Water companies could be fined up to a 10th of their turnover for poor customer service, under new powers given to the water regulator for England and Wales.
Ofwat said there are too many instances where customers feel let down and their supplier does not have their best interests at heart.
The chief executive of the watchdog, David Black, said: “From today we are putting water companies on notice to improve customer service and where we see failure, Ofwat can and will take action which could result in significant fines.”
The organisation has been introducing new measures designed to protect consumers and the environment.
It already has the power to block companies paying out money to shareholders if they fail to meet performance standards, and can impose fines.
Ofwat said it thinks being able to dish out penalties to suppliers not treating customers fairly, triggered by a new licence requirement, will “deliver real improvements in customer service across the sector”.
“It is in the companies’ interests to put customers at the heart of their business and provide levels of service that increase customer satisfaction,” Mr Black added.
The watchdog’s latest performance report showed there has been a fall in customer satisfaction across most of the companies it regulates.
A separate report by the Consumer Council for Water (CCW) in September found that Southern Water was the most complained-about company.
Complaints received by Southern Water were almost three times higher than the overall average for water and sewerage companies, while Thames Water’s were just over one-and-a-half times higher.
More than 230,000 complaints were made to water companies in England and Wales by households in 2022 to 2023.
Mike Keil, chief executive of the CCW, said: “Every water company should provide excellent customer service but too often through our research and the complaints we handle we see people being badly let down, particularly by poor communication.
“A complete change in culture is needed in some companies if we’re to improve people’s experiences and repair fractured trust, and the new customer licence condition can help to focus minds.”
Environment Secretary Steve Barclay said: “We expect water companies to ensure customers are properly supported when services are disrupted.
“Enforcement action for poor customer service is an important and necessary step to restoring trust in the water sector and has been made possible thanks to government giving Ofwat increased powers to modify the licences of companies in England under the Environment Act.
“We are driving forward more investment, stronger regulation and tougher enforcement through the Plan for Water and will continue working closely with regulators to improve outcomes for both customers and the environment.”