Q3 2024 American Water Works Company Inc Earnings Call
and the other.
Thank you.
Speaker Change: Good morning and welcome to American Waters 3rd Quarter 2020-4, our name is Conference Call. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad.
Speaker Change: 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.
Speaker Change: The audio webcast archive will be available for one year on American Waters Investor Relations website.
Speaker Change: I would now like to introduce your host for today's call, Aaron Musgrave, Vice President of Investor Relations. Mr. Musgrave, you may begin.
Aaron Musgrave: Thank you Cindy, good morning everyone and thank you for joining us for today's call. At the end of our prepared remarks, we will open the call for your questions.
Aaron Musgrave: Let me first go over some say harbor language.
Aaron Musgrave: Today, we will be making forward-looking statements that represent our expectations regarding our future performance or other future events.
Aaron Musgrave: These statements are predictions based on our current expectations, estimates and assumptions.
Aaron Musgrave: However, since these statements deal with future events, they are subject to numerous known and unknown risk uncertainties and other factors that may cause actual results to be materially different from the results indicated or implied by such statements.
Aaron Musgrave: Additional information regarding these risks, uncertainties and factors, as well as the more detailed analysis of our financials and other important information. It's provided in the third quarter earnings release, and in our September 30th Form 10Q, each filed yesterday with the SEC.
Aaron Musgrave: and finally all statements during this presentation related to earnings and earnings per share refer to deleted earnings and deleted earnings per share.
Aaron Musgrave: are President. We'll share highlights of third quarter and year-to-date results. And we'll comment on our 2025 EPS guidance and longer-term targets.
Aaron Musgrave: David Bowler, our Executive Vice President and CFO. We'll discuss our year-to-date financial results in more detail. General Ray case updates are 2025 outlook and our five-year financing plan.
Aaron Musgrave: and CLO, will then discuss our new capital investment plan, including the expected impact of EPA's Edinburgh, and Cobra Rural Improvements.
Aaron Musgrave: and will conclude with comments on customer affordability and our acquisition outlook.
Speaker Change: Susan Hartman for our CEO will conclude with the look at our compelling investment of thesis.
Speaker Change: After our prepared remarks, we'll then close by answering your questions.
Speaker Change: With that, I'll turn the call over to American Waters President John Griffith.
John Griffith: Thanks, Aaron, and good morning everyone. Let me start by saying how happy we are to have David and the role of CFO after having served as our deputy CFO in treasure. You'll hear more from David shortly.
John Griffith: and likewise, as we know to last quarter, I'm pleased to hand the Business Development Baton to Cheryl.
John Griffith: who's oversight of our state presidents in her role as Chief Operating Officer is key to our business development activities as we continue to drive enhanced focus on origination activities at the state level.
John Griffith: Let's turn to slide five and I'll start by covering some highlights from the third quarter and year to date periods.
John Griffith: As we announced yesterday, we delivered strong financial results in the third quarter in line with our expectations, adding to an already strong 2024.
John Griffith: and the last year.
John Griffith: and the first nine months of 2024 earnings were $4.17 per share compared to $4.03 for the same period last year.
John Griffith: A results reflect the clear execution of our plan at 2024 which David and Cheryl will discuss further.
John Griffith: These results give us confidence to affirm our 2024 EPS guidance, a $5.25 to $5.30 per share, which, as you will call from last quarter, represents our narrowing of guidance to the top half of the previous guidance range.
John Griffith: As a reminder, our 2024 and 2025, EPS guidance ranges include 10 cents per share of incremental interesting come from the amendment of the HOS mode earlier this year, which is on top of the interesting come from the original note terms that we are replacing with earnings from the regulated business.
John Griffith: As we said in the past, repayment of the note is a component of our long-term financing plan at the source of funding for our growth.
John Griffith: I also want to highlight that just a few days ago we closed the $230 million acquisition of the wastewater system assets of Butler area sewer authority in Pennsylvania.
