been accelerated year basis, when Hafren Dyfrdwy expanding our data analytics to allowing greater comparison across companies in England and Wales. Because of this just a and widened along with local and was created on 1st July 2018 in APR better understand high risk areas single incident can have a big impact on the normalised performance. We think it’s important regional media items and our 19 we only reported on six months in our network and proactively biggest ever social media push on of performance for that year cleanse the system - preventing a to consider our performance both in terms of our comparative position to others but also our unflushables. company specific targets and the absolute number of incidents. Any reference to forward (Severn Trent reported on the first problem before it occurs. This will six months) - so the year on year contribute to meeting our flooding Our focus this year has been to looking metrics relate to the entire Hafren Dyfrdwy operating area. comparison presented in the table and pollution targets. ensure our core activities are isn’t helpful. Actual performance Outperformance payment/ as tight as possible in the face We’re also planning for the long of some of the most difficult Code Description Unit (with target in brackets) (Underperformance penalty) Our current AMP 6 commitment term with the development of our operating conditions we’ve ever 2018/19 2019/20 £m includes incidents attributed to first Drainage and Wastewater experienced. We have sought to 4 10 our water and waste networks Management Plan (DWMP), due SA1 Internal sewer flooding incidents Number (0.129) ensure our contractors are hitting (5) (7) and treatment works. In AMP 7 to be published in 2022-23. This the service level agreements and 29 32 it is only those emanating from plan sets out our 25 year strategy SA2 External sewer flooding incidents Number NIL we’re identifying ways to ensure (44) (59) our sewerage assets affecting for delivering a sustainable and a first time resolution in as many The number of category 3 pollution 1 4 the water environment that are resilient drainage system, capable SC2 Incidents NIL incidents as possible incidents (5) (10) included. of catering for population growth 0 0 NIL and the effects of climate change. SC6 Serious pollution incidents Incidents Pollution Incidents Steps to improve (0) (0) Non-financial Our impact on the environment The number of category 4 pollution 5 13 NIL Reducing the number of pollution SC8 Incidents is closely regulated by Natural incidents (6) (8) Non-financial incidents is through a combination Resources Wales. Category 1-3 of: proactive activities to keep pollution incidents refers to how the sewers flowing freely, using At PR14 a customer protection of £0.857m. The cap has however Internal and External sewer it was measured in England by data to identify at risk hotspots; mechanism that limited the resulted in no outperformance flooding the Environment Agency. Natural reducing the number of incidents cumulative ODI outperformance payment for these commitments. We’ve had an excellent year for Resources Wales define the impact at treatment works and pumping for a service to 2% of RORE was external sewer floodings out of incidents as either High or Low. stations where there is already applied to all companies. Before We will continue to pay any performing against our target. We report our performance against good telemetry and learning the completed purchase of Dee penalties that we incur. Disappointingly we’ve missed our three categories: lessons when issues occur to Valley Water, and subsequent split The last 12 months have been internal sewer flooding target. ensure it doesn’t happen again. of Powys to form Hafren Dyfrdwy, • Serious or High impact pollution some of the wettest on record, Severn Trent Water had breached Whilst service failure is relatively incidents -most severe in impact with cumulative rainfall between Future Outlook on Waste this cap and applied to Ofwat to rare, when it does impact it can on the environment June 2019 and February 2020 Taking wastewater away safely and increase this cap for its English be devastating, often resulting in in the whole central Wales and returning it to the environment in licence; they were successful. a discharge of sewage either into • Category 3 or Low impact Midland region more than 150% some instances cleaner than we As a result Ofwat increased the customers’ homes and gardens incidents - less severe in impact of the long-term average (Parry took it is core to our business. overall maximum outperformance or to the environment. Escapes on the environment. et al., 2020). In February 2020 in payments for all ODI’s but tightened of sewage are caused by either parts of Wales, rainfall exceed • Category 4 incidents or Events- We provide wastewater services the performance commitment hydraulic overload or a blockage three and half times the average. evidence of a spill but no to Mid-Wales, covering an area targets for internal and external within the network. The timing of three severe storms; noticeable impact. of 1,920km2 with a population sewer flooding and category three Ciara, Dennis and Jorge, in quick density of 25 people/km2; the pollution incidents Steps to improve succession is a critical factor in We’ve recorded no serious pollution lowest out of the 22 principal To prevent blockages we undertake incidents, continuing our decade areas in Wales. Consequently our Hafren Dyfrdwy did not apply to understanding the severity of the a number of activities. Our focus on long record. We also had our best assets are generally small scale extend the cap in Powys, so the impact. The saturated ground led to customer education is becoming category 3 pollution performance and geographically dispersed. targets agreed from 1st July 2018 increased levels of run-off entering increasingly important as we drive in a decade, recording only four The scale of our operation means remain in effect but we will not our sewerage system, which in turn to limit the number of blockages category 3 pollution events beating that our customers experience claim any outperformance rewards reduced its capacity for sewage at across our network. We’re our pollution target by 60%. a very low number of absolute for wastewater. In 2019/20 the times. continually working to protect our failures on the service we provide, excellent performance on external network from the wrong things but it is clear we still can make sewer floodings and category 3 going in to the sewers such as wet improvements. pollutions would have resulted in wipes and kitchen roll. The build a total outperformance payment up of fats, oils and greases also 48 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 49

Service Now - Retail

Our customers tell us they want low bills, less sewer flooding and high quality water at the turn Steps to Improve of a tap. The new industry measures of customer experience (C-MeX) will really show how the We’ve listened to our customers delivery of our core service, and the wider societal good we drive, are making improvements for and responded by: our customers and their view of our level of service. We’ll also be reporting the new measure • Introducing dedicated weekly of experience for developers in our area through the D-MeX metric. These measures have calls focussing on work in been trialled this year and came in to affect from April 2020. Any reference to forward looking progress; metrics relate to the entire Hafren Dyfrdwy operating area. • Improving communication Outperformance payment/ throughout the customer’s Actual performance (Underperformance journey, ensuring all customers (with target in brackets) Code Description Unit penalty) are kept informed; 2018/19 2019/20 £m • Making improvements to our Customer satisfaction with their Upper quartile Median NIL RA1 Grading website including introducing services (based on a survey) (Upper quartile) (Upper Quartile) Non-financial live web chat to improve ease of Customers’ experience of dealing 81.45 77.40 RA2 SIM Score N/A contact; with us (based on Ofwat’s SIM) (Upper quartile) (Upper Quartile) Percentage of customers who • Checking in with all customers do not pay (household bad debt 3.16% 2.3 NIL RB2 Percentage on completion of their activity -if divided by total household (2.7%) (2.7) Non-financial there’s any perceived issues we revenue) can then respond quickly; and C-MeX - Covering whole HD 75.01 NIL Score N/A operating area (N/A) Non-financial • Improved the clarity of D-MeX - Covering whole HD 78.3 Score N/A N/A information relating to minimum operating area (N/A) pressure standards.

Disappointingly our ‘customer have. By coaching our colleagues Our non-household customers’ We have already started to see the satisfaction with their services’ we’re identifying techniques to expectations of us are just as high positive differences, in January score and our SIM score both saw a improve our communication with - our bespoke AMP 7 performance we were best in class and our Q4 dip from our 2018/19 position. customers, ensuring they are at the commitment shows we’re average score placed us 3rd in the heart of everything we do. committed to providing excellent industry. We know we need to do more, quality services to our business Future Outlook on Retail providing customers a great core We’ve made significant customers. service - clean safe drinking water developments on our digital We want to ensure that every that is always there and taking the platforms, expanding our channels D-MeX customer receives an outstanding waste away recycling it back into and making ourselves more During the shadow year our customer experience, regardless the environment - understanding accessible to customers 24/7. Developer Service Customers of whether they have had to contact that when things do go wrong we Dolly, our community bus, has have told us that we have friendly us or not, which is centred on need to provide a service that is been getting out into communities, and helpful staff, but that our providing a personalised service tailored to their unique situation. engaging and educating customers. communication and speed of for everyone whatever their unique response could be better. This was needs. Steps to Improve The replacement of SIM with C-Mex reflected in low D-MeX scores in will ensure the experience of all Communication is critical, a the first half of the year. number of our customers have felt our customers is represented, let down by the lack of information including those who have not provided, particularly when directly contacted us. things are delayed or did not go as During C-MeX shadow year we expected. Through our Connected came 12th overall out of the 17 in Customer Culture (C3) initiative the industry. We saw an improving we are taking steps to deliver a trend in our scores for the systemic change where all teams Customer Experience element of in a customer end to end journey the measure - moving up to 2nd in understand the impact they can Q4. 50 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 51

Environment

The natural environment is intrinsically linked to everything we do - from abstracting raw water We’ve challenged ourselves to to returning treated wastewater and disposing safely of our other waste. We’re in a unique deliver sustainable management position to enhance and protect the environment. Any reference to forward looking metrics of Wales’s natural resources, simultaneously contributing relate to the entire Hafren Dyfrdwy operating area. to well-being goals and the Actual performance Outperformance payment/ Environment (Wales) Act. Code Description Unit (with target in brackets) (Underperformance penalty) 2018/19 2019/20 £m We’re promoting innovative solutions that deliver multiple 1 3 WE1 Size of our carbon footprint - water ktCO2e (0.015) (1) (2) benefits not only for our customers but for the wider environment. For 1 2 SD1 Size of our carbon footprint - waste ktCO2e NIL (1) (2) example, our investment in our upland catchment maintenance Resource efficiency (distribution 348 343 WB1 Number NIL input per customer) (216) (213) programme addresses: • Localised flooding issues that Future Outlook on Environment Size of our Carbon Footprint Resource Efficiency directly impact our customers Water/Waste This commitment measures the Our customers trust us to secure and the local economy; As this is the first full year of average amount of water we treat their water in the long-term, by reporting our performance for and distribute each day per person taking care of the environment we • Reduces our exposure to a Hafren Dyfrwy, year on year we serve. It can be influenced by can: potential pollution incident on the comparison is not possible as it the amount of water our customers River Dee, and • Ensure a sustainable water reflects different reporting periods. use at home, the change in water cycle - we’re planning the • Enhances ecosystem resilience use for industries in our region and largest statutory environmental by restoring natural landscapes The Severn Trent Group has held wastage such as leakage on our programme on our part of Wales and removing invasive non-native the Carbon Trust Standard since network. 2009 for successfully measuring, for over 20 years, improving more species, such as Bracken. managing and reducing carbon We have seen a small year on year than 46km of rivers. We’ve also announced our emissions. High rainfall and energy reduction. This is mainly driven • Enhance our natural environment commitment to Science Based use over the winter period resulted by our company wide leakage - improving biodiversity on Targets. In practice this in an increase in our gross carbon drive which has helped reduce the over 450ha across the AMP in commitment means we’ll be footprint. volume of water we put in to the partnerships - allowing us to working to develop longer term distribution system each day. We’ve deliver wider contributions. commitments to reduce our scope We continue to see strong not seen a significant change in the performance but narrowly missed 1, 2 and 3 emissions. This will make amount of water our customers • Mitigate climate change - our target on the water service. Our sure we, as a company, do not use at home, or the amount used by commitment to develop Science use of green electricity and ongoing contribute to the further risk of an industry in our region. Based Targets. improvements in the efficiency of increase in global temperatures. our operations - particularly focus However, we have not met the Our customers have a deep on electrical efficiency which is our target we set ourselves this year. connection with the natural main source of carbon emissions - In future we will no longer be environment and want us to make help keep our emissions as low as reporting on resource efficiency, a positive difference. Over 60% of possible. instead we will be reporting per our land is designated as either capita consumption (the amount of a SSSI (Site of Special Scientific We’ll no longer be reporting water used per household) in line Interest) or SAC (Special Area our carbon emissions as part of with the rest of the water industry. of Conservation). This provides our AMP7 suite of performance a unique opportunity to actively commitments. As a company we enhance the environment and have bigger ambitions to mitigate ensure resilience enabling future climate change. Last year the generations to benefit. Severn Trent Group committed to the Triple Carbon Pledge, ensuring that by 2030 we would use 100% renewable energy, have a fully electric fleet of vehicles and have net zero carbon emissions. 52 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 53

Resilience Serving Our Community

Our ability to cope with unexpected stresses and strains and remain capable of delivering Every day we take care of one of life’s essentials on behalf of the customers we serve. We play service for the long term is fundamental to our business. We take a systems based approach to an important role in our communities ensuring that everyone has affordable access to safe, resilience which considers our workforce and skillsets - training our workforce for the future reliable drinking water and adding value engaging and educating our customers. We’ve a strong and investing in the next generation through apprenticeships. Our corporate leadership also social purpose and believe that we should always strive to add value to the communities we considers how the company is resilient in its financial structure, our operational performance serve today whilst ensuring sustainable services for the benefit of future generations. Any and the regulatory risks we face both today and for the future. Any reference to forward looking reference to forward looking metrics relate to the entire Hafren Dyfrdwy operating area. metrics relate to the entire Hafren Dyfrdwy operating area. Actual performance Outperformance payment/ Outperformance Code Description Unit (with target in brackets) (Underperformance penalty) Actual performance payment/ 2018/19 2019/20 £m (with target in brackets) (Underperformance Code Description Unit WF1 Improved understanding of our 534 1,205 NIL penalty) Number SE1 services through education (605) (875) Non-financial 2018/19 2019/20 £m Customers helped by a review of 291 310 NIL Percentage of customers with 27.5 27.5% RB1 Number WB5 Percentage NIL their tariff and water usage (250) (250) Non-financial resilient supplies (NA) (NA) 0 0 Improved understanding of our learning what it takes to be a call Future Outlook on Serving our WB8 Restrictions on water use Number 0.008 (0) (0) services through education centre operative. We’ve offered the Community This year we’ve outperformed our buses to all primary schools in our We’re keeping our bills the lowest Percentage of customers with Restrictions on Use We’ve challenged ourselves to target for educating customers area and continue to seek other in Wales in AMP7. The average resilient supplies deliver holistic improvements, We’re pleased to be able to say by 38%. Through education and engagement opportunities such as water and sewerage bill for simultaneously contributing to Our aim with this measure was to we’ve not imposed a temporary use awareness we can not only engage county shows and fetes. 2020/21 in Hafren Dyfrdwy will be well-being goals set out in the improve resilience by increasing ban and have met out commitment our customers about the integral £296/year, compared to the average Well-being of Future Generations Moving forward we’ll continue our the number of customers with a across the entire AMP. role we all play in the entire water bill in the rest of Wales of £451. (Wales) Act (2015) working in ways education programme but we will second source of supply so that if ecosystem but critically influence Despite this, we want to help those Future Outlook on Resilience that deliver multiple benefits. Our measure success based on the an incident occurs we can provide their behaviour. We’ve three key customers who may be in difficult flagship project at Lake Vyrnwy, number of individual commitments them with water from an alternative We know that resilience of our messages: circumstances and need additional in partnership with RSPB Cymru, to change behaviour. This will be source. business is intrinsically linked support. to the resilience of our regions, aims to deliver for the community, • Safe to flush - making sure only a huge step change and will help It was a measure developed when its communities and natural visitors and wildlife. the three P’s go down the toilet; us learn how best to embed these We recognise that the need for the Powys operating area was environment. changes for years to come. support can be driven from a wide We’ll be reporting against our part of Severn Trent. The five year • Using water wisely - how to take range of circumstances in the resilience to severe restrictions Customers helped by a review of investment programme focused on Our AMP7 customer outcomes care of our wonderful water and short and long term. We’ll offer in a drought and the risk of sewer their tariff and water usage three main schemes, none of which focus on the resilience of our become more efficient; both financial and non-financial flooding in a severe storm. We’ve were in Powys. All improvement water resources and asset base, Offering financial support to our support, with two key focus areas: also agree a bespoke measure • A healthy you and healthy schemes were planned for the taking into account the inherent customers is more important affordability and vulnerability. English operating area so no interdependency of economic, social aligned to our commitment to invest environment - promoting the use now than ever before. We’ve been specific investment was targeted for and environment factors. further in our reservoir assets. of our refill stations rather than working hard to identify customers We’ve developed three bespoke communities in Wales. fizzy drinks and reducing the in our region who need our support, performance commitments to hold Resilience is considered across This is aligned to the Welsh amount of single use plastic. and have outperformed our target ourselves to account to deliver our corporate, financial and operational When the Powys region became Government’s Water Strategy by 24%. plans: part of Hafren Dyfrdwy in July 2018 for Wales; increasing end to end levels. The more resilient we can Drivers of Performance we committed to report against this water system resilience in order to make our business, the more able We know that influencing the We’ve achieved this by working in • Help to pay when you need it - measure up to 2019/20. maximise benefits and reduce costs we’re to mitigate these shocks, behaviour of younger generations partnership with organisations supporting customers who are to customers, colleagues, business stresses and strains and deliver is critical as they are more likely to such as Powys Association of financially vulnerable; As such, no improvement activity and the environment. Whilst wonderful water for our customers. encourage households to change Voluntary Organisations, Warm has taken place this year. ensuring we continue to meet the their behaviour. Wales and Newydd and Mid- • Effectiveness of affordability of needs of our customers today and Wales Housing. We’ve proactively support - outcomes focused, tomorrow. Our immersive education buses contacted customers who are demonstrating the longer lasting continue to offer a unique struggling to pay their bills as well benefit to customers; experience as children can get as improving the online offering • Supporting our priority services hands on as an engineer - fixing for customers through Here2Help customers during an incident - a a broken pipe, a scientist - which launched in January 2020. conducting water quality tests or more tailored service for those who need it most. 54 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 55

Asset Health

Understanding the health of our assets is really important. It ensures we’re not only investing Future Outlook on Asset Health & for our customers today, but also those of the future. The geography and low population density Management results in a proportionally larger asset base per customer. We’ve identified key measures that We’re fundamentally an asset demonstrate whether we’re increasing the stress on our network and treatment assets which orientated organisation. Across QEE = A x P x Q AMP 6 we’ve been evolving our could lead to a deterioration in performance in future. But these are a small subset of all of the approach into a more proactive measures we use as a company to check the health of our assets. Any reference to forward space utilising our asset Overall Availability Productivity Quality looking metrics relate to the entire Hafren Dyfrdwy operating area. intelligence by adopting a standard equipment measure of Asset Health, Overall effectiveness 100% means 100% means 100% means Actual performance Outperformance payment/ Equipment Effectiveness (OEE). A it’s always when running only good Code Description Unit (with target in brackets) (Underperformance penalty) consistent means of understanding running during it’s doing it as parts, no 2018/19 2019/20 £m how our assets are performing in planned efficiently as it wastage Asset stewardship - number production can compliance 0 0 the context of their operation is WA3 of sites with coliform failures Number NIL time (0) (0) critical in making informed choices. (WTWs) 148 125 Asset health and management is WB6 Asset Stewardship - mains bursts Number NIL (<149) (179) a critical lens helping us to get the 252 342 best out of assets by: improving SA4 Asset stewardship - blockages Number (£0.1019m) (<213) (293) our response to current and future SC3/ Asset stewardship - 97.69% 95.79% risks, targeting deterioration Percentage NIL WD2 environmental performance (100%) (100%) and potential failure modes and ultimately delivering a reliable day Number of sites with Steps to Improve Steps to Improve to day service whilst ensuring we’re coliform failures (WTWs) and This year we’ve continued our Ensuring our customers know what safe guard the future. Environmental Performance increased activity around mains can and cannot be flushed is a key renewal installing brand new part of our education programme. When considering how our pipes at some of our highest risk The 3P’s (Pee, Poo and Paper) treatment works assets have locations. and ‘Safe to Flush’ is one of our performed, we’ve had a really three key educational message we strong year again. We continued Our levels of activity have reduced deliver in schools. our excellent performance across back towards the long term the AMP on coliforms with none of average levels and are in line with We’re trailing new methods to our works having a failure. the expected levels of performance drive behavioural change across for AMP7. the communities we serve and At our wastewater treatment works educating our colleagues to we’ve delivered environmental We’ve also continued to find become ambassadors for reducing performance of 95.79%. All of our new ways to manage pressure unflushables in their local area. numerically permitted wastewater in the network, for example, treatment sites met their numeric reducing transient surges through At commercial food service consents; only one site failed a non- identification and replacement of establishments, who are often the numeric permit condition. rapid starts pumps used to boost largest contributor of fats, oils and water in the network. With smarter greases, we’re engaging, educating Mains Bursts variable speed pumps adjusting and enforcing good practice. how we rampup and down the We’ve seen a reduction in the pressure we can also expect to We’ve combined all this activity number of burst main repairs we extend the overall asset life. with more detailed analytics, carried out on our distribution improving our understanding of network. The number of outbreaks Blockages poor performance hotspots and we get is a factor of the network in-turn driving our sewer cleansing age and condition, operating The biggest pressure on our programme. pressure combined with the assets this year has been on the external environmental factors wastewater infrastructure service. such as soil type and climate The number of blockages we’ve conditions. seen has continued to rise and we’ve missed our regulatory target. 56 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 57

Performance in Wrexham and surrounding area

Actual performance Outperformance payment/ replacement of Llwyn Onn treated bacteriological performance at Security of supply index Code Description Unit (with target in brackets) (Underperformance penalty) water tank; critical in the delivery of these assets. We continue utilising We maintained our performance of 2018/19 2019/20 £m decommissioning Legacy treatment a risk based programme for our works in 2017/18. Originally built in future inspections. 100% security of supply. 1.02 1.32 A1 Discoloured water contacts Number (0.006) (1.01) (1.01) 1942 we have doubled the available treated water storage with two new Average duration of Number of bursts 99.94% 99.92% A2 Mean zonal compliance Percentage (0.0029) reservoirs. This not only provides (100%) (100%) interruptions We’re broadly flat year on year resilience but allows for greater Delivery of the outcomes of the and within the underperformance flexibility for further inspection and This year we once again came A4 service reservoir water quality Text NA Schemes complete NIL deadband for this measure so won’t risk management schemes maintenance. in ahead of our commitment to customers. pay any penalty. However we are Average duration of interruptions 0.12 0.19 In order to replaces Sugn-y-Pwll reporting that we have just missed B1 - 3 hours or longer (planned and Time (hours) 0.001 (0.20) (0.20) We continue to seek all our target for number of bursts unplanned interruptions) on the same footprint required us to construct a temporary tank. This opportunities to improve. For mains. This is partly due to the Sustainable economic level of 107.8 85.6 l/p/d NIL example, the ongoing programme increase in mains renewals as part B2 leakage (90.8) (90.8) allowed us to demolish and rebuild a new reservoir and at the same to increase our logger fleet, our of our drive to reduce leakage. 100 100 NIL B3 Security of supply index Score time continue to provide resilience eyes on the network that can (100) (100) Non-financial We can be confident that our end to and stability in the network - inform of an issue so we can start 185 188 end process and our ability to react B4 Number of bursts Number NIL reducing the risk of water quality to respond before our customers (168) (155) quickly is working well - this is failures, supply interruptions and feel any loss of service. Gross operational greenhouse gas 4,987 3,950 NIL reflected in our supply interruption C1 Number bursts. emissions (10,487) (7,535) Non-financial We’re passionate about delivering and leakage performance. Customers’ perception based on 70% 68% NIL The new reservoir at Sugn-y-Pwll improvements in our supply D1 Percentage We’re continuing to target renewal market research (Improved) (Improved) Non-financial has improved the operational interruptions performance in AMP7 activity and improvements in Non-household Service incentive 83.9 89.4 NIL process at the site leading ensuring our customers always F1 Score network monitoring will open up mechanism (80) (80) Non-financial to reduced retention time - a have a consistent, reliable drinking new opportunities for pressure Per capita consumption and water 140.41 141.25 NIL long residence time can have a water supply. E1 l/p management; ensuring a calm efficiency (128.37) (127.28) Non-financial significant impact on deterioration 78.4 72.9 NIL Sustainable level of leakage network. Service incentive mechanism Score of water quality. E2 (80) (80) Non-financial This year, after more than 140 We’ve had an excellent year on Gross operational leakage outperforming our target greenhouse gas emissions Discoloured water contacts The benefit of cleaning Service reservoir years of service Berwyn was taken out of supply as we commissioned by 6%. We’ve achieved this with combined with the source water maintenance We continue to see strong a new reservoir at Llangollen. The the introduction of a dedicated Our performance has dipped this quality improvements through performance in this area as we new location is local to demand and leakage team and the ongoing roll year receiving 200 contacts about decommissioning Legacy water This year brought an AMP spanning met our greenhouse gas emissions has increased storage by >40% to out of loggers across the network, discoloured water (1.32 per 1,000 treatment works now will be seen water quality risk management target. Our use of green electricity 1.9Ml. alongside data improvements. population). for many years to come. programme to a close, culminating and ongoing improvements in the in the delivery of two large Part of the improvement We’ve been working hard to The wet weather conditions early efficiency of our operations, both Mean zonal compliance capital reservoir schemes; the programme involves us investing remove sediment from our trunk in 2020 made for challenging in terms of electricity use and fuel/ replacement of Sugn-y-Pwll and a to upgrade our systems and this mains using a technique called We had a disappointing year on construction conditions, but with chemical use across our sites new reservoir at Llangollen. year we have moved to the new ice-pigging. This is a non-invasive mean zonal compliance. We’ll no excellent collaborative working we help keep our emissions as low as Netbase6 standard. This improves method for cleaning water mains longer be reporting this measure adapted and delivered both new possible. The new assets will reduce the our ability to measure other that uses slush ice to remove in future as it’s being replaced by reservoirs. water quality risk to customers, components of the water balance Customers’ perception based deposits from inside our pipes. the Drinking Water Inspectorates improve the resilience of water Across the AMP we have which should result in a more new measure, the Compliance supplies for local communities on market research We’ve cleaned over 17 km of trunk successfully completed the accurate view of leakage. Risk Index. In Hafren Dyfrdwy our for generations to come and main and removed more than inspection, risk assessment and Our aim for this measure was to outturn position for 2019, including has already allowed for the Leakage is a very important 2 tonnes of deposits! Following flood testing of all 34 service show year on year improvement. Wrexham, was 0.325; which we decommissioning of the old priority for our customers and for the flow of the water we then reservoirs and tanks. Within this Unfortunately we’ve had another expect to be one of the best results Victorian reservoir at Berwyn. us. In AMP7 we’re continuing to headed into our distribution mains programme we upgraded, where disappointing year on our in the industry. CRI takes into improve the end to end leakage where we continued our flushing necessary, the roof membranes of customer’s scores for value for account the risk to customers Across the AMP this extensive process, investing in developing programme. eight service reservoirs, reducing money and affordability of bills. by the type of failure and the programme of work required people, transforming process population impacted. large scale capital work with the the water quality risk from ingress, which is reflected in our improved and integrating technological improvements. 58 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 AnnualHafren DyfrdwyPerformance Cyfyngedig Report Annual 2018 Performance Report 2020 59

