Companies in hot water: environmental performance deteriorates further

6 October 2020

The Environment Agency’s 2 October 2020 annual report provides sober reading for the nine water and waste service companies operating in England.


After the Environment Agency’s (“EA”) finding in 2019 that performance across the sector was already ‘unacceptable’, the 2020 report concluded that all, without exception, had continued to deteriorate.

Expectations vs reality

In 2011 the EA first introduced the ‘Environmental Performance Assessment’ (“EPA”) as a mechanism to test and compare performance across the various water companies. This year’s report will be the EA’s seventh (see here for historic reports). It makes clear that the expectations delivered to companies in 2013 have not been met.

The EPA assessment for 2019 shows that no water and sewage company met all of their targets. With Wessex Water and Seven Trent Water coming top, Southern Water fell significantly behind the rest.

The history of Southern Water

The ranking of Southern Water is not a surprise. It follows the company’s guilty plea earlier this year to 46 charges of contravening the requirements of an environmental permit and five charges of causing poisonous/noxious/polluting matter to enter controlled waters, occurring over several years. The company is yet to be sentenced.

The EA launched its criminal probe into Southern Water in June 2019 following an investigation by Ofwat, a non-ministerial government department, which uncovered serious failures in Southern Water’s sewage treatment sites. The company was found to have manipulated the waste water sampling process and “deliberately misreported data” regarding the performance of its wastewater treatment works. It was also found to have failed “to have adequate systems of planning, governance and internal controls in place to be able to manage its wastewater treatment works; to accurately report information about the performance of these works; and to properly carry out its general statutory duties as a sewerage undertaker, to make provision for effectually dealing with and treating wastewater”.

A fine amounting to 6.2% of the company’s wholesale wastewater turnover company was considered appropriate, reduced to £3m to reflect the redress provided to customers in lieu of a penalty. Amongst a number of other undertakings, Southern Water also agreed to pay reparations to customers to a value of £123m.

What are the repercussions for poor performance?

As the Southern Water case demonstrates, huge financial implications can flow from poor performance, alongside costly and damaging prosecutions. The data also shows that the EA are proactive in using their enforcement and prosecution powers against these companies. In 2019 they prosecuted four water companies resulting fines of just under £1.3m and secured 11 enforcement undertakings (“EUs”) to a value of just under £2.5m.

EUs can be powerful tools to avoid a lengthy and costly prosecution. As legally binding agreements, EUs are voluntarily offered by suspects to the EA (who will not always accept them) which aim to: put right the effects of the offending and the impact on third parties, and proactively ensure that the event does not happen again. The record of recently accepted EUs shows that Anglican Water, Severn Trent Water and Yorkshire Water Services all successfully utilised this process.

What next?

With water companies in the limelight and the very public criticism of their performance, they can only expect increased scrutiny by the EA. With that comes greater risk of prosecutions or the more favourable, though still financially significant, alternative EUs.

Further information

For further information on the issues raised in this blog post, please contact a member of our criminal litigation team.

 

About the author

Sophie Wood is a Senior Associate with extensive experience in advising corporate and individual clients involved in a wide range of internal, criminal and regulatory investigations. Sophie has acted for individuals and companies involved in investigations brought by the Environment Agency, Health and Safety Executive and local authorities, and is a member of the firm’s cross-practice Health, Safety and Environment Group.

 

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