John Griffith: Our Pennsylvania team assisted by the corporate business development team worked hard to complete this deal, which adds 15,000 customers who we are pleased to begin serving.
John Griffith: Turning to slide six, we are initiating our 2025 earnings guidance of $5.65 to $5.75 per share.
John Griffith: This represents 8% EPS growth in 2025, compared to our webinar normalized 2024 EPS guidance, which David will discuss in further detail.
John Griffith: As we roll out our updated five-year plan today, we are affirming our long-term targets, including 7-9% EPS and dividend compounded annual growth rates.
John Griffith: as a regulated water and wastewater utility. Rate-based growth, regulatory and capital execution, and operational excellence are the key drivers of growth for our company.
John Griffith: We expect to achieve 8-9% rapese growth over the next decade driven by the accelerated capex plan we put forth three years ago to meet reliability, resiliency, and compliance needs.
John Griffith: A rapese growth includes our regulated acquisition strategy, which drives a growing customer base, as well as the organic revenue growth opportunities we expect from our military services group.
John Griffith: Along with our affordability and sustainability leadership, we believe these are the drivers of American waters very competitive and sustainable shareholder return. And today's closing remarks Susan will share her thoughts on our position as a premium regulated utility.
Susan Hartman: In closing, on slide 7, I want to emphasize that we expect to achieve consistent EPS growth within the 7-9% range through 2029 and beyond.
Susan Hartman: We are demonstrating in 2024 and with our guidance for 2025 that the business plan we set for following the sale of HLS is strong and compelling.
Susan Hartman: Our commitment to solving problems for our customers remains steadfast.
Susan Hartman: including addressing PFAS, letting copper and aging infrastructure among other challenges. No other water and wastewater utility has the combination of the scale, geographic diversity, and expertise that we have.
Susan Hartman: The foundation coupled with the capital investment needs in our industry, uniquely positions in American water to achieve consistently strong earnings growth for many years to come.
Susan Hartman: 1 final note before I turn it over to David.
Susan Hartman: As you know earlier this month, we notified stakeholders of unauthorized activity within our computer networks and systems, which we determined to be the result of a cybersecurity incident. Importantly, none of the company's water or wastewater facilities were impacted by this incident.
David Bowler: Well, the investigation of the incident by a dedicated team of professionals is ongoing. We do not expect that this incident will have a material effect on the company or its financial condition or results of operations.
David Bowler: With that, I'll hand it over to David to cover our financial results and plans and further detail. David? Thanks John and good morning everyone. Before I get started with results, let me first say how excited I am to send the role of CFO at American Water and continue my work with this great team.
David Bowler: Also, on Ford and leading many of you at EI in a couple weeks.
David Bowler: Turning this slide nine, let me provide a few more details on your good date results.
David Bowler: and Solidator Learning to afford dollars in 17 cents per share of 14 cents per share compared to the same period in 2020-3 and up 18 cents per share on a weather normalized basis.
David Bowler: As noted, Aaron aims in 2024, will hire by an estimated 7th-century presher as a result of weather in the second and third quarters as compared to a 11th-century presher, a favorable weather in the second and third quarters of 2023.
David Bowler: Exploding the impacts of weather, revenues increased by 84 cents per share, driven primarily by General Rick K. South comes in 2022 and thus far in 2024.
David Bowler: and Nick's in an operating cost. All of them was hired by 19 cents per share, driven primarily by employee related costs and other increases to support, growth in the business as we expected.
David Bowler: Production Costs Related to Fuel, Power and Chemicals were also slightly higher compared to this period in 2023.
David Bowler: Next, General Taxes, which are comprised of Propheon grocery seats, that is, we'll hire by six cents per share with the increase in property tax tied to the level of capital loan investment and higher grocery seats tax driven by higher revenue primarily in the jersey.
David Bowler: The appreciation increase 21 cents per share and long-term finance in costs increase 28 cents.
David Bowler: of Share as both as expected in support of our investment growth.
