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California Water Service (CWT) Seeks Approval for System Upgrade

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California Water Service Group (CWT - Free Report) announced that its California Water Service unit has filed an application with the California Public Service Commission (“CPUC”), seeking approval of the 2022-2024 infrastructure improvement program. The proposal also contains new rate designs. The company aims to invest $1.02 billion in the aforesaid time period.

California Water Service’s 2022-2024 infrastructure replacement plan includes $913.1 million of newly proposed capital investment and continued funding for capital projects begun in 2021 or earlier. The primary objective of this planned investment is to enhance resilience of total operations, and increase water flow for customers and for firefighting. Moreover, it will strengthen the infrastructure and aid the company in controlling wildfires.

California Water Service has proposed to the CPUC to increase revenues by $80.5 million or 11.1% in 2023, $43.6 million or 5.4% in 2024 and $43.2 million or 5.1% in 2025 to support these investments. If the commission approves the new rates without any changes, the same will become effective from January 2023 and increase average residential customer bill by less than an additional $5 per month in all of California Water’s service areas.

Importance of Stable Infrastructure

More than 2.2 million miles of underground water mains, service pipelines, overhead water storage tank, water meters and water purification units work in tandem to assist utility operators in providing uninterrupted water supply. A stable water and wastewater infrastructure is essential to ensure proper water flow in the pipelines.

However, the U.S. water and wastewater infrastructure is aging and regular investment is essential to maintain the high quality of potable water for customers. Per the findings of the American Society of Civil Engineers, water main breaks occur every two minutes in the United States. Pipeline breaks result in the wastage of 6 billion gallons of potable water each day and add to the loss of water utility operators. The pipeline breaks not only increase the cost of water services but also expose it to the possibility of contamination.

Investment Needed in Water Space

The primary solution to tackle the aging infrastructure issue is to make regular investments in the aging water infrastructure to upgrade and expand the same. Per Water and Wastewater Equipment Manufacturers Association, an estimated $750 billion investment is necessary to maintain and expand drinking water as well as wastewater services to meet demand over the next 20 years.

Large water utilities are making investments to upgrade and replace their infrastructure. American Water Works (AWK - Free Report) makes regular investments in its infrastructure to upgrade, enhance and maintain the same. The company has plans to invest $10.4 billion between 2021 and 2025 and $22-$25 billion in the next decade.

Essential Utilities (WTRG - Free Report) is also making regular investments to upgrade the existing water and wastewater systems. Its long-term plan is to invest nearly $3 billion through 2023 to rehabilitate and strengthen water as well as natural gas pipeline systems. Middlesex Water (MSEX - Free Report) — under the Water for Tomorrow program — is making regular capital investments to enhance system reliability, resiliency and overall service quality.

Price Performance

Shares of California Water Service have outperformed the industry in the past year.

Zacks Investment ResearchImage Source: Zacks Investment Research

Zacks Rank

California Water Service currently has 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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