Making amends to our customers

In 2017, our Chief Executive Ian McAulay was appointed and immediately met with Ofwat to discuss the issues we were facing, after the Environment Agency started an investigation into a small number of our wastewater treatment sites.

In June 2017, our regulator Ofwat started an investigation into possible breaches of licence conditions and our statutory reporting obligations relating to the management and operation of our wastewater treatment works.

We immediately started our own internal review and discovered a problem with sampling processes at some of our sites which meant that we needed to restate our wastewater performance for the period 2010–17. The findings of our own review have been shared with our regulators.

In October 2019, Ofwat’s investigation resulted in a notice to take enforcement action against us.

For our customers

In October, Ofwat issued us with a financial penalty of £3 million. In addition, we agreed to make significant customer bill rebates and payments to former customers, totalling £123 million*, in recognition of our failure to meet the expectations of our customers and wider stakeholders, as well as our regulators.

To our ways of working

These breaches occurred as a result of failures of people, processes and systems. We’ve acted promptly and decisively to make sure all of the issues identified in the investigation have been addressed:

• Fundamental changes to the way we operate – Over the past two years these changes have included a full company restructure, a new executive team and a strengthened Board.
• New ethical processes – We have also put new systems in place to safeguard our services, our whistle-blowing procedures have been enhanced, and a revised set of company values have now been embedded. We’ve also introduced a modern compliance framework, and you can follow the link to read our new Code of Ethics.
• Greater transparency on our environmental performance – Information that is available on pollution incidents, flow and spill reporting, wastewater treatment works compliance, regional bathing water compliance results, emissions and river levels will be published on the company website (this is subject to any constraints on reporting environmental information or data that is provided to us by the Environment Agency). We’ll report this on our website from March 2020. Follow the link to find out more about our plans to provide greater transparency on our environmental performance.
• Bonuses and incentives – If we fail to meet our relevant wastewater performance commitments, employees will not receive bonuses and incentive payments for personal objectives linked to wastewater compliance.

_{*In 2017–18 prices.}

Since June 2017, our wastewater treatment compliance has been under investigation by Ofwat due to breaches of our licence conditions and statutory obligations during the period from 2010 to 2017.

We have fully supported these investigations and completed our own internal review, which has highlighted failures of people, processes and systems during that time.

We are profoundly sorry for these failures and 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.

Ian McAulay
Chief Executive

On 8 October 2019 we signed the formal undertakings pursuant to Section 19 of the Water Industry Act 1991 relating to the numerous changes we have put in place, and are putting in place, to ensure that the issues identified in the investigation have been stopped and cannot be repeated.

As well as the plans to make financial reparations to current and eligible former customers, we have committed to implement a suite of improvements in relation to the development and embedment of strengthened wastewater operational compliance; organisational compliance;  culture change measures and a reinforcement of our governance arrangements, in order to prevent recurrence of the events identified by Ofwat.

Our progress against some of the key deliverables are detailed below:

• We have put new systems in place to safeguard our services and ensure we meet the high standards our customers and regulators expect.
• We have visited all of our wastewater treatment sites to identify compliance issues and developed plans to fix and resolve these.
• We have strengthened the controls on the wastewater sampling programme with a focus on ensuring that the breaches (No Flows) do not happen again.
• We have developed a programme of training and are currently focussed on delivering the first modules to our wastewater operators. This is providing the knowledge and skills to empower them to operate their sites competently and with full awareness of their regulatory and permit conditions. 
• We have committed to deliver cultural change initiatives, including a step change in mindset, skillsets, productivity, operational performance, ethical principles and practices, and employee engagement.
• Our whistle-blowing procedures have been enhanced and a new set of company values have been embedded. These actions, along with a modern compliance framework, are already successfully changing the culture in Southern Water.
• We completed a refresh of our organisational values in 2019, and have been embedding the revised values across the business. In the same year we also launched our new Code of Ethics, a key element of our work to support ethical business practice. We have worked with the Institute of Business Ethics to develop training material which we have used at workshops.
• We have committed to improve our transparency on environmental performance including pollution incidents, flow and spill reporting, wastewater treatment works, final effluent compliance, regional bathing water compliance results, emissions and river levels.
• We will ensure that employees will not receive bonuses and incentive payments for personal objectives linked to wastewater compliance should Southern Water fail to meet its relevant performance commitments.

We are required by the Undertakings to periodically update Ofwat with regards to our progress with these actions. Our compliance with the Undertakings is also subject to a formal assurance regime which is independently externally assured and reported to both our Audit Committee and to Ofwat on a regular basis.

Results from the first round of external assurance and reporting to Ofwat

In the first round of external assurance the assurers stated that they agreed with our assessments of compliance with the Undertakings, that we had made good progress so far against our plan and in delivery of the Undertakings. A number of effective practices were highlighted during the assurance, as well as the identification of some areas for improvement. The recommendations have become a key focus for the business and our progress with the implementation of these actions will be reviewed at the next round of external assurance.

Results from the second round of external assurance and reporting to Ofwat

Fortunately we were able to react relatively quickly to the impacts of the social-distancing restrictions due to the Covid-19 pandemic in order to identify and implement appropriate mitigations to maintain our compliance with the Undertakings. In addition, Covid-19 did not have a significant impact on our ability to complete the second round of external assurance successfully.

