Our response to Ofwat’s notice of its proposal to accept section 19 undertakings from South West Water Services Limited
Executive summary
We know from the research we undertake with water consumers, that since the Covid-19 pandemic, people have become much more appreciative of and therefore concerned about protecting their local environment. Our recently published tracking research Water Matters, shows customer satisfaction and trust in their water company is being driven – or in this case, being undermined – by perceptions of poor environmental performance.
Household customers do not have any choice over their service providers but would, as a minimum expectation, expect that the owners, and senior management of their local company is ensuring it is compliant with its legal, statutory and regulatory obligations. And in addition to this, doing everything in its control to ensure these essential services are being delivered with its customers’ and the environment’s best interests in mind. It is, therefore, a matter of great concern that South West Water appears to have fallen short.
Therefore, we support the proposed decision by Ofwat to accept the formal undertakings offered by South West Water. We believe that it is in the better interest of both customers and the local environment that the company takes action to remedy the problems identified and to support local groups to deliver environmental improvements, than to have the company pay a fine to HM Treasury’s Consolidated Fund. We note that the redress package, at £24m, is larger than the penalty Ofwat would have been minded to impose.
We believe that to ensure customers see the benefits that this proposed undertaking sets out, as well as reporting to the regulator, South West Water must communicate its plans and progress clearly to its customers and stakeholders. This information should set out the benefits that customers and the environment are deriving from the actions, above and beyond what has been set out in its AMP8 business plan and allowed for in PR24 expenditure.
Detailed response
The findings from Ofwat’s investigation are based on reasonable expectations of well-managed, competent, and forward-looking company, which has customers’ and the environment’s interests at the heart of its operations. We believe people would expect, as a minimum, that South West Water was ensuring it is compliant with its legal, statutory and regulatory obligations.
We understand this investment is to reduce discharges at key overflows, especially in sensitive and community areas, and is in addition to the PR24 investment already committed to. We are pleased that this will bring intended AMP9 benefits to fruition in AMP8.
Recognising the scale of ambition South West Water is already committed to through AMP8, we believe it is important that the delivery of this additional investment is monitored, to ensure it is accomplished within the time frame and in a way that means it is effective in its aims. Failure to do so will further undermine customer trust in the company, and the regulation of it.
We know that how we use our sewers plays an important part in their effectiveness. Misconnections overload sewers and pollute rivers and streams. Misuse, such as flushing wipes, cause blockages which flood people’s homes. We support South West Water and its shareholders creating a fund to address these issues.
The expenditure of this money must be transparent and available for scrutiny. Customers, stakeholders and regulators must be able to easily see how the money is being used and the impacts of that. The company must also demonstrate that this money is being used in addition its usual expenditure on these issues.
We expect the company to share its learnings from this targeted investment with other companies, as the issues of misuse and misconnections are industry wide. This would help the whole industry learn from South West Water’s actions.
South West Water has delivered successful nature recovery projects in the past, so we can be confident it is able to do so again and welcome the additional money that the company and shareholders will put towards this. We encourage South West Water to take this opportunity to speak to other companies that have also operated similar funds, to see if there is room to improve its already effective model.
South West Water must be clear how people and environmental groups can apply for and access the fund. The criteria for deciding where the funding goes must be transparent. The effectiveness of the projects it funds must be made transparent and accessible.
Conclusion
We support the actions South West Water intends to take to put right the issues Ofwat has identified in its investigation, and that Ofwat is content this is sufficient in lieu of a fine and enforcement notice. The action, combined with the PR24 expenditure already in place, should see the company go beyond just meeting its legal requirements, the minimum expectation of any water and sewerage company.
We believe South West Water must be required to not only report on its progress to the Regulator, but at the same time to produce customer facing information. This will ensure it transparently shares the progress it is making with its investment so customers and stakeholders can easily see, and be assured, that the company is delivering its
commitments. This information should also include information on how the £2m to tackle sewer misuse and misconnections is being spent, and the effectiveness of that. In addition, the company should be required to make clear how the £2m Nature Recovery Fund can be accessed and will be distributed. It must also report on the projects it goes towards and their impacts.
With transparent and straightforward reporting in place, there is an opportunity for South West Water to earn back its customers trust, to improve the local environment and show itself as a forward-looking company, focussed on customer and environmental outcomes.