Southern Water shares improvement progress and plans with Secretary of State

Following a recent meeting of water industry CEOs, hosted by new Secretary of State for Environment, Food and Rural Affairs, Ranil Jayawardena, Southern Water has detailed its improvement progress and plans to government. 

Our Chief Executive Officer, Lawrence Gosden, wrote to Mr Jayawardena to highlight the company’s commitment to delivering significant change in the coming years – for the benefit of local communities and the environment. 

The full letter can be found below. 


Dear Secretary of State,

Congratulations on your appointment and thank you for the opportunity to share our progress and our plans, which I believe deliver against the aspirations you set out in our meeting.

Whilst I recognise that Southern Water has not always met expectations in recent years, I believe that we are now in a position to deliver significant change for our customers and the environment, notably:

  • We are investing £2 billion (c.£1,000 per household) over the current regulatory period, 2020-25, more than our regulatory allowance, to significantly improve our performance;
  • In September 2021, funds managed by Macquarie Asset Management (MAM) invested £1.1 billion to recapitalise the Southern Water group; and
  • I started as CEO of Southern Water in July 2022, with a strong mandate for change. I am committed to building a strong team to deliver this change.

In summary:

  • Storm overflows – we have pilot projects underway to help inform the optimal approach to reducing overflow of a ‘dual purpose’ network. As rightly demanded by our customers, Defra and other stakeholders, we would like to go further and faster; this will require agreement on how this is funded.
  • Environmental performance – we are currently on-track to reduce pollutions by 40% compared to 2021 with much still to be done to maintain this to the end of the year; we are industry leading in self-reporting, and we are investing £230m above our Ofwat regulatory allowances.
  • Water scarcity – Havant Thicket will be the first new reservoir to be built in the South East since the 1970s. We are currently consulting on our Water Resources Management Plan (WRMP) ahead of the next regulatory period.
  • Leakage – our leakage is currently 17%. Whilst this is better than the industry average of 23%, we are committed to reducing this by half by 2050.
  • Cost of living – we are supporting our vulnerable customers by increasing the discount on our social tariff to 45% (reducing the average combined bill from £402 to £221). This will benefit over 103,000 customers.
  • Dividend and pay – we have not paid a dividend to external shareholders since 2016/17 and our executive pay is amongst the lowest in the sector.

1) Eliminating storm overflows

Since privatisation, Southern Water has improved and increased the volume of wastewater that is fully treated before release back into the environment, from 30% to 95%, through investment of £10bn. This has improved the quality of our bathing waters from only 28% meeting public health standards, to 80 out of 83 now rated as ‘good’ or ‘excellent’, with the other 3 being ‘satisfactory’.

We welcome Defra’s recent Storm Overflows Discharge Reduction Plan, especially the recognition that it requires a multi-agency approach to separate its dual purposes of moving wastewater and capturing storm run-off. Southern Water’s spill rate is amongst the lowest in the sector, and we have plans to reduce it further, to 18 per storm overflow by 2025.

We believe we can do this through a combination of increased storage and reducing the rain run-off entering the sewer network. This will have the biggest impact, with the least carbon intensity. Our recent Suds for Schools programme is a good example of this.

Our storm overflows have 98% monitoring in place, allowing near-real time communication with customers and our communities through our Beachbuoy website and via API to the Surfers Against Sewage app. We are always improving the information that we give sea-users and are trialling two water quality buoys in the region.

We are working on Pathfinder Projects in partnership with five local communities to reduce storm overflows.

In Havenstreet on the Isle of Wight, early results show leaky water-butts can significantly reduce spills. In Hampshire, we are trialling a novel sealant to reduce groundwater infiltration into the sewer network, reducing spills during dry periods. We have further details of projects in Deal, Margate and Swalecliffe.

We are ready to finalise proposals to roll-out these initiatives more widely, and could even go beyond the Defra targets in this regulatory period. We are seeking discussions with regulators and government.

