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American Water Works Company, Inc.’s (AWK - Snapshot Report) operating wing California American Water announced the execution of a direct access power purchase agreement for its large-scale facilities in Los Angeles and Ventura Counties. The duration of the agreement is from Oct 2013 to Jan 2015.

The direct access program is expected to lead to substantial cost savings for American Water.  The savings in turn will be passed onto the company’s commercial customers in terms of lower bills.

The program, supervised by the California Public Utilities Commission, enables large commercial electricity consumers to buy power directly from competitive energy service providers and realize savings.

Although American Water hasn’t disclosed how much it would save, it estimates a 10% reduction in the current Southern California Edison commercial rate. This roughly translates to savings of around $163,000 per year for California American Water.

California American Water separately announced that it will realize savings of nearly $630,000 in Los Angeles via water rights leases in the Central, Raymond and Main basins in the fiscal period through 2013 to 2014.

American Water plans to gradually expand its groundwater supplies and minimize its dependence on costly water imports. The company expects the combined initiatives to lead to total savings of $793,000 in Los Angeles and Ventura Counties.

American Water is poised to benefit from its varied growth-centric strategies and is currently among the prime water utilities in the U.S. working aggressively to retain its wide customer base. The company has also been in an acquisition mode purchasing 10 companies so far in 2013.

Across America, water utilities like American Water are presently engaged in infrastructure modernization to offer improved service reliability to its customers at competitive rates. Its Virginia American Water subsidiary recently announced investments of approximately $0.3 million for the improvement of a water main at Foxchase Shopping Plaza in Alexandria, VA.

However, the company is subject to financial constraints owing to budget austerities. The government projects about $1 trillion investments are still required for water and wastewater upgrades by 2020.

Currently, American Water Works carries a Zacks Rank #3 (Hold). Other better-placed water operators are Zacks Ranked #1 (Strong Buy) Connecticut Water Service Inc. (CTWS - Snapshot Report) and Consolidated Water Co. Ltd. (CWCO - Snapshot Report), and Zacks Ranked #2 (Buy) The York Water Co. (YORW - Snapshot Report).

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