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American Water's (AWK) Kentucky Unit Files for Rate Revision

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American Water Works (AWK - Free Report) announced that its subsidiary, Kentucky American Water, has filed an application with the Kentucky Public Service Commission (PSC) to upwardly revise the water rates. Kentucky Public wants to recoup $100 million that has already been invested for strengthening the water infrastructure since the last rate revision.

If new water rates are approved by PSC without any modification, then this would result in the increase in the water bill of the average residential customer using 3,869 gallons per month to $39.62 from $32.06 (August 2018).

Rate revisions are not expected to take effect before the fourth quarter of 2019, as typically the commission takes nearly 10 months to review and come out with a conclusion on rate hikes.

Aging U.S. Water Infrastructure

The existing water infrastructure in the United States is aging, and proper maintenance and upgradation of the system will require investment of billions of dollars, which becomes difficult for small water utilities to make arrangement for.

A study from Utah State University showed that overall water main break over the past 6-year period has gone up 27% in the United States and Canada. The primary reasons behind water main failure are the aging water infrastructure and higher failure rates of smaller water utilities compared with larger ones.

Regular Investments in Water

Billions of dollars are needed to be invested for strengthening and upgrading the existing water infrastructure. American Water makes regular investment to better the quality of services provided to customers. The company aims to invest within $8.4-$9.0 billion from 2018 through 2022 to improve the existing water infrastructure.

Another water utility, Aqua America (WTR - Free Report) , aims at incurring a capex in excess of $500 million in 2018, which is part of an ambitious investment target of more than $1.4 billion during the 2018-2020 time period. Connecticut Water Service Inc. has plans to invest $85.7 million in its regulated public water and wastewater utilities during 2019.

Therefore, if the commissions continue to support regulated water utilities with reasonable rate hikes, the utilities can carry on with their infrastructure strengthening work.
Zacks Rank and Another Key Pick

Currently, American Water has a Zacks Rank #2 (Buy). Another top-ranked stock from the same industry is Middlesex Water Company (MSEX - Free Report) , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Middlesex Water delivered average positive earnings surprise of 16.9% in the trailing four quarters. Earnings estimates of the company have moved up 6.5% to $1.84 in the past 30 days.

Shares of both American Water and Middlesex Water have outperformed the industry in the past six months.

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