Q4 2023 American Water Works Co Inc Earnings Call

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Operator: Good morning, and welcome to American Water's fourth quarter and year-end 2023 earnings conference call. As a reminder, this call is being recorded and is also being webcast with an accompanying slide presentation through the company's Investor Relations website. The audio webcast archive will be available for one year on American Water's Investor Relations website. I would now like to introduce your host for today's call, Aaron Musgrave, Vice President of Investor Relations. Mr. Musgrave, you may begin.

Speaker Change: Good morning, and welcome to the American Water's fourth quarter and year end 2023 earnings Conference call. As a reminder, this call is being recorded and is also being webcast with a.

Speaker Change: The accompanying slide presentation through the company's Investor Relations website.

Speaker Change: The audio webcast archive will be available for one year on American water's Investor Relations website, I would now like to introduce your host for today's call Erin Musgrave, Vice President of Investor Relations. Mr. Musgrave you may begin.

Aaron Musgrave: Thank you, Dave. Good morning, everyone, and thank you for joining us on today's call. At the end of our prepared remarks, we will open the call to your questions. But first, let me go over some safe harbor language. Today, we will be making forward-looking statements that represent our expectations regarding our future performance or other future events. These statements are predictions based on our current expectations, estimates, and assumptions. However, since these statements deal with future events, they are subject to numerous known and unknown risks, uncertainties, and other factors that may cause actual results to be materially different from those indicated or implied by such statements.

Erin Musgrave: Thank you Dave Good morning, everyone and thank you for joining us for today's call.

Erin Musgrave: At the end of our prepared remarks, we will open the call for your questions let.

Erin Musgrave: Let me first go over some safe Harbor language today, we will be making forward looking statements that represent our expectations regarding our future performance or other future events.

Erin Musgrave: These statements are predictions based on our current expectations estimates and assumptions. However, since these statements deal with future events. They are subject to numerous known and unknown risks uncertainties and other factors that may cause actual results to be materially different from the results indicated or implied by such statements <unk>.

Aaron Musgrave: Additional information regarding these risks, uncertainties, and factors, as well as a more detailed analysis of our financials and other important information, is provided in the fourth quarter earnings release and in our 2023 Form 10-K, each filed yesterday with the SEC. And finally, all statements during this presentation related to earnings and earnings per share refer to diluted earnings and diluted earnings per share. After our prepared remarks, we'll then close by answering your questions. With that, I'll turn the call over to American Water's president and CEO, Susan Hardwick. Thanks, Aaron. Good morning, everyone.

Erin Musgrave: Additional information regarding these risks uncertainties and factors as well as a more detailed analysis of our financials and other important information.

Erin Musgrave: As provided in the fourth quarter earnings release and in our 2023 Form 10-K, each filed yesterday with the SEC.

Erin Musgrave: Finally, all statements. During this presentation related to earnings and earnings per share refer to diluted earnings and diluted earnings per share.

Erin Musgrave: After our prepared remarks, we'll then close by answering your questions with that I'll turn the call over to American water's, President and CEO Susan Hardwick.

Susan N. Story: Thanks, Darren and good morning, everyone.

Susan N. Story: As we announced yesterday, we finished 2023 with very strong financial results that were right on plan. As shown on slide five, earnings were $4.90 per share for the year, which included $0.13 per share of favorable weather, most of which we discussed earlier in the year. Excluding the estimated weather impact earnings of $4.77 per share, we're at the midpoint of the guidance rates we shared originally back in November of 2022. I'm very proud of our company's ability to stay focused on serving our customers safely and reliably through numerous economic events this past year, which gave us the ability to confidently execute on the plan we had for 2023. I'm also proud of the resilient service we consistently deliver, and especially over the past few months during a cold January and an active storm season across the country. I want to thank our employees for safely providing reliable service to the 14 million people we serve in their homes, businesses, and communities.

Susan N. Story: We announced yesterday, we finished 2023 with very strong financial results that were right on plan.

Susan N. Story: As shown on slide five earnings were $4 90 per share for the year, which included 13 cents per share of favorable weather most of which we discussed earlier in the year.

Susan N. Story: Excluding the estimated weather impact earnings of $4 77 per share were at the midpoint of the guidance range. We shared originally back in November of 2022.

Susan N. Story: I'm very proud of our company's ability to stay focused on serving our customers safely and reliably through numerous economic events. This past year, which gave us the ability to confidently execute on the plan we had for 2023.

Susan N. Story: I'm also proud of the resilient service, we consistently deliver and especially over the past few months during a cold January and active storm season across the country I want to thank our employees for safely providing reliable service to the 14 million people, we serve and their homes businesses and communities.

Susan N. Story: You can see on slide five an abbreviated list of some of our key accomplishments in 2023, and John and Cheryl will add to these in their remarks. Overall, we believe the takeaway today for investors is that our strong execution in 2023 amid the challenging macro backdrop coupled with our clear top-tier growth plan demonstrates American Water's ability to deliver on our long-term plan. I'm very confident we will execute our plans in 2024 and beyond with the great momentum we have from 2023. Turning to slide six, as you can see, we have delivered an excellent total shareholder return over the past five and ten years, including our growing record of significant dividend increases. We're proud of this history, which compares very favorably to other utilities. I want to acknowledge, though, that our stock and utility stocks in general did not perform nearly as well as the S&P 500 in 2023, which dampened the outperformance we've had versus the S&P 500 over the last decade or so. Relative valuations of utility stocks fell without regard to specific performance.

Susan N. Story: You can see here on slide five an abbreviated list of some of our key accomplishments in 2023, and John and Cheryl will add to these in their remarks.

Susan N. Story: Overall, we believe the takeaway today for investors is that our strong execution in 2023 amid the challenging macro backdrop, coupled with our clear top tier growth plan demonstrates American water's ability to deliver on our long term plan.

Susan N. Story: I'm very confident we will execute our plans in 2024 and beyond with the great momentum we have from 2023.

Susan N. Story: Turning to slide six as you can see we have delivered an excellent total shareholder return over the past five and 10 years, including our growing record a significant dividend increases we're proud of this history, which compares very favorably to other utilities.

Susan N. Story: I want to acknowledge though that our stock and utility stocks in general did not perform nearly as well as the S&P 500 in 2023.

Which dampened the outperformance we had versus the S&P 500 over the last decade or so.

Susan N. Story: Relative valuations of utility stocks fell without regard to specific performance all of that while we continued our very strong performance.

Susan N. Story: All of that while we continued our very strong... I'm confident our company's fundamentals and the execution of our strategies will continue to produce superior shareholder value and very competitive total shareholder returns for years to come, which takes us to slide 7. The comments that we'll share today are largely an affirmation of the financial plan, long-term targets, and guidance we laid out last November, highlighted by 7 to 9 percent EPS and dividend growth. Later, John will recap the drivers for our growth in 2024, including the increase to our EPS guidance range that we announced yesterday. Big picture, though, we believe the combination of our EPS and dividend growth, our low-risk capital plan, our ESG leadership, and the affordability of our service continues to be rewarded by investors and distinguishes us from other utilities in the sector.

Susan N. Story: I'm confident our company's fundamentals and the execution of our strategies will continue to produce superior shareholder value and very competitive total shareholder returns for years to come.

Susan N. Story: Which takes us to slide seven.

Susan N. Story: The comments that we will share today are largely an affirmation of the financial plan long term targets and guidance. We laid out last November highlighted by 7% to 9% EPS and dividend growth.

Susan N. Story: Later, John will recap the drivers for our growth in 2024, including the increase to our EPS guidance range that we announced yesterday.

Susan N. Story: Big picture, though we believe the combination of our EPS and dividend growth or low risk capital plan, our ESG leadership and the affordability of our service continues to be rewarded by investors and distinguishes us from other utilities in the sector.

Susan N. Story: I'll remind you that we believe the runway for our growth and for achieving these targets is very long, certainly through 2028 in our five-year plan and beyond that. This, of course, is driven by significant investments in infrastructure and acquisitions, coupled with our track record of constructive regulatory outcomes, all with a keen focus on affordability. And on top of all of that, we continue to grow organically, including in our military Services business, which successfully serves 18 military installations across the country.

Susan N. Story: I'll remind you that we believe the runway for our growth and for achieving these targets is very long certainly through 2028, and a five year plan and beyond that.

Susan N. Story: This of course is driven by significant investments in infrastructure and acquisitions, coupled with our track record of constructive regulatory outcomes, all with a keen focus on affordability.

Susan N. Story: And on top of all of that we continue to grow organically, including in our military services business. That's successfully serves 18 military installations across the country.

One final thought I want to leave you with as we begin 2020 for American water continues to receive tremendous support at the state and federal level for the work we do across the country. The.

Susan N. Story: One final thought I want to leave you with: as we begin 2024, American Water continues to receive tremendous support at the state and federal level for the work we do across the country. The impact we are making in communities across our 14 states to improve water and wastewater service is critical to the well-being of the citizens we are proud to serve. And as we've told you many times, we are committed to solving local infrastructure issues while at the same time driving efficiencies in our business to remain very affordable to our customers. Policymakers frequently encourage our leadership to keep growing, keep investing, and keep solving problems in their states. And this includes Pennsylvania, where we applaud the Public Utility Commission's proposal on February 1st to enhance the process around the implementation of fair market value legislation.

Susan N. Story: The impact we are making in communities across our 14 states to improve water and wastewater service is critical to the well being of the citizens. We are proud to serve.

Susan N. Story: And as we've told you many times, we are committed to solving local infrastructure issues, while at the same time driving efficiencies in our business to remain very affordable to our customers.

Policymakers frequently encourage our leadership to keep growing keep investing and keep solving problems in their states.

Susan N. Story: This includes Pennsylvania, where we applaud the public utility Commission's proposal on February <unk> to enhance the process around the implementation of fair market value legislation.

Susan N. Story: We believe the spirit of the enhancements is to increase public awareness and establish greater procedural consistency, all in support of much needed consolidation of the Commonwealth's water and wastewater system. While the business of providing these critical services can at times lead to enhancements in the way we do business, including in the regulatory construct, we have no doubt about the overwhelmingly positive support we receive from stakeholders as we pursue our company's mission. With that, I'll turn it over to Cheryl to talk more about rate-based growth, a regulatory plan, and some recent news around lead service lines.

Susan N. Story: We believe the spirit of the enhancements is to increase public awareness and establish greater procedural consistency all in support of much needed consolidation of the Commonwealth water and wastewater systems.

Susan N. Story: While the business of providing these critical services can at times lead to enhancements in the way, we do business, including in the regulatory construct we have no doubt about the overwhelmingly positive support we receive from stakeholders as we pursue our company's mission.