David Bowler: The higher long-term finance and costs includes interest on the $1 billion convertible note issue, rents from last June, the $1.4 billion senior note issuance in this February, as well as 7 cents of delusion from last year's equity issuance.
David Bowler: And finally, we had seven cents per share of additional interest income from the February 2024 amendment of the seller note related to the sale of homeowner services.
David Bowler: As we stated, we will continue to break this out quarterly, so investors can track the ongoing growth of American water from its core regulated strategy without this additional interest income.
David Bowler: and also Norton Appendix will find details on the third quarter EPS, which has many of the same drivers as the year-to-date results.
David Bowler: I'm Slide 10, I will review the latest regulatory activity in our states.
David Bowler: First on Compley's Acases, we received an order from the New Jersey Commission in September, or proving without modification or settlement agreement of an additional $80 million in annualized revenues that was as effective September 15.
David Bowler: The Commission, again, approved and allowed return on F5 to 9.6% and then F5 to 5%
David Bowler: Jersey continues to be a constructive state at the support of the of investment to serve our customers as well.
David Bowler: Son and Active Cases.
David Bowler: You can see we have general rate cases in progress in seven jurisdictions.
David Bowler: These cases are centered around the capital investments who have made and continue to make in these states.
David Bowler: In Missouri, we originally found a right case with a proposal for a full teacher test share, which a commission declined to accept at this time. However, the commission provided an allowance for discrete adjustments that recognisance investments through May 2025.
Speaker Change: Well, I'm not the ruling we wanted in this case. We are encouraged by the conversations we've had with the Commission and our continue to work on a legislative path for a future test share in Missouri.
Speaker Change: Otherwise, our patient Missouri is progressing as expected.
Speaker Change: In the Illinois, we received a proposed decision from the Administrative Law Judge on October 24, recommending a 9.84% return on equity and a 49% equity layer.
Speaker Change: Final Order in this case is expected no later than December 17th with new rates implemented January 1, 2025.
Speaker Change: In Virginia, on September 20, we found a black box settlement with the Virginie Commission, which agreed to a $15 million [inaudible]
Speaker Change: The 7th stipulation also specified a return on equity at 9.7% which matches the current allowed return and a capital structure with an equity component at 45.67% which compares to the current approved cap structure at 40.73%.
Speaker Change: The Settlement Remains subject to mission review and approval.
Speaker Change: The California, we expect the final rate case decision on December 5 with new rates of retroactive January 12, 2024. As a reminder, we reached a partial settlement agreement in November 2023 with the CPUC's public advocates office.
Speaker Change: that would address our revenue requirement request, but did not address great design or certain other matters, including our request for continuation of a revenue stabilization mechanism.
Speaker Change: The coupling is a critical tool for conservation and efforts in California as it supports the reliability and protection of water supply, which will help shake the future economic and environmental health as it communities who serve there.
Speaker Change: Once we receive the order letter this year, we will determine whether we need to proceed further of the report in the state related to the couple.
Speaker Change: On Friday 11, we provide some considerations regarding our outlook for 2025 results and our newly established EPS guidance range of $5.65 to $5.75 per share.
Speaker Change: First, as you would expect, a roleful return by the returns on the capital invested to serve our customers.
Speaker Change: Cheryl will walk you through how our capital investment has grown and the specifics of the plan included in this update. As we talked about previously 2024, is year 3 of our accelerated capital plan following the 2021 HLSL.
Speaker Change: So we see that ramp that partially reflected in earnings in 2025 both from base rate cases and infrastructure mechanisms.
Speaker Change: Recent regulated acquisitions that are being incorporated into active or just completed great cases will also drive growth next year.
Speaker Change: Also critical to our growth strategy is our ability to, to, permanently, manage, operating costs that takes us to our customers.
Speaker Change: While we continue to have a strong culture of operating efficiencies in cost management, we do expect all in enterprises in 25 to 25 from higher production costs, including purchase water, fuel and power, annual wage increases as well as additional costs to serve our customers from recent acquisitions.
