Q2 2026 American Water Works Co Inc Earnings Call
Speaker #1: Through the company's investor relations website. The audio webcasts archive will be available for 1 year on American Waters investor relations website. I would now like to introduce your host for today's call, Aaron Musgrave, Vice President of Investor Relations.
Speaker #1: Musgrave, you may begin.
Speaker #2: 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.
Speaker #2: Let me first go over some safe harbor language. Today we'll be making forward-looking statements that represent our or other future events. These statements are predictions based on our current expectations, estimates, and assumptions.
Speaker #2: 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.
Speaker #2: 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 second quarter earnings release and Form 10-Q, each filed yesterday with the SEC.
Speaker #2: This call will include a discussion of non-GAAP financial information. A reconciliation of our historical adjusted earnings per share to GAAP earnings per share and other disclosures related to our non-GAAP financial information can be found in the appendix of the slides for this call.
Speaker #2: And finally, all statements during this presentation related to earnings and earnings per share refer to diluted adjusted earnings and earnings per share. With that, I'll turn the call over to American Waters President and CEO, John Griffith.
Speaker #1: Thanks, Aaron. And good morning, everyone. Let's turn to slide 5, and I'll start by covering some highlights of the second quarter and first half of the year.
Speaker #1: As we announced yesterday, we delivered solid financial results in the second quarter and through the first half of 2026. Adjusted earnings were $1.61 per share for the second quarter, compared to $1.49 per share for the same period months of 2026, adjusted earnings were $2.62 per share, compared to $2.51 per share in the same period of 2025.
Speaker #1: With this strength across the business, combined with our expectations for the rest of the year, we continue to be on track to achieve our full-year earnings guidance, which we've again affirmed along with our long-term targets.
Speaker #2: Good morning, everyone, and thank you for joining us for prepared remarks, we will open the call for your questions. Let me first go over some safe harbor language. we'll be making forward-looking statements that represent our expectations regarding our future performance or other future events. are predictions based on our current expectations, estimates, and assumptions.
Speaker #1: David will share more about our results and guidance a bit later. I also want to acknowledge the great work of our state and corporate regulatory teams as they continue to successfully execute our regulatory strategy with rate cases and merger proceedings which I'll talk more about shortly.
Speaker #2: future events. some safe harbor language. These statements A reconciliation of our Today, historical adjusted earnings per share to GAAP earnings per share and other disclosures related to our non-GAAP financial information can be found in the appendix of the slides for this call.
Speaker #1: We have completed 3 rate cases already in 2026 in West Virginia, Maryland, and Pennsylvania, all of which authorized recovery of nearly 100% of the capital investments we have made in each state.
Speaker #2: statements. 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 second quarter earnings release and Form 10-Q, each filed yesterday with the SEC.
Speaker #1: As we've discussed with investors, many times over the years, we strategically choose to operate in a diverse set of regulatory environments that we believe have been and will remain supportive of water and wastewater utility investments and consolidation.
Speaker #1: American Water continues to receive healthy support at the state level for the work that we do. We, along with utility commissions, all share a strong desire to promote customer affordability, resilient and reliable services, and financial strong utilities.
Speaker #2: And finally, all statements during this presentation related to earnings and earnings per share refer to diluted adjusted earnings and earnings per share. With that, I'll turn the call over to American Waters President and CEO, John Griffith.
Speaker #1: We look forward to continuing to provide common-sense solutions for the benefit of customers and communities across our 14 state footprint. Moving on to some of our other key accomplishments so far in 2026, we have invested $1.8 billion in capital projects and acquisitions year to date.
Speaker #1: Thanks, Aaron. And good morning, everyone. Let's turn to slide 5, and I'll start by covering some highlights of the second quarter and first half of the year.
Speaker #1: As we announced yesterday, we delivered solid financial results in the second quarter and through the first half of 2026. Adjusted earnings were $1.61 per share for the second quarter, compared to $1.49 per share for the same period last year.