Offering financial support to our Service incentive customers is more important mechanism/Non-household now than ever before. We’ve been service incentive mechanism working hard to identify customers in our region who need our support. Regulatory We’ve seen a 7% improvement in our non-household SIM score We’re keeping our bills the from last year. This is mirrored by lowest in Wales in AMP7. The a 13% reduction in non-household average water and sewerage bill complaints in Wrexham, the key accounts in Hafren Dyfrdwy will be £296/ improvement area was in billing. year, compared to the average bill in the rest of Wales of £451. Despite a 47% reduction in Despite this, we want to help those household customer complaints, for the year customers who may be in difficult we have seen a dip in our circumstances and need additional household SIM score. support. We’ve also seen a significant 82% We’ve proactively contacted reduction in Stage 2 household ended 31 customers who are struggling to complaints indicating that when pay their bills as well as improving customers are dissatisfied we the online offering for customers have significantly improved our through Here2Help which launched resolution. March 2020 in January 2020. In AMP 7 SIM is replaced by C-MEX, We’re also making significant which includes customers who developments on our digital have had reason to contact us as platforms, expanding our channels well as those who haven’t. We’re and making ourselves more aiming to deliver a consistently accessible to customers 24/7. excellent customer service experience, building trust and Per capita consumption and confidence with our customers. water efficiency Unfortunately we’ve seen a slight deterioration this year in our per capita consumption. We’ve broadened the range of free water efficiency products available to customers, continue to offer proactive home water efficiency audits; installing water efficient products and will continue to engage and educate customers on how to use water wisely. 60 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 61 Independent Auditor’s report to the

Water Services Regulation Authority does not necessarily represent a Other information Company’s published accounting true and fair view of the financial The other information comprises methodology statement(s), as (the WSRA) and the Directors of performance or financial position all of the information in the Annual defined in RAG 3.11, appendix 2). of a company as shown in statutory Performance Report other than the The Directors are also responsible financial statements prepared in Regulatory Accounting Statements for such internal control as they Hafren Dyfrdwy Cyfyngedig accordance with the Companies Act and our auditors’ report thereon. determine is necessary to enable 2006. The Directors are responsible for the preparation of the Annual (table 2J), the infrastructure and we have fulfilled our ethical the other information. Our opinion Report on the audit of the The Regulatory Accounting Performance Report that is free charges reconciliation (table 2K) responsibilities in accordance on the Regulatory Accounting Regulatory Accounting Statements on pages [60] to from material misstatement, and the related notes. with these requirements. We Statements does not cover the [84] have been drawn up in whether due to fraud or error. Statements believe that the audit evidence other information and, except to the We have not audited Lines 1F.10 accordance with Regulatory we have obtained is sufficient and extent otherwise explicitly stated Opinion to 1F.12, 1F.14 to 1F.18, and 1F.20 of Accounting Guidelines with a In preparing the Annual appropriate to provide a basis for in our report, we do not express Performance Report, the Directors We have audited certain sections of Table 1F, the Outcome performance number of departures from our opinion. any form of assurance conclusion are responsible for assessing Hafren Dyfrdwy Cyfyngedig’s (“the table (tables 3A to 3S) and the IFRS. A summary of the effect of thereon. the Company’s ability to continue Company”) Annual Performance additional regulatory information in Emphasis of matter - special these departures from Generally as a going concern, disclosing Report for the year ended 31 March tables 4A to 4W. purpose basis of preparation Accepted Accounting Practice in In connection with our audit as applicable, matters related to 2020 (“the Regulatory Accounting We draw attention to the fact the Company’s statutory financial of the Regulatory Accounting In our opinion, Hafren Dyfrdwy going concern and using the going Statements”) which comprise: that the Regulatory Accounting statements is included in the tables Statements, our responsibility is Cyfyngedig’s Regulatory Accounting concern basis of accounting unless Statements have been prepared within section 1. to read the other information and, Statements within the Annual the Directors either intend to • the regulatory financial reporting in accordance with a special in doing so, consider whether the Performance Report have been The Regulatory Accounting liquidate the Company or to cease tables comprising the income purpose framework, Condition other information is materially prepared, in all material aspects, Statements are prepared in operations, or have no realistic statement (table 1A), the F, the Regulatory Accounting inconsistent with the Regulatory in accordance with Condition F, the accordance with a special purpose alternative but to do so. statement of comprehensive Guidelines, the accounting Accounting Statements or our Regulatory Accounting Guidelines framework for the specific purpose income (table 1B), the statement policies (including the Company’s knowledge obtained in the audit, issued by the WSRA (RAG 1.08, as described in the Responsibilities Auditors’ responsibilities for the of financial position (table 1C), the published accounting methodology or otherwise appears to be RAG 2.07, RAG 3.11, RAG 4.08 and for the audit of the Regulatory Audit of the Regulatory Accounting statement of cash flows (table statement(s), as defined in RAG materially misstated. If we identify RAG 5.07) and the accounting Accounting Statements section Statements within the Annual 1D), the net debt analysis (table 3.11, appendix 2) set out in the an apparent material inconsistency policies (including the Company’s below. As a result, the Regulatory Performance Report 1E), Lines 1F.1 to 1F.9, Line 1F.13, statement of accounting policies or material misstatement, we are published accounting methodology Accounting Statements may not be Our objectives are to obtain Line 1F.19, Line 1F.21 to Line and under the historical cost required to perform procedures statement(s), as defined in RAG suitable for another purpose. reasonable assurance about 1F.23 of the statement of financial convention. The nature, form to conclude whether there is a 3.11, appendix 2), set out on page whether the Regulatory Accounting flows (table 1F) and the related and content of the Regulatory material misstatement of the [74-75]. Our opinion is not modified in Statements are free from material notes; and Regulatory Accounting Statements Accounting Statements are respect of this matter. misstatement, whether due to or a material misstatement of • the regulatory price review Basis for opinion determined by the WSRA. It is fraud or error, and to issue an not appropriate for us to assess Conclusions relating to going the other information. If, based and other segmental reporting We conducted our audit in auditors’ report that includes our whether the nature of the concern on the work we have performed, tables comprising the segmental accordance with International opinion. Reasonable assurance information being reported upon we conclude that there is a income statement (table 2A), Standards on Auditing (UK) (“ISAs We have nothing to report in is a high level of assurance, but is suitable or appropriate for the material misstatement of the other the totex analysis for wholesale (UK)”), including ISA (UK) 800, and respect of the following matters in is not a guarantee that an audit WSRA’s purposes. Accordingly information, we are required to water and wastewater (table 2B), applicable law and having regard relation to which ISAs (UK) require conducted in accordance with ISAs we make no such assessment. In report that fact. the operating cost analysis for to the guidance contained in ICAEW us to report to you where: (UK) will always detect a material addition, we are not required to misstatement when it exists. retail (table 2C), the historical Technical Release Tech 02/16 • the Directors’ use of the going We have nothing to report based on assess whether the methods of cost Misstatements can arise from cost analysis of fixed assets AAF ‘Reporting to Regulators on concern basis of accounting in these responsibilities. allocation set out in the accounting fraud or error and are considered for wholesale and retail (table Regulatory Accounts’ issued by the the preparation of the Regulatory Methodology Statement are material if, individually or in the 2D), the analysis of grants and Institute of Chartered Accountants Accounting Statements is not Responsibilities of the Directors appropriate to the circumstances of aggregate, they could reasonably contributions and land sales in England & Wales. appropriate; or for the Annual Performance for wholesale (table 2E), the the Company or whether they meet Report be expected to influence the Our responsibilities under ISAs the requirements of the WSRA. household water revenues by • the Directors have not disclosed As explained more fully in economic decisions of users taken (UK) are further described in the customer type (table 2F), the The Regulatory Accounting in the Regulatory Accounting the Statement of Directors’ on the basis of these Regulatory Auditors’ responsibilities for the non-household water revenues Statements are separate Statements any identified Responsibilities set out on page Accounting Statements. audit of the Regulatory Accounting by customer type (table 2G), from the statutory financial material uncertainties that may [29], the Directors are responsible Statements within the Annual A further description of our the non-household wastewater statements of the Company and cast significant doubt about the for the preparation of the Annual Performance Report section of responsibilities for the audit revenues by customer type (table has not been prepared under the Company’s ability to continue to Performance Report in accordance our report. We are independent of the Regulatory Accounting 2H), the revenue analysis & basis of International Financial adopt the going concern basis of with Condition F, the Regulatory of the Company in accordance statements is located on the wholesale control reconciliation Reporting Standards as adopted accounting for a period of at least Accounting Guidelines issued by with the ethical requirements Financial Reporting Council’s (table 2I), the infrastructure by the European Union (“IFRSs”). twelve months from the date the WSRA and the Company’s that are relevant to our audit, website at https://www.frc.org. network reinforcement costs when the Regulatory Accounting accounting policies (including the Financial information other than uk/auditors/audit-assurance/ including the Financial Reporting Statements are authorised for that prepared on the basis of IFRSs auditor-s-responsibilities-for- Council’s (FRC’s) Ethical Standard issue. 62 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 63

the-audit-of-the-fi/description- Use of this report Our opinion on the Regulatory of-the-auditor%E2%80%99s- This report is made, on terms Accounting Statements is separate responsibilities-for. This that have been agreed, solely to from our opinion on the statutory description forms part of our the Company and the WSRA in financial statements of the auditors’ report. order to meet the requirements Company for the year ended 31 of Condition F of the Instrument March 2020 on which we reported We communicate with those of Appointment granted by on 15 July 2020, which are charged with governance the Secretary of State for the prepared for a different purpose. regarding, among other matters, Environment to the Company as Our audit report in relation to the the planned scope and timing of a water and sewage undertaker statutory financial statements the audit and significant audit under the Water Industry Act 1991 of the Company (our “Statutory findings, including any significant (“Condition F”). Our audit work has audit”) was made solely to the deficiencies in internal control that been undertaken so that we might Company’s members, as a body, we identify during our audit. state to the Company and the WSRA in accordance with Chapter 3 of Part 16 of the Companies Act Report on other legal and those matters that we have agreed 2006. Our Statutory audit work regulatory requirements to state to them in our report, in order (a) to assist the Company to was undertaken so that we might Opinion on other matters meet its obligation under Condition state to the Company’s members prescribed by Condition F F to procure such a report and (b) those matters we are required to Under the terms of our contract to facilitate the carrying out by the state to them in a statutory audit we have assumed responsibility to WSRA of its regulatory functions, report and for no other purpose. In provide those additional opinions and for no other purpose. To these circumstances, to the fullest required by Condition F in relation the fullest extent permitted by extent permitted by law, we do not to the accounting records. In our law, we do not accept or assume accept or assume responsibility for opinion: responsibility to anyone other than any other purpose or to any other the Company and the WSRA, for our person to whom our Statutory • proper accounting records have audit work, for this report or for the audit report is shown or into whose been kept by the appointee as opinions we have formed. hands it may come save where required by Condition F; and expressly agreed by our prior consent in writing. • the Regulatory Accounting Statements are in agreement with the accounting records and returns retained for the purpose of preparing the Annual Performance Report.

Deloitte LLP Birmingham, United Kingdom

15 July 2020 64 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 65 1A - Income statement Year ended 31 March 2020 The differences between statutory and RAG definitions are outlined in the following table:

Adjustments Adjustments Reclassifications Capitalisation of External Developer Profit on fixed Pension scheme Total differences Differences Total appointed interest electricity sales services & asset disposals, net interest Line description Statutory between Total Non-appointed activities and related repair of non-operating costs statutory and adjustments depreciation damages income and RAG definitions recharges deferred credits

£m £m £m £m £m £m £m £m £m £m £m Revenue - -0.478 0.067 - - -0.411

1A.1 Revenue 32.418 -0.411 -1.388 -1.799 30.619 Operating costs 0.024 0.478 -0.067 -0.251 - 0.184 1A.2 Operating costs -36.132 0.184 0.745 0.929 -35.203 Other operating ------income 1A.3 Other operating income 0.000 0.000 0.000 0.000 0.000 Operating profit 0.024 - - -0.251 - -0.227 1A.4 Operating profit -3.714 -0.227 -0.643 -0.870 -4.584 Other income - - - 0.251 - 0.251

1A.5 Other income 0.000 0.251 -0.074 0.177 0.177 Interest income - - - - -1.600 -1.600 1A.6 Interest income 1.602 -1.600 0.000 -1.600 0.002 Interest expense -1.575 - - - 1.100 -0.475 1A.7 Interest expense -1.140 -0.475 0.000 -0.475 -1.615 Other interest - - - - 0.500 0.500 1A.8 Other interest expense 0.000 0.500 0.000 0.500 0.500 expense Profit before tax 1A.9 Profit before tax and fair value movements -3.252 -1.551 -0.717 -2.268 -5.520 and fair value -1.551 - - - - -1.551 movements Fair value gains/(losses) on financial Fair value losses 1A.10 0.000 0.000 0.000 0.000 0.000 instruments on financial ------instruments 1A.11 Profit before tax -3.252 -1.551 -0.717 -2.268 -5.520 Profit before tax -1.551 - - - - -1.551 UK corporation tax - - - - 1A.12 UK corporation tax 1.678 0.000 0.136 0.136 1.814 - - 1A.13 Deferred tax -2.700 -0.295 0.000 -0.295 -2.995 Deferred tax -0.295 - - - - -0.295 1A.14 Profit for the year -4.274 -1.846 -0.581 -2.427 -6.701 Profit for the year -1.846 - - - - -1.846

1A.15 Dividends 0.000 0.000 0.000 0.000 0.000

A Tax analysis 1A.16 Current year -1.855 0.000 -0.136 -0.136 -1.991 1A.17 Adjustments in respect of prior years 0.177 0.000 0.000 0.000 0.177 1A.18 UK Corporation tax -1.678 0.000 -0.136 -0.136 -1.814

B Analysis of non-appointed revenue Non-appointed 1A.19 Imported sludge 0.000 1A.20 Tankered waste 0.000 1A.21 Other non-appointed revenue 1.388 1A.22 Revenue 1.388 66 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 67

1B - Statement of comprehensive 1C - Statement of financial position income Year ended 31 March 2020 Adjustments Year ended 31 March 2020 Differences Total appointed Line description Statutory between Total Non-appointed activities Adjustments statutory and adjustments RAG definitions Differences Total appointed Line description Statutory between Total £m £m £m £m £m Non-appointed activities statutory and adjustments RAG definitions A Non-current assets 1C.1 Fixed assets 202.415 -4.397 0.000 -4.397 198.018 £m £m £m £m £m 1C.2 Intangible assets 7.906 0.000 0.000 0.000 7.906 1C.3 Investments - loans to group companies 0.000 9.684 0.000 9.684 9.684 1B.1 Profit for the year -4.274 -1.846 -0.581 -2.427 -6.701 1C.4 Investments - other 0.000 0.000 0.000 0.000 0.000 Actuarial gains/(losses) on post employment 1B.2 1.756 0.000 0.000 0.000 1.756 plans 1C.5 Financial instruments 0.000 0.000 0.000 0.000 0.000 1B.3 Other comprehensive income 0.000 0.000 0.000 0.000 0.000 1C.6 Retirement benefit assets 21.345 0.000 0.000 0.000 21.345 1B.4 Total Comprehensive income for the year -2.518 -1.846 -0.581 -2.427 -4.945 1C.7 Total non-current assets 231.666 5.287 0.000 5.287 236.953

B Current assets 1C.8 Inventories 0.554 0.000 0.000 0.000 0.554 1C.9 Trade and other receivables 29.304 -9.684 -3.242 -12.926 16.378 1C.10 Financial instruments 0.000 0.000 0.000 0.000 0.000 1C.11 Cash and cash equivalents 0.484 0.000 0.000 0.000 0.484 1C.12 Total current assets 30.342 -9.684 -3.242 -12.926 17.416

C Current liabilities 1C.13 Trade and other payables -26.393 2.477 0.684 3.161 -23.232 1C.14 Capex creditor 0.000 -1.336 0.000 -1.336 -1.336 1C.15 Borrowings 0.000 0.000 0.000 0.000 0.000 1C.16 Financial instruments 0.000 0.000 0.000 0.000 0.000 1C.17 Current tax liabilities -0.326 0.000 0.000 0.000 -0.326 1C.18 Provisions 0.000 0.000 0.000 0.000 0.000 1C.19 Total current liabilities -26.719 1.141 0.684 1.825 -24.894

1C.20 Net current assets/(liabilities) 3.623 -8.543 -2.558 -11.101 -7.478

D Non-current liabilities 1C.21 Trade and other payables -11.259 10.800 0.000 10.800 -0.459 1C.22 Borrowings -60.881 0.000 0.000 0.000 -60.881 1C.23 Financial instruments 0.000 0.000 0.000 0.000 0.000 1C.24 Retirement benefit obligations 0.000 0.000 0.000 0.000 0.000 1C.25 Provisions 0.000 0.000 0.000 0.000 0.000 1C.26 Deferred income - grants and contributions 0.000 -11.874 0.000 -11.874 -11.874 1C.27 Deferred income - adopted assets 0.000 -0.067 0.000 -0.067 -0.067 1C.28 Preference share capital 0.000 0.000 0.000 0.000 0.000 1C.29 Deferred tax -17.355 0.185 0.000 0.185 -17.170 1C.30 Total non-current liabilities -89.495 -0.956 0.000 -0.956 -90.451

1C.31 Net assets 145.794 -4.212 -2.558 -6.770 139.024

E Equity 1C.32 Called up share capital 133.051 0.000 0.000 0.000 133.051 1C.33 Retained earnings and other reserves 12.743 -4.212 -2.558 -6.770 5.973 1C.34 Total Equity 145.794 -4.212 -2.558 -6.770 139.024 68 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 69

1D - Statement of cash flows The differences between statutory and RAG definitions are outlined in the following table: Year ended 31 March 2020

Adjustments Reclassifications Adjustments Capitalisation Capital creditor Deferred Intercompany Total of interest reclassification income reclassification differences Differences Total appointed Line description Statutory between Total reclassification Non-appointed activities statutory and adjustments £m £m £m £m £m RAG definitions Non-current assets £m £m £m £m £m Fixed assets (4.397) - - - (4.397)

Intangible assets - - - - - A Statement of cashflows Investments - loans to group 1D.1 Operating profit -3.714 -0.227 -0.643 -0.870 -4.584 - - - 9.684 9.684 companies 1D.2 Other income 0.104 -0.029 -0.074 -0.103 0.001 Investments - other - - - - - 1D.3 Depreciation 7.338 -0.024 0.000 -0.024 7.314 Financial instruments - - - - - 1D.4 Amortisation - grants and contributions -0.176 0.176 0.000 0.176 0.000 Retirement benefit assets - - - - - 1D.5 Changes in working capital 8.449 0.000 0.717 0.717 9.166 Total non-current assets (4.397) - - 9.684 5.287 1D.6 Pension contributions 0.000 0.000 0.000 0.000 0.000 Current assets 1D.7 Movement in provisions 0.199 0.000 0.000 0.000 0.199 Inventories - - - - - 1D.8 Profit on sale of fixed assets 0.000 0.000 0.000 0.000 0.000 Trade and other receivables - - - (9.684) (9.684) 1D.9 Cash generated from operations 12.200 -0.104 0.000 -0.104 12.096 Financial instruments - - - - - Cash and cash equivalents - - - - - 1D.10 Net interest paid -1.561 0.000 0.000 0.000 -1.561 1D.11 Tax paid 2.262 0.000 0.000 0.000 2.262 Total current assets - - - (9.684) (9.684) Net cash generated from operating Current liabilities 1D.12 12.901 -0.104 0.000 -0.104 12.797 activities Trade and other payables - 1.336 1.141 - 2.477

Capex creditor - (1.336) - - (1.336) B Investing activities Borrowings - - - - - 1D.13 Capital expenditure -14.033 0.000 0.000 0.000 -14.033 Financial instruments - - - - - 1D.14 Grants and contributions 0.000 0.104 0.000 0.104 0.104 Current tax liabilities - - - - - 1D.15 Disposal of fixed assets 0.000 0.000 0.000 0.000 0.000 Provisions - - - - - 1D.16 Other 0.000 0.000 0.000 0.000 0.000 Total current liabilities - - 1.141 - 1.141 1D.17 Net cash used in investing activities -14.033 0.104 0.000 0.104 -13.929 Net current assets/(liabilities) - - 1.141 (9.684) (8.543) Net cash generated before financing Non-current liabilities 1D.18 -1.132 0.000 0.000 0.000 -1.132 activities Trade and other payables - - 10.800 - 10.800 Borrowings - - - - - C Cashflows from financing activities Financial instruments - - - - - 1D.19 Equity dividends paid 0.000 0.000 0.000 0.000 0.000 Retirement benefit obligations - - - - - 1D.20 Net loans received 1.288 0.000 0.000 0.000 1.288 Provisions - - - - - 1D.21 Cash inflow from equity financing 0.000 0.000 0.000 0.000 0.000 Deferred income - grants and Net cash generated from financing - - (11.874) - (11.874) 1D.22 1.288 0.000 0.000 0.000 1.288 contributions activities Deferred income - adopted assets - - (0.067) - (0.067) Preference share capital - - - - - 1D.23 Increase in net cash 0.156 0.000 0.000 0.000 0.156 Deferred tax 0.185 - - - 0.185 Total non-current liabilities 0.185 - (1.141) - (0.956) Net assets (4.212) - - - (4.212) Equity Called up share capital - - - - - Retained earnings and other (4.212) - - - (4.212) reserves Total equity (4.212) - - - (4.212) 70 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 71 1E - Net debt analysis The differences between statutory and RAG definitions are outlined in the following table: Year ended 31 March 2020

Depreciation Grants & Non-operating Total differences Interest rate risk profile on capitalised contributions income and Line description interest deferred credits Fixed rate Floating rate Index-linked Total reclass £m £m £m £m £m £m £m £m

Statement of cashflows 1E.1 Borrowings (excluding preference shares) 0.118 28.090 32.673 60.881 Operating profit 0.024 (0.251) (0.227) 1E.2 Preference share capital 0.000 Other income - (0.104) 0.075 (0.029) 1E.3 Total borrowings 60.881 Depreciation (0.024) - (0.024) 1E.4 Cash -0.484 Amortisation - grants and contributions - 0.176 0.176 1E.5 Short term deposits 0.000 Changes in working capital - - - 1E.6 Net debt 60.397 Pension contributions - - - Movement in provisions - - - 1E.7 Gearing 77.48% 1E.8 Adjusted gearing 0.00% Profit on sale of fixed assets - - - Cash generated from operations - (0.104) - (0.104) 1E.9 Full year equivalent nominal interest cost 0.004 0.562 2.068 2.634 Net interest paid - - - 1E.10 Full year equivalent cash interest payment 0.004 0.562 1.188 1.753 Tax paid - - - Net cash generated from operating activities - (0.104) - (0.104) A Indicative interest rates Investing activities 1E.11 Indicative weighted average nominal interest rate 3.49% 2.00% 6.33% 4.33% Capital expenditure - - - 1E.12 Indicative weighted average cash interest rate 3.49% 2.00% 3.64% 2.88% Grants and contributions - 0.104 - 0.104 Disposal of fixed assets - - - 1E.13 Weighted average years to maturity 0.00 1.94 12.51 6.44 Other - - - Net cash used in investing activities - 0.104 - 0.104 Net cash generated before financing activities - - - - Cashflows from financing activities The net debt analysis is reconciled to the net debt position below: Equity dividends paid - - - Net loans received - - - Total Cash outflow from equity financing - - - £m Net cash used in financing activities - - - Current borrowings - Decrease in net cash - - - - Non-current borrowings 60.881 Total borrowings 60.881 Cash and cash equivalents (0.484) Net debt 60.397 72 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 73 1F - Financial flows (Price Base - 2012-13 RPI Average) Year ended 31 March 2020

12 Months ended 31 March 2020 Average 2015-20

Notional Actual Actual Notional Actual Actual Notional Actual Actual Notional Actual Actual Line description returns and returns and returns returns and returns and returns returns and returns and returns returns and returns and returns notional notional and actual notional notional and actual notional notional and actual notional notional and actual regulatory regulatory regulatory regulatory regulatory regulatory regulatory regulatory regulatory regulatory regulatory regulatory equity equity equity equity equity equity equity equity equity equity equity equity % £m % £m

A Operating expenditure 1F.1 Return on regulatory equity 8.21% 4.80% 8.21% 1.986 1.162 1.162 6.53% 4.73% 6.53% 1.747 1.266 1.266 Actual performance adjustment 1F.2 3.57% 2.09% 3.57% 0.864 0.505 0.505 3.28% 2.38% 3.28% 0.878 0.636 0.636 2010-15 1F.3 Adjusted Return on regulatory equity 11.78% 6.89% 11.78% 2.850 1.667 1.667 9.81% 7.11% 9.81% 2.625 1.901 1.901 1F.4 Regulatory equity 24.192 24.192 14.154 26.757 26.757 19.380

B Financing 1F.5 Gearing 0.00% 3.82% 6.52% 0.000 0.923 0.923 0.00% 2.74% 3.79% 0.000 0.734 0.734

1F.6 Variance in corporation tax 0.00% 7.23% 12.36% 0.000 1.750 1.750 0.00% 2.99% 4.13% 0.000 0.800 0.800

1F.7 Group relief 0.00% 0.00% 0.00% 0.000 0.000 0.000 0.00% 0.00% 0.00% 0.000 0.000 0.000

