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Text: And for purposes of the anchor year on long-term earnings per share growth guidance, the anchor is weather-adjusted 2020 earnings per share of $3.84.
Before we move to quarter results, let me speak for a moment about our recent growth news.
As you know, a key part of our strategy is to operate in states where we can best serve customers, drive efficiencies and continue to grow our regulated business.
Recall that earlier in the year, we announced the sale of our Michigan operation.
And as you know, in late 2019, we announced the sale of our New York operation.
This slide shows what our new regulated service territory will look like after the announced transactions are completed.
Moving to Slide 6.
We recently announced what will be the largest municipal acquisition in Pennsylvania American Water's history.
On April 6, we signed an agreement to acquire the wastewater treatment and collection system for the City of York, Pennsylvania.
This agreement will add an equivalent customer connection total of more than 45,000.
As part of the agreement, Pennsylvania American Water will also continue to provide contracted wholesale wastewater treatment and disposal for seven surrounding communities of York.
We look forward to developing strong relationships that meet the needs of all customers, including those outside the city.
This is yet another example of our strategy to grow where we can add value.
It was also executed under Act 12 of 2016, which allows municipalities to sell their water and wastewater systems for a price-based on the fair market value of the facilities.
York Mayor, Michael Helfrich said, "This is a new day for York, one filled with an unwavering optimism as our residents and businesses can finally breathe the sign of relief for the first time in decades".
Turning to Slide 7.
New Jersey American Water announced an agreement during the first quarter to acquire the water and wastewater assets of Egg Harbor City, New Jersey.
This municipally owned water and wastewater system serves approximately 3,000 customer connections.
The agreement is notable and is the first sale being executed through New Jersey's Water Infrastructure Protection Act, or WIPA.
That law facilitates the sale or lease of municipally owned water or wastewater systems that meet certain criteria, such as significant noncompliance.
Egg Harbor City Major Lisa Jiampetti said, "This sale will mean better infrastructure, stable water rates and millions in funds for the city".
Additionally, Virginia American Water signed an agreement to acquire the drinking water assets at the town of Waverly.
This municipally owned water system serves approximately 900 customer connections and is our first agreement signed under the new fair market value legislation in the Virginia commonwealth.
To date this year, we've added approximately 4,500 customer connections through closed acquisitions and organic growth.
We have under agreement more than 86,000 customer connections, including the City of York.
In total, the acquisitions closed so far this year, and all those under agreement represent approximately $440 million in additional rate base and an estimated $115 million of follow-on additional capital expenditures over the next five years.
And our growth pipeline remains strong with more than 1.2 million customer connection opportunities.
Lastly, I'd like to provide an update on the sale of New York American water.
In late March 2021, the New York State Department of Public Service Special Council released the findings of their municipalization study.
As expected, the study focused primarily on the need for tax relief for customers, including recommendations to eliminate the special franchise tax.
The study also focused on the feasibility of municipalization.
These findings were not addressed in the governor's recently released budget.
Our New York subsidiary continues to work constructively with the New York State Department of Public Service, including through ongoing settlement discussions with all parties.
And we remain confident that the sale will be completed.
We're working diligently to close the transaction.
Assuming progress continues as expected, we believe that the net impact from New York results on 2021 results won't impact our 2021 guidance range.
Further, we don't anticipate any impact on the expected timing of our previously discussed future equity needs.
Let's move to Slide eight and cover our first quarter results.
Our first quarter 2021 earnings per share of $0.73 were up 7.4% compared to the first quarter of 2020.
We invested capital of $342 million in the first quarter as we continue to balance that investment by focusing on operating and capital efficiencies, constructive regulatory outcomes and by leveraging the size and scale of our business.
As a reminder, we've challenged ourselves with a new O&M efficiency target of 30.4% by 2025.
With this strong start to 2021 and continued execution of our strategies, we're affirming today our 2021 earnings guidance range of $4.18 to $4.28 per share.
We are also affirming our long-term earnings per share compound annual growth rate in the 7% to 10% range.
Turning to Slide 9.
Let's go through some of the regulatory and legislative highlights in the first quarter of 2021.
In February, the Pennsylvania Public Utility Commission unanimously approved a previously filed settlement agreement between Pennsylvania American Water and the PUC Bureau of Investigation and Enforcement.
The request was driven by $1.64 billion of investment from 2019 through 2022.
