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American Water customers sink while shareholders ride high

New York American Water in Merrick on July

New York American Water in Merrick on July 3, 2018. Credit: Danielle Silverman

For Nassau County’s American Water Works customers, much is swirling around. The subsidiary that services them, New York American Water, agreed to be sold to Liberty Utilities for $608 million in November but the New York Public Service Commission postponed a decision on that deal until Oct. 15. It granted the extra time to give the Town of Hempstead, the Village of Sea Cliff and the Massapequa Water District a chance to analyze a potential municipalization of the system.

Meanwhile, customers can’t determine how much their future rates will be and the PSC has admitted it does not know, either. That’s because a rate hike and a separate system improvement charge set to take effect this year and postponed in response to COVID-19 will be levied on customers later in catch-up charges. The increase was set to be $3.21 to $4.74 per month from Sept. 1 until the end of the year for the average customer who uses 8,000 gallons per month, and that money will still be charged for those months, but on later bills.

American Water’s rates are stunningly high compared to those from municipal water authorities. A report last year by the Citizens Campaign for the Environment found that American Water customers in Sea Cliff and Glen Head pay an average of $1,124 annually, while Jericho Water Authority customers pay about $196 a year and the Village of Sands Point charges the average customer $234 annually.

The company is always quick to point out that 31% to 55% of the money on its bills goes to property taxes public authorities don’t pay, and that money would most likely be shifted to the property tax bills of residents and businesses to make up for the lost revenue if the systems were to be publicly owned.

But as the debate over public versus private water escalates and with municipalization advocates arguing that providing water should not be a for-profit business, another question arises:

How profitable is the business of water for investors, like those who own stock in American Water Works?

It’s very profitable.

Five years ago today, American Water Works stock was trading at $53.50 per share. At 3 p.m. Monday, the price was $143.46. That’s an increase of 168%. Add in the annual dividend paid to stockholders (currently $2.20 per share) and the total return is around 180%.

The full S&P 500, by comparison, has offered a total five-year return of 78%, less than half of what American Water Works has returned to investors.

As the debate rages over whether water service ought to be provided by companies or public bodies, and American Water customers in Nassau County wonder just how much their monthly bills will be once they’re asked to make up for their pandemic rate break, or how much their tax bills will be if their water system is municipalized, the outsized returns to American Water’s investors are just one more factor to consider.