Water services regulation authority Ofwat has imposed a £8.5 million fine on United Utilities Water for the company's "non-compliance with transfer pricing rules".
The regulator stated that the company had "repeatedly breached its licence" by failing to conduct a market test as this could result in customers paying higher prices than necessary.
It added that United Utilities was under an obligation to market test for services that it obtains from companies within the United Utilities group.
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 added that the regulator had warned United Utilities Water "over several years" and had "reduced their price limits at successive reviews to protect customers".
The regulator said the fine would send a clear message to water companies about the need for them to comply with their licence conditions.
The fine is based on £95 million in deals made between United Utilities Water and its associate companies regarding the installation and maintenance of water meters without testing prices in the market in the year-and-a-half to March 2007.
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