Residents could receive lower water bills for decades to come after Southern Water was warned it faces a financial penalty of up to £176m for poor performance.

The Worthing-based water firm has been named alongside South East Water as having the highest number of complaints of any water firms at more than double their rivals, says a report.

The Consumer Council For Water (CCW) report said the firms have been told they need “to bring themselves into line with the rest of the industry” but continue to “lag behind”.

The poor performance of the firm in handling complaints could see Ofwat impose penalties of £26 million on Southern Water and £7 million on South East Water over the five years which could see bills drop by as much as 8.5% before inflation.

But Southern Water could also face a possible £150 million shortfall with the majority of the figure connected to the water company's management of sewer discharges.

In the latest CCW report, Southern Water received 16,423 written complaints in the financial year 2013/14, down 28% on the previous financial year but 33% up on 2010/11.

South East Water had 6,261 complaints for the year to last April – down 29% annually and down 24% from 2010/11.

Southern Water said they are finalising a response to the Ofwat proposals where they will propose no penalty should be imposed.

The firm said that they expect there to be "movement" in Ofwat’s position between its draft and the final determination expected in December.

Darren Bentham, of Southern Water, said that for 2014/15 there had been a 35% fall in complaints compared to last year.

He added: “While our performance in 2013/14 saw a big improvement, we are lower down the results table than we want to be and where our customers want us to be.

“However, we continue to make changes which ensure we focus on our customers – from training to new systems and an improved website.”

Steve George of South East Water said: “We are pleased to see the downward trend continue during 2014 but we recognise there still more to do.”

A final decision on the penalties imposed on the two companies and the impact on customers’ bills will be made on December 12.