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Big Water Growth Strategy

Nationwide the two largest water/wastewater utilities are

 

Essential Utilities – the parent company for Aqua Pennsylvania

American Water – the parent company for Pennsylvania American Water

 

Both companies are seeking aggressive earnings growth through acquisition.  This is not surprising because as regulated companies their earnings (future link) are a direct function of their investment. The more they invest, the greater their profits.  Therefore, their strategy is to grow their investment base.  Acquiring nonprofit municipal water and sewer systems is a key part of their strategy. 

Both companies are very open about their acquisition strategy.  They discuss it extensively in various investor presentations.  A couple of examples follow.

Essential Utilities

(Aqua in most states)

 

Check out the March-2024 investor presentation by Essential Utilities:

Pages 9 & 18 - Size and geographic positioning

Page 25 - Regulatory advantages

Pages 30 & 31 - Water and wastewater growth strategy

Page 37 - A profile of Aqua

Pages 44 - 46 - Regulatory activity

Note:  The above link will download a PDF copy of the presentation.  Depending on your browser settings you may need to open the document.  If the link does not work, please let us know.  These things can move around.  In any case, you can find it by doing an internet search for Essential Utilities Investor Presentations. 

American Water

Check out their August-2023 investor presentation:

Page 4 - a good overview of their water and sewer business.

Page 5 - why they are focusing on water and sewer acquisitions - it is highly fragmented

Page 11 - their focus on large systems and legislative/regulatory activity.  They also indicate a focus on sewer systems.  In Pennsylvania, sewer system have been the majority of acquisitions. 

 

Page 12 - actually addresses the issue of affordability.  However, the comparison of affordability before and after their acquisitions is not mentioned. 

Page 26 - details how extensive their acquisition efforts are.  They state that they have 1.3 MILLION customer connections in some stage of processing.  Pages 34 and 35 detail the ones closed or contractually agreed to. 

Page 33 - an indicator of their focus on legislative and regulatory changes to make acquisitions more profitable.

Again note:  The above link will download a PDF copy of the presentation.  Depending on your browser settings, you may need to open the document.  If the link does not work, please let us know.  These things can move around.  In any case, you can find it by doing an internet search for American Water Investor Presentations. 

Nationwide the two Big Water companies, have captured almost 190,000 customers in the last few years.  What benefits have these customers realized?  Is the water coming out of their faucets more pure?  Do their toilets flush any better?  In the large majority of cases the answer is a resounding NO!. 

 

The most dominate impact on customers is significantly higher bills.  Big Water acquired those customers to increase their profits [link to profitability charts].  So now those customers have to pay up. 

 

The following table illustrates the point for acquisitions made in Pennsylvania.  We used tariff rate data from before the acquisition and rate case records to calculate the rate increases customers are actually seeing.  They are based on a customer using 4,000 gallons/month.  The water companies typically claim their "average" customer ranges between 3,000 - 4,000 gallons/month.

Rate Increase Table 15-March-2024.jpg

This is called “rate shock”. 

 

How much say did these customers have in the acquisition process?  It is pretty likely that the answer for most of them is “not much”.  (See Big Water Playbook)

 

Push back on these acquisitions is forming.  [See future link]

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