A £195,000 bonus awarded to the boss of Thames Water should not be paid by customers, regulator Ofwat is expected to say on Thursday.
The BBC understands the regulator will say any bonuses paid should be borne by the company's owners and lenders rather than customers,
Thames Water chief executive Chris Weston previously warned the company only had enough cash to survive until next May, but many believe it will run out by Christmas.
The announcement will be part of an Ofwat update on executive pay and financial resilience across the sector.
Ofwat has new powers to prevent bonuses from being funded from customer invoices if the company is judged to have missed its environmental or performance targets.
Weston, a former British Gas executive, was hired in January this year to try to turn around the fortunes of a company drowning in debts of £18 billion.
Over the summer it emerged he had received a £195,000 bonus for his first three months at the company, bringing his total salary for that period to £437,000.
It is not clear whether the bonus was actually paid, but the regulator will insist it is not paid by the operating company and must be borne by the owners of the business. Thames Water declined to comment.
Awaiting this approach, other companies – including heavily indebted Southern Water – have already said shareholders rather than customers would pay bonuses to executives.
But the problem for Thames is that it effectively has no shareholders.
Earlier this year, the owners of Thames Water refused to follow through on a promised cash injection for the struggling company after Ofwat indicated it was not prepared to accept demands for increased charges. bills 44% above inflation over the next five years.
In a preliminary ruling, Ofwat said it would allow bills to rise by 21% above inflation, which shareholders did not accept.
They withdrew, leaving the company under the control of its lenders.
The majority of Thames' lenders have offered to give it a financial loan of up to £3 billion if Ofwat agrees that customers' bills will rise by around 50% above inflation over the next five years.
The lenders are currently finalizing proposals to restructure the business which would involve them agreeing to a reduction in the sums owed to them, bringing in new operational skills and exploring the possibility of a demerger and/or of a public listing of the company.
Yesterday, Environment Secretary Steve Reed, appearing before MPs, once again ruled out nationalization of the River Thames.
In the past he has said it would cost taxpayers billions of pounds and take years.
Reed said he believed the problems in the sector as a whole were issues of “regulation and governance” and he recently commissioned Sir John Cunliffe, former deputy governor of the Bank of England, to lead an independent review of the sector.
This review is not expected to be made public until June next year. The final decision on how much water companies can charge their customers for the next five years is expected on December 19.
