American Water Works: Enhancing Service Quality Through Strategic Investments

Overview of Investment Strategy

American Water Works focuses on balancing customer affordability with necessary system investments, funding these through long-term debt and equity issuances. Their strategy includes issuing debt at the holding company level to manage risk and achieve a low cost of capital, while efficiently delivering projects to improve systems and drive capital investment.

"As we've said, we are very focused on balancing customer affordability and the magnitude of the system investments that are needed." --- (AWK, earning call, 2024/Q1)

"The increase was primarily driven by the implementation of new rates in the Regulated Businesses from its capital and acquisition investments, offset somewhat by increased production and employee related costs, higher financing costs to fund the capital investment plan, including the 2023 equity issuance, and $0.05 per share of net unfavorable one-time items year-over-year." --- (AWK, sec filing, 2024/Q1)

"Since the Company expects its capital investments over the next few years to be greater than its cash flows from operating activities, the Company currently plans to fund the excess of its capital investments over its cash flows from operating activities for the next five years through a combination of long-term debt and equity issuances, in addition to the remaining proceeds from the sale of HOS." --- (AWK, sec filing, 2024/Q1)

"Our strategy of issuing debt at the holding company level allows us to take advantage of our scale and pricing debt issuances, and we will remain proactive in managing risk and achieving a low cost of capital to the benefit of our customers and shareholders." --- (AWK, earning call, 2024/Q1)

"It required significant effort to safely and efficiently deliver the hundreds of projects that improved our systems and drove capital investment higher by almost $200 million in the quarter compared to the same period last year." --- (AWK, earning call, 2024/Q1)

Key Infrastructure Projects and Their Impact

American Water Works' key infrastructure projects, such as the Cottage Way Well and the replacement of over 250 miles of aging pipes, aim to enhance water reliability, reduce main breaks, and improve service quality. A $1 billion investment in upgrades to water mains, treatment plants, and other infrastructure further supports these goals.

""By proactively investing in infrastructure upgrades, we help minimize the impacts of water shortages or pressure fluctuations during peak usage times." The Cottage Way Well was built to replace an aging well, over 60 years old, that was taken out of service." --- (AWK, press release, 2024/04/04)

"The request covers significant infrastructure investments to comply with federal safety regulations, enhance the customer experience and provide safe, reliable natural gas service. As part of" --- (DUK, earning call, 2024/Q1)

"The Registrants continue to focus on several key performance indicators. For the traditional electric operating companies and Southern Company Gas, these indicators include, but are not limited to, customer satisfaction, plant availability, electric and natural gas system reliability, and execution of major construction projects." --- (SO, sec filing, 2024/Q1)

"These projects are important to continue providing quality water, increasing fire protection and improving service reliability for customers and include replacement of over 250 miles of aging water and wastewater pipe to help reduce main breaks and sewer overflows." --- (AWK, press release, 2024/07/01)

"The order reflects the $1 billion in infrastructure investments to be made through mid-2025, as requested by the company, including upgrades to water mains, treatment plants, tanks, valves, booster stations and other infrastructure necessary to maintain and improve water quality, service reliability and fire protection." --- (AWK, press release, 2024/07/23)

Technological Advancements in Service Improvements

American Water Works leverages technological advancements to enhance service quality by using service data to understand technology performance and shape future product roadmaps, and by investing significantly in new technologies to improve efficiency and reduce costs.

"Importantly, as we meet higher levels of demand today, services enable us to better understand how our technologies are performing, and we use that intelligence to help shape our future product road maps." --- (GE, earning call, 2024/Q1)

"This yielded a 9% increase in LEAP internal shop visits sequentially. We are also investing both organically and inorganically to meet the expected growth in shop visits as the LEAP fleet doubles by 2030. As we announced last week, over the next five years, we are planning to invest $1 billion in our MRO facilities around the world to increase capacity and introduce new technologies to further reduce turnaround time and costs." --- (GE, earning call, 2024/Q2)

Regulatory Compliance and Service Quality

American Water Works ensures regulatory compliance and service quality by adhering to stringent water quality standards, replacing lead service lines at no cost to customers, and preparing for regulatory changes. The company emphasizes its commitment to providing clean, safe, and reliable water, supported by regulatory bodies like the U.S. EPA.