Susan N. Story: With that I'll turn it over to Cheryl to talk more about rate base growth a regulatory plan in some recent news around lead service lines Sheryl. Thanks.

Cheryl: Susan, and good morning, everyone. Let me start by turning to slide nine, where these graphs illustrate that our continued successful execution of our capital investment plan is succeeding in growing a regulated rate base consistent with our long-term rate of eight to nine percent. Rate-based growth, of course, will drive earnings growth. We believe the high degree of visibility into our capital investment plan, combined with the low risk nature of the plan, uniquely positions American Water in the utility sector and is fundamental to our investment thesis. Turning to slide 10, I'll cover the latest regulatory activity in our states, beginning with our most recently filed cases. In Pennsylvania, we filed a general rate case in November and are seeking recovery of $1 billion in investment. The case is proceeding as planned, including testimony and evidentiary hearings that are scheduled for February and March, with rates still expected to be effective in August. As a reminder, Pennsylvania uses a forward test year for ratemaking purposes.

Cheryl: Thanks, Susan and good morning, everyone. Let me start by turning to slide nine where these graphs illustrate that our continued successful execution of our capital investment plan is succeeding and growing regulated rate base consistent with our long term rate of 8% to 9%.

Cheryl: Rate base growth of course will drive earnings growth, we believe the high degree of visibility to our capital investment plan combined with the low risk nature of the plan uniquely positions American water and the utility sector and is fundamental to our investment thesis.

Cheryl: Turning to slide 10, I'll cover the latest regulatory activity and our states beginning with our most recently filed cases in Pennsylvania, We filed a general rate case in November and are seeking recovery of $1 billion of investments. The case is proceeding as planned including testimony and evidentiary hearings that are scheduled for.

Cheryl: February and March.

Cheryl: With rates still expected to be effective in August as a reminder, Pennsylvania uses a forward test year for ratemaking purposes in New Jersey, We filed a general rate case in January and are seeking recovery of over $1 $3 billion of investments through December 2020 for this case includes for example infrastructure.

Cheryl: In New Jersey, we filed a general rate case in January and are seeking recovery of over $1.3 billion in investments through December 2024. This case includes, for example, infrastructure improvement projects at all seven of our surface water treatment plants in the state. We expect the New Jersey case to be completed sometime later this fall. We also filed a general rate case last month in Illinois, where we have invested over $550 million since our last case. Our general rate cases in California, West Virginia, and Virginia are all progressing well and as expected. In California, we reached a partial settlement in the case in November related to the revenue request.

Cheryl: Improved projects at all seven of our surface water treatment plants in the state.

Cheryl: We expect a new Jersey case to be completed sometime later this fall. We also filed a general rate case last month in Illinois, where we have invested over $550 million since our last case.

Cheryl: Our general rate cases in California, West, Virginia, and Virginia are all progressing well and as expected in California, We reached a partial settlement in the case in November related to the revenue request, we will prepare to implement new rates retroactively to January one 2024 upon receiving the cpuc's.

Cheryl: We will prepare to implement the new rates retroactively to January 1, 2024, upon receiving the CPUC's decision on the settlement agreement and outstanding topics related to rate design and revenue stabilization mechanisms. Our request for a one-year extension on the cost of capital was also granted, pushing the next filing out to May of 2021. In Indiana, we received a final order just yesterday, and it looks very constructive. We are currently evaluating it, and we'll share key takeaways in the next day or two. But overall, we're generally pleased. And finally, in Kentucky, we expect to receive a final order very soon.

Cheryl: Decision on the settlement agreement and the outstanding topics related to rate design and revenue stabilization mechanisms.

Cheryl: Our request for a one year extension on the cost of capital was also granted pushing the next filing out to may of 2025.

Cheryl: In Indiana, we received a final order just yesterday and it looks very constructive we are currently evaluating it and we will share key takeaways in the next day or two but overall, we're generally pleased and finally in Kentucky, we expect to receive a final order very soon.

Cheryl: As a reminder, we expect to file general rate cases about every two years in our larger jurisdiction. Because we make prudent investments and have skilled and dedicated employees working on these cases, we're very confident in obtaining constructive outcomes again in 2024, as we did in 2023. On the legislative front, in New Jersey, new legislation supporting capital investment was passed and was signed by the governor in January. The Resiliency and Environmental System Investment Charge, or RESIC for short, establishes a new regulatory mechanism that will enable water and wastewater utilities to recover in a more timely manner capital spending related to investments in resiliency, environmental compliance, safety, and public health.

As a reminder, we expect to file general rate cases about every two years and our larger jurisdictions.

Cheryl: As we make prudent investments and have skilled and dedicated employees working on these cases, we're very confident in obtaining constructive outcomes again in 2024 as we did in 2023.

Cheryl: On the Legislative front in New Jersey, New legislation supporting capital investment was passed and signed by the Governor in January the resiliency and environmental system investment charge or <unk> for short establishes a new regulatory mechanism that will enable water and wastewater utilities to recover in a more timely manner capital.

Cheryl: Spending related to investments in Brazilian C environmental compliance safety and public health.

Cheryl: This includes capital related to PFAS remediation. In fact, in most of our states where PFAS is present, there are either existing environmental mechanisms that we believe PFAS investments will fit under, or we're proactively advocating for such mechanisms. To show the magnitude of our regulatory execution efforts, you can see on slide 11 that we have $390 million in annualized new revenues and rates since January of 2023. This includes $273 million from general rate cases and step increases and $117 million from infrastructure surcharges.

Cheryl: This includes capital related to P. Fast remediation in fact, most of our states where P fastest present.

Cheryl: They're either existing environmental mechanisms that we believe P fast investments will fit under or we're proactively advocating for such mechanisms.

Cheryl: To show the magnitude of our regulatory execution efforts you can see on slide 11 that we have $390 million in annualized new revenues in rates. Since January of 2023. This includes $273 million from general rate cases, and step increases and 117.

Cheryl: From infrastructure surcharges, we also have $670 million of total annualized revenue request pending as a reminder, American water recovers about 75% of our overall capital spend through infrastructure mechanisms or forward test years, which greatly reduces regulatory lag.

Cheryl: We also have $670 million of total annualized revenue requests pending. As a reminder, American Water recovers about 75% of its overall capital spend through infrastructure mechanisms or forward test years, which greatly reduces regulatory lag. Alongside all of the investments we're making, we remain extremely focused on customer affordability and operating efficiently. We are continuing to evolve our strategies around rate design and programs to assist our customers who are challenged with affordability. We are also continuing our focus on technology, efficiencies of scale, and cost management to deliver on customer affordability, especially as the regulatory demands of the proposed PFAS rule and lead and copper rule improvements drive increases in our capital program. On slide 12, I'd like to cover our recent announcements regarding the U.S. EPA's proposed lead and copper rule improvement. Like PFAS, we think clear rules are important and should be enforced for all providers. American Water consistently meets water quality standards related to the lead and copper rules across its footprint and believes removing the risk of lead service lines over time is the right thing to do for the health and safety of our customers.

Cheryl: Alongside all of the investments, we're making we remain extremely focused on customer affordability and operating efficiently. We are continuing to evolve our strategies around rate design and programs to assist our customers who are challenged with affordability. We are also continuing our focus on technology efficiencies of scale and cost manner.

Cheryl: <unk> to deliver on customer affordability, especially as the regulatory demands or does the proposed P fast rule and lead and copper rule improvements drive increases in our capital program.

Cheryl: On slide 12.

Cheryl: I'd like to cover our recent announcements regarding the U S. Epa's proposed lead and copper rule improvements.

Cheryl: P. Fast we think clear rules are important and should be enforced for all providers American water consistently needs water quality standards related to the lead and copper rules across our footprint and believes removing the risk of lead service lines over time is the right thing to do for the health and safety of our customers, but also like P fast.

Cheryl: But also, like PFAS, we believe all stakeholders must understand the costs associated with the proposed improvements to the lead and copper rule and that the EPA estimates are likely understated. The cost to identify the material of all unknown service lines and replace all lead service lines, including customer-owned lines and galvanized lines where needed, by 2037 will require significant investment for all water systems. We are currently developing preliminary estimates based on the proposed rule. However, unlike PFAS, though, the expected timeline for complying with the lead and copper rule improvements is much longer. So the impact on capital spend will be more gradual. Providing safe, reliable, and affordable water is American Water's business.

Cheryl: We believe all stakeholders must understand the costs associated with the proposed improvements to the lead and copper rule and that the EPA estimates are likely understated.

Cheryl: Cost to identify the material of all unknown service lines and replace all lead service lines, including the customer own mines, and galvanized lines, where needed by 2037 will require significant investment for all water systems. We.

Cheryl: We are currently developing preliminary estimates based on the proposed rule. Unlike P fast, though the expected timeline for complying with the lead and copper rule improvements is much longer so the impact on capital spend will be more gradual.

Cheryl: Abiding safe reliable and affordable water is American water's business, we continue to work with the EPA Congress regulators and policymakers to ensure that the implementation of any final standards protect customers communities and the general public.

Cheryl: We continue to work with the EPA, Congress, regulators, and policymakers to ensure that the implementation of any final standards protects customers, communities, and the general public. As I close on slide 13, you can see that our five-year capital plan, which is unchanged from November, has $1 billion for PFAS and approximately $500 million for lead service line replacement. We have been proactively investing about $100 million per year to replace lead service lines for several years now and expect to continue that level at least through 2030 or beyond. However, depending on the EPA's requirements in the final lead and copper rule improvements, such as for customer-owned service lines, our annual investment level may need to be revised and likely over a longer period of time. Also, we are still awaiting a final rule from the U.S. EPA on P4.

Cheryl: As I close on Slide 13, you can see that our five year capital plan, which is unchanged from November has $1 billion for P fast and approximately $500 million for led service Langer placements, we have been proactively investing about $100 million per year to replace lead service lines for several years now and <unk>.

Cheryl: To continue that level at least through 2030 or beyond depending on the epa's requirements and the final lead and copper rule improvements such as for customer owned service lines, our annual investment level may need to be revised and likely over a longer period of time.

Cheryl: Also we are still awaiting a final rule from the U S. EPA on P. Fast we continue to expect that there will be no material changes to the proposed rule and we have not changed any of our announced plans or last.

Cheryl: We continue to expect that there will be no material changes to the proposed rule, and we have not changed any of our announced plans or estimates from last November related to PFAS compliance. We continue to treat for PFAS in compliance with state regulations, and we continue to prepare for full compliance with the new federal rule once released. Previously, we have disclosed that we are a party to the Multidistrict Litigation, or MDL, lawsuit in U.S. District Court for the District of South Carolina against manufacturers of certain PFAS, like 3M and DuPont, for damage. In early December, there were deadlines to decide whether or not to remain party to the two potential settlements with manufacturers, and we did remain a party to both settlements. We believe this is the optimal path to recouping the most money possible from PFAS manufacturers in an expedient manner for our customers. On February 8th, the MDL court issued its final approval of the DuPont settlement.

