American Water Works Company, Inc.

He will continue to report to me and our executive leadership team will report to John. Cheryl will expand her COO role and now lead business development. When you consider how she has led our increased capital program, her extensive water quality expertise given the ever-increasing regulations, and her reputation in this industry, this is a natural expansion of her role as we continue to bring solutions to even more communities across the country. David Bowler, who you will hear from next quarter, has been named Executive Vice President and CFO, and Nick Furia has been named Vice President and Treasurer. Let me just say a few words about John, Cheryl, David, and Nick, as we are really pleased to have all four expand their roles. You know John well. He has more than 25 years of industry knowledge and expertise and significant experience in leading high-performance teams, strategy development, and execution. Most importantly, he has a deep understanding of our company's purpose, and a strong commitment to our customers, employees, and shareholders. Cheryl has more than 35 years of experience and expertise. She has led our lab, served as president in three of our states, and does an incredible job leading all areas of our operations. She too has a strong sense of the purpose of American Water. David has nearly 20 years of deep experience in the utility industry and has been our deputy CFO and treasurer since 2022. He has significant experience in all aspects of financial management and strategy, including finance, strategy and planning, treasury, accounting, enterprise risk, and capital markets. And Nick Furia has 10 years of experience with American Water and has served as our assistant treasurer since 2021, overseeing key treasury-related functions, including financing, cash flow, liquidity, overall cap structure management. He also served as the Director of Acquisitions at American Water and has nearly 20 years of experience in accounting and finance roles. All have a strong commitment to the success of our company and are well suited for their new and expanded roles. We firmly believe we have further solidified an already top talent leadership team. Our leadership team and the American Water Board of Directors are excited about these changes and highly confident this team will support the execution of our plans now and well into the future. And with that, I'll turn it over to Cheryl to talk more about our recent regulatory updates, affordability, and the capital plan. Cheryl?

Thanks, Susan, and good morning, everyone. Let me start by saying how excited I am about today's leadership news, and I look forward to working even more closely with our business development team to provide water and wastewater solutions to many more new communities. I'm also very confident that we have the right team for the long-term success of this company. On slide nine, I'll cover the latest regulatory activity in our states. In Pennsylvania, as Susan just laid out, the Commission issued an order in July authorizing an additional $99 million in annualized revenues effective August 7th. There are two other items from the order worth noting. The PUC encouraged Pennsylvania American Water to set a target donation to its hardship fund of an additional $1 million. Of note, As part of its acquisition of the Butler Area Sewer Authority, Pennsylvania American Water already committed to increase its shareholder contribution to the H2O Help to Others grant program by $3.5 million over five years. As you know, the BASA acquisition was approved by the PUC in November of 2023, but it was appealed to the Commonwealth Court. So the PUC-approved expansion of these assistance programs awaits a decision from that court. Regarding the water quality issues raised in the order, we acknowledge that some customers in the northeast part of our Pennsylvania service area experience temporary aesthetic disturbances associated with system improvements and operational maintenance. Let me be clear. Our water meets all state and federal drinking water regulations. We take customer comments about water quality very seriously, and we'll work with the Commission on the matters raised. As part of this commitment, we attempted personal outreach to every customer who raised a water quality concern during the public hearings to better understand and resolve their issues. With 33 Pennsylvania American Waters water treatment plants nationally recognized with the Director's Awards for participating in the EPA's Partnership for Safe Water, we are fully committed to high-quality, reliable, and affordable water and wastewater services. Switching over to Kentucky, The commission there issued an order on May 3rd authorizing an additional $11 million in annualized revenues. Since the company had implemented interim rates effective February 6th based on the requested revenue of $26 million, the order requires a refund with interest to customers retroactive to this date. It does not include the infrastructure surcharge revenues of $10 million, which add to our investment recovery in the state. We filed with the Commission a petition for rehearing of the rate case order seeking clarification or correction of certain quantifications with respect to the authorized amount of annualized revenues. Of