Good morning. Good morning, everyone. I'm Ed Vallejo, Vice President of Investor Relations at American Water. I'd like to welcome you today on behalf of my 7,100 American Water colleagues. I'd like to welcome the folks that are here and are still arriving.
I appreciate the bad weather here in New York. And the folks that are joining us worldwide through our webcast, we appreciate you coming to this investor event. As you probably read and seen from our 8 Ks and press release, we have lots to share with you today, starting next year with a baton passing from one extremely capable executive to another extremely capable executive. You'll hear more from Susan and Walter later on today. More guidances, more disclosures, more clarity as to how we're going to grow this company at the leading growth rate that we have out there.
And we've said this before and we will say it again, we can do this for multiple decades to come. Indeed, the story continues. August 7. Let's talk a little bit now on the safety message of American Water. Every meeting that we start, we start with a safety message.
Today is no exception. Let's go through. First of all, the emergency exits, the best exit is if you go that way and to the left, it has some doors that will take you straight to the stairs and down to the hallway. That's a big shortcut down to the street level. Can I get a show of hands on who is First Aid and AED certified?
As you can tell, a lot of American Board of people, even our IV technicians are First Aid and AD certified. So we're going to take good care of you. In case of emergency, Ralph Jedlica will be calling 911. Abby Barksdale will be interfacing with 1st responders, and Kelly Olera will be interfacing with building security until law enforcement arrives. Let's talk a little bit about our forward looking statements.
What this basically says is that today, we will be making some forward looking statements. And these statements, these projections are made with the best estimates that we have on hand. And at the end of the day, sometimes the future doesn't pan out the way you plan it or you want it to happen. And we just wanted you to remind you about that fact. That's really what it says.
Let's go over a couple of more logistics issues. As you can see, we will finish the meeting around 11:45, and then we will open up the meeting to questions. We will start the meeting with an overview from Susan's story. Then we will have 2 panels, 1 addressing water quality and the other one addressing our capital investment program. In between those two panels, we will have a 15 minute break.
We will have a 10 minute counter that kind of helps you see when our presentations are going to start again. Following the last panel, we will have Walter Lynch review our regulated operations, and then we will have Susan Hardwick do the 5 year financial overview, and we will do the closing remarks from Susan, and we will open again the meeting for questions. As a reminder, this entire presentation is being webcast, and our slide deck was out yesterday in the mass e mail that we sent you guys as well. And that's probably it. Probably, if anything, while I'm up here in the stage, and I have all these folks here, it gives you an opportunity on behalf of my team, of Ralph, Abby and Kelly to give you a heartfelt thank you.
Thank you for all the support that you give us throughout the year. All of your reflections, all of your constructive feedback, all of that makes us a better partner for you when we help you deliver your quality products. So we thank you for that. We really appreciate that. And that's about it.
I'm going to leave you in very good and capable hands. My very good friend, our President and CEO, Susan Story. Help me welcome Susan to the stage, please.
Good morning. Good morning. Okay, great. We can have a lot of energy in here. It may be gray and dark outside, but it's not in American Water.
So this is
a good
day. Before I talk about launch into kind of macro trends and introduce what we're going to talk about today, I do want to say a little bit about the announcement yesterday and my retirement on April 1st. I looked back at how I came to this company. And many of you know that I spent 31 years with Southern Company. And back in late 2012, I got a phone call from a board member at American Water, Julia Johnson, who many of you may know a leader in regulatory across the country.
She was the youngest PSC Chair in Florida. And she said, there's this great company. I'm on the Board. We may be looking for somebody. I said, no, I'm fine.
I'm happy. Thanks for thinking of me. She said, keep an open mind. About a month or 2 later, she called back again and I said, no, I'm fine. And then she called and she said, just do me a favor, just come up and talk to Jeff Sturba and meet with the Board.
And I said, well, okay, because Julie was a good friend and I thought, well, I'll do that. And then I went up and I heard about this company American Water. Honestly, I had never heard of American Water. When you're in the South and American Water is not in the Deep South and didn't know much about water, private water companies. But I was so intrigued and fell in love with the story of American Water.
And after about a month or so, I thought I want to be part of this. So I fell in love with this company and I have just grown more in love with the company and the people and what we do. It makes me think of a Robert Frost line from one of his poems, the road less traveled where he said, 2 roads diverged in a wood and I, I took the road less traveled by and that has made all the difference. So,
thank you.
What I want to do now is talk a little bit about macro trends. So you're here to hear a lot about American Water and what we do and the future of water and looking at our capital investment and looking at regulated acquisitions in the market based business, all the things you write about all the time or that you look at in your models or that you decide when you're investing us what you're going to do. But one of the things we have to do is we have to look forward to what could disrupt the way we do our business. What we do won't change, but what are the trends out there that if we don't keep a finger on the pulse, we could be left behind? History shows us whether it's utilities or other companies that just kind of said things will never change, they will continue the way they are, we will keep doing things the way we've always done them.
But when you do that, usually it's too late before you realize that things are changing, that there's disruption. 10 or 15 years ago, how many electric utilities in this country really thought distributed generation would be a real threat? There were a few, but not a lot. Many people thought that solar and wind the prices will be coming down to a point they would be highly competitive. Or that now in a stage when a lot of coal plants are being shut down that natural gas is now under attack.
How would we know that if we didn't look forward and say what if scenario? And it doesn't mean you chase every scenario, but it says what are the no regrets decisions we can make today that regardless of what happens, we've positioned our company. I'm not going to talk about a lot of these, but I am going to talk about a few because then I'm going to come back and say, so what does this mean for us at American Water? Under customer 20 fourseven personalized service on demand, there is a thought in utilities that people just don't expect as much from us on customer service. They made from Amazon or they made from all of the other retailers, but they just don't expect that.
How many of you really don't think that the people we serve expect anything more of us than what we've ever done, or electric or gas or whomever? We have got to find a way through the implementation of technology, artificial intelligence, machine learning, predictive analytics that we can provide the same type of personalized for the 3,500,000 customer connections, 12,000,000 people are regulated, 2,000,000 additional that we serve in the market base, including some on the regulated. What are we doing to make sure that when you log into your account, it knows your name, it knows your consumption, it knows and can predict what you're probably calling in about or what services you need. We have to do this. Water's impact on environment and health.
Nobody wants to be the next headline in a negative way about water quality. Flint, Michigan or Newark, New Jersey or fill in the blank. In our job, and you're going to hear about this with one of Walter's panels with our experts, one of our scientists as well as our Chief Environmental Officer and Cheryl Norton, who's President of New Jersey American. You're going to hear about what we're doing in water quality that's not just going to keep us out of the headlines, but have us as the lead in this country and in some cases globally in terms of what we're doing on water quality research using technology and R and D. And then you go to technology.
AI and machine learning rapidly penetrate and disrupt many core enterprise functions. Safety, finance, we have a digital finance group that's now in Susan organization looking at how we use artificial intelligence and predictive analytics to get much better at things simple practical things like cash flow predictions, those type of things that can deal with billions and trillions of pieces of data that people just can't deal with. And then smart city initiatives on the rise, a lot of you have been population of the United States lives in urban centers? By 2,050, that's projected to be 70%. There is a projection globally that 1.4 $1,000,000,000,000 is going to be spent on smart city initiatives in the next 6 years.
Dollars 1,400,000,000,000 on smart cities in the next And people talk about the electric smart cities, but water is a big part of that. So how do we look at this issue around smart cities and water? And how are we a leader in that? And how do we understand that? Then moving over to work execution, the top one, you hear about it all the time, and the second one in aging workforce.