Cheryl: November related to P. Fast compliance, we continue to treat for P fast and compliance with state regulations, and we continue to prepare for full compliance with the new federal rule once released.

Cheryl: Previously we have disclosed that we are a party to the multi district litigation or M. D. L lawsuit in U S District Court for the district of South Carolina against manufacturers of certain P. Fast like three am and Dupont for damages.

Cheryl: In early December there were deadlines to decide whether or not to remain part of each of the two potential settlements with manufacturers and we did remain a party to both settlements. We believe this is the optimal path to recouping. The most dollars possible from P fast manufacturers and expedient manner for our customers.

Cheryl: On February eight the MTL Court issued its final approval of the Dupont settlement. We will now begin the process of perfecting our claims under the settlement within the time period provided by the M. D. L. A fairness hearing on the three in settlement was held on February 2nd this matter remains pending and closing it is important for investors.

Cheryl: We will now begin the process of perfecting our claims under the settlement within the time period provided by the MDL. A fairness hearing on the 3M settlement was held on February 2nd. In closing, it's important for investors to understand that the ever-changing regulatory environment is leading to significant industry challenges, including those related to lead and PFAS, but also with issues like cybersecurity, for example. Each change on its own is significant, but the cumulative effect of all these changes is even more dramatic.

Cheryl: I understand that the ever changing regulatory environment is leading to significant industry challenges, including those related to led and P. Fast, but also with issues like cyber security for example.

Cheryl: Each change on its own is significant but the layering effect of all these changes is even more dramatic the expertise we bring to the table to solve these challenges as well recognized across the states, where we operate and sets us apart from others, it's a privilege and a great responsibility to deliver safe clean reliable and affordable services to.

John: The expertise we bring to the table to solve these challenges is well recognized across the states where we operate and sets us apart from others. It's a privilege and a great responsibility to deliver safe, clean, reliable, and affordable services to our customers and communities. With that, I'll hand it over to John to cover our financial results and plans in further detail. Thank you, Cheryl, and good morning, everyone.

Cheryl: Our customers and communities with that I'll hand, it over to John to cover our financial results and plans in further detail John.

John: Thank you Cheryl and good morning, everyone turning to slide 15, let me provide a few more details on financial results for 2023. The appendix also has details of fourth quarter EPS.

John: As Holidayed earnings were $4 90 per share in 2023 up 39 cents per share compared to 2022 and up 32 per share on a weather normalized basis increased revenues were driven by general rate cases, we completed in late 2022 in early 2023, and our larger states. These.

John: Turning to slide 15, let me provide a few more details on financial results for 2023. The appendix also has details of fourth-quarter EPS. Consolidated earnings were $4.90 per share in 2023, up $0.39 per share compared to 2022 and up $0.32 per share on a weather-normalized basis.

Additional revenues are driven by the significant investments we've made and continue to make in our systems. As noted earnings were higher in 2023, Brian estimated.

John: Net 13 cents per share as a result of weather in the second third and fourth quarters due to warm and dry conditions, primarily in Missouri, New Jersey, and Pennsylvania. This compares to net favorable weather in the third quarter of 2022 of six cents per share which related.

John: These increased revenues are driven by the general rate cases we completed in late 2022 and early 2023 in our larger states. These additional revenues are driven by the significant investments we've made and continue to make in our system. As noted, earnings were higher in 2023 by an estimated net $0.13 per share as a result of weather in the second, third, and fourth quarters due to warm and dry conditions primarily in Missouri, New Jersey, and Pennsylvania.

John: To warm and dry conditions in New Jersey.

John: And looking at op costs higher pension expense of about <unk> 13 per share and increased chemical costs of about <unk> 11 per share, including inflationary pressures are being recovered in large part through higher revenues, we proactively sought and general rate cases, we completed in the last 12 to 18 months and.

John: In the fourth quarter. We also had higher costs of about <unk> 10 per share related to waste disposal equipment repairs tank painting and other maintenance costs across our footprint.

John: Supporting our investment growth depreciation expense increased 24 per share in the cost of additional long term financing increased 38 cents per share primarily related to share count dilution as I have mentioned all year, the EPS impact of the higher share count from our equity issuance back in early March was offset by avoided interests on the year.

John: This compares to net favorable weather in the third quarter of 2022 of $0.06 per share, which relates mostly to warm and dry conditions in New Jersey. In looking at operating costs, higher pension expense of about $0.13 per share and increased chemical costs of about $0.11 per share, including inflationary pressures, are being recovered in large part through higher revenues we proactively sought in general rate cases we completed in the last 12 to 18 months. In the fourth quarter, we also had higher costs of about $0.10 per share related to waste disposal, equipment repairs, tank painting, and other maintenance costs across our footprint.

John: An additional benefit realized this year from the equity issuance as the interest income we have been earning from the cash balance held since March.

John: Other reflects primarily post closing acquisition adjustments in 2022 from the sales of HOS in New York, which added to EPS.

John: Turning to slide 16, you'll see that we continued to be set up for strong growth through acquisitions. We closed on 23 acquisitions totaling $77 million across eight states. In 2023. We're also going to have 25 transactions under agreement across seven states at year end totaling $589 million and 88000.

John: Supporting our investment growth, depreciation expense increased $0.24 per share, and the cost of additional long-term financing increased $0.38 per share, primarily related to share count dilution. As I have mentioned all year, the EPS impact of the higher share count from our equity issuance back in early March was offset by avoided interest on the year. An additional benefit realized this year from the equity issuance is the interest income we have been earning from the cash balance held since March. Other reflects primarily post-closing acquisition adjustments in 2022 from the sales of HOS in New York, which added to EPA. Turning to slide 16, you'll see that we continue to be set up for strong growth through acquisitions. We closed on 23 acquisitions, totaling $77 million across eight states in 2023. We also had 25 transactions under agreement across seven states at year end, totaling $589 million and 88,000 customer connections. This total includes both the Butler Area Sewer Authority Wastewater System in Pennsylvania and the Granite City Wastewater Treatment Plant in Illinois.

John: Customer connections. This total includes both the Butler area, a sewer authority wastewater system in Pennsylvania, and the granite city wastewater treatment plant in Illinois, we are very close to completing the granite city acquisition, where we already provide wastewater collection service for approximately 12000 customers in.

John: In Pennsylvania, and Susan briefly discussed the regulatory environment relating to acquisitions is undergoing change, which we think is ultimately necessary and positive but it will take a period of time to sort out. We're very confident that act 12 fair market value legislation will remain in place and continue to have strong support as is off.

John: In the case implementation of legislation needs to be worked through in the regulatory arena and that is what is happening now.

John: And meantime, closing of our current pending transactions will likely take more time than usual, but to be clear. We are confident that the previously approved Butler acquisition will close soon we're continuing to invest in regulated acquisition opportunities in Pennsylvania, driven by the continued need for system consolidation and upgrading for the.

John: We are very close to completing the Granite City acquisition, where we already provide wastewater collection service for approximately 12,000 customers. In Pennsylvania, as Susan briefly discussed, the regulatory environment relating to acquisitions is undergoing change, which we think is ultimately necessary and positive, but will take a period of time to sort out. We are very confident that Act 12, the fair market value legislation, will remain in place and continue to have strong support.

John: <unk> of communities in Pennsylvania, who deserve safe and reliable water and wastewater service.

John: As you know we have a strong track record of closing acquisitions over the past five years, we've closed over 100 acquisitions across 12 states totaling nearly 200000, new customer connections of course, as we close transactions the work to build and refill our acquisition pipeline is continuous our pipeline of more than 1.3.

John: Customer connections with meaningful contributions from across our platform continues to be a strong leading indicator that supports this piece of our rate base growth outlook.

John: As is often the case, legislation needs to be worked through in the regulatory arena, and that is what is happening now. In the meantime, closing of our current pending transactions will likely take more time than usual, but to be clear, we are confident that the previously approved Butler acquisition will close soon. We are continuing to invest in regulated acquisition opportunities in Pennsylvania, driven by the continued need for system consolidation and upgrading for the benefit of communities in Pennsylvania who deserve safe and reliable water and wastewater service. As you know, we have a strong track record of closing acquisitions. Over the past five years, we've closed over 100 acquisitions across 12 states, totaling nearly 200,000 new customer connections.

John: As you recall in November we introduced our long term target of 2% annual customer growth from acquisitions as shown on slide seven this equates to about 70000 acquired customers per year based on our current customer count of approximately $3 5 million customers. We are proactively investing in our capabilities.

John: Across our platform to bolster our system wide contribution to acquisitions to support this growth and are confident in meeting our 2% long term target.

John: Turning to slide 17 here, we show the build up from 2023 weather normalized actual to the 2024 EPS guidance range of $5 10 to $5 20 that we introduced last November which reflects 8% growth at the midpoint of $5 15.

John: Of course, as we close transactions, the work to build and replenish our acquisition pipeline is continuing. Our pipeline of more than 1.3 million customer connections with meaningful contributions from across our platform continues to be a strong leading indicator that supports this piece of our rate-based growth outlook. As you recall, in November, we introduced our long-term target of 2% annual customer growth from acquisitions, as shown on slide 7. This equates to about 70,000 acquired customers per year based on our current customer count of approximately 3.5 million customers.

John: Working from that same buildup yesterday, we announced an increase of <unk> 10 per share to our 2024 EPS guidance range, which is now $5 20 to $5 30 per share. The increase is due solely to additional interest income we will receive in 2024 and expects to receive annually through 2020.

John: Six from the amended terms of the secured seller note from the sale of HOS as.

John: We are proactively investing in our capabilities across our platform to bolster our system-wide contribution to acquisitions to support this growth and are confident in meeting our 2% long-term target. Turning to slide 17, here we show the buildup from 2023 weather-normalized actual to the 2024 EPS guidance range of $5.10 to $5.20 that we introduced last November, which reflects 8% growth at the midpoint of $5.15. Working from that same buildup, yesterday, we announced an increase of $0.10 per share to our 2024 EPS guidance range, which is now $5.20 to $5.30 per share.

John: As we described in the 8-K, we filed on February 5th the note balance has been increased to $795 million from $720 million, which satisfies payment of the contingent consideration owed to American water of $75 million triggered by the extension of HOS as service agreement with the New York City.

John: Waterboard. In addition, reflecting current market interest rates and removal of American water's option to require prepayment of the note at a future date the annual interest rate on the note has been increased from 7% to 10%.

