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American Water Works Receives Rate Case Approval in Kentucky

Zacks Equity Research

American Water Works Company, Inc AWK recently announced that its subsidiary — Kentucky American Water — has received approval for water service rate hike from the Kentucky Public Service Commission, which was filed in November 2018. The rates will be effective from Jun 28, 2019.

The rate review request will enable the company to make infrastructural investments worth $100 million, specifically toward water treatment and distribution system upgrade. The revised rates will hike monthly water bill to $37.27 from $32.06,for an average residential customer that consumes 3,869 gallons.

Importance of Investments & Rate Raise

Water utility companies provide24X7 drinking water and wastewater services to industrial, commercial and residential customers. To provide clean and safe water services, it is mandatory for these companies to frequently strengthen and upgrade their infrastructures. Thus, water utilities require constant funding to strengthen aging infrastructures by replacing soiled pipelines. Recently, the U.S. Environmental Protection Agency (EPA) announced the availability of $2.6-billion fund to assist states, tribes and territories with improved drinking water and wastewater infrastructure.

As most water utility companies are regulated, they depend on the commission for rate hikes. To recover investments related to upgrade or installation of the distribution systems, regulated companies file for rate hikes. Also, these hikes enable the companies to undertake further investments.

Investment Plans

The companyaims to invest $8-$8.6 billionfrom 2019 through 2023. These spending are expected to improve its earnings by 7-10% per year in the aforesaid period from 2017 levels. A significant chunk of $7.3-billion fund will be directed to strengthen the regulated businesses. The latest rate hike would enable American Water Works to duly make these investments.

Other water utilities are also investing on their respective infrastructures. American States Water Company AWR invested $38.2 million for capital work in GSWC in 2018 and expects to spend $115-$125 million in 2019. Aqua America Inc WTR aims to invest more than $555 million, which is in sync with its ambitious investment target of more than $1.4 billion in the 2019-2021 period. Companhia de Saneamento Basico do Estado de Sao Paulo SBS plans to invest roughly R$18.7 billion to improve services over the period of 2019-2023. The expenditures will include R$7.8 billion on water, R$8.3 billion on sewage collection and R$2.6 billion on sewage treatment.

Zacks Rank & Price Performance

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

Year to date, shares of the company have rallied 27% compared with the industry’s rise of 24%.

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