In this latest Environmental Law News Update, Christopher Badger considers the decision by Ofwat to impose a financial penalty on Southern Water for failings in the performance of its wastewater operations, the imposition of over £3.7 million of civil sanctions on charitable organisations for environmental offences and further developments in the Manchester Ship Canal case.
Ofwat punishes Southern Water
Ofwat have issued a notice of intention to issue Southern Water with a financial penalty amounting to £37.7 million reduced exceptionally to £3 million for what it describes as “significant breaches of its licence conditions and its statutory duties”. This is on the basis that Southern Water has undertaken to pay customers about £123 million over the next five years in the form of rebates.
Ofwat concluded that Southern Water has deliberately misreported data to them about the performance of its wastewater treatment works (WwTW”). Ofwat also concluded that Southern Water failed to have adequate systems of planning, governance and internal controls in place to be able to manage its WwTW; 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.
£37.7 million amounts to 6.7% of all Southern Water’s wholesale wastewater business turnover, for 2017-2018. The maximum that could have been imposed is 10%.
There is a significant amount of detail in Ofwat’s published notice but the background is as follows. In December 2016 the Environment Agency informed Ofwat that it was investigating Southern Water in relation to problems with WwTW compliance data that the company had provided to it. Southern Water informed Ofwat about this investigation in early 2017. As a result of this information, Ofwat opened its own investigation and issued a notice requiring information in June 2017 to Southern Water.
Southern Water provided as part of its response files for a sample of sites, which led to further requests for detail. External engineering consultants were engaged by Ofwat to provide an independent review of 10 of the site files. Ofwat reports that this review identified a number of potential shortcomings in the operational and maintenance processes, documentation, decision-making and quality control systems and processes across those 10 sites. The main issues are reported as:
- Equipment site compliance;
- Repeated exceedences/breaches/near misses of EA permit conditions;
- Capital investment issues;
- Flow compliance;
- Lack of regular/planned maintenance activities leading to the above;
- A lack of effective mitigation measures to protect effluent quality.
Southern Water had also been carrying out its own internal investigation. It reported that irregularities in WwTW sampling processes had been identified following a review of retrieved emails and documents. This included evidence of staff anticipating the timing of planned Operator Self Monitoring samples across numerous works, in order to ensure that no effluent was available for sampling purposes. As a result of the manipulation a false picture of Southern Water’s wastewater treatment works performance was provided internally within the company, to the Environment Agency and to Ofwat.
Southern Water extensively engaged with Ofwat and restated its performance data. It has been calculated that, as a result of the data that had been submitted, Southern Water avoided price review penalties in past years amounting to a total of £75 million (in 2017-2018 prices). In addition, 991 issues were discovered which compromised (or were seen as potentially compromising) EA permit conditions, across 245 WwTW, 650 had already been resolved. Millions has been spent by Southern Water in capital costs to resolve these issues. Furthermore, the company’s spills data for 2016 -2017 across all WwTW may only be accurate to within 25% of the true values.
The findings by Ofwat are numerous and significant. Quotes include:
“We … cannot rely on the company’s historic reporting of pollution events to us.”
“Taken together the evidence indicates to us that the company did not, until very recently, have a clear enough idea about how its WwTW were working and the extent of work needed at each site to ensure the effective and compliant operation of its WwTW.”
“Senior management within the Wastewater Operations division colluded to conceal the actual performance of WwTW. A culture of data manipulation was the norm and accepted by staff across the division.”
The Notice did highlight the amount of information provided to Ofwat by Southern Water and the steps that it has taken to get back into compliance. There is a substantial Action Plan in place, as well as undertakings that have been provided by the company to Ofwat, including the implementation of customer rebates.
Environment Agency investigations continue.
The full Notice can be found here
Civil sanctions top £3.7 million
More than £3.7 million has been given to charitable organisations for environmental offences in the last 6 months, according to the Environment Agency’s latest published list of agreed Enforcement Undertakings.
The majority have been imposed against water companies, with Northumbrian Water Limited contributing £1,179,500 across 5 separate EU offers. The two biggest individual agreed Enforcement Undertakings were made by United Utilities, paying £511,000 and £500,000 respectively.
As always, although the offences are set out together with whether the offers are proactive or reactive, the published detail does not set out either an agreed characterisation of culpability or environmental harm or just the Environment Agency’s own assessment of culpability or harm. This makes it extremely difficult to use the published figures as a guide for future offers.
The amounts paid by individual companies are also highly likely to be much higher. The published figures do not include figures for investments made by the respective companies in improving their own systems or infrastructure, even though such improvements are set out in the actions that the offerors have undertaken to do.
The updated list can be found here
The Manchester Ship Canal saga rumbles on
Keeping with our water theme this week, the High Court has just issued its latest judgment in the long-running Manchester Ship Canal case.
Those familiar with the background will know this, but essentially, the Manchester Ship Canal Company Limited (“MSC”) sought in 2010 a declaration that the discharge of wastewater into its canal by United Utilities without its permission was a trespass actionable by MSC, that resulted in loss and damage. The Supreme Court held that the Water Industry Act 1991 imposed on privatised sewerage undertakers duties that it could only perform by continuing for a substantial period to discharge from existing outfalls into private watercourses and this thereby implicitly authorised the continued use of existing sewers. An undertaker was not legally permitted to discontinue the use of a sewer until it had provided an alternative sewer capable of serving as effectually. Consequently, the Supreme Court held that the undertaker was entitled to discharge into the canal from any sewer outfall which was in use on or before 1 December 1991. The Supreme Court rejected the suggestion that a sewerage undertaker had a general right of discharge through outfalls into private watercourses and consequently the date that the outfall was created or laid became critical to the rights of the sewerage undertaker.
The latest judgment considers the position where post-1991 new connections or adoptions were made to sewers discharging through pre-1991 outfalls. The Court held that it was difficult to argue that where outfalls were already in use on 1 December 1991, a sewerage undertaker was not entitled to continue to discharge from it, irrespective of the source of the waster water and material. An undertaker is obliged to accept new connections and this could not be stopped or restricted by the location of the outfall (s.106). The Court went on to hold that the Supreme Court could not have intended to exclude waste water drained pursuant to post 1 December 1991 connections and adoptions where the outfalls had existed prior to 1 December 1991.
The interesting issue arising from the judgment is the role of s.186(1) of the 1991 Act, which provides statutory protection in respect of watercourses used for draining land pursuant to local Acts. This provision requires consent of the owner to be given before any deemed “interference” with the canal by the exercise of a ‘relevant sewerage provision’. It was argued on behalf of MSC that the Supreme Court’s judgment had brought s.186 into play every time the undertaker made a new connection to the outfall under s.106.
The High Court held that, in this case, the issue was estopped from being part of the claim before the court. However, no concluded view was reached on the prospects of success about an argument based on s.186. This leaves open the inter-relationship between the implied right of an undertaker and the statutory protections provided by the legislation, no doubt to be argued on a future occasion.
Charles Morgan and Nicholas Ostrowski acted for MSC. The judgment can be found here
Have you seen this week’s new post on our International Climate Change Blog – The Heathrow judgment: what we learned about climate change law
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