Climate change has led to less rain and dryer, warmer weather

A report said it was hoped all firms in England and Wales could meet demand by 2010, even in dry years, and most were planning ahead to avoid hosepipe bans.

But it said Thames Water and Folkestone and Dover Water still had to do more.

Thames Water said it was updating pipes and investing record sums. Folkestone and Dover said it is developing sources and asking people to conserve supplies.

'Extreme weather'

Companies also with "work to do" included Southern Water, Dwr Cymru and Severn Trent.

Ofwat's report said companies could improve services, but could not budget for weather extremes, such as drought or floods.

A spokeswoman said water restrictions once every 20 years in severe weather were "perhaps something we have to accept".

Ofwat accepted hosepipe bans this year were due to "extreme weather" but said it expected firms to take account of weather and climate change.

'Water scarcity status'

Thames Water said it was spending �500m on replacing 850 miles of Victorian pipework in London, extending a storage scheme, and extending the ring main supplying water across the city.

The company is appealing against Ken Livingstone's decision to turn down plans for a Thames estuary desalination plant, which would turn Thames water into drinking water.

Folkestone and Dover, which is spending �27m on developing new sources and mains, said it had limited resources with no surface water in rivers or reservoirs and only water stored underground.

A spokesman said climate change was "a further complicating and increasingly important factor...accelerating the trend towards dryer, warmer weather in the South East".

Folkestone and Dover has applied to the government for "water scarcity status", which would allow it to introduce compulsory metering.