Speaker #1: This reflects our focus on making investments to better serve our customers and to grow the business. As we've said, growing to scale in our state's greatly benefits our operating efficiency, and long-term customer affordability.
Speaker #1: In the first six months of 2026, adjusted earnings were $2.62 per share, compared to $2.51 per share in the same period of 2025. With this strength across the business, combined with our expectations for the rest of the year, we continue to be on track to achieve our full-year earnings guidance, which we've again affirmed along with our long-term targets.
Speaker #1: Speaking of customer growth, we were very pleased to close on the acquisition of systems from Nexus Water Group ahead of schedule on June 1.
Speaker #1: Our teams did a great job of achieving all 8 requisite state approvals in a timely and constructive manner. We're also excited to continue our progress on the municipal acquisition front with approximately $57,000 customer connections under agreement as of June 30.
Speaker #1: David will share more about our results and guidance a bit later. I also want to acknowledge the great work of our state and corporate regulatory teams as they continue to successfully execute our regulatory strategy with rate cases and merger proceedings which I'll talk more about shortly.
Speaker #1: Overall, we're well on our way to executing our capital plan for 2026 and achieving our target of 2% customer growth. These efforts align squarely with our mission to provide safe, clean, reliable, and affordable service to our customers.
Speaker #1: We have completed three rate cases already in 2026 in West Virginia, Maryland, and Pennsylvania, all of which authorized recovery of nearly 100% of the capital investments we have made in each state.
Speaker #1: Turning to slide 6, I'm pleased to share that we've continued to achieve new milestones in the second quarter related to our proposed merger with Essential Utilities.
Speaker #1: You may recall, as part of the update we provided with Q1 earnings, we achieved our first state approval, Kentucky, in April. In May and June, we added Ohio and Virginia to the list of approvals received.
Speaker #1: As we've discussed with investors, many times over the years, we strategically choose to operate in a diverse set of regulatory environments that we believe have been and will remain supportive of water and wastewater utility investments and consolidation.
Speaker #1: It's also worth noting that so far, we're hearing good support for the merger during public input hearings including in Pennsylvania in April and May.
Speaker #1: American Water continues to receive healthy support at the state level for the work that we do. We, along with utility commissions, all share a strong desire to promote customer affordability, resilient and reliable services, and financially strong utilities.
Speaker #1: In other states, the merger cases are proceeding as planned including very good progress in Texas where we've reached a settlement in principle. We remain very pleased with our integration planning to date and the constructive relationships that continue to develop between the American Water and Essential Utilities teams.
Speaker #1: We look forward to continuing to provide common-sense solutions for the benefit of customers and communities across our 14 state footprint. Moving on to some of our other key accomplishments so far in 2026, we have invested $1.8 billion in capital projects and acquisitions year to date.
Speaker #1: Consistent with our messaging from the merger announcement last October, we expect the merger to close by the end of the first quarter of 2027.
Speaker #1: With that, I'll hand it over to David to cover our financial and regulatory update and further detail. David?
Speaker #1: This reflects our focus on making investments to better serve our customers and to grow the business. As we've said, growing to scale in our state's greatly benefits our operating efficiency, and long-term customer affordability.
Speaker #3: Thanks, John. And good morning, everyone. Starting on slide 8, I'll provide further insights into our financial results for the quarter. Consolidated earnings were $1.61 per share compared to $1.49 per share in Q2 of 2025, representing just over an 8% growth rate.
Speaker #1: Speaking of customer growth, we were very pleased to close on the acquisition of systems from Nexus Water Group ahead of schedule on June 1st.
Speaker #3: Revenues were higher due to authorized rate increases to recover investments across our states while depreciation financing costs and general taxes increased as expected. Importantly, O&M costs were flat, period over period, highlighting our continued focus on cost control while supporting operational and customer needs.
Speaker #1: Our teams did a great job of achieving all eight requisite state approvals in a timely and constructive manner. We're also excited to continue our progress on the municipal acquisition front with approximately $57,000 customer connections under agreement as of June 30.
