Utility Week

UTILITY Week 31st March 2017

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16 | 31ST MARCH - 6TH APRIL 2017 | UTILITY WEEK Finance & Investment Analysis T hames Water has been hit with a staggering £20 million penalty for a series of serious and significant pollution incidents. Not only is this bad for Thames, it puts pressure on the rest of the water industry to perform better when it comes to preventing such occurrences. This is by far the biggest fine imposed upon a water utility in this country, blowing the previous record-holder – £2 million paid by Southern Water last December – out of the water. Judge Sheri- dan, who delivered the sentence at Aylesbury Crown Court on 22 March, said the size of the fine reflects the seriousness of the offences, in which 1.4 billion litres of raw sewage were dumped into the River Thames from six sites in Oxfordshire, Buckingham- shire and Berkshire. This is the latest in a long line of increas- ingly hey fines, and is further proof that the courts will not be forgiving of water utilities who breach environmental laws. Martin Bax- ter, chief policy adviser of IEMA, a group of environment and sustainability profession- als, claims the increasing scale of financial penalties being levied by the courts for poor regulatory performance demonstrates that companies must continue to invest in regu- latory performance controls, or "risk under- mining shareholder value". The Consumer Council for Water (CCWater) says a fine of this magnitude "sends a very clear message to the company that it needs to take seriously its environmental responsibili- ties". CCWater London and South East chair Tony Redmond says "substantial fines can be an effective deterrent because they hit share- holders, not customers, in the pocket". Despite concerns that the fine could be passed on to customers, Judge Sheridan has assured that the money will come straight off Thames's bottom line – meaning the com- pany and its shareholders, not its custom- ers, will bear the costs. Ofwat has vowed to ensure this wish is carried out. "Customers will not pay," a spokesman told Utility Week. "Ofwat does not take into account pollution fines that water compa- nies have had to pay when we look at their charges to customers, which are set every five years." The Environment Agency con- demned the way Thames had han- dled the incidents, and said much of the devastation could have been avoided if the company had been open and frank with the Agency, "as required by water company industry protocol". Judge Sheridan said the firm had demonstrated "scant regard for the law, with dreadful results for people who live in the area". Thames insists it has learnt from the incidents. In a statement following the rul- ing, chief executive Steve Robertson – who was not in charge at the time the incidents occurred – said Thames has "reviewed how it does things at all levels and made a number of key changes". Two included increasing the number of staff in key operational roles, and investing "heavily" to improve reliability. "As a result, our performance has sig- nificantly improved," he added. "We under- stand our huge responsibilities to the environment, have learned from these seri- ous events, and continue to invest at the rate of around £20 million a week on continually improving our service to our customers and the environment." Thames had been warned. When it was fined £1 million in January 2016, the judge who passed the sentence said that if environmental offences continued and com- panies failed to bring about the reforms and improvements they promised, sentences would be sufficiently severe to have a "significant impact on their finances". The size of this fine is an "important reminder" to shareholders and management that companies "must have effective systems and capabilities in place to ensure regula- tory compliance", says Baxter. He explains that, in determining the scale of financial penalties, courts give particular attention to turnover, profit before tax, directors' remu- neration, loan accounts and pension provi- sion, and assets as disclosed by the balance sheet. In its latest full financial year (2015/16), Thames reported an operating profit of £742.2 million and revenues of £2 billion (a 2.5 per cent increase on the previous year) – a pretty healthy set of financials. The Environment Agency says it is happy to work with companies to resolve problems that arise through no fault of their own, but where negligence causes serious pollution or a serious threat to the environment, it will "seek the strongest possible penalties". Chief executive James Bevan issued a stern state- ment in response to the fine, saying: "This case sends a clear signal to the industry that safeguarding the environment is not an optional extra, it is an essential part of how all companies must now operate." And Judge Sheridan said he hopes the courts "never see the like of such a case again". Tha mes has 21 days from the date of issue to pay the record fine, which will be sure to set the precedent for future penal- ties because it highlights the "critical impor- tance" of compliance with environmental regulations. Other companies should take note, or risk incurring fines of a similar scale. Record fine sets a precedent The £20.3 million record fine given to Thames Water highlights the critical importance of compliance with environmental laws and regulations, says Lois Vallely. 1.4bn litres of raw sewage discharged into the River Thames £20.3m total fine and costs CAUSE AND EFFECT Pollution fines escalate £600,000: Yorkshire Water, January 2016 Yorkshire Water was hit with a £600,000 fine at Leeds Crown Court aer an ageing sewage pipe burst, polluting a fishing lake in Wakefield. £1 million: Thames Water, January 2016 Thames Water was fined a record-breaking £1 million at St Albans Crown Court for polluting the Grand Union Canal in Hertfordshire with sewage. £2 million: Southern Water, December 2016 Southern Water was fined a record £2 million at Maidstone Crown Court for flooding beaches in Kent with raw sewage. £20 million: Thames Water, March 2017 Thames Water is hit with a record £20.3 million fine at Aylesbury Crown Court, for polluting the River Thames with 1.4 billion litres of raw sewage.

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