John: <unk> water is pleased to see the continued growth of the HOS business under its new ownership, including the service contract extension with New York City as well as the significant acquisition recently announced by HOS, which will be funded with new equity from HOS as owners.

John: The increase is due solely to additional interest income we will receive in 2024 and expect to receive annually through 2026 from the amended terms of the secured seller note from the sale of HOS. As we described in the 8K we filed on February 5th, the note balance has been increased to $795 million from $720 million, which satisfies payment of the contingent consideration owed to American Water of $75 million, triggered by the extension of HOS's service agreement with the New York City Water Board. In addition, reflecting current market interest rates and the removal of American Water's option to require prepayment of the note at a future date, the annual interest rate on the note has been increased from 7% to 10%.

John: As it relates to future earnings guidance, it will be important for investors to be able to track the ongoing growth of American water from its core regulated strategy before this additional interest income. Therefore, when we provided forward year EPS guidance. Each November we will be sure to note the EPS associated with the additional interim.

John: Income from the secure tiered seller note in that guidance.

John: To wrap up slide 18 is a summary of our continued strong financial condition, which we further solidified in 2023, just last month, Moody's affirmed our solid <unk> investment grade credit rating and stable outlook and noted our improved <unk> to debt ratio, we are confident in our <unk> to debt ratios.

John: American Water is pleased to see the continued growth of the HOS business under its new ownership, including the service contract extension with New York City, as well as the significant acquisition recently announced by HOS, which will be funded with new equity from HOS. As relates to future earnings guidance, it will be important for investors to be able to track the ongoing growth of American Water from its core regulated strategy before this additional interest income. Therefore, when we provide forward-year EPS guidance each November, we will be sure to note the EPS associated with the additional interest income from the secured seller note in that guidance. To wrap up, slide 18 is a summary of our continued strong financial condition, which we further solidified in 2023.

John: Continued to support our current credit ratings, our total debt to capital ratio as of December 31, net of a roughly $330 million of cash on hand is 55%, which is comfortably within our long term target of less than 60%, while having moderated somewhat the current higher interest rate.

John: <unk> continues to be challenging as I said in November though we are in a position of strength on a number of fronts and dealing with this challenge our strategy of issuing debt at the holding company level allows us to take advantage of our scale and pricing debt issuances, and we will remain proactive in managing risk and achieving a low cost of capital.

John: Just last month, Moody's affirmed our solid BAA1 investment grade credit rating and stable outlook and noted our improved FFO to debt ratio. We are confident our FFO to debt ratios will continue to support our current credit rating. Our total debt-to-capital ratio as of December 31st, net of our roughly $330 million of cash on hand, is 55%, which is comfortably within our long-term target of less than 60%.

John: To the best.

Speaker Change: Of our customers and shareholders with that I'll turn it back over to our operator to begin Q&A and take any questions you may have.

Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.

Operator: While having moderated somewhat, the current higher interest rate environment continues to be challenging. As I said in November, though, we are in a position of strength on a number of fronts in dealing with this challenge. Our strategy of issuing debt at the holding company level allows us to take advantage of our scale in pricing debt issuances, and we will remain proactive in managing risk and achieving a low cost of capital to the benefit of our customers and shareholders. With that, I'll turn it back over to our operator to begin Q&A and take any questions you may have. We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone.

Speaker Change: Our first question comes from Shar <unk> with Guggenheim Partners. Please go ahead.

Shar: Hey, guys good morning.

Shar: Sure.

Shar: Good morning.

Shar: I don't usually unusually bleed off with sort of an M&A question, but I know John loves talking about M&A and we saw that in the prepared remarks, and obviously, it's timely given the ever source news yesterday, where they essentially put acquiring on the block could you speak maybe to your appetite for larger inorganic.

Opportunities and specifically any geographic aversions to the northeast in light of the developments yesterday. Thank you.

Speaker Change: I'm, sorry, I think it's a great question, obviously, we saw the news.

Speaker Change: As well.

Speaker Change: And John certainly can comment more I'd say first of all of course, we don't comment on any act.

Operator: If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been answered and you would like to withdraw your question, please press star, then two. Our first question comes from Shahriar Pourreza with Guggenheim Partners. Please go ahead. Hey guys, good morning.

Speaker Change: Activity in the M&A space of that nature, I think for US. It continues to be our standards that we've shared we have to be confident in the ability to grow we have to have confidence regulatory environments confidence in.

Speaker Change: Policy East Fort in any jurisdiction that we're currently in or other jurisdictions. We may be looking at so I think that's always the gate, which we.

Shahriar Pourreza: Yeah, I don't usually lead off with sort of an M&A question, but I know John loves talking about M&A, and we saw that in the prepared remarks. And obviously, it's timely, given the Eversource News yesterday, where they essentially put Aquarian on the block. Can you speak, maybe, to your appetite for larger inorganic opportunities and specifically any geographic aversions to the North, in light of the developments yesterday? Yeah, Shahriar. I think it's a great question.

Speaker Change: Evaluate opportunities so I'd, probably just say that John any additional comments from your side.

Speaker Change: Perfect and then just a follow on I know youre still kind of working through some of the ins and outs of the lead and copper rule is there even a general capex upside amount you could give us to think about with the spend sort of be additive and your view of the current plan or would it shift out some spend out.

Susan N. Story: Obviously, we saw the news as well, and John certainly can comment more. But I'd say, first of all, of course, we don't comment on any activity in the M&A space of that nature. I think for us, it continues to be the standards that we've shared. We have to be confident in the ability to grow. We have to have confidence in regulatory environments, confidence in policy support in any jurisdiction that we're currently in or other jurisdictions we may be looking at. I think that's always the gate at which we evaluate opportunities. I'd probably just say that, John.

Speaker Change: Like we saw with obviously with P that spend on the last update thanks guys.

Speaker Change: Yeah sure, let me again sort of generally answer and material can add to it I think it's first of all sort of too early to be able to give any additional guidance around.

Speaker Change: Impacts to our overall plan I think the important thing to remember here is it is over a much longer period of time than what we're seeing with the <unk> rules. For example, so it'll give us more time to figure out what the.

Speaker Change: Actual impacts are to the planned give us more opportunity to look at.

Susan N. Story: Any additional comments from your side? Well said. Perfect. And then, just to follow on, I know you're still kind of working through some of the ins and outs of the lead and copper rule. Is there even a general CapEx upside amount you could give us to think about with this spend, sort of the additive in your view to the current plan, or would it shift some spend out like we saw with, you know, obviously with PVAS spend on the last update? Thanks.

Speaker Change: Opportunity to move other projects around to sort of accommodate whatever spend we think maybe inc.

Speaker Change: Incremental here for us so we just need a little bit more time to sort through it and then we can give clearer guidance again as Sheryl said in her prepared remarks, we know it will be significant I don't think it will have the dramatic impact on our.

Speaker Change: Plan.

Speaker Change: For shorter term windows like we saw with PFS for example, Cheryl anything you want to add to that yeah. The only thing I would add shar is just that we have been making really good progress in that space and we will continue to be focused on removing our lead service lines and the customer lead service lines, where.

Susan N. Story: Yeah, Shahriar, let me again sort of generally answer, and then Cheryl can add to it. I think it's, first of all, sort of too early to be able to give any additional guidance around impacts on our overall plan. I think the important thing to remember here is it is over a much longer period of time than what we're seeing with the PFAS rules, for example. So it'll give us more time to figure out what the actual impacts are to the plan, give us more opportunity to look at, and opportunity to move other projects around to sort of accommodate whatever spend we think may be incremental here for us. So we just probably need a little bit more time to sort through it, and then we can give clearer guidance. Again, as Cheryl said in her prepared remarks, we know it will be significant. I don't think it will have the dramatic impact on our plan, you know, for shorter-term windows like we saw with PFAS, for example. Cheryl, anything you want to add to that?

Cheryl: Where they exist, but this is a more inclusive rule that as Susan said is over a longer period of time. So we'll continue to look at how we can layer that in.

Speaker Change: Just to sort of punch line on that one and Cheryl again made the comment in her prepared remarks. This is about unknown.

Speaker Change: Service lines unknown material and it is about customer owned.

Speaker Change: So as we've been working through our own program of replacing our lines now we have the added requirement to look at unknown pipe and customer service line. So that's why it gets bigger.

Speaker Change: And then again the long term time horizon to deal with it I think is also important to keep note of.

Speaker Change: Fantastic. Thank you guys I'll pass it to someone else you soon.

Susan N. Story: Yeah, the only thing I would add, Shahriar, is just that we have been making really good progress in that space, and we'll continue to be focused on removing our lead service lines and the customer lead service lines where they exist. But this is a more inclusive rule that, as Susan said, is over a longer period of time. So, we'll continue to look at how we can layer that in. Yeah, I think just to sort of punchline on that one, and Cheryl again made the comment in her prepared remarks, you know, this is about unknown service lines, unknown materials, and it is about customer-owned. So, as we've been working through our own program of replacing our lines, now we have the added requirement to look at unknown pipe and customer service lines.

Speaker Change: Thanks, Sean.

Speaker Change: The next question comes from Doug ish Chapa with Evercore ISI. Please go ahead.

Doug Chapa: Hey, good morning team Thanksgiving time.

Doug Chapa: Good morning, Susan.

Doug Chapa: Susan.

Doug Chapa: To go back to the M&A I know you're kind of.

Doug Chapa: Very limited in what you can say, but we've been getting a ton of questions. On this I just want to be clear about something.

Doug Chapa: In your seat.

Doug Chapa: Your peers generally describe M&A is a high hurdle rate right with the organic growth opportunities.

Doug Chapa: That they have as a company how would how would you characterize the the Connecticut water assets are these ones you know.

Doug Chapa: One of a kind asset large assets that don't don't often come to market is extremely attractive or would you say.

Susan N. Story: So, that's why it gets bigger, and then again, the long-term time horizon to deal with it, I think it is also important to keep note of. Thank you guys. I'll pass it on to someone else. Thanks, Shahriar. The next question comes from Durgesh Chopra with Evercore ISI; please go ahead. Hey, good morning team. Thanks for giving me time. Hey, good morning, Susan. I hate to go back to the M&A.

Doug Chapa: The M&A opportunity is still high heart rate versus.

Doug Chapa: What is the organic capex.

Doug Chapa: Capex that you have I don't want to put words in your them up but I just want to see how you're thinking about it.

Doug Chapa: Yeah.

Speaker Change: I'll tell you at the outset youre not going to be happy with my answer because I am not going to sort of go into a whole lot of detail here I think our.

Speaker Change: Focus continues to be on the communities and the states that we currently operate in and as you know we're in 14 different states. We think they were just a significant number of opportunities in those states and we're going to continue to focus on that.