The fact is in the next 5 to 10 years, a vast majority, probably 50% to 60% of utility workers across this country and all types of utilities will be able to retire, 50% to 60%. There is not a pool of workers large enough to take their jobs. And you have a pool that there's even less attraction of a 20 fourseven type job or one that involves labor, really harder labor in terms of physical labor out there. So then you pair that with the last one, automation and digital will transform jobs. You see a lot of articles about the concern about, oh, all of these jobs will go away because of automation.
We actually think that automation and digital revolution is going to help us meet the fact there's not going to be enough people to take our jobs. So one of the things I'll talk in just a minute about what we're doing to address that, and I'm not going to talk about the rest, but you can see these things that we constantly have to monitor in terms of how it would affect our business. So in American Water, so what won't change? In this world, if all of those things happen, if we're prepared for all of those things, what won't change? We have a set of values that won't change.
Safety is number 1 for us always forever, employees, customers, community period. If we don't get that right, that deals with water quality, employee safety. If we don't get that right, nothing else we do matters. Trust, having a workplace people that can flourish and they trust people. Environmental leadership, teamwork and high performance.
And then our strategies, you will see different strategies, but you will probably see the same groupings, customers, employees, growth. Those things will not change. And another thing we added last year, this best in class and fundamentals, there are a lot of I'm a huge football fan, college football fan and NFL. Of course, it's hard to be an NFL fan for the Eagles this year, but we won. We won Sunday, so or Monday night.
So but being the best in class is do we do the fundamentals better than everybody else? So these are really important to us. So these things won't change. But some of the things we may have to do differently. Not going to talk about all these, but I do want to mention a few of them.
Connect continuously with customers and provide personalized choices through technology and human touch. There are still people who believe when they do a chat box that that's a real person. That to me is success. If you can do a chat box or you can have an IVR where a customer is dealing with an automated voice, an artificial intelligence driven voice that they believe it's a person, great. That's great.
How do we make sure we do that? Because millennials 84% of millennials said they do not want to handle things through a phone call, But we've got 5 generations we're dealing with, sometimes 6 out there that we're dealing with. How do we become more customer focused? And then leverage genetic engineering to improve water quality. What does that mean?
Imagine if there were a contaminant in a source water and we, through research, were able to release microbes that could basically neutralize whatever that contaminant was. And then what if we went a step further and the resulting product was actually healthy for the fish? These are things we're looking at because we have about 75 intakes on surface water across the country. We're looking at and I'll talk in just a moment, we're talking looking at things we can do to make sure that we can detect 1 of the 144,000,000 registered chemicals that exist today globally or those every 2.5 seconds breaking down into substances we don't even know what they are. How do we detect those And then how do we immediately through machine learning looking at trillions of pieces of data do a profile of what that is and how we treat for it before it ever gets to the plant?
How do we use drones to look at algae blooms to make sure that we know the age of them before they get to the plant because of the differences in treatment? These are practical applications of these things. And then skipping over, leverage AI to improve water quality and safety. I just mentioned that. One of the things we realized, you cannot economically or technologically test for 144,000,000 chemicals.
So what we've started doing is over 12 to 18 months, what does good water look like in our water sources And then how do we detect through sensor panels when that water has something in it that's not supposed to be there? And then the next phase for this next year in 2020 is then how do we use predictive analytics to then say here's what the profile probably is biologically or chemically and send a message to our operators that this is probably what you need to immediately initiate or whether you need to shut down the intake screens. Those are practical applications of R and D and the technology. And then I talked about this a little bit, plan for evolution and transformation of existing jobs to new jobs using AI. Melanie Kennedy is here and she's our senior officer over HR.
We started something this year that I'm very excited about and we have started a true strategic workforce plan where we're actually looking at the jobs we've got working with some outside consultants and internal technology, looking at job descriptions, which jobs will probably be most affected by automation and what does that mean for what those jobs can evolve to and how do we start in 2020 rescaling and upskilling. And we can do that over a period of time where you don't have to have layoffs or anything. You basically are being able to handle part of the retirement through not having and not having enough people out there through automation, but then how do you reskill and upskill to better jobs? And we're working with our unions to understand this so that there's not anything disruptive. Those are really important parts of the business that you may not think about when you look at the results or what we're doing, but these are the things that go into the financial results as being the best at dealing with these issues that we're facing.
So before I bring Walter and the panel up here, what you will hear today is our compelling story continues. Sometimes we think boring can be good, and so our basic story is not changing. The Triangle that you've seen for the last 6 years, we launched this Triangle, Ed, I think at I don't know if it was the December 2013 or maybe it's the next year, 2014 we launched the Triangle. Regulated investment CapEx, 5% to 7% regulated acquisitions, 1% to 2% Market Base, 1% to 2%, although you'll see from Susan Hardwick's presentation, little higher percent on regulated now than what we had last year at the 5 year. Continued industry leading growth, addressing water quality challenges.
And you're going to hear Susan talk about disciplined equity use to meet the capital needs. You're going to see a 10 year capital plan. We know we have decades of need. Our capital planning process that Walter and Susan meet on every month with Kevin Kerwin and his folks in engineering basically goes out 20 years. We're doing comprehensive planning studies that look at 30 to 50 years.
So we said, why not at least look at the next 10 years of what we're planning from a capital standpoint that way. You'll hear more about that today. So what I'd like to do now is bring up Walter Lynch's COO and CEO, Elet, and his panel, Kevin Kerwin, who is the Chief Environmental Officer and Head of Operational Excellence for the company Cheryl Norton, who is the President of New Jersey American as well as the Senior Vice President of the Eastern Division, which includes New York, Maryland and Virginia and Doctor. Lauren Weinrich, who is a Chief Scientist in our Water Intelligence Organization.
Thank you, Susan. Good morning, everyone. Great to be here with you today, so thanks for coming. I know the weather is not the greatest, but I really appreciate you taking the time to be here with us. I'm really thrilled.
Come on and take a seat. I'm really thrilled to be moderating a panel on water quality and emerging contaminants. Before we get into discussion, we have a brief video that provides an overarching view of the challenges that we face in our industry, including water quality and what we're doing about it, and then we'll get into our panel discussion.
American Water's goal is to provide safe and clean water. Our company employs a team of scientists, engineers and public health professionals to identify new threats to source water quality, evolving regulations and research of advanced treatment technologies. Emerging contaminants like lead, eugenella and PFOS are rapidly changing the water landscape. We've independently researched and engaged with other industry experts to better understand occurrence, fate and transport in the environment. We are also actively assessing treatment and technologies that can effectively remove these contaminants from drinking water.
We invest in our infrastructure and resiliency, replacing pipe and upgrading water and wastewater treatment plants. Over the next 5 years, we plan to replace approximately 2 1,000 miles of our pipes, make significant upgrades to 130 of our water and wastewater facilities and invest over $8,000,000,000 Our operations and engineering teams come together to create long term capital plans that address the safety resiliency of our systems. So we are ready for weather challenges and climate variability. Our current and future challenges are water quality, aging infrastructure, customer experience and new regulations across our national footprint. We view these challenges as opportunities to show that we are a trusted source of everything water.
All of us at American Water never forget that at the end of every water pipe, there's a family depending on us to provide life's most critical need, that every hydrant provides security and fire protection. Every treatment plant serves as a barrier against potential disease and that every community is stronger because we're there.
Okay. So there are many challenges to ensure that the water quality that we deliver to our customers every day are there like they expect. And these are the challenges here. We're going to go through some of these in our discussion. This is fundamental to our business.