Speaker #1: Overall, we're well on our way to executing our capital plan for 2026 and achieving our target of 2% customer growth. These efforts align squarely with our mission to provide safe, clean, reliable, and affordable service to our customers.
Speaker #3: Slide 9 shows our financial results for the year so far. Consolidated earnings were $2.62 per share compared to $2.51 per share in 2025, which is well on track with our plans for the year.
Speaker #3: The various drivers here are similar to the quarterly drivers, and our outlook for these categories for the year remains unchanged as you can see from the full-year waterfall in the appendix.
Speaker #1: Turning to slide 6, I'm pleased to share that we've continued to achieve new milestones in the second quarter related to our proposed merger with essential utilities.
Speaker #3: As a reminder, the majority of our EPS growth will occur in the second half of the year, with revenue increases in key states expected to go into effect later in Q3.
Speaker #1: You may recall, as part of the update we provided with Q1 earnings, we achieved our first state approval, Kentucky, in April. In May and June, we added Ohio and Virginia to the list of approvals received.
Speaker #3: Slide 10 provides a look at our balance sheet and liquidity profile. Our total debt-to-capital ratio as of June 30 was 58%. On May 20, we successfully completed a long-term debt issuance of $500 million at 4.625% that attracted strong demand.
Speaker #1: It's also worth noting that so far, we're hearing good support for the merger during public input hearings including in Pennsylvania in April and May.
Speaker #1: In other states, the merger cases are proceeding as planned including very good progress in Texas where we've reached a settlement in principle. We remain very pleased with our integration planning to date and the constructive relationships that continue to develop between the American Water and essential utilities teams.
Speaker #3: In June, we settled $3.4 million shares of our approximately $8 million share equity forwards for a net proceed of $476 million. Our financing plan for 2026 assumes we'll settle the remaining equity forwards in Q4.
Speaker #1: Consistent with our messaging from the merger
Speaker #3: Slide 11 covers the latest regulatory activity in our states. In Pennsylvania, we received the final order in the case that approved a $75 million annualized increase in water and wastewater revenues.
We expect the merger to close by the end of the first quarter of 2027.
With that, I'll hand it over to David to cover our financial and Regulatory update and further detail David.
Speaker #3: Compared to the filing that had requested a $160 million increase. The order also approved a return on equity of 9.55% and an equity component of 54.2%.
Thanks John and good morning everyone.
Speaker #3: As John mentioned, we believe this was a constructive outcome and we will implement new rates on August 13. On active cases, you can see we have general rate cases in progress in 6 jurisdictions.
Starting on slide A, I'll provide further insights into our financial results. For the quarter, consolidated earnings were $1.61 per share, compared to $1.49 per share in Q2 of 2025, representing just over an 8% growth rate.
Speaker #3: The highlight of few of those: in June, we entered into a black-box settlement with staff, and several interveners in Virginia as well as a partial settlement with the public advocates' office in California.
Speaker #3: In New Jersey, we as outlined in the procedural schedule, the company is in confidential settlement discussions with the parties to the proceedings, and we hope to be able to announce a resolution soon.
Revenues were higher due to authorized rate increases to recover investments across our states. While depreciation, financing costs, and general taxes increased as expected, importantly, O&M costs were flat period over period, highlighting our continued focus on cost control while supporting operational and customer needs.
Speaker #3: In Illinois, our case is progressing as expected, and the next milestones in the case will be evidentiary hearings in August, followed by briefings from all parties in September, and then a proposed order due in October.
Slide 9 shows our financial results for the year. So far Consolidated, earnings were $2.62 per share compared to $2.51 cents per share in 2025, which is well, on track with our plans for the year.
The variance drivers here are similar to The quarterly drivers and our outlook for these categories for the year remains unchanged, as you can see from the full year of waterfall in the appendix.
