What you said about the water companies is not correct. They are regulated on the basis of price - the regulator sets a pricing formula for the industry RPI + X (i.e. X is the annual price increase above inflation).

There are no caps on profit.

The reason why companies carry large amounts of debt is that debt finance is much cheaper than equity. Given that a utility has stable cashflows, it makes sense for it to use a high proportion of debt finance.