Dŵr Cymru Welsh Water

Final Water Resources Management Plan Introduction & Non-technical Summary September 2012

Introduction, Summary, and Consultation Process

One of our most important responsibilities, as provided for under the Water Industry Act 1991, is to ensure that we can always meet the reasonable water needs of our customers now and into the future. And, like all other water companies, we are required periodically to produce a Water Resources Management Plan which demonstrates how we plan to balance supply and demand over the following 25 years. Although companies had produced Water Resources Plans on a voluntary basis for several years previously, the amendments to the 1991 Act which were made by the Water Act 2003 introduced for the first time a statutory requirement for companies to produce Water Resources Management Plans (WRMPs).

As part of our preparation for the 2009 regulatory price-setting process, we submitted a Draft Water Resources Management Plan to the Welsh Government in March 2008. Following a Direction from the Welsh Government in January 2009, the Plan was published for consultation on 15 January 2009. However, it did not complete the full statutory process as it was never formally approved by the Welsh Government, primarily due to fact that, in certain important respects, it was overtaken by events, notably the need to consider the impact of the Habitats Directive.

In October 2011 we submitted a revised draft Water Resources Management Plan to Welsh Government, which considered the impacts of the Habitats Directive on water supply. This was subsequently published for public consultation. We published a Statement of Response to the Consultation in April 2012, addressing all the consultation responses we received on the revised draft Plan. Welsh Government wrote to us in July 2012, giving us Direction to amend the Plan to include the additional supporting evidence we had committed to providing in the Plan in the Statement of Response to the Consultation.

At the beginning of August 2012 we provided an updated version of our revised draft Water Resources Management Plan to Welsh Government that included all the required amendments. Welsh Government gave us Direction to publish this version of the Plan as our Final Water Resources Management Plan on 20 August 2012.

This document is therefore our Final Water Resources Management Plan for the period up to 2035, and sets out how we intend to achieve the required balance between supply and demand. Our aim is to do so efficiently so that water bills are no higher than they need to be and the impact on our environment is minimised. In order to develop the plan, we have projected the future demand for water from our customers, we have calculated how much will be available from current sources, and, where there is a shortfall, looked at all the ways of increasing supply and reducing demand so as to arrive at the best overall package of solutions.

In general, we are currently in a relatively strong position on water resources. Wales has a comparatively wet climate and we abstract for public water supply just 3% of effective rainfall (which compares with much higher figures in parts of the South East of England, for example). Demand for water and the amount of water we abstract has fallen by a quarter over the last 15 years (as a result of halving of leakage and falling industrial demand for water) and we are forecasting more or less flat demand for water from our customers over the coming 25 years. This is based on Government and local authority projections of population and properties, and assumes no major upturn in the demand for water from heavy industry. All our 24 water resource zones currently have a surplus of supply over demand in both a normal and a Dry Year.1

1 A “Dry Year” is defined as a year that is characterised by low rainfall and unconstrained demand. The Dry Years that we have experienced and which are incorporated in our modelling include 1976, 1984, and, for some zones, 2003. Page | 1

Dŵr Cymru Welsh Water Final Water Resources Management Plan Introduction & Non-Technical Summary, September 2012

However, we do not expect this situation to persist. Much of this document is concerned with the significant changes in our water resources position that we are expecting in the coming years. We have to plan and cater for likely and possible changes in the years ahead, and for this Plan those are greater and more serious than they have been for the last two or more generations.

Specifically, the Plan has been prepared so as to take account of two very significant influences:

the results of the Environment Agency Wales‟ “Review of Consents” exercise which it has undertaken in the light of the European Habitats Directive. A significant feature of this process is that it entails the application of a “precautionary principle” under which potential adverse impact of abstraction is presumed unless evidence is available to the contrary, which typically is not the case; and

an updated assessment of the possible impact of climate change on the water environment in Wales, as set out in the latest UK Climate Change Projections published in 2009 (“UKCP09”), which may both reduce the amount of water we have available to supply, and increase demand from our customers.

