The water company Severn Trent was warned today that it faced having to lower bills as punishment for failures which added £42 million to customer charges.
As well as returning the money to customers - equivalent to between £2 and £3 a year on the average bill by 2009-10 - watchdog Ofwat said the interim findings of its inquiry were "sufficiently serious" to merit a further reduction in price limits.
Ofwat also said it had taken the "unprecedented step" of alerting the Serious Fraud Office to certain issues after it found Severn Trent Water provided it with data that was either "deliberately miscalculated or poorly supported".
Severn Trent, which has around eight million customers, admitted there had been weaknesses in internal processes and systems between 2000 and 2004.
Philip Fletcher, Ofwat's director-general of water services, said: "Customer have the right to expect companies to maintain the higher governance standards, including effective processes and controls, at all times. Severn Trent Water's approach fell significantly below these standards."Reuse content