Speaker #3: On May 15, we filed a general rate case in Kentucky reflecting a $108 million in system investments covering January, 2027, through December, 2027. We are seeking $18 million of additional annual revenue, and we expect proposed rates to go into effect on an interim basis in December of 2026.
As a reminder, the majority of our EPS growth were in the second half of the year with Revenue increases in key. States expected to go into effect later in Q3
Slide 10 provides a look at our balance sheet and liquidity profile.
Our total debt to Capital ratio as a June 30th was 58%.
Speaker #3: Intervener testimony is set for August, and rebuttal testimony in September. And lastly, on July 1, we filed a general rate case in Missouri reflecting $1.6 billion in system investments covering the period from June, 2025, through May, 2028.
On May 20th, we successfully completed, a long-term debt issuance of 500 million at 4.625% that attracted strong demand.
Speaker #3: We are seeking a $179 million of additional annual revenue, and we expect proposed rates to go into effect in June, 2027. Importantly, with this case, this is the first case using the fully forecasted future test year legislation of its past last year.
In June, we settled 3.4 million shares of our approximately 8 million share Equity, forwards for a net proceed of 476 million.
Our financing plan for 2026 assumes we'll settle the remaining equity forwards in Q4.
Speaker #3: Turning to slide 12, as John mentioned yesterday, we affirmed our 2026 adjusted EPS guidance range of $6.02 to $6.12 per share. This represents our expectation of, again, delivering 8% EPS growth in 2026 while continuing to provide high-quality affordable service to our customers.
Slide 11 covers a the latest regulatory activity in our states. In Pennsylvania. We received a final order in the case that approved a 75 million annualized, increase in water and wastewater Revenue.
Compared to the filing that has requested 160 million dollar increase.
The order also approved a return on Equity of 9.55% and an equity component of 54.2%.
Speaker #3: We also continue to expect to percent range through 2030 and beyond. With that, I'll turn it over to Cheryl to talk more about our capital program and our recent acquisition activity.
As John mentioned, we believe this was a constructive outcome and we will Implement new rates on August 13th.
Speaker #2: Thanks, David. And good morning, everyone. Starting on slide 14, we successfully invested in many needed capital projects across our footprint in the first half of 2026.
Office in California.
In New Jersey, we as outlined in the procedural schedule.
Speaker #2: We've deployed $1.8 billion this year to renew our infrastructure, improve resiliency, and address water quality challenges, as well as add new systems, including those acquired from Nexus.
The company is in confidential, settlements discussions with the parties to the proceedings and we hope to be able to announce a resolution soon.
Speaker #2: These investments are crucial for us to deliver on our core mission of consistently providing clean and reliable water and wastewater services, and we remain vigilant about utilizing our scale and expertise to control costs and keep bills affordable for our customers.
In Illinois, our case is progressing as expected. The next milestones in the case will be evidentiary hearings in August, followed by briefings from all parties in September, and then the proposed order due in October.
Speaker #2: We are hyper-focused on staying balanced between affordability and making necessary investments in our systems. We remain confident that American Waters' average monthly residential water bills will stay at or below 1% of median household income for many years to come.
On May 15th without a general rate case in Kentucky, reflecting 108 million in system Investments covering January 2027, through December 2027.
We are seeking 18 million dollars of additional annual revenue and would expect proposed rates to go into effect on an intern basis in December of 2026.
Speaker #2: Concluding on slide 15, we continue to be well-positioned for growth through acquisitions across many states, as our track record of signing and closing deals continues in 2026.
Speaker #3: investments covering the period from June, 2025 through May, 2028. We are seeking a $179 million of additional annual revenue, and we expect proposed rates to go into effect in June, 2027.
Speaker #2: We were excited to begin serving the customers of the acquired Nexus Water Systems in the beginning of June, which was a few months ahead of our initial estimated timeline.
Speaker #2: We look forward to leveraging our scale and size to deliver safe, clean, reliable, and affordable water and wastewater services to customer connections and to welcoming the 70 local employees who already call these communities home.
