Southern Water’s darkest week

Having joined Southern Water in one of the most difficult periods in its history, chief executive Ian McAulay spent two years unable to speak publicly about some of the huge changes engulfing the company. Now, finally free to address the fallout from the misreporting scandal, he talks to Utility Week about the need to learn from the mistakes of the past and look not just five years ahead but over decades.

It’s difficult to discuss Southern Water without mention of its recent past and the behaviour that resulted in the biggest fines dished out by Ofwat and impending action from the Environment Agency. The publication of a damning report into what went on at the company during 2010-2017 was memorably described by Ofwat’s chief executive, Rachel Fletcher, as a “dark week for the water sector”. 

However, Ian McAulay – the man tasked with cleaning up this mess in December 2016 – tells Utility Week:“The darkest week for me wasn’t when the announcement was made, the darkest point was when I discovered we had a problem.”

He explains it was “the feeling we had genuinely let people down in that way”, which truly affected him, adding: “The two years that followed we have been rebuilding the business and improving. So, when we got to that week, it allowed us to get out to people and say – ‘this is what we’re doing about it’.”

As an optimist, McAulay wants to continue the company’s reputational overhaul.

“We can’t change the past, but we can continue to put the controls in place for the future. We don’t want the good things we do to get lost.”

When McAulay joined the company he swiftly introduced three lines of defence for checks, including appointing Alison Hoyle as director of risk and compliance to ensure all information was properly verified and ratified, as well as separating out water and wastewater.

These controls are coupled with a change in attitude for staff reporting, a whistleblowing policy being enforced and an open-door culture. This involved literally changing his office door to one with glass to let staff know they can and should talk to him about concerns.

He called the behaviour that came to light “utterly unacceptable” but stressed this was a small faction of the company, not the bulk of staff who get up in the morning to do a really good job.

“They work in all conditions across all different parts of the business and the vast majority of them did that job all through that period and we need to be sure those people were angry about it and want to make it better.”

Taking the company in the new direction involved an ethos change. The company values focus on succeeding, improving and doing the right thing – an acknowledgment of the mistakes of previous leadership as well as McAulay’s simple, new agenda for a diverse company.

“I really don’t want a large chunk of our workforce having a culture of curiosity and imagination if they’re standing in front of a high-voltage pylon with a screwdriver! But, to people working in our BlueWave innovation lab – I say be as curious as you like.”

During the two-year period Ofwat’s investigation was underway Southern was unable to publicly divulge information so it took the opportunity to right some wrongs and work on relationships with stakeholders.

“I was heartened by some of the messages we had, people saying ‘you can never let that happen again Ian, but we can see the improvements you’re making’.”

The £126 million package agreed with Ofwat is to be finalised in October and will see Southern paying rebates to customers over the next three years as well as a formal fine, marking the seriousness of its offences.

Indeed, Ofwat reduced the level of fine considerably because of the compliance Southern showed during the investigation. The decision of the Environment Agency as to whether it will prosecute the company is yet to come.

McAulay says Southern has been clear in its environmental commitments including investing more than £100 million in new systems and processes. The board has recently approved an additional £24.6 million to spend in the next six months in environmental projects.

This includes working with the Drinking Water Inspectorate on its Water First campaign and with regulators for Environment Plus as well as the Rivers Trust and Wildlife Trusts on various projects. McAulay says the regulators were “pleased with the improvements”.

McAulay recognises the urgent need for the sector to react more quickly to the challenges of water scarcity and climate change, which is driving the need for improved technology. As the sector has lagged behind other industries in its adoption of technologies, now is the time to learn from them.

“The oil and the gas sectors really drove technology hard and now that we’re seeing global water scarcity, we’re seeing those companies move the technology into the water sector because this is where it’s needed.”

McAulay has worked internationally and sees the opportunities the UK has to learn from countries in the Middle East, Australia and states such as California that have developed technologies to address water scarcity and drought. With advances in information systems and gathering of data, there is an opportunity to utilise this to benefit planning, he insists.

“We know when rain will fall, and we can look at our networks and see what’s happening in real time. We know what our demand profiles for water look like and water discharges. We can connect all that together and model it and move to prescriptive analysis. That wasn’t available to us two or three years ago but it’s starting to become more available. That’s the world we need to move to; it’s partially in place and more is coming.

“The challenges that lie in front of us are the biggest that I’ve ever seen in my 35 years in the sector and we really need to do things differently.”

One area he wants to see change is regarding planning. With the final determinations from Ofwat due in December for the sector’s business plans between 2020-25, McAulay called for the wider sector and the public to be looking further ahead.

“We need to think what does a water company look like in 30 years, what does a connected holistic system in the future look like? We need to look forward to that and design backwards from that point.” This includes a holistic approach to water resources in the face of climate change and droughts. He says the water utility companies are only 40 to 50 per cent of that equation.

“There’s a growing realisation that change is happening faster than we realised – Sir James Bevan’s Jaws of Death speech, for example, is not exaggeration,” McAulay says.

With that in mind the sector must be as efficient as possible so McAulay wants Southern to rise to the challenges Ofwat set out for PR19 and believes the regulator is right to make the challenges as stretching as possible.

“If you are not pushing people to the point where you don’t have the answers you probably aren’t pushing people far enough,” McAulay says. “The bit I have no regrets on is that we have pushed hard to maximise the opportunities for this decade of resilience, the time for us to invest in the future is now.”

He says sector-wide discussions with the regulators and stakeholders to respond to environmental challenges requires investing in longer term resilience but must also be balanced with keeping bills low.

“I hope that over the next period that if we see those opportunities, we will have the flexibility to take them and push the agenda – that’s my passion.” As a civil and environmental engineer McAulay wants innovation used to address these challenges and for Southern to be a part of that.

“I don’t want to have given my life to a sector and leave it without achieving all that I possibly can.”