The regulator also said that North West Water "has some way to go to rank amongst the best performers in the industry" and that a report on Yorkshire Water's handling of the drought, would be issued within weeks.
Investigations by the regulator were started last year following concerns that the three firms are falling behind the rest of the industry in meeting certain standards.
Ian Byatt, director general of Ofwat, said yesterday that South West's delay in improving sewage treatment "will be taken into account in setting price limits at the next periodic review". The statement adds to the uncertainty surrounding South West, which in the throes of management changes and faces potential takeover bids .
Mr Byatt also warned that while North West Water "will not require any corrective action", the company must demomstrate further improvements before the periodic price review in 1999.
Mr Byatt said: "Price limits were set in 1989 and 1994 with the expectation that companies would complete certain programmes to achieve higher quality standards and improvements in their level of service. I made it clear my intention to scrutinise company performance carefully and take action where I am not satisfied."
He said that his investigation into Yorkshire, which has been criticised over its handling of the drought, has yet to be completed. He said decisions on Yorkshire would "be based on the assessment of fact" and not on the internal enquiry which the company has undertaken.Reuse content