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NextEra Energy Aims to Build a National Water Utility Business

Last week, Florida-based electric utility and renewable energy giant NextEra Energy (NYSE: NEE) announced that it had entered into an agreement to purchase the wastewater system of a suburban Philadelphia town.

Yep, that’s right, NextEra — which owns the country’s largest regulated electric utility, Florida Power and Light — is now a player in the U.S. regulated water and wastewater utility industry.

Here’s what investors should know.

Image source: Getty Images.

NextEra’s suburban Philadelphia wastewater system acquisition

NextEra Energy’s relatively new NextEra Water subsidiary is acquiring the wastewater system owned by Towamencin Township in Montgomery County, Pennsylvania. This system serves about 7,500 customer accounts.

NextEra Water expects this acquisition — which is its second, as we’ll get to in a moment — to close in the second half of 2023, assuming timely regulatory approval from the Pennsylvania Public Utility Commission. 

The company clinched the deal through a process that involved bids from five pre-qualified entities, according to public information from Towamencin Township. Two of the bidders were American Water Works (NYSE: AWK), the largest publicly traded U.S. water and wastewater utility, and Aqua America, which is Essential Utilities(NYSE: WTRG) water and wastewater utility business.

That these two large water utilities were also bidders isn’t a surprise. Both have headquarters in the Philadelphia Metro area — American Water Works in New Jersey and Essential in Pennsylvania — and a big presence in the region. 

NextEra Water has major national ambitions

“The acquisition of the Towamencin wastewater system furthers our goal of creating a national water utility,” NextEra Water president Bruce Hauk said in the press release.

In October, on NextEra Energy’s Q3 2021 earnings call, its management team discussed the company’s entrance into the water utility space and its broad aims for this business. It shared that during the quarter the company had agreed to buy several water and wastewater systems in eight counties in the Houston area of Texas. It expects this deal with seller Quadvest, L.P. to close in the third quarter of this year.

On that earnings call, then-CFO Rebecca Kujawa (who now leads the company’s renewable energy business, NextEra Energy Resources) also shared that the company is constructing “an innovative water reuse and reclamation project that would help our customer achieve significant savings on its water supply needs and make its operations more efficient and sustainable while at the same time, delivering attractive returns to Energy Resources.”

NextEra Energy investors should be pleased

NextEra Energy stock was already very attractive, as it’s handily outperformed the market over the long term and has increased its dividend (currently yielding about 2.3%) for 28 consecutive years. Indeed, along with American Water Works, it’s one of the two best dividend stocks to buy now and hold forever, in my view.

NextEra’s entrance into the water utility space makes its stock even more appealing as an investment. This move provides the company with huge growth potential, as the U.S. water and wastewater utility industry is highly fragmented. NextEra’s considerable financial resources give its NextEra Water subsidiary the potential to be a formidable player.

Beth McKenna has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends NextEra Energy. The Motley Fool has a disclosure policy.

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