Speaking this morning on BBC Radio 4's The Today Programme, Ofwat's Chief Executive says that the water industry is "on notice" to justify the money it is proposing to spend. In the interview Regina Finn warned that the regulator would not tolerate complacency, as it challenged water companies' proposals to increase prices to help fund capital investment programmes.

Water companies in England and Wales propose increasing the average customer bill by around nine per cent more than inflation between 2010 – 2015.

Ms Finn said

"In these tough times, clearly it is important that bills are kept under control. We are challenging these proposals and the water companies are on notice that they will have to justify every single penny of customers' money that they wish to spend."

The interview preceded the publication today of Ofwat's Service and delivery report, which scrutinises how the companies performed in 2007-08 in delivering services to customers in England and Wales. It shows that although water companies are generally hitting their performance targets, there is still room for improvement across the industry.

For example, all water companies have hit their leakage targets for the first time. This is set against last winter's mild weather, and there is still more to be done. The industry leaked 3,291 megalitres of water a day in 07/08 -enough water to fill the bowl of the new Wembley stadium almost three times every day.

Commenting on the report Ms Finn said:

"The water companies are getting better. Yet in terms of the progress what we are seeing is small steps up a steep hill. This is no time for complacency.

"We want to ensure that customers receive consistent quality of supply at reasonable prices. We believe increasing competition will be the key to meeting these challenges."

"With an increasing population and the impact of climate change we need to think differently about how we manage our water."

Ofwat's climate change policy set out that the industry faces unprecedented challenges adapting to a changing climate. Recent predictions suggest wetter winters and drier, warmer summers, raising the potential twin challenges of flooding and supply shortages.

The report shows that seven companies' water supply levels mean that they would implement a hosepipe ban on average once every ten years; more than half the companies work on the assumption of a ban once every 20 years. Folkestone and Dover Water has already been granted "water scarcity status."

Other headline issues addressed in the Report include:

• In general, the companies delivered high levels of reliability and service to most consumers – but Ofwat says they need to guard against complacency in light of last summer's widespread floods.
• Aggregate gross capital investment was £4.9 billion. This is 4% higher than Ofwat assumed at the 2004 price review.
• Overall investment is still some 9% behind Ofwat’s expectations for the first three years of the current price limit period (2005-10).
• Companies have caught up on capital maintenance. -  this is 5% above the level Ofwat expected by now.