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American Water Works Company, Inc.’s (AWK - Snapshot Report) subsidiary California American Water has provided updates on the changes in monthly customer bills. The upward revision in bills was due to the implementation of proposed Monterey Peninsula Water Supply Project (MPWSP). The company has already filed an appeal to the California Public Utilities Commission (CPUC) for increasing the rate of monthly customer bills.

The revision will help California American Water to reduce the overall cost of the project. The rate hike is subject to the CPUC’s approval. Currently, a typical customer, using 74 units of water per month or approximately 5,600 gallons per month, is paying a monthly bill of $75.74.

If approved by the CPUC, the monthly rates will increase by approximately 40% to $106 within a time span of 5 years, between 2013 and 2018. In 2014, the bill will increase to $79.86 per month. Subsequently, the typical monthly customer bill will increase to $88.42, $97.27, $97.38 and $106.73 in 2015, 2016, 2017 and 2018, respectively. The rate revisions will also impact the bills of the customers, consuming different levels of water, in a different way.

California American Water implemented the MPWSP project to manage the continuing water supply crisis in the region. The company expects to invest $295.7 - $338.4 million for the project, based on the size of desalination plant finally approved by the CPUC.

Addition of infrastructure and upgrading the existing ones will enable American Water to provide uninterrupted water supply to its customers and strengthen system competence. These factors will subsequently improve reliability, consumer confidence and public safety while maintaining government rules on water quality.

We believe the rate hike approval will further give confidence to American Water to invest more for infrastructure upgrades. These initiatives will enable the company to provide high quality water utility services to its existing customers, thereby retaining customers and attracting new ones.

American Water Works currently has a Zacks Rank # 3 (Hold). However, other water utilities that are worth considering include Connecticut Water Service Inc. (CTWS - Snapshot Report) with a Zacks Rank #1 (Strong Buy), and Consolidated Water Co. Ltd. (CWCO - Snapshot Report) and SJW Corp. (SJW - Snapshot Report), each with a Zacks Rank #2 (Buy).

Voorhees, N.J.-based American Water was founded in 1886. The company serves around 14 million people with water and water-related services.

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