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American Water Works' (AWK) New Jersey Unit Gets Rate Hike Nod

American Water Works AWK announced that its unit, New Jersey American Water, received approval from the New Jersey Public Utilities Commission to set new water and wastewater service rates for its customers. Since the last rate revision request, the company has invested $985 million in improving the water and wastewater infrastructure to maintain high-quality services.

The approval of the new rates will increase monthly water bills by $2.93 for average water customers using 5,520 gallons and monthly rates for average wastewater customers by $3.74 per month. The new rates will provide $45.5 million in additional annualized revenues to New Jersey American Water and allow the company to carry out infrastructure upgrades. The new rates will become effective from Sep 1, 2022.

Rate Hike Allows Utilities to Recoup Investments

The increase in utility rates might cause financial difficulties to customers.  However, rate hikes at regular intervals are essential and aid utility service providers in generating funds so that they can carry on with long-term infrastructure upgrades.

American Water Works plans to invest $13-$14 billion during 2022-2026 and $28-$32 billion between 2022 and 2031 to upgrade and strengthen the existing water and wastewater infrastructure.

Water utilities like California Water Service Group CWT, Essential Utilities WTRG and Middlesex Water MSEX have well-chalked-out capital investment plans to strengthen their infrastructure and appeal to their respective utility commission to increase rates.

California Water Service has more than $1 billion in capital expenditure planned for 2022-2024. The current dividend yield of California Water Service is 1.6%.

Essential Utilities aims to invest $3 billion through 2024 to strengthen water and natural gas operations. The Zacks Consensus Estimate for WTRG’s 2022 earnings indicates growth of 6.6% from the year-ago reported figure. Long-term (three to five years) earnings growth of WTRG is currently pegged at 6.1%. The current dividend yield of Essential Utilities is 2.2%.

Middlesex Water plans to invest $229 million during 2022-2024 to strengthen its water and wastewater infrastructure to provide services to customers in a safe, reliable and efficient manner. The Zacks Consensus Estimate for MSEX’s 2022 and 2023 earnings indicates year-over-year growth of 15.5% and 10.5%, respectively. The current dividend yield of Middlesex Water is 1.2%.

Investment Essential for Water Industry

The U.S. water and wastewater infrastructure is aging and gradually nearing the end of its effective service life. Per the U.S. Environmental Protection Agency, a $473-billion investment is necessary to maintain and expand drinking water pipelines, and $271 billion for wastewater pipelines to meet the demand over the next 20 years.

Systematic investment is essential for the aging water and wastewater infrastructure to ensure that these essential services are provided to millions of customers across the United States.

Price Performance

Shares of AWK have risen 7.1% in the past six months compared with the industry’s 9.1% growth.


Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research


Zacks Rank

American Water currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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American Water Works Company, Inc. (AWK) : Free Stock Analysis Report
California Water Service Group (CWT) : Free Stock Analysis Report
Middlesex Water Company (MSEX) : Free Stock Analysis Report
Essential Utilities Inc. (WTRG) : Free Stock Analysis Report
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