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American States Reaches Settlement Agreement in Rate Case

American States Water Company AWR recently announced that its regulated utility subsidiary, Golden State Water Company (GSWC), and the Public Advocates Office at the California Public Utilities Commission (CPUC) have agreed to adopt the settlement agreement in connection with the electric utility general rate case.

The company’s subsidiary had filed a general rate case application last year for Bear Valley Electric Service (BVES) division to determine new rates applicable from 2018 to 2021. The company expects the final rate case decision in 2019 and if approved by the CPUC, the new rates will be effective retroactive from Jan 1, 2018 onward.

The parties to the agreement have agreed to consider some changes to the rate filing made in May 2017. Those are extension of the rate cycle by one year from 2018 to 2022 and expansion of electric gross margin by $2 million for 2018, $1.2 million for 2019 and 2020, $1.1 million for 2021 and $1 million for 2022 compared with last year’s adopted electric gross margin.

Aging U.S. Water Infrastructure

The U.S. water infrastructure is quite old and a massive investment is required to fix the existing water and wastewater systems. Some of the water mains are nearly a century old and require immediate replacement. Facelift of old transmission mains and betterment of treatment plants require a hefty sum of money to upgrade the water infrastructure.

Per American Water Works Association, the U.S. water systems need about $1 trillion investment over the next two decades in improving its aging infrastructure. All the regulated water utilities are pumping resources into strengthening operations and recovering the same through rate hikes.

Rate Raise in Water Utility

The primary objective of the filing for rate case by the companies is to recoup the investment made in infrastructural need including upgrades to the distribution and treatment systems for improving drinking-water quality and service reliability throughout its water and wastewater operations.

In November 2018, American Water Works AWK announced that its subsidiary, Kentucky American Water, has filed an application with the Kentucky Public Service Commission (PSC) to upwardly revise the water rates. On approval, this would increase the water bills for the average residential customer using 3,869 gallons per month to $39.62 from $32.06 (August 2018).

Also, in August 2018, Aqua America Inc. WTR informed that its arm Aqua Pennsylvania has filed an application with Pennsylvania Public Utility Commission, requesting a rise in water and wastewater rates for customers. The requested hike in annual revenues is $71.8 million.

Price Movement

Over the past 12 months, shares of American States Water have rallied 21.5% versus its industry’s decline of 2.1%.

Zacks Rank and Key Pick

Currently, American States Water has a Zacks Rank #2 (Buy). Another top-ranked stock from the same industry is Middlesex Water Co. MSEX, sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Middlesex Water delivered average positive earnings surprise of 16.90% in the trailing four reported quarters. Earnings estimates for the company have moved 6.5% north to $1.96 in the past 30 days.

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