1F.8 Cost of debt 0.00% 4.18% 7.15% 0.000 1.012 1.012 0.00% 0.09% 0.13% 0.000 0.025 0.025

1F.9 Hedging instruments 0.00% 0.00% 0.00% 0.000 0.000 0.000 0.00% 0.00% 0.00% 0.000 0.000 0.000

1F.10 Financing total 11.78% 22.12% 37.82% 2.850 5.352 5.352 9.81% 12.93% 17.85% 2.625 3.460 3.460

C Operational performance 1F.11 Totex out/(under) performance 0.00% -11.60% -19.83% 0.000 -2.807 -2.807 0.00% -1.09% -1.51% 0.000 -0.292 -0.292 1F.12 ODI out/(under) performance 0.00% -1.85% -3.17% 0.000 -0.448 -0.448 0.00% -0.84% -1.16% 0.000 -0.224 -0.224 1F.13 Retail out/(under) performance 0.00% -2.51% -4.30% 0.000 -0.608 -0.608 0.00% 0.00% 0.01% 0.000 0.001 0.001 1F.14 Other exceptional items 0.00% 0.00% 0.00% 0.000 0.000 0.000 0.00% 0.00% 0.00% 0.000 0.000 0.000 1F.15 Operational performance total 0.00% -15.97% -27.29% 0.000 -3.863 -3.863 0.00% -1.92% -2.66% 0.000 -0.515 -0.515

1F.16 Total earnings 11.78% 6.16% 10.52% 2.850 1.489 1.489 9.81% 11.01% 15.20% 2.625 2.945 2.945

1F.17 RCV growth from RPI inflation 2.58% 2.58% 2.58% 0.624 0.624 0.365 2.52% 2.52% 2.52% 0.674 0.674 0.488

1F.18 Total shareholder return 14.36% 8.74% 13.10% 3.474 2.113 1.855 12.33% 13.53% 17.72% 3.299 3.619 3.434

1F.19 Net dividend 4.00% 0.00% 0.00% 0.968 0.000 0.000 4.00% 2.31% 3.19% 1.070 0.619 0.619

1F.20 Retained value 10.36% 8.74% 13.10% 2.506 2.113 1.855 8.33% 11.21% 14.52% 2.229 3.000 2.815

D Dividends reconciliation 1F.21 Gross dividend 4.00% 0.00% 0.00% 0.968 0.000 0.000 4.00% 2.31% 3.19% 1.070 0.619 0.619 Interest received on intercompany 1F.22 0.00% 0.00% 0.00% 0.000 0.000 0.000 0.00% 0.00% 0.00% 0.000 0.000 0.000 loans 1F.23 Net dividend 4.00% 0.00% 0.00% 0.968 0.000 0.000 4.00% 2.31% 3.19% 1.070 0.619 0.619 74 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 75 1F - Financial flows Current tax reconciliation Year ended 31 March 2020 Year ended 31 March 2020

The financial flows is an important Financing programme (with successful The current tax credit after prior year adjustments for the year ended 31 measure for promoting trust and delivery of the associated ODI) and March 2020 is lower than the standard rate of corporation tax in the UK. confidence in the sector. It provides This component of financial flows renewal of the distribution mains greater transparency on how a covers performance on financing network. Total cumulative totex The differences to the standard rate of corporation tax and the company earns its returns and and corporation tax. performance is £2.1 million higher reconciliation to the current tax charge allowed in price limits are outlined shares performance with investors. than allowed in the FD. in the below table: At the end of 2018-19, Severn Trent The measure compares the made an equity injection to reduce financial flows between the actual Performance on retail costs Actual FD Variance net debt and compensate for the £m £m £m company structure and the notional are explained further in the lower RCV resulting from the structure assumed in the Final commentary to table 2C. As the Profit / (Loss) on ordinary activities before tax -5.5 2.4 -7.9 border variation. The benefit of the Determination (FD) for both 2019-20 first full year of reporting as Hafren Tax at the standard rate of corporation tax in the UK 19% -1.0 0.5 -1.5 lower net debt from the de-gearing Dyfrdwy, we now have a true and cumulative performance for Tax effect of expenditure not (taxable) / deductible in determining taxable profits 0.0 -0.2 0.2 exercise has seen the nominal cost AMP6. indication of its operating base. of debt fall from 6.7% in 2018-19 to Total retail cost performance in the Capital allowances in excess of depreciation -0.8 0.0 -0.8 Total shareholder returns 2.7% in the year. We expect finance year is higher (£0.6 million) than Other temporary differences -0.2 -0.0 -0.2 calculated in the financial flows costs to reduce further as we allowed in the FD. Cumulatively Impact of change in tax rate - 0.0 -0.0 comprise: intend to make an additional equity over the AMP we have spent in line Current tax charge / (credit) before prior year adjustments -2.0 0.3 -2.3 injection in the first quarter of 2020- with the final determination. Prior year adjustment 0.2 - 0.2 • the return on regulatory equity 21 to bring our gearing in line with (RoRE) adjusted for 2010-15 Ofwat’s notional capital structure We have explained further in Current tax charge / (credit) after prior year adjustments -1.8 0.3 -2.1 actual performance for AMP7. the section on reporting on • financing and operational performance that our opportunity The current tax credit for the The main factors that will impact We are committed to paying the performance and The higher average actual gearing to outperform on the wastewater appointed business is lower than future tax charges will include: right amount of tax at the right of 78.1% compared to Ofwat’s FD service was restricted by the the total tax charge allowed in price time. As well as corporation tax • the growth in the RCV. assumption, results in a small overall ODI outperformance cap. limits due to the net impact of the • Any changes in tax rates or on profits, which is included in the allowances; We discuss the key components in benefit of £0.9 million on financing A balanced performance across following: tax charge in our accounts, we performance. incur a range of taxes, charges detail below. our flooding and pollutions metrics • The level of capital expenditure in resulted in a small penalty due to • The Final Determination profit and levies imposed by government For the reporting year, our actual the appointed business; and Regulatory equity the cap. We have showed year- before tax was lower than the agencies, including business rates, current tax credit is £1.8 million profit before tax within the on-year improvement in our • Any other changes in tax employer’s national insurance and lower than the tax charge of £0.3 appointed business. Following the border variation, water service metrics but this has legislation or practice not environmental taxes. the FD RCV and allowances that million allowed in the FD. This is resulted in a net penalty of £0.45 • Expenditure that is not deductible reflected in the FD. were previously determined for mainly due to capital allowances in million. for tax purposes has increased Dee Valley and Severn Trent Water excess of depreciation being higher In the Spring Budget 2020, the from the level assumed within the were reapportioned between than the forecast in the FD. There As set out in Ofwat’s Information Government announced that the FD tax charge. Hafren Dyfrdwy and Severn Trent was no benefit during the year Note 20/03, the SIM penalty has previously enacted decrease in relating to group relief. England. This resulted in higher been recorded equally across the • Capital allowances in excess of the corporate tax rate from 19% allowances for wholesale totex first four years of the AMP only to 17% from 1 April 2020 would Operational performance depreciation within the appointed and retail costs including a lower (years 2015-16 to 2018-19). business are higher than the level no longer happen and that rates tax allowance but a 25% lower forecast within the FD. would remain at 19% for the The operational performance Total shareholder returns RCV allocated to Hafren Dyfrdwy component of financial flows covers foreseeable future. The new law than under Dee Valley. In addition, • The prior year adjustment within was substantively enacted on 17 performance on wholesale totex, Our overall performance over the the reapportioned base return on the appointed business of £0.2 March 2020. retail costs and ODIs. AMP, has generated on average average over the AMP is also 0.6% million reflects the agreement £1.0 million per year of additional higher due to the border variation. Our wholesale totex performance of prior year tax matters with The deferred tax liability at 31 returns for shareholders. Including is covered in detail in table 4B. HMRC. March 2020 was calculated at the the base return of £1.9 million Small movements in performance As per last year cumulative totex new future rate of 19%, rather than and the growth in the RCV from compared to Dee Valley therefore outperformance from prior years 17%. This has resulted in an overall inflation (£0.7 million) results in have a much larger impact on the has reduced further in the current deferred tax charge in the income total shareholder returns of £3.6 components of financial flows in reporting year due to the additional statement. This has no impact on million over the AMP to date. This is years 2018-19 and 2019-20 (post activity and investment in the the current tax charge for the year. equivalent to 14.6% on RoRE. border variation). water service undertaken in the company following the acquisition We have not paid out any dividends by Severn Trent in February 2017. during the year. Over the AMP, there has been major investment in the service reservoirs 76 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 77 Notes to the Regulatory Accounts

1. Regulatory reporting developer contributions expense in the regulatory 2. Accounting policies • The company is informed that a c) Bad debts for administration costs accounts. customer has left a property and The regulatory accounts as incurred in relation to new a) Basis of preparation it is not expected to be reoccupied Provisions are charged to operating reported on pages 59 to 88 should connections and recharges ii) The capex creditor and immediately; costs to reflect the Company’s be read in conjunction with the for costs of repair from deferred income from The regulatory financial statements assessment of the risk of non- financial review set out in the damages. Other items such grants and contributions are separate from the statutory • New properties are connected recoverability of debtors based on Hafren Dyfrdwy Cyfyngedig Annual as income from renewable and adopted assets included financial statements of the but are not occupied; the lifetime expected credit losses Report and Accounts 2020 to aid energy incentives are within trade and other Company. They have been prepared for receivables. • Properties are disconnected understanding of the performance shown as revenue in the payables in the statutory on a going concern basis as set out following a customer’s request; Write-offs in relation to court of the business. statutory accounts and accounts are shown as in the Strategic report of the Hafren or or debt recovery costs are not negative operating costs for separate items in the Dyfrdwy Cyfyngedig Annual Report regulatory accounts. included in the bad debt provision. a) Differences in recognition regulatory reporting. and Accounts 2020 on page 31. • The identity of the customer is and measurement unknown. Debt can only be written off if it ii) Cash flow presentation iii) Intra-group loans have been The regulatory financial statements between statutory and reclassified from Trade is a legitimate charge against Grants and contributions have been prepared in accordance The following activities are regulatory financial and other receivables to the debtor (if it is considered that received are presented as with Condition F of the Instruments undertaken to ensure properties Investments. part or all of the debt is incorrect accounts of Appointment of the Water and classified as unoccupied are in fact operating cash flows in the or unsubstantiated, then such Sewerage Undertakers and the not occupied: i) Borrowing costs statutory accounts but as d) Price control segments elements are dealt with through the investing cash flows in the Regulatory Accounting Guidelines Borrowing costs where as issued by the WSRA. • Where the Company is informed issue of a credit note) and if one of regulatory accounts. The regulatory accounts have been directly related to the that the customer has left a the following criteria is met: prepared in accordance with RAG construction of an asset b) Revenue recognition property and the property is c) Difference in presentation 2.07 ‘Guideline for classification of • the customer does not have any are capitalised in the expected to be occupied by of specific items required costs across the price controls’. assets or has insufficient assets statutory accounts. These Turnover represents income someone else, a welcome letter is to be separately disclosed receivable from regulated water on which to levy execution; amounts are not capitalised The section 2 data tables have been sent to the property encouraging and waste water activities, in the regulatory financial in the regulatory financial prepared in accordance with our the occupier to contact the • the customer is bankrupt and no excluding value added tax. reporting statements in statements Accounting Separation Methodology Company. dividend has been, or is likely to accordance with the RAGs. Statement which can be found at be, received; i) Profit or loss on disposal Turnover includes an estimate of • If there is no response to the hdcymru.co.uk. Our methodology of fixed assets and non- the amount of mains water and welcome letter within two b) Differences in statement explains the basis for • the customer has died without operating income are waste water charges unbilled at the months a void letter is sent to the presentation between allocation of operating and capital leaving an estate or has left an included in operating costs year end. The accrual is estimated property explaining that we have statutory and regulatory expenditure and has been updated insufficient estate on which to in the statutory accounts using a defined methodology classified the property as empty for changes to the requirements in levy execution and the Company financial accounts but are shown as separate based upon a measure of unbilled and may schedule the property the year. Wherever possible, direct has been unable to prove its case line items in the regulatory water consumed by tariff, which is for disconnection. i) Revenue and cost costs and assets have been directly in court; or financial statements. In calculated from historical billing classification attributed to price controls. Where addition, interest income information. There have been no • Meter readings are taken for • all available economic options for Certain items which this is not possible, appropriate and costs relating to defined changes in methodology in the year. metered unoccupied properties; collection of the debt have been are netted off against cost allocations have been applied benefit pension schemes are where consumption is recorded, a pursued or that debt recovery operating costs within the as described in the methodology. The Water Industry Act 2014, included in finance income letter is sent to the property. procedures have proved to be statutory accounts are Material changes to the allocation Chapter 1 A ‘Licensing of Water or cost respectively in the ineffective or uneconomic to grossed up and shown as approach compared to the previous Suppliers’ describes the duties • Inspections are organised statutory accounts but are continue. revenue for regulatory year are documented in the imposed on a water and sewerage throughout the year by shown as other interest reporting. This includes methodology statement. undertaker and the licence geographical area. conditions involved. Regulated activities are consequently those Non-appointed income primarily activities that are necessary in relates to waste water billing order for the appointee to fulfil the activities on behalf of United functions and duties of a water and Utilities and Welsh Water sewerage undertaker. customers.

Turnover is not recognised in respect of unoccupied properties. Properties are classified as unoccupied when: 78 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 79 2A - Segmental income statement Year ended 31 March 2020 Uneconomic circumstances e) Other accounting policies are those where, following the Retail Wholesale application of debt recovery All other accounting policies applied to the regulatory financial Line description Non- Water Water Water Waste water Waste Total procedures: Household Sludge reporting accounts are set out Household resources Network+ Total Network+ water total • the customer could not be in pages 70 to 75 of the Hafren £m £m £m £m £m £m £m £m £m traced without incurring Dyfrdwy Cyfyngedig Annual Report an unreasonable degree of and Accounts 2020, including expenditure; or the capitalisation policy which 2A.1 Revenue - price control 2.563 0.537 18.194 18.194 3.300 3.300 24.594 is outlined within the property, 2A.2 Revenue - non price control 0.000 0.000 5.979 5.979 0.046 0.046 6.025 • the company has an insufficiently plant and equipment accounting sound case to justify further 2A.3 Operating expenditure -2.512 -0.228 -3.706 -17.676 -21.382 -3.296 -0.471 -3.767 -27.889 policy note. Full details of the expenditure on debt recovery Depreciation - tangible fixed capitalisation policy are outlined 2A.4 -0.048 -0.008 -0.370 -4.328 -4.698 -1.593 -0.001 -1.594 -6.348 procedures; or assets in the Accounting Separation Amortisation - intangible Methodology Statement. 2A.5 -0.487 -0.106 0.000 -0.373 -0.373 0.000 0.000 0.000 -0.966 • the likelihood of recovering the fixed assets debt is so small in particular 2A.6 Other operating income 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 circumstances that further f) Current cost accounting Operating profit before expenses on debt recovery cannot 2A.7 -0.484 0.195 -2.280 -2.015 -4.584 Although there is no longer a recharges be justified. requirement to produce full current The above write-off rules apply cost financial statements, the primarily to customers to whom requirement to disclose summary A Recharges in respect of ‘principal use’ assets the company has ceased to provide current cost financial results has Recharges from other been retained in the Wholesale 2A.8 -0.083 -0.018 -0.105 0.000 -0.105 -0.219 -0.001 -0.220 -0.426 a service. Only in exceptional segments circumstances is debt relating to current cost financial performance 2A.9 Recharges to other segments 0.000 0.000 0.000 0.426 0.426 0.000 0.000 0.000 0.426 continuing customers considered table. for write-off. The capital maintenance charge has been calculated 2A.10 Operating profit -0.567 0.177 -1.959 -2.235 -4.584 d) IFRS 16 Leases using current cost depreciation values in the current cost fixed Surface water drainage In the current financial year 2A.11 0.000 Severn Trent Water Limited has asset register which is indexed rebates adopted IFRS 16 Leases. The annually and adjusted for Group has adopted IFRS 16 Leases additions. Infrastructure renewals retrospectively from 1 April 2019, expenditure for below ground the reclassifications and the assets is included in operating adjustments arising from the costs. new leasing rules are therefore recognised in the opening balance sheet on 1 April 2019.

Further detail on the accounting policy for leased assets can be found in the Hafren Dyfrdwy Cyfyngedig statutory accounts. 80 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 81 2B - Totex analysis (wholesale) 2C - Operating costs analysis (retail) Year ended 31 March 2020 Year ended 31 March 2020

Water Water Waste water Line description Sludge Total Line description Household Non-household Total Resources Network+ Network+

£m £m £m £m £m £m £m £m

A Operating expenditure Operating expenditure 2B.1 Power 0.026 1.957 0.488 0.001 2.472 2C.1 Customer services 0.357 0.082 0.439 2B.2 Income treated as negative expenditure -0.478 0.000 0.000 0.000 -0.478 2C.2 Debt management 0.349 0.000 0.349 2B.3 Abstraction charges/discharge consents 0.557 0.023 0.197 0.000 0.777 2C.3 Doubtful debts 1.097 -0.011 1.086 2B.4 Bulk supply/bulk discharge 0.362 2.253 0.030 0.006 2.650 2C.4 Meter reading 0.151 0.002 0.153 Other operating expenditure - renewals 2C.5 Services to developers 0.070 0.070 2B.5 0.534 4.520 0.091 0.000 5.145 expensed in year (infrastructure) 2C.6 Other operating expenditure 0.558 0.085 0.643 Other operating expenditure - renewals 2C.7 Total operating expenditure (excluding third party services) 2.512 0.228 2.740 2B.6 0.000 0.002 0.031 0.000 0.033 expensed in year (non-infrastructure) 2C.8 Third party services operating expenditure 0.000 0.000 0.000 Other operating expenditure - excluding 2B.7 0.314 7.384 2.153 0.458 10.310 2C.9 Total operating expenditure 2.512 0.228 2.740 renewals 2B.8 Local authority and cumulo rates 0.430 1.050 0.281 0.000 1.761 Total operating expenditure (excluding 2C.10 Depreciation - tangible fixed assets 0.048 0.008 0.056 2B.9 1.745 17.189 3.271 0.465 22.670 third party services) 2C.11 Amortisation - intangible fixed assets 0.487 0.106 0.593 2B.10 Third party services 1.961 0.487 0.025 0.006 2.479 2B.11 Total operating expenditure 3.706 17.676 3.296 0.471 25.149 2C.12 Total operating costs 3.047 0.342 3.389

B Capital Expenditure 2C.13 Debt written off 0.233 0.014 0.247 Maintaining the long term capability of the 2B.12 0.000 0.000 0.000 0.000 0.000 assets - infrastructure Operating Cost Analysis Maintaining the long term capability of the 2B.13 0.598 9.118 1.527 0.077 11.320 assets - non- infrastructure (Retail) Commentary vs 2B.14 Other capital expenditure - infrastructure -0.001 1.009 0.069 0.000 1.077 FD (HD) 2B.15 Other capital expenditure - non-infrastructure 0.399 2.539 0.113 0.000 3.051 Retail operating expenditure 2B.16 Infrastructure network reinforcement 0.000 0.115 0.000 0.000 0.115 excluding depreciation totals Total gross capital expenditure (excluding £2.7m for the period; £2.5m (92%) 2B.17 0.996 12.781 1.709 0.077 15.563 third party services) relates to Household customers. 2B.18 Third party services 0.000 0.000 0.000 0.000 0.000 This is £0.4m higher than the Final 2B.19 Total gross capital expenditure 0.996 12.781 1.709 0.077 15.563 Determination (FD) of £2.310m, largely driven by doubtful debts.

C Grants and contributions 19/20 is the first full year of HD, and 2B.20 Grants and contributions 0.000 -1.463 -0.129 0.000 -1.592 is reflective of the true operating base, we have reallocated some costs between customers & debt 2B.21 Totex 4.702 28.994 4.876 0.548 39.120 management which better reflects the time spent by FTE in across these areas. D Cash Expenditure 2B.22 Pension deficit recovery payments 0.000 0.000 0.000 0.000 0.000 2B.23 Other cash items 0.000 0.000 0.000 0.000 0.000

E Total 2B.24 Totex including cash items 4.702 28.994 4.876 0.548 39.120 82 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 83 2D - Historic cost analysis of 2E - Analysis of capital contributions fixed assets & land sales (wholesale) Year ended 31 March 2020 Year ended 31 March 2020

Wholesale Retail Current year

Line description Water Water Waste water Non- Total Sludge Household Capitalised Resources Network+ Network+ Household Line description Fully recognised and amortised Fully netted off in income Total (in income capex £m £m £m £m £m £m £m statement statement) £m £m £m £m A Cost 2D.1 At 1 April 2019 10.425 175.024 41.698 0.000 1.009 0.030 228.186 A Grants and contributions - water 2D.2 Disposals 0.000 0.000 0.000 0.000 0.000 0.000 0.000 2E.1 Connection charges 0.000 0.261 0.000 0.261 2D.3 Additions 0.996 12.164 1.585 0.077 0.013 0.005 14.840 2E.2 Infrastructure charge receipts 0.000 0.200 0.000 0.200 2D.4 Adjustments 0.000 0.114 0.000 0.000 -0.084 0.000 0.030 2E.3 Requisitioned mains 0.000 0.022 0.000 0.022 2D.5 Assets adopted at nil cost 0.000 0.000 0.000 0.000 0.000 0.000 0.000 2E.4 Other contributions (price control) 0.000 0.000 0.000 0.000 2D.6 At 31 March 2020 11.421 187.302 43.283 0.077 0.938 0.035 243.056 2E.5 Diversions 0.058 0.000 0.000 0.058 2E.6 Other contributions (non-price control) 0.000 0.980 0.000 0.980 B Depreciation 2E.7 Total 0.058 1.463 0.000 1.521 2D.7 At 1 April 2019 -1.226 -35.640 -1.157 0.000 -0.663 -0.001 -38.687 2D.8 Disposals 0.000 0.000 0.000 0.000 0.000 0.000 0.000 2E.8 Value of adopted assets 0.000 0.000 0.000 2D.9 Adjustments 0.001 -0.080 0.004 0.000 0.072 0.000 -0.003 2D.10 Charge for the year -0.370 -4.328 -1.593 -0.001 -0.048 -0.008 -6.348 B Grants and contributions - waste water 2D.11 At 31 March 2020 -1.595 -40.048 -2.746 -0.001 -0.639 -0.009 -45.038 2E.9 Infrastructure charge receipts 0.000 0.129 0.000 0.129 2E.10 Requisitioned sewers 0.000 0.000 0.000 0.000 Net book amount at 31 2D.12 9.826 147.254 40.537 0.076 0.299 0.026 198.018 March 2020 2E.11 Other contributions (price control) 0.000 0.000 0.000 0.000 Net book amount at 1 April 2E.12 Diversions 0.000 0.000 0.000 0.000 2D.13 9.199 139.384 40.541 0.000 0.346 0.029 189.499 2019 2E.13 Other contributions (non-price control) 0.001 0.000 0.000 0.001 2E.14 Total 0.001 0.129 0.000 0.130 C Depreciation charge for year

2D.14 Principal services -0.370 -4.328 -1.593 -0.001 -0.048 -0.008 -6.348 2E.15 Value of adopted assets 0.000 0.000 0.000 2D.15 Third party services 0.000 0.000 0.000 0.000 0.000 0.000 0.000

2D.16 Total -0.370 -4.328 -1.593 -0.001 -0.048 -0.008 -6.348 Current year Water Waste water Total In the current financial year the Group has adopted IFRS 16 Leases, retrospectively from 1 April 2019. £m £m £m Right-of-use assets are not included within the fixed assets note to the statutory financial statements; they have C Movements in capitalised grants and contributions been disclosed separately in the leases note. For the purposes of regulatory reporting Right of Use assets have 2E.16 Brought forward 10.361 0.081 10.442 been included in tables 2D, and 1C.1 fixed assets. 2E.17 Capitalised in year 1.463 0.129 1.592 NBV at 31 March 2E.18 Amortisation (in income statement) -0.160 0.000 -0.160 2020 2E.19 Carried forward 11.664 0.210 11.874 Fixed assets 198.014

Right of Use assets 0.004 D Land sales Total 198.018 2E.20 Proceeds from disposals of protected land 0.000 0.000 0.000 84 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 85 2F - Household revenues by customer type 2H - Non-household wastewater Year ended 31 March 2020 revenues by tariff type Average Wholesale Retail Number of Total revenue household Year ended 31 March 2020 Line description charges revenue customers retail revenue revenue per customer Average non- Wholesale household Number of £m £m £m 000s £ Line description charges Retail revenue Total revenue retail connections revenue revenue per connection 2F.1 Unmeasured water only customer 0.366 0.065 0.431 31.078 2 £m £m £m 000s £ 2F.2 Unmeasured waste water only customer 0.113 0.028 0.141 1.046 27 2F.3 Unmeasured water and waste water customer 6.700 1.139 7.839 8.949 127 A Non-Default tariffs 2F.4 Measured water only customer 0.508 0.099 0.607 44.870 2 2H.1 Total non-default tariffs 0.000 0 2F.5 Measured waste water only customer 0.045 0.006 0.051 1.395 4 2F.6 Measured water and waste water customer 6.514 1.226 7.740 7.417 165 2F.7 Total 14.246 2.563 16.809 94.755 27 B Default tariffs 2H.2 Unmeasured and 0-5 Ml/a 0.021 0.002 0.023 1.167 2 2H.3 5 to 50 Ml (all areas) 0.892 0.064 0.956 0.012 5333 2G - Non-household water revenues 2H.4 50 Ml and over (all areas) 0.015 0.001 0.016 0.001 1000 2H.24 Total default tariffs 0.928 0.067 0.995 1.180 57 by tariff type 2H.25 Total 0.928 0.067 0.995 1.180 57 Year ended 31 March 2020 Number of Average non- Average non- customers household Wholesale household Number of retail revenue Line description charges Retail revenue Total revenue retail connections per customer revenue revenue per 000s £ connection C Revenue per customer £m £m £m 000s £ 2H.26 Total 1.180 57

