The 1992 Competition and Service Utility Act placed a requirement on the director to ensure that the companies operate at arm's length. Since then, I have amended the licences to forbid the companies to cross-subsidise their activities, ensured the companies had proper accounting guidelines to follow to meet this requirement, talked to the companies about their implementation plans, and finally instigated a series of on-going checks on compliance with the guidelines. To suggest that transfer pricing has been going on without us noticing is therefore an extraordinary claim.
The audit of the regulated accounts against our guidelines is a requirement I have placed on the companies under the terms of their licence. Nevertheless, we still adopted a belt-and-braces approach by sending in our own teams to check compliance. I would have thought this was just the sort of policing that shows the regulator is doing his job rather than washing his hands of the issue.
Chris Godsmark ("Watchdog uncovers water profits misuse", 25 September), suggests that the companies have been using their profits to subsidise "hundreds and millions of pounds of activities". This is nonsense. The amount of cross-subsidisation quantified amounted to one tenth of 1 per cent of the regulated turnover. Customers will certainly not subsidise these activities.
I CR BYATT
Director General, Ofwat,