California Water Service Unit Cal Water Gets Nod for Interim Rate Hike

California Water Service Group’s CWT unit, California Water Service (Cal Water), received approval from the California Public Utilities Commission (“CPUC”) for a temporary interim rate revision effective Jan. 1, 2026. 

Courtesy of the CPUC’s interim rate approval, Cal Water will be able to implement a 3% rate increase in the majority of the districts in which it provides services to its customers. A rate hike is essential for this regulated utility, as it can continue investing in essential infrastructure upgrades to ensure the delivery of safe, clean and reliable water to its customers. Interim rates may be refunded or adjusted once the final approved rates are determined by the CPUC.

Why Is Rate Increase Essential for Utilities?

Utility operation is capital-intensive, and the companies operating in this space need to make regular capital investments to upgrade, maintain, strengthen and expand their existing infrastructure. 

Strengthening infrastructure allows water utilities to cater to the rising demand in their service territories, and the replacement of old infrastructure helps the utilities to avoid accidents and wastage of potable water.

Aging Water Infrastructure Needs Investment

The U.S. water and wastewater infrastructure is deteriorating, with water main breaks occurring every few minutes, according to the American Society of Civil Engineers. The Environmental Protection Agency estimates that $1.25 trillion in investments will be needed over the next 20 years to maintain and upgrade drinking water, wastewater and stormwater systems. The U.S government and the regulated water utilities are making investments to upgrade and maintain infrastructure.

Water Utilities Benefit From the Rate Revision

The approval of new rates enables higher revenue generation, which can be deployed toward infrastructure upgrades and equipment replacements. This supports the smooth operation of facilities and enhances the quality of customer service. Water utilities benefit from a rate hike and continue with infrastructure upgrades.

American Water Works Company AWK has been benefiting from a rate increase. The new rates, effective since Jan. 1, 2025, will add $270 million to the company’s 2025 revenues. The pending rate cases, as of Jan. 1, 2025, if approved without any changes, could increase revenues by another $126 million. 

American States Water AWR benefits from newly authorized electric and water rates, which result in increased revenues and earnings. Approved rate cases for regulated utilities provide a clear path for revenue and earnings growth, allowing the company to invest in infrastructure.

Global Water Resources, Inc. GWRS received approval from the Arizona Corporation Commission to implement water rates for its Global Water – Farmers Water Company, Inc. (GW-Farmers) utility in Pima County, AZ.

The approved rates are projected to increase annual revenues by $1.1 million based on 2023 test-year connections. The increase will be phased in over three stages: 50% effective May 1, 2025, followed by 25% on Nov. 1, 2025, and the final 25% on May 1, 2026.

Share Price Movement of CWT

In three months, the stock has moved down 4.6% compared with the industry’s 2.9% decline.

CWT’s Zacks Rank  

California Water Service currently has a Zacks Rank #4 (Sell).

You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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