"Water quality remains compliant with all regulatory standards, and company continues to replace lead service lines at no direct cost to customers; New map to raise further awareness and encourage customers to report service line material to identify lead lines for replacement." --- (AWK, press release, 2024/04/29)

""While we are assessing any changes from the proposed rule to the final rule, we have been preparing for full compliance, from capital planning to engineering to water quality."" --- (AWK, press release, 2024/04/10)

"Passed in 1974, the SDWA set strong water quality standards for the nation's drinking water and established a regulatory framework to safeguard the public health and safety of U.S. citizens." --- (AWK, press release, 2024/05/05)

""Our employees are committed to providing high-quality water. We know our customers count on us to provide clean, safe and reliable water service," said Rachel Bretz, Illinois American Water Director of Water Quality & Environmental Compliance." --- (AWK, press release, 2024/05/08)

"The U.S. Environmental Protection Agency (U.S. EPA) and the Missouri Department of Natural Resources set standards for water quality and monitor test results to help utilities meet those standards." --- (AWK, press release, 2024/05/30)

Customer Satisfaction and Feedback

Customer awareness of infrastructure maintenance and confidence in water quality significantly boost satisfaction scores, as highlighted by American Water Works' top ranking in the J.D. Power 2024 U.S. Water Utility Residential Customer Satisfaction Study.

"Power. "When customers are aware of the work utilities are doing to maintain infrastructure and they feel confident drinking the water, overall satisfaction scores rise considerably," said John Hazen, managing director of utilities intelligence at J.D." --- (AWK, press release, 2024/05/06)

"Power 2024 U.S. Water Utility Residential Customer Satisfaction Study. This press release features multimedia." --- (AWK, press release, 2024/05/06)

"For more information about the U.S. Water Utility Residential Customer Satisfaction Study, visit https://www.jdpower.com/business/utilities/water-utility-residential-customer-satisfaction-study." --- (AWK, press release, 2024/05/06)

Financial Performance and Investment Outcomes

American Water Works' financial performance has been bolstered by strategic investments, resulting in significant revenue increases and improved financial metrics. The company achieved an $18 million and $66 million annualized increase in water and wastewater system revenues, reflecting robust capital investments and favorable rate case orders.

"The general rate case order approved an $18 million annualized increase in water and wastewater system revenues, excluding previously recovered infrastructure surcharges of $7 million, based on an authorized return on equity of 9.8%, authorized rate base of $886 million, which reflects capital investments through February 2024, a common equity ratio of 50.1% and a long-term debt ratio of 49.9%." --- (AWK, sec filing, 2024/Q1)

"American Water's 6,500 talented professionals leverage their significant expertise and the company's national size and scale to achieve excellent outcomes for the benefit of customers, employees, investors and other stakeholders." --- (AWK, press release, 2024/04/15)

"Forward-looking statements relate to, among other things, planned capital investments and water and wastewater system improvements, the outcome of the MoPSC's final rate Order, and the amount and effective date of new water and wastewater rates." --- (AWK, press release, 2024/07/01)

"The general rate case order approved a $66 million annualized increase in water and wastewater system revenues, excluding previously recovered infrastructure surcharges, based on an authorized return on equity of 9.65%, authorized rate base of $1.84 billion, a common equity ratio of 56.15% and a debt ratio of 43.85%." --- (AWK, sec filing, 2024/Q1)

"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 first quarter earnings release and in our March 31st Form 10-Q, each filed yesterday with the SEC." --- (AWK, earning call, 2024/Q1)

Environmental Sustainability Initiatives

American Water Works is actively promoting environmental sustainability through grants for education, watershed protection, and volunteerism, practical community tips, and significant financial contributions to environmental groups. Their $1 million award supports high-impact ESG projects, and strategic leadership appointments further underscore their commitment to environmental protection.

""We are pleased to announce the recipients of this grant which allows organizations across the state to promote environmental sustainability through education, watershed protection and volunteerism," said Rich Svindland President of Missouri American Water." --- (AWK, press release, 2024/05/03)

"This Earth Day, join us and the Environmental Protection Agency (EPA) and treat every day like Earth Day by adopting the following tips: Join a community cleanup event Turn off the water to brush your teeth and shave Collect rainwater to use in your garden Use reusable drinking bottles Grow an organic garden Run full loads of laundry and dishes Missouri American Water is a proud community partner to organizations promoting environmental sustainability." --- (AWK, press release, 2024/04/22)

"The total award of $1 million will support high-impact projects and initiatives that further American Water's commitment to supporting ESG (environment, social and governance), as well as inclusion, diversity and equity." --- (AWK, press release, 2024/04/30)

"His experience and expertise span across various industries, from energy generation to waste management, underscoring his commitment to environmental protection and efficient operations." --- (AWK, press release, 2024/05/14)

"Last year, the company contributed $101,775 to 177 local fire and rescue organizations; $63,950 to 17 organizations working to promote inclusion, diversity and equity; $186,527 to 52 environmental groups; $30,600 to 17 health and wellness organizations; and $321,902 to 111 organizations working in the area of community sustainability." --- (AWK, press release, 2024/07/02)