Durgesh Chopra: I know you're going to be very limited in what you can say, but we've been getting a ton of questions on this, so I just want to be clear about something. In your seat, you know, your peers generally describe M&A as a high hurdle rate, right, with the organic growth opportunities that they have as a company. How would you characterize the Connecticut water assets? Are these ones, you know, one-of-a-kind assets, those large assets that don't often come to markets extremely attractive?

As you would expect anyone to do we'll take a look at the this kind of an opportunity as everyone would but I think again our screens are the are the critical thing you should focus on regulatory environment legislative.

Speaker Change: Environment business climate, and the ability to grow.

Speaker Change: And that we're always going to look at opportunities from that perspective.

Susan N. Story: Or would you say, you know, the M&A opportunity is still a high hurdle rate versus the organic capex that you have? I don't want to put words in your mouth, but I just want to see how you're thinking about it. Yeah, Durgesh, I'll tell you at the outset, you're not going to be happy with my answer because I'm not going to sort of go into a whole lot of detail here. I think our focus continues to be on the communities and the states that we currently operate in. As you know, we're in 14 different states. We think there are just a significant number of opportunities in those states, and we're going to continue to focus on that. As you would expect anyone to do, we'll take a look at this kind of opportunity, as everyone would. But I think, again, our screens are the critical thing you should focus on.

Speaker Change: Understood. Thank you Susan I appreciate that maybe then switching gears.

Speaker Change: Can you just update us on the Pennsylvania rate case.

Speaker Change: The Commission I think came out in December I think they may have.

Speaker Change: When did the rate case schedule, maybe just talk to that what does that mean what are the next steps. There. Please thank you.

Speaker Change: Yeah.

Susan N. Story: Sheryl I think laid out the details around timing, we've disclosed the size of the case et cetera.

Speaker Change: Big picture for me on this case.

Speaker Change: As is the case really with all of our.

Speaker Change: General rate cases, we have in progress it's all about investment.

Speaker Change: We're not trying to do anything.

Speaker Change: Tricky in any of these cases no no significant policy changes from our perspective. This is simply about investment that's what this Pennsylvania cases about and.

Speaker Change: And we will continue to work through the process.

No indications of any issues associated with this case as we work through the process and we'll continue to stay on that path I'd say, that's generally the case on all of our jurisdictions all of the cases that we have on file today.

Susan N. Story: Regulatory environment, Legislative Environment, Business Climate, and the Ability to Grow, and that we're always going to look at opportunities from that perspective. Thank you, Susan.

Susan N. Story: I appreciate that. Maybe then, switching gears, can you just update us on the Pennsylvania rate case? The Commission, I think, came out in December. I think they may have suspended the rate case schedule. Maybe you can just talk about that. What does that mean? What are the next steps there? Please, thank you.

Speaker Change: We've been signaling this I think for quite some time that the.

Speaker Change: <unk> to be in four general rate cases on this roughly two year cycle.

Speaker Change: Well you know we've been saying that for probably two three years now and this is just the continuation of that program and it's all really driven again by our investment the pace of our Inbev investment you know we've been increasing our capital spend plan for a number of years now to really address the needs that exist in the communities that we serve and.

Susan N. Story: Yeah, Cheryl, I think we've laid out the details around timing, we've disclosed, you know, the size of the case, etc. I sort of see the big picture for me on this case, as, as the case really, with all of our general rate cases we have in progress. It's all about investment.

Speaker Change: I think our regulatory strategy is consistent with that approach so.

Speaker Change: Pennsylvania is no different than any other state in terms of our approach to it and we.

Speaker Change: We'll continue to work the process there like like we always do and we think Pennsylvania again as it is it is a very constructive state.

Susan N. Story: We're not trying to do anything tricky in any of these cases, no significant policy changes from our perspective, this is simply about investment, that's what this Pennsylvania case is about, and we'll continue to work through the process, there's no indications of any issues associated with this case as we work through the process and we'll continue to stay on that path. I'd say that's generally the case on all of our jurisdictions, all the cases that we have on file today. We've been signaling this I think for quite some time that the expectation to be in for general rate cases on this roughly two-year cycle, we've been saying that for probably two, three years now, and this is just the continuation of that program, and it's all really driven again by our investment, the pace of our investment, we've been increasing our capital spend plan for a number of years now to really address the needs that exist in the communities that we serve, and I think our regulatory strategy is consistent with that approach, so Pennsylvania is no different than any other state in terms of our approach to it, and we'll continue to work the process there like we always do, and we think Pennsylvania again is a very constructive state, and we're confident in our ability to work through that carry.

Speaker Change: Ah we're confident in our ability to work through that case.

Speaker Change: Got it. Thanks, just a quick follow up there Susan do does the procedural steps in the rate case in terms of testimony.

Susan N. Story: Intervenor testimony and all that stuff does that go along as planned with the suspension or is that on pause I might've seen something that.

Susan N. Story: And maybe on pause so I'm not sure you know.

Susan N. Story: No no change.

Susan N. Story: Yes, no change.

Susan N. Story: Got it okay. So it's on schedule.

Susan N. Story: And on the normal process.

Speaker Change: Thank you.

Speaker Change: Yep. Thanks Yogesh.

Speaker Change: The next question comes from Angie stores and ski with Seaport. Please go ahead.

Speaker Change: Ted good morning.

Angie Storozynski: I'm Gonna good morning, I'm going to ask about Illinois.

Angie Storozynski: I mean, we have some very bad outcomes regulatory outcomes on the electric and gas side in the states.

Angie Storozynski: You have a case, there where we're already seeing some noise around it. So I'm just wondering how you know.

Angie Storozynski: If there's any lessons learned from what happened in December.

<unk> incorporated that into the kind of timing and then secondly on P. Fast so we're.

Angie Storozynski: We're seeing some lawsuits against investor owned utilities.

Susan N. Story: Got it, thanks. Just a quick follow-up there, Susan, like, does the procedural, like the steps in the rate case in terms of testimony, intervener testimony, and all that stuff, go along as planned with the suspension, or is that on pause? I might have seen something that it may be on pause, so I'm not sure if, you know, if... No, no change.

Angie Storozynski: On the back of P fast.

Angie Storozynski: Understand that you've mentioned that you've been in compliance.

Angie Storozynski: And going beyond requirements, but I'm just wondering how you manage this risk.

Speaker Change: Yes, again, let me sort of start off here.

Speaker Change: On Illinois.

Susan N. Story: Yeah, no change. Yeah, it's on schedule and in the normal process. Thank you. Yep, thanks, Durgesh. The next question comes from Angie Storozynski with Seaport. Please go ahead. Good morning. Good morning.

Speaker Change: I would take my answer to Pennsylvania, and ensured that burned Illinois.

Speaker Change: Proceeding there.

Speaker Change: As scheduled.

Speaker Change: With no significant issues in that case it is about investment.

Angie Storozynski: I'm going to ask about Illinois first. I mean, we had some very bad outcomes, regulatory outcomes on the electric and gas sides in the States. You have a case there where we're already seeing some noise around it, so I'm just wondering if there are any lessons learned from what happened in December and if you've incorporated that into the current timing. And then, secondly, on PFAS. So, you know, we're seeing some lawsuits against investor-owned utilities on the back of PFAS. I understand that you've mentioned that you've been in compliance and going beyond the requirements, but I'm just wondering. How do you manage this risk? Yeah, again, let me sort of start off here. On Illinois. I would take my answer to Pennsylvania and insert the word Illinois.

Speaker Change: And we will continue to process that case like we always would certainly there is noise around the electric and gas industry cases there.

Speaker Change: We think again our cases are different in that they are about investment only and we're confident in our ability to continue to work through that case as well on pizza Cheryl you might just actually want to comment on Illinois. If you like and then on P. Faas, there's obviously a lot going on here too.

Cheryl: I think the litigation environment around this is probably not surprising there'll be all sorts of.

Cheryl: Plaintiffs attorneys looking for an angle here and I think that's probably what mostly you're referring to and what we're seeing.

Cheryl: Cheryl anything you want to add on either of these topics.

Cheryl: I would just say you know Susan you were completely accurate on all Illinois, we've built a really strong case based on capital investment.

Susan N. Story: We are proceeding there as scheduled with no significant issues in that case. It is about investment, and we'll continue to process that case like we always would. Certainly, there is noise around the electric and gas industry cases there. But we think, again, our cases are different in that they are about investment only, and we're confident in our ability to continue to work through that case as well. On PFAS, Cheryl, you might actually want to comment on Illinois, if you like, and then on PFAS. There's obviously a lot going on here, too. I think the litigation environment around this is probably not surprising. There'll be all sorts of plaintiff's attorneys looking for an angle here, and I think that's probably what you're mostly referring to and what we're seeing. Cheryl, anything you want to add on either of these topics? Yeah, I would just say Susan, you were completely accurate about Illinois.

Cheryl: And we feel good about that case and the process. We're just going to go through the process there.

Speaker Change: The way, we normally would as far as the PFS stuff I do believe that.

Speaker Change: Oh there.

Speaker Change: We've seen some some lawsuits out there Andy as you mentioned, but we've been working really hard both to make sure that we're in compliance with all the rules that are out there that we're being proactive in our approach, but we're also working with EPA on the cercla.

Speaker Change: Designation and working at the federal level to try to get protections for water utilities all across the U S. Because we believe that we shouldn't be held accountable for.

Speaker Change: Alluded waters that are coming to us and we're doing everything we possibly can to treat for that pollutant and so we think that we should be protected from that so we're going to continue to work in that vein and in that space and.

Susan N. Story: We felt a really strong case based on capital investment, and we feel good about that case and the process. We're just going to go through the process there the way we normally would. As far as the PFAS stuff, I do believe that there is a lot going on. We've seen some lawsuits out there, Angie, as you mentioned, but we've been working really hard both to make sure that we're in compliance with all the rules that are out there, that we're being proactive in our approach, but we're also working with EPA on the CERCLA designation and working at the federal level to try to get protections for water utilities all across the U.S. because we believe that we shouldn't be held accountable for polluted waters that are coming to us, and we're doing everything we possibly can to treat for that pollutant.

Speaker Change: Being part of the MTL, that's one step in that process to get recovery from the people who cost evolution in the first place.

Speaker Change: Great. Thank you.

Speaker Change: The next question comes from Julien Dumoulin Smith from Bank of America. Please go ahead.

Speaker Change: Hey, good morning team. Thank you very much for the time appreciate it nicely done on the guidance here I got to say, maybe actually to that point on guidance given given the bump here just with respect to resetting higher the CAGR going forward I just wonder.

