Thames Water has been fined £8.55m over its failure to meet commitments to reduce leakages.
Leakages on its patch have increased five per cent since last year to 677m litres per day, missing its target of 630m litres per day, it said in its 2016/17 annual report.
"[The year] 2016 was a year of re-evaluation for our water business after a cluster of significant bursts on our Victorian pipes affected customers in London and contributed to us missing our leakage target," said chairman Sir Peter Mason.
Mason added: "Next year’s target is tighter and we are committed to a recovery plan aimed at bringing us back on track with our leakage targets by the end of the regulatory period."
The £8.55m fine is the maximum automatic penalty under the performance commitment regime for missing this specific target, said industry regulator Ofwat.
However, Ofwat has opened an investigation to consider whether enforcement action is needed over and above this automatic penalty.
"The failure by Thames Water to meet the leakage commitments it has made to its customers is unacceptable," said Ofwat chief executive Cathryn Ross.
"Our performance commitment regime imposes significant penalties for failure to deliver the levels of performance that customers have paid for and consequently, Thames Water will now face the maximum penalty. We take very seriously our responsibility to ensure that every water company is delivering for its customers and where they fall short, we do not hesitate to step in to protect customers’ interests."
Between 2004 and the 2015/16 year, Thames Water reduced its leakage by a third. The firm said it will invest £97m over the next three years for trunk mains replacements.