California Water Unit Files Rate Hike To Recover Investment

California Water Service Group’s (NYSE:CWT) subsidiary — Hawaii Water Service — filed a proposal for rate revision with the Hawaii Public Utilities Commission (HPUC). The company, which has been investing in water infrastructure since 2013, seeks to recover the capital investment made in Kukio water and sewer systems.

If approved without any changes, total annual revenues will increase by $660,216. The amount includes $452,560 for the water system and $207,656 for the sewer system upgrades.

Regular Investments in Water Space

The aging water and wastewater infrastructure in the United States requires consistent investment. Some of the water mains are nearly a century old and require immediate replacement. Water utilities are frequently required to upgrade and replace old pipelines as well as water mains through significant investments. To maintain uninterrupted supply, water utilities are investing heavily.

Water utilities like American Water Works (NYSE:AWK) and Aqua America (NYSE:WTR) among others make regular investments to improve the existing water infrastructure. American Water aims to invest $8-$8.6 billion from 2019 through 2023. Aqua America’s targets investment worth more than $1.4 billion in the 2019-2021 time period. Moreover, American States Water Company’s (NYSE:AWR) major subsidiary — Golden State Water Company — expects $115-$125 million capital expenditures for 2019.

Importance of Rate Hike in Utility Sector

The highly regulated Utility sector is mature and fundamentally strong as demand for services does not change with economic cycles. Operating in a capital-intensive sector, utilities need to invest regularly to upgrade and expand its existing infrastructure to meet the rising customer demand.

These regular investments from utilities require support from the commission via approval of reasonable rate hikes. The rate hikes at regular interval helps to recover the cost of investments and continue with upgrades to existing infrastructure. Thus, rate hikes are common and important in the sector.

Price Movement

California Water Service Group Price

The company’s shares have surged 51.7% in the past 12 months.

Zacks Rank

California Water currently carries 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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