A Non-Default tariffs

2G.1 Total non-default tariffs 0.000 0

B Default tariffs 2G.2 Unmeasured Water 0.087 0.012 0.099 0.369 33 2G.3 Measured Water 0-50 ml/a 4.061 0.340 4.401 6.592 52 2G.4 Measured Untreated Water 0-50 ml/a 0.053 0.001 0.054 0.011 91 2G.5 Measured 50 Ml and over 2.118 0.052 2.170 0.015 3467 2G.21 Total default tariffs 6.319 0.405 6.724 6.987 58

2G.22 Total 6.319 0.405 6.724 6.987 58

Number of Average non- customers household retail revenue per customer 000s £ C Revenue per customer 2G.23 Total 6.987 58 86 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 87 2I - Revenue analysis and wholesale 2I - Revenue analysis and wholesale control reconciliation control reconciliation Year ended 31 March 2020 Year ended 31 March 2020 Difference between allowed Wholesale Waste Line description Units DPs Household Non-household Total and actual revenue under the Wholesale Waste revenue of £3.3m £m £m £m wholesale control is £0.2m (6.4%) lower than the Wholesale revenue for 2019/20 Wholesale Price Control. This is A Wholesale charge - water of £21.5m is £0.5m (2.0%) lower mainly due to lower measured consumption than forecast in 2I.1 Unmeasured £m 3 5.905 0.087 5.992 than the amount assumed in the charge setting. 2I.2 Measured £m 3 5.971 6.232 12.202 Wholesale Price Control. 2I.3 Third party revenue £m 3 0.000 0.000 0.000 Wholesale Water 2I.4 Total £m 3 11.875 6.319 18.194 Wholesale Water revenue of £18.2m is £0.2m (1.2%) lower B Wholesale charge - waste water than the Wholesale Price Control, 2I.5 Unmeasured £m 3 1.275 0.021 1.296 mainly due to lower measured 2I.6 Measured £m 3 1.097 0.907 2.004 consumption than forecast in charge setting. 2I.7 Third party revenue £m 3 0.000 0.000 0.000 2I.8 Total £m 3 2.372 0.928 3.300

2I.9 Wholesale Total £m 3 14.247 7.247 21.494

C Retail revenue 2J - Infrastructure network 2I.10 Unmeasured £m 3 1.232 0.014 1.246 2I.11 Measured £m 3 1.331 0.456 1.787 reinforcement costs 2I.12 Other third party revenue £m 3 0.000 0.067 0.067 2I.13 Retail total £m 3 2.563 0.537 3.100 Year ended 31 March 2020

D Third party revenue - non-price control Network On site/site Line description reinforcement specific capex 2I.14 Bulk Supplies - water £m 3 0.529 capex (memo only) 2I.15 Bulk Supplies - waste water £m 3 0.037 2I.16 Other third party revenue £m 3 5.369 £m £m

E Principal services - non-price control A Wholesale water network+ (treated water distribution) 2I.17 Other appointed revenue £m 3 0.090 2J.1 Distribution and trunk mains 0.115 0.553

2J.2 Pumping and storage facilities 0.000 0.000 2I.18 Total appointed revenue £m 3 30.619 2J.3 Other 0.000 0.000

Water Waste water Total 2J.4 Total 0.115 0.553 £m £m £m 2I.19 Wholesale revenue governed by price control £m 3 18.194 3.300 21.494 B Wholesale waste water network+ (sewage collection) 2I.20 Grants and contributions £m 3 0.483 0.129 0.612 2J.5 Foul and combined systems 0.000 0.005

2I.21 Total revenue governed by wholesale price control £m 3 18.677 3.429 22.106 2J.6 Surface water only systems 0.000 0.000 2J.7 Pumping and storage facilities 0.000 0.000 2J.8 Other 0.000 0.000 2I.22 Amount assumed in wholesale determination £m 3 19.381 3.508 22.889 2J.9 Total 0.000 0.005 2I.23 Adjustment for in-period ODI revenue £m 3 -0.204 0.133 -0.071 2I.24 Adjustment for WRFIM £m 3 -0.050 0.016 -0.034 2I.25 Total assumed revenue £m 3 19.127 3.657 22.784

2I.26 Difference £m 3 -0.450 -0.228 -0.678 88 Hafren Dyfrdwy Cyfyngedig - Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 89 2K- Infrastructure charges reconciliation Year ended 31 March 2020 Additional Line description Water Waste water Total

£m £m £m regulatory

A Impact of infrastructure charge discounts 2K.1 Infrastructure charges 0.200 0.129 0.329 information 2K.2 Discounts applied to infrastructure charges 0.000 0.041 0.041

2K.3 Gross infrastructure charges 0.200 0.170 0.370

B Comparison of revenue and costs 2K.4 Variance brought forward 0.090 0.046 0.136 2K.5 Revenue 0.200 0.170 0.370 2K.6 Costs -0.115 0.000 -0.115 2K.7 Variance carried forward 0.175 0.216 0.391

For 2019/20, infrastructure charges are based on the Licence Condition C industry capped limit and not related to costs, therefore costs and revenue cannot be reconciled. 90 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 91 3A - Outcome Performance Table Year ended 31 March 2020

"2019-20 "2019-20 "2018-19 "2019-20 outperformance "2019-20 outperformance performance 2019-20 2019-20 outperformance payment payment or outperformance payment payment or Decimal Row Unique ID Performance commitment Unit Unit description level - actual performance PCL or underperformance payment - underperformance or underperformance payment - underperformance places (for level - actual met? in-period ODIs payment - ODIs payable at the end of AMP6 payment - ODIs payable information)" (indicator)" in-period ODIs (indicator)" at the end of AMP6 (£m, to 4 dp)" (£m, to 4 dp)"

1 PR14HDDWSW_A1 A1: Discoloured water contacts nr No. per 1,000 population 2 1.02 1.32 No Underperformance payment -0.0057

2 PR14HDDWSW_A2 A2: Mean zonal compliance (MZC) % Mean zonal compliance (%) 2 99.94 99.92 No Underperformance payment -0.0285

3 PR14HDDWSW_A3 A3: Delivery of the outcomes of the Legacy water treatment works (south west Wrexham) major scheme text Pass/fail (until completion) na N/A N/A - -

4 PR14HDDWSW_A4 A4: Delivery of the outcomes of the service reservoir water quality risk management schemes text Pass/fail (for each scheme) na Milestone Complete Yes -

5 PR14HDDWSW_B1 B1: Average duration of interruptions - 3 hours or longer (planned and unplanned interruptions) time Hours / property / year 2 0.12 0.19 Yes Outperformance payment 0.0013

6 PR14HDDWSW_B2 B2: Sustainable economic level of leakage nr Litres per property per day (l/prop/day) 1 107.8 85.6 Yes Outperformance payment deadband

7 PR14HDDWSW_B3 B3: Security of supply index (SOSI) score Security of Supply Index (SOSI) 0 100 100 Yes

8 PR14HDDWSW_B4 B4: Number of bursts nr No. of burst mains per year 0 185 188 No Underperformance payment deadband

9 PR14HDDWSW_C1 C1: Gross operational greenhouse gas emissions nr tCO2e 0 4987 3950 Yes

10 PR14HDDWSW_D1 D1: Customers’ perception based on market research % % customer satisfaction na 70 68 No

11 PR14HDDNHHR_F1 F1: Non-household Service incentive mechanism (SIM) score Service incentive mechanism (SIM) score 1 83.9 89.4 Yes

12 PR14HDDHHR_E1 E1: Per capita consumption and water efficiency nr Litres per capita per day 2 140.41 141.25 No

13 PR14HDDHHR_E2 E2: Service incentive mechanism (SIM) score Service incentive mechanism (SIM) score 1 78.4 72.9 No

14 PR14HDDWSW_W-A1 W-A1: Number of complaints about drinking water quality nr No. of water quality complaints 0 67 124 No Underperformance payment -0.0486

15 PR14HDDWSW_W-A2 W-A2: Compliance with drinking water quality standards % Mean zonal compliance (%) 3 99.940 100.000 Yes -

16 PR14HDDWSW_W-A3 W-A3: Asset stewardship - number of sites with coliform failures (WTWs) nr No. of sites with coliform failures per year 0 0 0 Yes -

17 PR14HDDWSW_W-B1 W-B1: Resource efficiency (distribution input per customer) - amount of water taken out of the environment nr Litres per person per day (l/p/d) 0 348 343 No

18 PR14HDDWSW_W-B2 W-B2: Leakage levels nr Megalitres per day (Ml/d) 0 8 7 Yes Outperformance payment deadband

19 PR14HDDWSW_W-B3 W-B3: Speed of response in repairing leaks (% fixed within 24 hours) % % visible leaks fixed within 24 hours 0 26 27 No Underperformance payment -0.0090

20 PR14HDDWSW_W-B4 W-B4: Number of minutes customers go without supply each year (interruptions to supply > 3 hours) time Minutes / property / year 2 93.74 31.60 No Underperformance payment -0.1250

21 PR14HDDWSW_W-B5 W-B5: % of customers with resilient supplies (those that benefit from a second source of supply) % % customers with 2nd supply source 1 27.5 27.5 No -

22 PR14HDDWSW_W-B6 W-B6: Asset stewardship - mains bursts nr No. of burst mains per year 0 148 125 Yes Outperformance payment deadband

23 PR14HDDWSW_W-B7 W-B7: Customers at risk of low pressure nr No. customers at risk of low pressure 0 11 15 Yes Outperformance payment 0.0047

24 PR14HDDWSW_W-B8 W-B8: Restrictions on water use nr No. water restrictions in five-year period 0 0 0 Yes Outperformance payment 0.0079

25 PR14HDDWSW_W-C1 W-C1: Customers rating our services as good value for money (based on tracker survey) % % customer satisfaction 0 N/A N/A - -

26 PR14HDDWSW_W-D2 W-D2: Asset stewardship - environmental compliance % % environmental compliance 0 98 96 No

27 PR14HDDWSW_W-E1 W-E1: Size of our carbon footprint nr ktCO2e 3 1.000 3.000 No Underperformance payment -0.0146

28 PR14HDDWSW_W-F1 W-F1: Improved understanding of our services through education nr No. of people - education programme 0 534 1205 Yes

29 PR14HDDWSWW_S-A1 S-A1: Number of internal sewer flooding incidents nr No. of internal sewer flooding incidents 0 4 10 No Underperformance payment -0.1285

30 PR14HDDWSWW_S-A2 S-A2: Number of external sewer flooding incidents nr No. of external sewer flooding incidents 0 29 32 Yes Outperformance payment deadband

31 PR14HDDWSWW_S-A3 S-A3: Partnership working nr No. of partnership working projects 0 0 N/A - -

32 PR14HDDWSWW_S-A4 S-A4: Asset stewardship - blockages nr No. of sewer blockages per year 0 252 342 No Underperformance payment -0.1019

No. of connectable properties, identified as 33 PR14HDDWSWW_S-A5 S-A5: Statutory obligations (Section 101A schemes) nr polluting or likely to pollute, associated with new 0 0 N/A - Section 101A schemes

34 PR14HDDWSWW_S-B1 S-B1: Customers rating our services as good value for money (based on tracker survey) % % customer satisfaction 0 N/A N/A - -

35 PR14HDDWSWW_S-C2 S-C2: The number of category 3 pollution incidents nr No. of pollution incidents (cat 3) 0 1 4 Yes Outperformance payment deadband

36 PR14HDDWSWW_S-C3 S-C3: Asset stewardship - environmental compliance (basket of measures) % % compliance with WwTW regulations 2 97.69 95.79 No -

37 PR14HDDWSWW_S-C5 S-C5: Sustainable sewage treatment nr No. of WwTWs avoiding investment 0 0 N/A - -

38 PR14HDDWSWW_S-C6 S-C6: Serious pollution incidents nr No. of pollution incidents (cats 1 and 2) 0 0 0 Yes

39 PR14HDDWSWW_S-C7 S-C7: Overall environmental performance (basket of environmental measures) nr No. of environmental targets met 0 N/A N/A - -

40 PR14HDDWSWW_S-C8 S-C8: The number of category 4 pollution incidents nr No. of pollution incidents (cat 4) 0 5 13 No

41 PR14HDDWSWW_S-D1 S-D1: Size of our carbon footprint nr ktCO2e 3 1.000 2.000 Yes -

42 PR14HDDWSWW_S-E1 S-E1: Improved understanding of our services through education nr No. of people - education programme 0 534 1205 Yes

43 PR14HDDHHR_R-A1 R-A1: Customer satisfaction with their service (based on a survey) text Customer satisfaction ranking na Upper Quartile MEDIAN No

44 PR14HDDHHR_R-A2 R-A2: Customers' experience of dealing with us (based on Ofwat's SIM) text Service incentive mechanism (SIM) score ranking na 81.45 77.40 No

45 PR14HDDHHR_R-B1 R-B1: Customers helped by a review of their tariff & water usage &/or supported by SVT social fund nr No. of customers engaged with on debt 0 291 310 Yes

46 PR14HDDHHR_R-B2 R-B2: Percentage of customers who do not pay (household bad debt divided by total household revenue) % % of customers who do not pay 2 3.16 2.28 Yes 92 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 93 3B - Sub-measures performance table 3D - SIM Table Year ended 31 March 2020 Year ended 31 March 2020

PC/sub- 2018-19 2019-20 2019- Line description Units DPs Score Decimal Row Unique ID measure PC / sub-measure Unit performance level performance 20 PCL places Number ID - actual level - actual met?

S-C3: Asset stewardship - environmental 1 PR14HDDWSWW_S-C3 00 % 2 97.69 95.79 No compliance (basket of measures) A Qualitative performance % of sewage treatment works passing their 2 PR14HDDWSWW_S-C3 01 % 2 98.57 100.00 Yes 3D.1 1st survey score nr 2 4.13 numeric consents 3D.2 2nd survey score nr 2 4.10 % of actions raised from EA regulatory site 3 PR14HDDWSWW_S-C3 02 % 2 96.84 97.44 No audits (actions raised as a % of total site visits) 3D.3 3rd survey score nr 2 4.04

% of sites that do not exceed their 90%ile flow 3D.4 4th survey score nr 2 4.12 4 PR14HDDWSWW_S-C3 03 on sewage treatment works or maximum daily % 2 95.41 85.71 No 3D.5 Qualitative SIM score (out of 75) nr 2 58.08 flow on water treatment works 3D.6 Total contact score nr 2 30.44 % of sites compliant with their abstraction 5 PR14HDDWSWW_S-C3 04 % 2 99.96 100.00 Yes permits 3D.7 Quantitative SIM score (out of 25) nr 2 14.85 3D.8 Total annual SIM score (out of 100) nr 2 72.93

3C - AIM Table 4A - Non-financial information Year ended 31 March 2020 Nil return. We do not have any active AIM sites, therefore this table is deliberately blank. Current year Line description Units DPs Unmeasured Measured

Retail A Household 4A.1 Number of void households 000s 3 2.296 2.311 4A.2 Per capita consumption (excluding supply pipe leakage) l/h/d l/h/d 2 157.78 128.92

Water Waste water Wholesale B Volume (Ml/d) 4A.3 Bulk supply export Ml/d 3 0.594 0.110 4A.4 Bulk supply import Ml/d 3 0.072 0.094 4A.5 Distribution input Ml/d 3 59.044 94 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 95 4B - Wholesale totex analysis 4B - Wholesale totex analysis Year ended 31 March 2020 Year ended 31 March 2020

In 2018, we completed the variation have been adjusted by Ofwat to A number of items are excluded Current year Cumulative 2015-20 to our region by moving the English reflect this change and are set out from the totex menu and appear Line description region previously served by Dee in the variation to our appointment as reconciling items in table 4B. Water Waste water Water Waste water Valley Water into Severn Trent Water (‘revised FD’). As in the prior year reconciling £m £m £m £m and the Welsh areas previously items include third party costs and part of Severn Trent Water into Table 4B compares our total pension deficit recovery payments. Hafren Dyfrdwy. The PR14 final wholesale expenditure (‘totex’) in In addition, ‘Other rule book’ A Actual totex determination (FD) allowances the current year and for AMP6 to adjustments have been made as 4B.1 Actual totex 33.696 5.424 197.688 49.496 the allowed totex in the revised FD. outlined below. B Items excluded from the menu Other ‘Rule book’ adjustments in 2019/20 4B.2 Third party costs -2.448 -0.031 -4.407 -0.040 4B.3 Pension deficit recovery payments 0.000 0.000 -1.595 0.000

Line description Water Waste Total 4B.4 Other ‘Rule book’ adjustments -2.049 -0.023 -70.427 -41.179 4B.5 Total items excluded from the menu -4.497 -0.054 -76.429 -41.219 £m £m £m Bulk supply costs from Severn Trent England to remove 2.464 0.035 2.499 Third party costs for bulk supply to Severn Trent England - move back to base totex - 0.415 - 0.012 - 0.427 C Transition expenditure Total adjustment 2.049 0.023 2.072 4B.6 Transition expenditure 0.000 0.000 0.544 0.000

D Adjusted Actual totex 4B.7 Adjusted Actual totex 29.199 5.370 121.803 8.277 Comparison to allowed totex service reservoirs programme (with successful delivery of the 4B.8 Adjusted Actual totex base year prices 24.581 4.521 107.835 7.032 In last year’s APR, we stated that associated ODI) and renewal of the we expected additional activity distribution mains network. There E Allowed totex and investment to continue were no waste water activities in Allowed totex based on final menu choice - base year in preparation for AMP7. This 4B.9 18.578 4.964 103.651 9.139 the Company prior to the boundary prices investment was made as planned, alignment, with the variance largely with total cumulative investment being a function of the assumptions moving from 3.9% lower than FD used in the FD split as part of the cumulative to 2018/19 to 1.8% licence variation. higher than the FD cumulative to this year. Note: The 2018/19 FD Menu values have been adjusted to reflect the The movement has been driven final menu choice. by activity in water services, with major investment in the 4C - Forecast impact of performance on RCV Cumulative to Totex in £m at 12/13 prices Service Cumulative to 19/20 18/19 Year ended 31 March 2020

Water 83.254 107.835 Line description Water Waste water £m £m Adjusted actual totex Waste water 2.511 7.032 Total 85.765 114.867 4C.1 Cumulative totex over/underspend so far in the price control period 5.008 -2.521 Water 85.073 103.651 4C.2 Customer share of cumulative totex over/underspend -3.129 1.302 FD Menu Waste water 4.175 9.139 4C.3 RCV element of customer share of cumulative totex over/underspend 1.643 -1.197 Total 89.248 112.790 4C.4 Adjustment for ODI rewards or penalties -0.003 -0.219 Water -1.819 4.184 4C.5 RCV determined at FD at 31 March 76.039 1.910 Waste water -1.664 -2.107 Total variance 4C.6 Projected ‘shadow’ RCV 77.679 0.494 Total -3.483 2.077 Total (%) -3.9% 1.8% 96 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 97

4D -Wholesale totex analysis (water) 4E -Wholesale totex analysis (waste water) Year ended 31 March 2020 Year ended 31 March 2020

Network+ Network + Sewage Water resources Network+ Sludge Sewage collection treatment Line description Treated Total Abstraction Raw water Raw water Raw water Water Sewage Imported water Line description Surface Total licences abstraction transport storage treatment Highway treatment sludge Sludge Sludge Sludge distribution Foul water drainage and liquor transport treatment disposal drainage £m £m £m £m £m £m £m disposal treatment

£m £m £m £m £m £m £m £m £m A Operating expenditure

4D.1 Power 0.000 0.026 0.567 0.000 0.089 1.301 1.983 A Operating expenditure

4D.2 Income treated as negative expenditure 0.000 -0.478 0.000 0.000 0.000 0.000 -0.478 4E.1 Power 0.077 0.022 0.015 0.360 0.014 0.000 0.001 0.000 0.489

4D.3 Abstraction charges/ discharge consents 0.557 0.000 0.000 0.000 0.023 0.000 0.580 4E.2 Income treated as negative expenditure 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

4D.4 Bulk supply 0.075 0.287 0.130 0.002 0.398 1.723 2.615 4E.3 Discharge consents 0.018 0.005 0.003 0.165 0.006 0.000 0.000 0.000 0.197

Other operating expenditure - renewals expensed in year 4E.4 Bulk discharge 0.010 0.001 0.001 0.016 0.000 0.001 0.001 0.003 0.035 4D.5 0.000 0.534 0.006 0.000 0.000 4.514 5.054 (infrastructure) Other operating expenditure - renewals expensed in 4E.5 0.073 0.009 0.009 0.000 0.000 0.000 0.000 0.000 0.091 Other operating expenditure - renewals expensed in year year (infrastructure) 4D.6 0.000 0.000 0.000 0.000 0.000 0.002 0.002 (non-infrastructure) Other operating expenditure - renewals expensed in 4E.6 0.020 0.006 0.004 0.001 0.000 0.000 0.000 0.000 0.031 4D.7 Other operating expenditure - excluding renewals 0.001 0.313 0.215 0.000 2.838 4.331 7.698 year (non-infrastructure)

4D.8 Local authority and cumulo rates 0.000 0.430 0.130 0.013 0.106 0.801 1.480 4E.7 Other operating expenditure - excluding renewals 0.270 0.079 0.052 1.688 0.066 0.016 0.436 0.007 2.612

4D.9 Total operating expenditure (excluding third party services) 0.633 1.112 1.048 0.015 3.454 12.672 18.934 4E.8 Local authority rates and cumulo rates 0.000 0.000 0.000 0.282 0.000 0.000 0.000 0.000 0.281 Total operating expenditure (excluding third party 4D.10 Third party services 0.000 1.961 0.032 0.000 0.140 0.315 2.448 4E.9 0.468 0.122 0.084 2.512 0.086 0.017 0.438 0.010 3.736 services) 4D.11 Total operating expenditure 0.633 3.073 1.080 0.015 3.594 12.987 21.382 4E.10 Third party services 0.004 0.001 0.001 0.018 0.001 0.000 0.006 0.000 0.031

B Capital Expenditure 4E.11 Total operating expenditure 0.472 0.123 0.085 2.530 0.087 0.017 0.444 0.010 3.767

4D.12 Maintaining the long term capability of the assets - infra 0.000 0.000 0.000 0.000 0.000 0.000 0.000 B Capital Expenditure 4D.13 Maintaining the long term capability of the assets - non-infra 0.000 0.598 0.000 0.002 1.620 7.496 9.716 4E.12 Maintaining the long term capability of the assets - infra 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 4D.14 Other capital expenditure - infra 0.000 -0.001 0.000 0.000 0.000 1.009 1.008 Maintaining the long term capability of the assets - 4D.15 Other capital expenditure - non-infra 0.000 0.399 0.000 0.000 -0.006 2.545 2.938 4E.13 0.266 0.003 0.003 1.245 0.010 0.000 0.077 0.000 1.604 non-infra 4D.16 Infrastructure network reinforcement 0.000 0.000 0.000 0.000 0.000 0.115 0.115 4E.14 Other capital expenditure - infra 0.055 0.007 0.007 0.000 0.000 0.000 0.000 0.000 0.069 4D.17 Total gross capital expenditure (excluding third party services) 0.000 0.996 0.000 0.002 1.614 11.165 13.777 4E.15 Other capital expenditure - non-infra 0.016 0.000 0.000 0.097 0.000 0.000 0.000 0.000 0.113 4D.18 Third party services 0.000 0.000 0.000 0.000 0.000 0.000 0.000 4E.16 Infrastructure network reinforcement 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 4D.19 Total gross capital expenditure 0.000 0.996 0.000 0.002 1.614 11.165 13.777 Total gross capital expenditure (excluding third party 4E.17 0.337 0.010 0.010 1.342 0.010 0.000 0.077 0.000 1.786 services) C Grants and contributions 4E.18 Third party services 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 4D.20 Grants and contributions 0.000 0.000 0.000 0.000 0.000 -1.463 -1.463 4E.19 Total gross capital expenditure 0.337 0.010 0.010 1.342 0.010 0.000 0.077 0.000 1.786

4D.21 Totex 0.633 4.069 1.080 0.017 5.208 22.689 33.696 C Grants and contributions D Cash Expenditure 4E.20 Grants and contributions -0.103 -0.013 -0.013 0.000 0.000 0.000 0.000 0.000 -0.129 4D.22 Pension deficit recovery payments 0.000 0.000 0.000 0.000 0.000 0.000 0.000

4D.23 Other cash items 0.000 0.000 0.000 0.000 0.000 0.000 0.000 4E.21 Totex 0.706 0.120 0.082 3.872 0.097 0.017 0.521 0.010 5.424

4D.24 Totex including cash items 0.633 4.069 1.080 0.017 5.208 22.689 33.696 D Cash Expenditure

4E.22 Pension deficit recovery payments 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 E Unit cost information (operating expenditure) Units 4E.23 Other cash items 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 4D.25 Licensed volume available Ml 38225.000

4D.25 Volume abstracted Ml 18653.630 4E.24 Totex including cash items 0.706 0.120 0.082 3.872 0.097 0.017 0.521 0.010 5.424 4D.25 Volume transported Ml 18653.630

4D.25 Average volume stored Ml 49139.030 E Unit cost information (operating expenditure) Units

4D.25 Distribution input volume Ml 21921.334 4E.25 Volume collected Ml 3572.768

4D.25 Distribution input volume Ml 21714.526 4E.25 Volume collected Ml 1957.032

4D.26 Unit cost £/Ml 16.569 164.812 57.996 0.291 163.946 595.956 4E.25 Volume collected Ml 3514.053

4D.27 Population 000s 204.529 204.529 204.529 204.529 204.529 204.529 4E.25 Biochemical Oxygen Demand (BOD) Tonnes 1008.111

4D.28 Unit cost £/pop 3.097 15.031 5.289 0.070 17.572 63.272 4E.25 Biochemical Oxygen Demand (BOD) Tonnes 0.000

4E.25 Volume transported m3 19884.960

4E.25 Dried solid mass treated ttds 0.920

4E.25 Dried solid mass disposed ttds 0.000

4E.26 Unit cost £/unit 132.088 63.383 24.289 2509.339 0.000 0.865 481643.758 0.000

