Thames’s record fine sets an environmental precedent
Thames 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 Sheridan, who delivered the sentence at Aylesbury Crown Court on Wednesday 22 March, said the size of the fine reflects the seriousness of the offences, in which 1.4 billion litres of raw sewage was dumped into the River Thames from six sites in Oxfordshire, Buckinghamshire and Berkshire.
This is the latest in a long line of increasingly hefty fines, and is further proof that the courts will not be forgiving of water utilities who breach environmental laws. Chief policy adivsor of the environment and sustainability IEMA, Martin Baxter, claims that the increasing scale of financial penalties being levied by the courts for poor regulatory performance demonstrates that companies must continue to invest in regulatory performance controls, or “risk undermining shareholder value”.
The Consumer Council for Water says a fine of this magnitude “sends a very clear message to the company that it needs to take seriously its environmental responsibilities”. London and South East chair Tony Redmond says “substantial fines can be an effective deterrent because they hit shareholders, not customers, in the pocket”.
Whatever scale of Thames Water fine pressure will be on @Ofwat to ensure that shareholders not customers pay the cost of management failure— Martin Baxter (@mbaxteriema) March 22, 2017
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 company and its shareholders, not its customers, will bear the costs. Ofwat has vowed to ensure this wish is carried out. “Customers will not pay,” a spokesman tells Utility Week. “Ofwat does not take into account pollution fines that water companies have had to pay when we look at their charges to customers, which are set every five years.”
The Environment Agency condemned the way Thames had handled 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 learned from the incidents. In a statement following the ruling, chief executive Steve Robertson – who was not in charge of the company at the time the incidents occurred – said Thames has since “reviewed how it does things at all levels and made a number of key changes”, including increasing the numbers of staff in key operational roles, and investing heavily to improve reliability.
“As a result, our performance has significantly improved,” he added. “We understand our huge responsibilities to the environment, have learned from these serious 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 companies 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 regulatory compliance”, according to Baxter. He says that, in determining the scale of financial penalties, courts give particular attention to turnover, profit before tax, directors’ remuneration, loan accounts and pension provision, and assets as disclosed by the balance sheet. In the 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 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, the environmental regulator will “seek the strongest possible penalties”. Chief executive James Bevan issued a stern statement 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”.
Thames now has 21 days to pay the record fine, which will be sure to set the precedent for future penalties as it highlights the “critical importance” of firms ensuring compliance with environmental laws and regulations. Other companies should take note, or risk incurring fines of a similar scale.
The incident in numbers:
1.4bn – litres of raw sewage discharged into the River Thames
£20.3m – total fine and costs
£8m – fine for Little Marlow
£9m – Aylesbury
£1m – Henley
£800K – Littlemore
£800K – Didcot
£150K – Arborfield
£611K – costs
Pollution fines over the past year:
Yorkshire Water was hit with a £600,000 fine at Leeds Crown Court after an ageing sewage pipe burst, polluting a fishing lake in Wakefield.
Thames Water was fined a record-breaking £1 million at St Albans Crown Court for polluting the Grand Union Canal in Hertfordshire with sewage.
£2m: Southern Water in December 2016
Southern Water was fined a record £2 million at Maidstone Crown Court for flooding beaches in Kent with raw sewage. The Environment Agency called the event “catastrophic”.
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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