Q1 2024 Summary
Published Jan 10, 2025, 5:10 PM UTC- American Water Works remains very confident in their investment plans and regulatory processes in Pennsylvania, where they have spent over $1 billion on infrastructure improvements focused on rate base growth and improving service quality.
- The company is proactively managing regulatory risks related to PFAS legislation, working with legislators and agencies to secure liability protections for water utilities, demonstrating strong regulatory acumen.
- Despite potential regulatory changes, American Water Works expects no significant changes to their acquisition strategy, expressing confidence in their ability to continue growth through acquisitions and effectively integrating them into rate cases.
- Regulatory challenges in Pennsylvania could impact revenue growth and acquisition strategy. Intervenors in the Pennsylvania rate case have raised issues about the allowed Return on Equity (ROE) and how frequently the company files rate cases, which might affect capital investments and profitability in the state.
- Delays and uncertainties in the regulatory environment may slow down acquisitions, particularly in Pennsylvania. Changes to Act 12 and longer approval times are expected to prolong pending transactions, potentially hindering the company's expansion plans.
- Increased operating and financing costs are impacting earnings. The company experienced a $0.07 per share increase in Operating and Maintenance expenses due to higher fuel, power, chemical, and employee-related costs, and a $0.11 per share increase in long-term financing costs from recent debt issuances.
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Pennsylvania Rate Case Impact
Q: Any changes expected in rate case strategy or investment plans?
A: Management remains confident in their plans and doesn't anticipate changes to the rate case strategy or investment levels in Pennsylvania. The frequency of rate cases is tied to the pace of their over $1 billion investment in infrastructure improvements, driven by the significant need for system upgrades in the state. They believe the regulatory process supports their work and that the pace of filings is not unusual compared to peers. -
PFAS Legislation and Liability
Q: Status and impact of PFAS liability protection legislation?
A: Legislation called the Water Systems PFAS Liability Act has been filed in both the House (H.R.7944) and Senate to protect water utilities from CERCLA liability as passive receivers. Management is working diligently on both sides of the aisle to push this forward but acknowledges that the legislative process is challenging with no specific timeline. They believe having the final EPA rules published helps remove obstacles and are hopeful for progress. -
Fair Market Value Revisions in Pennsylvania
Q: Will fair market value cap limit acquisition opportunities?
A: Management is monitoring potential changes to fair market value regulations in Pennsylvania but believes it's too early to determine the impact on communities' willingness to sell. They remain confident in their ability to help communities with infrastructure needs and will adapt to any new regulatory framework provided by legislators and regulators. -
CERCLA Designations and Litigation Risk
Q: Concerns about litigation risk under new CERCLA classifications?
A: Management is proactively addressing the CERCLA designation and is confident in their ability to comply with the rules. They are working hard on the legislative front to secure liability protections and are in discussions with the EPA, which has indicated that impacting water utilities is not their intent. -
Including Pending Acquisitions in Rate Cases
Q: Impact of including pending acquisitions in rate cases?
A: Management included approved acquisitions expected to close during the rate case period in Pennsylvania. They expect the commission to consider the status of these acquisitions in their findings and do not anticipate changes in how they consider acquisitions in future rate cases. -
Data Center Presence Impact
Q: Impact of data centers on growth and constraints?
A: The company has not seen a significant increase in water demand related to data center moves and anticipates minimal impact on their business, unlike electric utility peers.