The fine is for performance failings since April 2005, the date the regulator was given powers to fine companies. Previous underperformance will not draw any financial penalty.

Southern Water, which provides water and waste-water services in Kent, Sussex, Hampshire and the Isle of Wight, has already admitted failing to meet service standards for bills inquiries and complaints after a new billing system revealed that previous figures that it gave to Ofwat were not accurate.

The company said in October that up to £2.5 million may have to be refunded for payments owed to customers because of missed response times in the year to last March.

Philip Fletcher, director- general of Ofwat, said: “Customers have not received the levels of service I expect. A financial penalty will send a clear message that each water company must meet its legal obligations to its customers.”

Independent experts from KPMG are investigating the matters for both Ofwat and the company. The Serious Fraud Office is considering whether to launch its own investigation after being called in by the company in October.

Ofwat is obliged to give notice of the fine within 12 months of the problem being found, but it is not yet clear what the final penalty will be or when it will be imposed.

The water company said: “Southern Water discovered inconsistencies in the reporting of its customer service response levels in October last year and immediately took the initiative to report them to Ofwat. As a result, we fully understand the procedural step the regulator is taking.”

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