The American Water First Quarter 2024 Earnings Conference Call, hosted by Vice President of Investor Relations Aaron Musgrave, began with a reminder that the call was being recorded and webcast. Musgrave also mentioned that the call would include forward-looking statements and provided a disclaimer about the potential risks and uncertainties involved. After his remarks, American Water's President and CEO, Susan Hardwick, spoke about the company's strong financial results for the first quarter of 2024.

In the second quarter of 2024, earnings were $0.95 per share, an increase from the previous year. This puts the company on track to meet their full year earnings guidance. Other accomplishments in 2024 include a successful long term debt issuance, significant investments in infrastructure, a large acquisition, and filing rate cases in several states. The company also remains committed to providing affordable and sustainable service, as highlighted in their disclosures. In April, the EPA announced new regulations for PFAS chemicals in drinking water, which the company fully supports and has expertise in addressing.

The company is affirming their long term targets for earnings and dividend growth, based on their strong execution and top-tier capital growth plan. They expect to consistently deliver on their plans, outpacing their peers in the industry. The Board of Directors has approved an 8.1% increase in the quarterly cash dividend, with plans to continue growing it at 7-9% per year. The company is committed to addressing challenges in the water industry, including the recent US EPA rule on PFAS. They remain dedicated to being a leader in the industry and providing solutions to these challenges.

The federal time line for compliance with the new PFAS rule has been extended from three years to five years, and states may also grant a two year extension for water systems to make capital improvements. The company does not anticipate any changes to their estimated costs for compliance with the rule, and the new limits set by the EPA for three additional PFAS compounds are not expected to impact these estimates. The EPA has also designated PFOA and PFAS as hazardous substances under CERCLA. The company is actively advocating for federal legislation that would provide liability protections for water and wastewater systems. The company has settled with 3M and DuPont in the multi-district litigation lawsuit and is still awaiting the amount of proceeds from each settlement. In West Virginia, the commission has authorized an additional $18 million in annualized revenues.

In addition to receiving a $7 million order for additional revenue, the company also received an order in Indiana authorizing $66 million in annualized revenues and a new rate design that benefits customers on fixed incomes. The company has active rate cases in eight jurisdictions, with cases in California, Virginia, New Jersey, and Illinois progressing well. In Kentucky, an order is expected soon and interim rates have already been implemented. In Pennsylvania, new rates are expected to be effective in August for a case driven by $1 billion in capital investment. The next milestones in these cases include proposed decisions and final orders.

In summary, the company expects a positive outcome from the state of Pennsylvania's support for capital investments in infrastructure. They have also filed rate cases in Iowa, Tennessee, and plan to file in Missouri. Several state bills have been passed to aid water utilities, and the company has seen $98 million in new revenues since January. They are focused on balancing customer affordability and have a target of keeping residential water bills at 1% or less of median household income. They are also implementing strategies to assist customers who struggle with affordability.

In the first quarter of this year, California American Water announced an additional $8 million in bill relief for customers affected by the COVID-19 pandemic. They are also advocating for a permanent low income water assistance program and focusing on technology and cost management to improve customer affordability. The company's capital investment increased by almost $200 million in the quarter, keeping them on track to hit their goal of $3.1 billion in 2024. Their investments are driven by a risk-based strategy and a focus on affordability, including the replacement of old or damaged pipes and meeting standards for lead service line replacements.

The company's financial results for the quarter were positive, with earnings increasing by $0.04 per share compared to the same period in the previous year. This was due to completed rate cases in Indiana and West Virginia, as well as increased revenues from previous rate outcomes. However, production costs and employee-related expenses caused an increase in operating and maintenance costs, while long-term financing costs also rose in support of the company's investment growth. Short-term financing provided a benefit, but there was a net unfavorable impact from one-time non-operating items. The company expects to continue to see modest bill increases and consistent earnings growth through capital recovery mechanisms and forward test years.

In the first quarter, American Water had an additional $0.02 per share of interest income from a seller note related to the sale of HOS. They will continue to break this out quarterly to show the growth of their core regulated strategy without this income. They successfully closed on the acquisition of a wastewater treatment plant in Granite City, Illinois and have over 60,000 customer connections and $500 million under agreement for future acquisitions. Many states in their footprint are contributing to this total. Of the signed agreements, nearly 20,000 customers have already been approved by the State Public Utility Commission. This includes the Butler Area Sewer Authority acquisition in Pennsylvania, which is expected to close soon. They also recently closed on the acquisition of water and wastewater systems in Cape Charles, Virginia, the second acquisition completed under Virginia's fair market value law. The environment in Pennsylvania related to acquisitions is changing, but American Water remains confident that the core principles of the original fair market value law will remain in place and have good support.

The company is confident in their acquisition pipeline in Pennsylvania and is investing in regulated opportunities for the benefit of communities. They recently completed a successful long-term debt financing, which will fund their growth and pay off previous debts. Though the current interest rate environment is challenging, the company is well-positioned to manage risks and maintain a low cost of capital. Their strong financial condition is reflected in their credit ratings and debt-to-capital ratio. Overall, the company remains confident in their strategy and financial outlook.

The company's focus is on execution and they believe their EPS and dividend growth, as well as their ESG leadership, set them apart from other utilities. They are proud of their Military Services Group and their efforts to serve military installations. The company does not expect to settle the rate case in Pennsylvania and is closely monitoring fair market value revisions. They are confident in their ability to help communities in need.

The company will work with regulators and legislators to comply with new CERCLA designations and is confident in its ability to execute its plans. They are also working to get language fixed to protect them from CERCLA rules. There are concerns raised in the Pennsylvania rate case, but the company is not changing its strategy and will continue with its capital investments.

Susan Hardwick expresses confidence in their plans and the regulatory process in relation to the recent filings in Pennsylvania. The company has invested over $1 billion in infrastructure improvement and renewal in the state, driven by the need for safe and reliable water service. The pace of the filings is tied to the pace of their spending, which is similar to other water peers in the state. The inclusion of a pending acquisition in the rate case is not uncommon and has happened in the past.

The speaker is asking about the connection between the changes happening in Act 12 and the longer time it may take to get regulatory approvals for acquisitions. They also ask about how these deals will be reflected in rates going forward. The company representative responds by saying that the legislative changes and rate case analysis are intertwined, and that the commission will consider the status of approved acquisitions in their findings. They do not expect any changes in how acquisitions are considered in future rate cases. Another analyst asks about the impact of data centers on the company's growth and any potential constraints on their business. The company representative mentions that they have not seen a significant increase in water usage from data centers, unlike their electric utility peers. The call then opens up for more questions.

Aditya Gandhi asks about the PFAS legislation and if it is attached to other bills. Cheryl Norton explains that there is a bill in both the Senate and House to protect passive receivers, and that they are working to secure support from both sides of the aisle. There is no specific timeline for when the legislation will pass as the political process can be unpredictable.

The speakers, Susan Hardwick and Cheryl Norton, believe that the recent publication of the final rules will help in pushing for legislation to address the issue at hand. They have been working on this issue even before the final rule was published and now that it is out, it removes one of the reasons legislators had for not addressing the issue. The EPA plans to use discretion, but the speakers believe that legislation is a stronger protection. The conference call has now concluded.

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