We continue to make further progress in fulfilling the actions required to ensure compliance with the Undertakings. Key milestones include the launching of our rebate claims website for former customers, the publishing of environment data on our dedicated Environmental Performance website and establishing our Culture Change Group with representatives from across the business to integrate the diverse cultural change workstream and align initiatives.

The second round of external assurance had a more diverse scope than the first round, reviewing a wider range of our activities relating to ensuring compliance with the Undertakings. The external assurers stated that they agreed with our assessments of compliance with the Undertakings, and that we continued to make good progress against our plan and in the delivery of the Undertakings.

The external assurers also reviewed our progress with the recommendations for improvement from the previous round of assurance, and were in agreement for the majority to be closed. The few remaining recommendations were related to further improvements in controls and the ongoing embedment of processes into our business-as-usual procedures, rather than being stand-alone projects or workstreams.

Similarly to the previous round of assurance, a number of effective practices were highlighted as well as the identification of some areas for improvement. The recommendations have become a key focus for the business and our progress with the implementation of these actions will be reviewed at the next round of external assurance.

Results from the third round of external assurance and reporting to Ofwat

We continue to make progress in fulfilling the actions required to ensure compliance with the Undertakings. Key milestones for our programme include the closure of our rebate claims website for former customers and administration of the rebate cheques, completion of the outstation and storm tank level monitor installations on wastewater sites and linking the new ASPIRE spill reporting system to our Beachbuoy application.

We are currently moving away from the “implementation phase” and beginning our “embedment phase”. This includes the monitoring of completed actions to ensure that these have been incorporated into our business-as-usual procedures, and assurance that the newly implemented or improved controls continue to be effectively operated. As a result, the scope for this round of external assurance in December 2020 included an assessment of our progress with embedment for a number of the work streams within the Undertakings.

We identified a risk to the delivery of one work stream and highlighted this to the external assurers at the time of review. We recognised that further improvements were required to the internal controls and governance for this work stream and as a result, this risk was given the highest priority for mitigation with increased senior management overview. Through these mitigations, we were able to demonstrate to Ofwat that the programme had been successfully brought back into compliance and was on track for delivery in accordance with the Undertakings.

Similarly to the previous round of assurance, a number of effective practices were highlighted as well as the identification of some areas for improvement. These actions are a key focus for the business and we have agreed for our progress against these recommendations to be reviewed at the next round of external assurance.

 

Results from the fourth and fifth rounds of external assurance and reporting to Ofwat

In our both August 2021 and February 2022 update to Ofwat we were able to report that the actions arising to ensure compliance have either been fulfilled or are on track to be fulfilled within the relevant time frame in the five-year period of the Undertakings. Our focus now moves to embedding the improvements and monitoring the effectiveness of that embedment.

Our assurance approach is evolving as we move into the “embedment phase” and continue to incorporate more processes into our business-as-usual procedures. Two separate sets of assessment criteria were used by the external assurer as well as internally to carry out our self-assessment. These two frameworks include one for assessing our progress in fulfilling the actions required to ensure compliance with the Undertakings and one to assess our embedment of new processes into “Business As Usual”.

Both rounds of external assurance highlighted a significant number of effective practices, with our embedment being assessed as “on track”. The assurers also identified some areas for improvement and these recommendations will remain a main focus for the business, and our progress against these will to be reviewed at the next round of external assurance.

Our independent external assurer concluded that we continue to make good progress in meeting the requirements of the Undertakings. We demonstrated continuous improvement in our environmental monitoring and delivery of enhancements to the ASPIRE spill reporting system. In addition, we continue to implement and improve various organisational culture change initiatives including the Ethical Business Practice programme.

Our work to strengthen the management of permit and flow compliance has been a key focus for the company and is a key tenet of our Section 19 undertakings. We have been working hard since 2017 to strengthen our processes to ensure flow compliance, identifying and resolving potential permit compliance issues on our sites.

Our strategic approach to flow management and compliance is now integrated into our BAU activities. This includes an integrated approach that encompasses front-line operations, our front-line planning and improvement team, our asset management team, and our second-line environmental quality compliance team all working together to improve flow compliance.

We continue to improve our Beachbuoy app following the feedback from the stakeholders and the users survey. We have now added additional FAQs and explanatory material on Beachbuoy and our website to explain to customers the nature of the data presented in the app. Our vision is to provide real-time water quality information across all recreational waters impacted by outfalls to better inform Beachbuoy users.

We established the strategic environment and climate change group which is set up to help bring greater confidence in our commitment to the environ

Southern Water misreporting its wastewater compliance led to customers overpaying through their bills in the period 2015-2020. If Southern Water had correctly reported its wastewater compliance to the water regulator Ofwat, financial penalties would have been imposed. This would have meant lower wastewater charges for household bill payers and businesses between 1 April 2015 and 31 March 2020. Those financial penalties were avoided, which is why former customers in this period were entitled to receive a payment.

Claims could have been made through our website between 1 April and 30 September 2020. The claims period has now closed. Successful applicants received a one-off payment.