Speaker Change: The focus on operating cost efficiency skills the heart of the customer affordability construct we want to protect, which is closely aligned with the interests of regulators and ultimately investors in managing affordability of customer bills.
Speaker Change: The increases in general taxes, depreciation and long-term finance in our driven by the continued capital investments in the system.
and well not called out on this line. I'd like to note that our military services group still adds income to our earnings growth expectation as shown in our growth outlook.
and Missy's great work on 18 military installations it serves as built trust and resulted in the U.S. government allocating additional funds for improvement projects driving increased revenues.
Speaker Change: I mean, the slide 12, I go through the item, look at our balance sheet and liquidity profile before closing with their five year financing plan update.
Our total debt to capital ratio as a September 30, net of $127 million cash on hand remains at 56% which is well within our target of less than 60%.
Speaker Change: and the other two. Our expected dividend payer out ratio for 2020, or a 58 percent is also within our target range of 55 to 60 percent.
Speaker Change: I want to inform that investors can expect our company to continue to be focused on these targets over the long term.
Speaker Change: With our continued focus on maintaining the strong balance sheet, we also remain confident that we will have access to capital for the foreseeable future.
Speaker Change: In fact, we just extended the maturity of our revolving credit facility, which has a capacity of 2.75 billion by one year to over 2029.
are the first of I'd thank in relationships with some of the largest and strongest banks in the world, coupled with our fully regulated business model and strong credit ratings gives us great [inaudible]
In addition, our latter approach, long-term debt financing over the years has been very important in environments like the current one in managing cash flows and minimizing interest rate risk, which contributes to managing customer affordability.
and our short duration between General Rate cases driven by our investment allows us to minimize the lag that the experience related to recovery of finance and cost.
From this position, a balance sheet strength, let's turn this light 13 forever, review of our five-year financing plan that will fund the increased capital plan.
Speaker Change: and our prior five year plan covering 2024 to 2028, we expected the total $1 billion of equity financing in the middle of that plan.
That amount of time remains unchanged.
Speaker Change: We're up to the financing plan now covering 2025 to 2022. In conclusion, estimated total of 2.5 billion of external equity issuances with the additional 1.5 billion expected near the end of the plan. And all of course, subject to market conditions.
The Level and timing of anticipated external equity has tied very simply to our need to fund growth and maintain our strong financial position.
Speaker Change: The Researcher that's about equity financing the code to occur routinely as determined by our investment program, Rick T. Cycle and it's appropriate to maintain our strong balance sheet and credit metrics.
Since we're already in alignment with our targets or debt to cap and give them pay out. We have the flexibility that adjust these plants and respond to market conditions when they change for the benefit of customers and investors alike.
Finally, I'll wrap up noting that our current financing plan for calendar year 2025, and please 1.5, the $2 billion a long-term debt financing and no equity financing.
Speaker Change: With that, I'll turn it over to Cheryl and talk more about our five-year tapable plan, a recent acquisition, activity and outlook, and affordability. Cheryl.
Thanks David and good morning everyone. On slide 15, I'll start with the discussion of our current long-term capital plan.
For 2025, we expect our investment spending level to be $3.3 billion. From 2025 to 2029, we expect to invest $17 to $18 billion and increase of about $1 billion over our previous five-year plan.
This level of spending reflects the result of our consistent, risk-based project planning. Along with risk, customer affordability is a key variable in our analysis, which I'll speak more about shortly.
The increase in the current plan compared to last year is a combination of increased spending to meet compliance requirements for EPA's lead and copper whirlwind movement or LCRI.
Speaker Change: and the role in rolling the plan forward a year. As you are aware, in October the EPA issued the final LCRI, with sets of deadlines near the end of 2037 for lead replacement by water utility providers for assets under their control among other stipulations.