Together, these two developments could very significantly reduce, or eliminate, our water resource surpluses in some zones, creating deficits that could require significant investment to address. For example, in our South East Wales Conjunctive Use System zone (“SEWCUS”) which covers much of South East Wales, the Review of Consents process alone will reduce our Deployable Output by nearly 20%, the equivalent of what we need to meet the needs of consumers in the whole of Cardiff. More generally, the resultant tightening of our water resource position means that surpluses that we currently have cannot be regarded as being available to support long term economic development. For example, on the basis of the projections set out in this plan, new resources would probably be required to facilitate any further industrial development in Milford Haven.

The one key message we want to get across from the development of this Plan and the consultation that has taken place, is that Wales does not have an abundance of water for public water supply and that we all need to value our water resources much more than in the past.

The feedback we received on this Plan through the consultation process not only has assisted us in shaping the final Plan, but it will also influence our approach to the next draft Water Resource Management Plan, due in 2013.

Structure of Final Plan

This document is structured as follows. Chapter 1 sets out the context within which the final plan has been prepared, and the processes that have been applied. Chapter 2 provides a summary of the key features of our region and the water supply industry in general that are particularly relevant for water resources planning. Chapter 3 then explains the primary measures of water supply capacity, namely “deployable output” and “water available for use” (including the role of “outage”), and Chapter 4 describes the main elements of the demand for water in our region together with the basis on which we have forecast demand out to 2035. Chapter 4 also summarises our approach to the management of leakage (leakage being one component of the “demand” for water) and the promotion of water efficiency, both of which will continue to play important roles in our water supply strategy over the Plan period. Chapter 5 then explains “Target Headroom”, the buffer that we build into our projections to allow for error and uncertainty for the purposes of determining when there is deemed to be a supply demand “deficit”.

Page | 2

Dŵr Cymru Welsh Water Final Water Resources Management Plan Introduction & Non-Technical Summary, September 2012

Chapters 6 and 7 describe two exceptional influences on our water resources position over the Plan period. These are respectively the notification we have had from the Environment Agency that it has reviewed some of our licences and wants us to make significant “sustainability reductions” in the light of the Habitats Directive (reductions that we are assuming in this plan will come into effect in 2020), and the latest projections for climate change. Chapter 8 brings together the projections of demand, Target Headroom and Deployable Output to present the „supply demand balance‟ for each of our 24 water resource zones for the period to 2035. We show that, but for the effects of the Habitats Directive related review of our consents and climate change, we would be projecting no supply demand deficits over the next 25 years, but when they are taken into account deficits appear in some zones during the plan period.

Chapter 9 then sets out how we have approached the evaluation of options for closing these deficits. These options range from increasing the storage available in our reservoirs to encouraging our customers to use water more efficiently. It shows how we have evaluated the options to arrive at a preferred list of viable solutions to the projected deficits. It sets out our initial estimates of the likely financial and carbon cost of progressing each of these options and the possible impact on customer bills.

Finally, Chapter 10 summarises the environmental appraisals we have commissioned in connection with, and to support this Plan. A glossary of terms is included with the supporting Annexes.

Building the Uncertainty Surrounding Climate Change into this Plan

The biggest challenge we faced in preparing this plan was the question of how we should incorporate the latest climate change scenarios, “UKCP09”, into our projections, and in particular the uncertainty around the central projections. We are the first water company to use UKCP09 scenarios in the preparation of a water resources management plan, and the Environment Agency‟s guidance on how they should be incorporated was still under development when the work to support this plan was carried out. Following “best practice” in dealing with the uncertainty around climate change, we found that the UKCP09 scenarios had a very dramatic effect on the supply demand position in some parts of our region, notably the large South East Wales Conjunctive Use System zone that relies extensively on the River Usk and the Wye. From a baseline position in which the zone would be 75 megalitres per day (Ml/d) in surplus in 2035, the Review of Consents takes the zone into a small 3 Ml/d deficit, and incorporating the median climate change scenarios in calculations of Deployable Output extends this to 12 Ml/d. Allowing for the full range of UKCP09 scenarios on uncertainty in Deployable Output in Target Headroom, however, takes the projected deficit to 104 Ml/d by the end of the Plan period.

