Connecticut Water Service Inc. has a market cap of $210.2 million; its shares were traded at around $24.3 with a P/E ratio of 23.2 and P/S ratio of 3.6. The dividend yield of Connecticut Water Service Inc. stocks is 3.7%. Connecticut Water Service Inc. had an annual average earning growth of 3.8% over the past 5 years.
Highlight of Business Operations:Costs to comply with environmental and water quality regulations are substantial. Since the 1974 enactment of the Safe Drinking Water Act, we have spent approximately $59.7 million in constructing facilities and conducting aquifer mapping necessary to comply with the requirements of the Safe Drinking Water Act, and other federal and state regulations, of which $7.6 million was expended in the last five years. The Company expects to spend approximately $1.2 million in 2011 on Safe Water Drinking Act projects, primarily to bring newly acquired systems up to the Company s standards. The Company believes that we are presently in compliance with current regulations, but the regulations are subject to change at any time. The costs to comply with future changes in state or federal regulations, which could require us to modify existing filtration facilities and/or construct new ones, or to replace any reduction of the safe yield from any of our current sources of supply, could be substantial.
On January 6, 2010, Connecticut Water filed a rate application with the DPUC, requesting a multi-year increase totaling $19.1 million above pro forma test year revenues, including the aforementioned WICA surcharge, over a three-year period. The Company had proposed options for regulatory consideration, including a multi-year phase-in of rates that, if approved, would have been a first in Connecticut for water utilities. In addition to the phased-in rate increase, the Company also sought a Water Conservation Adjustment Mechanism (“WCAM”), to allow the Company to continue to promote water conservation in an effective manner while addressing the financial impact of increased conservation by its customers. The WCAM would have minimized the effects of conservation on the Company s revenues through a recovery mechanism that would have been limited to a change in non-weather related residential sales, while at the same time allowing for the promotion of conservation to the benefit of customers and the environment, usually two opposing concerns. In addition to the conservation efforts that have impacted sales, the need for an increase in rates was, in part, based upon an investment of approximately $62 million in Net Utility Plant since 2006, the last time the Company filed for a general rate increase. In addition, increased operating costs for labor, employee benefits and other general operating needs, including chemicals, was requested.
On July 14, 2010, the DPUC issued its Final Decision in the case, granting an increase in revenues of $8.0 million, or approximately 13%, over pro forma test year revenues. The DPUC approved a return on equity of 9.75%, lower than the 11.3% requested. The new rates became effective for services rendered on or after July 14, 2010, at which point the previously approved WICA surcharges were folded into customers base charges. The DPUC did not approve Connecticut Water s requested WCAM approach to align conservation incentives for both Connecticut Water and its customers. Of Connecticut Water s three-year requested increase of $19.1 million, $16.3 million was associated with the initial year. The DPUC chose to not consider years 2 and 3 included in Connecticut Water s application. Connecticut Water is not precluded from seeking increased rates for future years as part of a new general rate filing should it choose to do so.
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