Consolidation is a feature of the water business across the country. What makes troubled water utilities an attractive purchase?
According to The Pittsburgh Post-Gazette, “If you’ve got the time and the money, you’ve got a pretty solid formula for profit.”
Heike Doerr, principal analyst with S&P Global Market Intelligence, explained why that is.
“What makes a utility that is struggling attractive is that you have well-established needs to make necessary infrastructure investments that are recoverable through customer rates," Doerr said, per the report.
Basically, the more dysfunctional a utility is, “the more a utility can invest and recover at a rate of return that hovers around 10 percent on average,” The Post-Gazette reported.
Pittsburgh Water and Sewer Authority is one water utility that has attracted investment interest, the report said.
“Private equity-backed infrastructure funds don’t shy away from aging utility systems like the Pittsburgh Water and Sewer Authority. They flock to them. Peoples Natural Gas, the North Shore-based utility that has been vying for a deal to invest in the PWSA, wasn’t all that different from the water system when it was acquired by the SteelRiver Infrastructure Fund in 2008,” the report said, citing Peoples CEO Morgan O’Brien.
PWSA has been taking actions to shore up its financial position, including threatening customers with delinquent bills with water shutoffs, a potentially controversial move, according to The Pittsburgh Tribune-Review.
Illinois is one locale where water industry consolidation is evident. In a move that further consolidated the water industry in the Midwest, Indiana American Water has acquired Georgetown Water, a utility in Southern Indiana valued at $6.4 million.
Indiana American Water said the deal to buy the utility will add about 1,300 customers to its customer base, Inside Indiana Business reported. The Indiana Utility Regulatory Commission has already approved the deal.
Image credit: "pittsburgh," john marino © 2011, used under an Attribution 2.0 Generic license: https://creativecommons.org/licenses/by/2.0/