SEW launches transformation plan as chair quits after MPs declare no confidence

(by Karma Loveday)

South East Water’s chair, Chris Train, resigned with immediate effect on Friday, as the Environment, Food and Rural Affairs (EFRA) Committee published a scathing report on the company and its handling of recent supply outages. The board has initiated a search for a new chair, with Lisa Clement – currently an independent non-executive director and chair of the Audit and Risk Committee – holding the fort in the interim.

Meanwhile, the South East Water board reiterated its support for the executive team led by chief executive David Hinton, “to continue accelerating targeted engineering works and make operational changes to improve the resilience of the supply network, increase water capacity and quality in high priority areas as part of a comprehensive, company-wide transformation plan”. Hinton sets out the details of these activities and the wider transformation programme he will lead to improve SEW’s performance in the May issue of The UK Water Report, published later today.

The EFRA Committee declared “no confidence in the chief executive or board of SEW to address the company’s multiple and ongoing failures and protect residents from disruption” after holding two evidence sessions on the outages.

Its key sources of criticism were:

• Failure to monitor critical risks — “SEW lacked the processes and oversight to identify [and] mitigate risks at Pembury Treatment Works, where various asset failures led to a two-week outage in Tunbridge Wells last year. Among the most significant errors, SEW failed to carry out the jar tests that the Drinking Water Inspectorate (DWI) had directly advised them to do which would have allowed SEW to understand why their remedial interventions were failing. Having failed to action DWI’s recommendations, SEW was 'flying blind' at the time of last year’s Pembury incident. This was a fundamental failure.” 

• Failure to maintain assets  — “The DWI said that routine maintenance and cleaning were not undertaken at Pembury before the Tunbridge Wells incident. Ofwat's investigation, between 2020 and 2023, flagged issues with the maintenance of reservoirs, boreholes and trunk mains. Not enough resourcing and planning to tackle these problems had been put in since the 2019 Price Review, despite in many cases being costed for.” 

• Failure to invest — “Regulators told SEW repeatedly over four years that it needed to invest in new infrastructure to be resilient to potential shocks. Single points of failure (such as at Pembury), supply shortfalls and a lack of regional connectivity should have been improved. Spending allowances in previous price reviews, determined by Ofwat, likely made for difficult spending decisions, but ultimately these decisions are the company’s responsibility.”

• Failure to plan — “SEW has regularly used increasing water demands and extreme weather to explain its failings. Ofwat and the DWI have shown that the company failed to model upcoming peaks and troughs and take the necessary steps to boost resilience.”

• Failure to respond, communicate and deliver for vulnerable customers — “During the Tunbridge Wells incident last year, some preselected sites for water stations were quickly abandoned after realising they weren’t suitable, and only three stayed open. Provision was too reliant on residents having access to cars and SEW relied on local authorities to distribute bottled water and provide toilets in some areas. GP surgeries, schools, nurseries and the Tunbridge Wells Kidney Treatment Centre had gaps in support. Deliveries were left outside some vulnerable residents’ homes overnight without telling them, or in packages too heavy for some to lift. There were failings in its communications, with incorrect information issued about bottled water stations and wrong postcodes provided. Communications were said to contain poor choices of language and lacked empathy. Given the number of outages SEW has overseen, it is remarkable that the company failed to learn and apply lessons.” 

• Group-think and obfuscation — “SEW’s leadership team has demonstrated a clear pattern of blaming factors outside of their control, even despite clear evidence to the contrary. A lack of data-analysis skills might be partially to blame, but there is also a clear culture of obfuscating responsibility that is seriously inhibiting their ability to analyse problems and learn lessons. The company's investigations, as well as that of the DWI, have identified potential issues with a lack of challenge or groupthink within the company.”

  
  

EFRA Committee chair Alistair Carmichael said: “We have taken the unusual but necessary step of declaring no confidence in SEW’s CEO and board because we feel obliged to highlight the gravity of this extraordinarily poor situation… Someone in this company needs to take a grip, be accountable for its failings and to put them right. That should be for the executive leadership of the company and, failing that, it should then be the non-executive directors. That would normally be the end of the road, but when that fails, shareholders have a duty to act. We urge them [Utilities Trust of Australia, NatWest Group Pension Fund and Desjardins Group and associated holding companies] to read this report and to take action. They can no longer be allowed to ignore the consequences for the consumers that they are licensed to serve.”

It remains to be seen whether Train’s departure will satisfy this desire for accountability. The SEW board and executive team reiterated their unreserved apology to those customers impacted by recent operational failures, and the resulting loss of public trust in the company and its services. 

• SEW will pay £75,000 in the form of a variable monetary penalty after it mistakenly abstracted 52m litres of water from an underground source near Tonbridge without permission for six weeks in May and June 2021. The Environment Agency said the company overlooked to renew its licence in March in error, as it was reliant on manual processes. SEW has since brought in an automated system that highlights when licences need renewal.   

• SEW last week announced the successful applicants for its £20,000 Community Chest Fund. It had 130 applications for grants of up to £2,000. Among the winners were the Alzheimer Café in Farnborough and the Rising Sun domestic violence support service in Kent.