In this paragraph, the operator introduces the American Water's Second Quarter 2024 Earnings Conference Call and introduces the host, Aaron Musgrave. Musgrave then provides Safe Harbor language and mentions that the company will be making forward-looking statements. He also mentions the risks and uncertainties associated with these statements and directs listeners to the company's financials and SEC filings for more information. The CEO, Susan Hardwick, then takes over and begins discussing the highlights of the first half of the year.

In the second quarter and first half of 2024, the company delivered solid financial results, with earnings of $1.42 per share for the quarter and $2.37 per share for the first 6 months. These results were in line with expectations, which were based on anticipated revenue increases from rate case proceedings and infrastructure filings. The company has raised its 2024 EPS guidance to $5.25-$5.30 per share. Other accomplishments in 2024 include investing $1.4 billion in capital projects and adding 43,000 customers through acquisitions and organic growth. The company also published its latest sustainability report, reflecting its mission of providing sustainable water and wastewater services. The regulatory team has also been successful in executing the company's regulatory strategy.

American Water has successfully completed four cases in 2024 in different states, all of which have authorized 100% of the capital investments made. The company strategically operates in diverse regulatory environments and has received support from state and federal policymakers for their work. They are often called upon to take over failing community water systems. In Pennsylvania, the recent rate case was approved with 100% of the capital investments being approved.

The company acknowledges the need for continued investments in updating their systems to provide reliable water and wastewater service to citizens of Pennsylvania. They have received comments about the pace of their regulatory strategy, but their focus is on ensuring customer affordability through cost management and innovative approaches. The recent Pennsylvania order outcome resulted in a revenue increase of $71 million being denied due to a lower ROE finding, and $23 million being removed due to a pending acquisition. The remaining $11 million difference is due to cost-of-service items. Overall, the company believes their request was reasonable, except for the ROE finding.

The company will continue to serve customers in Pennsylvania but will evaluate the impact of recent results on their overall allocation of capital investment. They believe there are still many investment opportunities in the 14 states they serve and that the regulatory and legislative environments are conducive to earning a fair return for investors. The company is committed to providing affordable service and sustainable operations while delivering competitive and sustainable shareholder returns. They have affirmed their long-term targets for earnings and dividend growth and have confidence in their ability to achieve them. The company also announced the appointment of a new president, John, which they are excited about.

The American Water Board has made a decision to focus on building a pipeline of talent for long-term leadership. The CEO will continue to lead the company's strategic direction, while John will handle daily operations. Cheryl will expand her role to lead Business Development, and David and Nick have been named Executive Vice President and CFO, and Vice President and Treasurer respectively. All four have extensive experience and a strong commitment to the company's purpose.

The paragraph discusses the recent changes in leadership at American Water, with Nick Furia being promoted to Assistant Treasurer and Cheryl Norton expressing excitement about the team's potential. It also mentions the recent regulatory updates in Pennsylvania, including an additional $99 million in annualized revenues and a suggested increase in donations to the company's hardship fund.

Pennsylvania American Water has committed to increasing its shareholder contribution to the H2O Help to Others grant program by $3.5 million over 5 years as part of its acquisition of the Butler Area Sewer Authority. However, the approval of this expansion is currently pending a decision from the Commonwealth Court due to an appeal. The company acknowledges that some customers in the Northeast part of their service area may experience temporary aesthetic disturbances with their water, but assures that it meets all state and federal drinking water regulations. They are committed to addressing any water quality concerns raised by customers. In Kentucky, the Commission has authorized an additional $11 million in annualized revenues, but the company will be required to refund customers with interest retroactively to February 6. This does not include the infrastructure surcharge revenues of $10 million, which will contribute to the company's investment recovery in the state.

The company has filed a petition for a rehearing of the rate case order, seeking clarification and correction of certain quantifications. They expect resolution of this proceeding in 2024. The company has general rate cases in progress in seven jurisdictions, all centered around capital investments. They have filed a general rate case in Missouri and expect new rates to become effective in mid-2025. In Illinois, evidentiary hearings are scheduled for August and a proposed order is due in October. In California, they expect a final rate case decision in the second half of 2024, with new rates implemented retroactively to January 1, 2024. The company reached a partial settlement agreement in November 2023, but it does not address rate design or certain other matters. The California Supreme Court has vacated a portion of the Commission's decision relating to the prohibition of water revenue adjustment mechanisms.

Decoupling is an important tool for conservation in California and water supply reliability is crucial for the state's economic and environmental health. In New Jersey, the company is in confidential settlement discussions and hopes for a resolution soon. The company has $266 million in annualized new revenues and rates in 2024, with $546 million in total annualized revenue requests pending. Customer affordability is a top priority for the company, and they have proposed a new income-based discounted rate for customers in Missouri. They also advocate for a permanent, federally funded low-income water assistance program. The company operates in a constructive regulatory and legislative environment.

