Connecticut Water Seeks Approval For Heritage Village Buyout

Water and wastewater service provider Connecticut Water Service Inc. (NASDAQ:CTWS) has filed a petition with the Connecticut Public Utilities Regulatory Authority for the approval of its pending acquisition of The Heritage Village Water Company (‘HVWC’). Financial details of the transaction were, however, kept under the wraps.

Details of the Acquisition

Once the transaction is completed, HVWC will begin operating under Connecticut Water Company (‘CWC’), an affiliate of Connecticut Water Service, adding 7,700 customers to CWC’s existing customer base of 92,000.

CWC has been functioning as HVWC’s contract operator for over a decade now. As a result, CWC believes that it has the required knowledge of operations and regulations related to the Heritage Village water system.

In addition, the acquisition is expected to promote the conservation of Pomperaug River. In its filing, the company has promised to supply up to 0.5 million gallons of water per day to HVWC customers by utilizing the existing interconnection and significantly reduce dependence on the river.

Massive Investment

Note that water utilities incur massive infrastructural investments for upgrading and maintaining infrastructure. In fact, for the 2011–2030 period, an Environment Protection Agency (EPA) report has projected a capital investment of $384.2 billion for upgrading drinking water lines and $298.2 billion for improving wastewater lines.

We believe that Connecticut Water Service has all the necessary financial resources and technical expertise to make capital investments for infrastructural upgrades at HVWC without hurting customers’ pockets.

Overview

Consolidation is the need of the hour in the fragmented U.S. water utility space. The old water utility infrastructure needs ample investments, which are easier for bigger players to make. Consolidation would therefore drive the necessary infrastructure overhauls that have become imperative for the industry at large.

Notably, since 1986, CWC has acquired 58 smaller water utilities.Strategic buyouts made since 2012 have expanded the subsidiary’s customer base by 37%.

Among its peers,this May, American Water Works Company (NYSE:AWK) acquired the City of Grafton’s wastewater system, near Alton in southern Illinois, for $0.6 million as part of its overall plan to increase its footprint through strategic acquisitions.

Meanwhile, Aqua America Inc. (NYSE:WTR) has closed as many as three takeovers in the second quarter of 2016, including Crystal Clear Water Company, water assets of Byram Homeowners Association Water Company and the Twin Cedars public water system.

On integration with the larger utility, smaller utilities benefit from economies of scales and operational efficiencies, thereby attaining cost savings.

Connecticut Water Service (CTWS) carries a Zacks Rank #2 (Buy).

Another Stock to Consider

Another favorably placed stock in the same space is Artesian Resources Corp. (NASDAQ:ARTNA) , sporting a Zacks Rank #1(Strong Buy).