Southern Water Chair Keith Lough has said that increased investment and accelerated business plans means that the company can take huge steps forward in reducing pollution incidents and leakage by improving the resilience of its network.

Commenting in the company’s Annual Report and Accounts for the financial year ended 31^st March 2022, Keith Lough said:

“The announcement of the acquisition of a majority stake in our parent company by a fund managed by Macquarie Asset Management in August 2021 has enabled us to increase investment and accelerate our business plans. This acceleration means we can take huge steps forward in reducing pollution incidents and leakage by improving the resilience of our network.”

The report says that a significant investment of £1 billion into parent company Greensands group, including £530 million into the company from a fund managed by Macquarie Asset Management,

Meant the company was widening and deepening its investment plans. This includes an additional £230 million of investment, over and above the allowance set by the industry regulator Ofwat.

During 2021-22, Southern Water made a capital investment totalling a record £617 million to upgrade its water and wastewater network. The investment programme includes:

• projects to reduce the levels of phosphorus discharged from wastewater treatment works
• upgrade treatment works to meet the needs of an increasing population and provide greater resilience during extreme weather events
• improving resilience to water shortages, particularly in Hampshire, to reduce water the utility takes from local waterways and to increase expenditure to refurbish water and wastewater assets

Operating profits fell significantly to £16.0 million from £138.8 million in the prior year

Southern Water’s operating profits fell significantly to £16.0 million from £138.8 million in the prior year, largely attributable to a £90.0 million fine imposed as a result of a prosecution brought by the Environment Agency.

Excluding the fine, operating costs increased by £19.8 million, principally from proactive maintenance activities to improve wastewater compliance and pollution performance to reduce the risk of future equipment failures and pollutions from sewer blockages, as well as activities to support the catchment management, natural capital and Target 100 programmes.

Operational performance highlights during the year included:

• Leakage - Southern Water recorded a three-year rolling average leakage rate of 94.9 Ml/d (2020–21: 98.5 Ml/d). The company said that “while this was outside the target set for us by our regulator of 93.9 Ml/d, we have made improvements in a number of areas.”
• In February, the company started the second phase of advanced pressure management as part of its Water Network Digitalisation project. Recruitment of additional detection resource is in progress and a number of mains replacement schemes began in May, to continue to drive down leakage.
• Renewable generation - in its Net Zero Plan Southern Water made a commitment to achieve the production of 24% of the energy it uses from renewable sources by 2025. The company failed to meet this year’s performance commitment to generate 21.3% of the company’s total electricity consumption by renewable generation set by Ofwat, achieving 15.85%.

Commenting on renewables, the company said:

“Although our target for renewables has not been reached, we are constantly reviewing our work in this area to make the best carbon-saving decisions available to us at the present time and into the future.”

A new programme to implement solar thirdparty funded Power Purchase Agreements (PPA) is being planned from June 2022, which could produce 3% of the energy the company needs. In addition, the Combined Heat and Power (CHP) programme which is currently under review, could also provide a significant part of its target amount of renewables each year, by providing energy at its Sludge Treatment Centres.

Southern Water said it continues to look to increasing renewable energy production, with plans to install solar arrays at more of its sites as well as continuing to use alternative fuel by generating biogas. Energy efficiencies are also constantly being sought for site operations.

During the year performance awards and penalties in 2021–22 included:

• External flooding incidents reduced to 3,944 (2020–21: 4,409) - £0.948 million reward
• Internal flooding incidents increased to 614 (2021: 393) - £7.835 million penalty.
• Customer satisfaction (C-MeX) ranking 16th out of 17 water companies in the UK (2020–21: 16th) - penalty of £4.5 million.
• Renewable energy generation target for 2021–22 of 21.3% - Southern Water achieved 15.85% - penalty of £1.326 million.
• mains repairs per thousand kilometres of entire water main network- Ofwat target of 118.3.
• Southern Water achieved 101.5 (2020– 21: 150) - reward of £0.9 million.
• sewer collapses- Ofwat target of 226 incidents not met and Southern Water achieved 314
• incidents (2021: 315) - penalty of £4.110 million
• treatment works compliance 97.94% (2020: 97.06% in 2020) compared to performance
• commitment of 100% compliance with Environment Agency standards - penalty of £10.6 million.

No dividends were declared for the year, following a commitment by the Board that the company will not make dividend payments until it is clear that to do so will not undermine the company’s financial resilience and transformation programmes to improve both operational and financial performance.