Out-Law News 4 min. read
28 Feb 2025, 2:42 pm
Water companies in England and Wales face new duties to reduce pollution incidents and be transparent about their discharges from emergency overflows, under new legislation that has received Royal Assent.
Under the Water (Special Measures) Act 2025, chief executives of water companies could also be held personally liable where companies fail to meet their duties in relation to preparing, publishing and reporting on the implementation of pollution incident reduction plans, while directors’ rights to performance-related pay will be linked to their companies’ compliance with specified standards – such as those to do with the environment and financial resilience.
Also included in the Act are provisions that envisage greater involvement of consumers in water company decision-making – including, potentially, through representation on the board. Water companies will face new obligations to publish an overview of their financial position too.
The new regime will be underpinned by enhancements to the powers of enforcement that regulators such as the Environment Agency and Ofwat have.
For example, water company directors found guilty of impeding regulatory investigations face imprisonment for up to two years, under the reforms. In addition, the Act provides that regulators must impose penalties on water companies in relation to certain environmental offences.
The regulators’ fining powers have also been strengthened – in future, civil penalties for offences committed by water companies will be able to be levied on the basis of the civil standard of proof, ‘the balance of probabilities’, rather than the criminal standard of ‘beyond reasonable doubt’ that has applied until now.
Some of the new provisions of the Act took immediate effect on 24 February, the date of Royal Assent. These include the new rules regarding performance-related pay and consumer involvement; the financial transparency requirements; and changes to the sanctions regime. However, those provisions will only have practical effect once government ministers or regulators have taken further action – such as drafting implementing regulations or new rulebooks.
Other provisions of the Act, including rules relating to the preparing, publication and implementation of pollution incident reduction plans, as well as on the reporting of emergency overflow discharges, will only take effect after new regulations are introduced.
The duty to prepare and publish a pollution incident reduction plan will be a recurring one for water companies. Those plans will need to be published before 1 April each calendar year and set out how the company “intends to reduce the occurrence of pollution incidents that are attributable to its system”.
In particular, the plan must address how often pollution incidents have occurred in the previous year; the seriousness and cause of those incidents; the steps the company has taken to address the cause of those incidents where it can be attributed to “any structure or apparatus comprised in its system”; measures the company intends to take to reduce the occurrence of pollution incidents; and the anticipated impact of those measures, together with the likely sequence and timing of their implementation.
In tandem, water companies will also be obliged to report on the implementation of their pollution incident reduction plans. This will require water companies not only to disclose where they have succeeded with implementation, but where they have failed. In those cases, they will have to explain why they have failed and outline how they intend to avoid repeated failure in future.
The pollution incident reduction plan duties will be enforceable by regulators, and chief executives could be held personally liable for failures to meet the duties facing their companies – with failure to meet the duties an offence punishable by a potential fine and criminal conviction.
The Act’s new rules regarding the reporting on discharge from emergency overflows envisages near-real-time public disclosure by water companies.
Under those rules, water companies will be obliged to publish the fact of a discharge from an emergency overflow; where that overflow is; and when the discharge began, all within an hour of the discharge beginning. They will also have to report when the discharge ended, again within an hour of the ending.
The new Act has been introduced at a time when the entire regulation of the water industry in England and Wales is under review. An Independent Water Commission was established last year to lead the review.
On Thursday, the Commission opened a call for evidence, seeking stakeholder views on a wide range of issues, from the functions of existing sector regulators Ofwat, Environment Agency, Drinking Water Inspectorate and Natural Resources Wales, to the price review process and how to ensure sufficient funding for infrastructure investment. The initiative also covers issues such as the current system of environmental regulation, ownership models, and the robustness of the water industry supply chain.
Water law and projects expert Gordon McCreath of Pinsent Masons said: “The Act sees the measures tabled by government last summer into law. As we commented previously, it is essential that the wide powers and duties set out in this primary legislation are focused down to specifics in the secondary legislation and new rules, if they are not to significantly slow down decision-making and delivery of the solutions required to protect the environment.”
“The overriding imperative is to focus on fixing the problems rather than exacting retribution on water companies. In that regard, it is good to see progress on the Cunliffe review. All indications from the call for evidence and the interviews given by Sir John are that we will see the root and branch review of the water regulatory system – crucially, including the role played by regulators – that is required. It is essential that that review eases – and ideally speeds up – the delivery of the new water and wastewater infrastructure that is badly needed to protect the environment and ‘fix the system’,” he said.