The water utility industry is often described as quite fragmented, and as such, consolidation opportunities exist. In addition, due to the stringent regulatory requirements and capital intensive nature of the business, there are high barriers for any new entrants to the market place.
Water and wastewater utilities are subject to economic and environmental regulatory approvals as a normal course of business.
Economic regulation, through the rate-setting process, ensures that customers receive the best rates and gives the company predictability into financing planning and long-term performance. For investor-owned systems, the regulatory approval process may involve obtaining relevant operating approvals, including certificates of public convenience and necessity or similar authorizations.
Water and wastewater operations also must comply with extensive federal, state and local laws and regulations. These laws and regulations are geared toward protecting the overall environment and water quality, the health and safety of consumers, water allocation rights, and the manner in which wastewater is collected, treated and discharged. As water is one of the nation's most invaluable resources, it is not uncommon for the environmental, health and safety and water quality regulations to change in order to ensure the most stringent measures are in place to guarantee the quality and safety of this precious resource.
Infrastructure Requirements
The United States Environmental Protection Agency (USEPA) estimates that approximately $277 billion of capital spending will be needed between 2003 and 2022 to replace aging water infrastructure and comply with stricter water quality standards, and the USEPA estimates that approximately $388 billion will be needed between 2000 and 2019 to replace aging wastewater infrastructure. We intend to invest capital prudently to enable us to continue to provide essential services to our regulated water and wastewater utility customers. Investing in our infrastructure is critical to our mission of serving our customers high-quality water and wastewater services. The investment needs will be driven by
Infrastructure renewal programs to replace aging infrastructure;
Construction of facilities to meet new customer growth;
Compliance with existing and new regulations;
Aging treatment and network assets renewal;
Capacity for new growth and
System reliability enhancement, security and quality of service.
Customer Growth
Customer growth on the regulated side is driven by organic population growth and new customers that are obtained from the acquisition of water and wastewater utility systems. Many water utilities typically expand their customer base and geographic footprint through acquisitions and American Water has historically acquired water and wastewater systems within and outside of its existing markets in the United States.
Weather and Seasonality
Water and wastewater services are subject to seasonality and can be positively or negatively impacted by changes in weather patterns. For example, water systems experience higher demand in the summer due to the warmer temperatures and increased usage by customers for lawn irrigation and other outdoor uses.
Separately, the Northeastern and Western regions of the United States, where supply capacity is limited and per capita water demand is high, tend to experience seasonal drought conditions which could impact water services. When weather conditions are extremely dry, water systems may be affected by drought-related warnings and/or water usage restrictions imposed by governmental agencies.
Cool and wet weather events, such as winter storms, freezing conditions in colder climate areas along with high wind conditions, electrical storms and coastal flooding have been known to cause water service interruptions.
Water utilities, including American Water, employ a variety of measures to ensure that there are adequate sources of water supply, both in the short term and over the long term.
Increasing Residential Awareness of Water Conservation
As more residents are becoming aware of the importance of water conservation, there has been a declining water usage by residential customer. This decrease can be attributed to the use of more efficient household fixtures and appliances among residential consumers, combined with declining household sizes in the United States. For more information about American Water's conservation tips and innovative "green initiatives", please visit our section on Wise Water Use and Green Solutions.
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Stock Information
NYSE:AWK
$20.49 Jan 6, 2009
4:13 PM ET
Delayed 20 min. Provided by eSignal.
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