Southern Water needs to ‘improve relentlessly’, says CEO

Southern Water, which has today (25 June) agreed to pay out a record £126 million for “deliberately misreporting” its operation performance at sewerage treatment sites could still be prosecuted by the Environment Agency.

Ian McAulay, chief executive of Southern Water told Utility Week that the water company needs to “improve relentlessly”.

He said the company has “got the balance sheet properly” sorted with customers, who are expected to get a rebate of at least £61 each, but it needs to do the same with the environment.

McAulay said as part of his transformational programme at Southern Water, it has created an “open and transparent” relationship with its regulators.

“Ofwat’s investigation focuses on data integrity, the Environment Agency may well bring up an environmental prosecution.”

“There has been no evidence for or against so far,” he added.

A spokesperson for the Environment Agency 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.”

The Environment Agency and Ofwat have worked closely to ensure the right regulator considered the issues appropriate to their remit.

Due to the “complex” nature and the fact the investigation is still live the Environment Agency said it could not comment further at this stage.

McAulay said today’s conclusion into Ofwat’s investigation shows how the water company is “publicly moving from failings to improvement” but it has been working on this behind the scenes for the last two years.

“From an early point when I came in, I wanted to get the organisation set up in the right way to challenge itself.”

He added: “Some of the findings uncovered during Ofwat’s investigation and our own detailed review have been unpalatable but it’s important we learn from them.”

McAulay also stressed the importance of designing and implementing systems on the basis that “bad things can and will happen”.

“We need to make sure we are doing the right thing and ask ourselves that every day. Can we assure this won’t happen again?”

Southern Water has introduced “three lines of defence”. The first is ensuring people who carry out tasks do things properly, the second is check and balance, which includes the independent compliance directorate and finally the company seeks third-party assurance on its audits.

“We have been clear as a company that we have been guilty of these things Ofwat has highlighted,” McAulay said.

“We are a customer service and environment service business. Our assets are there to ensure we do those things properly.”

Ofwat chief executive, Rachel Fletcher described Ofwat’s findings as “shocking”. She said: “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.”

Southern Water’s “extensive transformation” includes:

• A restructure of the executive team and board
• Appointment of a new director of risk and compliance to challenge front-line teams
• Introduction of an industry-standard ‘three lines of defence’ model for regulatory reporting
• Increased reporting to Ofwat for greater scrutiny
• Strengthened whistle-blowing policies and appointment of an independent adjudicator so that any colleague with concerns feels confident that they will be listened to
• Enhanced compliance across all wastewater treatment works including compulsory compliance and Code of Ethics training for all relevant colleagues
• Refreshed company vision, values and purpose which support and align to a modern compliance framework
• More than £100 million invested in IT systems and processes and £26 million invested in wastewater assets