Speaker Change: You guys that this goes through 'twenty six implicitly could we see this as a statement of confidence through the forecast period or is this more nuance to the specific three year forecast period of 'twenty five 'twenty through 'twenty six year, if you will.

Cheryl: And so we think that we should be protected from that. So we're going to continue to work in that vein and in that space, and, you know, being part of the MDL is one step in that process to get recovery from the people who caused the pollution in the first place. Great, thank you. The next question comes from Julian Dumoulin Smith from Bank of America. Please go ahead. Hey, good morning, team. Thank you very much for your time.

Speaker Change: Yeah, I think we've tried to be clear Julien.

Speaker Change: The duration of this additional interest will have on the note, but John you want to you want to comment on this further I think you've got it right Julien.

Speaker Change: Think of this is is an increase over our ongoing guidance for that period through 'twenty six.

John: And that's but we've not made changes as we tried to describe in our comments from our original guidance.

Julien Dumoulin: I appreciate it. Nicely done on the guidance here. I got to say, maybe actually to that point on guidance, given the bump here, just with respect to resetting higher, the CAGR going forward, I just want to recognize that this goes through 26. Implicitly, could we say this is a statement of confidence through the forecast period? Or is this more nuanced to the specific three-year forecast period, 24 to 26 years, if you will? Yeah, I think we've tried to be clear, Julian, on the sort of duration of this additional interest we'll have on the note. But, John, do you want to comment on this further? Yeah, I think you've got it right, Julian.

John: On the on the on the deregulated strategy.

John: From back in November.

John: Right, Yeah understood I, just wanted to clarify that extra clear with respect.

John: Respect to Illinois here, obviously, you've got this case out there there's a certain degree of attention can you comment a little bit about maybe some of the rate mitigating mitigation factors what other pieces could help.

John: Offset some of the rate increases to customers in Illinois, and any other mitigating factors and circumstances around that case that that we can speak to here for instance.

Susan N. Story: It's, you know, think of this as an increase over our ongoing guidance for that period through 26. And that's, you know, but we've not made changes, as we tried to describe in our comments from our original guidance on the regulated strategy from back in the, I just wanted to clarify that extra clearly. With respect to Illinois here, obviously, you've got this case out there; there's a certain degree of attention. Can you comment a little bit about maybe some of the rate mitigation factors? What other pieces could help offset some of the rate increases to customers in Illinois and any other mitigating factors and circumstances around that case that we can speak to here, for instance? Yeah, I'll comment on sort of the overall strategy on that point. I think we should treat Illinois the same as we do our other states.

Speaker Change: Yeah, I'll comment on sort of overall strategy on that point.

Speaker Change: I think we treat Illinois that same as we do our other states I mean, we've been very focused on mechanisms or approaches too.

Speaker Change: Thank you Latoya solutions that will help lessen and mitigate the direct impact of inflationary costs pension and other things we've done that via trackers, we've done that via deferrals, we've done that sort of across many of our jurisdictions and we have a good amount of those costs actually frankly already sort of dealt with and.

Speaker Change: And embedded in our rate structures across our territory in Illinois, really no different than that and as Sheryl said.

Speaker Change: We're just not experiencing other issues.

Speaker Change: Currently in that case now, we obviously have to finish it we have to get through the rest of the procedural schedule in and work through any issues that may come up, but we're not anticipating anything materially different there.

Susan N. Story: I mean, we've been very focused on mechanisms or approaches to regulatory solutions that will help lessen and mitigate the direct impact of inflationary cost pensions and other things. We've done that via trackers. We've done that via deferrals. We've done that sort of across many of our jurisdictions, and we have a good amount of those costs actually, frankly, already sort of dealt with and embedded in rate structures across our territory. In Illinois, it is really no different than that.

Speaker Change: Yes excellent. Thank you and then lastly, just going back to the M&A point, you were making earlier.

Speaker Change: I thought you were pretty clear about this it needs to be accretive <unk> provide robot robust visible growth I just wanted to make sure I'm hearing you right about the growth piece there in terms of our a key element in ingredient.

Speaker Change: Well I don't know that I said it has to be accretive or are you talking I guess youre talking about the M&A piece I think again I'll just repeat it I think our view is that for us to look at new jurisdictions. It has to be.

Susan N. Story: And as Cheryl said, you know, we're just not experiencing other issues currently in that case. Now, we obviously have to finish it. We have to get through the rest of the procedural schedule and work through any issues that may come up, but we're not anticipating anything materially different there. Yeah, excellent. And then lastly, just going back to the M&A point you were making earlier, I thought you were pretty clear about that. It needs to be creative and or provide robust, visible growth. I just want to make sure I'm hearing right about the growth piece there as a key element and ingredient.

Speaker Change: Productive regulatory legislative business environment.

Speaker Change: And the opportunity for growth I, and I really I guess it was referring to.

Speaker Change: Sort of footprint growth there and obviously you would you would apply a.

Speaker Change: Meaningful financial contribution from that too.

Speaker Change: So it's the same screens, we've always had it's the same dialog we've always had on potential.

Speaker Change: Expansion into other territories.

Speaker Change: So I don't think this particular.

Susan N. Story: Well, I don't know that I said it has to be accretive, or I guess you're talking about the M&A piece. I think, again, I'll just repeat it. I think our view is that for us to look at new jurisdictions, it has to be a productive, regulatory, and legislative business environment and an opportunity for growth. And I really, I guess, was referring to, you know, sort of footprint growth there, and obviously you would make a, you know, meaningful financial contribution from that, too. So it's the same screens we've always had.

Speaker Change: The situation changes anything about how we feel about them.

Speaker Change: Growth in other jurisdictions.

Speaker Change: Got it and just going back to the lastly on the <unk> you guys commented extensively here, but just the timeline on getting that clarity there and you talked about being a little bit more protracted.

Speaker Change: How does this sort of at least from a process perspective finally gets to some resolution.

Speaker Change: As far as you guys are concerned and then prospects on expanding it even from there given where we stand.

Speaker Change: Well Julian you're going to have to help me on.

Susan N. Story: It's the same dialogue we've always had on potential expansion into other territories. So, I don't think this particular situation changes anything about how we feel about, you know, growth in other jurisdictions.

Speaker Change: First part of your question I'm not sure what you're referring to.

Julian: Just on the fair market value just in terms of essentially taking a little bit longer yes, indeed, yes.

Julian: Gotcha I just didn't hear the first part yeah, I think that as I said in my remarks, and John expanded on a bit I think that what the the.

Julien Dumoulin: And just going back to lastly, on that FMV piece, you guys commented extensively here, but just the timeline on getting that clarity there. And, you know, you talk about being a little bit more protracted. Just, how does this cut, at least from a process perspective, finally get to some resolution as far as you guys are concerned? And then prospects for expanding it even from there, given where we stand. Well, Julian, you're going to have to help me with the first part of your question. I'm not sure what you're referring to.

Julian: <unk> has done in Pennsylvania is actually quite helpful.

Julian: And.

Julian: I've got a lot of experience in a.

Julian: The regulatory world over the last 40 years or so I've seen many.

Julian: Pieces of legislation enacted and I've seen many situations where commissions.

Julian: We have to work through the implementation of that legislation and I think that's exactly what we're doing here and as we said we applaud the commission for taking this approach and really being thoughtful about it and and understanding the importance of this legislation to the larger strategy in the Commonwealth. So I think the steps are being taken make.

Susan N. Story: Well, just on fair market value, just in terms of potentially taking a little bit longer. Yeah, indeed. Gotcha. Gotcha. I just didn't hear the first part.

Susan N. Story: Yeah, I think that, as I said in my remarks, and John expanded on it a bit, I think that what the PUC has done in Pennsylvania is actually quite helpful. And I've got a lot of experience in the regulatory world over the last 40 years or so. I've seen many pieces of legislation enacted, and I've seen many situations where commissions have to work through the implementation of that legislation.

Julian: Make good sense now having said that we do have to continue to work through.

Julian: How those guidelines ultimately may be employed but we think it's just.

Julian: Helpful and will give a framework for all of us to be able to work more productively and now having said that also we do have to sort out what it means in terms of timing and we've got a number of cases acquisitions that we're working on in Pennsylvania through the regulatory approval process and it's obviously impacting that a bit currently but we expect.

Susan N. Story: And I think that's exactly what we're doing here. And, as we said, we applaud the commission for taking this approach and really being thoughtful about it and understanding the importance of this legislation to the larger strategy in the Commonwealth. So I think the steps that are being taken make good sense. Now, having said that, we do have to continue to work through how those guidelines may ultimately be employed. But we think it's just................

Julian: That too.

Julian: Clear soon and be able to get back on our way here.

Julian: Right excellent guidance expectations.

Susan N. Story: We'll give a framework to work more productively in. We have to sort out what it means in terms of timing. We have a number of acquisitions we're working on in Pennsylvania through the regulatory and approval process, and it's obviously impacting that a bit currently.

Julian: Good luck. Thanks, Julia engine comes from Anthony Credential with Mizuho. Please go ahead.

Hey, Good morning, just a quick housekeeping question after Julian you talked about.

Anthony: The HOS note and the income and you're very clear about that.

Susan N. Story: We expect that to clear soon, and we will be able to get back on our way here. Great. Excellent, guys. Thanks for the patience.

Anthony: More.

Anthony: Not much of an ongoing earnings number I think you're talking about maybe it rolls off in 2026.

Anthony: When we move forward right proposed 26 should we think about additional rate base that maybe backfill that on a more linear growth rate or and I know 10.

Anthony Cradell: The next question comes from Anthony Cradell with Mizzouho. Please go ahead. Hey, good morning.

Anthony Cradell: Just a quick housekeeping question. After Julian, you talked about the HOS note in the income, and you're very clear about that, that that's more. We're not much of an ongoing earnings number. I think you're talking about, maybe it rolls off in 2026. When we move forward to post-26, should we think about additional rate base that maybe backfills that on a more linear growth rate? And I know $0.10 of a $5-and-something number is very small, but just does something backfill that to keep their earnings trajectory pretty linear? Yeah, I think you hit on it, Anthony, there at the end. It's not terribly material.

Anthony: $5 number is very small, but just there's something backfill that to keep their earnings trajectory pretty linear.

Speaker Change: Yes, I think you hit on it Anthony there at the end, it's not terribly material. We think this is a great benefit from a cash flow perspective, you know the additional interest as is nice to have a we think the certainty associated with the that contingent payment. We had on the New York contract extension is quite helpful. Now.

Speaker Change: That secured so we think there's just a variety of things about the restructuring that made it a lot of sense for us that don't necessarily translate into.

Speaker Change: Any any material impact to our overall plan. So long answer to your question, we would not expect there to be a need for a finding additional capital to sort of fill in that that that very minor hold at this tencent will create.