We believe that if we don't get this right, nothing else we do matters. So let me introduce the panelists. Again, Susan gave a brief introduction, but I'll go in a little bit more detail, starting with Cheryl Norton. Cheryl is a Senior Vice President of our Eastern Division and also President of New Jersey American Water. She will be taking on a new role, if you read the announcement yesterday, effective March 1, where she is going to be the Chief Environmental Officer and President of New Jersey American Water.
Cheryl has been with us more than 30 years. She's a perfect example of a leader taking on different responsibilities and growing, and I'm going to talk more about her later in my presentation. But she was in the lab for 20 years. The last 7 years, she ran our national laboratory in Belleville, Illinois. She was also Vice President of Operations in Illinois American Water, President of Kentucky American, President of Missouri American and now in her current role, President of New Jersey American.
So she brings a wealth of experience in her new role and her new role coming up. Kevin Kerwin. Kevin has been with us 35 years. Kevin is a genius, and we are lucky to have him in this business. He's held a number he's been with us 35 years.
He's held a number of roles in operations all throughout the business. And right now, he's chief, and he's got a title that's amazing, operational excellence. And he will be also taking on safety in his role new role effective March 1. And Doctor. Lauren Weinrich is a principal scientist in our Water Intelligence group, and she's been with us more than 15 years.
And she's done remarkable work in water quality and emerging contaminants, and we're really thrilled to have Doctor. Lauren Weinrich here, too. So collectively, more than 80 years' experience right here in these three incredible individuals, 80 years. Okay. So we're going to be addressing in this panel what are the water quality challenges how is American Water leading the way to ensure the water is clean, safe and reliable?
And what is the value to regulators, investors and customers? And let me start with a question for Doctor. Lauren. What are the major challenges in water quality?
Thanks, Walter. Well, good morning, everyone. It's a pleasure to be here, and thanks for making the trek through this beautiful snowy weather here in New York. This is an area that I've built my career around. So analytical chemist by training and so I won't go too much into the chemistry today.
But really water quality is the passion that drives what we do. We have a staff of about 15 scientists and engineers that the company has really supported our role in research and having that department through the years because of the critical need to address these issues that come up that could affect our customers, also ways that we address contamination in the water and treatment and removal. And then to the source, as Susan mentioned, putting that technology in and doing the research to ensure that we know what's coming in to our source water intakes and that we can use technology to better manage that. So some of the challenges specifically in the news, we hear a lot more these days, and I think that's a good thing. Customers should be aware of what the challenges are that are out there.
And we're here to share some of how we're dealing with those challenges. Many that you hear about, we saw the video was Legionella, lead of course, a group of contaminants now called PFAS. You might hear of them as forever chemicals. There is and also harmful algal blooms and cyanotoxins. So, it's just a short list of many things that we look at within the group and across the industry as well.
Okay. So second what are emerging contaminants and how quickly are they emerging?
Great question. So we often address the water quality challenges related to emerging contaminants. And so we call them either emerging contaminants or contaminants of emerging concern because they might not have any regulatory guidance around them. They might be occurring from our modern lifestyle, things like non stick or stain resistant clothing, nonstick cookware. Even I was watching the news this morning here in New York and they're banning 14 Dioxane in cleaning products.
So all of those things that we interact with in our day to day life, we're trying to understand ultimately what the environmental impact of that would be. And as being environmental leaders at American Water, it's not just the water, but really how these chemicals can start to occur and move through the environment. And if they end up in the water supply, how do we put the right amount of research to them to either detect them? We do a lot in the laboratories, building analytical methods to get down to very, very trace levels, so we can understand the recurrence of the chemicals in our systems and across the industry. The other exciting thing about our group is that it's not just work that we're doing in house, but we're also working and partnering with other universities, other utilities.
The challenges with drinking water are not just company specific. They really affect everyone across the United States and, of course, worldwide. So, we partner a lot with other entities, including government agencies. EPA, we've worked with a lot. Our departments of environmental protection as well.
Because if there's challenges out there, we want to come together and start addressing them as a team, as a group and leverage the expertise that either we have in house or we can utilize through our partnerships with others.
Okay, great. Kevin, I'll turn to you now. Sure. You've heard what the challenges are, which can be quite daunting. What is American Water doing about it?
Well, first, I surround myself with geniuses like Lauren. But we have a lot of exciting work that's going on within operations and technology. What we're building well, 1st and foremost, before I get into the technology, I just want to highlight the people. The people that we have in American Water are tremendous. We have over 300 engineers, 190 water quality professionals and 4,000 operation and maintenance personnel that operate our facilities coast to coast.
And they're dedicated, they're engaged, they're trained, they're qualified. They're exceptional, extremely excited, coming over the last 35 years, I've seen a thing or 2. And where we are right now is really it's a very exciting time. What we have done in operations is we've created a real time operational view to all of the production activities, all of the transmission and distribution activities that are occurring in real time. That information is coming in, coupled with source water monitors, we're bringing that into this single pane of glass.
What that means is one view to our operations. So just think of like a Google screen where you can go and get any answer that you want. So from the source water monitors through our treatment plant processes, through the distribution system, through our metering, we're all everything is interrelated, the water quality, the asset performance, the water consumption, water age, all of these variables that we have to manage to ensure that we deliver a safe and reliable product to our customers end to end. So that view is coming into view. It is here now, and it's being complemented with, Susan mentioned, AI, machine learning, predictive analytics, all of that technology that we're embedding into this platform that, like I said, has one comprehensive view is giving us insights and enabling us to control processes and take action before we have any form of exceedance.
So we can optimize our water treatment plant performance, ensure regulatory compliance, and it also drives operational efficiency. And the more efficient we are in operating a wide variety of production assets coast to coast enables us to make additional capital investments. So $1 of operational efficiency enables us to spend up to $8 of capital investment without impacting the customers' bill. So it's a tremendous time. And like I said, it's not just about treating the water and delivering it into the distribution system.
We have to manage the water from the time it leaves our plant through the thousands of miles of mains, through the millions of gallons of storage that we have and manage that product to the customer reliably 20 fourseven. So it's extremely exciting time in my career, and I really do think we're differentiating ourselves where we have the scale and capability to do what I've described, and we're doing it. That leads me into the second question. What makes American Water uniquely positioned? Yes.
Well, yes, the unique position that we have in addition to our personnel, in addition to our technology is when you look at our assets coast to coast, when we have just to rattle off a few statistics, we have over 600 water treatment facilities. We have approximately 80 surface water treatment plants, 70 some odd surface water intakes, 1400 pumping stations, 1300 water storage facilities, 80 dams and 51,000 miles of water mains serving 3,500,000 customers. So that managing those assets in such a diverse footprint, we have approximately 3 25 water systems. So when you think of American Water, we're a mega utility managing hundreds of water systems coast to coast. And being able to do that with that type of real time view is a differentiator without question.
And then now to complement that, we also have corporate support services. We have centralized engineering, which assists all of our states in asset planning. And asset planning is a critical component because we have to be in touch with our challenges, making the right investments at the right time. And another probably very important component is our ability to invest and recover. So to identify those challenges, invest and recover and stay ahead of the pack, stay ahead of the challenges is probably the best description of who we are and what we can do.
Okay. Well, thanks. Thanks, Kevin. We'll have more discussion about Cheryl, why should investors, customers and regulators care?