American Water Consistently Meet Water Quality Standards related to lead in copper rules across our footprint. We are supportive of new or revised water quality standards such as LCRI. Removing the risk of lead service lines over time is absolutely the right thing to do for the health and safety of our customers.
We are now inspecting to spend about $1 billion over the next five years related to LCRI, or about twice the rate of our recent annual spending, and we are still planning to invest approximately $1 billion in capital to comply with EPA's PFOS rule.
Speaker Change: In total, looking out over the next decade, we expect to invest about $40 to $42 billion in our regulated systems and acquisitions, which is $5 billion higher than the previous 10-year plan.
One of our key initiatives with this higher level of investment is the expansion of our infrastructure renewal and replacement program.
Speaker Change: I want to finish this slide by acknowledging that our teams have done a great job executing our accelerated capital investment plans these last few years.
We have consistently.
Met our capital deployment goal each year and we're on pace to do it again by spending $3.3 billion this year which includes acquisition investments.
Speaker Change: These investments are crucial to continuing to deliver faith and clean water and ensure continued reliability of service to our customers.
On slide 16, I want to emphasize that the timely capital recovery, which for us covers about 75% of our capital investments, is foundational to promoting.
Consistently, excellent customer service and affordability.
and Besting and needed infrastructure on a continuous basis drives consistency of reliability of our services and of water quality.
Speaker Change: It also enables us to mitigate the size of general rate increases for our customers, which helps promote affordable monthly bills. And by reducing regulatory lag, timely capital recovery allows us to more closely earn our lab return and better deliver consistent earnings growth.
The pie chart on the right side of the page shows the breakdown of our capital spend by purpose over the next decade.
While the vast majority of our capitals dedicated to basic replacement of aging types, we are also focused on fortifying our systems through resilience spending and preparing our systems for environmental compliance.
Through investments in water quality. For example, we've recently invested $9 million in shared in Indiana to help solve the community sewer overflow issues that have restricted the community from growing due to EPA noncompliance.
and our hope over, Genia, we constructed a 2.5 million gallon storage tank to support proper water storage capacity. We have dozens of stories just like this that demonstrate the vital need for the capital and documents we're making.
And as we approach the 50th anniversary of the safe drinking water act later this year, we know there is still much work to be done in our country, and that our expertise and helping communities solve their drinking water issues will be needed for decades to come.
Turning to slide 17, you can see that we expect these capital investments in infrastructure and in acquisitions will grow regulated rate base at a long term rate of 8 to 9%.
Great thanks growth of course, we'll drive earnings growth.
Speaker Change: We believe the higher degree of visibility to our capital investment plan combined with the low risk nature of the plan, uniquely positions American water in the utility sector and its fundamental to our investment thesis.
Speaker Change: Turning to slide 18, we're all cover customer affordability. We remain very focused on balancing customer affordability and the magnitude of the necessary investments in our plans.
As I mentioned.
Customary Fortability is a key variable in our annual capital planning analysis.
We once again believe that the average residential water bill across our footprint as a percentage of median household income will continue to be below 1% throughout our five-year plan.
Another recent example of the affordability program we offer is in Pennsylvania.
Pennsylvania American Water expanded its H20 Help to Letters Discount Programme to customers with an income of up to 200% of the federal poverty level up from 100% and 50% of that level.
Speaker Change: This change will expand discounted service to an additional 55,000 Pennsylvania American water customers.
Speaker Change: We also expanded the H2O Help 2 Letters grant program for customers up to 250% of the federal poverty level from 200%.
of note as part of its acquisition of BASA, Pennsylvania American Water already committed to increase its shareholder contribution to the H20 Help 2others grant program by $3.5 million over five years, which will assist more customers through this important affordability program.
Speaker Change: Turning to our discussion of growth through acquisitions, let me first say that I'm excited to lead our growing business development teams at the state and corporate level.
On slide 19, we'll see that we have successfully closed on six systems, totaling $349 million through October 30, which added almost 50,000 new customers so far this year.
