Essential Utilities (WTRG Quick QuoteWTRG - Free Report) announced that its unit, Aqua Pennsylvania Inc. (Aqua), had filed an application with Pennsylvania Public Utility Commission (PUC), requesting an adjustment in water and wastewater rates. The company requested an overall rate increase of $126.7 million per year for its water and wastewater operations.

The rate revision request, Aqua’s first in almost three years, covers capital investments and system repairs that it has made since April 2023 and is projected to make through the end of 2025.

Rate Hikes Essential

Rate hikes are essential as it will allow the company to recoup the capital invested and generate fresh fund for future capital projects.

If the rate hike is approved by PUC without any changes, it will increase the residential water bill for a typical customer using 3,870 gallons per month from $80.91 to $97.01, an increase of about $16.10 per month (54 cents per day). The average monthly residential wastewater bill would increase from $81.18 to $96.10.

Investment Required in Water Space

Per U.S. Environmental Protection Agency, investments of $625 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, including water mains, storage tanks and purifying units, needs maintenance at proper intervals.

Essential Utilities plans to invest $1.3-$1.4 billion in 2024 for more than 5,000 planned projects, and $7.2 billion in 2024-2028 to improve water and natural gas systems to better serve customers with the help of improved information technology.

Other water utilities like American Water Works (AWK Quick QuoteAWK - Free Report) , California Water Service Group (CWT Quick QuoteCWT - Free Report) and Middlesex Water (MSEX Quick QuoteMSEX - Free Report) have well-chalked-out capital investment plans to strengthen infrastructure.

American Water aims to invest $3.1 billion in 2024, with a major portion utilized for infrastructure improvements in regulated businesses. AWK aims to invest in the range of $16-$17 billion in 2024-2028 and $34-$38 billion in 2024-2033.

California Water Service plans to invest more than $380 million in capital expenditures in 2024.

Middlesex Water plans to invest $237 million during 2024-2026 to strengthen its water and wastewater infrastructure to serve customers in a safe, reliable and efficient manner.

The current dividend yield of AWK, CWT and MSEX is 2.4%, 2.2% and 2.4%, respectively, better than the Zacks S&P 500 composite’s 1.57%.

Price Performance

Over the past three months, WTRG has gained 7% compared with the industry’s 5.8% growth.

Image Source: Zacks Investment Research

Zacks Rank

Essential Utilities currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.