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Water companies have been ordered to return £158 million to customers through lower bills next year after missing key targets on pollution and leaks.
But most customers will only see their bill reduced by less than £10.
This is the fourth year in a row that companies have had to reimburse their customers, raising questions about the regulator's effectiveness.
Industry body Water UK told the BBC that companies had made improvements in most measures and were committed to improving their performance.
Ofwat assesses the performance of the 17 largest water and wastewater companies in England and Wales against key targets each year, for issues such as sewer flooding, interruptions supply and water leaks.
For the second year in a row, no company achieved the highest score, although four companies showed an improvement from last year.
For the worst performing businesses, failing to meet targets means they will now have to collectively return £157.6 million to customers on their bills for 2025-26.
The effectiveness of the fines and Ofwat's ability to regulate the sector have been called into question given the companies have underperformed for four years in a row.
Defending the regulator, CEO David Black, told the BBC's Today programme: “It is up to the water companies and their boards, multi-billion pound businesses, to turn around their performance. We agree that there is still much to do and we will continue to work. to get the sector to perform better.
Thames Water will have to make the largest refund to its customers of £56.8 million, although its overall performance has improved compared to last year.
Despite the record fine, most customers will see their bill reduced by just a few euros. Any reduction will be dwarfed by the expected long-term increase of £94 per household over the next five years, currently proposed by Ofwat.
This price increase is still being negotiated with the water companies as part of their investment plans. The companies say even higher bills will be needed if they are to afford the infrastructure improvements needed to address some of the problems raised in this performance report.
Ofwat's review focused on key targets including reducing pollution incidents, which were expected to fall by 30% between 2020 and 2025.
Companies had received a 15% reduction in recent years. But this improvement was almost erased by the significantly higher number of incidents last year.
The industry said that while this performance was unacceptable, the record levels were due to heavy rains and the increasing number of sites now being monitored.
But David Black, of Ofwat, said: “It is clear that businesses need to change and this must start by addressing issues of culture and leadership. Too often we hear that weather conditions, third parties or external factors are blamed for defects.”
Public dissatisfaction with the industry has increased in recent years, particularly regarding pollution.
James Wallace, CEO of campaign group River Action, said: “It may seem like a lot of money, but frankly it's a drop in the bucket for polluting water companies.”
Mr Wallace questioned whether Ofwat was an effective regulator,
“The new government is taking positive steps, including a review of the water sector and the introduction of a Water Bill. However, we believe that the Bill, as currently drafted , is insufficient. Where is the obligation for Ofwat to prioritize the environment and penalize pollution? he said.
David Henderson, chief executive of Water UK, told the BBC's Today programme: “Performance is clearly not where it should be, and businesses are fully committed to improving that performance.
“It's important to note, however, that it's not all bad: in all but two measures, water companies have made improvements since the start of the decade – leaks are at their lowest levels in history .”
Ofwat estimates that currently around a fifth of all water injected into the network in England and Wales is lost through leaks.
This is an important area for the industry to address as many areas of England already experience regular water shortages and climate change is expected to exacerbate this problem. The Environment Agency estimates that the country will need an additional 5 billion liters of water per day by 2050 to support the economy and the environment.
Some companies were praised in the report for their efforts to tackle this problem and others, including Severn Trent, which Ofwat says has managed to reduce sewage discharges by making improvements at 467 sites.
Severn Trent, SES Water, Northumbrian Water and United Utilities have exceeded their targets and will therefore be able to charge their customers more next year, as part of a scheme to incentivize the sector.
Following the publication of the report, the Department for Environment, Food and Rural Affairs said the Environment Secretary would write to the chairmen and CEOs of each water company to outline the performance improvements that he hopes they will bring in the coming year.