Pennsylvania American Water was authorized additional annualized revenues of $90 million over a 2-year period, excluding an agreed to reduction in revenues for tax savings passed back to customers as a result of the Tax Cuts and Jobs Act of 2017.
On April 7, the Missouri Public Service Commission approved an agreement reached by the parties in Missouri American Water request for a rate adjustment.
The rate order includes approximately $620 million in water and wastewater system improvements made since the end of 2017.
Rates will be effective on May 28, 2021, and will result in additional annualized water and wastewater revenue of $22 million, excluding the reduction in revenue for tax savings passed back to customers, also a result of TCJA.
We also have a pending rate case in Iowa, which is moving on schedule.
And we filed a rate case in West Virginia on April 30.
Additionally, as we've reported previously, California American Water filed for new rates in July 2019.
The case covers 2021 through 2023.
In January 2021, California America Water submitted to the commission a comprehensive settlement with the public advocates office and several interveners.
If the global settlement is adopted by the commission without changes, revenues will increase by $33.5 million over three years, with agreed capital investments of $165 million in 2021 and 2022.
And just yesterday, California American Water filed its cost of capital application with the commission.
As part of the application, California American Water requested an authorized cost of equity of 10.75%, cost of debt of 4.35% and overall rate of return of 8%, which is sufficient to provide California American Water with the opportunity to earn a reasonable return on its investments.
The case covers 2022 through 2024, with the revised cost of capital to be effective January 1, 2022.
Regarding the Monterey Peninsula Water Supply Project.
As a reminder, California American Water refiled its application to the Coastal Commission on November 6, 2020.
On December 3, 2020, the Coastal Commission sent a notice requesting additional information needed to consider the application complete.
In March 2021, California American Water provided the requested responses.
And once staff deemed the application complete, by statute, the Coastal Commission would have 180 days to process it.
Moving to state legislation on Slide 10.
We continue to see states take action to help address water and wastewater challenges.
In Kentucky, the governor signed into law new acquisition adjustment legislation.
This law allows systems to be acquired above net book value when certain criteria are met.
The law also establishes a time line for a PSC decision on an acquisition, which is within 60 to 150 days of application approval.
In Indiana, there are two pieces of legislation that have been signed into law that will benefit our current and future customers.
Act 1287 creates a mechanism that reduces the required upfront cost to new customers for water and wastewater utility to extend service to underserved areas.
And Act 349 establishes a tax writer for water and wastewater utilities based upon any change in state or federal income tax law.
On the national level, we're pleased to see that water and wastewater infrastructure is included in both the administration's build back better plan as well as introduced in state -- or federal legislation.
There continues to be a significant need to invest in water and wastewater infrastructure, not just within our system, but broadly across the United States.
We think the proposed funding to state revolving funds for drinking water and the possible expansion of a water light-heat program would directly benefit our customers.
The administration's plan also includes a tax package, and Susan will talk about that in a moment.
Moving to Slide 11.
Customers remain at the center of every decision we make.
This means smart investments balanced by efficient operations and capital deployment.
For the 12-month period ending March 31, 2021, our O&M efficiency ratio was 34.1%, a decrease from 34.5% for the 12-month period ended March 31, 2020.
As we note each quarter, our adjusted O&M expenses are slightly higher today than they were in 2010.
Since then, we've added approximately 327,000 customer connections, while expenses only increased at a compound annual growth rate of 1.1%.
You may have seen in our 10-Q, a discussion around a matter related to HOS.
And likely, you saw a note from a rating agency commenting on that disclosure.
As noted in the 10-Q, I want to remind you that this is a matter that relates to a subpoena received by AWR, an American Water subsidiary that operates a portion of HOS.
The subpoena seeks information related only to HOS' metropolitan New York City operations.
As we noted in the 10-Q, AWR is cooperating fully with the investigation.
And while it's impossible to predict the outcome at this point, we do not believe it will result in any material impact to our overall operations or financial results.
As a final note on the business, I'd like to congratulate Mark McDonough, who was recently named President of New Jersey American Water; and Steve Curtis, who will replace Mark as President of our Military Services Group.
These are great examples of how we build and leverage the deep bench strength of American Water.
Both Mark and Steve have had increasing roles of responsibility throughout their careers in American Water and are models of our values.
We continue to execute our preparedness plans as we look to reintegrate those employees who have been working remotely.
As always, safety is our top priority.
This past March, we were very pleased that it was our first month in our history where no OSHA recordable incidents occur throughout our entire company.