Speaker #3: Importantly, with this case, this is the first case using the fully forecasted future test year legislation of its past last year. Turning to slide 12, as John mentioned yesterday, we affirmed our 2026 adjusted EPS guidance range of $6.02 to $6.12 per share.
Speaker #2: Zooming out, as of June 30, we had approximately 57,000 customer connections under agreement across 6 states, totaling 236 million. There are many systems across our fragmented industry that have underinvested in the necessary capital to operate their systems, and we believe we can be a solutions provider for these communities.
Speaker #3: This represents our expectation of, again, delivering 8% EPS growth in 2026 while continuing to provide high-quality affordable service to our customers. We also continue to expect to achieve consistent EPS and dividend growth well within the 7 to 9 percent range through 2030 and beyond.
Speaker #2: With that, I'll turn it back over to our operator to begin Q&A and take any questions you may have.
Speaker #1: Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchstone phone.
Speaker #3: With that, I'll turn it over to Cheryl to talk more about our capital program and our recent acquisition activity.
Speaker #2: Thanks, David. And good morning, everyone. Starting on slide 14, we successfully invested in many needed capital projects across our footprint in the first half of 2026.
Speaker #1: To withdraw your question, please press star, then 2. And at this time, we will pause momentarily to assemble our roster. And the first question will be from Paul Zimbardo from Jeffrey's.
Speaker #2: We've deployed $1.8 billion this year to renew our infrastructure and prove resiliency and address water quality challenges, as well as add new systems, including those acquired from Nexus.
Speaker #1: Please go ahead.
Speaker #4: Hi, good morning, team.
Speaker #2: These investments are crucial for us to deliver on our core mission of consistently providing clean and reliable water and wastewater services, and we remain vigilant about utilizing our scale and expertise to control costs and keep bills affordable for our customers.
Speaker #3: Morning, Paul.
Speaker #4: Hi, good morning. Thanks for taking the time. I promised no Pennsylvania questions for a change. Starting in Missouri, just with that four test year, is there any way to quantify what the benefits of that kind of change would be, or said differently, what the rate increase would have been versus that 179 if it was more of a historical filing?
Speaker #2: We are hyper-focused on staying balanced between affordability and making necessary investments in our systems. We remain confident that American Waters average monthly residential water bills will stay at or below 1% of median household income for many years to come.
Speaker #3: Hey, Paul, this is David. We have not quantified it. I mean, in practical purposes, I think one way you could do it is you could go back and look at our prior cases.
Speaker #2: Concluding on slide 15, we continue to be well-positioned for growth through acquisitions across many states, as our track record of signing and closing deals continues in 2026.
Speaker #3: And what that filed increase would be. I mean, that's not a complete apples to apples, but that could give you an idea.
Speaker #2: We were excited to begin serving the customers of the acquired Nexus Water Systems in the beginning of June, which was a few months ahead of our initial estimated timeline.
Speaker #4: Okay. It looked like a decent pickup, potentially. So I was just curious there. And the other was Indiana, kind of two parts. I know there's kind of affordability process of the state.
Speaker #4: It seems like it's not focused on water, but I'm curious your thoughts there. And also, I know there was some legislation passed which seemed like it could give you a little bit incremental recovery on some chemical costs and others.
We were excited to begin serving, the customers of the acquired Nexus Water Systems in the beginning of June, which was a few months ahead of our initial estimated timeline. We look forward to leveraging our scale and size to deliver, safe, clean, reliable, and affordable Water, and Wastewater services to the 47,000 new customer connections, and to welcoming the 70 local employees who already call these communities home.
Speaker #4: So just curious overall, Indiana, affordability and the legislation, if you could. Thank you.
zooming out as of June 30th, we had approximately 57,000 customer connections, under agreement across 6 States, totaling 236 million
Speaker #3: Yeah. Paul, I'd say we still feel good about Indiana. From everything we're seeing in the state, it's focused on the electric affordability story there.
