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SJW Group (SJW) Unit Files for Rate Hike, Focuses on Upgrade

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SJW Group (SJW - Free Report) announced that its subsidiary, San Jose Water, filed an application with the California Public Utilities Commission for new rates in 2025, 2026 and 2027. The application proposes a 3-year $540-million capital investment program to ensure a resilient water system for San Jose Water’s customers and its local communities.

Since a substantial portion of the water and wastewater infrastructure in the United States is gradually moving toward the end of its effective service life, regular and systematic investments are quite essential to provide uninterrupted and reliable services to customers. San Jose Water, since 2005, has invested more than $1.6 billion to upgrade its water infrastructure, ensuring the continued delivery of high-quality and reliable water service.

Even though the customers will not enjoy a rate hike, the utilities need to approach the commissions for a rate hike and get rate hikes, which will provide the much-needed funds to upgrade the aging infrastructure.

Investment in Aging Infrastructure & Rate Hike

Per the U.S. Environmental Protection Agency, investments of $473 billion and $271 billion are necessary to maintain and expand drinking water and wastewater pipelines, respectively, to meet demand over the next 20 years. Water infrastructure, such as water mains, storage tanks and purifying units, needs maintenance at proper intervals.

The repair and upgrade of other infrastructures, such as overhead storage tanks, treatment plants and water reservoirs, are essential to providing uninterrupted 24x7 services to customers.

Other water utilities, including American Water Works (AWK - Free Report) and Essential Utilities (WTRG - Free Report) , have well-chalked-out capital investment plans to strengthen infrastructure. The companies are also filing rate case applications to the respective commissions to recoup the invested amount and carry out infrastructure upgrade work.

American Water Works aims to invest $16-$17 billion in the 2024-2028 period, and Essential Utilities plans to invest $1.1 billion in 2023 and $3.3 billion through 2025 to upgrade infrastructure.

AWK has been benefiting from a rate increase. The new rates, effective Jan 1, 2023, will add $359 million to annual revenues. The pending rate case, if approved without any change, will further increase the top line by $194 million.

The rate hike application and approval from the commissions will help Essential Utilities recoup expenditure and fund future capital projects. Water rate cases completed till 2023 will increase WTRG’s annualized revenues by $42.4 million. The company currently has base rate cases or infrastructure surcharges pending in New Jersey, Ohio and Virginia for its regulated water segment, which, when combined, would add an estimated $16.8 million in incremental annual revenues.

Price Performance

Over the last three months, SJW Group’s stock gained 3.6% compared with the industry’s 9.4% growth.

 

Zacks Investment Research
Image Source: Zacks Investment Research

 

Zacks Rank & Another Stock to Consider

SJW currently has a Zacks Rank #2 (Buy).

Another top-ranked company from the same industry is Consolidated Water (CWCO - Free Report) , which currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

CWCO’s long-term (three to five-year) earnings growth rate is pegged at 8%. The Zacks Consensus Estimate for 2024 earnings of $1.23 per share reflects an increase of 6.1% over the past 60 days.

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