In this paragraph, the speaker discusses the importance of timely and consistent recovery of investments and operating costs, as well as offering affordability programs and tariffs to those in need. They mention American Water's engagement with policymakers and regulators to find ways to invest in infrastructure while also achieving timely recovery. The company offers affordability programs and low income tariffs in several states and has successfully increased capital investment in the first half of 2024. The speaker then hands it over to John to cover the financial results and plans in more detail.

The company's earnings for the quarter were $1.42 per share, down $0.02 from the same period in 2023 but up $0.02 on a weather-normalized basis. Revenues have increased due to recently completed rate cases and favorable weather conditions. Operating costs have also increased, including higher employee-related costs and financing costs for investment growth. However, earnings for the year-to-date period were flat compared to last year due to similar factors.

The company has seen an increase in earnings of $0.04 per share on a weather-normalized basis, in line with expectations for the first half of the year. They have successfully closed on five systems, adding approximately 33,400 new customers. The company also has 59,000 customer connections and $483 million under agreement for future acquisitions. The acquisition of the BASA wastewater system in Pennsylvania is currently under appeal, but the company remains confident in their acquisition pipeline in the state. Slide 18 shows the company's strong financial position.

The company's total debt-to-capital ratio is 56%, which is within their target of less than 60%. They have raised their 2024 EPS guidance and expect to achieve 8.5% EPS growth. They affirm their long-term financial targets and believe their industry-leading EPS and dividend growth, affordability position, and DSG leadership will be valued by investors. They also announced leadership changes and discussed the Pennsylvania rate case.

The speaker discusses the potential impact of a recent order on their regulatory strategy in a specific state and how it may affect their rate cases, capital spending, and overall plans. They mention the need for continued investment in infrastructure and the need to balance shareholder expectations with the low return on equity in that state. They state that they will continue to evaluate and provide updates in the fall, but do not anticipate any changes to their overall capital plans. The speaker also mentions recent leadership updates.

Susan Hardwick, in response to a question about capital reallocation and M&A in Pennsylvania, says that the company will not slow down its pace of acquisitions in the state. However, there may be some challenges related to fair market value and the commission's process for reviewing acquisitions. The company expects to see earnings weighted towards the second half of the forecast period, but does not anticipate any lumpiness in results. The company maintains its long-term growth target of 7% to 9%.

The company has been asked about their base year for financial projections, but they do not pick a specific base year. They have been in the 7% to 9% range for the past few years and expect to remain in that range. They have a note coming due in 2026, but they have been planning for it. The company has increased their guidance due to lower-than-expected decline in customer usage and other factors. The change in guidance is only a few cents.

Angie Storozynski asked about the impact of the recent decision in Pennsylvania on the company's profitability and future growth. Susan Hardwick responded that the company's behavior and interest in growing through acquisitions in Pennsylvania will not change, despite the decision. She also mentioned that the company has a strong team and process in place to identify opportunities in the state. Paul Zimbardo congratulated the leadership changes and asked about the potential for interest in M&A in Pennsylvania. Susan Hardwick reiterated that the company's behavior and interest in growth will not change, and that the guidelines set by the Commission are helpful. Angie Storozynski asked about the offset to the lower profitability of the largest asset in the company's portfolio, and Susan Hardwick responded that the company is still within its growth rate range.

Susan Hardwick responds to a question from Angie Storozynski about the rate base in Pennsylvania, stating that the gap is closing and they have opportunities for investment in other states. She also mentions the need for investment in infrastructure and resiliency due to climate change. She reiterates that their total capital spending will not change and the focus will be on where to spend it. The next question from Jonathan Reeder asks about the legal challenge related to Butler, and Hardwick says that it is ongoing and they are waiting for a resolution from the Commonwealth Court.

The company is waiting for a court decision and does not have a specific timeline for when it will be made. The status of another pending deal is also uncertain and no update has been given. The company is still moving forward with the approval process for another deal. There has been a 15% increase in the lower end of revenue, possibly due to lower-than-expected declines in customer usage. Uncertainty surrounding the outcome of a deal in Pennsylvania may have also played a role in the previous revenue range.

The company is seeing lower customer usage decline than expected, which is a significant factor in the change. The financing headwind is mainly due to the timing of previous financings and the delayed closing of an acquisition. The MSG and other potential headwind in 2024 is not an ongoing issue, but rather a collection of one-time factors.

Aditya Gandhi congratulates Susan, Cheryl, and John on their leadership updates and asks about the impact of the lower ROE in Pennsylvania on the company's EPS CAGR. Susan reassures that there will be no impact and the long-term targets have been reaffirmed. Aditya also asks about the PFAS multi-district litigation and Cheryl explains that they have submitted all requested data and are waiting for the payout calculations. No further questions are asked and the conference concludes.

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