4E.27 Population 000s 39.392 39.392 39.392 39.392 39.392 39.392 39.392 39.392

4E.28 Unit cost £/pop 11.980 3.149 2.167 64.218 2.217 0.437 11.249 0.245 98 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 99

4F - Operating cost analysis (household retail) 4G - Wholesale current cost Year ended 31 March 2020 financial performance Household unmeasured Household measured Year ended 31 March 2020 Line description Water Water Total Waste Waste Water only and waste Total Water only and waste Total water only water only water water Line description Water Waste water Total £m £m £m £m £m £m £m £m £m £m £m £m

A Operating expenditure 4F.1 Customer services 0.082 0.003 0.023 0.108 0.209 0.006 0.034 0.249 0.357 4G.1 Revenue 24.178 3.341 27.519 4F.2 Debt management 0.177 0.006 0.051 0.234 0.096 0.003 0.016 0.115 0.349 4G.2 Operating expenditure -21.382 -3.767 -25.149 4F.3 Doubtful debts 0.028 0.009 0.512 0.549 0.038 0.003 0.507 0.548 1.097 4G.3 Capital maintenance charges -9.713 -1.845 -11.558 4F.4 Meter reading 0.126 0.004 0.021 0.151 0.151 4G.4 Other operating income 0.000 0.000 0.000 4F.5 Other operating expenditure 0.183 0.006 0.053 0.242 0.264 0.008 0.044 0.316 0.558 4G.5 Current cost operating profit -6.917 -2.271 -9.188 Total operating expenditure excluding third party 4F.6 0.470 0.024 0.639 1.133 0.733 0.024 0.622 1.379 2.512 services

4G.6 Other income 0.177 0.000 0.177 4F.7 Third party services operating expenditure 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 4G.7 Interest income 0.002 0.000 0.002 4F.8 Total operating expenditure 0.470 0.024 0.639 1.133 0.733 0.024 0.622 1.379 2.512 4G.8 Interest expense -1.575 -0.040 -1.615

Depreciation - tangible fixed assets (on assets existing at 4G.9 Other interest expense 0.488 0.012 0.500 4F.9 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 31 March 2015) 4G.10 Current cost profit before tax and fair value movements -7.826 -2.298 -10.124 Depreciation - tangible fixed assets (on assets acquired 4F.10 0.015 0.001 0.005 0.021 0.022 0.001 0.004 0.027 0.048 since 1 April 2015) Amortisation - intangible fixed assets (on assets existing 4G.11 Fair value gains/(losses) on financial instruments 0.000 0.000 0.000 4F.11 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 at 31 March 2015) 4G.12 Current cost profit before tax -7.826 -2.298 -10.124 Amortisation - intangible fixed assets (on assets 4F.12 0.159 0.005 0.046 0.210 0.232 0.007 0.038 0.277 0.487 acquired since 1 April 2015)

4F.13 Total operating costs 0.644 0.030 0.690 1.364 0.987 0.032 0.664 1.683 3.047

4F.14 Capital expenditure 0.004 0.000 0.001 0.005 0.006 0.000 0.001 0.007 0.012

Demand-side efficiency and customer-side leaks B analysis - Household

4F.15 Demand-side water efficiency - gross expenditure 0.000

Demand-side water efficiency - expenditure funded by 4F.16 0.000 wholesale

4F.17 Demand-side water efficiency - net retail expenditure 0.000

4F.18 Customer-side leak repairs - gross expenditure 0.041

Customer-side leak repairs - expenditure funded by 4F.19 0.000 wholesale

4F.20 Customer-side leak repairs - net retail expenditure 0.041 100 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 101 4H - Financial metrics As at 31 March 2020

Line description Units Current year AMP to date Movement in RORE 2019-20 AMP to been made as planned with total Ofwat’s Information note 20/03 date cumulative investment over the stated for financial flows that the Base return 8.21% 6.53% AMP 1.8% higher than the FD. SIM reward/penalty should be A Financial indicators Totex out/(under) performance -9.07% -1.44% There has been major investment in recorded equally across the first 4H.1 Net debt £m 60.397 Retail cost out/(under) -2.04% -0.11% the service reservoirs programme four years of the AMP only (2015- performance 4H.2 Regulated equity £m 17.552 (with successful delivery of the 2019). As equivalent guidance ODI out/(under) performance -1.85% -0.91% associated ODI) and renewal of the was not provided for the RoRE, 4H.3 Regulated gearing % 77.48% Financing out/(under) 3.35% 0.21% performance distribution mains network. There we raised a query with Ofwat to 4H.4 Post tax return on regulated equity % -14.96% Other factors were no wastewater activities in clarify the correct treatment of 4H.5 RoRE (return on regulated equity) % 0.68% 4.66% Regulatory return for the year -1.40% 4.28% the company prior to the boundary the SIM in the RoRE. Using this 4H.6 Dividend yield % 0.00% alignment, with the variance largely guidance and to ensure that our 4H.7 Retail profit margin - Household % -2.88% being a function of the assumptions RoRE performance is consistent Return on Regulated Equity 4H.8 Retail profit margin - Non household % 2.51% used in the FD split as part of the with Ofwat’s guidance for financial (RoRE) licence variation. flows, we have applied the SIM 4H.9 Credit rating Text n/a penalty to the RoRE over the years 4H.10 Return on RCV % -7.01% Following the border variation Total cumulative totex performance when the performance was earned 4H.11 Dividend cover dec 0.00 in 2018-19, the FD RCV and before sharing is £2.1 million (years 2015-16 to 2018-19). 4H.12 Funds from operations (FFO) £m 3.631 allowances previously determined higher than allowed in the FD. for Dee Valley and Severn Trent Given the low value of the RCV this 4H.13 Interest cover (cash) dec -1.97 Financing performance Water were reapportioned between results in a large impact on RoRE 4H.14 Adjusted interest cover (cash) dec 1.29 Hafren Dyfrdwy and Severn as illustrated in the table above. At the end of 2018-19, Severn 4H.15 FFO/Debt dec 0.06 Trent England. This resulted in Trent made an equity injection to 4H.16 Effective tax rate % 35.16% higher allowances for wholesale Retail cost performance reduce net debt and compensate for the lower RCV resulting from 4H.17 RCF £m 3.631 totex and retail costs but a 25% lower RCV allocated to Hafren As the first full year of reporting the border variation. The benefit 4H.18 RCF/capex dec 0.26 Dyfrdwy than under Dee Valley. as Hafren Dyfrdwy, we now have of the repayment of the RPI linked Small movements in performance a true indication of the operating loan from the de-gearing exercise base, which shows total retail cost B Revenue and earnings compared to Dee Valley therefore has seen the nominal cost of debt performance is higher (£0.6 million) 4H.19 Revenue (actual) £m 24.594 have a much larger impact on RoRE fall from 6.7% in 2018-19 to 2.7% in as can be seen in the current year’s than allowed in the FD. the year. We expect finance costs 4H.20 EBITDA (actual) £m -3.295 to reduce further as we intend to negative RoRE of 1.40%. We discuss Cumulatively over the AMP we make a further equity injection in the key components of RoRE below. have spent in line with the final the first quarter of 2020-21 to bring C Movement in RoRE determination. 4H.21 Base return % 8.21% 6.53% Base return our gearing in line with Ofwat’s notional capital structure for AMP7. 4H.22 Totex out/(under) performance % -8.59% -1.34% Reapportioning the base return for ODI performance 4H.23 Retail cost out/(under) performance % -0.45% 0.17% the border variation has increased This year our opportunity to We have also restated the financing the base return on average over performance for 2018-19 to correct 4H.24 ODI out/(under) performance % -1.85% -0.91% outperform on the wastewater the AMP by 0.6% due to the higher for the accounting treatment of the 4H.25 Financing out/(under) performance % 3.36% 0.21% service was restricted by the apportioned FD allowances coupled overall ODI outperformance cap. index linked loan which novated to 4H.26 Other factors % 0.00% 0.00% with the lower RCV. A balanced performance across an intercompany loan (on identical 4H.27 Regulatory return for the year % 0.68% 4.66% our flooding and pollutions metrics terms) following the acquisition by Totex performance resulted in a small penalty due to Severn Trent. The restatement of 2018-19 borrowings is explained As explained in table 4B, last the cap. We have showed year- D Borrowings further in the commentary to year we stated that we expected on-year improvement in our water 4H.28 Proportion of borrowings which are fixed rate % 0.19% table 1E but the change results to undertake additional activity service metrics but acknowledge 4H.29 Proportion of borrowings which are floating rate % 46.14% in improving our financing and investment in 2019-20 in there is still more to do to deliver performance in 2018-19 by 0.7% 4H.30 Proportion of borrowings which are index linked % 53.67% preparation for AMP7. The totex for our customers. Overall this has and cumulatively over the AMP by 4H.31 Proportion of borrowings due within 1 year or less % 46.33% performance for the current year resulted in a net penalty of £0.45 0.2%. Proportion of borrowings due in more than 1 year reflects that this investment has million. 4H.32 % 0.00% but no more than 2 years Proportion of borrowings due in more than 2 years 4H.33 % 0.00% but no more than 5 years Proportion of borrowings due in more than 5 years 4H.34 % 53.67% 4I - Financial derivatives but no more than 20 years 4H.35 Proportion of borrowings due in more than 20 years % 0.00% Year ended 31 March 2020

This table is not required as Hafren Dyfrdwy do not have any financial derivatives. 102 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 103 4J - Atypical expenditure by business 4K - Atypical expenditure by business unit - Wholesale water unit - Wholesale waste water Year ended 31 March 2020 Year ended 31 March 2020

Network+ Sewage Water resources Network+ Network+ Sewage Collection Sludge Treatment Line description Total Abstraction Raw water Raw water Raw water Water Treated water Line description Sewage Total Surface Sludge licences abstraction transport storage treatment distribution Highway treatment Sludge Sludge Sludge Foul water liquor drainage and transport treatment disposal £m £m £m £m £m £m £m drainage treatment disposal

£m £m £m £m £m £m £m £m £m A Operating expenditure (excl. atypicals)

4J.1 Power 0.000 0.026 0.567 0.000 0.089 1.301 1.983 A Operating expenditure (excl. atypicals)

4J.2 Income treated as negative expenditure 0.000 -0.478 0.000 0.000 0.000 0.000 -0.478 4K.1 Power 0.077 0.022 0.015 0.360 0.014 0.000 0.001 0.000 0.489

4J.3 Abstraction charges/ discharge consents 0.557 0.000 0.000 0.000 0.023 0.000 0.580 4K.2 Income treated as negative expenditure 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

4J.4 Bulk supply 0.075 0.287 0.130 0.002 0.398 1.723 2.615 4K.3 Discharge Consents 0.018 0.005 0.003 0.165 0.006 0.000 0.000 0.000 0.197 4K.4 Bulk discharge 0.010 0.001 0.001 0.016 0.000 0.001 0.001 0.003 0.035 Other operating expenditure Other operating expenditure 4J.5 - Renewals expensed in year (infrastructure) 0.000 0.534 0.006 0.000 0.000 4.514 5.054 4K.5 - Renewals expensed in year (infrastructure) 0.073 0.009 0.009 0.000 0.000 0.000 0.000 0.000 0.091 4J.6 - Renewals expensed in year (non-infrastructure) 0.000 0.000 0.000 0.000 0.000 0.002 0.002 4K.6 - Renewals expensed in year (non-infrastructure) 0.020 0.006 0.004 0.001 0.000 0.000 0.000 0.000 0.031 4J.7 - Other operating expenditure excluding renewals 0.001 0.313 0.215 0.000 2.838 4.331 7.698 4K.7 - Other operating expenditure excluding renewals 0.270 0.079 0.052 1.688 0.066 0.016 0.436 0.007 2.612 4J.8 Local authority and cumulo rates 0.000 0.430 0.130 0.013 0.106 0.801 1.480 4K.8 Local authority and cumulo rates 0.000 0.000 0.000 0.282 0.000 0.000 0.000 0.000 0.281 4J.9 Total operating expenditure (excluding third party services) 0.633 1.112 1.048 0.015 3.454 12.672 18.934 Total operating expenditure (excluding third party 4J.10 Third party services 0.000 1.961 0.032 0.000 0.140 0.315 2.448 4K.9 0.468 0.122 0.084 2.512 0.086 0.017 0.438 0.010 3.736 services) 4J.11 Total operating expenditure 0.633 3.073 1.080 0.015 3.594 12.987 21.382 4K.10 Third party services 0.004 0.001 0.001 0.018 0.001 0.000 0.006 0.000 0.031

B Capital expenditure (excl. atypicals) 4K.11 Total operating expenditure 0.472 0.123 0.085 2.530 0.087 0.017 0.444 0.010 3.767

4J.12 Maintaining the long term capability of the assets - infra 0.000 0.000 0.000 0.000 0.000 0.000 0.000 B Capital expenditure (excl. atypicals) 4J.13 Maintaining the long term capability of the assets - non-infra 0.000 0.598 0.000 0.002 1.620 7.496 9.716 Maintaining the long term capability of the assets - 4K.12 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 4J.14 Other capital expenditure - infra 0.000 -0.001 0.000 0.000 0.000 1.009 1.008 infra Maintaining the long term capability of the assets - 4J.15 Other capital expenditure - non-infra 0.000 0.399 0.000 0.000 -0.006 2.545 2.938 4K.13 0.266 0.003 0.003 1.245 0.010 0.000 0.077 0.000 1.604 non-infra 4J.16 Infrastructure network reinforcement 0.000 0.000 0.000 0.000 0.000 0.115 0.115 4K.14 Other capital expenditure - infra 0.055 0.007 0.007 0.000 0.000 0.000 0.000 0.000 0.069 4J.17 Total gross capital expenditure (excluding third party services) 0.000 0.996 0.000 0.002 1.614 11.165 13.777 4K.15 Other capital expenditure - non-infra 0.016 0.000 0.000 0.097 0.000 0.000 0.000 0.000 0.113 4J.18 Third party services 0.000 0.000 0.000 0.000 0.000 0.000 0.000 4K.16 Infrastructure network reinforcement 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 4J.19 Total gross capital expenditure 0.000 0.996 0.000 0.002 1.614 11.165 13.777 Total gross capital expenditure (excluding third party 4K.17 0.337 0.010 0.010 1.342 0.010 0.000 0.077 0.000 1.786 4J.20 Grants and contributions 0.000 0.000 0.000 0.000 0.000 -1.463 -1.463 services)

4J.21 Totex 0.633 4.069 1.080 0.017 5.208 22.689 33.696 4K.18 Third party services 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

4K.19 Total gross capital expenditure 0.337 0.010 0.010 1.342 0.010 0.000 0.077 0.000 1.786 C Cash expenditure (excl. atypicals) 4K.20 Grants and contributions (change sign) -0.103 -0.013 -0.013 0.000 0.000 0.000 0.000 0.000 -0.129 4J.22 Pension deficit recovery payments 0.000 0.000 0.000 0.000 0.000 0.000 0.000 4K.21 Totex 0.706 0.120 0.082 3.872 0.097 0.017 0.521 0.010 5.424 4J.23 Other cash items 0.000 0.000 0.000 0.000 0.000 0.000 0.000

4J.24 Totex including cash items 0.633 4.069 1.080 0.017 5.208 22.689 33.696 C Cash expenditure (excl. atypicals)

4K.22 Pension deficit recovery payments 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 D Atypical expenditure 4K.23 Other cash items 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 4J.25 Guaranteed Minimum Pension (GMP) equalisation costs 0.000 0.000 0.000 0.000 0.000 0.000 0.000 4K.24 Totex including cash items 0.706 0.120 0.082 3.872 0.097 0.017 0.521 0.010 5.424 4J.26 England & Wales boundary alignment transfer of assets 0.000 0.000 0.000 0.000 0.000 0.000 0.000

4J.27 Item 3 0.000 D Atypical expenditure

4J.28 Item 4 0.000 4K.25 England & Wales boundary alignment transfer of assets 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

4J.29 Item 5 0.000 4K.26 Item 2 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

4J.30 Item 6 0.000 4K.27 Item 3 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

4J.31 Item 7 0.000 4K.28 Item 4 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

4J.32 Item 8 0.000 4K.29 Item 5 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

4J.33 Item 9 0.000 4K.30 Item 6 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

4J.34 Item 10 0.000 4K.31 Item 7 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

4J.35 Total atypical expenditure 0.000 0.000 0.000 0.000 0.000 0.000 0.000 4K.32 Item 8 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 4K.33 Item 9 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 E Total expenditure 4K.34 Item 10 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 4J.36 Total expenditure 0.633 4.069 1.080 0.017 5.208 22.689 33.696 4K.35 Total atypical expenditure 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

E Total expenditure

4K.36 Total expenditure 0.706 0.120 0.082 3.872 0.097 0.017 0.521 0.010 5.424 104 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 105 4L - Enhancement expenditure by purpose - Wholesale water As at 31 March 2020

Expenditure in report year Cumulative expenditure on schemes completed in the report year

Water resources Network+ Water resources Network+ Line description Total Total Abstraction Raw water Raw water Raw water Water Treated water Abstraction Raw water Raw water Raw water Water Treated water licences abstraction transport storage treatment distribution licences abstraction transport storage treatment distribution

£m £m £m £m £m £m £m £m £m £m £m £m £m £m

A Enhancement expenditure by purpose

4L.1 NEP - Making ecological improvements at abstractions (Habitats Directive, SSSI, NERC, BAPs) 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

4L.2 NEP - Eels Regulations (measures at intakes) 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

4L.3 NEP - Invasive Non Native Species 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

4L.4 Addressing low pressure 0.000 0.000 0.000 0.000 -0.006 0.354 0.348 0.000 0.000 0.000 0.000 -0.006 0.354 0.348

4L.5 Improving taste / odour / colour 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

4L.6 Meeting lead standards 0.000 0.000 0.000 0.000 0.000 0.030 0.030 0.000 0.000 0.000 0.000 0.000 0.030 0.030

4L.7 Supply side enhancements to the supply/demand balance (dry year critical / peak conditions) 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

4L.8 Supply side enhancements to the supply/demand balance (dry year annual average conditions) 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

4L.9 Demand side enhancements to the supply/demand balance (dry year critical / peak conditions) 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

4L.10 Demand side enhancements to the supply/demand balance (dry year annual average conditions) 0.000 0.000 0.000 0.000 0.000 0.333 0.333 0.000 0.000 0.000 0.000 0.000 0.333 0.333

4L.11 New developments 0.000 0.000 0.000 0.000 0.000 0.402 0.402 0.000 0.000 0.000 0.000 0.000 0.402 0.402

4L.12 New connections element of new development (CPs, meters) 0.000 0.000 0.000 0.000 0.000 0.617 0.617 0.000 0.000 0.000 0.000 0.000 0.617 0.617

4L.13 Investment to address raw water deterioration (THM, nitrates, Crypto, pesticides, others) 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

4L.14 Resilience 0.000 -0.010 0.000 0.000 0.000 1.189 1.179 0.000 -0.010 0.000 0.000 0.000 1.189 1.179

4L.15 SEMD 0.000 0.274 0.000 0.000 0.000 0.000 0.274 0.000 0.274 0.000 0.000 0.000 0.000 0.274

4L.16 NEP - Drinking Water Protected Areas (schemes) 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

4L.17 NEP - Water Framework Directive measure 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

4L.18 NEP - Investigations 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

4L.19 Improvements to river flows 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

4L.20 Metering (excluding cost of providing metering to new service connections) - meters requested by optants 0.000 0.000 0.000 0.000 0.000 0.743 0.743 0.000 0.000 0.000 0.000 0.000 0.743 0.743

4L.21 Metering (excluding cost of providing metering to new service connections)- meters introduced by companies 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

4L.22 Metering (excluding cost of providing metering to new service connections) - other 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

4L.23 Reservoir Safety 0.000 0.133 0.000 0.000 0.000 0.000 0.133 0.000 0.133 0.000 0.000 0.000 0.000 0.133

4L.38 Total enhancement capital expenditure 0.000 0.398 0.000 0.000 -0.006 3.669 4.061 0.000 0.398 0.000 0.000 -0.006 3.669 4.061 106 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 107 4M - Enhancement expenditure by purpose - Wholesale waste water As at 31 March 2020

Expenditure in report year Cumulative expenditure on schemes completed in the report year

Network+Sewage Collection Network+Sewage Treatment Sludge Network+Sewage Collection Network+Sewage Treatment Sludge Line description Surface Sewage Total Surface Sewage Sludge Total Highway Sludge liquor Sludge Sludge Sludge Highway Sludge Sludge Sludge Foul water treatment Foul water treatment liquor drainage treatment transport treatment disposal drainage transport treatment disposal drainage and disposal drainage and disposal treatment

£m £m £m £m £m £m £m £m £m £m £m £m £m £m £m £m £m £m

A Enhancement capital expenditure by purpose

4M.1 First time sewerage (s101A) 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

4M.2 Sludge enhancement (quality) 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

4M.3 Sludge enhancement (growth) 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

4M.4 NEP - Conservation drivers 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

4M.5 NEP - Eels Regulations (measures at outfalls) 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

4M.6 NEP - Event Duration Monitoring at intermittent discharges 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

4M.7 NEP - Flow monitoring at sewage treatment works 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

4M.8 NEP - Monitoring of pass forward flows at CSOs 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

4M.9 NEP - Schemes to increase flow to full treatment 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

4M.10 NEP - Schemes to increase storm tank capacity 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

4M.11 NEP - Storage schemes to reduce spill frequency at CSOs, storm tanks, etc. 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

4M.12 NEP - Chemicals monitoring/ investigations/ options appraisals 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

4M.13 NEP - National phosphorus removal technology investigations 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

4M.14 NEP - Groundwater schemes 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

4M.15 NEP - Investigations 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

4M.16 NEP - Nutrients (N removal) 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

4M.17 NEP - Nutrients (P removal at activated sludge STWs) 0.000 0.000 0.000 0.040 0.000 0.000 0.000 0.000 0.040 0.000 0.000 0.000 0.040 0.000 0.000 0.000 0.000 0.040

4M.18 NEP - Nutrients (P removal at filter bed STWs) 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

4M.19 NEP - Reduction of sanitary parameters 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

4M.20 NEP - UV disinfection (or similar) 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

4M.21 NEP - Discharge relocation 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

4M.22 NEP - Flow 1 schemes 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

4M.23 Odour 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

4M.24 New development and growth 0.004 0.001 0.001 0.000 0.000 0.000 0.000 0.000 0.006 0.004 0.001 0.001 0.000 0.000 0.000 0.000 0.000 0.006

4M.25 Growth at sewage treatment works (excluding sludge treatment) 0.000 0.000 0.000 0.055 0.000 0.000 0.000 0.000 0.055 0.000 0.000 0.000 0.055 0.000 0.000 0.000 0.000 0.055

4M.26 Resilience 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

4M.27 SEMD 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

4M.28 Reduce flooding risk for properties 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

4M.29 Transferred private sewers and pumping stations 0.015 0.000 0.000 0.002 0.000 0.000 0.000 0.000 0.017 0.015 0.000 0.000 0.002 0.000 0.000 0.000 0.000 0.017

4M.30 Pollution control strategy (ESL) 0.052 0.006 0.006 0.000 0.000 0.000 0.000 0.000 0.064 0.052 0.006 0.006 0.000 0.000 0.000 0.000 0.000 0.064

4M.45 Total enhancement capital expenditure 0.071 0.007 0.007 0.097 0.000 0.000 0.000 0.000 0.182 0.071 0.007 0.007 0.097 0.000 0.000 0.000 0.000 0.182 108 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 109 4N - Sewage treatment - Functional 4O - Large sewage treatment works - expenditure waste water Year ended 31 March 2020 Year ended 31 March 2020

Line description Unit DPs Network+ This table is not required as Hafren Dyfrdwy do not have any sewage treatment works which fall under the large sewage treatment works category. £000

A Costs of STWs in size bands 1 to 5 4N.1 Direct costs of STWs in size band 1 £000 3 253.130 4N.2 Direct costs of STWs in size band 2 £000 3 395.658 4N.3 Direct costs of STWs in size band 3 £000 3 501.734 4N.4 Direct costs of STWs in size band 4 £000 3 215.778 4N.5 Direct costs of STWs in size band 5 £000 3 498.862 4N.6 General & support costs of STWs in size bands 1 to 5 £000 3 449.093 4N.7 Functional expenditure of STWs in size bands 1 to 5 £000 3 2314.255

B Costs of STWs in size band 6 4N.8 Service charges for STWs in size band 6 £000 3 1.745 4N.9 Estimated terminal pumping costs size band 6 works £000 3 0.000 4N.10 Other direct costs of STWs in size band 6 £000 3 0.000

4N.11 Direct costs of STWs in size band 6 £000 3 1.745

4N.12 General & support costs of STWs in size band 6 £000 3 0.000

4N.13 Functional expenditure of STWs in size band 6 £000 3 1.745

4N.14 Total Functional expenditure for Sewage treatment £000 3 2316.000 110 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 111 4P - Non-financial data for WR, WT and WD Year ended 31 March 2020

Line Line description Units Current year 4P.50 Total number of SW6 works nr 0

A Water resources 4P.51 Total number of GW simple disinfection works nr 0

4P.1 Proportion of distribution input derived from impounding reservoirs Propn 0 to 1 0.120 4P.52 Total number of GW1 works nr 0

4P.2 Proportion of distribution input derived from pumped storage reservoirs Propn 0 to 1 0.000 4P.53 Total number of GW2 works nr 0

4P.3 Proportion of distribution input derived from river abstractions Propn 0 to 1 0.542 4P.54 Total number of GW3 works nr 1

4P.4 Proportion of distribution input derived from groundwater works,excluding managed aquifer recharge (MAR) water supply schemes Propn 0 to 1 0.338 4P.55 Total number of GW4 works nr 1

4P.5 Proportion of distribution input derived from artificial recharge (AR) water supply schemes Propn 0 to 1 0.000 4P.56 Total number of GW5 works nr 1