the handful of issues we have raised, the one of most significance appears to be a mathematical error that once corrected would result in a higher revenue requirement. We expect resolution of this proceeding later in 2024. Turning to active cases, you can see we have general rate cases in progress in seven jurisdictions. All of these cases are centered around the capital investments we've made and will continue to make in these states, and all of them are proceeding as we expected. On July 1st, we filed a general rate case in Missouri reflecting a $1.5 billion in system investments covering January 2023 through May 2026. we are seeking $148 million of additional annual revenue. Rate cases in Missouri usually take up to 11 months, and we expect new rates to become effective mid-2025. In Illinois, the next milestones in the case will be evidentiary hearings in August, followed by briefing from all parties in September, and then a proposed order due in October. In California, we still expect a final rate case decision in the second half of 2024. New rates will be implemented retroactively to January 1, 2024. As a reminder, we reached a partial settlement agreement in November of 2023 with the CPUC's Public Advocates Office, which would address our revenue requirement request but does not address rate design or certain other matters, including our request for continuation of a revenue stability mechanism. Also of note, the California Supreme Court issued a unanimous opinion concluding that the commission erred when it prohibited water utilities from proposing to continue their water revenue adjustment mechanisms. Accordingly, the court vacated the portion of the commission's 2020 decision relating to this prohibition. Decoupling is a critical tool for conservation efforts in California. Adequate water supply reliability for all uses is essential to the future economic and environmental health of the communities we serve there. In New Jersey, as outlined in the procedural schedule, the company is in confidential settlement discussions among the parties to the proceeding, and we hope to have a resolution soon. To show the magnitude of our regulatory execution efforts, you can see on slide 10 that we have $266 million in annualized new revenues and rates so far in 2024. This includes $176 million from general rate cases and step increases and $90 million from infrastructure surcharges. In total, we have $546 million of total annualized revenue requests pending. Most of the annual authorized revenues we are expecting in 2024 have effective dates which will have a stronger impact on financial results in the second half of the year. Moving to slide 11, and a topic you've heard us cover just about every quarter, customer affordability. And as we've said, we are very focused on balancing customer affordability and the magnitude of the system investments that are needed. An example of this is included in the Missouri general rate case we filed on July 1st. We are proposing a new income-based discounted rate for customers below 150% of the federal poverty level. We also currently offer assistance through our H2O Help to Others program, which is available to any Missouri American Water customer and meets the basic needs criteria as set by the Community Action Agency caseworkers. We also continue to strongly advocate for a permanent, federally funded, low-income water assistance program similar to what's been in place for many years for gas and electric utility customers and what was temporarily in place for water customers during COVID. Turning to slide 12. As Susan reviewed earlier, highlighted here is an example of the constructive regulatory and legislative environments we operate in. Our theme here is not only around timely, consistent recovery of investments and operating costs, but also around offering affordability programs and tariffs to those customers who need it the most. As I alluded to earlier, American Water has consistently engaged with policymakers and regulators over the years to find the best ways to invest in water and wastewater infrastructure to serve the long-term best interest of our customers while also achieving timely recovery. When we achieve timely and consistent recovery, it promotes affordability by leveling out customer bill impacts over time, making those bills more manageable for our customers. I'd like to point out that we offer affordability programs in most of our states, which is something we have been doing for some time now. We also have specific low-income tariffs enacted in four of our biggest states, Pennsylvania, New Jersey, Illinois, and West Virginia. And as I mentioned on the last slide, we are seeking to add Missouri to this list once our general rate case concludes next year. Lastly, slide 13 shows that our state and corporate leaders and their teams again did a great job in the quarter executing on our increased capital plan. They safely completed the hundreds of projects that improved our systems and drove capital investment higher by almost $200 million in the first half of 2024 compared to the same period last year. This result keeps us on pace to hit our goal of approximately $3.1 billion of capital investment in 2024. With that, I'll hand it over to John to cover our financial results and plans in further detail. John?

