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South East Water is facing a £22m fine by the industry regulator for "multiple supply disruptions" which caused residents in Kent and Sussex "immense stress and anxiety".
Ofwat said company failures left it unable to cope during periods of high demand or extreme weather, leaving customers with no tap water, unable to shower or bathe, or flush their toilets.
The proposed fine applies to problems during 2020 and 2023 that affected more than 286,000 people and does not cover more recent incidents which left thousands of homes without water.
In response, South East Water said it had filed for a judicial review of Ofwat's draft decision and sought an injunction, which was rejected by the court.
The company said: "We are now considering Ofwat's draft decision and will respond via the appropriate channels, ahead of its final decision. We have no further comment at this time."
Ofwat said South East Water's response to supply problems between 2020 and 2023 was "slow and disorganised", with shortages of bottled water and not enough tankers or support for vulnerable customers.
An investigation by the watchdog found the company failed to plan sufficiently, learn from incidents – such as the so-called Beast from the East wave of cold weather in early 2018 - and conduct analysis to discover the root causes of the problems.
Ofwat also said South East Water failed to maintain key infrastructure such as service reservoirs, boreholes and major pipes.
"All of these issues left the system more likely to fail during prolonged dry periods or freeze thaw events as we have seen in Kent and Sussex on multiple occasions," said Ofwat.
South East Water is facing a further investigation by Ofwat for major supply interruptions between November last year and January.
Last December up to 16,000 homes went without water for almost a week, while in January about 30,000 properties faced issues.
Asked why it had taken the regulator three years to conclude its probe into South East Water's earlier failures, Ofwat's interim chief executive Chris Walters told the BBC's Today programme: "Investigations do take time, especially investigations like this.
"They involve a large amount of very complex, detailed engineering information that has to be very carefully assessed."
As part of the latest investigation, Ofwat will examine whether South East Water provided high standards of customer service and support, which is a condition of its licence.
She'd had an operation on her leg just before Christmas and been given medical advice "to keep it wrapped and clean".
"This is very difficult when we have no tap water and I worry it will become infected," she told the BBC.
Schools had also been forced to closed.
At the time, Liberal Democrat MP Alistair Carmichael, who is chair of the Environment, Food and Rural Affairs Committee, said that he wanted to call in the owners of South East Water to answer questions before Parliament.
South East Water is owned by a group of investment and pension funds led by the Utilities Trust of Australia, which holds a 50% stake in the company.
