Tens of thousands of homes were left without water as a result of the burst, which happened on May 2, with more than 30,000 customers finally regaining their supply by May 7.
Hastings council leader, Julia Hilton revealed the news at a council meeting this week.
She said: “All councillors reacted with anger and dismay at the news that Southern Water are not intending to properly compensate individual residents for the loss of water over the Bank Holiday period.
“Southern Water are claiming that the statutory £30 of compensation for every 12 hours of water loss to the 30,000 households who lost access to water over the weekend do not apply in this case.
“Instead a community fund of £500,000 is being offered plus £120,000 for festivals, schools, and to compensate the Jack in the Green festival.
“While the funds being offered are welcome, we need to put pressure on Southern Water to ensure that the households that most deserve compensation are directly reimbursed.”
A spokesperson for Southern Water said: “The Regulations that underpin the Guaranteed Standards Scheme (GSS) provide minimum standards of service for customers and these are subject to Guidance from the regulator, Ofwat.
“However, the nature of this burst of a strategic water main, combined with the response provided in terms of the fix and alternative sources of water provided, means it does not qualify under the Regulations or the Guidance.
“Despite this Southern Water understands the impact this had on the local community, and so has created a goodwill fund of £1m to businesses and the community.”
Southern Water said it has put up the cash in recognition of the disruption and distress caused by the early May loss of water supply, and the ongoing efforts to prevent a further weather-related flooding incident in Hastings town centre following two major flooding events in 2023.
Tim McMahon, Southern Water’s director of water, said: “We recognise that the services we provide have not met all of the expectations of our customers in St Leonards and Hastings in recent months and we are very sorry.
“This community has faced both weather-related floods and a major loss of water supply, and we have seen the toll this has taken on local businesses and households. We accept that we need to put things right so far as the community and businesses in Hastings and St Leonards are concerned, and therefore want to give something back as a meaningful goodwill gesture.
“We care about Hastings and its community, with many of our colleagues working and living in the area, so we hope this gesture will help make a positive difference following such challenging times.”
The company confirmed the £1m goodwill fund includes £120,000 for local festivals and events, £500,000 for community projects, allocated with the support of local partners and £380,000 to support businesses.