Detailed Narrative
Q2 and H1 FY26 Financial Performance
American Water reported adjusted earnings of $1.61 per share for Q2 FY26, an 8% increase from $1.49 in Q2 FY25. For the first half of 2026, adjusted earnings reached $2.62 per share, up from $2.51 in the prior year. Revenues increased due to authorized rate adjustments, while O&M costs remained flat, demonstrating effective cost control. The majority of EPS growth is anticipated in the second half of the year, driven by revenue increases in key states.
Regulatory Strategy and Outcomes
The company successfully executed its regulatory strategy, completing 3 rate cases in West Virginia, Maryland, and Pennsylvania in 2026, which authorized recovery of nearly 100% of capital investments. In Pennsylvania, a final order approved a $75 million annualized revenue increase with a 9.55% ROE and 54.2% equity component. Active general rate cases are in progress in 6 jurisdictions, including black box settlements in Virginia and a partial settlement in California. A new rate case was filed in Missouri, utilizing fully forecasted future test year legislation.
Capital Investments and Customer Growth
American Water invested $1.8 billion in capital projects and acquisitions year-to-date, focusing on infrastructure renewal, resiliency, water quality, and system additions. The company aims for 2% customer growth, supported by acquisitions like Nexus Water Systems, which added 47,000 customer connections. As of June 30, approximately 57,000 customer connections are under agreement across 6 states, totaling $236 million in value.
Essential Utilities Merger Update
Progress on the proposed merger with Essential Utilities continues, with state approvals received from Kentucky, Ohio, and Virginia. Public input hearings have shown good support, and a settlement in principle has been reached in Texas. The integration planning is proceeding well, and the merger is still expected to close by the end of Q1 2027, consistent with previous guidance.
Pennsylvania Regulatory Environment
Management addressed the Pennsylvania PUC's commentary on rate case frequency, noting that capital investment drives the need for rate cases. Approximately 40% of capital in PA currently qualifies for recovery under the DSIC mechanism. Expanding DSIC eligibility to include more asset types (e.g., treatment, PFAS, storage tanks) and increasing the cap would require legislative changes, which the company is exploring to smooth rate increases and improve affordability.
Missouri Rate Case and Future Test Year
A general rate case was filed in Missouri reflecting $1.6 billion in system investments for June 2025 through May 2028, seeking $179 million in additional annual revenue. This is the first case utilizing the state's new fully forecasted future test year legislation, which is expected to provide benefits by reducing regulatory lag, though the specific quantification of these benefits was not provided.