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American Water Files for Rate Hike to Regain Capex in Indiana

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American Water Files for Rate Hike to Regain Capex in Indiana

American Water Works (AWK) files for a $542-million rate raise to recover investments made in existing infrastructure upgrade to serve customers better.

American Water Works Company AWK recently announced that its subsidiary, Indiana American Water, has submitted a proposal with the Indiana Utility Regulatory Commission (IURC) to increase its water service rates in the communities it caters to, across Indiana. On approval, the company will be able to recover $542 million of ongoing infrastructure investments that it has adopted to maintain and enhance water service, quality, system reliability and fire protection capabilities for customers.

If sanctioned, a typical residential customer would witness an increase in his water utility bill of approximately $5.60 per month or 18 cents per day from Aug 1, 2018 onward. The monthly bill for most Indiana American Water clients using nearly 4,000 gallons of water per month would see a 16% rise, when fully implemented in July 2020 after considering the 4.4% effect of decrease in rates on account of the federal Tax Cuts and Jobs Act of 2017.

Also, the company is proposing a phased approach toward implementing new rates inclusive of an 8.22% increase of total revenues in July 2019 and a second raise of 8.57% in July 2020.

Aging Water Infrastructure Requires Replacement

Some of the water infrastructures in the United States are a century old, urgently needing replacement or restructuring. The U.S. water system is wearing away and regular investments determine its immediate restoration and preservation. This has prompted water utility providers like American Water to notably increase investment in replacing old infrastructures.

Moreover, higher demand for water and wastewater services calls for expansion of the infrastructure to provide efficient services for customers. Now to recoup investments, utility providers often file for rate hikes pertaining to their services as is evident from the latest proposal submitted by American Water. In this line, earlier the company announced that its unit Maryland American Water filed an application with the Maryland Public Service Commission (PSC) for water rate hikes. If passed by PSC, the grant will allow the company to easily recover a $15.4-million investment for constructing a water impoundment and intake, which will serve users in Bel Air and parts of Harford County.

Another water utility, Aqua America WTR, aims at incurring a capex in excess of $500 million in 2018, which is part of an ambitious investment target of more than $1.4 billion during the 2018-2020 time period.  Connecticut Water Service Inc. also intends to invest more than $150 million within this 2018-2020 time frame for repairing and strengthening the existing infrastructure.

So, if the commissions continue to support regulated water utilities with reasonable rate hikes, it will assist the utilities to carry on with their infrastructure strengthening work.  

Price Movement

In a year’s time, shares of American Water have gained 8.5% versus the industry’s decline of 0.3%.

Zacks Rank & Key Pick

Currently, American Water has a Zacks Rank #3 (Hold). Better-ranked stocks from the same sector are National Fuel Gas Company NFG and Southwest Gas Corporation SWX, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

National Fuel Gas surpassed estimates in two of the trailing four quarters with an average beat of 7.28%. The stock has seen the Zacks Consensus Estimate for current-year earnings being revised 2.1% upward over the past 60 days to $3.40 per share.

Southwest Gas exceeded estimates in three of the last four quarters with an average earnings surprise of 24.17%. The stock has seen the Zacks Consensus Estimate for current-year earnings move 3.6% north over the past 60 days to $3.71 per share.

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