Yorkshire Water, which recently announced it is hiking bills for its 5m customers, is one of the companies in the Kelda Group which routinely lend money to each other and charge interest.
Last year Ofwat announced it was investigating two loans Yorkshire Water has provided to another company in the group, called Kelda Eurobond Co Limited. It was owed £940m in total.
The regulator said it was concerned about Yorkshire Water’s finances and wanted to ensure the company “had the resources it needs to deliver its services effectively”.
Ofwat then closed the investigation in October last year because Yorkshire Water agreed to recover all of the money by March 2027 and make “a series of additional commitments”.
As part of the agreement, the company promised that £100m of shareholders' money would be spent on reducing sewage discharges from storm overflows and said it would “fully consider" it financial performance when making decisions about dividends.
It also agreed to reduce its level of gearing to 72 per cent by April 2025. A higher level indicates a higher proportion of debt compared with its equity.
An Ofwat spokeswoman said “we are currently satisfied that Yorkshire Water is complying with the various commitments” and £400m has already been paid back.
Yorkshire Water, which has reported a net debt of £6.1bn, also borrows millions of pounds from other companies in the Kelda Group.
The company spent £360.9m on covering interest payments on those loans in 2022/23.
It also paid out £62m in dividends to its parent companies to help cover interest payments on various loans – but said none of the money went to external shareholders.
Earlier this month, Yorkshire Water announced a £7.8bn investment plan, which promises to protect water supplies and reduce sewage discharges by 35 per cent.
Chief Executive Nicola Shaw said customers will need to pay almost £150 extra per year by 2030 to help fund the programme, but the company will also borrow more money and recieve a £440m investment from shareholders.
The controlling company in the Kelda Group, Kelda Holdings Limited, is registered in Jersey and owned by a consortium of private investment groups based in Singapore, the US and Germany as well as an Australian pension fund.
Earlier this year, the finances of England’s debt-laden water companies were put under the spotlight when concerns were raised about the future of Thames Water, as it has been struggling to service a £14bn debt pile.
The companies, which collectively hold £60bn of debt, claim they need to borrow to invest in their networks.