Householders face a bill of nearly half a billion pounds after water companies have been asked to slash the amount of water they take from rivers and aquifers and find alternative supplies.
The price rises follow a review by the Environment Agency, which found widespread damage and threats to wildlife, including precious chalk rivers and wetlands, and other protected habitats for water voles, salmon and other wildlife.
The move raises the prospect of new investment in controversial schemes including pumping water from the wet north of England and Wales to the south, energy-hungry desalination plants, and new reservoirs.
The Consumer Council for Water said customers faced price rises of up to £30 a year in the worst affected areas. The rises come on top of big hikes in the price of domestic energy, fuel and food. Deryck Hall, the council's policy manager, said in the worst cases customers faced the threat of more hosepipe bans, more drought orders on businesses like car washes and sports grounds, and even water supplies to homes running out.
One water company has been asked to reduce the amount it takes from a river supplying 740,000 people by half during the summer months.
"The threat to public supply is big one," said Hall. "We know there needs to be a balance between the environment and public supply... but it needs to be done in a very sensitive and pragmatic way, and in some cases, unless the agency and companies come together and work out what needs to be done, we end up with some difficulties facing public water supply."
The Environment Agency said that to protect public supplies, the government had agreed that companies could ask the water regulator, Ofwat, to increase bills to pay for alternative supplies.
Water UK, the industry body, said it expected the bill to top £450m because of problems finding new supplies. Affected companies tend to be in dry areas where other rivers and groundwater are already tapped to the limit, and alternatives such as piping-in water, new reservoirs and desalination face opposition because of high energy use and threats to habitats.
Water bills could rise even further because the first round of licence cuts is only to help sites designated a priority.
The Environment Agency carried out two reviews of so-called abstraction licences owned by water companies, farmers and other businesses in England and Wales, the first review of its kind for a generation. The "habitats directive" review looked at thousands of abstraction points near protected sites, and found more than one in 10 were causing damage, or a threat.
Another, wider review of all 20,000 abstraction licences on rivers and groundwater found 15% were over-abstracted and already causing damage, 18% were over-licenced and so posed a threat if the quotas were fully used, and one-third were on the limit.
Damage was caused when water dried up or fell so low that plants and other species were unable to thrive in more polluted and warmer water, or choked by sediment, said Kathryn Tanner, an Environment Agency policy advisor. "You might find you'd go from a nice big wetland to something which was mixed grasses, those sort of things, which may be less valuable in terms of its biodiversity," said Tanner.
The cost so far would add £20 a year to the average £157 water and £174 sewage bill. However, customers of the worst affected water companies are expected to have to pay more. Problem areas are thought to include those covered by Anglian Water, Southern Water, Thames Water and South West Water, said the CCW. Northumbria and Yorkshire are believed to have few or no cases of over-abstraction.
One of the most extreme problems found was on the Lower Itchen river in Hampshire, which supplies 740,000 Southern Water customers. The company has been asked to reduce water withdrawal by up to half in the summer, and estimates it will cost £70m-£100m to replace the supply from this one site alone. A company spokeswoman said they were proposing compulsory metering to reduce demand, but would also need other measures.
Other sites studied included the Ouse Washes and the rivers Derwent, Avon and Usk, though the EA has not said if problems were found at these sites.
If alternative supplies were not found and drought measures failed, consumers faced reductions in supplies to homes, said Deryck Hall, of the Consumer Council for Water.
At the end of older water mains, water could literally dry up, while in more modern homes built on ring mains they could to see a drop in pressure, he said. "They would see a reduction in pressure and possibly a trickle of water coming through rather than the full flow they are used to getting."
Ofwat will rule next year on how much companies can increase bills to pay for new supplies and other demands, including higher water-quality standards and better sewers and drains to protect against urban flooding. The new charges would come in from April 2010.
Anglian Water said it could transfer water from the wetter northern part of its region, and was also proposing a new reservoir in Lincolnshire.
South West Water said so far it had only been asked to reduce abstraction at one site, on Dartmoor, and by "not a large amount".