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Southern Water to pay £126M after Ofwat investigation

Southern Water has agreed to pay £126 million in penalties and payments to customers following serious failures in the operation of its sewage treatment sites and for deliberately misreporting its performance.

Ofwat chief executive Rachel Fletcher said: 'What we found in this case is shocking'Ofwat chief executive Rachel Fletcher said: 'What we found in this case is shocking'

In the course of a large-scale investigation into the water company, Ofwat found that Southern Water failed to operate a number of wastewater treatments works properly, including by not making the necessary investment that led to equipment failures and spills of wastewater into the environment.

Ofwat also found that Southern Water manipulated its wastewater sampling process, which resulted in it misreporting information about the performance of a number of sewage treatment sites. This meant the company avoided penalties under Ofwat’s incentive regime.

The £126 million package will see Southern Water pay a rebate of £123 million to customers through their bills and pay a fine of £3 million.

The rebate includes £91 million in penalties that Southern Water had avoided and a further £32 million of payments as recognition of their serious failures.

Proportionate to the size of the business, this package of penalties and payments is the biggest Ofwat has ever imposed.

Ofwat said the amount would have been larger had Southern Water not co-operated with its investigation, addressed its failings and agreed to this payment package.

The regulator added that Southern Water wastewater customers should expect a rebate on their bills of £61, with £17 in 2020/21 and £11 in each of the following four years.

Ofwat chief executive Rachel Fletcher said: "What we found in this case is shocking. In all, it shows the company was being run with scant regard for its responsibilities to society and the environment.

"It was not just the poor operational performance but the co-ordinated efforts to hide and deceive customers of the fact that are so troubling. The previous management failed to stamp out this behaviour and failed to manage its plants properly. In doing so, Southern Water let down its customers and operated in a way completely counter to the public service ethos we expect.

"That is why the company deserves such a significant sanction. We also think it is important Southern Water has a formal fine on their record for this serious breach.

“The rebates on customer bills will go some way towards putting things right. It is now for Southern Water, under its new leadership, and with the improvements it is introducing, to show it has learnt from this unacceptable behaviour and can be trusted again.

“Today’s announcement should also serve as a reminder to all other companies about the gravity of their responsibilities to society and the environment and that we will take action if they neglect them.”

On Twitter, Ofwat chairman Jonson Cox wrote: "Following @Ofwat’s investigation into Southern Water, shocking that there was such disregard for their responsibilities operationally towards the environment and their customers, who have truly been let down, and in terms of false reporting to @Ofwat."

Sir Tony Redmond, London and South East Chair for the Consumer Council for Water, said: "Customers of Southern Water will be absolutely appalled at the reckless disregard the company showed for the environment, which people care so much about.

"It also deliberately misled its customers, which is why it’s right the vast majority of the penalty is returned to bill payers who would have received most of this money had the company told the truth about its performance. Southern now has a huge task on its hands to rebuild the trust it has damaged."

Southern Water said it was "pleased to agree with Ofwat a comprehensive agreement which encompasses penalty, reparation for customers and assured improvement".

The company added that it "has fully supported these investigations and has simultaneously completed its own extensive internal review, which highlighted failures of people, processes and systems during that period".

Southern Water appointed a new chief executive, Ian McAulay, in January 2017 and there have been substantial changes to the company’s management team following this. Southern Water has introduced and committed to new governance arrangements to support accurate monitoring and reporting, and a programme to change the company’s culture, which enabled these failings and behaviours.

Investment has also been made into the failing treatment sites and work will continue to improve them.

McAulay said: "In 2017, I was brought in to drive change and transformation. Since then we have been working very hard to understand past failings and implement the changes required to ensure we better deliver for our customers and meet the standards they deserve.

"We are deeply sorry for what has happened. There are no excuses for the failings that occurred between 2010 and 2017 outlined in Ofwat's report. We have clearly fallen far short of the expectations and trust placed in us by our wastewater customers and the wider communities we serve.

"We are fully committed to continuing the fast pace of change delivered since 2017. There is a lot more work to do but we're pleased that this proposal agreed with Ofwat enables us to fully make amends to our customers and regain their trust as quickly as possible."

As part of the proposed settlement, Southern Water will need to report to Ofwat on its progress in upholding these commitments.

The Environment Agency has undertaken a separate criminal investigation, which began in 2016, into suspected permit breaches at a number of Southern Water’s sites. 

An Environment Agency spokesperson said: "The Environment Agency takes this matter extremely seriously. We are pursuing our own criminal investigation into Southern Water due to suspected permit breaches at a number of its sites.

"This began in 2016 and revealed issues which required separate consideration by Ofwat, leading to today’s penalty. The environmental aspect of the investigation is ongoing and we expect to commence court proceedings soon."

It was also reported in April that Southern Water had contacted the Serious Fraud Office (SFO), which investigates and prosecutes serious or complex fraud, bribery and corruption, in relation to the matter.

Author: Robin Hackett, editor, WWT
Topic: Policy & Regulation
Tags: ofwat , Southern Water , fines

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