Yes, Walter, I think that as we look at customers, because that's really where our focus is, the customers are at the center of everything that we do. Our customers' expectations are definitely changing and they do care. They care greatly. As Lauren said, with the media these days, social media and everything else, our customers have access to so much more information than what they've ever had in the past. And so they're seeing these things as they develop.
And they know about compounds way before they're regulated. And so we have to step up and make sure that we're doing everything we can to provide the clean safe water that our customers expect. As soon as you miss that for even a heartbeat, you lose their trust. And we can't afford to lose our customers' trust. It's everything to us.
And so we want to make sure that they always have the safe clean water that they need. And so we have to be looking ahead to see what's coming and be able to address that in real time and as quickly as we possibly can. Our regulators expect that from us. Our regulators expect us to be transparent and have strong relationships with them. And we do that very well at American Water, I believe, that we can have conversations with our regulators.
They depend on us to be the experts in a lot of ways. They expect us to be able to help provide them with data. As Kevin said, we have such a vast footprint of utilities across the United States that that gives us a great opportunity to say, this is what we're seeing in this area of the business and this is what we're seeing over in this other part of the country. We have a very sophisticated laboratory that gets certified to look for unregulated contaminants as those lists come out. And it's one of the few labs in the country that can do that.
And it really helps give us kind of a head start on these things. And so our regulators really appreciate that. Our regulators want us to be compliant. They expect us to be compliant. And again, we're very, very good at that.
But they also want us to be looking at these unregulated contaminants. And for us, it's a balance and we have to have that great relationship with the regulators. So as we start to add treatment for unregulated contaminants, we can find ways to get helps us be able to anticipate how far we can go with the unregulated contaminants and treatment of those things and what's the right time for that, so that we can get recovery for that and keep our business strong and sustainable. And our shareholders, Walter, our investors, I think that they actually just expect us to do all those things. They expect us to have great relationships with our customers and our regulators and be there doing all the things that we need to do because as long as we have the trust of our customers and the trust of our regulators and we're doing the right things, our investors are going to be happy.
And when you see in the news all the things that are going on, the lead issues that we're seeing in Newark and particularly that hit home for me because I've been seeing the press come across like crazy and they've completely lost the trust of their customers. And so lead has been a big issue for us. And how do we address that? There's no regulation about how you remove lead service lines from your system. We certainly have been moving forward with that and we're applying all the knowledge that we've gained in the last few years on what's the right thing to do there and to try to continue to build that trust with our customers and our regulators, our legislators.
And frankly, we've had some really positive conversations around that because with everything else that's going on after Flint and then Newark and other areas of the country, lead has become a very important issue for us.
So you worked at the lab for 20 years. Can you talk about just briefly the value that our central lab in Belleville, Illinois provides for our customers?
Sure, Walter. The lab is a great kind of advantage for us, if you will. It not only allows us to do all of our compliance States with all of our locations, it can help us also identify trends. And the lab is so sophisticated that as I said, they can get certified for these unregulated contaminants or they can just do some research and look at unregulated contaminants that there's not even a certification or a method for yet. And so having that ability is really huge for us and I think it really does set us apart.
It's not something that most utilities have the ability to take advantage of.
Absolutely. So what opportunities do emerging contaminants present to the water companies such as American Water?
Yes. I think that the opportunities are great. The struggle is very real. The water utilities are very fragmented. There's over 53,000 water utilities across the United States.
It's a tremendous number of utilities, most of which are small. And so those small utilities just don't have the level of expertise or the ability to get capital that they need to make the investments. We've got treatment for PFOS, which Lauren talked about, an unregulated contaminant, we've put treatment in place in 4 locations in New Jersey alone. And the 14 Dioxane, we've put treatment in one location for that. And we anticipate that the cost of that treatment is about $20,000,000 But we what we expect over the next few years, 3 to 5 years, treatment for all the locations that we've tested and seen that the levels are right at the limit that they're talking about regulating, we're talking about $120,000,000 in investment that it's going to take to deal with all the PFOS and the 14 Dioxane.
That's only 2 unregulated contaminants right now, plus all the regulatory requirements that we currently have. And I think that these small systems are just absolutely not going to be able to meet those requirements. They're not going to have the capital to do it and they're certainly not going to have the expertise. What we're seeing with the lead contamination in a lot of these locations, it's more about an expertise, making a treatment change and not understanding what happens when you do that, not understanding the chemistry behind that and what it can lead to. In Newark, for example, they made a treatment change to address a regulated contaminant that they had and they didn't realize the impact that that was going to have on the lead leaching into their system.
So by changing their water chemistry, they created that problem, if you will. So just that expertise is so critical. And I'm so proud of American Water and the level of expertise that we have and the ability that we have to pull together and figure things out and really keep track of what's going on throughout our business, so that we can ensure treatment changes like that don't have negative impacts and we do the pilot testing ahead of time. So I think the expertise that we bring to the table, the capital that we're able to bring to the table and just the sheer knowledge base and the ability from our laboratory to really be proactive and sense these things before they actually get put into place really helps us and sets us in a good spot.
Great. Thank you. We have a couple more minutes. Anybody want to share anything else from the panel?
If I may, just going on, you brought up the great question about what our central laboratory brings and how that sets us apart in terms of the business. And so our research lab there's our certified laboratory at in Belleville, Illinois. And then we also have 2 research laboratories. One is co located at Belleville and that allows us to work with the scientists out there running those compliance samples. But on the research side, we can get in different equipment.
We can start testing different technologies or work on projects where we don't have to worry about the compliance side. We can start addressing the emerging contaminants that are out there. In fact, recently, within the past year or so, we've developed a very sensitive detection method for looking at these PFAS compounds. So to give you a little background about them, they're a class of over, I think numbers are around over 4,000 different types of PFAS compounds. So it's short for Per and Poly Fluoroalkylated Substances.
I told you, you can't put a chemist up here without giving a little bit of chemistry, but we refer to them as PFAS as a group. The issue now is that there's only a health advisory level from the EPA for them and that's not enforceable. So the states have been taking their own approach to regulate at levels that seem to be lower than what the EPA's health advisory level is. That creates a challenge for a company like ours that has a wide footprint across the United States in different states. And so if each of the different states are looking at regulatory levels that are different, We have the opportunity, number 1, to develop the methodology to look at these compounds individually.
If they are going to regulate them individually, like I said, some states are only looking at regulating 2 of these thousands of compounds, other states are up to 5 or more. And so we're setting the stage to understand how we need to protect our customers, put the proper treatment in place for these compounds and continue to research and investigate them. To that point, we have I talked about some of our partnerships and collaborations. So we've done a lot of research with the Water Research Foundation through the years. I think we've had tens of 1,000,000 of dollars' worth of projects that we've had with them.
If you're not familiar, they are a subscriber based organization that promotes the research search that's important to utilities across the business in the industry. So that affords us the opportunity to partner again and work to solve these challenges together. Also circling back to the laboratories are so there's a high expertise for analytical chemistry at our central laboratory in Belleville as well as the research laboratory. And our staff in research is also in our Del Rand location down in New Jersey that's at a drinking water treatment plant. So again, the co location either with our central laboratory and our research group or at one of our drinking water utilities in the plant really affords the research team the ability to work directly with our scientists, but also with the production and operations staff that are in the field, that are dealing with these challenges day to day.
So it gives us a really unique way to interface with the folks that are putting water out the door every day, that are facing the
new regulatory challenges, that want to bounce ideas off of us
and can call us up, information that they need or we can collaborate and find it together. So I'm just so proud of the research team that we have and the ability to do what we do here at American Water.
