The United States Water and Wastewater infrastructure is gradually aging, evidenced by the American Society of Civil Engineers’ (ASCE) findings. Per the ASCE report, nearly 6 billion gallons of treated water is lost each day in the United States due to water main breaks every two minutes. This wastage of potable water is no doubt increasing the cost of operation for water utilities.
With a major portion of 2.2 million miles of underground pipes nearing the end of effective service life, the Environmental Protection Agency has identified that the United States needs over $744 billion for water, wastewater, and stormwater system enhancement and restoration over the next 20 years.
Undoubtedly, this massive expenditure will require proper planning and systematic expenditure. The most important question is whether the utilities and federal government are spending enough to meet the requirements. Federal government expenditure on water infrastructure has decreased significantly from 1977 levels. However, the Inflation Reduction Act will change this scenario to some extent. The bill includes $4 billion in drought resilience funding and $550 million for domestic water programs.
One of the major drawbacks of the United States water industry is that it has too many small operators providing services. Per the ASCE, more than 50,000 community water systems and 16,000 community wastewater systems currently provide water solutions to customers. The lack of financial ability of the small operators is creating a bottleneck in timely repairs and upgrades.
Large water utilities are acquiring the smaller ones to provide better services and upgrade essential infrastructure. However, the pace of mergers and acquisitions in the water industry is rather slow.
Despite the drawback, water utilities like American Water Works AWK, Essential Utilities WTRG, California Water Service Group CWT and Middlesex Water MSEX, among others, have well-chalked-out capital investment plans to strengthen their infrastructure.
American Water Works currently has a Zacks Rank #3 (Hold) and plans to invest in the range of $14-$15 billion in the 2023-2027 period and $30-$34 billion from 2023-2032. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Essential Utilities plans to invest $1.1 billion in 2023 and $3.3 billion through 2025 to improve water and natural gas systems and better serve customers using improved information technology. California Water Service has more than $725 million in capital expenditure plans through 2024. Middlesex Water plans to invest $266 million from 2023-2025 to strengthen its water and wastewater infrastructure and provide safe, reliable and efficient services.
Price performance (Three Months)
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When compared to the total requirement of the water and wastewater industry, the above investments from the investor-owned utilities might look negligible. Clearly, the federal government and water utilities have taken notice of the deteriorating water industry infrastructure and are taking essential measures. Continued investments and awareness should serve millions of Americans safe drinkable water directly from the tap.
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