THE water regulator today threatened United Utilities with an £8.5m fine for uncompetitive trading practices.
Ofwat said it planned to impose the penalty - the first of its kind - after repeated warnings to the company about its failure to test the services it provides from its own subsidiary companies against the wider market.
The regulator has already intervened twice to reduce customers' bills in 1999 and 2004 after warnings over United Utilities' trading with associate companies, which it said was in breach of its licence.
Ofwat chairman Philip Fletcher said: "We take these breaches very seriously. The company has continued to trade with associations in a way that if left unchecked has the potential to harm customers' interests."
United Utilities made pre-tax profits of £481m for the year to March 31, 2006 - up by 21% on the previous year.
The regulator said it was basing the proposed fine on £95m in trading between the utility and its own companies in the 18 months to March this year.
Ofwat said the fine covered the utility's deals with its associate companies, including installing and maintaining water meters without testing its prices in the wider market.
Mr Fletcher said: "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."
In December, United Utilities gave Ofwat a legally binding undertaking to changes its practices by the end of this month to ensure that it complied with its licence. The regulator added that it was monitoring the firm's progress.
United Utilities said: "Significant progress has already been made under the new management team in addressing Ofwat's concerns by competitively tendering relevant services."
Ofwat has the power to fine water firms up to 10% of their turnover under powers which came into force two years ago.