Fantastic. Thank you. Kevin? Yes. I would just like to add, as Lauren described, with the water quality and the quantity of samples that we collect, We collect about 35,000 plus samples a year on average, 3 or more tests are run on it.
So we have about 100,000 data points just out in our distribution system. And we've now integrated the PFAS information, lead and copper, into GIS mapping. So at any one of our sample locations, we can see thematic trends. Are we within regulatory boundaries? Are we trending towards some point where we would have to take action?
So taking these mountains of data and bringing them into very simple thematic views with what if analysis. So what if a regulation changes? And that gives our asset planning group through our centralized engineering group to have a view across our footprint, do we have to make a change, do we have to make an investment so that we can monitor the process. There are so many parameters and regulated contaminants that we have to navigate through. And this is really giving us, I think, the bird's eye view and the strategic advantage so that we can make the right decisions and the right investments at the right time.
Great, Kevin. Thanks. I want to thank our panel. There are 3 geniuses up here. So we're lucky to have all 3 of them, and we have a number of people throughout our business that every day they come to work to make sure that the water quality is what our customers expect and deserve.
So we're really proud of them. And you can tell this is a complex situation, and it keeps getting more and more complex. You want to have a company like American Water providing the service every day for our customers and for communities that we serve and will serve in the future. So we're really proud of everything our employees are doing on a day to day basis. So with that, we're going to take a 15 minute break.
Ed, what time do you want everyone back?
Let's do it 9:30.
Good morning. I'm Susan Hardwick, Executive Vice President and Chief Financial Officer of American Water. I listened this morning about the tenure of all of the colleagues that have been up here. I've been here 6 months. So but I'm certainly happy to be here, and we've got a lot to talk about today.
With me today is Bruce Hauck, our Senior Vice President of the Midwest Division and President of Illinois. And if you read the announcement yesterday, Bruce will be our President of the Regulated Businesses at the transition. Also with me today is David Choad, our Vice President of Engineering and our Central Engineering Group, as you heard Kevin and others talk about today. So David is with our Central Engineering Group. We're going to talk today about the capital planning process.
We are a regulated business, as you know, and we spend our time focused on the growth in the regulated business. We spend our focus on the capital investment necessary to run these systems and to quality water that we do. So we're going to spend time today talking about that process and how it works. Before we move on, however, I'm going to give you Can you advance the slide for me here? I think we've got the video up next.
Yes, we're going to run a quick video here of sort of the results of our planning process. This is an example of what happens when we do the planning appropriately. And it's a very robust planning process, as you'll see, and I think this video highlights that.
This facility was originally constructed in 1929. It was part of the Elizabethtown water system. It was constructed as a 15,000,000 gallon a day facility. And currently, it's rated at 155,000,000 gallons a day. It's gone through 7 upgrades in that time frame from 1929 to current capacity and systematically it was increased and improved over time.
Now we pretty much service all of Central New Jersey and we're in what's known as a Tier 1 facility as far as critical infrastructure is concerned. I'd say the customers that we service 1,200,000 to 1,500,000 people. We received 13 inches of rain in 8 hours. The water started coming into the plant by way of the front gate. Now, at that point in time, we didn't have a flood wall.
The water was coming in so fast. Made the decision that, hey, it's we got to prepare to shut the facility down, which had never happened before. There's no water. And the pressure is going to drop, and people are going to be freaking out. When Hurricane Irene hit, it was evident that we needed to go higher because that particular hurricane became within literally 1 inch from the top of the wall.
It's a Tier 1 asset and enables other resiliency projects.
I want to be able to turn that tap on and have that water whenever I need it. I want to be able to cook. I want to be able to shower. But I think it's an understanding of, we're investing $300,000,000 a year. It's to benefit every single customer in the state that we serve.
Before we get into the discussion, I want to spend just a couple of minutes with a recap here on our capital plan. And I think, again, this video was a good indication of how things change in the business and how we can redirect our capitals necessary to make the appropriate enhancements that we need to. It's a very dynamic process and results in a plan that we have flexibility in, the ability to move dollars in and out, the ability to move locations and our priorities in and out. We're going to talk about all those things today. But just as a recap, our 1 year budget, so for 2020, we expect to spend 1.7 to $1,900,000,000 on a 5 year basis, dollars 8,800,000,000 to $9,400,000,000 over the next 5 years.
And for the first time, we're announcing a 10 year capital spending plan. So over the 10 year horizon, dollars 20,000,000,000 to $22,000,000,000 And as we said earlier in the panel, we have a planning process and a prioritization process that allows us to have that sort of insight. We do long term planning cycles, and we feel very confident in our ability to communicate that to you here today, that $20,000,000,000 to $22,000,000,000 We also want to make the point here that we are confident we have decades of investment ahead of us. We'll talk a lot about as plan on a go forward basis as it relates to our replacement cycle and how quickly we'd like to plan on a go forward basis as it relates to our replacement cycle and how quickly we'd like to be able to accelerate that. So again, we know we've got a long term investment here with plenty of opportunity.
So as we move into the next part of our discussion, and I ask David and Bruce to join us here today to talk about this from a couple of different perspectives. We certainly want to talk about it from a central engineering planning perspective, but also want to get the perspective of state leadership and the priorities that occur in the states. So we're going to sort of go back and forth on those two topics today or those two points of view as we work through the various thoughts here. So first, let's talk about just sort of drivers of our plan and our planning process and how do we think about what drives our priorities relative to our SPED? David, maybe we'll start with you.
Sure, Susan. Yes. So from an engineering perspective, my team is heavily focused on both liability but also regulatory compliance. So by far, our number one spend category in our capital program is focused on asset renewal, a mix of about 60% of our overall regulated capital program. So what is asset renewals?
Essentially addressing deferred investment, replacing assets that have reached the end of their useful life. And for us, that comes through systems we buy, whether they're municipal systems or private systems, but also just our own installed assets, and just catching up on things that have worn out and replacements. So that's a key area for us. Another area is resiliency. Mentioned a couple of times here today about climate variability.
And that's really manifesting through more intense, more frequent flooding events, drought or regional storm events. So we need to make our systems more resilient. So we're always looking for ways that we can do that to ultimately make sure we can maintain service levels for our customers. And then regulations, so whether that's new regulations or changing conditions requiring us to either upgrade our treatment systems or other assets to meet some existing regulations. So a few examples of that, 2018 Water Infrastructure Act, That act is requiring us to do formal risk and resiliency assessments in all of our systems that serve at least 3,300 people, which is I think 142 systems in total over the next 18 months.
So, the output of that process is it will give us good information in how we can make our systems less vulnerable to both malevolent and just natural threats overall. So, resiliency is another key area. And then another example of that is the emerging contaminants was already mentioned. As it was mentioned, the EPA hasn't come out with a final rule yet on PFAS and some of these emerging contaminants. But the states, the states we serve are already set levels.
So that's driving investment, making sure we meet the requirements in the states and they're out ahead of the VPA, which is kind of unique. And then also in 2020, we expect revisions to the lead and copper rule. And we expect the revisions to require a more proactive approach to really mitigate the risk of lead exposure through drinking water. And for us, that really means replacing lead service lines. We have a lot of lead service lines in our systems, and we've been very proactively doing that, and we'd expect to accelerate that in the future.
So that's another key area, key driver for us really.
Great.
And I think certainly, David, in your comments, you've sort of cast the net wide on sort of corporate or industry related issues. There's certainly an interplay with the state priorities and how the states view these drivers. Bruce, do you want to comment a little bit on that?
