California Water's Unit Files for Rate Hike to Raise Revenue

California Water Service Group’s CWT subsidiary, Hawaii Water Service (Hawaii Water), recently announced that it has filed a General Rate Case with the Hawaii Public Utilities Commission (“HPUC”) for a rate increase. Notably, the company is seeking to recover the cost of capital investments made toward the Waikoloa Village and Waikoloa Resort systems.

The HPUC will review Hawaii Water’s ongoing operations and capital improvements as well as other factors before approving changes in rates.  Changes in the rates, if approved, will take place after the fourth quarter of 2018.

Recovery of Investments & Upgrades

The rate hike, if approved, is expected to bolster the total annual revenues by $3.8 million. With respect to the Waikoloa Resort systems, the filing request is aimed at recovering additional revenues worth $0.2 million for the Waikoloa Resort water system, and $2 million for the wastewater system. Further, the rate hike is anticipated to generate additional revenues of $0.5 million for the irrigation system that offers recycled water service to customers.

From the Waikoloa Village, the company anticipates to realize additional revenues worth $0.7 million for the water system and $0.7 million for the wastewater system.

Among the upgrades covered in this request are Supervisory Control and Data Acquisition (“SCADA”) improvements and construction of the two new water wells shared with the Waikoloa Resort system. Furthermore, improvements to a third water well and electrical building shared with the Resort system, wastewater piping repairs, construction of the wastewater treatment plant (K-plant), an extension to the wastewater treatment plant (R-plant), and purchase of a jetting/vacuum truck are also featured.

Why This Move?

Utility being a capital-intensive sector, major players in this space need to make ample investments from time to time, to meet the increasing customer demand as well as conduct operations seamlessly. In particular, water utilities are frequently required to upgrade and replace old pipelines and water mains. Being no exception, Hawaii Water has also made significant investments to strengthen existing infrastructure. In line with this, we have witnessed the company’s capital investments totaling to $180.4 million during the first nine months of 2017, reflecting an increase of 8.4% compared with year-ago period.

Naturally being a profitable organization, Hawaii Electric will certainly try to recover the cost of those investments. We believe the filing for rate hike by the company is one such initiative to recoup capital expenses.

Interestingly, Hawaii’s tourism industry — a significant driver of Hawaii’s economy — ended with growth of 4.9% in visitor spending and 7.1% in arrivals, during third-quarter 2017. This expansion in tourism industry reflects solid increase in demand for water service and potential improvement in days ahead. To make most of the situation, the rate hike decision seems to be a wise move on Hawaii Water’s part.

In fact, given the growing opportunities in this state, California Water is currently aiming to extract higher revenues from Hawaii, by making similar rate case proposals. Evidently, in October 2017, the HPUC approved an increase in the company’s annual revenues by $0.7 million 771,000 in Pukalani wastewater system. If approved, the latest rate case will add impetus to the company’s top-line growth.

Price Movement

California Water has outperformed the industry in the last three months. The company’s shares have returned 6.6% compared with industry’s gain of 3.5%.

Zacks Rank & Key Picks

California Water currently carries a Zacks Rank #4 (Sell). Better-ranked stocks from the sector are FirstEnergy Corporation FE, Atlantic Power Corporation AT and DTE Energy Company DTE, all of which carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

FirstEnergy delivered an average surprise of 4.67% in the trailing four quarters. Its 2017 estimates have increased to $3.00 per share from $2.83 per share in the last 90 days.

Atlantic Power delivered an average surprise of 29.21% in the trailing four quarters. Its 2017 estimates have narrowed to a loss of 22 cents per share from a loss of 27 cents per share in the last 90 days.

DTE Energy delivered an average surprise of 3.81% in the trailing four quarters. Its 2017 estimates have increased to $5.54 per share from $5.42 per share in the last 90 days.

5 Medical Stocks to Buy Now

Zacks names 5 companies poised to ride a medical breakthrough that is targeting cures for leukemia, AIDS, muscular dystrophy, hemophilia, and other conditions.

New products in this field are already generating substantial revenue and even more wondrous treatments are in the pipeline. Early investors could realize exceptional profits.

Click here to see the 5 stocks >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
FirstEnergy Corporation (FE) : Free Stock Analysis Report
 
DTE Energy Company (DTE) : Free Stock Analysis Report
 
Atlantic Power Corporation (AT) : Free Stock Analysis Report
 
California Water Service Group Holding (CWT) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research