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American Water (AWK) Unit Files to Recover $15.4M Investment

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American Water Works Company (AWK - Free Report) announced that its subsidiary Maryland American Water has filed an application with the Maryland Public Service Commission (PSC) for water rate increases. The rates, if approved by PSC, will allow it to recover $15.4 million investment made by the company to construct a water impoundment and intake, which will cater to the customers in Bel Air and parts of Harford County.

The construction of the impoundment is nearly 85% complete and it will be able to store 90 million gallons of raw water. Scheduled to come into service in late 2018, this new addition will be able to provide 1 million gallons of additional supply. If the rates are approved, it will hike the water bill for the average residential customer using 3,800 gallons of water per month by nearly $15.30 per month.

The construction of the new impoundment was essential, as it will allow the company to supply enough water to the customers in Bel Air during the dry season, and they need not purchase additional water from Harford County. This addition will increase water rates after three years and is the best cost effective long-term solution for customers.

Water Infrastructure Needs Investment

The U.S. water infrastructure in quite old, and massive investment is required to upgrade the existing water and wastewater systems. Some of the water mains are nearly a century old and require immediate replacement. Replacement of old transmission mains and upgradation of treatment plants require investment of billions of dollars, for improving the water infrastructure.

Plus, increasing demand for water and wastewater services calls for addition and expansion of the infrastructure to provide efficient services to customers. Recently, American Water Works announced that its subsidiary, Indiana American Water will invest $45 million to accomplish a major upgrade of the company’s water treatment facility on Richmond’s northeast side. (Read more: American Water Unit to Invest $45M in Water Treatment Plant)

The above expenditures are part of the company’s plans to invest in the range of $1.9-$2.1 billion for capital expenditures and acquisitions. American Water Works aims to invest $8.0-$8.6 billion from 2018 through 2022, which will help to improve earnings by 7-10% per year in the aforesaid period from a 2016 base.

Another water utility, Aqua America (WTR - Free Report) 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 Inc. (CTWS - Free Report) also aims to invest more than $150 million in the 2018-2020 time frame to strengthen existing infrastructure.

Price Movement

In a year’s time, shares of American Water have gained 9.3% compared with the industry’s growth of 0.7%.

Zacks Rank & Another Key Pick

Currently, American Water Works has a Zacks Rank #2 (Buy). Another top-ranked stock from the same industry is Global Water Resources Inc. (GWRS - Free Report) , sharing the same rank with American Water Works. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here

Global Water Resources’ earnings estimate for 2018 has moved up 21.4% in the past 60 days. Year to date, shares of this company have gained 1.0% against 12.7% decline of its industry.

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