There are many systems across our fragmented industry that have underinvested in the necessary Capital to operate their systems. And we believe we can be a Solutions provider for these communities with that. I'll turn it back over to our operator, to begin Q&A, and take any questions, you may have.
Speaker #3: Our rates are very affordable in Indiana, and continue to be in our forecast to be there. So we feel good. As far as the legislation, yeah, it's I mean, it's beneficial to us.
Thank you. We will now begin the question and answer session to ask a question. You may press star then 1 on your touchtone phone to withdraw your question. Please press star then 2
Speaker #3: I mean, it's not overly material from a American Waters standpoint, but it's certainly a little wins like that help.
And at this time, we will pause momentarily to assemble our roster.
Speaker #4: Okay. Understood. No. Thank you very much, team.
And the first question will be, from Paul zimbardo from Jeffrey's, please go ahead.
Speaker #1: Thank you. And the next question will be from Shar Pereza from Wells Fargo. Please go ahead.
Hi, good morning, team.
Morning, Paul.
Speaker #4: Actually, it's Andrew Kadavy on for Shar. Thanks for taking my questions. As the.
Speaker #1: Good morning, Andrew.
Speaker #4: Pennsylvania. As the Pennsylvania PUC commentary on the frequency of your rate cases changed your regulatory strategy in state? Or do you see the 25 basis points of ROE for less regulatory lag as an acceptable trade-off?
Hi, good morning, thanks for for taking the time. I I promise. No Pennsylvania questions for a change. Um, it's starting in Missouri.
Is there any way to quantify what the benefits of that kind of change would be, or said differently, what the rate increase would have been versus that $179 million if it was more of a historical filing?
Speaker #3: Thanks for the question. Andrew, with regards to our strategy in Pennsylvania, our real focus and what underpins our rate cases in the state is the capital investment that we make there.
Speaker #3: They're really investment-driven rate cases. As we look to recover we can continue to do that under general rate cases. Another area that we're exploring is a broadening of our DSIC mechanism, which could be useful in a couple of ways.
Hey Paul, this is David. We, we have not, uh, quantified it, I mean, in practical purposes. I think one way you can do it is, you can go back and look at our prior cases, um, and what that filed increase would be. I mean, that's not a complete apples-to-apples, but that could give you an idea.
Speaker #3: Giving us interim recovery in between rate cases, which also has the benefit of smoothing in increases over time, which is helpful from an affordability perspective.
Speaker #3: I'd say water in the state as relates to mechanisms is a little bit behind electric. In other states, we've had the opportunity to update the mechanism and certainly from our perspective in PA, if we can get some traction in being able to do that, that could be helpful from a cadence perspective.
Okay, it looked like a decent pickup potentially, so I was just curious there. Um, and the other was, uh, Indiana gonna 2 parts. I know there's kind of a affordability process of the state. It seems like it's not focused on water, but it's curious, your thoughts there. Um, and also, I know there was some legislation passed which seemed like it could give you a little bit. Um, incremental recovery on some chemical costs and others. So just just curious overall Indiana affordability and um the legislation if you could thank you.
Yeah, Paul. Um, I I'd say, we're, we still feel good about Indiana. Um, from everything we're seeing in the State. Uh,
Speaker #3: But at the end of the day, for us, we need to continue to our obligation in PA as in all of our states is to provide good service that requires capital.
Speaker #3: That's what drives our rate cases. And so we'll look for the most constructive form of recovery.
Speaker #4: Makes sense. And then staying in Pennsylvania, has the affordability noise and Shapiro's intervention and the people's gas case does that have any potential impact maybe on the approval of the central merger?
It it's focused on the electric affordability uh, story there. Um our rates are are very affordable in Indiana and uh continue to be in our forecast to be there. So we feel good um as far as the legislation yet it's a I mean it it's it's uh beneficial to us. Uh I mean it's not overly material from a American Water standpoint but it's certain uh little wins like that help.