Our commitment to 0 injuries and incidents will continue because no injury is ever acceptable to us.
And let's start on Slide 13 with a bit more detail on results.
As Walter highlighted, first quarter 2021 earnings were $0.73 per share compared to $0.68 per share in the first quarter of 2020.
Results for the regulated business segment were $0.74 per share, an increase of $0.06 per share, primarily driven by continued growth from infrastructure investment, acquisitions and organic growth.
Results for the market-based business were $0.09 per share, a decrease of $0.03 per share as we saw an increase in claims in the homeowner services group due largely to weather-related events.
Current company results improved $0.02 per share in the first quarter of 2021 as compared to the same period in 2020.
Moving on to Slide 14.
Regulated results increased $0.06 per share, as I said.
We saw a $0.19 per share increase in revenues from new rates in effect as well as earnings from acquisitions.
O&M expense increased by $0.08 per share and somewhat offsetting with an increase in depreciation of $0.05 per share in support of growth in the business.
As previously mentioned, the market-based business results increased -- or decreased $0.03 per share in the first quarter of 2021 as compared to the first quarter of '20.
The lower results were due to increased claims expense, which was driven by extreme cold weather, primarily in Texas and Illinois and the continuation of stay-at-home activities, as we saw throughout most of 2020 due to the pandemic.
The parent results improved $0.02 per share in the first quarter of 2021 compared to the first quarter of last year.
The improved results were largely driven by a number of small items that increased expenses in the first quarter of 2020, offset by higher interest expense to support growth in the regulated business.
While I'm on the subject of results, I'd also like to discuss the company's lower effective income tax rate in the quarter.
This was primarily due to an increase in the amortization of excess accumulated deferred income taxes from the settlement of general rate cases in New Jersey and Pennsylvania that approved the timing and method by which the excess deferred taxes are returned to customers.
The increased amortization of excess deferred taxes lowers tax expense and is largely offset dollar-for-dollar with lower revenue, resulting in no impact to earnings.
We will continue to see this impact and the resulting lower effective tax rate as the amortization continues in these states and others as similar provisions are put in place.
And as a reminder, the excess accumulated deferred income taxes resulted from the federal rate being lowered from 35% to 21% as part of the Tax Cuts and Jobs Act, as Walter mentioned.
Moving on to Slide 15.
The continued successful execution of our regulatory strategy is a key element of our ability to consistently deliver financial results.
To date, the regulated businesses have received $123 million in annualized new revenues in 2021.
This includes $92 million from the Pennsylvania and the Missouri rate cases discussed earlier, excluding the agreed reduction in revenues for tax savings passed back to customers and $31 million from infrastructure surcharges.
In addition, the Pennsylvania rate case includes a second step increase of $20 million effective January 2022.
We have also filed requests and are awaiting final orders on three rate cases, totaling an annualized revenue request of $61 million.
And as Walter mentioned, we are also closely following President Biden's tax proposal and evaluating the impact that the current proposal would have on our long-term growth strategy.
While there are many proposed provisions that need further analysis, our early indications are that there will be minimal impact to our plan.
And finally, moving on to Slide 16.
On April 28, 2021, our Board of Directors increased the company's quarterly cash dividend payment from $0.55 to $0.6025 per share.
We continue to be a top leader in dividend growth.
We have grown our dividend at a compound annual growth rate of about 10% over the last five years, significantly outpacing our peers in the Dow Jones utility average and the Philadelphia Utility Index.
We expect to continue our dividend growth at the high end of the 7% to 10% range, as we know that, that is very important to many of our shareholders.
Also, we continue to target a dividend payout ratio of 50% to 60% of earnings.
As this quarter's results demonstrate we continue to consistently deliver on our earnings commitment, regulatory execution, along with the results from our market-based businesses allows us to continue that performance.
We believe that delivering on results, combined with our strong earnings growth and superior dividend growth expectation provides excellent value for our shareholders as we continue to outperform our peers.
This report highlights the efforts we've undertaken and the strides we've made advancing our commitment to inclusion and diversity.
To launch this report internally, we were honored to have Mr. Earvin Magic Johnson joining us virtually for conversation on inclusion, diversity and allyship.
Additionally, we had an incredible community healing discussion with our employees to provide a chance for even more open and honest dialogue and inclusion.
We believe that a company strength is its people, and the diversity of our workforce makes us even stronger.

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q1 earnings per share $0.73.2021 earnings guidance range of $4.18 to $4.28 per share affirmed.

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