There’s no sign the California regulatory environment is deteriorating for utilities here in early 2018. Diversifying outside the state, however, will reduce the company’s vulnerability to a less than favorable decision in the next multi-year rate deal. SJW will also not need to ask Golden State officials for approval to combine with Connecticut Water.
How likely is this deal to close? There are already the usual “investigations” by law firms seeking to push an even higher offer. But in light of the target’s recent drop in share price, the task winning of shareholders approval is likely to be easier than it would have been last year.
As for officials in Connecticut and Maine, approval is likely to center on how effectively the companies assure them that ratepayers will benefit. The EverSource/Aquarion deal involved swapping a private capital owner for a publicly traded utility, which may have been an inducement for regulators to approve. It remains to be seen if Connecticut officials will feel the same way about a California-based utility. But water companies in the state have generally enjoyed good relations and the betting here is they’ll be able to come up with conditions that will satisfy officials.
Realizing the kind of post-deal accretion promised by management in this week’s announcement is likely to depend on how effective the company is using its enhanced scale to absorb more small systems. The new SJW may also try to convince regulators out west to adopt the infrastructure replacement programs that have been powering rate base growth for Connecticut Water the past several years.
Invest Smarter! Join Conrad’s Utility Investor!
Smart investing. Taking advantage of real opportunities and not fads (and knowing the difference). Finding the companies and stocks that will deliver for the long haul, so investing lets you live instead of investing turning into your life. Roger Conrad has dedicated his career to these principles—and that’s what Conrad's Utility Investor delivers.
Roger's favorite utilities for investors seeking superior price appreciation by taking calculated risks.
Harness the tried and true wealth-building power of rising dividends.
Nothing compounds wealth like reinvesting a rising stream of dividends.
Warning: Falling Dividends.
Roger's current take and vital statistics on more than 200 essential-services stocks.