To understand how thank you very much team.
Speaker #4: How should we think about that?
Thank you. And the next question will be from Char, pereza, from Wells, Fargo. Please go ahead.
Speaker #3: Well, approval for the merger is really just under a standard in the state. Each state has their own standard. In the case of Pennsylvania, it is substantial affirmative public benefit.
Actually, it's, it's Andrew canevin for sh, thanks for taking my questions.
Speaker #3: That can come in a variety of ways. Certainly, affordability is a theme across the state and other states. But our job with respect to the merger is to be able to demonstrate substantial affirmative public benefit, which we think that we've done in our testimony.
Uh, has the Pennsylvania, has the Pennsylvania puc commentary on the frequency of your rate cases, changed your regulatory strategy in state?
Or do you see the 25 basis points of ROE, uh, for lesser regulatory lag as an acceptable trade-off?
Speaker #3: So we're in settlement discussions there, and so we'll continue to push there.
Speaker #4: Thank you. I'll leave it there.
Thanks for the question, Andrew with regards to our strategy in Pennsylvania, our our real focus. And what underpins our rate cases in the state is the capital investment that we make. They're, they're really investment driven rate cases as, as we look to recover. Uh, we can continue to do that under General rate cases, uh, another area that we're exploring.
Speaker #1: Again, if you would like to ask a question, please press star, then one. Our next question is from Angie Storozynski from Seaport. Please go ahead.
Speaker #2: Thank you. I was about to ask about the DSIC structure in Pennsylvania. So thank you for your comments. So could you maybe tell us what percentage of your CapEx currently qualifies for recovery under this rider?
Is, uh, a broadening of our DC mechanism, uh, which could be useful, uh, in a couple of ways, G giving us interim recovery. Uh, in between rate cases which also has a benefit of of of smoothing in uh increases over time, which is helpful, from an affordability perspective, I'd say water in the state.
Speaker #2: And what would it take to actually increase how much of the spending is recoverable? Thank you.
As relates to mechanisms, is a little bit behind uh, electric uh, in in in in in other states. We've had the opportunity to, to update the mechanism and, and certainly from our perspective and Pa the, if if we can
Speaker #4: Hey, Andrew. Good morning. Thanks for that question. Currently, it's about 40%, give or take, depending on the year. But you can roughly think 40% of our capital in PA falls under the DSIC mechanism.
Uh, get some traction and being able to do that. That that could be helpful from a, a a, a Cadence perspective.
Speaker #2: And would you need some sort of a legislation to basically expand the CapEx that qualifies?
But at the end of the day for us, uh, you know, we need to continue to our Our obligation in PA as in all of our states is to provide good service, that requires Capital uh, that that's what drives the rate cases. And so, uh, we'll we'll look for the most constructive form of recovery.
Speaker #4: Under the current legislation that allows DSIC, we would need to amend that to include additional capital to fall under that mechanism.
Makes sense and then staying in Pennsylvania. Uh, has has the affordability noise and Shapiro's intervention and the people's gas case. Does that have any potential impact? But maybe on the approval of the, of the central merger
How should we think about that?
Speaker #2: Okay.
Speaker #3: And Angie, John here, just to follow on David's response. I think there's a cap element to the DSIC, and then there's a eligibility in terms of assets that's available.
Speaker #3: And so David correctly said legislation is required for a wholesale change. There may be work that can be done in a regulatory pathway around the edges that can be helpful.
Speaker #3: When you think of so David's 40% answer, I think the answer to that question from an electric perspective is somewhere in the neighborhood of 90%.
Speaker #3: And that's really when we look at what's eligible for us, think in terms of underground piping. And that's where water when you think about treatment, think about PFAS, storage tanks, things like that.