Susan N. Story: We think this is a great benefit from a cash flow perspective. You know, the additional interest is nice to have. We think the certainty associated with that contingent payment we had on the New York contract extension is quite helpful now that that has been secured. So we think there's just a variety of things about the restructuring that made a lot of sense for us that don't necessarily translate into any material impact on our overall plan. So in answer to your question, we would not expect there to be a need for finding additional capital to sort of fill that very minor hole that Tencent will create.

Speaker Change: And just if I could squeeze one more in.

Speaker Change: It's <unk>, it's the <unk>.

Speaker Change: Harold's comments earlier unfortunately.

Speaker Change: It looks like most of the Q&A has been sidetracked by <unk>.

Speaker Change: <unk> question, So I'm not asking a resource question just when when Cheryl talked about the increased needs on water systems Cyber security you just think of that.

Susan N. Story: And just if I could squeeze one more, and it's on Cheryl's comments earlier, and unfortunately, it looks like most of the Q&A has been sidetracked by an Eversource question. So I'm not asking an Eversource question, just when Cheryl talked about the increased needs for water systems, cybersecurity, just think of that, is that maybe a foreshadow that maybe the smaller bolt-on acquisitions may come at a greater frequency because of the requirements that are being, the compliance requirements that are being put on these smaller systems, I mean, was that where that was headed? Yeah, I think, you know, this is an area we've tried to signal, I think, for the last several discussions we've been having, and I think really probably what prompted that even was PFAS as an example. You know, we see that as just another area that may be difficult for some of these smaller systems to be able to manage both from an investment standpoint as well as an expertise standpoint. Cyber is another great example.

Speaker Change: Is that maybe a foreshadow too that maybe the smaller bolt on acquisitions.

Speaker Change: Come at a greater frequency because of the requirements that are being the compliance requirements that are being put on the smaller systems. I mean was that where that was headed.

Speaker Change: Yeah I think.

Speaker Change: This is an area we've tried to signal I think for the last several.

Speaker Change: The discussions we've been having and I think really probably what prompted that even was with P. Pause as an example, we see that as just another area that may be difficult for some of these smaller systems to be able to manage.

Speaker Change: Both from an investment standpoint, as well as an expertise standpoint cyber is another great example.

Speaker Change: Interest rates is another Great example, I mean, the list just gets longer not shorter for these communities to to.

Speaker Change: Sort of have to deal with and from our perspective.

Speaker Change: We have always been very focused on trying to define what the need is for our community and helping satisfy.

Susan N. Story: You know interest rates are another great example. I mean, the list just gets longer, not shorter, for these communities to sort of have to deal with, and from our perspective, you know, we have always been very focused on trying to define what the need is for a community and helping satisfy those needs. And again, from an M&A perspective or an acquisition perspective, as that list gets longer, it creates more opportunity for us to have that dialogue and and work with communities to solve those kinds of problems. So yeah, we think it does have an upside to our acquisition strategy. It's probably not a tsunami, though, to use a water term.

Speaker Change: Those needs and and again from an M&A perspective, or an acquisition perspective is that list gets longer it creates more opportunity for us to have that dialogue and and work with communities to solve those kinds of problems. So yeah. We think it does have upside too.

Speaker Change: Uh huh.

Speaker Change: Our acquisition strategy.

Speaker Change: It's probably not a tsunami, though to use the water term, it's probably a.

Speaker Change: <unk> sort of longer term impact.

Anthony Cradell: It's probably a much sort of longer-term impact. I think it takes a bit of time for communities to sort of wrestle with these issues and determine their impacts on them before they're ready to make a move. So again, we use these kinds of issues in our discussions. I think it'll take some time before we see any measurable impact directly related to these issues. Great, thanks so much for taking my question. Sheriff, thank you, Anthony. The next question comes from Steve Fleshman with Wolf Research. Please go ahead. Hi, good morning.

Speaker Change: I think it takes a bit of time for communities to sort of wrestle with these issues and determined impacts to them before they're ready to make a move so again, we use these kinds of issues in our discussions I think it'll take some time before we see any measurable impact directly related to these issues.

Speaker Change: Great. Thanks, so much for taking my questions.

Speaker Change: Sure. Thanks Anthony.

Speaker Change: The next question comes from Steve Fleishman with Wolfe Research. Please go ahead.

Steve Fleishman: Hi, good morning.

Steve Fleshman: Morning, Steve. Not an M&A question. So, the. A couple things on the HOS changes. So, just thinking about the shift in the interest rate on the node, 7%, 10%, which is great. I mean, that's a pretty high rate to pay for the seller and, I guess, to get rid of the prepayment.

Steve Fleishman: Good morning, Steve not an enemy not.

Steve Fleishman: Not an M&A question.

Steve Fleishman: No.

Steve Fleishman: The.

Steve Fleishman: A couple of things on the the HOS changes so.

Steve Fleishman: Just the thinking about the the shift in the interest rate on the note, 7%, 10% which is great.

Steve Fleishman: I mean, that's a pretty high rate to pay us.

Steve Fleishman: For the seller and I guess, so I guess I'm just get rid of a prepayment.

Steve Fleshman: And so I guess I'm just wondering, you know, how do I think about just making sure that that cellar... in terms of getting paid back, getting paid, you know, yeah. Great questions, Steve. Are they set up in caves?

And so I guess I'm just wondering you know.

Steve Fleishman: How do I think about just making sure that that seller.

Steve Fleishman: You know in terms of getting paid back.

Speaker Change: Yes, it's a great.

Speaker Change: Yeah Yeah.

Speaker Change: Great question, Steve are they should obviously you talked to you.

Speaker Change: Yeah, John do you want to take this question sure good morning, Steve.

John: Yeah, John. Do you want to take this question? Sure. Good morning, Steve.

John: From a credit perspective.

John: From a credit perspective, we stay very close to the HOS business. We're in fact a partner, and as lender, we're constantly in touch with the business. As the company has evolved, credit has improved. Extending the New York contract is a significantly positive credit move, and as I mentioned in my comments, the company is currently making an acquisition with new equity funding from its owners, as well as cash on its balance sheet.

John: We stay very close to the HOS business, where in fact, a partner and as lender we're constantly in touch with the business.

John: As it is.

John: The company has evolved the credit.

John: It has improved.

John: Extending the Newark contract has a significantly positive credit move.

John: And as I mentioned in my comments. The company is currently making an acquisition with new equity funding.

John: From their owners as well as cash on their balance sheet. So we.

John: So we do have covenants. They've remained in compliance with the covenants, and in fact, we've taken the opportunity to tighten covenants as well, but when you look at the underlying business, it's... frankly, doing better than it ever has. So we feel very, very good about the underlying credit here. Okay, does the owner, does the private equity, does the firm... back it up, or is it just the business itself

John: We do have covenants they've remained in compliance with the covenants and.

John: And in fact, we've we've taken the opportunity to tighten covenants as well, but when you look at the underlying business. It's it's.

John: Frankly doing better than it ever has so we feel very very good.

John: About the underlying credit here.

John: Okay does the owner and for private firm back.

Speaker Change: Backing up to or is it just the business back something for us yes.

John: Yes, no, the owner backs it up. And that's, that's what I was trying to say that so when there's fresh equity coming into the business to make this acquisition, that's coming from APAC, who owns the business. And then just, I know you had that sharing mechanism, too, for the business. Could you just maybe let us know?

Speaker Change: Owner.

Speaker Change: Backs it up and that's what I was trying to say that so when theres fresh equity coming into the business to make this acquisition that's coming from from.

Speaker Change: From APAC, who owns the business.

Speaker Change: Got it and then just.

Speaker Change: I know you have the sharing mechanism too.

Speaker Change: For the business could you just maybe let us know kind of.

Steve Fleshman: kind of how much income you would make on the sharing mechanism part in, let's say, 2023 or something like that. Yeah, Steve, I don't know if we had that disclosed. Is it separate in the 10K?

Speaker Change: How much income you made on the sharing mechanism part in let's say 2023.

Speaker Change: Yes.

Speaker Change: Yeah, Steve I don't know if we had that.

Speaker Change: Disclosed it separately 10-K, yes.

John: Yeah, Steve, we can point you to it. I'll have Aaron follow back up with you to point you to it. But I think it is in the 10k, which we filed last night. And this is the revenue sharing mechanism you're referring to where we collect a share of the revenue that's generated from the warranty work that they're doing in our various state jurisdictions where we have contracts. Yeah, yeah. Aaron will redirect you to that.

Speaker Change: Yes, Steve we can point you to it I'll have Aaron follow back up with you to point you to it but I think it is in the 10-K, which obviously we filed last night and this is the revenue sharing mechanism, you're referring to where we.

Speaker Change: Collect a share of the revenue that's generated from the.

Speaker Change: Warranty work that theyre doing into our various state.

Speaker Change: Jurisdictions, where we haven't got it alright, great.

Speaker Change: Yeah, Yeah, so erinn.

Aaron: Direct you to them okay.

Steve Fleshman: Okay, great. Thanks. Okay, web. On the Pennsylvania case, I think two of the commissioners sent a letter at the beginning of the case, just kind of framing it. I'm not sure. Is that abnormal, would you say, or is that normal for your Pennsylvania cases? How would you characterize... Yeah, I would say it's probably not necessarily customary.

Speaker Change: Okay, great. Thanks, Okay.

Speaker Change: Larry.

Speaker Change: Oh on the Pennsylvania case.

Speaker Change: To the commissioner sent a letter at the beginning of the case just kind of framing it.

Speaker Change: I'm not sure is that abnormal would you say or is that normal for your Pennsylvania cases.

Speaker Change: How would you characterize that.

Larry: Yeah, I would say, it's probably not necessarily customary but.

Steve Fleshman: But again, we think that this case is proceeding as it should. We don't really see, again, any issues here. It's a big case. I mean, it's a billion dollars worth of investment.

Larry: Again, we think that this case is proceeding.

Is it should we don't really see again any issues here.

It's a big case I mean it was.

Larry: It was worthy of investment.

Susan N. Story: You know, and we were in just a little under two years ago on this case, so it's certainly material. And again, solely driven by investment in the jurisdictions that we are, the community that we serve there. Understandable. Thanks for your time.

Larry: And then we.

Larry: We were in just a little under two years ago on this case, so it's certainly material and again solely driven by investment in and the jurisdictions that we are or the communities that we serve there.

Larry: Yes.

Speaker Change: Understood. Thanks for your time.

Steve Fleshman: Yep, thanks, Steve. The next question comes from Jonathan Ryder with Wells Fargo. Please go ahead. Hey, good morning, team.

Speaker Change: Yep Thanks, Steve.

Speaker Change: The next question comes from Jonathan Frieder with Wells Fargo. Please go ahead.