Faced with this dramatic effect, we considered three options:

A. plan on the basis of the full range of UKCP09 scenarios and present the options for addressing supply-demand deficits such as the one for SEWCUS referred to above;

B. use the full range of UKCP09 scenarios, but discount their effect on a sliding scale, progressively more deeply the further into the future one is projecting. The rationale for this approach, which is used by several companies and is acknowledged in the Environment Agency‟s guidance, is that the more distant the uncertainty, the more time and scope there is available in the meantime to deal with it; or

C. calculate and disclose the effects on Target Headroom of the full range of UKCP09 scenarios, but plan to address supply-demand deficits that exclude them.

Page | 3

Dŵr Cymru Welsh Water Final Water Resources Management Plan Introduction & Non-Technical Summary, September 2012

We did not adopt option B because we believe it has the unhelpful characteristic of blurring the quantification and the management of uncertainty. We do not think that it makes sense to plan investments for an artificial scenario that acknowledges what it is that you think is going to happen but only addresses a part of it on the grounds that it is a long way into the future. We prefer to be explicit as to the magnitude of the risks we face, and to address them using considered judgement.

We have evaluated in general terms what option A would mean for our investment plans. Chapter 9 presents our view of what they would entail, including the prospect of significant investment in desalination in South East Wales. We have not, however, followed option A in arriving at the final planning solutions for the purposes of this document, and have applied option C instead. Whilst we in no way understate the importance and potential impact of climate change on our future water supply position, given that the application of UKCP09 is a developing area, given that the potential supply demand deficits driven by uncertainty around climate change do not manifest themselves for several years, and given that we are due to prepare our next draft Plan at the same time as the other water companies in 2013, we have chosen in this document to confine our projections to the supply demand deficits that we are most confident we will have to address during the Plan period, and the least cost way of dealing with them. We do, however, present for information supply demand projections using the full range of UKCP09 scenarios in Target Headroom, and what would be the preferred means of addressing deficits under this alternative approach.

In the meantime, we believe that we will be in a position to take a much more definitive view of the likely magnitude of such deficits and how they can best be addressed when we embark upon the next water resource management planning exercise in a year or so.

The Timing of Licence Adjustments under the Review of Consents

It is also worth highlighting that we have assumed, for the purposes of this Plan, that the licence amendments in the South East Wales Conjunctive Use System zone will not be formally put in place until 2020. Having said that, the sustainability reductions would not put the zone into deficit straight away - rather, according to current modelling, they would leave a small planning surplus for the time being. The size of the reductions contemplated is so dramatic that we consider that it would be prudent to carry out further detailed work on the way that the zone is operated in order to ensure that it is fully robust to such radical changes.

Our Strategy Summarised

The key elements of our overall strategy can be summarised as follows:

regional leakage is expected to fall from 190.45 Ml/d in 2010-11 to 184.08 Ml/d in 2014-15. This strategy is in line with the targets agreed with our economic regulator, Ofwat. As part of the option selection process for addressing supply demand deficits we have considered options involving more reductions in leakage. However, none have been selected because of their comparatively high costs;

the promotion of a wide range of water efficiency activities for both our domestic and business customers. For the period 2010-15 we will continue with our full suite of baseline promotion activities;

the installation of water meters at all new properties and those households who opt to be metered under our free meter option scheme. We will continue to meter all new business customers and carry out selective metering on high water use unmeasured business premises;

Page | 4

Dŵr Cymru Welsh Water Final Water Resources Management Plan Introduction & Non-Technical Summary, September 2012

for Pembrokeshire, where the deficit has been driven by the potential impacts of climate change and the significant impact of sustainability reductions being proposed by the Environment Agency, we are proposing to reinstate a currently licence-exempt groundwater source and carry out a network scheme that will enhance the connectivity of the zone. This is the most economic solution for the zone;

in the Brecon – Portis water resource zone where the Environment Agency wants us to reduce our abstractions from the River Usk at Brecon, we plan to supplement the available flow in the river with additional releases from the Usk reservoir, when required; and

in the South East Wales Conjunctive Use System zone, we must address the effects of the Agency‟s review of our abstractions on the protected habitats in the Wye and the Usk, plus the effects of climate change on Deployable Output. We plan to reinstate two reservoirs that we have not used for public water supply for some time, namely Wentwood and Grwyne Fawr, and to build new treatment works for both sources.

