American Water Works at Bank of America Merrill Lynch Power and Gas Leaders Conference Call

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American Water Works Company, Inc. (AWK)

Bank of America Merrill Lynch Power and Gas Leaders Conference Call

September 20, 2011 10:30 am ET

Executives

Jeffry Sterba – President and Chief Executive Officer, American Water Works Company, Inc.

Kevin Burke - Chairman, President, and Chief Executive Officer, Consolidated Edison, Inc.

Analysts

Steve Fleishman – Bank of America/Merrill Lynch

Presentation

Steve Fleishman – Bank of America/Merrill Lynch

The next panel is titled rate based growth stories, all these companies, that’s the key part of their investment case. We are going to kick it off with American Water Works with Jeff Sterba, who is the President and Chief Executive Officer and then we’re going to go to Con Ed with Kevin Burke, who is the Chairman, President and CEO. We will then move on to Northeast Utilities with Dave McHale, who is an EVP and CFO. And then finally to NSTAR with Phil Lembo who is the Treasurer.

Just one logistical thing, the American Water Works, they gave new guidance last night and since we’re not webcasting the Q&A at the end of this, if you do have a question on the guidance please feel free to ask Jeff that at the end of his presentation.

So without further ado, let me turn it over to Jeff. Thank you.

Jeffry Sterba

Thanks, Steve. Well, thank you all very much for being with us today and Steve for running another great program as you always do. As you now and as Steve mentioned we did issue revised guidance last night, which effectively moved our guidance from the high end of $1.75 to $1.85 per adjusted earnings per share to $1.75 to $1.82 per share. And the primary drivers for this were, it may seem a little strange to those of us that have weathered Hurricane Irene and Leah in the Northeast over the recent weeks, you clearly saw that New Jersey and Pennsylvania had very severe weather, a lot of rain and fairly mild temperatures in the month of August. But one of the advantages of our system is that since we’re so geographically spread we had offset in our midwestern areas, help to offset the reduction in load that we experienced in August. And then in July we saw a good, hot, fairly dry weather frankly across our system.

So weather and then having gotten through the summer, weather was a part of the reason why we increased guidance but only a part. We also have seen the cost initiatives and our operating excellence initiatives take a little firmer control, and then I think that for all of us that access the short-term debt market, short-term debt interest rates have been very low. Not one of those three items is the majority of the driver in guidance; it’s really the combination of those three items relative to adjusted EPS. So with that statement, I assume you have read and studied and you can call back to us.

Let me just give a little bit of an overview of American Water for those of you that may not know us quite as well. We’re the largest publicly traded water business in the United States. We operate in over 30 states and two Canadian provinces. We have a number of phases of the water business that we’re in from the treatment and delivery of portable water to the collection and treatment of waste water to the processing of that waste water for reuse, to the design, build and construct the facilities for the benefit of other utilities, and then on into what I will call a consumer services focus where we provide value added products to our customers. It’s about 90% regulated and it’s all state regulation and about 10% is market-based, and you can see the states that we operate in on both the regulated and the market-based side.

On the regulated side of the business, there are two states that account for about 45% of our business that’s Pennsylvania and New Jersey, but we’re relatively spread out after that in terms of the other states that we have. We serve about 1,600 communities in those 19 states. And I think you can see just from the geography that we benefit from both the spread and the hedge against weather changes that tend to be more localized as well as to the changes that happen through the regulatory cycles.

We just mentioned that I think the track record that we’re demonstrating in American Water is starting to be recognized by investors. For the last 12 months our total shareholder return is up over 30% compared to about 10% for the Dow Jones Utility, then just about 6.5%, 7% for the market at large. And we’re doing this with a risk or beta that’s basically half that of the market place. And you will notice on the beta chart that there is a blip up in the last, so it’s probably about 6, 7 weeks. This is when the market has gotten a bit more volatile.

Frankly, this kind of an increase in beta, I don’t mind because what’s really happening is the market declined about 6% over the last six, seven weeks and we have increased – our stock prices increased by about 6% over that same period of time. So that drives an increase in beta but it’s still at about half the rates of the marketplace.

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