4P.6 Proportion of distribution input derived from aquifer storage and recovery (ASR) water supply schemes Propn 0 to 1 0.000 4P.57 Total number of GW6 works nr 0

4P.7 Proportion of distribution input derived from saline abstractions Propn 0 to 1 0.000 4P.58 Number of treatment works requiring remedial action because of raw water deterioration nr 0

4P.8 Proportion of distribution input derived from water reuse schemes Propn 0 to 1 0.000 4P.59 Zonal population receiving water treated with orthophosphate 000 191.562

4P.9 Number of impounding reservoirs nr 3 4P.60 Average pumping head - water treatment m.hd 7.28

4P.10 Number of pumped storage reservoirs nr 1 C Water distribution

4P.11 Number of river abstractions nr 0 4P.61 Total length of potable mains as at 31 March km 2619.2

4P.12 Number of groundwater works excluding managed aquifer recharge (MAR) water supply schemes nr 3 4P.62 Total length of potable mains relined km 0.0

4P.13 Number of artificial recharge (AR) water supply schemes nr 0 4P.63 Total length of potable mains renewed km 11.3

4P.14 Number of aquifer storage and recovery (ASR) water supply schemes nr 0 4P.64 Total length of new potable mains km 3.6

4P.15 Number of saline abstraction schemes nr 0 4P.65 Total length of potable water mains (<=320mm) km 2524.2

4P.16 Total number of sources nr 7 4P.66 Total length of potable water mains >320mm - <=450mm km 78.2

4P.17 Number of reuse schemes nr 0 4P.67 Total length of potable water mains >450mm - <=610mm km 16.1

4P.18 Total number of water reservoirs nr 11 4P.68 Total length of potable water mains > 610mm km 0.7

4P.19 Total capacity of water reservoirs Ml 111557 4P.69 Capacity of booster pumping stations kW 5552

4P.20 Total number of intake and source pumping stations nr 7 4P.70 Capacity of service reservoirs Ml 74

4P.21 Total number of raw water transport stations nr 0 4P.71 Capacity of water towers Ml 0

4P.22 Total capacity of intake and source pumping stations kW 1970 4P.72 Distribution input Ml/d 59.04

4P.23 Total capacity of raw water transfer pumping stations kW 0 4P.73 Water delivered (non-potable) Ml/d 0.46

4P.24 Total length of raw water abstraction mains and other conveyors km 3.25 4P.74 Water delivered (potable) Ml/d 48.79

4P.25 Average pumping head - raw water abstraction m.hd 4.82 4P.75 Water delivered (billed measured residential) Ml/d 15.16

4P.26 Average pumping head - raw water transport m.hd 57.71 4P.76 Water delivered (billed measured business) Ml/d 14.48

4P.27 Total length of raw and pre-treated (non-potable) water transport mains km 67.25 4P.77 Total leakage Ml/d 12.76

4P.28 Water resources capacity (measured using water resources yield) Ml/d 76.75 4P.78 Distribution losses Ml/d 9.68

B Water treatment 4P.79 Water taken unbilled Ml/d 1.63

4P.29 Total water treated at all SW simple disinfection works Ml/d 0.00 4P.80 Number of lead communication pipes nr 24119

4P.30 Total water treated at all SW1 works Ml/d 0.00 4P.81 Number of galvanised iron communication pipes nr 4625

4P.31 Total water treated at all SW2 works Ml/d 0.00 4P.82 Number of other communication pipes nr 76585

4P.32 Total water treated at all SW3 works Ml/d 2.05 4P.83 Number of booster pumping stations nr 95

4P.33 Total water treated at all SW4 works Ml/d 36.34 4P.84 Total number of service reservoirs nr 87

4P.34 Total water treated at all SW5 works Ml/d 0.00 4P.85 Number of water towers nr 0

4P.35 Total water treated at all SW6 works Ml/d 0.00 4P.86 Total length of potable mains laid or structurally refurbished pre-1880 km 21.7

4P.36 Total water treated at all GW simple disinfection works Ml/d 0.00 4P.87 Total length of potable mains laid or structurally refurbished between 1881 and 1900 km 76.0

4P.37 Total water treated at all GW1 works Ml/d 0.00 4P.88 Total length of potable mains laid or structurally refurbished between 1901 and 1920 km 169.7

4P.38 Total water treated at all GW2 works Ml/d 0.00 4P.89 Total length of potable mains laid or structurally refurbished between 1921 and 1940 km 333.1

4P.39 Total water treated at all GW3 works Ml/d 0.66 4P.90 Total length of potable mains laid or structurally refurbished between 1941 and 1960 km 508.8

4P.40 Total water treated at all GW4 works Ml/d 2.34 4P.91 Total length of potable mains laid or structurally refurbished between 1961 and 1980 km 674.5

4P.41 Total water treated at all GW5 works Ml/d 14.66 4P.92 Total length of potable mains laid or structurally refurbished between 1981 and 2000 km 793.0

4P.42 Total water treated at all GW6 works Ml/d 0.00 4P.93 Total length of potable mains laid or structurally refurbished post 2001 km 453.5

4P.43 Total water treated at more than one type of works Ml/d 0.00 4P.94 Average pumping head - treated water distribution m.hd 106.81

4P.44 Total number of SW simple disinfection works nr 0

4P.45 Total number of SW1 works nr 0

4P.46 Total number of SW2 works nr 0

4P.47 Total number of SW3 works nr 1

4P.48 Total number of SW4 works nr 1

4P.49 Total number of SW5 works nr 0 112 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 113 4P - Non-financial data for WR, WT 4Q - Non-financial data - Properties, and WD (continued) population and other Year ended 31 March 2020 Year ended 31 March 2020

D Band Disclosure (nr) Line description Units Current year 4P.95 WTWs in size band 1 Nr 1

4P.96 WTWs in size band 2 Nr 2 A Properties and population 4P.97 WTWs in size band 3 Nr 0 4Q.1 Residential properties billed for measured water (external meter) 000 39.875 4P.98 WTWs in size band 4 Nr 1 4Q.2 Residential properties billed for measured water (not external meter) 000 12.383 4P.99 WTWs in size band 5 Nr 0

4P.100 WTWs in size band 6 Nr 1 4Q.3 Business properties billed measured water 000 6.512

4P.101 WTWs in size band 7 Nr 0 4Q.4 Residential properties billed for unmeasured water 000 39.989

4P.102 WTWs in size band 8 Nr 0 4Q.5 Business properties billed unmeasured water 000 0.365

E Band Disclosure (%) 4Q.6 Total business connected properties at year end 000s 8.358

4P.103 Proportion of Total DI band 1 % 1.2% 4Q.7 Total residential connected properties at year end 000s 96.971 4P.104 Proportion of Total DI band 2 % 7.8% 4Q.8 Total connected properties at year end 000 105.329 4P.105 Proportion of Total DI band 3 % 0.0% 4Q.9 Number of residential meters renewed 000 5.388 4P.106 Proportion of Total DI band 4 % 26.2% 4Q.10 Number of business meters renewed 000s 0.007 4P.107 Proportion of Total DI band 5 % 0.0% 4Q.11 Number of meters installed at request of optants 000 0.982 4P.108 Proportion of Total DI band 6 % 64.8% 4Q.12 Number of selective meters installed 000 0.000 4P.109 Proportion of Total DI band 7 % 0.0% 4Q.13 Total number of new business connections 000 0.018 4P.110 Proportion of Total DI band 8 % 0.0% 4Q.14 Total number of new residential connections 000 0.270 4Q.15 Total population served 000 204.529 4Q.16 Number of business meters (billed properties) 000 6.512 4Q.17 Number of residential meters (billed properties) 000 52.258 4Q.18 Company area km2 2856

B Other 4Q.19 Number of lead communication pipes replaced for water quality nr 0 Total supply side enhancements to the supply demand balance (dry year critical / peak 4Q.20 Ml/d 0.00 conditions) Total supply side enhancements to the supply demand balance (dry year annual average 4Q.21 Ml/d 0.00 conditions) Total demand side enhancements to the supply demand balance (dry year critical / peak 4Q.22 Ml/d 1.91 conditions) Total demand side enhancements to the supply demand balance (dry year annual average 4Q.23 Ml/d 1.91 conditions) 4Q.24 Energy consumption - network plus MWh 16601 4Q.25 Energy consumption - water resources MWh 6294 4Q.26 Energy consumption - wholesale MWh 22895 4Q.27 Mean Zonal Compliance % 99.95% 4Q.28 Compliance Risk Index nr 0.3 4Q.28 Event Risk Index nr 47.8 4Q.30 Volume of Leakage above or below the sustainable economic Level Ml/d -0.966 114 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 115 4R - Non-financial data - Waste water 4R - Non-financial data - Waste water network and sludge network and sludge (continued) Year ended 31 March 2020 Year ended 31 March 2020

Line Item description Unit Current year Line Item description Unit Current year

A Waste water network B Sludge 4R.1 Connectable properties served by s101A schemes completed in the report year nr 0 4R.23 Total sewage sludge produced, treated by incumbents ttds/ year 0.0 4R.2 Number of s101A schemes completed in the report year Nr 0 4R.24 Total sewage sludge produced, treated by 3rd party sludge service provider ttds/ year 0.9 4R.3 Total pumping station capacity kW 754 4R.25 Total sewage sludge produced ttds/ year 0.9 4R.4 Number of network pumping stations nr 94 4R.26 Total sewage sludge produced from non-appointed liquid waste treatment ttds/ year 0.0 4R.5 Total number of sewer blockages nr 342 4R.6 Total number of gravity sewer collapses nr 8 4R.27 Percentage of sludge produced and treated at a site of STW and STC co-location % 0.00% 4R.7 Total number of sewer rising main bursts / collapses nr 5 4R.8 Number of combined sewer overflows nr 50 4R.28 Total sewage sludge disposed by incumbents ttds/ year 0.0 4R.9 Number of emergency overflows nr 6 4R.29 Total sewage sludge disposed by 3rd party sludge service provider ttds/ year 0.0 4R.10 Number of settled storm overflows nr 9 4R.30 Total sewage sludge disposed ttds/ year 0.0 4R.11 Sewer age profile (constructed post 2001) km 32 4R.12 Volume of trade effluent Ml/d 107.16 ttds*km/ 4R.31 Total measure of intersiting 'work' done by pipeline 0 year 4R.13 Volume of waste water receiving treatment at sewage treatment works Ml/yr 6837.91 ttds*km/ 4R.32 Total measure of intersiting 'work' done by tanker 0 4R.14 Length of gravity sewers rehabilitated km 0 year 4R.15 Length of rising mains replaced or structurally refurbished km 0 ttds*km/ 4R.33 Total measure of intersiting 'work' done by truck 0 4R.16 Length of foul (only) public sewers km 123 year ttds*km/ 4R.17 Length of surface water (only) public sewers km 50 4R.34 Total measure of intersiting 'work' done (all forms of transportation) 0 year 4R.18 Length of combined public sewers km 85 4R.19 Length of rising mains km 34 m3*km/ 4R.35 Total measure of intersiting 'work' done by tanker (by volume transported) 0 4R.20 Length of other waste water network pipework Km 2 year 4R.21 Total length of "legacy" public sewers as at 31 March Km 295

4R.22 Length of formerly private sewers and lateral drains (s105A sewers) km 196 ttds*km/ 4R.36 Total measure of 'work' done in sludge disposal operations by pipeline 0 year ttds*km/ 4R.37 Total measure of 'work' done in sludge disposal operations by tanker 0 year ttds*km/ 4R.38 Total measure of 'work' done in sludge disposal operations by truck 0 year ttds*km/ 4R.39 Total measure of 'work' done in sludge disposal operations (all forms of transportation) 0 year

m3*km/ 4R.40 Total measure of 'work' done by tanker in sludge disposal operations (by volume transported) 0 year

4R.41 Chemical P sludge as percentage of sludge produced at STWs % 6.16% 116 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 117 4S - Non-financial data - Sewage Treatment Year ended 31 March 2020

Treatment categories Treatment works consents

Secondary Tertiary Phosphorus Phosphorus BOD Ammonia Line description Unit 5 Primary Total Activated >0.5 to >7 to >10 to >1 to >3 to Biological A1 A2 B1 B2 <=0.5mg/l >1mg/l No permit Total <=7mg/l >20mg/l No permit Total <=1mg/l >10mg/l No permit Total Sludge <=1mg/l <=10mg/l <=20mg/l <=3mg/l <=10mg/l

Load received at sewage treatment works in A 2017-18

4S.1 Load received by STWs in size band 1 kg BOD5/day 3 0 58 0 0 88 0 148 0 0 0 148 148 0 0 19 91 38 148 0 0 33 13 101 148

4S.2 Load received by STWs in size band 2 kg BOD5/day 0 59 59 0 0 172 0 290 0 0 0 290 290 0 30 114 146 0 290 0 0 102 82 107 290

4S.3 Load received by STWs in size band 3 kg BOD5/day 0 70 312 0 0 189 0 572 0 0 0 572 572 0 0 100 472 0 572 0 0 335 96 141 572

4S.4 Load received by STWs in size band 4 kg BOD5/day 0 0 0 216 0 0 163 379 0 163 0 216 379 0 0 0 379 0 379 0 0 379 0 0 379

4S.5 Load received by STWs in size band 5 kg BOD5/day 0 672 0 0 0 693 0 1365 0 0 0 1365 1365 0 0 0 1365 0 1365 0 0 693 672 0 1365

4S.6 Load received by STWs above size band 5 kg BOD5/day 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

4S.7 Total load received kg BOD5/day 3 801 429 216 0 1142 163 2754 0 163 0 2591 2754 0 30 232 2454 38 2754 0 0 1543 863 349 2754 Load received from trade effluent customers 4S.8 kg BOD /day 378 at treatment works 5

Number of sewage treatment works at 31 B March 2018

4S.9 STWs in size band 1 nr 1 0 12 0 0 9 0 22 0 0 0 22 22 0 0 2 9 11 22 0 0 3 2 17 22

4S.10 STWs in size band 2 nr 0 2 3 0 0 8 0 13 0 0 0 13 13 0 1 5 7 0 13 0 0 5 3 5 13

4S.11 STWs in size band 3 nr 0 1 6 0 0 4 0 11 0 0 0 11 11 0 0 2 9 0 11 0 0 6 2 3 11

4S.12 STWs in size band 4 nr 0 0 0 1 0 0 1 2 0 1 0 1 2 0 0 0 2 0 2 0 0 2 0 0 2

4S.13 STWs in size band 5 nr 0 1 0 0 0 1 0 2 0 0 0 2 2 0 0 0 2 0 2 0 0 1 1 0 2

4S.14 STWs above size band 5 nr 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

4S.15 Total number of works nr 1 4 21 1 0 22 1 50 0 1 0 49 50 0 1 9 29 11 50 0 0 17 8 25 50

Current Line description Unit year

C Population equivalent

4S.16 Current population equivalent served by STWs 000 45690.792

Current population equivalent served by 4S.17 000s 0.000 discharge relocation schemes

Current population equivalent served by filter 4S.18 000s 0.000 bed STWs with tightened/new P consents

Current population equivalent served by 4S.19 activated sludge STWs with tightened/new P 000s 0.000 consents

Current population equivalent served by 4S.20 000s 0.000 groundwater protection schemes

Current population equivalent served by STWs 4S.21 000s 0.000 with a Flow1 driver scheme

Current population equivalent served by STWs 4S.22 000s 0.000 with tightened/new N consents

Current population equivalent served by 4S.23 STWs with tightened/new sanitary parameter 000s 0.000 consents

Current population equivalent served by STWs 4S.24 000s 0.000 with tightened/new UV consents

Population equivalent treatment capacity 4S.25 000s 0.000 enhancement 118 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 119 4T - Non-financial data - Sludge 4U - Non-financial data - Properties, Treatment population and other Year ended 31 March 2020 Year ended 31 March 2020

by 3rd party sludge Line Item description Unit Current year Line Item description by Incumbent service providers

% % A Properties and population 4U.1 Residential properties connected during the year 000 0.064

A Sludge treatment process 4U.2 Business properties connected during the year 000 0.002 4T.1 % Sludge - untreated 0.0% 0.0% 4U.3 Residential properties billed unmeasured sewage 000 10.021 4T.2 % Sludge treatment process - raw sludge liming 0.0% 0.0% 4U.4 Residential properties billed measured sewage 000 7.787 4T.3 % Sludge treatment process - conventional AD 0.0% 0.0% 4U.5 Residential properties billed for sewage 000 17.809 4T.4 % Sludge treatment process- advanced AD 0.0% 0.0% 4T.5 % Sludge treatment process - incineration of raw sludge 0.0% 0.0% 4U.6 Business properties billed unmeasured sewage 000 0.228 4T.6 % Sludge treatment process - incineration of digested sludge 0.0% 0.0% 4U.7 Business properties billed measured sewage 000 1.074

4T.7 % Sludge treatment process - phyto-conditioning/composting 0.0% 0.0% 4U.8 Business properties billed for sewage 000 1.302

4T.8 % Sludge treatment process - other (specify) 0.0% 0.0% 4U.9 Void properties 000 1.812 4T.9 % Sludge treatment process - Total 0.0% 0.0% 4U.10 Total number of properties 000s 20.922

B (Un-incinerated) sludge disposal route 4U.11 Resident population 000 39.392 4T.10 % Sludge disposal route - landfill, raw 0.0% 0.0% 4T.11 % Sludge disposal route - landfill, partly treated 0.0% 0.0% 4U.12 Non-resident population 000 0.216 4T.12 % Sludge disposal route - land restoration/reclamation 0.0% 0.0%

4T.13 % Sludge disposal route - sludge recycled to farmland 0.0% 0.0% B Other

4T.14 % Sludge disposal route - other (specify) 0.0% 0.0% 4U.13 Energy consumption - network plus MWh 3432.407 4T.15 % Sludge disposal route - Total 0.0% 0.0% 4U.14 Energy consumption - sludge MWh 962.042

4U.15 Energy consumption - wholesale MWh 4394.449

4U.16 Population resident in National Parks, SSSIs and Areas of Outstanding Natural Beauty (AONBs) 000s 0.019

4U.17 Total sewerage catchment area km2 15

4U.18 Designated bathing waters nr 0

4U.19 Number of intermittent discharge sites with event duration monitoring nr 2

4U.20 Number of monitors for flow monitoring at STWs Nr 3

4U.21 Number of odour related complaints nr 0

4U.22 Volume of storage provided at CSOs, storm tanks, etc. to meet spill frequency objectives m3 0

4U.23 Total volume of network storage m3 96841 120 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 121 4V - Operating costs analysis - water 4W Operating cost analysis - sludge resources transport, treatment and disposal Year ended 31 March 2020 Year ended 31 March 2020

Ground- Aquifer Line Item description Unit Pipeline Tanker Truck Truck Artificial water, Storage and Recharge Impounding Pumped River excluding Recovery Line Item description Unit (AR) water Other Total Reservoir Storage Abstractions MAR water (ASR) water supply A Sludge transport method supply supply schemes schemes schemes 4W.1 Power £m 0.000 0.000 0.000 0.000 4W.2 Income Treated as negative expenditure £m 0.000 0.000 0.000 0.000

4W.3 Discharge consents £m 0.000 0.000 0.000 0.000 Water resources 4W.4 Bulk supply £m 0.000 0.001 0.000 0.001 A Opex analysis Other operating expenditure 4V.1 Power £m 0.001 0.000 0.009 0.016 0.000 0.000 0.000 0.026 4W.5 - Renewals expensed in year (Infrastructure) £m 0.000 0.000 0.000 0.000 4V.2 Income Treated as negative expenditure £m -0.478 0.000 0.000 0.000 0.000 0.000 0.000 -0.478 4W.6 - Renewals expensed in year (Non-Infrastructure) £m 0.000 0.000 0.000 0.000

4V.3 Abstraction charges/discharge consents £m 0.000 0.000 0.492 0.065 0.000 0.000 0.000 0.557 4W.7 - Other operating expenditure excluding renewals £m 0.000 0.016 0.000 0.016 - direct 4V.4 Bulk supply £m 0.362 0.000 0.000 0.000 0.000 0.000 0.000 0.362 4W.8 - Other operating expenditure excluding renewals £m 0.000 0.000 0.000 0.000 Other direct operating expenditure - indirect

4V.5 - Renewals expensed in year (Infrastructure) £m 0.526 0.000 0.008 0.000 0.000 0.000 0.000 0.534 4W.9 Total functional expenditure £m 0.000 0.017 0.000 0.017

- Renewals expensed in year (Non- 4W.10 Local authority and Cumulo rates £m 0.000 0.000 0.000 0.000 4V.6 £m 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 Infrastructure) 4W.11 Total operating expenditure (excluding third party) £m 0.000 0.017 0.000 0.017 - Other operating expenditure excluding 4V.7 £m 0.133 0.000 0.250 0.039 0.000 0.000 0.000 0.422 4W.12 Depreciation £m 0.000 0.000 0.000 0.000 renewals - direct 4W.13 Total operating costs (excluding third party) £m 0.000 0.017 0.000 0.017 - Other operating expenditure excluding 4V.8 £m -0.034 0.000 -0.064 -0.010 0.000 0.000 0.000 -0.108 renewals - indirect

4V.9 Total functional expenditure £m 0.510 0.000 0.695 0.110 0.000 0.000 0.000 1.315 B Sludge treatment type Untreated Raw Conven- Advanced Incineration Incineration Photo- Other Total sludge sludge tional AD of raw of digested conditioning 4V.10 Local authority and Cumulo rates £m 0.399 0.000 0.028 0.003 0.000 0.000 0.000 0.430 liming AD sludge Sludge /composting

Total operating expenditure (excluding third 4W.14 Power £m 0.000 0.000 0.001 0.000 0.000 0.000 0.000 0.000 0.001 4V.11 £m 0.909 0.000 0.723 0.113 0.000 0.000 0.000 1.745 party services) 4W.15 Income treated as negative expenditure £m 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 4V.12 Depreciation £m 0.212 0.000 0.135 0.023 0.000 0.000 0.000 0.370 4W.16 Discharge consents £m 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 4V.13 Total operating costs (excluding 3rd party) £m 1.121 0.000 0.858 0.136 0.000 0.000 0.000 2.115 4W.17 Bulk supply £m 0.000 0.000 0.001 0.000 0.000 0.000 0.000 0.000 0.001

Other operating expenditure

Treated 4W.18 - Renewals expensed in year (Infrastructure) £m 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 Water Raw water Water Line Item description Unit water Total resources distribution treatment 4W.19 distribution - Renewals expensed in year (Non-Infrastructure) £m 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 4W.20 Other direct operating expenditure £m 0.000 0.000 0.434 0.000 0.000 0.000 0.000 0.000 0.434

4W.21 Other indirect operating expenditure £m 0.000 0.000 0.002 0.000 0.000 0.000 0.000 0.000 0.002 B Other expenditure - wholesale water 4W.22 Total functional expenditure £m 0.000 0.000 0.438 0.000 0.000 0.000 0.000 0.000 0.438 4V.14 Employment costs - directly allocated £m 0.399 0.063 1.217 4.870 6.549 4W.23 Local authority and Cumulo rates £m 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 4V.15 Employment costs - indirectly allocated £m 0.010 0.001 0.025 0.065 0.101 4W.24 Total operating expenditure (excluding third party £m 0.000 0.000 0.438 0.000 0.000 0.000 0.000 0.000 0.438 4V.16 Number FTEs consistent - directly allocated Nr 4 9 70 68 152.001 services) 4W.25 Number FTEs consistent - indirectly Depreciation £m 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 4V.17 Nr 0 0 1 3 4.398 allocated 4W.26 Total operating costs (excluding third party services) £m 0.000 0.000 0.438 0.000 0.000 0.000 0.000 0.000 0.438 Costs associated with Traffic Management 4V.18 £m 0.000 0.000 0.000 0.000 0.000 Act

C Service charges

Canal & River Trust service charges and 4V.19 £m 0.000 0.000 0.001 0.000 0.001 discharge consents

Environment Agency service charges/ 4V.20 £m 0.557 0.000 0.022 0.000 0.579 discharge consents

Other abstraction charges/ discharge 4V.21 £m 0.000 0.000 0.000 0.000 0.000 consents

4V.22 Statutory water softening £m 0.000 0.000 0.000 0.000 0.000 122 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 123 4W Operating cost analysis - sludge Supplementary disclosures Year ended 31 March 2020 transport, treatment and disposal (cont.) Year ended 31 March 2020

C Sludge disposal route Landfill, Landfill, Land Sludge Other Total a) Borrowings and intercompany lending raw partly restoration/ recycled treated reclamation to farmland Amounts paid to associated companies in the year and related payable balances at the year end are outlined below:

4W.27 Power £m 0.000 0.000 0.000 0.000 0.000 0.000 Amounts paid Interest rate Payable balance 4W.28 Income treated as negative expenditure £m 0.000 0.000 0.000 0.000 0.000 0.000 £m % £m 4W.29 Discharge consents £m 0.000 0.000 0.000 0.000 0.000 0.000 Severn Trent Water Limited 0.889 3.635% 32.673 4W.30 Bulk supply £m 0.000 0.000 0.000 0.000 0.000 0.000 Severn Trent Water Limited 15.677 LIBOR + 1.500% 28.105 Other operating expenditure 4W.31 - Renewals expensed in year (Infrastructure) £m 0.000 0.000 0.000 0.000 0.000 0.000 Amounts received from associated companies in the year and related receivable balances at the year end are 4W.32 - Renewals expensed in year (Non-Infrastructure) £m 0.000 0.000 0.000 0.000 0.000 0.000 outlined below:

4W.33 Other direct operating expenditure £m 0.000 0.000 0.010 0.000 0.000 0.010 Amounts received Interest rate Receivable 4W.34 Other indirect operating expenditure £m 0.000 0.000 0.000 0.000 0.000 0.000 £m % balance 4W.35 Total functional expenditure £m 0.000 0.000 0.010 0.000 0.000 0.010 £m 4W.36 Local authority and Cumulo rates £m 0.000 0.000 0.000 0.000 0.000 0.000 Severn Trent Water Limited 16.950 3.635% - 4W.37 Total operating expenditure (excluding third party services) £m 0.000 0.000 0.010 0.000 0.000 0.010

4W.38 Depreciation £m 0.000 0.000 0.001 0.000 0.000 0.001

4W.39 Total operating costs (excluding third party services) £m 0.000 0.000 0.011 0.000 0.000 0.011

Other expenditure - Wholesale waste water b) Transfer of assets/liabilities, omissions, waivers, guarantees

Unit Network Network Sludge Total plus plus There were no transfers of assets or liabilities to associated companies, no guarantees were issued in favour of Line Item description sewage sewage associated companies. There were no rights omitted to be exercised resulting in a reduction in the value of net collection treatment assets of the company and no waivers of any consideration, remuneration, or any other payment receivable by the

D Opex analysis company.