Absolutely. And I think all of us are aligned with Winwater Engineering and at the states, the Director of Engineering level and Operations as well. But 3 areas that I want to focus on that are drivers in the regulated business out in the States are operational efficiency, acquisitions and 1st and foremost, everything is centered and focused around our customers and the service quality that we provide. So we think about that, all the discussion you heard with environmental and water quality, aesthetics, pressure, deploying technology that allows us to be more efficient and provide a greater customer experience for our customers is very critical. Another thing that is a complete complement to our story of growth beyond just the base fundamentals of replacing aging infrastructure is acquisitions.
That creates a demand for capital to close these acquisitions and importantly post acquisition capital. And as we acquire these systems to raise them to the standards of American Water and to the standards of where many of these systems are under consent decrees or non compliant, to be a part of the American Water family, they must be brought up to that level, and that creates an opportunity for investment. And another formula that is deeply embedded in the culture of American Water and is a formula that has proven to be very strong is the $1 of expense reduction allows for $8 of capital spend, and Kevin spoke about that earlier. But if you think about that, that really has a neutral impact to our customers in terms of rates. So it's a free opportunity for capital to create rate base that earns a return on and eliminates cost recovery of.
And so examples of that that we've deployed in the company would be LED lighting, fixture change outs where we get rid of aging infrastructure as it relates to the old light bulbs and things of that nature. And as Susan mentioned in the opening, solar is becoming more cost competitive, so we can operate our plants and partially offset our electric load regarding that. And then something that we've seen over the time in 35 years, Kevin, when we used to manually read meters to AMR and now where we're going to the smart grid with AMI, creating tremendous efficiencies to the benefits of our customers.
Great. I think it's very interesting, again, this interplay. And certainly, as we talk about the planning process, that interplay is very, very important. So maybe talk a little bit about just the planning process itself, how it works and where does it start, what is the role of sort of our central engineering function in cooperation with the states?
Yes, I'll touch on the organization first. So as Kevin mentioned earlier, we've got more than 300 engineers in American Water. About 60 of those are on our central team. And that central team provides a lot of support to the states, but really focused on looking at long term trends, developing strategy to strategies to address some of the key issues that we're dealing with, some of the key risks in our business. And then as we said, we work very closely with the states.
The state engineering teams, in addition to doing planning studies, they're also looking at the I'll say the more localized risks, right? They're working closely with operations, understanding what the key needs and key drivers are, really around asset management, replacing things that have worn out, but making sure that we're meeting the needs of the local operations. So it's that, as you said, the complement between the 2, work closely together, we're making sure we're addressing the big key risks out there, but also meeting the needs of our local groups. So, as that then plays into the overall planning process, planning is an ongoing process. It doesn't follow an annual cycle like capital budgeting, but it's going on all the time.
So we start with the key drivers we mentioned before, right? So we look at capacity, we look at water quality and regulation, we're looking at resiliency, a lot of these key drivers. And then our engineers do a very deep dive. They develop comprehensive planning studies, which is really a deep dive assessment of what the needs, risks, challenges are of an individual system. And we do that on an ongoing basis.
We'll update those comprehensive planning studies every 5 to 10 years. But those studies are looking out 15, 20, 20 plus years into the future, really trying to understand what the trends and the needs are. So, it's that process that lets us develop ultimately a 10 year capital plan and be able to do it with confidence. So, and then that feeds into the planning feeds into the budgeting process. So that kicks off with what we call our asset investment strategy.
So that's a document we released to the business that provides guidance in terms of how we prioritize and look at some of the key challenges in the business, whether it's lead service line replacement, whether it's elimination of gaseous chemicals. It's another key area for us. So we see as a safety risk, and we want to eliminate those gaseous chemicals. So how we prioritize those in the overall capital plan. And then from there, the stage where we take it over and really develop the detailed plans.
And that's where I think we work very collaboratively with 1 Water Engineering and out in the states with our engineering and operations. But another key concept when we're developing the planning process is we've said everything focused in our business around the customer. And so we look at the impacts bills by the investments that we're doing. The regulatory construct at the state and federal level have a significant impact on our planning process because before we enhanced our regulatory construct significantly over the years, and I think in Walter's slides in the end, it talks about how we've really expanded single tariff pricing, fair market value, leveling the playing field for water accountability. All of those mechanisms and riders and rule makings allow us to really shrink the regulatory lag with our investments to the benefit of our customers that allows for these investments to be made linearly over time versus what we used to see in the old days, real lumpiness in rates.
And we have a target in American Water. We are only limited in our capital planning process from expending capital based on the impacts to our customers that we self inflict at 3% to 3.5% per year on an annualized impact to our customers. That's very important to us. But these regulatory constructs allow us to deploy this capital smoothly. And I think one of the differentiators from the water and wastewater industry compared to maybe the electric industries and others, very seldomly, we're doing a $1,000,000,000 capital project.
We have, at winning time, in any annualized year, maybe 3,500 projects that range from a few $1,000 to a few $1,000,000 And based on the planning process, we push and pull things to have that smooth deployment of capital that benefits our customers, our regulators and the environments and the communities that we serve.
You both talked about priorities and how we establish the priorities in this plan, and I'm going to put you both on the spot a little bit. So is there much debate around that between the central engineering, sort of more macro industry driven priorities and what the states are really looking at? I assume there's sort of a natural tension there?
Well, it starts in the planning process, right? And in the planning process, we're working closely the centralized group is working closely with the states. But through that planning process, whether it's comprehensive planning studies or the risk resiliency assessments I mentioned or asset management plans, we're using a consistent framework for how we assess and ultimately quantify risk. So that framework is basically looking at the consequence of failure of an asset and then the likelihood of failure of that asset. So using that framework, we identify, what are those key risks in the business?
And we make sure those greatest risks we're addressing right out the gate, right? Those are the things that are always prioritized first. And then from there, as we get down to lower level risk, we not only look at it from a cost perspective, but we're also looking at it from what's the benefit gain, right? So, a benefit gain could come from risk mitigation certainly, but also efficiency gained and also what are the benefits to the customers. That's where the real detailed work comes in.
But again, it's a collaborative process and we use that consistent framework throughout.
And I would offer from a regulatory compliance standpoint, we never argue over providing the capital needed to provide safe, clean, reliable water for our customers. Where it gets a bit debated, if you will, in the States is competing for that, what we sometimes call discretionary capital. And what comes into that is really that timing of rate cases and riders and the effectiveness that you don't have lumpiness in your growth and earnings, but it is spread out for the best, most optimal plan to the benefit of our customers.
And let's take off on that point just a bit. We said a couple of times today that we have a long term view here around opportunity to spend. And I think it does become sort of a pace issue. I mean, obviously, risk is a big focus. The customer impact's another big focus.
How do we think about the opportunity to move the spend into decades into the future? How much is there? How quickly can we move? How focused are we on this replacement cycle? And how do we balance all those things?
Yes. So the short answer is yes, we have really decades worth of needs, right? We've over the decade decades, we've seen the capital program grow. We've accomplished a lot in terms of making our assets more reliable and improving them. But we still have a long ways to go, still a lot of work to be done, right?
So, for example, our biggest class of assets by far is our buried pipeline. Over the last 5 years, we've been at a replacement rate replacement cycle, we call it, about 130 year replacement cycle, which basically means we've been replacing about just under 0.8% of our pipe per year, pipe that's worn out that needs to be replaced. Over the next and that's well above the industry average. Industry average is in the range of 200 year replacement cycle. So we're well above that.
