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American States Water Receives Electric Rate Case Approval

Zacks Equity Research

American States Water Company AWR recently announced that its regulated utility subsidiary — Golden State Water Company (“GSWC”) — has received the general rate case approval from the California Public Utilities Commission (CPUC) to determine new electric rates. On behalf of Bear Valley Electric Service (“BVES”) division, GSWC filed a general rate case application in May 2017.

The approval enables new electric rates for 2018-2022, effective from Jan 1, 2018. It raised the electric gross margin by approximately $2 million in 2018, $1.2 million each for 2019 and 2020, $1.1 million for 2021 and $1 million for 2022. Based on the final decision, BVES will construct all the capital projects of nearly $44 million over the 5-year rate cycle.

Importance of Rate Hikes

Regulated water utility companies make consistent investments to strengthen aging infrastructures and replace soiled pipelines. The new rates enabled companies to recover the invested amount and continue their infrastructure upgrades.

Rate increase is very common in utilities. In June, the CPUC approved GSWC’s general rate case request to determine new water rates for 2019-2021. In the same month, another water utility company American Water Works Company’s AWK subsidiary — Kentucky American Water — received approval for water service rate hike from the Kentucky Public Service Commission.

Investments for Water Infrastructure

The aging U.S. water infrastructure requires huge investments for maintenance as well as upgrade of the existing water and wastewater systems. The U.S. government is also undertaking initiatives for the improvement of drinking water and wastewater infrastructure. To provide clean and reliable water service, American States Water is spending constantly. GSWC invested $70.7 million in company-funded capital projects during the first six months of 2019 and expects to invest $115-$125 million in 2019.

Other water utilities are also planning to invest on a long-term basis. Aqua America Inc WTR aims to invest in excess of $555 million as part of its ambitious investment target of more than $1.4 billion in the 2019-2021 time period. Companhia de Saneamento Basico do Estado de Sao Paulo SBS intends to spend nearly R$18.7 billion to improve its services over the period of 2019-2023.

Zacks Rank & Price Performance

American States Water currently carries a Zacks Rank #2 (Buy). You can see  the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

In the past 12 months, shares of the company have rallied 44.2% compared with the industry’s rise of 39.5%.

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