In the first paragraph of the article, Aaron Musgrave, Vice President of Investor Relations, introduces the American Water's Second Quarter 2023 Earnings Conference Call. He goes over some safe harbor language and informs listeners that Susan Hardwick, President and CEO, will share highlights of second quarter and year-to-date results and thoughts on their 2023 EPS guidance and longer-term targets. The call is being recorded and webcast, and the audio webcast archive will be available for one year on the company's Investor Relations website.

American Water's President and CEO, Susan Hardwick, reported strong financial results for the first half of 2023, with earnings of $2.37 per share compared to $2.07 in the same period of 2022. The increase was due to revenue increases from rate cases and infrastructure mechanism filings, as well as increased usage due to warm and dry weather. The company also invested nearly $1.2 billion in capital projects year-to-date.

Susan outlined the company's 2023 capital investment plan, which includes approximately $400 million for acquisitions and $2.7 billion from equity and convertible debt issuances. Additionally, the company published its sustainability report and affirmed its 2023 EPS guidance range and long-term targets. John will then discuss the second quarter highlights and financial results in more detail.

The company has successfully completed their 2023 financing plan with an upsized equity offering of $1.7 billion and an exchangeable senior notes due in 2026 of $1 billion. With these transactions, the company's commercial paper balance is zero and their total debt-to-capital ratio is 54%, which is below their target of 60%. They have a laddered approach to long-term debt financings to manage cash flows and minimize interest rate risk, and will receive $720 million of no proceeds from the sale of HOS in 2026.

The company reported higher earnings in the quarter due to increased revenues from recently completed rate cases and higher throughput due to unusual weather. Higher pension and chemical costs were largely mitigated by the higher revenues. The company is expecting higher production costs and pension costs in the near term and has filed for rate increases to help limit the bottom-line impact.

Depreciation expense and additional long-term financing costs increased, but the EPS impact is expected to be neutral for the full year. Year-to-date earnings have increased $0.30 per share compared to the same period last year, and the company is on track to achieve its 2023 EPS guidance of $4.72 to $4.82 per share. The revenue growth for the second half of the year is expected to be strong, and the company has strengthened its balance sheet in order to achieve long-term financial targets.

John has presented Slide 13 which demonstrates the company's ability to close deals in multiple states. They have closed 10 acquisitions totaling $33 million and have 32 transactions under agreement totaling $555 million, including the Butler Area Sewer Authority, the Granite City wastewater treatment plant, and the Towamencin Township Wastewater System. The company is confident that they will achieve their capital investment plan of $2.9 billion for 2023 and have already secured financing for growth. Cheryl will then discuss capital investment, rate cases, and other regulatory updates.

John mentioned that the company is on track to meet its goal of $2.9 billion in capital spending this year. They are making improvements to their water treatment plants in Jerseyville, Illinois and Coatesville, Pennsylvania, in order to provide safe, clean, reliable, and affordable drinking water and wastewater services. In addition, they have several pending general rate cases in California, Indiana, and West Virginia, with hearings expected in the fall and an order in February of next year in West Virginia. They are seeking an additional $45 million in annual revenue, excluding infrastructure surcharges.

American Water recently filed a general rate case in Kentucky for $26 million of additional annual revenue, and received a final decision from the Missouri Public Service Commission in May for an increase of $95 million in annualized revenues. In June, the California Commission authorized an 8.98% ROE with an equity component of 57.04%, and American Water submitted an advice letter for a 52 basis point increase to their ROE in 2023 which was approved in July. In May, American Water submitted written comments to the EPA's proposed PFOS rule, expressing concern that the EPA's cost estimates are understated and that they will need to invest over $1 billion and nearly $50 million of annual operating expenses in order to comply.

American Water is evaluating the potential impact of a 5-year capital plan and the implications of PFOS settlements. They are advocating that the polluters should be responsible for the cleanup and are working with the EPA and Congress to create water quality standards. They have also released a sustainability report for 2021 and 2022 which highlights their commitment to water quality, customer affordability, and investing in water and wastewater infrastructure. They are also expanding and updating disclosures related to how they operate the business.

Susan Hardwick explains that the changes to the full year '23 guidance are due to timing of rate cases and the resulting revenue increases, as well as inflationary impacts and higher costs such as chemical and production costs. These cost increases have been successful in getting built into rate cases, resulting in higher revenue recovery.

John Griffith and Paul Zimbardo discussed the primary drivers of the company's financials, such as the timing of a long-term debt issue and higher costs associated with short-term debt financing. They also discussed the impact of New Jersey revenue and moderating production costs. Lastly, they discussed the company's balance sheet and long-term debt-to-total capital ratio, which they expect to trend up over time until they reset with equity. Susan Hardwick reminded that the outlook for the year remains on track to hit expectations on a weather-normalized basis, though there is no prediction of impacts from July's rainy weather.

Susan Hardwick and John Griffith discussed the exchangeable bonds and their impact on guidance, as well as the financing of two acquisitions expected to close at the end of the year. Hardwick stated that the regulatory process is unpredictable, but they are confident in the timing of the acquisitions. Griffith added that their plan was set with no predictions of interest rates. Hardwick concluded that they are successful at large municipal M&A due to their expertise in the area.

Susan Hardwick explains that their teams have been embedded in the communities to identify the needs and come up with solutions. She also states that the larger deals have been circumstantial and their expertise is an advantage for the company. In response to a question from Gregg Orrill, she states that the normal process for the Indiana rate case proceeding is to have testimony filed with all the parties later in the summer or early fall. James Kennedy then asks about the $1 billion PFAS figure and how it relates to the forthcoming capital plan.

Susan Hardwick and Cheryl Norton are working to analyze their various facilities to determine if there is any exposure and what sort of treatment may be necessary. They are also collecting samples at all locations to verify levels and look for seasonal variations. They are utilizing their prioritization models to decide what work could be moved out or not. Ultimately, they will determine how much of the $1 billion will result in incremental capital expansion of the plan or if it will be shifted to later periods.

Susan Hardwick stated that the recent regulations have not changed their strategy for wastewater M&A, as they still view it as an important part of their strategy. She believes there are plenty of opportunities in this area due to aging infrastructure. They will manage all opportunities within their capital financing capabilities. The conference call then concluded.

This summary was generated with AI and may contain some inaccuracies.