California Water Service Files To Drop Rates, Shares Benefit

California Water Service (NYSE:CWT) submitted a filing with the California Public Utilities Commission (“CPUC”) to lower the water rates charged to its customers. Through this rate decrease, the company aims to pass on the benefits derived from the federal tax laws, and CPUC-authorized capital equity and debt-financing costs.

If approved by the commission, the new rates will become effective Jul 1, 2018 and lower annual revenues of the company by $18 million. The rate drop in a way will offset the rate increases approved earlier by the commission, to recoup water-production costs and infrastructure improvement expenditures.

Rate Drop — A Welcome Break for Consumers

We are all accustomed to rate hikes after a certain time interval, as the regulated companies need to increase rates to recoup the capital expenditure and other expenses incurred, for providing better-quality services.

Rate drop on the other hand is a welcome change, as the company is trying to pass on the benefit of lower costs to its consumers. California Water Service received approval from the CPUC to lower financing costs for the period of Jan 1, 2018 through Dec 31, 2020 and the implementation of the new act also lowered its tax burden, which was the primary reason behind the filing.

Utilities to Pass on the Tax Cuts and Jobs Act Benefits

The implementation of the Tax Cuts and Jobs Act has lowered the corporate tax level from 35% to 21%. The latest tax reform has resulted in lower accrued tax expenses for the utilities and lately, various companies are passing on this benefit to their customers by reducing utility rates and bills.

To pass on the benefits, Duke Energy Corporation (NYSE:DUK) decided to lower its electric and natural gas bill by $38 million annually.

Price Movement

In a year’s time, shares of California Water Service have outperformed its industry. The stock has gained 16.3% compared with the industry’s growth of 3.7%.

Zacks Rank and Stocks to Consider

California Water Service currently has a Zacks Rank #5 (Strong Sell). Some better-ranked stocks from the same space are Global Water Resources Inc. (NASDAQ:GWRS) and Middlesex Water Company (NASDAQ:MSEX) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Global Water Resources’ earnings were 100% higher than expected in the last reported quarter. Its 2018 earnings estimate moved up 21.4% to 17 cents in past 60 days.

Middlesex Water Company’s earnings in the last reported quarter were in line with expectation. Its 2018 earnings estimate moved up 0.7% to $1.56 in past 60 days.

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