American Water Sees Expansion Driven by WastewaterRachel Layne and Jim Polson
American Water Works Co., the largest publicly traded water company in the U.S., sees its growth being spurred by expanding wastewater services as systems age and municipalities juggle competing demands for funds.
“You’ll see more of our growth, probably an acceleration of it, being driven by wastewater,” Chief Executive Officer Jeffry Sterba said in a phone interview yesterday. He’s also in talks to treat the resulting waste from the vast volumes of water required by shale explorers for hydraulic fracturing.
Handling wastewater for cities and other utilities accounts for about 3 percent of the Voorhees, New Jersey-based company’s regulated sales, Sterba said. In 2012, regulated revenue was $2.52 billion, 88 percent of total sales, according to data compiled by Bloomberg. About half of sales from the non-regulated division, which includes revenue from oil and natural gas companies, is tied to wastewater services.
American Water, which serves 14 million people in more than 30 states, has made 10 acquisitions this year on top of 16 in 2012, more than the previous four years combined, Sterba said. Bidding to take over municipal water networks will intensify as local governments shed century-old systems they find too expensive to maintain, he said.
Sterba declined to give a target for wastewater expansion. The company has a goal of increasing earnings per share by 7 to 10 percent annually. It doesn’t plan to issue equity under “normal operating conditions for the foreseeable future” unless a large acquisition is considered, Chief Financial Officer Susan Story said in the interview.
The U.S. government predicts as much as $1 trillion in water and wastewater upgrades are needed by 2020. Cities face competing needs from libraries, schools, police departments and often pension plans just as water and wastewater systems need replacing.
Like the second-biggest publicly traded water company Aqua America Inc., American Water sees a boon from fracking, the technique that’s revived U.S. oil and gas output. Producers in the Marcellus and Utica shales in Pennsylvania, West Virginia and Ohio will spend as much as $5 billion over the next 20 years for the vast volumes of water needed to fracture rock deep underground and Sterba is signing agreements to deliver it by pipe, rather than by truck. He’s also in talks to treat the resulting waste.
The company sees a potential $2 billion to $5 billion market for energy company water services during the next two decades, Sterba said.
“It’s not a huge part of our business, but a significantly growing part of our business,” Sterba said.
Shares of American Water Works fell 1.4 percent to $40.03 at 11:04 a.m. in New York. They have climbed 7.8 percent so far this year.