Included in this tunnel is John mentioned earlier is the big news in Pennsylvania from just a few days ago that we closed on the Butler area sewer authority wastewater system acquisition for $230 million. We remain very confident in our Pennsylvania acquisition pipeline and our ability to grow there.
Looking ahead, we also continue to be well positioned for strong growth through acquisitions across many states.
with $43,400 customer connections, totaling $169 million under agreement as of yesterday.
Speaker Change: Two quick highlights there. We have received Commission approval of the acquisition of the Silver Creek Indiana water system and expect to close on it very soon. In Maryland, we received Commission approval in our first Fairmark Value Acquisition in the state. We look forward to serving the former Severan Water Company customers.
As we've mentioned over the last 18-24 months, we have invested more resources and added personnel to our business development teams and are starting to see that investment there-free with increased opportunities across our footprint.
This expanded team, along with a more focused process for dealer origination, is driving a larger pipeline of potential acquisitions. Now, over 1.5 million connections compared to the previous pipeline of 1.3 million customers.
Susan Hartman: With that, I'll turn it over to Susan for some closing thoughts. Susan, thank Cheryl and I'm happy to be bad and clean up for us here today.
You've heard from John David and Cheryl a recap of our long-term strategy.
and it should sound very consistent. Beyond our words though, we have a proven track record of execution on our plants, including achieving our EPS guidance year after year. I fully expect 2025 to be another successful year demonstrating consistent execution of our beyond.
Susan Hartman: By 21 is a compilation of the unique competitive advantages that we have at American water that make us stand out as a premium utility.
I've been on all sides of the regulated utility industry in the U.S. throughout my 40-year career, gas, electric and now water and wastewater.
Susan Hartman: I know very well that there are some other great companies in the utility industry. One that can cite three, four, or maybe more of these qualities on their own resume.
Susan Hartman: But what makes American water unique from all of the others, though, in my opinion, is the collection of all of these attributes in the single investment opportunity.
Let me be specific and call out just a few of these key attributes. American water without any dispute is a top tier performer on earnings and dividend growth.
We have a geographic and resulting regulatory diversity that is rivaled by few. That diversity reduces risk, period.
Susan Hartman: and speaking of risk our capital plan is low risk on a number of measures like decades of means and basic infrastructure renewal at the core of our plan.
Susan Hartman: Our investment appeal based on our company's mission, values and these distinguishing fundamentals is compelling.
Susan Hartman: Our mission is to provide safe, clean, reliable, and affordable services to the customers we're privileged to serve, and to those that we hope to serve in the future that today are in need of the services we deliver.
We can fulfill this mission and provide a fair return to our investors.
Welcome, American Water has been doing this work since 1886, that's nearly 140 years.
But there's much left to be done.
Some may question and some do still today the sense of urgency that we exhibit as we execute this investment plan. The sense of urgency is driven by the tremendous need simply put.
We will continue to do this work and deliver the superior returns our investors expect.
It is a privilege to lead the 6,500 member team that is committed to and focused on delivering solutions to our customers and you are investors make it possible for this important work to continue.
and with that I'll turn it back to our operator to begin to an 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 telephone keypad.
Speaker Change: If you are using a speaker phone, 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 too.
Susan Hartman: At this time we will pause momentarily to assemble our roster.
Susan Hartman: [inaudible]
Susan Hartman: [inaudible]
The first question comes from Richard Sunderland of J.P. Morgan. Go ahead, please.
Hi, good morning, thanks for the time today.
Speaker Change: Good morning, Rich.
So I've been getting a lot of questions on the financing plan and hoping you can walk through the 1.5 billion equity increases versus the 1 billion cap X increase. Are there any timing factors to the financing plan driving equity higher than the incremental cap X like maybe capturing some of the years 6 to 10 equity in this current five year plan?
That's a good question, Rich. And obviously we've seen a lot of commentary on that overnight and this morning as you all have been digesting the new plan here. I think it's as simple as a continued growing investment plan as you've noted.
and our continued focus on this strong balance sheet.