For the Preferred solutions in the three deficit zones, the total capital cost is estimated at £35.7m with a total operating cost, in the entire planning period, of £9.1m. We estimate that this will add approximately £5 to our average bills in today‟s prices by the end of the Plan period.

Page | 5

Dŵr Cymru Welsh Water Final Water Resources Management Plan Introduction & Non-Technical Summary, September 2012

Future Challenges

There are a number of key areas that will present great challenges for us and the rest of the water industry over the next 5-10 years. We have summarised these in the following table along with our intended approach to dealing with these challenges.

Issue Going Forward

We have taken a pragmatic approach to the adoption of the latest UK climate chamge projections (“UKCP09”) in advance of accepted industry guidance. However, in June 2012 the Environment Agency published its latest Water Resources Planning Guideline, which set Climate Change out its position on how UKCP09 scenarios should be incorporated in water resource management planning for the 2013 draft WRMP submissions. Applying this guidance to our draft WRMP 2013 may effect the deficit position in some of our resource zones.

In December 2009 the first round of River Basin Management Plans were published setting out the actions and strategies for rectifying those water bodies currently failing their objectives. During our current (2010-2015) investment programme we anticipate that investigations that are underway into these failures could lead to further modifications Water Framework Directive to our operations being required. We are on the steering group of a key UK water industry research and development project2 and will therefore contribute to decisions affecting how we should meet the Directive in our current and future investment programmes.

The Environment Agency‟s Restoring Sustainable Abstraction Programme is ongoing within Wales and we are aware there are a Restoring Sustainable number of sites that the EA wishes to investigate further to assess Abstraction Programme what impact our operations are having upon the ecological integrity. (RSAp) We remain concerned regarding further investigations in this area and encourage the Agency to share this with us and allow us to work together.

Review of the Plan

In preparing this Final Plan we have undertaken many detailed studies. However, water resources planning is a dynamic process and we are committed to reviewing the key elements of the Plan, almost on a continual basis.

In particular, feedback received on this plan will play a significant role in shaping our preparatory work for the draft Plan we intend to publish in 2013.

We also intend over the next two years to:

2 UKWIR research project reference WR33 on Heavily Modified Water Bodies Page | 6

Dŵr Cymru Welsh Water Final Water Resources Management Plan Introduction & Non-Technical Summary, September 2012

review in full our demand forecasts (in particular taking account of the high demands experienced during the summer of 2010);

revise our Economic Level of Leakage assumptions in line with Ofwat requirements for water company investment programmes for 2015-2020;

review and update the inflow sequences on which we base our deployable outputs;

revise our water resources models and drought triggers to account for changes in legislation that prescribe the restrictions we can apply during droughts (this may impact on the Deployable Output of some our water resource zones); and

maintain our supply demand balances in line with industry best practices.

All these elements are likely to change the supply demand balance in some water resource zones and change the overall aspect of the water resources management plan for our 2015-2020 investment programme.

Finally, we will continue to discuss and review the key elements of the Plan through our close working relationship with the Environment Agency and other stakeholders.

More generally, it is clear that the next few years will see a considerable amount of further work on the challenge of meeting water resource objectives in Wales, including in particular the creation of an improved evidence-based understanding of the impact of our abstractions on the environment. It is vital that the major strategic decisions that we make are the right ones both for current and future generations, and to this end we will seek to work closely and openly with our stakeholders, especially our environmental regulator the Environment Agency, over the medium term.

Page | 7

Dŵr Cymru Welsh Water Final Water Resources Management Plan Introduction & Non-Technical Summary, September 2012