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Southern Water customers in line for pay-outs after Ofwat penalty

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Southern Water chief executive Ian McAulay
Southern Water chief executive Ian McAulay

CUSTOMERS of Southern Water are in line for rebates after the supply and disposal giant was hit with a £126m record penalty by industry regulator Ofwat for years of “reckless” mismanagement allowing sewage leaks and misreporting to avoid penalties.

It is not yet known if criminal prosecutions will follow.

In its latest published results, the company, owned by a consortium of private equity and infrastructure investors and pension funds, reported an operating profit of £236.6m on a turnover of £829.7m in 2017-18.

Southern Water pledged: “Customers will bear none of the costs of the proposed fine or rebate.”

Wastewater customers will each get about £61 spread over the next five years.

The Ofwat penalty, subject to 21 days consultation, comprises a £3m fine and £123m in restitutions to customers - but the fine could have been much higher.

Ofwat said: “This is a notice of Ofwat’s intention to issue Southern Water with a financial penalty amounting to £37.7m reduced exceptionally to £3m for significant breaches of its licence conditions and its statutory duties.

“This is on the basis that Southern Water has undertaken to pay customers about £123m over the next five years, some of which is a payment of price review underperformance penalties the company avoided paying in the period 2010 to 2017, and some of which is a payment to customers for the failures set out in this notice, paid in lieu of a penalty.”

Sir Tony Redmond, London and South East chair for the Consumer Council for Water (CCWater), said customers will be “absolutely appalled at the reckless disregard the company showed for the environment”.

He continued: “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.”

Ofwat said it had been investigating the company’s wastewater treatment sites since June 2017, and its reporting of relevant compliance information to watchdog.

It transpired Southern Water was failing to properly operate these and had not made the necessary investment, leading to equipment failures and spills.

“We 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,” Ofwat added. “This meant the company avoided penalties under Ofwat’s price review incentive regime.”

The proposed penalties are now subject to consultation, closing on 19th July 2019.

Southern Water chief executive Ian McAulay said of the Ofwat investigations: “We have fully supported these 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 them and implement the changes required to ensure we better deliver for our customers and meet the standards they deserve.”

He added: “We have acted promptly and decisively to make sure that all of the issues identified in the investigation have been addressed.

“This has involved making 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.

“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.

“These actions, along with a modern compliance framework, are already changing the culture in Southern Water.”

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