You know, we take very seriously the strength of the valent sheet and the metrics associated with that and we've been very transparent of what those are.
Speaker Change: and will continue to finance the plan, the growing plan, to maintain those expectations.
I think it's pretty simple to think about it in those terms. The timing I think is maybe what's dripping people up a bit, but I think you just need to think about...
The size of our plan, the long-term nature of our plan, the outlook that we provided from a long-term perspective here, and our continued focus on that balance sheet. It's all just directly tied to those key objectives we have. And David John, anything to add from your perspective here.
Thank you for the cover decision.
David John: and maybe I'll just have one comment rich, which is, you know, if we think about.
The Billion Dollar increase in our five-year plan investment plan and keep in mind that even if...
We did not increase a five-year plan at all. We still intend to raise equity in the latter part of the new plan period. We are growing a company 8 to 9% rate-based growth.
We generate a lot of internal cash flow. We raise debt, but we'll always be raising equity periodically to fund what we consider to be a robust capital plan. So I'd say the billion-dollar increase in the five-year plan incrementally increased the amount of equity that we will be raising, but we'll always be in the business of periodically raising equity.
Thank you.
I think one factor that we haven't incorporated in here would be related to alternative minimum tax as a driver, where we fully expect to be a cash taxpayer starting in 2025.
Yeah, and Rich, I would just add to that that...
Yeah, you know, as you recall, Rich, when we first accelerated our CapEx plan back in 2021, you know, what we found is that we're investing even more capital than that accelerated plan. And so that, you know, the enhanced capital investment that we're seeing is generating additional internal cash flow.
Perfect. Very helpful commentary. Thank you. I'll leave it there.
The next question comes from Durgesh Chopra of Evercore ISI. Go ahead, please.
Hey team, good morning. David, congrats and look forward. Good morning, Susan. Nice job batting.
closing closing remarks here and David congrats and look forward to work with you
Speaker Change: Thanks.
Speaker Change: Yep, yep, absolutely. So, hey, maybe just, guys, get your perspective on the strategy in Pennsylvania. You know, as you kind of roll this plan forward, how are you thinking about CapEx?
Speaker Change: in the state versus previous assumptions, and then the rate case filing strategy in light of the order, just any color you can offer there would be great. Thank you.
Yeah, Rich, probably not a lot to add from our discussion last quarter, you know, as we've continued to
emphasize our capital planning process is is really risk-based. We're really looking at
where the need is the greatest, and we'll allocate capital first according to that need, and then to the extent there are opportunities to continue to enhance service in those areas, other areas, we'll look at those opportunities.
Speaker Change: I think that process has continued and I think you'll continue to see us make significant investment in Pennsylvania.
So no change there. And I'd also say, you know, and again, we talked about this last quarter as it relates to our rate case outcome there, while the ROE might have been lower than we had hoped for, we certainly have that built in this plan, and you can see us continue to emphasize.
strong growth rates year-over-year, our 2025 expected growth at 8%, all fully reflected in our plan. So we're moving forward.
That's helpful, Susan. Thank you. And then, David, maybe I could just quickly follow up. You talked about the AMD and being a full cash taxpayer in 2025. Could you help us with what dollar amount of cash payments are you expecting in 2025 and going forward?
David John: Yeah, I think you can think of it in the range of $100 million plus or minus a year and cash taxes paid.
Speaker Change: part of the AMT.
Awesome. Thanks again.
Speaker Change: Thanks, Rakesh.
Our next question comes from...
Speaker Change: Sturzynski
of Seaport. Go ahead, please.
Speaker Change: Thank you. So, just one somewhat of a random question. So, I'm just wondering if you guys are making any plans on any changes on how you procure electricity. I mean, I'm looking at the states where you operate. It seems like you will be exposed to quite an inflation in the cost of electricity.
Speaker Change: Are you trying to maybe lock in some of those prices ahead of time, and are you concerned about, for example, the affordability argument when the electricity prices were to go meaningfully up?