2) Improving the environment

Southern Water is delivering a significant turnaround on its environmental performance plan, which we further accelerated last year. Whilst we have more to do, we are currently on-track to deliver a step change in performance in 2022: a 40% reduction in pollution incidents, and a 75% reduction in category 1 and 2 pollution incidents whilst maintaining our industry-leading self-reporting. There is much still to be done to maintain this to the end of the year.

We have:

  • Invested a record £610m in 2021 to increase network and treatment capacity – in 2022 we plan to spend a further £600m
  • Spent £65m on maintenance to improve resilience of the system to better cope with adverse weather
  • Undertaken a root and branch culture change programme on transparency and ethics
  • Installed 22,000 sewer sensors in the first full-scale roll-out of sewer digitisation to prevent pollution and flooding from network blockages, to be completed in November 2022
  • Introduced predictive analytics into our control room to prevent equipment failures across our network of 40,000km pipes, 367 treatment works and 3,476 pumping stations.

Our early results are showing progress, although require further investment to strengthen performance over the remaining year. We are committed to being a 3 or 4 star EPA company by 2025.

3) Strengthening water security and preventing drought

South-East England is an area of water scarcity and is experiencing one of the driest years since records began. We took multiple actions this summer to protect our precious chalk streams and their natural habitat.

With incredible support from our customers, we estimate usage has reduced by around 5%.

Water supply - We’re investing £350m over the next seven years, to secure supplies for our customers, including the first reservoir for a generation (Havant Thicket in Hampshire), an ambitious programme of water recycling facilities in Sandown on the Isle of Wight, Aylesford in Kent, Ford in Sussex, and Havant in Hampshire, and water transfer schemes with neighbouring water companies.

Water demand - We continue to ensure that precious water supplies are used wisely. Our customers are already amongst the most water efficient in the country, using an average of 133 litres per person per day (145 industry average). However, reducing demand is critical, and our ambitious Target 100 programme aims to reduce consumption to 100 litres per person per day by 2040 which includes water efficiency visits and behavioural economics influencing campaigns. We have also launched the “you save, we pay” incentive with our business customers to support the reduction of their usage.

4) Reducing leakage

We recognise that customer tolerance for water leaks is low, and that detecting and fixing leaks beneath roads and houses is challenging. Our current leakage is 17% (below the UK average of 23%), which we plan to reduce by a further 15% by 2025 and halve it by 2050.

We are;

  • installing over 7,000 acoustic detectors to proactively detect leaks
  • fixing more than 250 leaks a week
  • working with local authorities to fix leaks on roads more quickly
  • using satellite technology to spot leaks using ground penetrating radar

We are also supporting customers to fix leaks on their own pipes.

5) Supporting customers through the cost-of-living crisis

We are supporting our vulnerable customers by increasing the standard discount offered on our social tariff to 45% (reducing the average combined bill from £402 to £221). This will benefit over 103,000 customers

6) Paying fair dividends and rewards

Our dividend policy aims to ensure a fair balance of reward between customers and investors, and our shareholders strongly support the investment we need to make to improve company performance. We have not paid external dividends since 2017.

Funds managed by MAM injected £1.1 billion to recapitalise the Southern Water group in September 2021.

This financed additional investment in infrastructure, and reduced group debt. As operational performance improves, distributions will be kept below a 4% yield in each year to March 2025.

My remuneration as CEO of Southern Water is amongst the lowest in the sector. Bonus payments for colleagues across the organisation are linked to environmental and customer service targets with detailed information available in our annual report. Our Board and Remuneration Committee undertake annual reviews of incentive schemes to align with best practice.

Working together

Through our continued investment across our region, I genuinely believe we will make a positive difference to our local environment and community. Members of my Executive Team will be attending this year’s Conservative Party conference and would be delighted to meet your team there. I would welcome the opportunity to discuss these issues with you, in particular how we finance our plans to go further and faster in reducing storm overflows.

Yours sincerely,

Lawrence Gosden

Chief Executive Officer