New Jersey American Water Signs Agreement to Purchase South Orange Village Water System

Rhea-AI Summary

New Jersey American Water has signed a $19.7 million agreement to acquire the South Orange Village water system, following a 62% voter approval in November 2024. The system serves approximately 5,000 customer connections.

The company commits to investing $50 million in infrastructure improvements within the first 10 years of ownership. Key improvements to the century-old system include:

• Replacing all lead and galvanized service lines by 2031
• Upgrading four-inch water mains and fire hydrants
• Replacing the Crest Drive Standpipe
• Rehabilitating the Main Reservoir and Newstead Watersphere

Subject to New Jersey Board of Public Utilities approval, the acquisition is expected to complete in the second half of 2025.

Positive

• Strategic acquisition adding 5,000 customer connections
• $50M infrastructure investment commitment over 10 years
• 62% voter approval demonstrates strong community support
• Existing operational experience through maintenance contracts

Negative

• Significant capital expenditure required ($19.7M acquisition + $50M improvements)
• Century-old infrastructure requiring extensive upgrades
• Lead contamination risk in existing service lines

Insights

Utility Industry Expert

New Jersey American Water's $19.7 million acquisition of South Orange Village's water system represents a strategic expansion of American Water Works' (AWK) regulated business footprint. The addition of 5,000 customer connections strengthens the company's presence in New Jersey while addressing critical infrastructure needs for the community.

The $50 million capital investment commitment over ten years is particularly significant. This structured approach allows AWK to methodically address infrastructure deficiencies in the century-old system while deploying capital in a regulated environment. The planned improvements—particularly the complete elimination of lead and galvanized service lines by 2031—align with increasing regulatory priorities around water quality and safety standards.

The strong community support (with 62% voter approval) indicates effective stakeholder management, which is important for utilities operating in regulated environments. This acquisition continues AWK's established pattern of municipal system acquisitions, where the company can leverage its operational expertise and economies of scale to improve deteriorating infrastructure that municipalities struggle to maintain with budgets.

While the transaction requires NJ Board of Public Utilities approval, AWK's existing operational relationship with South Orange Village through maintenance contracts suggests regulatory hurdles should be manageable. The acquisition represents AWK executing its core competency—assuming responsibility for aging municipal water infrastructure and implementing systematic improvements to ensure long-term system reliability.

Financial Analyst

This acquisition fits perfectly within American Water Works' growth strategy of expanding its regulated utility footprint through municipal water system acquisitions. The $19.7 million purchase price for South Orange Village's system translates to approximately $3,940 per customer connection, which appears reasonable given the infrastructure's age and condition.

The commitment to invest $50 million in system improvements over the next decade creates a significant regulated capital deployment opportunity. These investments will likely be incorporated into the company's rate base, allowing AWK to earn authorized returns on this capital while addressing critical infrastructure needs.

From a materiality perspective, while this transaction is relatively small compared to AWK's $27.1 billion market capitalization, it demonstrates the company's continued execution of its municipal acquisition strategy. The utility's regulated business model provides visibility into future earnings from these investments through predetermined returns approved by regulators.

The phased investment approach over ten years allows for measured capital deployment without straining the company's resources. AWK's existing operational familiarity with the system through maintenance contracts should reduce integration risks and implementation challenges.

For investors, this transaction reinforces AWK's position as a leading consolidator in the water utility space, with a proven ability to identify, acquire, and improve municipal systems while generating regulated returns. The anticipated closing in the second half of 2025 means the financial impact will materialize in future periods rather than affecting near-term results.

New Jersey American Water to Invest $50 Million in First 10 Years

CAMDEN, N.J.--(BUSINESS WIRE)-- New Jersey American Water announced today it signed an agreement to acquire the water system in South Orange Village for $19.7 million. This announcement follows a referendum vote in November of 2024 in which 62% of South Orange voters approved the sale of the system. The South Orange water system serves approximately 5,000 customer connections.

“On behalf of New Jersey American Water, I want to thank the residents of South Orange for entrusting us with their water system,” said New Jersey American Water President Mark McDonough. “Through existing operations and maintenance and bulk water contracts, we have been serving South Orange for many years and are proud of the relationships we’ve built within the community. Our familiarity with the water system will allow us to make needed system improvements quickly, specifically removing all lead and galvanized service lines. We look forward to providing safe, reliable and affordable water service to South Orange residents.”

As part of the agreement, New Jersey American Water will invest $50 million in infrastructure improvements within the first 10 years of ownership. Anticipated improvements to the system — which is over 100 years old in some areas — include:

• Identification and replacement of all utility-owned and customer-owned lead and galvanized steel service lines by 2031;
• Replacing all four-inch water mains and associated fire hydrants;
• Replacing the Crest Drive Standpipe; and
• Rehabilitating the Main Reservoir and the Newstead Watersphere.

Additional improvements will be identified through a comprehensive analysis of the system which New Jersey American Water will conduct upon taking ownership.

“After careful consideration and the extensive work of the water utility task force, our Village Council, our Village administrative staff, Village residents and outside financial consultants, I am fully confident that the sale of our water system to New Jersey American Water is in the best interest of South Orange residents,” said South Orange Village Mayor Sheena Collum. “This agreement ensures that our community will receive the investment needed to modernize our water infrastructure and eliminate lead and galvanized service lines, while also providing the expertise and resources of a trusted, regulated utility. This is a positive step toward securing safe, reliable, and affordable water for generations to come.”

New Jersey American Water is working with South Orange Village to ensure a smooth transition for customers. Subject to approval from the New Jersey Board of Public Utilities (NJ BPU), the company anticipates completing the acquisition in the second half of 2025.

About American Water

American Water (NYSE: AWK) is the largest regulated water and wastewater utility company in the United States. With a history dating back to 1886, We Keep Life Flowing® by providing safe, clean, reliable and affordable drinking water and wastewater services to more than 14 million people with regulated operations in 14 states and on 18 military installations. American Water’s 6,700 talented professionals leverage their significant expertise and the company’s national size and scale to achieve excellent outcomes for the benefit of customers, employees, investors and other stakeholders.

For more information, visit amwater.com and join American Water on LinkedIn, Facebook, X and Instagram.

About New Jersey American Water

New Jersey American Water, a subsidiary of American Water, is the largest regulated water utility in the state, providing high-quality and reliable water and/or wastewater services to approximately 2.9 million people. For more information, visit www.newjerseyamwater.com and follow New Jersey American Water on LinkedIn, Facebook, X and Instagram.

View source version on businesswire.com: https://www.businesswire.com/news/home/20250306906329/en/

Media Contact:

Erin Banes

Sr. External Affairs Specialist

New Jersey American Water

erin.banes@amwater.com

Source: New Jersey American Water

FAQ

How much is New Jersey American Water paying for South Orange Village water system?

New Jersey American Water is acquiring the South Orange Village water system for $19.7 million.

What infrastructure improvements will New Jersey American Water make in South Orange?

The company will invest $50 million in the first 10 years to replace lead lines, upgrade water mains, replace Crest Drive Standpipe, and rehabilitate the Main Reservoir and Newstead Watersphere.

When will New Jersey American Water complete the South Orange acquisition?

The acquisition is expected to complete in the second half of 2025, subject to NJ Board of Public Utilities approval.

How many customers will New Jersey American Water gain from the South Orange acquisition?

The South Orange water system serves approximately 5,000 customer connections.

When will New Jersey American Water complete lead service line replacements in South Orange?

The company plans to replace all lead and galvanized service lines by 2031.