Fortunately I found Seeking Alpha, and from there came the recommendation of a book on dividend growth investing called “The Single Best Investment” by Lowell Miller of Miller/Howard Investments. We need to ban it! This article covers the history behind utility regulation and some examples of high quality regulated utilities in the market. Food & Water Action is a 501(c)4 organization. My approach with this collaboration is to first share Miller/Howard’s article, and then add in my own commentary and real-world examples from stocks that I follow to reinforce that research. Over the last 60 years, the water and sewerage sectors have changed significantly. This growth has made NextEra the largest utility by market cap in the U.S., as the company is now worth over $80 billion. Looking for more insights and our latest research? I found their research quite informative, and I learned some new things about the sector that helps explains why utilities are such steady and reliable investments. How does Nestle But we often talk about water becoming the new oil in this century and, right now, there are a few big companies jockeying for position to take over public resources like water. Back in September 2010, J.P. Morgan purchased SouthWest Water, a large national water company. First, for those who prefer visuals over written word, here is a video of Miller/Howard Portfolio Manager Michael Roomberg narrating the following: Most investors know that utilities provide a safe haven in a time of upheaval in the markets; that society’s basic need for clean water, a steady supply of gas for heating or cooking, or electricity to turn the lights on transcends economic cycles of boom and bust, recession and expansion. The company has its own showroom and workshop in Queens Park. My hope is that this effort adds to my followers’ knowledge of the sector, and helps explain why utility stocks make such an attractive option for income investors. The English water and sewerage industry was privatised in 1989 and since then household and business consumers have received water services from a regional monopoly business. It makes sense to have just one company providing a network of water pipes and sewers because there are very high capital costs involved in setting up a national network of pipes and sewage systems. My interest in the sector has continued to grow since then, and I’ve now written a handful of articles on Seeking Alpha sharing my thoughts about the top stocks in the sector. We work to protect people’s health, communities, and democracy from the growing destructive power of the most powerful economic interests. – from £6.99. The companies’ priority is their own bottom line and not consumer satisfaction or even public health. Overall, I feel that this overview from Miller/Howard does an excellent job of explaining how utilities are regulated, and why this causes them to be good long-term holdings for dividend growth investors. The dividend has tracked earnings, and management is guiding for that to continue as the current payout ratio of ~55% is in the middle of the targeted 50-60% range. But communities seeking to sell their water systems there shouldn’t expect to get a good deal since the goal of these private water companies is to establish large monopolies, thus eliminating competition and consumer choice along with it. This is known as the regulatory compact. This can occur because the goods are homogeneous, due to the existence of impediments to the entry of new bidders or through governmental intervention. Terms & Conditions apply. Monopoly: In business terms, a monopoly refers to a sector or industry dominated by one corporation, firm or entity. This resulted in a big decline in earnings, and an eventual dividend cut. So on a $1m investment paid half with shareholder cash, the utility is given the ability to increase its annual bottom line net income by $50k. The Commission then divides this money due to the utility by the number of customers it serves, and each customer’s usage to determine the new, higher per kilowatt, or gallon, or dekatherm rate the utility can charge you, rate increases that are protected by Federal law. Just before the holidays, the Carlyle Group announced it plans to purchase the Park Water Company, which owns water systems in California and Missoula, Montana. For example, OFWAT and OFGEM regulate the water and energy markets respectively. American has a long history dating back to 1886, but a relatively short history as a … I haven't read the whole document but skimmed it in doing research for this article, and it appears to be quite thorough. Can you imagine having your water billed by Chevron or Exxon? American has a long history dating back to 1886, but a relatively short history as a public stock since its IPO in 2008. Because the early history of providing services such as electric and gas, had many small providers come and go out of business (leaving customers who had come to depend on the service - high and dry). The company has since divested of those segments, yet it still has considerable exposure to non-regulated businesses. The Monopoly game-board consists of forty spaces containing twenty-eight properties—twenty-two streets (grouped into eight color groups), four railroads, and two utilities—three Chance spaces, three Community Chest spaces, a Luxury Tax space, an Income Tax space, and the four corner squares: GO, (In) Jail/Just Visiting, Free Parking, and Go to Jail. This is known as a cost of service approach to ratemaking. A stock that I've previously owned is MDU Resources Group Inc. (MDU). One of my favorites is NextEra Energy Inc. (NEE), a company that's been at the forefront of the push towards renewable energy. It takes communities who pay close attention to their city council meetings to stop the corporate