4W.40 Employment costs - directly allocated £m 0.727 0.709 0.003 1.439

4W.41 Employment costs - indirectly allocated £m 0.002 0.002 0.001 0.005

4W.42 Number FTEs - directly allocated Nr 18 18 0 36

4W.43 Number FTEs - indirectly allocated Nr 0 0 0 0

4W.44 Costs associated with Traffic Management Act £m 0.000 0.000 0.000 0.000

4W.45 Costs associated with Industrial Emissions Directive £m 0.000 0.000 0.000 0.000

E Service charges

4W.46 Canal & River Trust service charges and discharge consents £m 0.000 0.000 0.000 0.000

4W.47 Environment Agency service charges / discharge consents £m 0.026 0.171 0.000 0.197

4W.48 Other service charges / permits £m 0.000 0.000 0.000 0.000 124 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 125

c) Supply of services d) Service provided to the non appointed business Services supplied by the appointee to associated companies are outlined below. Service Basis of recharge Value of recharge £m Service Company Turnover of Terms of Value Other water companies billing activities Direct and indirect costs 0.731 associate in supply £m the period Rental income Direct and indirect costs 0.014 £m 0.745 Bulk water supplies Severn Trent Water Limited 1,682.189 Tariff 0.543 Bulk waste water supplies Severn Trent Water Limited 1,682.189 Tariff 0.033 e) Group relief charges for tax losses Water operational services Severn Trent Water Limited 1,682.189 Cost 1.072 Records management Severn Trent Data Portal Limited 0.990 Market tested (0.009) Charges are made between UK entities for the receipt of tax losses within the Severn Trent Group at the prevailing 1.639 corporation tax rate in the period (FY20 - 19%).

Company Turnover of Terms of Value Services received by the appointee from associated companies are outlined below. associate in the supply £m period

Service Company Turnover of Terms of Value £m associate in supply £m Severn Trent Water Limited 1,714.607 Cost -6.671 the period £m Pass through of management Severn Trent Plc Cost 0.282 charges Pass through of management Severn Trent Water Limited £m Cost 1.735 charges Retail support services Severn Trent Water Limited - Cost 0.559 Wholesale support services Severn Trent Water Limited 1,682.189 Cost 1.655 Bulk water supplies Severn Trent Water Limited 1,682.189 Tariff 3.317 Bulk waste water supplies Severn Trent Water Limited 1,682.189 Tariff 0.033 Water operational services Severn Trent Water Limited 1,682.189 Cost 1.647 Waste water operational services Severn Trent Water Limited 1,682.189 Cost 1.433 Treatment of imported sludge Severn Trent Water Limited 1,682.189 Cost 0.413 Tankering fleet services Severn Trent Water Limited 1,682.189 Cost 0.066 11.141 126 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig - Annual Performance Report 2020 127 1. About this document

At Hafren Dyfrdwy we are Ofwat’s AMP6 Company This document, our Assurance responsible for providing water Monitoring Framework (CMF) Summary, provides an overview and wastewater services to over of the outcome of assurance Hafren 100,000 customers in Wales. We Our economic regulator, Ofwat, undertaken for the 2019/20 strive to achieve the highest quality confirmed last year that the annual regulatory reporting year and where standards in everything we do. CMF assessments provided by we have undertaken assurance Whether it is the quality of our Ofwat will not be used after 2020, in readiness for 2020-2025. The Dyfrdwy drinking water or the regulatory however Ofwat also advised main focus is the data assurance performance information we that it still expects companies to undertaken for our Annual publish, we want to make sure follow the framework, and so we Performance Report (‘APR’), and it that our customers can trust us to continue to publish assurance and also considers the outcome of our Cyfyngedig deliver what matters to them most. compliance documents throughout assurance activities more broadly. the year. These documents outline Transparency is key to trust what we have done and how we have done it so our regulatory This is the final year of the AMP6 publications can be trusted by (2015-2020) business plan cycle Assurance our customers and stakeholders. What is assurance? and we are well underway in Ofwat are now consulting on We perform ‘assurance’ to check implementing our PR19 plans for requirements for 2020/21 and we that the information we provide 2020-2025. We know how important welcome this opportunity to help is robust, accurate and complete. it is to identify the potential risks shape the reporting and assurance Examples of assurance Summary that could affect our regulatory may include checking that a requirements going forward reporting to ensure that we provide to continue to ensure trust and spreadsheet has no formula robust, transparent regulatory confidence in the information we errors, that a customer call has data that our customers and provide. been recorded accurately on our 2019/20 stakeholders trust. The quality systems, or consulting with our of the regulatory information we Understanding your views customer challenge group on our publish gives our customers and plans for vulnerable customers. wider stakeholders the confidence In November 2019, we published You can read more about the that we are being open and honest our statement of risks, strengths levels of assurance we apply in and provides visibility that we are and weaknesses and our draft chapter 3. listening to and delivering what assurance plan for consultation. In customers want. addition to publishing this document on our website, we proactively We use an assurance approach contacted our key stakeholders which thoroughly tests and for their views. We produced our challenges the information final assurance plan following the we publish in a manner that is feedback from our stakeholders independent and verifiable. Our and wider industry trends to cover Board overseas this process the 2019/20 regulatory reporting through our established governance year and consider requirements for and assurance framework. 2020/21 onwards. 128 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 129 2. Glossary

This document contains the The Severn Trent Group Values to take us into the next phase; To help to explain all the terms in this document, we’ve included the table below. following information: and we have stripped it right back to Hafren Dyfrdwy is an operating two elements. Our new purpose is Term Definition • A glossary to provide clarity subsidiary of the FTSE 100 ‘Taking care of one of life’s essentials’ on abbreviations used in this Company Severn Trent Plc, which and our values are ‘having courage’, AIM Abstraction Incentive Mechanism - AIM encourages water companies to reduce the environmental impact of abstracting document. means we operate at the high ‘embracing curiosity’, ‘showing water at environmentally sensitive sites when water is scarce. standards expected of a publicly • Information on our governance care’ and ‘taking pride’. These are AMP Asset Management Period - this refers to Ofwat’s 5-year planning period. For example, this assurance summary is for and assurance framework, which listed company. In July 2018, we explained in greater detail in our year 5 in AMP6. AMP7 started in April 2020. realigned the boundaries within the covers our Board arrangements Board, governance and compliance APR Annual Performance Report - includes information about whether we’ve achieved our performance commitments in and the different levels of Severn Trent Plc group and created section on page 8. a given year, and our financial performance - based on the accounting conventions in Ofwat’s regulatory accounting assurance we apply. Hafren Dyfrdwy which serves our guidelines. Supporting customers and • An overview of our internal customers in Wales while Severn ARA Annual Report and Accounts - includes our annual financial statements based on International Financial Reporting communities during COVID-19 compliance assessment Trent Water serves our English Standards customers. This document relates framework - licence to operate The COVID-19 pandemic that emerged Assurance A process that challenges the validity of our data and methodology. to Hafren Dyfrdwy - our Welsh - which helps us determine our over the course of the last quarter of CCG Our Customer Challenge Group, which includes independent experts, CCWater, our regulators including Natural business. greatest areas of risk. 2019/20 is unprecedented, and rapidly Resource Wales and other regional stakeholders. • Details and outcomes of the Changes this year developing even as this APR is being CCWater Consumer Council for Water - the statutory consumer representative body for the water industry. assurance undertaken for our written. As a provider of an essential Compliance Our team in Severn Trent that monitors compliance with our statutory and regulatory duties in our appointed business. APR. New Values and Purpose public service, we have a vital role ERM Enterprise Risk Management - our system of identifying and managing risks within Severn Trent Plc. • Outcome of assurance on other to play and have first and foremost Over the last year we have been HD Hafren Dyfrdwy Cyfyngedig - the regulated water company within Severn Trent Plc whose area of appointment covers areas that we committed to worked to protect our core services North East and mid-Wales, and the subject of this document. busy working across the Severn reviewing in our final Assurance and the people who deliver them. Trent Group to help shape and Internal Audit Reporting directly to the Severn Trent Plc Audit Committee, the Internal Audit team provides independent assessment plan. of the effectiveness of our processes, controls and risk mitigation strategies. create our new values and purpose With established business continuity We recommend that this document in readiness for the next five years. plans, we have quickly responded K Factor K Factor is the price limit that companies can in increase or decrease prices charged to customers. This is reviewed and determined by Ofwat. is read in conjunction with our to government advice and our Board, governance and compliance Hundreds of employees from dedicated people, systems, and MOSL The market operator for England’s competitive non-household market. section on page 9 of the APR, which across the Group including HD processes have proved adaptable to NAV New appointments and variations - Companies which provide a water and/or sewerage service to customers in an includes our formal regulatory have been involved in the process this continuously changing operating area which was previously provided by an incumbent provider. Hafren Dyfrdwy is a NAV as it provides water and waste statements and our departures of refreshing our Purpose and environment. Protecting our core services in an area previously supplied by Dee Valley Water and Severn Trent. from compliance for this regulatory service is vital, but there is also more ODI Outcome Delivery Incentives are individual performance measures, which have a financial reward or penalty attached reporting year. we can do to support the people to them. They are a sub component of our performance commitments (below). and communities we serve. As our Ofwat The Water Services Regulation Authority - the statutory economic regulator for the water industry. Fig 1: The Company Monitoring Framework cycle customers enter uncertain times, PC Performance Commitment - the level of performance we’ve committed to deliver either annually or during the five- many may be vulnerable as a result year period covered by business plans. This document of a change in their financial or PDT Process description document represents Autumn this part of the medical circumstances. We worked PR14/PR19 Price Review 2014 / 2019 - Every five years we publish our proposals for the next five year period. Ofwat reviews this Internal risk process to promote our financial support and decides whether our plans are suitable in a determination process. assessment through licence to operate initiatives for those struggling to pay RACI Responsible, Accountable, Consulted, Informed - a RACI details who is responsible for managing a duty or obligation, and customer their bills, including the WaterSure who is accountable and who should be consulted or informed of any changes. engagement July scheme for those on low incomes RORE Return on Regulated Equity - the percentage amount that we are allowed to give back to our investors, which is agreed November Annual Performance and our Here2Help Scheme, which as part of Ofwat’s price limits. Draft assurance Report and Compliance plan and statement of offers bill discounts of 10%-90% for SLA Service Level Agreements - we have timescales and minimum levels of performance in place both internally and with Statement and risks, strengths and eligible customers. We are making our contractors. Assurance Summary weaknesses Published sure our vulnerable customers know ST Severn Trent Water Limited - the regulated water company within Severn Trent Plc whose area of appointment covers we are there for them with targeted the Midlands. communications and support through ST Plc The parent company and ultimate controller of Severn Trent Water and Hafren Dyfrdwy. our Priority Services Register. Third Party An independent audit company or organisation that performs audit or assurance services. Auditor November to We also recognise that many of /assurance January the third sector organisations that provider April Consultation and support our vulnerable customers /Assure Year end declarations feedback from Ofwat, customers and other are facing challenges too. So stakeholders we have established a COVID-19 emergency fund to support non-profit February organisations and charities helping Final assurance plan those affected by COVID-19, with published £30,000 already given to 10 charity and community groups in Wales. 130 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 131 3. Our Assurance Framework

We have an established, • Robust assurance - we operate a 3.1 Robust assurance Fig 3: Our Levels of Assurance rigorous and robust assurance three-lines of assurance model, and performance reporting targeted at areas of greatest risk. We operate a three lines of Business operations Internal second line Independent assurance challenge framework. The assurance assurance model. Using a risk- Purpose Purpose Purpose process approaches we use come • Ownership and accountability - we based approach provides an Responsible for 2nd line of assurance Provide independent from best practice identified have clear lines of ownership for effective programme of assurance performance reporting and 1st line assurance ensuring that 1st line has challenge of levels of across many organisations and both the delivery of performance, which considers areas that we undertaken its duties assurance provided by 1st and the accuracy of the data Activities and 2nd line industries ensuring that managers, know are of prime importance to Activities senior managers and Directors provided. our customers and regulators; or Provision of source Activities information and reporting Ensure adequate 1st line are responsible for delivering may have a significant financial undertaken Review application of • Effective governance - provided Monitoring and improving methodologies, processes high quality data through robust value, alongside the likelihood of Quality checks and by our Board, Audit Committee, performance where and the ultimate integrity processes and methodologies. Our reporting issues or regulatory required reviews of systems and of the data Executive Disclosure Committee controls assurance plan for financial year change. Areas that are higher Defining and documenting Review of 1st and 2nd line and Executive Committee with Coordination of assurance 2019/20, builds on the high standard risk receive the full three lines methodologies and assurance activities additional challenge provided by processes activities between 1st processes we have developed and of assurance while other areas, and 3rd Ensure that reported data our Water Forum. In depth quality checks is consistent with base implemented in previous years to where the risk is lower, may be and reviews data in the company’s provide accurate data. • Transparency and public targeted with first or second line Assist with production of systems accountability - we publicly report only. This approach ensures we can required documentation Provide customer and Our established framework is stakeholder challenge on our performance and hold continually reassess our assurance underpinned by four main principles ourselves to account where we do activity as risk is reduced in certain (as shown below) which, provides not meet our commitments. areas, where mature and stable consistency and clarity for our process exist, and increased where people, and allows flexibility for our new risks are emerging, resulting assurance processes to build and in a proportionate assurance evolve with our Company and the spend. • Engineering/technical - where The majority of our third line environment we operate in. assurance requires an expert assurance is provided by the First line activities are embedded engineering / water industry following: within the teams that are technical background. responsible for reporting the data • Black & Veatch - typically so that colleagues, with the right • Regulatory - where challenge is review non-financial operational expertise are conducting in depth required around the methodology performance processes and data. quality checks at the time the data used and assumptions against is produced. our regulatory requirements. • Jacobs - reviewing cost allocation activities, financial reporting Second line activities are • Data integrity and consistency processes and non- financial Robust Assurance Ownership and Accountability conducted by a separate team - understanding the flow of data operational performance that does not report into the from source through to our final processes and data same senior manager to ensure publications ensuring no data Building customer a level of independent checking transposition errors are made. • Deloitte - our financial auditors is conducted. For elements of who mainly examine our statutory and stakeholder our APR, additional second line • Financial - used for areas accounts. trust reviews are undertaken within the requiring specific financial same directorate to ensure that we expertise, such as pensions. • Internal Audit - used for financial Transparency and Public maintain a strong level of expertise data, process and other ad-hoc Effective Governance and understanding of the source • Model integrity - where a assurance. Accountability data. complex financial model is used and requires specialist external Third line activities are carried out expertise to test and challenge. by internal or external providers depending on the specialisation required. The expertise can Fig 2: Our assurance principles be divided into the following categories: 132 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 133

3.2 Ownership and Outcome Delivery Incentives - In line with the 2018 UK Corporate The Disclosure Committee 3.4 Transparency and public We publish additional information accountability ODIs) rests with the Chief Financial Governance Code, the Board oversees the Group’s reporting accountability to ensure the Severn Trent Group Officer. The outcome of the delegates certain roles and obligations under the Companies structure and performance is We have clear lines of ownership assurance undertaken is reviewed responsibilities to its various Act 2006, the UK Corporate As a public service we want to be transparent for our customers. Our for both the delivery of by the Severn Trent Plc Audit Committees. The Committees Governance Code, the UKLA transparent about the services we company structure which shows performance, and the accuracy Committee (the ’Audit Committee’) assist the Board by fulfilling its Listing, Rules, Disclosure Guidance provide, our related performance how the companies including of the data provided through on behalf of the Hafren Dyfrdwy roles and responsibilities, focusing and Transparency Rules; and the and reporting, and wider adherence Hafren Dyfrdwy, Severn Trent our ‘licence to operate’ process Board. on its specific activities, reporting Company’s annual and continuing to regulatory requirements. We Water, and other associated (described in detail in section 5 to the Board on decisions and regulatory reporting requirements, ensure we are fair when balancing companies are connected under the below), which every year assigns 3.3 Effective governance actions taken, and making any considering the materiality, the short and long term needs to Severn Trent Group umbrella can ownership of our statutory and necessary recommendations to accuracy, reliability and timeliness manage our financial risk, share be found on our website. Hafren Dyfrdwy was created on 1 legal obligations in our appointed the Board in line with its Terms of of information disclosed and returns with customers where we July 2018 and has its own Board, business to managers, senior Reference. The Severn Trent Plc assessment of assurance received. outperform, and consider long which is supported by existing managers and directors. These Board regularly reviews the Terms term viability. We pay our taxes Severn Trent Plc governance managers are responsible for of Reference of each Committee, To support our Governance in full and on time, and employee arrangements. To ensure a level ensuring compliance with our with the exception of the Hafren Framework, we have a well- bonuses are aligned and linked of independence between Severn regulatory duties and raising Dyfrdwy Nominations Committee established, rigorous and robust to the delivery of outcomes to Trent Plc and Hafren Dyfrdwy’s potential risks or issues of non- (which was reviewed by the Hafren assurance and performance customers. We publicly report Board members, in April 2018 compliance. Any areas that Dyfrdwy Board during the year). reporting framework. Our on our performance and hold we appointed three new Non- are noted as non-compliant The individual Committee Terms assurance plan for the financial ourselves to account where we do Executive Directors to specifically are disclosed by the Board of Reference are available on the year, 2019/20, continued the high not meet our commitments. look at our Welsh business and as departures in its annual Severn Trent Plc website. The standard processes we developed provide independent challenge. compliance statement following Governance Framework is also and implemented in prior years, for We evolve and update our reporting We continue to adhere to the review, scrutiny and remedial subject to periodic review to ensure reporting our PCs in our ARA and to make sure that it not only principles set out in Ofwat’s 2019 action by our senior leadership that it remains appropriate. APR. The below diagram shows complies with our regulatory ‘Board Leadership, transparency team and our Disclosure and Audit how our assurance framework obligations but also responds to and governance principles’. The Committees. interacts with our governance our customers’ and stakeholders’ Governance Framework comprises arrangements to ensure that feedback. We now publish an Overall accountability for the the Board, Executive Committee all levels of the business have additional customer summary APR preparation and production of the and their respective Committees, oversight of our assurance on our website after the full report APR (which includes reporting of which is set out below. processes. is submitted to enable a simplified performance against performance approach to comparative business commitments and associated reporting.

Fig 4: Our governance arrangements

Severn Trent Plc Board

Report Delegated authority Hafren Dyfrdwy Audit Committee Cyfyngedig Board

Delegated authority Report Chief Executive Disclosure Committee Liv Garfield

Report Report

Hafren Dyfrdwy Third line of assurance - Executive Committee External of Internal Audit

Second line of assurance - Regulatory compliance internal Report Internal independent team Group Compliance team

Inform and First line of assurance - improve Business unit management

Oversight 134 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 135 4. Customer and stakeholder engagement

4.1 Customer Engagement ensuring that all levels of the •Regular meetings and events 4.4 Other stakeholders business are made aware of any with broader stakeholders (for To understand which areas matter significant risks or issues. example, partnership working We have continued to develop our most to our customers and on flooding issues and other open and honest conversations stakeholders, we used a variety 4.2 Regular engagement stakeholder forums). with several of our environmental of engagement methods and regulators including the NRW and research tools to glean information We passionately believe in engaging •Ongoing investor engagement, and DWI. Any queries or concerns can to inform our plan. The draft with our customers and wider annual announcements of interim be discussed directly, and where assurance plan was put out for stakeholders to understand the and preliminary results. relevant, can help shape our consultation in November 2019 and issues that matter to them in targeted assurance programme. any further feedback was included the information we produce and 4.3 Ofwat We have reviewed our licence prior to publishing the final plan address any concerns that they to operate and governance We have already worked to remedy in February 2020. Further details may have. Throughout the year we frameworks to ensure that our the issues raised in our APR19 on the engagement we undertook continue to use our established environmental regulatory and publications and will look at further can be found in our final risk and channels of customer engagement: statutory obligations receive the ways we can address the themes assurance plan on our website. appropriate oversight. As a result •We have continued with our noted in Ofwat’s assessment of this review we have enhanced regular customer tracker, which around data quality to prevent 4.1.2 Year-end declarations the environmental obligations in is conducted by an independent the need to restate information, Prior to publication of our annual our licence to operate to capture market research company, where and ensure we provide better regulatory reporting we ask oversight at a more granular level a sample of household and non- commentary and explanations if we our responsible managers to and have increased the number of household customers were asked have had to restate information. In declare whether they have been reports receiving scrutiny at our over the phone about a number of line with prior years, any material compliant or non-compliant with Audit and Disclosure Committees. factors including trust, customer restatement will be summarised as their obligations. If they have been experience, value for money, and a departure in our Boards Risk and non-compliant, we ask them to As we look to AMP7 and the communications. Compliance statement which can complete a ‘departures’ form, changing regulatory environment, be found in our APR and separately we are reviewing how we interact which details what issue has •Ongoing analysis of customer on our website. with our regulators to ensure that occurred during the reporting year, sentiment including root cause we are able to understand common the action taken, and what will be analysis of customer complaints Our long term viability statement themes in the types of enquiries done to prevent it in future. through all channels (telephone, provides oversight of the or casework we receive and can social media, email and written). assessment of potential risks to All departures are then reviewed build this into our governance and our financial resilience and the by the accountable senior manager assurance frameworks. Continuing •Engaging with customers through mitigating actions we are taking to and Director who will assess to build on stakeholder feedback existing tools; Pipe Up (Qualtrics manage those risks. The statement the level of materiality. Some we are reviewing how we further SMS Surveys), Qualtrics considers viability for the seven departures, while representing an improve our environmental data Research Campaign Surveys year period to 31 March 2027. instance of non-compliance with (SMS and Email based), Qualaroo against the risk-based assurance process may not be material or, (website surveys) and Sprinklr, We believe that the CMF gave framework. for example, it may be within the which helps us analyse customer companies a great starting point for stated confidence of the measure. interactions on social media ensuring the data we produce and All departure assessments are platforms. publish is of a suitable high quality. tracked on the departures form to We will continue to focus on this ensure that we maintain a visible Our regulatory stakeholders’ views into the next AMP, and we welcome audit trail of all areas of potential are very important to us and we the opportunity to input into Ofwat’s non-compliance. use the following channels to gain approach to ensure quality and feedback from them: assurance practices that continue Departures that are assessed to to provide information customers have a material impact are included •Regular meetings and can trust. in our Board annual Risk and correspondence with our Compliance Statement, which is regulators (Ofwat, NRW, DWI). published in July within our APR. This document is reviewed and scrutinised by the Severn Trent Plc Disclosure Committee and Audit Committee before it is endorsed by our Board prior to publication, 136 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 137 5. Our internal assessment - licence to operate

As well as ensuring we account 5.2 Year-end declarations 5.3 Changes in 2019/20 5.4 2019/20 risk assessment for our customers’ views, we outcome use the wealth of expertise Prior to publication of our annual This year we added new obligations within our business to assess regulatory reporting we ask our to our licence to operate process In this year’s licence to operate all our statutory and regulatory responsible managers to declare to respond to changes in our assessment, a number of areas obligations relating to provision of whether they have been compliant operating model within Hafren were noted as either high or water and wastewater. We call this or non-compliant with each of Dyfrdwy and our statutory medium- high risk. In addition, assessment licence to operate, their obligations. If they have been obligations: our internal group compliance and and it has been operating in Hafren non-compliant, we ask them to assurance team decided to include • Added a further level of granular Dyfrdwy for five years. complete a ‘departures’ form, areas that are subject to, or could environmental legislation into which details what issue has be subject to, regulatory change or licence to operate including ISO 5.1 The process occurred during the reporting year emphasis. These are summarised Environmental standards, Clean and what action will be taken to in section 7, alongside the summary Over AMP6 we have continuously Air Act and Control of Pollutions prevent it in future. of the assurance undertaken. reviewed the process to improve Regulations. it by using new technology All departures are then reviewed such as SharePoint to track the by the accountable senior manager • Introduced a conflict of interest assessments and approvals from and director who will assess declaration for all responsible all levels of management. We the level of materiality. Some and accountable managers have expanded the assessment departures, while representing an whereby managers who may have by including a wider range of instance of non-compliance with responsibility for both appointed legislation and now monitor over process may not be material or and non-appointed activity; 1500 obligations. for example it may result in the or between appointed entities data remaining within the stated have a responsibility to ensure Licence to operate is a two stage confidence grade of the measure. they are transparent about any process that operates through the All departure assessments are potential conflicts in their role. mid and year-end of the annual tracked on the departures form to This gives us the ability to target regulatory cycle. We describe ensure that we maintain a visible these areas with further training, the process in more detail in our audit trail of all areas of potential guidance and mitigation as Statement of risks, strengths and non-compliance and the correction needed. weaknesses and final assurance actions taken. All departures For the next AMP we are plan which can be found on our are reviewed by the Group already looking to make further website. Compliance and Assurance team streamlining improvements to centrally before submission to the licence to operate process by ensure adequate assessment and using technology improvements sufficient detail has been included. to transition to a more frequent Departures that are assessed to monitoring system for compliance, have a material impact are included including visibility of improvement in our Board’s annual Risk and plans. Compliance Statement, which is published in July alongside our APR and other regulatory reporting. All departures regardless of materiality are reviewed and scrutinised by our Executive and Disclosure Committees before it is endorsed by our Board prior to publication - ensuring that all levels of the business are made aware of any significant risks or issues. 138 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 139 6. Assurance of our Annual

