Three water companies face fines of millions of pounds for poor consumer performance, a watchdog has said.
Water restrictions have helped supply to customers, says Ofwat
Ofwat intends to penalise Southern Water, Severn Trent Water and Thames Water, which under new powers can be up to 10% of a company's turnover.
An annual report on firms' performance also said water restrictions were "unwelcome" but had benefited supplies.
However, Ofwat said most companies in England and Wales were delivering on their promises over service.
The scale of fines will not be known until an Ofwat investigation is complete, but maximum figures would be in the region of £110m for Thames Water, £100m for Severn Trent and £35m for Southern.
The powers were given to the watchdog in April last year under the Water Industry Act but have not been used so far.
Ofwat's head of consumer affairs Sue Cox said: "I recognise that the performance problems in three companies have raised concerns among consumers.
"Our aim is to make sure that consumers' interests are protected and we will take whatever action is necessary when a company's performance falls below the level we consider is acceptable."
After a second dry winter three companies in southern England imposed water restrictions over 12 months, following four firms the previous year.
Folkestone and Dover Water removed its restrictions on 2 October, but they are still in place in the Southern Water, Mid Kent Water, South East Water, Sutton and East Surrey Water, Thames Water and Three Valleys Water areas.
Ofwat said the restrictions had enabled companies to carry on providing consumers with a continued supply of water.
Upgrading systems to avoid hosepipe bans in all circumstances would be extremely costly and add significantly to customers' bills, it added.
The report - Levels of Service for the Water Industry in England and Wales 2005-06 - said there was a reduction in the number of properties at risk from internal sewer flooding and suffering from low water pressure.
Ms Cox said: "I am pleased to see that companies are generally delivering on the promises that they made to their consumers to maintain good service levels and provide improvements where necessary.
"Nearly £1bn was included in our price limits for 2005 to 2010 to allow a significant reduction in flooding from sewers which consumers are already beginning to benefit from."