Ofwat has been criticised for removing a cap on the financial rewards water firms can get by beating their targets on water pollution, leaks and customer service.
As part of its 2019 price review, the water regulator said it will not cap the total amount a company can earn from outcome delivery incentives (ODIs).
Consumer Council for Water (CCWater) warned that could “open the door to bill instability” and lead to an increase in bills for consumers.
Chief Executive Tony Smith said: “We are concerned that the regulator has decided to remove the cap on the financial rewards companies can receive for meeting their performance targets.
“This could hand companies an opportunity to claw back some of the money they would be unable to get through lower financing costs and it could lead to bill increases which many customers view as rewards for doing the day job.”
He however welcomed the proposal to set the weighted average cost of capital, which affects the prices that companies can charge customers, at a record low of 2.4%.
That is expected to reduce bills for households and businesses by £25 a year from 2020 to 2025.