Jonathan Reeder: Hey, good morning team just wanted to come back to you.

Jonathan Reeder: Just wanted to come back to EA and the fair market value stuff. Do you anticipate that all the changes to fair market value will come via the commission process? Or do you think some of the bills in the legislature will make it across the finish line? Yeah, our view is that this is the best path and the likely path to sort of resolve issues around fair market value in Pennsylvania. Again, I think this is normal practice, and I'm not speaking specifically to Pennsylvania. I'm just saying normal, in my 40 years of experience.

Jonathan Reeder: And the fair market by yourself do you anticipate that all the changes to the fair market value will come via the commission process or do you think some of the bills in the legislature will make it across the finish line.

Jonathan Reeder: Yeah.

Our view is that this is a this.

Jonathan Reeder: This is the best path and the likely path.

Jonathan Reeder: To sort of resolve issues around fair market value in Pennsylvania.

Jonathan Reeder: Again, I think this is normal practice I'm not being specific to Pennsylvania, I'm just seeing normal in my 40 years of experience this happens fairly regularly where commissions.

Susan N. Story: This happens fairly regularly where commissions, you know, are charged with interpreting legislation and applying the provisions of it. And that's what I think this commission is doing. And I think they took a very proactive step here to do exactly what you're talking about, to resolve the issues and be able to effectively implement the legislation. I think there's no one, well I shouldn't say no one, there are a few probably that have, you know, conceptual problems with what fair market value legislation was intended to do.

Jonathan Reeder: Our charged with interpreting legislation and applying the provisions of it and that's what I think this commission is doing and I think they took a very proactive.

Jonathan Reeder: Step here to do exactly what you're talking about to resolve the issues.

Jonathan Reeder: And be able to effectively implement the legislation I think theres no one well I shouldn't say no. One there are few probably that have conceptual problem with what fair market value legislation was intended to do.

Susan N. Story: I think there's a good understanding of the need for consolidation in the state, and this is the mechanism to allow for that to occur. So I think it's, I think it stands. And I think the commission will do the work necessary to make sure that the legislation is effectively enacted and implemented.

Jonathan Reeder: There is there's a there's a good understanding of the need for consolidation in the state and this is the mechanism to allow for that to occur.

Jonathan Reeder: So I think it's I think it stands and I think the commission will will do.

Jonathan Reeder: The work necessary to make sure that the legislation is effectively enacted and.

<unk> implemented.

Susan N. Story: Yeah, so I mean, you're saying PA is, in your opinion, very much fully behind continued promotion of consolidation. Yeah, I think as a state, as a Commonwealth, I believe that is a true statement. Yes. Okay. What sort of impact do you think it will have on, you know, deal activity? And you know, would you say the proposed RRR will make it tougher for AWK, you know, to deliver on the M&A CapEx placeholders? I think we'll have to see how it plays out and how, you know, ultimately it gets worked out from a procedural standpoint. But I'd say, generally speaking, no; we do not see it having a material impact on available opportunities and then ultimately the outcomes of transactions. Okay. And then last question for me, I saw that in, you know, at least the PA in New Jersey rate case filings, that revenue decoupling requests were made. You know, possibly it's in the Illinois case too. Do you typically make those decoupling requests and just don't get them?

Jonathan Reeder: So I mean, you're saying P. A is in your opinion very much fully behind continued promotion of consolidation.

Speaker Change: Yeah, I think as the state is a Commonwealth I believe that is a true statement, yes. Okay.

Speaker Change: Okay, what sort of impact do you think it will have on the.

Speaker Change: The deal activity.

Speaker Change: Would you say the proposed.

Speaker Change: <unk> will make it tougher for AWP K to deliver on the M&A Capex placeholders.

Speaker Change: I think we'll have to see how it plays out and how.

Speaker Change: Ultimately it gets worked from a procedural standpoint, but I'd say generally speaking no we do not see it having a material impact on available opportunities and then ultimately the outcomes on transactions.

Speaker Change: Okay.

Speaker Change: Then last question for me I saw that in at least the PAA in New Jersey rate case filings that revenue decoupling requests were made.

Speaker Change: Possibly it's in Illinois case to do you typically make those detailed decoupling request and just.

Susan N. Story: Or is that something, you know, new that you're pursuing? Yeah, it's a good question. I'd say it varies across jurisdictions.

Speaker Change: Don't get them or is that something new that you're pursuing.

Speaker Change: Yes, it's a good question I'd say it varies across jurisdictions and again part of our job here is to really understand what.

Susan N. Story: And again, part of our job here is to really understand what each commission is comfortable with and what mechanisms work or don't work in a particular jurisdiction. And it's also part of our responsibility to educate and inform commissions and their staff about how various mechanisms can work and what their impacts are. So we do that across our jurisdictions, and I think we have really been more proactive in that regard over the last couple of years. And so I think as we do that education and that dialogue, it will inform where we propose what mechanisms. So I wouldn't necessarily say it's a broad application that decoupling is always on our list in every jurisdiction. I think it's all circumstantial what mechanisms work best in what jurisdictions, and we work accordingly. Okay, but for PA in New Jersey, are these new proposals, or have they been there in, you know, say your most recent case too? Yeah, I'd have to go back and look to see if we had them specifically in those cases, but I don't actually recall.

Speaker Change:

Speaker Change: Each commission is comfortable with and what mechanisms work or don't work in a particular jurisdiction and it's also part of our responsibility to educate and to.

Speaker Change: <unk> informed commissions and their staffs about how various mechanisms can work and what the impacts are so.

Speaker Change: So we do that across our jurisdictions and I think we have really been.

Speaker Change: More proactive in that regard over the last couple of years and so I think as we do that education and that dialogue.

Speaker Change: It will inform where we.

Speaker Change: Propose what mechanisms so I wouldn't necessarily say, it's a broad application that decoupling is always on our list in every jurisdiction I think it's all circumstantial what.

Speaker Change: <unk> work.

Speaker Change: Our best in what jurisdictions and we we work accordingly.

Speaker Change: Okay, but for PAA in New Jersey are these new proposals or have they been there and you know.

Speaker Change: So your most recent case too.

Speaker Change: Yeah, I'd have to go back and love to see if we had a specific lean in those cases, I don't actually recall, but again I wouldn't necessarily think this is breaking new ground on either of these proposals.

Jonathan Reeder: But again, I wouldn't necessarily think this is breaking new ground on either of these proposals. Okay, great. No, I appreciate the time this morning. Sure. Thanks, Jonathan. The next question comes from Gregg Orrill with UBS. Please go ahead.

Speaker Change: Okay, Great no I appreciate the time this morning.

Speaker Change: Sure. Thanks, John.

Speaker Change: The next question comes from Greg oral with UBS. Please go ahead.

Gregg Gillander Orrill: Yeah. Thank you.

Gregg Gillander Orrill: Yeah, thank you, um, just a question on the PFAS settlements, just sort of your expectation on the outcome following up on the 3M settlement there. And, you know, thanks for the additional updates. I'm just curious if anything's changed around your view of the company's sort of legacy liability for PFAS, if there is one. Thanks.

Gregg Gillander Orrill:

Gregg Gillander Orrill: Just a question on the.

On the P. Faas settlements just sort of your expectation on.

Gregg Gillander Orrill:

Gregg Gillander Orrill: The outcome I'm following up on the three a M.

Gregg Gillander Orrill: Settlement there and.

Speaker Change: Thanks for the for the additional updates I'm, just curious if anything's changed around.

Speaker Change: Your view of the company's sort of legacy liability to P. Fast if there is one.

Speaker Change: Yeah on the first question, Greg around just settlement expected outcomes, obviously that process is proceeding.

Susan N. Story: On the first question, Gregg, around just settlement expected outcomes, obviously, that process is proceeding. And we have had one settlement approved, and the other one, furnituring has occurred, and we would expect it to ultimately be approved. And then the process begins of claims submittals and really going through the settlement allocation process. So obviously, it's too early for us to be able to give you any indication of what we think the outcomes will be financially. But as we've said all along, you know, these will be cents on the dollar in terms of recovery. We don't expect, obviously, for it to cover the full cost of exposure here, but the amounts to be recovered through the settlement are quite important and the best avenue, as Cheryl said in her remarks, to collect dollars on behalf of the customer to reduce the overall obligation the customer has.

Speaker Change: And we had one settlement approved and the other one a fairness hearing has occurred and we would expect it to ultimately get approved and then the process begins of claims submitted and really going through the settlement allocation process. So obviously, where it's it's too early for us to be able to give.

Speaker Change: Giving you any indication of what we think the outcomes will be financially, but as we've said all along these will be since on the dollar in terms of recovery. We don't expect obviously for it to cover the full cost of exposure here, but.

Speaker Change: The amounts to be recovered through the settlement. We think is quite important and the best Avenue as Sheryl said in her remarks too to collect dollars on behalf of the customer to reduce the overall obligation the customer has so it's.

Susan N. Story: So it's a good process, and we've been happy to be involved in it. Our team, I think, in a lot of ways is leading much of the effort around getting this work through the courts and getting outcomes here that are quite favorable. To your second question on how we view sort of legacy exposure here, I don't think our view changes. As we said earlier, this will be an environment like all others where there will be plaintiffs, attorneys that are looking for an opportunity here, and how that ultimately gets worked through the larger process around the MDL, the multi-district litigation, is yet to be seen. But in terms of our exposure, we don't have any different views than we've had from a legacy perspective.

Speaker Change: It's a good process, we've been happy to be involved in it and our team I think in a lot of ways is leading much of the effort around getting this work through the courts and getting outcomes here that are quite favorable.

Speaker Change: Hmm.

Speaker Change: To your second question on how do we view sort of legacy exposure here I don't think our view changes as we said earlier.

Speaker Change: This will be an environment like all where there'll be.

Speaker Change: Plaintiffs attorneys that are looking for an opportunity here.

And how that ultimately gets worked through the larger process around the NGL. The multi district litigation is at two <unk>.

Speaker Change: But in terms of our exposure, we don't have any different view than we've had.

Speaker Change: From a legacy perspective again Michel said on a go forward basis, we are trading and we're preparing to treat and we're confident in our ability to do that on a go forward basis.

Gregg Gillander Orrill: You know, again, as Cheryl said, on a go-forward basis, we are treating and we're preparing to treat, and we're confident in our ability to do that on a go-forward basis. Thank you. Sheriff, thanks. This concludes our question and answer session. The conference has now concluded. Thank you for attending. You may now disconnect.

Speaker Change: Thank you.

Speaker Change: Sure. Thanks, Greg.

Speaker Change: This concludes our question and answer session. The conference has now concluded. Thank you for attending you may now disconnect.