Utility Week

12 | 5TH - 11TH JULY 2019 | UTILITY WEEK Policy & Regulation Analysis O fwat's damning investigation into Southern Water's failings and misre- porting over a seven-year period now seems certain to cast the net of scrutiny over the wider industry. A letter from Ofwat chief executive Rachel Fletcher to water company bosses, revealed exclusively in Utility Week and printed in full on p11, starkly declared the fallout of the Southern controversy as a "dark week for the water industry". She said that while she did not believe the scale of deliberate deception uncovered at Southern was representative of the industry, "none of us can a ord to be complacent". Fletcher's approach, and the very public nature of it, seems to indicate two things. First, that Ofwat is determined to show it is a regulator with teeth, and second that the water industry has a reputation problem that urgently needs to be addressed. These challenges come at a time when the spec- tre of renationalisation is looming over the industry. The public reaction to the past behaviour at Southern is strengthening the hand of that policy's proponents. For a Labour party keen to promote issues that can unite a fractured electorate, this could be a strong call. Ofwat has been clear about what it is demanding of Southern Water and the com- pany will quite rightly be expected to be at the forefront of painting a more positive and progressive picture. Chief executive Ian McAulay told Utility Week that the company needs to "improve relentlessly". He admitted that many of Ofwat's ‡ nd- ings were "unpalatable" but insisted pro- gress had been made over the past two years. The company has introduced "three lines A dark week for the water sector Ofwat's record penalties for Southern Water act as a stark warning to water companies that they must act fast to shore up the public reputation of the sector. James Wallin reports on the fallout. Comment A Watergate moment Analyst Nigel Hawkins gives his view on the Southern Water case and the parallels with a notorious scandal. O fwat's frank assessment of Southern's actions between 2010 and 2017, has a whi of the infamous 1970s Watergate scandal. The original o ence of operating waste- water plants subject to spillages was bad enough – like the Watergate break-in – but it was compounded by the alleged seven-year cover-up – like the Nixon White House's infamous e orts to obstruct justice. Given that handling wastewater from its four million-plus customers is the key activ- ity of Southern – its clean water provision is diluted by the presence of many former statutory water companies in its area – such lapses are di" cult to overlook. In recent months, the company has faced other challenges, notably the ongoing price review. Its business plan, along with that of the struggling Thames, was rated in the of defence": ensuring people who carry out tasks do things properly; embedding checks and balances; and seeking third-party assur- ance on its audits. McAulay has also worked to bolster the company's values and instigate enhanced compliance procedures across all wastewa- ter treatment works, as well as strengthening whistle-blowing policies. lowest "signi‡ cant scrutiny" category. More seriously for Southern, its test area assess- ment results showed up several shortcom- ings, with three D ratings recorded. First, on "securing long-term resilience" in a supply area with an expanding popula- tion and lower than average rainfall, Ofwat was far from impressed by Southern's submission. It concluded that Southern "presents a plan that falls signi‡ cantly short of high quality with little and unconvincing evidence of how the company has assessed risks and consequences to its systems and services". Second, Southern's cost e" ciency record attracted further Ofwat criticism. In particu- lar, Ofwat said Southern's "wholesale waste- water costs were around 26 per cent above our view of e" cient costs". Admittedly, the cost ‡ gures on clean water were less dire.

• Cover