Ofwat has today announced plans to fine United Utilities £8.5M for awarding work to companies it owns without market testing the cost of the work to ensure value for money.
According to Ofwat, United Utilities Water must market test for services that it procures from companies within the United Utilities group, but between October 2005 and March 2007 it failed to do this.The fine relates to work carried out by associated companies Vertex Data Science, United Utilities Facilities Management, United Utilities Property Solutions, United Utilities Networks and Your Communications traded with United Utilities without market testing.Ofwat said that United Utilities Water provided Ofwat with a legally binding undertaking that it would changeits trading arrangements with its associate companies by 30 April 2007 to ensure they complied with its licence. Ofwat Chairman Philip Fletcher said, 'We take these breaches very seriously. Our job as regulator is to protect customers by ensuring they pay the minimum necessary for high quality sustainable water services.'This depends on Ofwat being able to measure accurately companies' costs when it sets price limits. This is made very difficult when water companies fail to establish transfer prices in line with current market rates,' he said.This is the first time Ofwat has proposed to fine a water company for non-compliance with internal trading rules. 'We have warned United Utilities Water over several years and reduced their price limits at successive reviews to protect customers. Despite this the company has continued to trade with associates in a way that if left unchecked has the potential to harm customers' interests,' said Fletcher'We consider the proposed fine to be a proportionate response. It sends a clear message that water companies must comply with their licence conditions. This ensures the regulatory regime is not undermined to the disadvantage of customers,' he said.In a statement, United Utilities said, 'During the last financial year, significant progress has already been made under the new management team in addressing Ofwat's concerns by competitively tendering relevant services. United Utilities has provided an undertaking to Ofwat that all of its transactions will meet the regulator's 'arm's length' criteria and this process is expected to be complete within the next few weeks'.