Thames Water has been asked to explain a £37.5m dividend payment made to a parent company.
Ofwat, the water regulator, asked the firm to explain how the sum does not break rules designed to protect customers and the environment.
They added they are investigating whether the dividend was in line with company licence requirements.
Ofwat said after receiving notification that the firm paid a dividend to shareholders, they “requested Thames Water provide more information to demonstrate how, specifically, the dividend payment meets the licence requirement to take account of service delivery for customers and the environment, as well as investment needs and financial resilience”.
“We will review any additional information the company provides and decide whether there is a case for further action,” they added.
Ofwat has not yet opened a formal enforcement case against Thames Water.
Thames Water said the money was simply being moved to a parent company in order to help pay its debts.
They added that no dividends have been handed to “external shareholders”.
Thames said it was working with the regulator “to provide further context and clarification”.
In May, rules were introduced ensuring water companies do not pay dividends unless they have delivered for customers and the environment.
Thames Water revealed an 18% rise in pollution incidents during the first half of its financial year today, and shared its debt pile grew by 7% to £14.7bn in the same period.
Ofwat is able to impose penalties of up to 10% of Thames Water’s relevant turnover.
MPs also plan to bring Thames to parliament to answer questions about its finances.
Interim bosses said “immediate and radical action” is needed to improve its environmental and financial performance, but added: “Turning around Thames will take time.”
The UK’s biggest water supplier reported a 54% drop in pre-tax profits to £246.4m in the six months to 30 September.
Revenues rose 12% to £1.3bn in this period – but Thames spent a record £1bn on improving its network.
Former boss Sarah Bentley stepped down abruptly in June amid concerns over the firm’s financial security.
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Thames fined for pollution and performance
It comes after Thames Water reported 257 category one – the most serious – to category 3 pollutions over the six months to the end of September.
Thames was also fined more than £3m in the summer over an incident that saw human waste flow into rivers for more than six hours.
Earlier this autumn, Ofwat fined the company £51m for failing to reach its performance targets. The fined sum will be paid back through reductions to customer bills.
In June, Sky News reported on how fears Thames could be crushed by its debt prompted the government to ready a rescue plan.
Its investors later agreed a further £750m of investment. Thames said it had the money it needed despite its net debt rising.
Thames has been pushing for Ofwat to allow an increase in bills from 2025 to help fund its investment plans, with the focus on six key areas including tackling leaks, customer complaints, supply interruptions and pollution.
