Southern Water Guilty Of Breaches Of Regulation
There have been two stories recently about polluted water in Kent from Southern Water. One was that some 6 500 households in the vicinity of the Westwood water treatment plant (Edenbridge, Sevenoaks and Tunbridge Wells) were warned not to use tap water, as it had tested positive for e. coli.
These are the bacteria which cause stomach upsets. The other is that 14 beaches in East Kent were off-limits to swimmers because Southern Water had discharged sewage into the sea.
Half-Hearted Apology From Southern Water
Southern Water, in its apology to customers for the West Kent e. coli incident, merely states how many thousands of tests it routinely does, and that some tests came up positive for e. coli, hence the warning to households.
But such an incident increases mistrust of Kent tap water, and may cause more customers to rely on bottled water to drink. This is a planet-harming choice, as it increases plastic pollution and the need for HGV drivers to deliver the bottles to supermarkets.
Company Fined For Discharge Of Untreated Sewage
Ofwat fined Southern Water £126m because of illegally discharging untreated waste water (ie poo from homes). The inquiry, which came to an end in July 2021, revealed that some 16–21bn litres of untreated water had been discharged during incidents from 2010 to 2015, “to avoid … the cost of upgrading and maintaining infrastructure.”
Ofwat ordered that most of this fine money should be repaid to customers. This is the largest fine Ofwat has ever imposed, estimated to be 6.7% of the turnover of Southern Water. In their statement Ofwat said;
“In the course of a large-scale investigation into the water company, Ofwat found that Southern Water failed to operate a number of wastewater treatment works properly, including by not making the necessary investment which led to equipment failures and spills of wastewater into the environment.”Ofwat
Samples Falsified Over Several Years
Now in October the Environmental Agency instructed Southern Water to pay an additional fine of £90m for the environmental damage relating to the same period. Its enquiry into criminal damage revealed that the company had falsified samples sent to it over a number of years. The statement from EA on the DEFRA site says:
“With nature in crisis, no one should profit from undermining environmental laws. This sentence shows fines for environmental offences are starting to reach the same level as the highest fines for crimes in financial services and that is good. There is growing scrutiny of the environmental performance of companies all over the world, and this sends an important message to global investors that England expects businesses to perform to the highest standards.”DEFRA
“Like all water companies, Southern Water has a responsibility to operate in accordance with permit conditions and protect against serious pollution. In its deliberate, widespread and repeated offending, it has failed the environment, customers and the system of environmental laws the public puts its trust in. Polluters must pay, and the Environment Agency will continue to do everything in its power to ensure that they do.”
More Recent Incidents
None of this relates to the two recent incidents of e. coli and the pollution of beaches that you can read above. Presumably, therefore, the Environment Agency have also opened a criminal damage case about the recent beach pollution.
On the website of Southern Water, there is an apology from the Chairman, Keith Lough:
“The reality is that Southern Water did not meet the expectations of the customers we exist to serve. We failed to protect our precious environment in southern England. For that we are profoundly sorry and as we have made clear, our customers will not pay a penny towards our fine.”Southern Water
But the public explanation given earlier for these discharges is that it was due to slack staff practices over a number of years. The statement stressed, however, that new Management, led by Chief Executive Ian McAuliffe, was putting this right.
On environmental monitoring, the Chairman is promising transparency:
“On environmental performance we are leading the way in our sector when it comes to absolute transparency. Our company website now alerts people to pollution incidents, flow and spill reporting, wastewater treatment works compliance, regional bathing water compliance results, emissions and river levels. We believe that openness and transparency will bring wider stakeholder engagement and lead to the design and delivery of the kind of changes that our customers and communities want. We want these changes too.”
Additional Investment Promised
On investment, an extra £230m has just been agreed:
“In total that means approaching half a billion pounds of accelerated and additional investment committed, adding to more than £3.5 billion of expenditure already committed in our business plan. That will be good for customers and the environment and will enable completion of the transformation of Southern Water, begun in 2017.”
Can Private Investment Deliver the Goods?
So one has to ask, to what extent this crime was the result of deliberate decision-making to invest too little, so that greater profits could go to shareholders? Water provision was privatised in the UK some 25 years ago. Can capitalism actually deliver improved services without damaging the environment?
The argument is that, by bringing in more investment from the private sector, and the ingenuity and efficient management that profit-motivation induces, this improves a public service beyond what a government-owned entity can achieve. The interests of the public are still protected in this sector by Ofwat and the Environment Agency, who have indeed done their work in this egregious case of Southern Water.
The actual investors in Southern Water are a consortium of infrastructure funds, pension funds and private-equity investors that own Southern Water through Greensands Holdings, managed or represented by JP Morgan Asset Management, UBS Asset Management, Hermes Investment Management and Whitehelm Capital.
What Makes a “Good” Asset Manager?
An underlying problem is that the motivation of these asset managers is to get good returns for their investors, many of whom might be pension-savers who in fact have not looked at the details of their fund and have no idea that some of their money is coming from Southern Water. Money to invest in such a company comes from two sources: the customers, and the investors. What proportion do the investors get?
A handy graph on Discover Water reveals that of the average £1.12 per day a household pays for water, 23p is for “paying for investment to improve services” (ie the shareholders).
Cheaper Investment Opportunities Thrown Out With Brexit
Is there a cheaper way to get big money for infrastructure improvements in the UK? There was: the European Investment Bank, which gives loans on easy-to-repay terms for large projects.
But, since Brexit, the UK is no longer eligible for that. Actually the UK is receiving some £300m pa in repayments back from the EIB on its original UK investment, but there is no word yet from the Government as to whether that is going into any bank to lend for infrastructure. So big water companies have to rely on shareholders’ investment, and the income from customers, at price margins controlled by Ofwat.
Invest Profits, or Pocket Them?
The problem is that the temptation for chief executives is to do the annual accounting in such a way as to provide good quick returns for shareholders, and probably a bonus for themselves, but skimping on longer-term investment. Southern Water and its Chief Executive got away with this for five years.
It is good that they are now being fined, and hopefully this will prevent further instances of environmental damage. The deeper issue is that we need a new way of accounting in capitalism, so that shareholders (not just customers and taxpayers) also bear the cost of saving the planet.