Thank you, Cheryl, and good morning, everyone. I, too, look forward to all of our new roles. We have a great future ahead of us and much work to do as we continue to make communities stronger through the essential water and wastewater services we provide. Turning to slide 15, I'll provide some further insights into our financial results for the quarter. Earnings were $1.42 per share for the quarter, down 2 cents per share versus the same period in 2023, but up 2 cents per share on a weather normalized basis. Recently completed rate cases in Indiana, West Virginia, and Kentucky, in addition to rate outcomes achieved last year, are driving increased revenues. While weather led to a net unfavorable impact on earnings quarter over quarter of an estimated 4 cents per share, earnings in the second quarter of 2024 were favorably impacted by an estimated 3 cents per share of weather due to warm and dry conditions, primarily in New Jersey, while earnings were favorably impacted in Q2 of 2023 by an estimated 7 cents per share of weather due to warm and dry conditions, primarily in Missouri, New Jersey, and Pennsylvania. In looking at operating costs, increased employee-related costs caused O&M to increase 3 cents per share, as expected, from normal wage increases somewhat offset by lower headcount. Production costs related to fuel, power, and chemicals costs were flat compared to this period in 2023. Next, depreciation increased 7 cents per share and long-term financing costs increased 11 cents per share, both as expected in support of our investment growth. Long-term financing costs include interest on the $1 billion convertible note issuance from last June and the $1.4 billion long-term senior note issuance this February. And finally, we had two cents per share of additional interest income from the February 2024 amendment of the seller note related to the sale of HOS. We will continue to break this out quarterly so investors will be able to track the ongoing growth of American Water from its core regulated strategy without this additional interest income. Turning to slide 16, earnings were flat for the year-to-date period compared to the same period last year, driven by many of the same factors as in the second quarter. On a weather normalized basis, earnings have increased 4 cents per share year to date, which, as Susan mentioned, is in line with our expectations for the first half of the year. Turning to our discussion of growth through acquisitions, on slide 17, you'll see that we successfully closed on five systems for $119 million through June 30th, which added approximately 33,400 new customers. The newest additions include the water and wastewater systems in Salem, New Jersey and Cape Charles, Virginia, which followed the Granite City, Illinois wastewater treatment plant acquisition we closed in Q1. We've also added 9,600 customers through organic growth through June 30th. We continue to be well positioned for strong growth through acquisitions with 59,000 customer connections and $483 million under agreement as of quarter end. Many states in our footprint are contributing to this total, which mirrors the broad-based pipeline of opportunities we have in progress across the country. As a reminder, we have received PUC approval for the acquisition of the 15,000 customer BASA wastewater system in Pennsylvania. The PUC's approval is under appeal, and we await a decision from the Pennsylvania Commonwealth Court to proceed with closing. On June 13th, the Pennsylvania Commission voted to adopt revisions to procedures around Act 12 fair market value. The provisions in this final order were largely the same as the proposed version we covered on the first quarter call. And as we said on the first quarter call, we believe these provisions are a constructive step for continued consolidation in Pennsylvania as they reaffirm the core principles of Act 12. We do expect the closing of current pending transactions will likely take more time than usual, But to be clear, we are confident in our Pennsylvania acquisition pipeline. Slide 18 is a summary of our continued strong financial position. Our total debt to capital ratio as of June 30th, net of our $48 million of cash on hand is 56%, which is comfortably within our long-term target of less than 60%. And finally, on slide 19, yesterday we announced that we are raising our 2024 EPS guidance by narrowing it to the top half of the range we first disclosed in February. The 2024 EPS guidance range is now $5.25 to $5.30 from $5.20 to $5.30 previously, and still on a weather normalized basis. As Susan mentioned, this change is driven by lower than expected declines in customer usage, which is something we track closely and now believe we can count on for the remainder of the year. Coupled with the fact that we have several revenue increases effective in Q2 and Q3, we expect second half 2024 will deliver financial results to achieve this narrow guidance range. This puts us on track to deliver 8.5% EPS growth in 2024 at the new midpoint. Our high level outlook for 2024 otherwise remains unchanged from what we previously disclosed, and we again affirm our long-term financial targets. We believe our industry-leading EPS and dividend growth, coupled with our affordability position and ESG leadership, will continue to be highly valued and rewarded by investors. We believe these aspects of our business and our position as the largest and most geographically diversified water and wastewater utility in the country distinguish us from all other utilities. With that, I'll turn it back over to our operator to begin Q&A and take any questions you may have.