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American Water's Unit to Implement Rate Hikes in Virginia

Zacks Equity Research

American Water Works Company AWK announced that its subsidiary Virginia American Water will implement an interim rate hike for water and wastewater customers effective May 1, 2019. The interim rate hike will remain in force till the State Corporation Commission comes out with a final decision on the general rate application filed on Nov 2, 2018. Virginia American Water provides water services to nearly 320,000 people in the state.

Virginia American Water intends to recover the $98-million investment made in infrastructure upgrades since April 2017. Via the rate filing, the company appealed for an overall increase in rates of $5.6 million. The company will issue credits with interest to all customers if rates determined by the commission’s final order are lower than the interim rates implemented by Virginia American Water.

Rate Hikes Essential

Per an American Water Works Association (“AWWA”) report, the cost of restoring aging underground water pipelines in the United States will be at least $1 trillion in the next 25 years.

Hence, rate hikes at regular intervals will ensure the recovery of invested amount and enable the utilities to continue with their long-term investment plans. American Water has plans to invest within $8-$8.6 billion from 2019 through 2023 in its different service territories, which will help improve earnings by 7-10% per year in the aforesaid period from a 2017 base.

What’s Ahead for Water Utilities?

The water and wastewater infrastructure in the United States is aging, and gradually nearing the end of its effective life. At present, more than 53,000 water systems in the United States provide water solutions to customers. The highly fragmented water industry creates operational challenges in meeting the increasing water requirement.

Hence, consolidation in this highly fragmented industry is crucial and of utmost importance as it offers ample growth opportunities for water utility operators. Growth prospects in the water utility space have resulted in the expansion of operation beyond the normal line of business for companies like Eversource Energy ES, which has been acquiring water utilities. The possibility of growth in the water utility space will likely draw more companies from other industries in this water utility space.

Apart from American Water, which is one of the most active players in the water space, other water utilities like Global Water Resources, Inc. GWRS and Aqua America WTR have been pursuing acquisitions. Consolidation will help improve the quality of water and wastewater services provided to the company’s expanding customer base.

Rank and Price Performance
Currently, American Water Works has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of the company have outperformed its industry in the past 12 months.

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