Well, approval for the merger. Uh, is is really just under a standard in the state. You know, each state has their own standard, in the case of Pennsylvania it is substantial affirmative public benefit that can come in a in a variety of ways. Uh uh certainly affordability is a theme across the state and and other states. Uh but our our job with respect to the merger is to is to be able to demonstrate substantial affirmative public benefit which we think that we've done in our, in our, in our testimony. Uh, so we're you know, we're we're uh, in
Uh uh uh settlement discussions there. And and so we'll we'll continue to push their
Thank you. I'll leave it there.
Speaker #3: The more we can broaden the eligibility, then that would be helpful.
Again, if you would like to ask a question, please press star then 1.
Speaker #2: Okay. And then separately, the obviously still have the merger proceeding pending. It didn't seem to have impacted the distribution rate case. Which, I mean, it's definitely good news.
Our next question is from Angie Stoinski from Seaport. Please go ahead.
Speaker #2: But I'm just wondering, is there any chance that you could actually stay out of rate cases longer once you become a larger company? I mean, there has to be some economies of scale driven by the enlarged operations in Pennsylvania.
Thank you. Um, I was about to ask about, uh, the the D6 structure in Pennsylvania. So thank you for your comments. So, um, could you could you maybe tell us, you know what percentage of your capex currently qualifies uh, for Recovery under this uh Rider. And that what would it take to actually increase? Uh you know how much of the spending is recoverable? Thank you.
Speaker #3: There certainly will be economies associated with the merger over time. I will say in the near term, as we've begin to go through our integration planning, there is a both companies have a and together as one company, we'll have a need really for the people by and large that we have today.
Hey, Andrew, good morning. Uh, thanks for that question. It's uh, currently, it's about 40%, uh, give or take depending on the year. But you can roughly think 40% of our capital on PA falls under the DC mechanism.
And would you need some sort of legislation to, uh, basically expand the capex that qualifies?
Speaker #3: Both companies individually and together still have the need to invest all of the capital that we're investing. And that's it's that capital investment that really drives timing of rate cases for capital recovery.
Yeah, under under, under the, uh, current legislation that allows DC. We would we need to amend that to, uh, include additional Capital uh, to fall into that mechanism.
Speaker #2: Very good. Thank you.
Speaker #1: Thank you. And ladies and gentlemen, is there are no more questions. This concludes our question and answer session. We thank you for attending today's conference call.
Okay, and he's on here just to follow on David's response. I think that, you know, there's a there's a cap element to the DC and then there's a, an an eligibility in terms of assets. Uh that's that's available. And so David correctly said, legislation is
Is, is required for a wholesale change there. There may be work that can be done in a regulatory pathway around the edges, that can, that could be helpful. You know, when you think of so David's, 40% answer, I think the answer to that question from an electric perspective, is somewhere in the neighborhood of 90%. And that's really, you know, when when, when we look at, uh, what's eligible for us, you know, think think in terms of of underground piping, uh, and that's where water. You know, when you think about treatment, think about Pas, uh, storage tanks, things like that. The more we can broaden the eligibility. Uh then that that that would be helpful.
Okay, and then separately, um, you know, the obviously still have the the merger preceding pending. Um, it's didn't seem to have impacted the distribution rate case, um, which I mean, is definitely good news but I'm just wondering, um, is there any chance that you could actually stay out of rate cases longer once you become a larger company? I mean, I mean, there has to be some economies of scale um, driven by the the the enlarged, the operations in Pennsylvania.
There are certainly will be economies associated with the merger over time. I will say in the near term as as we begin to go through our integration planning. Uh, you know, we there is a both companies have a and together as 1 company. We'll have a need, uh, really for the, the the people, uh, by and large that we have, uh, today it, uh, both companies individually and together. Uh, still have the need to invest all of the capital, uh, that we're investing. And that's it's that capital investment. That really drives uh, timing of rate cases for for for Capital recovery.
Very good. Thank you.
Thank you. And ladies and gentlemen is there are no more questions. This concludes our question and answer session. We thank you for attending today's conference call. You may now disconnect your lines, take care.
