Severn Trent Water has avoided a fine even after Ofwat took aim at "serious failings" in how it deals with wastewater and sewage.
The water regulator found that the company did not have the correct systems and processes in place to monitor and maintain its network.
Severn Trent, which supplies water to more than eight million people in England and Wales, was also found to have historically breached requirements in its licence to have adequate processes and systems in place to meet those duties.
Despite the failings, Ofwat said it would not impose a fine as Severn Trent had proactively identified the problems and invested £98m in fixing them.
Lynn Parker, senior director for enforcement at Ofwat, said: "Our investigation found serious and unacceptable breaches by Severn Trent Water – that is not in question and the company accepts it.
"But their response to those failures sets a standard we expect from all companies: identifying the problem, proactively investing to fix it and cooperating openly with the regulator."
Severn Trent has come under scrutiny for its poor record on sewage spills. The company discharged raw sewage into Britain's waterways more than 36,000 times last year.
Despite this, Severn Trent has doubled the size of its chief executive's long-term bonus scheme, meaning boss James Jesic could take home as much as £3.1m a year.
His predecessor, Liv Garfield, was one of several water bosses blocked from receiving a bonus because of environmental failures.
Mr Jesic said: "We accept Ofwat's findings relating to issues that we proactively identified and began addressing these before the enforcement case was opened.
"Our investment programme in spills reduction continues across our region at pace with the strength of our whole organisation and supply chain behind it.
"We still have work to do and remain absolutely focused on delivering further improvements for our customers and the environment."
Mr Jesic insisted that the company was turning its performance around, with average storm overflow spills reduced by 41pc in 2025.
However, industry experts said the reduction in spills last year was largely driven by a dry summer. Less water means that the sewage system is less likely to be overwhelmed.
Feargal Sharkey , the water campaigner, criticised Ofwat's refusal to issue a fine.
He told The Telegraph: "Responsibility for the fraud that is the water industry can be laid firmly at the Government's door.
"It's high time Secretary of State Emma Reynolds stopped applauding corporate greed, financial engineering and incompetence. She should fire the board of Ofwat, and she should do so today."
It marks the eighth case in Ofwat's sector-wide investigation into wastewater failures, which has led to £300m in fines and enforcement packages. This included a £104.5m fine for Thames Water for wastewater failures .
