Yesterday (6 August 2024) saw The Water Services Regulation Authority (Ofwat) propose a conclusion to the years of flagrant environmental law breaches that have increasingly plagued public concern since covid-19. Financial penalties of £168m in total were put forward by Ofwat against Thames Water (to be fined £104m); Yorkshire Water (to be fined £47m); and Northumbrian Water (to be fined £17m). These proposals are the first set of outcomes in Ofwat’s largest investigation into the persistent mismanagement of wastewater treatment works across the country. Ofwat’s proposal of financial sanctions will now go to public consultation.
Ofwat’s investigation remains open. As such, eight further proposed financial sanctions against the following wastewater companies are imminent: Wessex Water; Anglian Water; South West Water; Severn Trent Water; United Utilities; Dŵr Cymru Welsh Water; Hafren Dyfrdwy; and Southern Water. Ofwat maintain that the investigation is their ‘priority’, and that ‘it will continue to work as quickly as possible on the eight further cases’.
In addition to the proposed financial penalties, Ofwat are undertaking three further strategies to ensure company compliance with environmental laws going forwards. Firstly, Ofwat is consulting on proposed enforcement orders. These will require each company to rectify the problems Ofwat has identified in their investigation.
Further, the proposed financial penalties are distinct from the previous Conservative government’s overall Storm Overflow Discharge Reduction Plan, which is activated partly through the PR24 draft determinations. These draft determinations set out a considerable investment package of £9.5bn to improve the mechanism of storm overflows, to meet new performance commitment targets.
Furthermore, Ofwat has created an Evidence and Performance team, to enhance its environmental assessment and monitoring capabilities as a regulator.
Why have the penalties been proposed by Ofwat?
As economic regulator of Britain’s water and wastewater sectors, Ofwat can impose financial penalties of up to 10% of relevant turnover on said companies. The penalties are for the mismanagement of wastewater treatment works and wider sewer networks, which includes the illegal activation of storm overflows during dry periods. Details of how wastewater companies have been failing to operate, maintain, and invest public money into Britain’s sewage systems can be found in my previous post here.
However, Ofwat detailed yesterday why the three companies are facing penalties, listing that all had:
‘Failed to ensure that discharges of untreated wastewater from storm overflows occur only in exceptional circumstances which has resulted in harm to the environment and their customers.
Shown a strong correlation between high spill levels and operational issues at wastewater treatment sites which points to these companies not having properly operated and maintained their wastewater treatment works.
Failed to upgrade assets, where necessary, to ensure they meet the changing needs of the local area they serve.
Been slow to understand the scope of their obligations relating to limiting pollution from storm overflows and failed to ensure that they had in place the necessary information, processes and oversight to enable them to properly comply with those requirements.’
Nevertheless, the extent of the environmental law breaches differed across wastewater companies. The size of the individual penalties therefore reflects the extent of the persistent breaches of regulations committed by each company. The fines proposed equate to: 9% of Thames Water’s turnover; 7% of Yorkshire Water’s turnover; and 5% of Northumbrian Water’s turnover.
Regarding Thames Water specifically, 67% of Thames Water’s wastewater treatment works have capacity and operational issues. Further, 16% of Thames Water’s storm overflows for their wastewater treatment works were in breach of laws.
Regarding Yorkshire Water, 16% of its wastewater treatment works have capacity or operational problems. Further, 45% of Yorkshire Water’s storm overflows for their wastewater treatment works were in breach of laws.
Regarding Northumbrian Water, 3% of its wastewater treatment works have capacity or operational problems. Further, 9% of Northumbrian Water’s storm overflows for their wastewater treatment system were in breach of laws.
Will these penalties impact consumers?
Ofwat has said the wastewater companies facing penalties will not be able to recover the cost of the fines from customers. Ofwat also stated yesterday that customers will not be charged twice where additional maintenance is required.
However, this does not mean that water bills will not increase at all (as explored in my previous article). The BBC this week reminded the UK that water companies are proposing to increase bills during the next five years by over 44%. These rises are to fund the much-needed improvements to the wastewater infrastructure. It should be acknowledged that Ofwat appear to have lowered some of the proposed increases by companies. For example, Thames Water proposed an increase of £191 over the next five years, whilst Ofwat only agreed to £99. However, at present, it seems that customers will still be faced with footing the bill for at least some of the improvements of the sewage infrastructure as part of the Storm Overflow Discharge Reduction Plan.
What next?
More financial penalties are likely against the additional eight wastewater companies that are currently under investigation by Ofwat. However, it is yet to be seen if environmental campaigners are satisfied with Ofwat’s proposals. Since at least 2023, campaigners have been calling for executives of wastewater companies to face a ban on receiving bonuses. It should be acknowledged that some of the financial penalties thus far have almost reached the maximum that Ofwat can dish out (namely against Thames Water). Yet, this does not prevent the injustice of wastewater companies increasing water bills to fund infrastructure amendments, when it was the mismanagement of customers’ bills that led to the infrastructure failing. Therefore, it may well be that, for many, the Ofwat penalties alone will not be sufficient remedies.
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