takeover of public water systems and fend off what could become tap water monopolies. If the commission finds that that $1 million is “prudent and useful” it then determines how the utility should pay for it, and what return on this investment is “just and reasonable” to both the ratepayer AND the utility’s OWNERS– again, this is mandated by Federal law. Disclosure: I am/we are long D, XEL, NEE, AWK, WEC. If there were three firms producing 3,000 units. The bath range is comprised of faithful reproductions of beautiful period baths which are manufactured from Vitrite, a stone and mineral composite, replicating the look and feel of the original baths but without the weight. On the one hand, this is more competition, but on the other hand, there is duplication. It’s actually been happening for a while now, only it’s not always making headlines. ONE Gas has done quite well since the spin-off, growing both earnings and dividends at a high single-digit rate. By increasing rates, private companies can effectively force these communities to sell their water systems. When I began investing in individual stocks in 2005, those types of stocks were far off my radar, as I was more focused on the latest and greatest “story” stocks that the market had to offer. The American Gas Association "AGA" represents over 200 energy companies that deliver natural gas throughout the United States. 80% of our products are manufactured in the UK. ONE Gas and Atmos are excellent companies, but now may not be the best time to buy. I'd like to give a special thanks to Jaimie with Miller/Howard Investments, who asked me to share this topic with readers. But these transactions tend to happen quickly and behind closed doors. 5,000 sq ft of space is devoted to showcasing both one-off originals and the reproductions inspired by them. If you wish to make an appointment please contact us on either 020 7624 2636 or email info@thewatermonopoly.com. Would you tolerate a monopoly takeover of your tap water? All right, maybe that’s a bit of a stretch. My other favorite in the sector is Aqua America Inc. (WTR), which has raised dividends for the last 26 years, and done so at a 7.5% annualized rate over the last decade. Therefore, gas is a natural monopoly at the distribution stage, but at the retail stage, it is possible to have competition. Like the electric utilities, gas companies are also regulated and allowed to earn a "just and reasonable" return on their investments. The first is ONE Gas, Inc. (OGS), which is a 100% regulated natural gas utility that serves over 2 million customers in Texas, Kansas, and Oklahoma. Like the EEI, the AGA also maintains a list of its publicly traded members. A company may be considered an electric utility, but it may also have a business segment that operates natural gas distribution, mid-stream pipelines for oil and gas, real estate, mining or oil and gas exploration, or other operations that fall completely outside the regulated utility arena. Monopoly Wiki is a FANDOM Games Community. The company was created in 2014 when ONEOK (OKE) spun off its distribution subsidiaries. This deal is expected to diversify Aqua America and add a higher growth component to future earnings. In reality, that number has changed over the decades, and is driven in large part by prevailing interest rates. Aqua America, Inc., started making arrangements to purchase water operations in Texas from American Water Works Company, Inc., while also selling their Missouri operations to American Water — a convenient swap, for sure. They shared with me some content highlighting how the utility sector is one of the few where the right to a return on investment is governed by Federal law. I've not been able to find a publication of the publicly traded water utilities, but do maintain my own watch list that I've written about here on Seeking Alpha. I wrote this article myself, and it expresses my own opinions. ... Aqua America, Inc., started making arrangements to purchase water operations in Texas from American Water Works Company, Inc., while also selling their Missouri operations to American Water — a convenient swap, for sure. Back in 2008, when Goldman Sachs tried to acquire the water system in the Reno-Sparks area, the directors of the Truckee Meadows Water Authority saw the writing on the wall and voted it down. The high cost of running those plants, especially now when competing against cheap natural gas, has been a drag on the company over the last decade. So when I began investing in dividend growth companies in 2013, I made sure that utilities received a significant weighting in my portfolio. Advantages and disadvantages of monopolies. In this example, grossing up all the expenses might equate to an allowed revenue increase of $150k. For example, Exelon Corp. (EXC) owns the largest fleet of nuclear power plants in the United States. At one time the company also had an oil & gas exploration unit and was part owner of a new-build oil refinery. “The profits of these monopoly companies must be balanced by a fair deal for the general public. A range of classical toilets and bidets completes the collection for a truly luxurious bathing experience. It expects that continue going forward as well, with management calling for 5-7% annual EPS growth and 7-9% dividend growth over the next five years. Utilities have long been considered one of the favorite sectors of dividend growth investors. The EEI produces a handy document that includes a territory map of all member services, and also includes a list of all members by operating utility and by parent company. Please perform your own due diligence before you decide to trade any securities or other products. It also expects limited impact to the company's credit rating, and also expects to continue with the regular dividend increases.