Here is some information on the water flow regulator valve;
The water flow regulator has been calibrated at the factory and should not be tampered with or modified in any way.
CAUTION: Strictly adhere to the calibration procedure or otherwise serious engine damage will occur.
If engine does not maintain RPM or the engine is experiencing poor performance, the water flow regulator valve might be out of adjustment. The normal adjustment as done at the factory is as follows: On the top of the water flow regulator valve locate the red plastic adjustment screw. Mark the location of the screw with a dab of paint for reference. Turn the screw clockwise (tighten) until the top edge of the screw is flush with the top of the black cap. Turn the screw 2 clicks counterclockwise (loosen). This is the factory spring setting. The bottom tapered screw should be screwed in just snug.
This Regulator valve plays an important part in cooling the engine. Each fitting is a special size and controls the flow of water to the different part of the engine depending on the rpm. Never mix up the fittings or you'll have problems with over heating and maybe seizure.
Water regulator plugged
Water leaking through that hole is a sign that you have blockage in the orifice connector below the regulator. Disconnect the hoses, remember which one goes where, and then un-screw it off the tank. Then, with a wrench, remove the brass fitting. This is the part that will probably be stopped up.
DO NOT CHANGE the setting of this regulator. This valve can cause major engine damage if not operating properly.
I hope this info helps. Keep us posted if you need more information.
Karl