Ofwat has confirmed that Southern Water will pay £126m in penalties and rebates to existing and former wastewater customers for serious failures to operate a number of wastewater treatments works properly deliberate misreporting of performance information.

Proportionate to the size of the business, the package of penalties and rebates is the biggest Ofwat has ever imposed. The total value of the package of penalties and rebates is equivalent to 6.7% of Southern Water’s wholesale wastewater turnover - by far the largest proportion of turnover the regulator has ever set out – the previous highest was 3.5%.

The final decision which is published today follows a consultation on the package of rebates and undertakings proposed by Southern Water to make reparation to its customers and comply with its legal obligations.

Southern Water CEO Ian McAulay commented:

“I’m pleased that we have an opportunity to not only make appropriate amends to our customers past and present for the unacceptable failings of the past but to also commit to increased transparency on environmental performance.

"Since 2017 we have invested more than £100 million in improving our networks, systems and training our people. We are recognised as having made significant strides in improving our business. There is a lot more work to do but we are working hard to fully make amends to our customers and regain their trust.”

Having considered representations during the consultation, Ofwat has also now secured additional commitments from Southern Water. This includes proposals from the company to make payments to former wastewater customers who have moved away from the Southern Water area and to provide greater transparency on its environmental performance.

In the course of a large-scale investigation into the water company which began in June 2017, Ofwat found that Southern Water failed to operate a number of wastewater treatments works properly, including by not making the necessary investment in a timely manner. Southern Water’s failures led to equipment breakdowns and unpermitted spills of wastewater into the environment.

Ofwat also found that Southern Water manipulated wastewater sampling processes which resulted in it misreporting information about the performance of a number of sewage treatment sites. This meant the company avoided penalties under Ofwat’s incentive regime.

The Environment Agency is currently separately investigating whether any environmental impact may have been caused by the company’s failures.

The £126 million package will see Southern Water return £123 million to former and existing customers made up of:

• £91.2 million for underperformance penalties – money it should have paid as part of Ofwat’s price review incentive regime, and;
• £31.7 million (in lieu of a greater fine). This is additional compensation to customers for failing in its legal obligations.

The company will also pay a fine of £3 million on top – in recognition of the serious and significant breaches of its licence conditions and statutory duties . However, the fine has been reduced from £37.7 million to £3 million in recognition of the steps taken by Southern Water to put things right, including its proposal to make significant rebates to customers.

Existing customers could receive an average of about £60 (depending on consumption), as a bill rebate over the next five years. Former wastewater customers will be able to apply directly to Southern Water for payment from April 2020.

Sir Tony Redmond, London and South East Chair for the Consumer Council for Water (CCWater), commented:

“Every household that was served by Southern Water during this period of appalling performance failure paid a price for the company’s misreporting, so we’re pleased Ofwat has supported our call for wastewater customers who have since left the region to be compensated too.”

“Financial penalties alone cannot repair the damage that has been done to customers’ trust in Southern, which is why the company needs to spell out exactly what action it is taking to restore confidence in it.”  

Southern Water has also now committed to greater transparency about its environmental performance, including establishing a new webpage to be developed with key stakeholders and customers. It has also included a commitment to strengthen its assurance around paying bonuses, so they are only paid when appropriate.

Ofwat Chief Executive, Rachel Fletcher, said:

“The findings in this case were shocking. We have listened to all representations and think it is right to confirm the biggest package of penalties and rebates we’ve ever imposed.

“Southern Water is serious about responding to the challenges it faces and is committed to putting things right. In doing so it is now bound by formal undertakings. We will continue to monitor its performance against those undertakings, and should Southern Water fail to comply with them, we will take further action.”

Southern Water is also subject to ongoing criminal investigations by the Environment Agency. Ofwat’s findings are purely about regulatory obligations in respect of which Ofwat has jurisdiction. Ofwat has not made findings about environmental harm, site specific permit failures or whether the acts of Southern Water were criminal in nature which are matters for the Environment Agency.