Over the next 5 years, we look to drive that down to about 115 year replacement cycle, so improving that. But even at that accelerated rate, as we look at the life cycle of a pipe, ultimately, we can maintain that rate forever. We could actually increase it. We still wouldn't be putting pipe in the ground as fast as ultimately is wearing out, right? So there's lots of room to grow there.
And then beyond our pipeline, our aboveground assets, we have decades worth of needs around those aboveground assets as well too. And as Bruce mentioned, a lot of those projects are very manageable sized projects. We have some very large projects in our capital program. A lot of them are small to medium sized projects. So if there's a delay in one project, whether it's a permit or some other cause for delay, we can just pull in what's the next project in line, gives us that flexibility to really deploy our capital in an efficient manner.
Right.
So when you think about multiple decades of investment, and as Dave just supplement what Dave said, we heard earlier, 51,000 miles of pipe, and we want a replacement cycle that Dave mentioned. There's a lot of runway there and for multiple decades. And the fact that we limit that capital internally only by the impact to our customers because it's the thing that we focus on the most. The other piece that we've become aware of is significant to our growth plan and our deployment of capital again is the acquisitions as we close those in the post acquisition capital. But one point I would point out, we just talk about the industry average is 200, there are significant outliers to that 200 year average.
We've done acquisitions where we've done the system profiles and seen where it's been 800 year system replacement cycles with these systems that we've acquired. So again, that creates more need and adds to that 51,000 miles as we bring these systems into the American Water family.
One thing I didn't highlight as we were talking about just the plan itself, we did incrementally add about $800,000,000 of capital spend over this next 5 year period. I think it's important to say that, that was absolutely driven by this process. It was not an arbitrary number. The process revealed the need and the opportunity to spend this level of capital. And again, running through your organizations, that prioritization occurred, and we were able to develop this plan.
I think that's a real testament again to how the process works and the collaboration that takes place. So it is a very robust process. We spent a lot of time talking about it. As Susan mentioned, Walter and I spent a lot of time with David and his team over the course of the month working on these plans to make sure that we can confidently give you the guidance that we have here today. Maybe just a couple of closing comments from each of you.
Anything we haven't covered that you want to mention today before we wrap up?
Yes. Again, the capital program, as you said, it's robust. It's dynamic, but there's lots of efficient. So we're leveraging our expertise in planning, our expertise in treatment, and then ultimately our scale in terms of our buying power. So being able to engage in that size capital program, but in an efficient manner that really delivers value for the customer, that's what we're focused on every day.
Right, great.
Here's the key takeaways again, multiple decades of investment opportunity and always focused on the cost to our customers to provide that safe, clean, reliable service.
Right. Great. All right. Thank you much. I appreciate both of you being here.
And I'm going to ask Walter to come and join me, and we're going to get into a little bit more detail here. Thank you all.
Thanks, Chris.
David?
And I'm just going to sit right here.
All right. Could do that. Good morning, again. I'm going to be discussing our regulated business and the drivers that enable our continued success in our business. So let me start with a brief overview of American Water's regulated business.
Our regulated business provides water and wastewater service to 12,000,000 people in more than 1600 communities in 16 states. We own a significant amount of assets. You see them listed here. They've been mentioned many times today. I'll mention them again.
Over 600 water treatment plants, 130 wastewater treatment plants, 51,000 miles of pipes. That's enough to go around the earth twice and a little bit more, and 80 dams. We treat and deliver more than 1,000,000,000 gallons every day for our customers. You can also see that we operate across the country, and this allows us to develop expertise in dealing with diverse business challenges, such as mass wildfires that we've seen, droughts, hurricanes and floods. And then to share that expertise across our system to benefit our customers is very important, which that we share through best practices what we learn across the business.
And we also, as you heard in the panel, we have a research and development group with 15 scientists, 9 of whom have PhDs. Their sole focus is on water quality and working with the EPA and other agencies, as you heard Doctor. Lauren Weinrich said, to stay ahead of issues like emerging contaminants. And we do this critical work to benefit our customers who still pay about $0.01 a gallon for the services. Okay.
This is our leadership team. First, I want to say we think a competitive advantage really is our talented employees, and we have talented employees across the business. Have water quality specialists. We've got field service representatives, customer service representatives, design engineers. I can go on and on and on that provide value every day for our customers.
We have a talented leadership team, and we work hard at developing our bench strength. You can see the senior vice presidents and presidents of our states here. Collectively, they have more than 200 years' experience in the water and wastewater industry. So on top of what we had before 'eighty with Cheryl and Doctor. Lauren and Kevin, over 200 years' experience in this industry, and we leverage that experience to execute on our strategies and to continue to do great things for our customers.
Being geographically diverse allows us to develop our employees and our leaders across our footprint and really provide them opportunities to grow as leaders. I want to highlight 3 of the leaders on this slide and talk about their career paths because it's very important that you understand how we develop leaders and how we're, I think, uniquely positioned in this industry. First, Cheryl Norton, and I went into a little bit detail. I'm going to embarrass her a little bit here. Cheryl has been with us 30 years.
She started in her lab. She worked for 20 years there, the last 7 running our central laboratory. So talk about tremendous expertise on the water quality side. She then expressed the desire to get into operations. And we gave her an opportunity as Vice President in Illinois American Water, Vice President of Operations.
She did a tremendous job. She then became President of Kentucky American Water. After 5 years moved to Missouri, our 3rd largest state was President of Missouri American Water. And since March of this year, she's been President of New Jersey American Water and Senior Vice President. Talk about tremendous expertise and tremendous value to the New Jersey team bringing all that expertise to the state of New Jersey and the Eastern Division.
I just want to talk about Nick Rowe. Nick is our Senior Vice President of our Southeast region, the Southeast Division. Nick has done a tremendous job over more than 30 years in a very similar way, taking increased jobs increased responsibilities in different parts of the country. So he worked in Pennsylvania. He worked in Virginia.
He worked in Missouri. He was President of Kentucky American. He led a division for a number of years and now he's running another division, still President of Kentucky American in response for Tennessee. So again, tremendous expertise in the business. And one other, Matt Prine, President of Indiana and Michigan.
Matt joined us in 2014. He came in as the Head of Government Affairs and Business Development, and he's been promoted to Indiana President in the last year. Matt had a tremendous career before joining American Water, and he was on the congressional staff of 2 congressmen, And he also led the Indiana Utilities Shareholders Association, doing a tremendous job of building relationships and building his brand. And much of the legislation that we've gotten in Indiana is because of the trust that people have in that, representing that what we're doing is for the best of our customers. So there's not one way to become a state president of American Water, there are multiple paths.
We want to make sure we're taking advantage of the expertise and the quality of our leaders. One other thing was very important to us. We believe that our leadership should reflect the communities that we serve, You can see great diversity in this team here. So this is our growth triangle. You can see the components of the growth are going to provide the 7% to 10% earnings per share growth over the next 5 years.
The largest component regulated investment is going to provide 5% to 7% of this growth over the next 5 years, and this is foundational to what we do. We invest and we get a return on investment and we provide better customer service because we're addressing the infrastructure challenges. You see there we have $8,200,000,000 we're going to be investing in our systems, and that's an $800,000,000 increase from our last 5 year plan. We're going to talk more about that. So let me talk a little bit more detail about our capital plan.
You can see on the left is how we plan to spend this money over the next 5 years and on the right, when we plan to spend it. So let me start on the left. Again, we're going to be spending $8,200,000,000 over the next 5 years. The largest category is in infrastructure renewal, 66 percent of that spend. That primarily includes pipe replacement and upgrading water and wastewater treatment facilities.
