Ofwat has published further details of information gathered in its wastewater treatment works to date, including identification of some of the root causes of problems flagged up by the water companies themselves.

Yesterday the regulator announced that it has opened enforcement cases into Anglian Water, Northumbrian Water, Thames Water, Wessex Water and Yorkshire Water and has now issued them with formal notices to gather further information for enforcement purposes.

Concern about aspects of the information the five water companies submitted to the regulator in December has prompted Ofwat to currently focus on them.

Ofwat wrote to all water and wastewater companies in England and Wales in November asking them to provide a range of information about how they manage their wastewater treatment works, and in particularly how they ensure they are meeting the flow to full treatment (FFT) requirements of their environmental permits.

According to Ofwat, the companies’ responses varied significantly in the level of detail they provided, making it “difficult to draw sector-wide conclusions or comparisons between companies.

However, Ofwat has now highlighted what are described as “some useful headlines” from what it has heard so far.

Wastewater treatment works compliance

All but one water and wastewater company reported that in 2020 they had some wastewater treatment works that were potentially not meeting the FFT requirements of their environmental permits. Several companies said that they had taken action since 2020 to significantly reduce this number towards ensuring they are meeting their environmental permits.

In total, just under half of water and wastewater companies’ wastewater treatment works have environmental permits with FFT level requirements. The proportion of these that companies considered might not have been operating in line with the FFT requirements of their permits in 2020 varied significantly between companies. Around 70% of the wastewater treatment works that companies identified as being potentially non-compliant were smaller works, serving populations of less than 10,000.

Several companies said they had difficulty in stating whether a wastewater treatment works was operating in line with the FFT level in its environmental permit, if the works did not yet have in place monitors of a particular standard to measure the flows into the treatment works (a FFT monitor certified to the MCERTS standard), and a monitor to measure discharges into its storm tanks.

In the absence of such monitors many, but not all, companies, had taken steps to use other information available to them from their wastewater treatment works to form a view as to whether they were operating in line with the FFT requirements of their environmental permits.

Root causes of wastewater treatment works issues

Ofwat had asked companies to set out what they see as the key root causes of why their wastewater treatment works might not be operating in line with the FFT requirements of their environmental permits.

Several companies provided detailed explanations of the root causes they had identified for each individual site where they considered this was the case, and how these had been or were now being resolved.

Example root causes that companies described included:

• the failure of a particular part of the equipment at the wastewater treatment works;
• a part of the works not being installed with sufficient physical capacity to meet the FFT level set out in its environmental permit;
• a part of the works operating at a level less than its design intended due to maintenance issues;
• the incorrect set up of site controls or data monitors at the treatment works; and
• errors by operational staff.

Ofwat commented:

“Disappointingly, some companies had not yet fully assessed the compliance of their wastewater treatment works and/or the root causes for those works they thought might be non-compliant sites. They are progressing further work to do this. This raises questions about whether these companies routinely undertake such assessments.”

Compliance with environmental permits

Ofwat also asked companies to describe how they generally manage compliance with environmental permits, including how they identify and resolve any non-compliance with FFT requirements.

Most companies’ responses stated that their executive management teams and boards regularly receive and consider information relating to the performance of their wastewater treatment works.

“This reporting appears to focus on metrics reported for the Environment Agency’s annual Environmental Performance Assessment and Ofwat’s price review performance commitments”, the regulator said.

A number of companies explained that their boards have also received more detailed “deep dive” reviews of their company’s performance on pollution incidents or river water quality.

Several companies said that, following Ofwat’s request for information, they have taken steps to strengthen their processes for managing their compliance with their environmental permits. 

The companies were also asked to provide details of how they were addressing any potential non-compliance with their environmental permits, and ensuring appropriate management of this in the future.

Many companies provided site-by-site detail of the steps they are taking to remedy the failures they had found. Several companies have accelerated investment to do this, bringing forward spend they had planned for later years. “They noted that they could do this with the existing funding they are allowed to recover via customer bills”, Ofwat said.

A number of companies have also accelerated their programme to install flow monitors to provide a fuller and more accurate picture of compliance at their treatment works.

In contrast, Ofwat said some companies provided insufficient detail on what they were doing to address potentially non-compliant works, or were more focused on investment to install new monitors.

Performance related pay

The companies were asked to explain how their boards consider the company’s environmental performance when making decisions about dividends and executive pay and bonuses.

Most companies explained that their executive pay policies use a selection of performance metrics to establish whether the company is delivering well for customers, and therefore whether their executives receive relevant bonus payments. For this purpose, all companies said this included metrics relating to pollution incidents; all but two companies also had metrics relating to wastewater treatment compliance.

Some companies highlighted that their executive pay policies also allow their remuneration committee the discretion to make an “in the round” assessment on whether a bonus payment would be appropriate given the company’s overall performance.

A number of companies’ policies also enable them to “clawback bonus payments from staff” in the event that a material compliance issue is identified within a certain timeframe of the bonus being awarded.

One company said that in the past its staff bonuses were significantly reduced to reflect the environmental impact of its operations.

Rebuilding customer trust

A small number of companies provided detailed and wide-ranging plans for how they will better engage with their customers and stakeholders to build trust on their environmental performance. “It was clear that these companies recognised the importance of doing this not just for their own company but on behalf of the sector as a whole,” Ofwat said.

However, in contrast, some company responses appeared to “underestimate the seriousness of our and customers’ concerns” about the issue.

All water and wastewater companies in England and Wales remain subject to the ongoing investigation while Ofwat continues to review the information it has gathered to date.