Speaker Change: Good morning, Angie. Yeah, good question, and we might have touched on this a little bit, I think, last quarter, but certainly it's a major focus for us. Electricity costs are a big cost associated with the work that we do.
Speaker Change: And to that end, we have multiple long-term contracts already in place, I think some as far out as 2029. So we have this risk, I'd say, fairly well mitigated through our current contracting strategy.
Speaker Change: Okay.
You sort of step up the level of spending. Is it that you're hopeful for additional municipal M&A? I'm just wondering, again, how you can bridge the gap.
Yeah, Angie, we certainly have addressed this, I think, a couple of times. I'll ask John to sort of reiterate what our view is here.
Thanks for the question, Andy. You know, if you recall back in 2021, when we put the note into place, we
John Griffith: And in the context of another question earlier, what we found is we've not only achieved that, I would say, but more.
We are always injecting equity into our operating companies to generate incremental regulated earnings and that's really what's driving our ability to
to replace the interest income from the note.
If you think about the interest income from the note, a lot of people look at it on an incremental basis and say okay, gee, there's...
effectively $0.20 of earnings going away.
Speaker Change: And that's from the $720 million note. It's 7% interest that we built into our.
our 7-9% guidance forecast back in 2021.
Speaker Change: You know, what people need to remember is we are bringing in $795 million, which is the original 720 plus the earn-out payment that was rolled into the note. And if you think about that $795 million as
That's avoiding incremental capital issuance, whether it's equity or debt. So if you assume that we're avoiding long-term debt with that $795 million, pick a long-term interest rate, 5.5%, whatever you want to make up as a long-term debt interest rate.
You know, that offsets that $0.20, not all of it, but it gets you, you know, call it $0.17 or so, and we're really only filling kind of a $0.03 hole there, nothing, and so people kind of can't.
the right side of the page, that yes, the interest income is going away, but we do have capital that we're avoiding incremental debt with. I would also note, Angie, that it's
Speaker Change: Good for people to keep in mind that the final maturity date on the note is December 2026, but
The borrower can call the note as of December 2025, and so we'll see when the note gets taken out, but that's something just to, we could see it earlier than December 2026.
Okay, and then lastly on the other frequency of rate cases so
You know, again, we're trying to sort of understand what happened with the last rate case in Pennsylvania.
Obviously, some of it was the frequency of the rate key filings. I'm just wondering, one could argue that, you know, you're filing rate keys more often, not just in Pennsylvania, but in other states, because you really have to hit your allowed ROEs. The realized ROE has to be close, as close as possible to be allowed.
So, I mean, how do you...
Good afternoon. Today we're going to be talking about the earnings growth. What if we hit that allowed ROE and that's what drives the earnings growth? What if there is some . . . . . . . . . . . . . . . . . . . . . . . . . . .
either slippage in those three cases or the negative outcome of some of them.
Now, Angie, on the rate case strategy, and I think we've been trying to make this point for a couple of years now, what really drives our rate case cycling is the need and the investment.
You know, we just continue to believe there is such tremendous need to do the work that we're doing, that we've accelerated our capital investment program accordingly.
Speaker Change: and the more investment we make...
the greater the growth in the rate base and the need for timely recovery. Now we have mechanisms and other approaches that get.
essentially 75% of that investment recovered what we would call sort of more timely you know through
Periodic adjustments, but we still have the remaining investment that is subject to traditional regulatory
process, and the need to get timely recovery of that investment, along with the size of the investment, is what drives that cycling.
You know, we don't build a rate case cycle just to hit a rate of return. We build it because that's how we're investing and that's what the regulatory process calls for.
So that's that's really what's behind the strategy, it's the need.
Speaker Change: Awesome, thank you.
Speaker Change: Thanks, Angie.
This concludes our question and answer session and American Water's 3rd Quarter 2024 Earnings Conference Call. Thank you for attending today's presentation. You may now disconnect.