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American Water (AWK) Unit to Pass on TCJA Savings to Users

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American Water Works Company (AWK - Free Report) announced that its subsidiary, Pennsylvania American Water has received directive from the Pennsylvania Public Utility Commission (PUC) to pass on the tax savings benefits resulting from the implementation of the Tax Cuts and Jobs Act (TCJA) to customers.

The new act became effective Jan 1, 2018 and lowered the corporate tax rate from 35% to 21%. This move will lead to reduction of about $47 million annually in the federal income tax that Pennsylvania American Water will pay to the government.

Quality Service at Low Prices

The tax-cut savings will allow the residential customers of Pennsylvania American Water to enjoy safe and reliable services at a very competitive price.

For water customers who typically use 5,000 gallons per month, the savings will be $5.27 or $63.24 per year, while wastewater customers, who typically use 5,000 gallons per month, will encounter savings of $6.58, or $78.96 per year.

Tax Cuts — A Blessing for Customers

Utilities in some states are directed by the utility commission for implementing tax cuts to lower customers’ bills. Utilities are passing on the benefits to their customer base either through reduction in existing utility service rates or by adjusting their planned rate increases.

Passing on tax savings does not look significant when we consider a single user or a single utility, however, it is significant when we consider the nation as a whole. Decisions have already been taken to pass on more than billions of dollars in tax savings to customers and we expect this amount to increase further.

Recently, Duke Energy Corporation (DUK - Free Report) decided to pass on $142 million in tax savings to lower utility bills of Indiana-based customers if the proposed settlement is approved by the Indiana Utility Regulatory Commission.

Another utility, NextEra Energy (NEE - Free Report) has decided to use tax savings of nearly $1.3 billion to recoup the storm-recovery expenses, without increasing its users’ bills in Florida.

Price Movement

American Water Works’ shares have returned 11.5% in the past year, outperforming the 1.7% growth of the  industry it belongs to.

Zacks Rank and A Stock to Consider

Currently, American Water Works has a Zacks Rank #3 (Hold). A better-ranked stock in the same space is Global Water Resources Inc. (GWRS - Free Report) , carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Global Water Resources’ long-term EPS growth is expected to be 15% and its 2018 Consensus Estimate has moved up 21.4% to 17 cents in the past 60 days.

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