American Water Works

American Water’s moat rests on efficient scale and regulatory exclusivity in local water and wastewater service territories. Service areas are natural monopolies given the cost of duplicating buried infrastructure and water sources.

Regulators typically allow cost recovery and a fair return on equity in the 9.4–9.8 percent range in recent cases across New Jersey, Pennsylvania, Virginia, Kentucky and others.

Revenue stability and infrastructure surcharge mechanisms (e.g., DSIC/ISRS, WRAM variants) in several states further reduce volume risk and improve cash flow predictability.

Component scores and weights: Efficient scale 95 (weight 40 percent), Switching costs 90 (25 percent), Intangibles such as franchises and water rights 75 (15 percent), Cost advantage from national scale and procurement 70 (10 percent), Network effects 10 (10 percent).

Weighted result ≈ 86. Moat erosion risks include adverse rate case outcomes, California condemnation efforts around the Monterey system, extreme weather or source scarcity, and cybersecurity incidents. The regulatory model and diversified footprint mitigate most single‑state shocks, but California legal risk warrants monitoring.