On 18 November 2021 we and the Environment Agency announced investigations into all water and wastewater companies in England and Wales. This was after several water companies explained that they might not be treating as much sewage at their wastewater treatment works as they should be, and that this could be resulting in sewage discharges into the environment at times when this should not be happening.
9 March 2022: We have opened enforcement cases into five water companies (Anglian Water, Northumbrian Water, Thames Water, Wessex Water and Yorkshire Water). Concern about aspects of the information these companies submitted to us in December has prompted us to currently focus on them. However, all water and wastewater companies in England and Wales remain subject to our ongoing investigation as we continue to review the information we have gathered. We have now issued these five companies with formal notices to gather further information for enforcement purposes. This information will continue to help us further understand how these companies are managing compliance with their environmental obligations and inform our next steps. What we’ve heard from water and sewerage companies so far.
2 February 2022: We have now completed an initial assessment of the summary information we requested from wastewater companies, returned to us in December. It is helping us to start to build a picture of where companies may not be managing their wastewater treatment works in line with their environmental requirements, and the possible causes of that. The companies’ responses also set out where and how they are taking steps to put right any problems they have found and to rebuild their customers’ trust on this issue. The companies’ responses have varied in their level of detail and evidence, and in how well-advanced their plans are to put things right.
Whilst it is the Environment Agency and not Ofwat that is responsible for enforcing compliance with environmental permits, the responses indicate that there are issues here relevant to Ofwat’s regulatory role and powers. As set out below, this could include how water companies overall operate, manage and report on their performance, including of their wastewater treatment works. We will be asking more questions of companies.
Our analysis continues to the end of February, after which we will provide a further update on our next steps.
10 January 2022: We received responses to David’s Black’s letter, dated 18 November, from all wastewater companies by the 22 December. We are currently analysing those responses.
8 December 2021: Open letter from David Black, Interim Chief Executive to water customers: Our investigation into water companies
18 November 2021: Joint announcement from the Environment Agency, Ofwat and Defra: Press notice – Water companies could face legal action after investigation launched into sewage treatment works
Ofwat’s announcement of an investigation:
- Press notice – PN 35/21: Ofwat launches investigation following claims water companies broke the law
- The letter from David Black to water companies
What we’ve heard from water and sewerage companies so far
9 March 2022
On 18 November 2021, we wrote to all water and wastewater companies in England and Wales requesting that they provide a range of information to us about how they manage their wastewater treatment works, and in particular how they ensure they are meeting the flow to full treatment (FFT) requirements of their environmental permits. Where they are not, we asked companies to explain how they are putting that right and rebuilding trust with their customers on this issue.
All companies responded to us by the deadline of 22 December 2021. Their responses varied significantly in the level of detail they provided in answering our questions. This makes it difficult to draw sector-wide conclusions or comparisons between companies. Nevertheless, there are some useful headlines from what we have heard so far.
On 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 (that is, 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.
On root causes of wastewater treatment works issues
We asked companies to set out what they see as the key root causes for 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.
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.
On how companies manage compliance with their environmental permits
We asked companies to tell us how they generally manage compliance with environmental permits, including how they identify and resolve any non-compliance with FFT requirements. Most companies’ responses state 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 (in particular “Pollution Incidents” and “Wastewater Treatment Works Compliance”). 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 our request for information, they have taken steps to strengthen their processes for managing their compliance with their environmental permits.
We asked companies 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 renumeration committee (a sub-committee of their board) the discretion to make an “in the round” assessment on whether a bonus payment would be appropriate given the company’s overall performance. One company noted that in the past its staff bonuses were significantly reduced to reflect the environmental impact of its operations. A number of companies’ policies 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.
We asked companies 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. 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, 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.
On rebuilding customer trust
We asked companies how they were communicating with and rebuilding customer trust on this issue. 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. This included partnership working with local stakeholders on actions to improve river quality; active listening exercises to better hear and understand customers’ needs and concerns; and communicating better with customers via different channels. 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. In contrast, some company responses appeared to underestimate the seriousness of our and customers’ concerns about this issue. As a result, there were significant gaps in some companies’ engagement plans, and therefore lots of opportunity for them to think more proactively and creatively about how they can engage with and listen to customers on their current and future performance and challenges.