Middlesex Water (MSEX) Gets Nod To Raise Rates By 7.2%

Middlesex Water Company (NASDAQ:MSEX) announced that it has received approval from the New Jersey Board of Public Utilities to increase its base water rates by 7.2%, effective April 1, 2018. The introduction of new water rates will increase total revenues of the company by $5.5 million.

The approved rate hike is much lower compared with the initial rate hike filed by the company on October 2017. Middlesex Water asked for a hike of $15.3 million and reduced the base rate filing by $4.9 million to $10.4 million after the federal Tax Cuts and Jobs Act was signed into law.

Rate Hike is Essential

The existing waster system and infrastructure are getting old, and the company needs to invest regularly to upgrade and replace its existing old pipelines. The water rate hikes at regular intervals will help the water utilities to continue with infrastructure upgrade spending and provide uninterrupted services to its consumers.

This rate hike will help Middlesex Water Company to continue with its Water for Tomorrow capital program and provide potable water to its customers at lowest possible cost. The company aims to invest $305 million over the next five years under the aforesaid program.

Regular Investment — A Must in Water Space

The U.S. water infrastructure in getting old and some of the water mains are nearly a century old, and require immediate replacement. Investment of billions of dollars is required to improve the water infrastructure.

Middlesex Water Company plans to invest $207 million in the 2018-2020 time period. The company plans to finance the investment through funds generated from operations, and short term and long-term borrowings.

American Water Works (NYSE:AWK) anticipates investing $8.0-$8.6 billion from 2018 through 2022, which will help it to improve earnings by 7-10% per year in the aforesaid period from a 2015 base. A major chunk of $7.2 billion will be directed to strengthen regulated businesses.

Another water utility Aqua America Inc. (NYSE:WTR) after investing $478 million in 2017, aims to make capital investments in excess of $500 million in 2018, which is part of an ambitious investment target of more than $1.4 billion in the 2018-2020 time period.

Connecticut Water Service (NASDAQ:CTWS) after investing $53 million in 2017, aims to make capital investments in excess of $66.2 million in 2018.

So the regulated water utilities require rate hikes at regular intervals to recoup the investments made, and carry on upgrades and additions to the existing water and wastewater assets.

Price Movement

In a year’s time, shares of Middlesex Water company have underperformed its industry's rally. The stock has gained 1.8% compared with the industry’s return of 4.8%.

Zacks Rank

Middlesex Water Company has a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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