Thames Water will not be forced to pay a fine for failing to meet its leakage targets in the last three years.
Instead water industry watchdog Ofwat will force shareholders in the London based water firm to pay an extra £150 million on top of Thames Water's existing £3.1 billion investment plan to accelerate improvements in leakages in the capital.
Thames Water could have been hit by a fine of up to £140 million by Ofwat after losing 894 million litres every day from its network of supply pipes, 34 million litres over the Ofwat maximum limit of 860 million litres.
Although escaping a penalty fine this time, Ofwat warned that it will not hold back in 2007 if Thames Water does not get back on track to ensure "security" of water supplies by 2010.
Philip Fletcher, chairman of Ofwat, said Thames Water's leakages were "unacceptable" before explaining that the extra spending would "directly address the issue of London leakage and achieve more secure supplies".
"It is more than double the maximum possible fine which the regulator could have imposed," he said.
"A fine would not have gone to protecting customers, but to the Exchequer. This is the right answer for Thames' customers and for London."
Thames Water was rounded upon by Ofwat after recording a growth in profits of 31 per cent and an increase in customer bills of 20 per cent, despite failing to meet leakage targets.
"It is right that the consumer does not bear the burden of the increased investment needed for Thames Water to deal with its failure to meet its leakage targets," commented environment minister Ian Pearson.
"The cornerstones of government policy on regulation of the water supply industry are value for money for consumers and environmental sustainability. We welcome the fact that the powers extended in the 2003 Water Act have given the regulator the necessary weight to take action against companies who are not serving those interests."
Since coming under attack, Thames Water has strenuously attempted to justify its continued failure to meet its leakage targets.
In particular it has pointed out that it has to deal with an antiquated piping system running underneath the capital, claiming that in the built-up urban environment the water network is especially difficult to modernise and maintain.