Performance Report Regulatory Accounts

Lines Methodology Data Our 2019/20 risk-based assurance Section Governance and Assurance & Process plan provides an overview of how Company • Data providers, commentaries and methodologies all data reported in the 2019/20 performance and • Risk based assurance processes APR has been given the appropriate direction • Internal Audit review 1A Income statement All Deloitte Deloitte level of governance and assurance. • Technical auditor assurance and audit report 1B Statement of comprehensive income All Deloitte Deloitte Our Board, • Technical auditor assurance and audit reports 6.1 Governance governance and • Our established licence to operate year end declaration and 1C Statement of financial position All Deloitte Deloitte compliance departures process 1D Statement of cash flows All Deloitte Deloitte We have a well-established • Signed and approved by the Board compliance framework, which Regulatory • Data providers, commentaries and methodologies 1E Net debt analysis All Deloitte Deloitte incorporates Ofwat’s APR statements • Risk based assurance processes 1F Financial flows All Deloitte Deloitte requirements, the RAGs, and wider • Technical auditor assurance and audit reports company duties. Each reporting • Statutory financial auditor statement 2A Segmental income All Jacobs Deloitte line in the APR is assigned to Annual • Data providers, commentaries and methodologies 2B Totex analysis (wholesale) All Jacobs Deloitte a responsible manager. These performance • Risk based assurance processes 2C Operating costs analysis- retail All Jacobs Deloitte managers review and approve summary • Technical auditor assurance and audit reports • Our established licence to operate year end declaration and 2D Historic cost analysis of fixed assets All Jacobs Deloitte the data, process documentation departures process and commentaries, which forms 2E Analysis of capital contributions and land sales All Jacobs Deloitte Regulatory • Data providers, commentaries and methodologies an integral part of our assurance accounts • Risk based assurance processes 2F Household revenues by customer type All Jacobs Deloitte approach. An approval process is • Statutory financial auditors and audit reports 2G Non- household water revenues by tariff type All Jacobs Deloitte followed with final sign off for both Additional • Data providers, commentaries and methodologies 2H Non- household waste water revenues by tariff type All Jacobs Deloitte the data and commentary provided regulatory • Risk based assurance processes by the relevant Director. information • Financial and technical auditors and audit reports 2I Revenue analysis All Jacobs Deloitte

The APR is subject to review by 2J Infrastructure network reinforcement costs All Jacobs Deloitte the Severn Trent Plc Disclosure 6.2 Assurance Overview Our first line assurance is 2K Infrastructure charges reconciliation All Jacobs Deloitte Committee who ensure that undertaken by the teams that are We follow our risk-based approach all publications comply with responsible for reporting the data for the APR assurance and our the applicable disclosure so that colleagues, with the right three lines of assurance model requirements. Prior to reviewing expertise, are conducting in depth Performance Summary targets our most critical areas with and approving the final submission, quality checks at the time the data our third line assurance. In addition delegated authority is given by our is produced. Each line of our APR Lines Methodology & Methodology to Internal Audit, we use external Board to the Audit Committee to submission has been reviewed by Process & Data & Process financial and technical auditors review and ensure the adequacy our first line of assurance. and Data - for third line assurance. The of the year end assurance Wrexham assurance approach is summarised For our higher risk measures process, in line with their overall only below. the second line assurers liaise responsibility for ensuring the with the reporting teams to 3A Outcome performance table All Jacobs / 2nd line Black & integrity of the Company’s financial We have included letters of monitor improvement activities Veatch / statements, risk management, assurance from out technical and resolve outstanding actions Jacobs / 2nd assessment of the effectiveness of assurers, Jacobs and Black & through a comprehensive ‘Focus Line the systems of internal control and Veatch on page 22 and page 23 of measures’ tracking process with 3B Sub- measures performance table All Jacobs n/a the effectiveness of internal and the APR respectively. updates provided to Disclosure 3C AIM Table All n/a n/a external auditors. The Board will and Audit Committee. These Deloitte provide an audit opinion then approve the final submission. ‘focus measures’ include actions 3D SIM Table All Jacobs Jacobs on the Regulatory Accounting created as a result of the feedback 3S Shadow reporting of new definition data All Jacobs Jacobs In addition to the governance Statements on page 60. processes described above, we we received from our technical provide oversight to the Boards of A key part of our assurance assurance providers in 2018/19. Hafren Dyfrdwy and Severn Trent framework is the first and second Plc through our established year line assurance activities that are end programme steering group undertaken throughout the year. and board. The Board are provided with updates of progress against year-end reporting milestones, and visibility of any risks and issues as they emerge. 140 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 141

Additional regulatory information Through the robust second line Outcome of assurance Process assurance activity as part of Jacobs provided a staged approach Lines Methodology Data APR20, any issues and queries Deloitte’s audit opinion confirms to technical assurance on the & Process were resolved prior to review by that: elements of the APR that are tabled the third line assurance providers. • The company’s regulatory above. Stages one and two focus In addition, where the risk accounting statements have been on documentation and process 4A Non- financial information All Jacobs / 2nd Line Jacobs / 2nd Line assessment undertaken confirms prepared, in all material aspects, and were undertaken following a a measure is low risk and does 4B Wholesale totex analysis All Internal Audit Internal Audit in accordance with Condition risk-based assessment focusing not require third line assurance, F, the Regulatory Accounting on measure where there have been 4C Impact of AMP performance on RCV All Internal Audit Internal Audit second line reviews are undertaken Guidelines issues by the WRSA changes to processes. During stage 4D Wholesale totex analysis (water) All Jacobs / Internal Jacobs / Internal to confirm the documented (RAG 1.08, RAG 2.07, RAG 3.11, one, Jacobs review the process Audit Audit processes have been followed RAG 4.08 and RAG 5.07) and the description templates (PDTs) which to report the data and that the 4E Wholesale totex analysis (waste water) All Jacobs / Internal Jacobs / accounting policies (including the are followed to report against required checks and controls have Audit Internal Audit Company’s published accounting PCs. Stage two includes a desktop been undertaken. 4F Cost analysis (household retail) All Internal Audit Internal Audit methodology statement (s), as review and interviews conducted face to face. The majority of the During 2019/20 this second line defined in RAG 3.11); 4G Wholesale current cost financial performance All Internal Audit Internal Audit process audits were carried out oversight has ensured that all the 4H Financial metrics All Internal Audit Internal Audit • Proper accounting records have face to face, however a small focus measures were reported been kept by the appointee as number were carried out over 4I Financial derivatives All Internal Audit Internal Audit without any material issues required by Condition F; and WebEx as our assurance approach 4J Atypical expenditure by business unit- All Internal Audit Internal Audit being identified through third the Regulatory Accounting has been adapted in response Wholesale water line assurance and that low risk Statements are in agreement to COVID-19 for reporting year measures were effectively and 4K Atypical expenditure by business unit- All Internal Audit Internal Audit with the accounting records 2019/2020. The reviews ensure efficiently assured. wholesale waste water and returns retained for the that: 4L Enhancement expenditure by purpose- All Internal Audit Internal Audit 6.2.1 Deloitte purpose of preparing the Annual • Processes are in place to produce wholesale water Performance Report. Scope data that is consistent with the 4M Enhancement expenditure by purpose- All Internal Audit Internal Audit Deloitte provided financial Deloitte’s audit opinion is included RAGs, PC definition or non- wholesale waste water assurance procedures over on page 60 of the APR. financial data definition. 4N Sewage treatment- functional expenditure All Internal Audit Internal Audit sections 1 and 2 of the APR. These • Improvements and changes sections provide a baseline level of 6.2.2 Jacobs Scope 4O Large sewage treatment works- wholesale waste All 2nd Line / 2nd Line / in processes from previous historical cost financial information water Internal Audit Internal Audit We asked Jacobs to provide assurance rounds are clearly and are aligned to our price technical assurance on the stated. 4P Non-financial data for WR, WT and WD- 24-27, 29- Jacobs Jacobs controls and associated regulatory following elements of the APR • Accountability and responsibility wholesale 43, 58-68, performance commitments and reporting: for each stage of the process 72-83, incentives set out in Ofwat’s 2014 86-110 • Performance against legacy is clear with dependencies, Final Determination. assumptions, risks and 4Q Non-financial data- properties, population 1-8, 15-17, Jacobs Jacobs Severn Trent Water and a number mitigations identified. and other- wholesale water 19, 24-30 Table lines 1F.1 to 1F.9, line 1F.13, of legacy Dee Valley Water PCs line 1F19 and lines 1F.21 to 1F.23 including associated ODIs. • There is appropriate quality and 4R Non- financial data- waste water network and 1-2, 5-7, Jacobs Jacobs are subject to audit procedures. As controls identified sludge- wholesale waste water 11-41 • Non financial data included in the agreed with Ofwat, Deloitte have APR section 4 tables 4S Non- financial data- sewage treatment- All Jacobs 2nd line Stage three focuses on data performed agreed upon procedures • AMP7 common PCs reporting wholesale waste water in relation to the remaining lines produced and this year the data • RoRE and financial flows audits were carried out over 4T Non- financial data- sludge treatment- All Jacobs Jacobs (to note, lines 1F.11, 1F.12, 1F.14 WebEx rather than in person due to wholesale waste water are considered in the agreed upon • Cost allocation between appointee associates Hafren COVID-19 adjustments to ways of 4U Non-financial data- properties, population 3-15, 23 Jacobs Jacobs procedures as they all calculate Dyfrdwy and Severn Trent Water, working. The audits ensure: and other- wholesale waste water into line 1F.15). between Hafren Dyfrdwy price • Data produced is consistent with 4V Operating cost analysis- waste resources All Internal Audit Internal Audit controls and to third parties. the PDT and any deviations are 4W Operating cost analysis- sludge transport, All Internal Audit Internal Audit identified and evidenced. treatment and disposal 142 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 143

The technical assurance applied Ahead of our year-end financial APR Section 3 - Performance Overall, Jacobs noted: ‘For the The data audit focused on the 6.2.4 Internal Audit by Jacobs complements our risk- reporting, we asked Jacobs to Commitments legacy PCs, non-financial APR data produced and associated Process based assurance framework, which review a sample of our cost section 4 tables and lines we commentaries which explain our Internal Audit performed several is in part, informed by previous allocation processes. We selected Full year reviewed and RoRE we observed performance in more detail. Audits checks as part of its assurance to assurance findings, as well as the sample based on the risk robust processes and reporting were carried out by WebEx as a Jacobs reviewed the vast majority ensure that: emerging risk, and stakeholder associated with them. In total, of PCs set out in our Final procedures. For the 2019-20 data result of COVID-19 alterations to feedback. Jacobs reviewed six PDTs and Determination and the processes we reviewed we note there are no ways of working. • Processes followed were processes which covered: that were used to produce the remaining material issues’. appropriate to produce the data • Data produced is consistent with Outcome of Jacobs’ figures. This approach is in line with required for our APR submission. • Allocations across price controls AMP7 Shadow PCs the PDT and any deviations from assurance our risk-based approach assurance within HD and STW this are identified and evidenced. framework to ensure that Jacobs In preparation for AMP7 reporting • Historical data used in the tables APR Section 2 - Cost allocation Ofwat developed a suite of common could be traced back to source or • Allocations between appointed reviewed our higher and medium Outcome PCs and although we are not previously published information. As part of the industry’s annual and non-appointed activity within risk areas, and those which are required to formally report on Black & Veatch noted they are performance reporting, Ofwat HD and STW customer focused. these measures until 2020/21, ‘satisfied that for the topics we • Data was produced in line with requires companies to publish covered, the information reported the methodology documents and • Allocations and recharges of Outcome Ofwat has included these measures regulatory accounts that, among in and supporting the APR20 was RAG4 requirements. costs between the associate Jacobs noted ‘for the legacy PCs we in Table 3S of the APR. We asked other things, set out financial compiled using appropriate data companies HD and STW. reviewed we consider there are no Jacobs to use its three-stage information: and methodologies and provides a • Data from the working files was outstanding material weaknesses assurance approach to review our realistic representation of actual agreed to the APR data tables to • On the allocation of costs by price Consistent with previous work in in the 2019-20 figures in relation to processes, methodology and data. company performance. We identified be submitted. control and subsections of the this area, Jacobs reviewed the HDD reporting’. We are pleased that Jacobs confirmed that ‘for the no material weaknesses or deviations value chain; documentation and processes Jacobs remain satisfied with our • A sample of business cases were AMP7 Shadow Common PCs no from established procedure’. with a focus on the consistency of reporting of the PCs. reviewed to check the correct • On non- appointed activity; and the allocation approach with the material issues were found with In addition, Black & Veatch noted allocation of costs. RAGs. To that end, Jacobs sought to the reported data’. We have plans APR Section 4 - non financial the following during its audits: • On transactions between understand: in place to move towards full Outcome associated companies APR compliance for 2020/21 reporting. • ‘ODIs are well defined and Internal Audit confirmed that no • The areas/activities that were We have continued to improve In reporting on the above, we are Jacobs’ summary of assurance in consistent with Business Plan material issues had been found being provided. our reporting processes and required to comply with Ofwat’s included on page 22 of the APR. obligations and the targets for HD and that ‘all additional supporting RAGs- in particular ‘RAG 2.07 - • The costs associated with that throughout the year we have been were stated in the NAV agreement. evidence and answers to any queries Guideline for classification of costs activity- which for the PDTs we monitoring progress against our 6.2.3 Black & Veatch raised were provided’. • Data collection and analysis are in across the price controls’ and ‘RAG reviewed were operating costs. higher risk measures as described Scope above through our ‘focused place to allow performance to be 5.07- Guideline for transfer pricing Black and Veatch provided • How those costs are recharged, measures’. At year end Jacobs reported against all of the company in the water and sewerage sectors’. technical assurance for the legacy allocated and why. carried out assurance against the ODIs covered by our audits. Wrexham and Powys areas. Over and above the RAGs, majority of the Section 4 non- The assurance scope included • Procedural documentation exists companies’ licences also place • How our approach is compliant financial measures. performance reported against covering the reporting of all an obligation on them to ensure with RAGs. selected annual PCs and against relevant data for the topics we that every transaction between Jacobs notes ‘For the non-financial Jacobs acknowledged that ‘there common measures. covered and is followed. the appointee and any associated APR section 4 lines we reviewed have been improvements in the we note that whilst there are company is at arm’s length, so • We had no material concerns standard of the documentation and no outstanding issues from our These reviews ensure that: that neither gives to nor receives arising from our audits. We the processes reviewed’ and ‘the data audits that should have a • Processes are in place to produce from the other any cross subsidy found no material weaknesses Company’s Process Description material impact on your overall data that is consistent with the PC (Condition F). This also applies to or deviations from established Templates (PDTs) adequately APR reporting for 2019-20, there definition the appointed and non- appointed procedure in reporting. explain the methodologies are some lines where you will • Improvements and changes in activity within the appointee. for cost allocation and outline be monitoring reporting risk process from previous assurance • The assurance framework of three Following the acquisition of dependencies, assumptions, more closely, or implementing undertaken is clearly stated lines of assurance provides a good Dee Valley and subsequent risks and associated mitigation improvements, due to issues we • Accountability and responsibility level of confidence that assurance geographical border realignment measures’. between England and Wales identified during our work.’ for each state of the process is robust. to create HD, Ofwat expects is clear, with dependencies, Where non-material • The reporting process and the transactions between HD and STW recommendations have been noted assumptions, risks and to be at arm’s length. mitigations identified. information for reporting is by Jacobs, progress against these scrutinised and approved by the actions will be monitored through • There is appropriate quality Disclosure Committee and Audit the year. assurance with checks and Committee. Performance is controls identified. reviewed by the Board.’ 144 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 145 7. Outcome of assurance in other areas Risk Area Why? Summary of assurance undertaken Licence Conditions E1 and These licence conditions were implemented Data and methodology is subject to second line Our ‘Statement of risks, strengths and weaknesses’ that we shared for consultation in November 2019 was M1 in January 2019 and relate to the provision of assurance with third line process assurance information in Ofwat’s designated ‘new markets’ undertaken by Internal Audit on any new areas. republished in February 2020 alongside our final assurance plan. The documents set out our key risks and i.e. bio-resources, water resources, demand included our approach to addressing these with our assurance this year in our final assurance plan. The table management and leakage services. Our existing below summarises the outcome of assurance on these key risks. policies such as ‘doing the right thing’ and our ‘level playing field’ do cover these obligations, however, we need to ensure that we have suitable processes Risk Area Why? Summary of assurance undertaken in place to document where receive an information PR14 performance This report is the principal way that we will document As described in section 6 above. request relating to these markets ensuring we have a commitments our annual performance and hold ourselves publicly sufficient audit trail to demonstrate our compliance. to account. The report is divided into the following Licence Condition L Following creation of Hafren Dyfrdwy, we want to Governance and associated processes are in sections: ensure that we have confidence in our programme place, and cost plans are reported. Asset Health Section 1: Regulatory financial reporting to maintain our underground assets. Following dashboards are in the process of being produced Section 2: Price review & other segmental reporting integration of the two companies we have merged to give visibility of performance and how it Section 3: Performance Summary our programmes of work in Powys and Wrexham to relates to the health of our assets, to give further Section 4: Additional regulatory information ensure visibility of outputs and control frameworks reassurance that maintenance and investment are The report will include inputs from other areas proportionate to the service needed. covered by this assurance plan (e.g. financial accounts) and require some forecasts of performance. Water quality obligations We are currently in the process of making Water quality measures form part of our ODIs and It is important that we present information in a fair improvements to our drinking water safety plan to are subject to three lines of assurance as described and balanced way that is accessible to our broad ensure that all of our required risk assessments are in section 6. range of customers and stakeholders. completed on time and to suitable standard. The risk has been reduced through a rigorous In addition some of our PCs have a financial reward or review of our RACIs relating to these measures and penalty associated so customer bills will be directly obligations. affected by our performance. Annual Report and We have a statutory obligation to ensure that our Our ARA has been subject to our established APR- sections 1-4 This report is the principal way that we will document As described in section 6 above. Accounts (ARA) financial accounts are prepared in accordance with assurance and governance framework with the our annual performance and hold ourselves publicly the relevant financial reporting framework and give majority of data being subject to three lines of to account. The report is divided into the following a true and fair view of the assets, liabilities, financial assurance. sections: position and profit or loss of the company. Deloitte provide the financial audit opinion in line • Section 1: Regulatory financial reporting with statutory and regulatory guidelines. • Section 2: Price review & other segmental reporting Any data that is included in both the APR and ARA is • Section 3: Performance summary subject to the assurance described in section 6. • Section 4: Additional regulatory information Our Internal Audit team have also carried out additional checks of the data used to ensure The report includes inputs from other areas covered consistency. by this Assurance plan (e.g. financial accounts) Annual Report to CCWater CCWater are the statutory customer representative All submissions are subject to internal first- and and require some forecasts of performance. It is body for our industry and a member of our Water second-line assurance. Any data use for a PC is important that we present information in a fair and Forum. Any information we provide to them must be subject to our assurance approach as described in balanced way that is accessible to our broad range of accurate (most of this data is directly from our PCs section 6. customers and stakeholders. reporting). Charges including draft Our charges for customers must be correct to ensure We have established assurance processes to PR19 Performance In the next AMP, the PR14 obligations will expire Our PR19 commitments are assessed through the wholesale charges, final that customer bills reflect the commitments we have ensure we are within our revenue cap and are Commitments and be replaced with the new PR19 performance three lines of assurance as described in section 6 charges and access prices made in our business plan. compliant with Ofwat’s charging rules. commitments. Now that we have received the in ‘shadow’. The charges process is split into two parts: Our scheme of charges is subject to three lines of outcome of the final determination and know the Further information relating to our assurance Draft- We publish draft wholesale charges in October assurance: performance commitments for the next five years, we approach for AMP7 and beyond is described in each year to give retailers early sight of charges Numeritas reviewed our financial model. are ensuring that we can fulfil and accurately report section 8. for the next financial year. Access prices are also Jacobs reviewed our methodology, processes and on them. This year we’re using the same process reviewed at this stage. data outputs. that we use for our performance commitment data in Final- We publish our final charges in January each Internal Audit conducted final consistency checks ‘shadow’ i.e. half year and full year audits to ensure year for the following financial year. These include on the model outputs, published documents and we get a snapshot of risk areas prior to year-end non- household, household, retail, wholesale and action tracking where applicable. non- primary charges. The outcome of the assurance was reported to the Cost allocation / RAG5 Cost allocation activities within our finance team are We have established controls including licence to Audit Committee and a Board statement published part of our established third line assurance annual operate and ERM. Our RAG5 Steering Committee alongside the charges. processes. While we have made a big improvement are responsible for overseeing RAG5 compliance in this area, we are still on a journey of continuous and reporting directly to the Disclosure Committee. improvement following the boundary realignment We have introduced a RAG5 compliance framework of our two appointed entities to ensure that our to support the business which has been externally processes are thoroughly documented within both assured by EY. Hafren Dyfrdwy and Severn Trent Water; and other Our Internal Audit team has reviewed our RAG5 non-appointed businesses within the Severn Trent governance framework, including our licence Group. to operate, and actions are being tracked and reported through ERM. 146 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 Hafren Dyfrdwy Cyfyngedig Annual Performance Report 2020 147 8. Our Approach to Assurance for AMP7 and beyond Risk Area Why? Summary of assurance undertaken End of AMP6 reconciliation We provide a set of data spreadsheets to Ofwat on an Our end of AMP6 reconciliation has been subject to annual basis so that it can calculate the in- year ODI our risk- based three lines of assurance. Internal As a regulated company we are assurance process, our governance reward / penalty and reconcile our past performance Audit completed the third line activities and no with our forecasted targets. Following Ofwat’s review, material concerns identified. subject to statutory and regulatory approach, ERM systems and our we acknowledged that a small number of errors were duties and obligations, for example licence to operate framework, and made in similar submissions previously which had through the Water Industry our external assurance providers been missed by our second line assurance process. Act 1991 and our Instrument of review of these, enables our Board Appointment. We will continue to to have confidence in delivering our Market information These are new markets, and to encourage growth for Our bioresources market information is subject use our established processes, 2020-2025 plan. (bio-resources and water the benefit of customers, and to encourage potential to our three lines of assurance, and no material controls and governance routes to resources) market participants, we must present information issues were found. continue to meet these obligations. 8.2 Meeting our AMP7 and costs that are accurate to enable consideration of Much of the process, data and assurance for water Our AMP7 specific obligations were market entry. resources information is derived from the WRMP. specific commitments This was published last year and was subject developed and defined through our to assurance at the time and received Board PR19 Business Plan 2020-2025 For our performance oversight. Consistency checks are carried out described below. commitments, which we consider internally between publications. to be a customer critical area, we Market Performance We submit monthly key performance indicators to Performance is reviewed throughout the month 8.1 Accountability rests with are continuing to use our risk based Standards (MPS) and the market operator, MOSL. This information is then by the responsible manager and monthly with the the Board three lines of assurance approach. Operational Performance published on their website. The information is used accountable senior manager. To ensure we spot potential issues Standards (OPS) by retailers, Ofwat and MOSL to ensure that the Assurance is completed on all OPS submissions Our Business Plan 2020-2025 early, we have focused on making wholesalers are delivering a competitive and fair with third line assurance provided by Internal Audit services to customers in the market. throughout the year. set out the performance we have sure our reporting methods for If we fail to meet our SLAs we can receive a financial The Disclosure Committee reviews performance committed to deliver for our the new measures are robust. penalty. quarterly and actions for improvement noted and customers over that time. It looks In January 2020 we undertook reported. to the future of our service to 2025 reviews of the PDTs which will be Any issues and actions are notified to MOSL. and beyond. Our Business Plan, used to report against our AMP7 already now in motion, will deliver performance commitments. operational, financial, corporate These reviews were undertaken and reputational resilience over at first, second and also third line the next five years and long term, assurance through Jacobs. Process through our well established, assurance, and where applicable, robust and independently assured data assurance reviews are also governance and assurance underway. This gives us a good New connections charging The new connections charges process must align to New connections charging was approved by the processes. The entire HD team understanding of where our focus our company wide Scheme of charges process, which Board ahead of publication. are responsible for delivering needs to be to ensure accurate data is subject to third line assurance. External assurance was undertaken by Jacobs and the outcome was reported to the Audit Committee. our ambitious plan, but ultimate is reported over the year ahead, in All previous recommendations from Jacobs for accountability rests with our Board. our annual reporting for 2020/2021, 2018/19 have been implemented. and beyond. A Board assurance statement was published with Resilience goes beyond traditional our charges and can be reviewed on our website. risk management, and we continue We have already updated our to take a holistic view of our established licence to operate Natural Resources Wales We take our role and its impact on the environment Submissions are subject to three lines of assurance business resilience and operating framework with our PR19 submissions seriously. It is important that information we share on a risk-based approach. environment. We are committed to commitments. Following this year’s with the NRW is accurate and reflective of our Submissions are subject to our governance being transparent about the areas year-end assessment, we noted performance. processes. If we fail to meet our environmental commitments we of our business that matter most that the risk scoring for several can receive financial penalties. to all our stakeholders - including of our commitments has reduced executive pay, corporation tax and following the efforts of teams Drought plan and other The Water Act (2003) made it a statutory requirement Our final drought plan has been subject to our three dividend payments. We continue across the business to establish drought obligations for water companies to produce and maintain a lines of assurance on a risk based approach. to use both ERM and our licence and embed robust processes for drought plan. We update these every five years. Our drought plan sets out how we will manage our to operate framework to ensure them. resources and supply systems in dry years to maintain that we manage our company wide our service to our customers. risks and statutory obligations both now and in future. We believe that Water Resources The WRMP is produced every five years and sets out External assurance has been undertaken by Jacobs the combination of our established Management Plan how we plan to meet our customers’ needs for clean with no material issues noted. water now and in the future, taking into account the Our WRMP was approved by the Board in line changing impacts of climate change and population with our governance process and the assurance growth. process was reviewed by the Audit Committee. Our Board provided a statements of assurance with the published WRMP. Hafren Dyfrdwy PO Box 507 Darlington DL1 9XF hdcymru.co.uk