Over the next 5 years, we plan to replace 2,100 miles of our pipes out of the 51,000 for a replacement rate of about 115 year replacement rate. We plan also significant upgrades to 130 different water and wastewater treatment plants over the next 5 years. So a lot of work going on in this 66% infrastructure renewal. The next three largest categories are water quality, resiliency and operational efficiency, technology and innovation. Let me start with water quality, and you've heard from the panel how important that is to us.
We're going to continue to look at our water sources and make sure they're safe. One of the things we're going to do is implement, and we are doing, implementing water quality sensors at each of our water intakes at our water treatment plants. And this will enable us to detect a broader range of contaminants that will help us now and into the future as regulations become more stringent. We're really excited about this advancement for our customers. Resiliency, you've seen on the video the impact of resiliency.
We think making sure that our systems have the readiness and resiliency to face all the weather challenges that we have and the climate variability is very important. You saw in the video that the rare and millstone plant did a lot of work to increase the floodwall to make sure that we don't lose the plant in the event of a 500 year flood. We're doing similar work throughout our business for our critical facilities, right? So resiliency is absolutely important. And then operational efficiency, technology and innovation is absolutely important going forward as well.
We're going to increase our investment there because we see technology as a key enabler for us to being customer obsessed and in driving efficiencies in the business. So a tremendous amount of money being spent in the right way to benefit our customers. So our capital program, we've talked some about that, is a balancing between how much we can invest and what is going to be the impact of that investment on our customer bills. And we determine the level of capital spend by balancing those two areas. As we know, we have significant investment to make over the next 5 years decades to come.
And focusing on O and M and capital efficiency enables to do more work while minimize customer bill impact. Capital efficiency is a very big focus of ours, and we're excited about what we're doing here. So that enables us to do more work for the same amount of dollars. Let me give you an example. We have a value engineering approach to all the major projects that we do in American Water.
David and his team participate in that, the engineer, central engineering with the engineers in the field, And they look at and they try to optimize the cost and performance of the major projects that we undertake. We have dozens of examples of success in the last year, saving our customers about $100,000,000 in capital. So we're doing the same amount of work for $100,000,000 less, which enables us to continue to do more work and minimize customer bill impact. Just tremendous work here by the team. So we continue to make progress of getting timely recovery through constructive regulatory mechanisms across our footprint.
We work with legislators and regulators to get rulemaking and legislation to enable this to happen. Since 2010, we've had 17 new mechanisms at American Water, 17. We now have infrastructure surcharge mechanisms in 10 states and forward looking test years in 10 states. And so we plan to recover 59% of our investment through those 2, infrastructure surcharge mechanisms and 4 test years. That's up from 57% in the last 5 year plan.
So again, we continue to use mechanisms to get timely recovery in investment, and this enables us to reduce regulatory lag and really close the gap between our authorized return on equity and our actual return on equity. This is something we're very, very proud of. This shows that we continue to drive last almost 10 years. Because of this progress, we've actually established a new O and M efficiency target, ratio target of 31.3% by 2024. So we continue to make progress here, and this is fundamental to our story.
So let me give you a perspective on this effort and what it means to our customers. So our adjusted O and M expenses today are slightly higher than they were in 2010. Since 2010, we've added about 450,000 customer connections, while our adjusted O and M expense compound annual growth rate is just 0.6%. This just shows our focus of controlling expenses to benefit our customers. Just tremendous progress here.
We just continue to do this. We continue to effectively leverage technology, take advantage of our size and scale through supply chain and continue to drive cost controls in the business to benefit our customers. This is very important to our formula going forward to invest but do so in a way that minimizes customer bill impact. We're really proud of our focus here. And what we're going to do now, I'm going to go into the regulated acquisitions, but we have a brief video that shows the value that American Water is bringing to these communities, subsequent acquisition of those systems.
Okay? So would you please roll the video?
During the bid and sale process, New Jersey American made a number of commitments to the Bureau of Hadenfield. Some of them were contractual with the bid and other ones were commitments that they made just
to have their own volition.
And they have been very responsive with following through with all those. I would say they've gone above and beyond most of those commitments. They've either met them as they needed to or they've actually done more than they originally committed to.
I have had the privilege of working with New Jersey American Water in a couple of different towns that I've worked for. And every time, they've been highly professional and responsive to the needs that we've had in whichever town it has been. And I'm very happy having them as a partner.
Working with your company is basically feels like an offset of our own employees. Our public works department, your guys work so well together. You can't tell who works for who. So it's been a very good partnership.
So part of our decision to award the bid to PA American Water and automatically sell the system to them was their commitment to work with our employees and offer them employment so that they can continue operating as union employees. That was very important to them for their employment security and offering a competitive salary and benefits package. And I know I've followed up with our employees after the transition in May. And everyone I talk to seems to be very happy working with Pennsylvania American Water.
We had several customers concerned about the water and maybe hesitant coming out here, obviously, because we couldn't drink it. So we had to bring in tons of the big 5 gallon jugs of water we had to have delivered out here, which, of course, was a huge added expense. When American Water came in to ransom and took over the water situation, the customers were a lot happier, more at ease. American Water has not only given me peace of mind here at work, but as home as well. Thank you, American Water, for coming in to ransom.
American Water from day 1, we laid things on, I laid my concerns. Every promise that they've made to me, all the expectations I have had, they have met those expectations. And to be quite honest with you, they exceeded those expectations. When you talk about working together for a better McKeesport, I think PA American Water truly exemplifies just what that means, and they're a great community partner for our city.
We're really proud of that video. It's one thing for us to talk about what we do. It's another one for the communities to talk about the value that we provide to them and what it means to them. And again, I'll talk a little bit more about that later, but just means a lot to all of us. So now I'm going to talk about our regulated acquisitions, which will provide 1% to 2% earnings per share growth over the next 5 years.
I'm going to talk about just give a perspective as how we look at it and why we're well positioned to deliver on this 1% to 2%. You can see on the right there that we have $600,000,000,000 to $1,200,000,000 set aside to complete the acquisitions in our 5 year plan. So we love this slide. This slide really shows the fragmentation of our industry relative to the electric and gas utilities. There are 50,000 community water systems in the United States and 15,000 community wastewater systems.
And compare that to 3,800 electric and 1400 gas systems. So the fragmentation is massive in our industry. We think that fragmentation provides tremendous opportunities for consolidation. Let me give you some more facts and figures. So 84% of the U.
S. Population is served by municipal water systems, and 98% of the U. S. Population is served by municipal wastewater systems. On the water side, 83% of those systems serve less 3,300 people or less, and 92% serve 10,000 people or less, right?
Just tremendously small systems that need help. I'll give you some other facts. There are 1400 water systems and 2,200 wastewater systems that are under some sort of formal enforcement action. And the average pipe replacement rate throughout the United States is 200 years, and we know that's not sustainable. So many of these communities are in search of options.
They're facing fiscal challenges. They're facing water quality complexities. They're facing their infrastructure deteriorating over time, and many of them are small to medium sized cities, and they're looking for options. We believe with our national footprint, with our access to capital and the tremendous work that we do every day and the expertise that we have in the business that we're going to be able to continue to provide solutions for communities. So tremendous opportunities for us in this industry to consolidate.
We work with state legislators and regulators to come up with rulemaking and legislation that enables these acquisitions to happen. We've been doing this for a decade, and we've been very successful at it. This public policy, these really three areas have helped us grow: fair market value legislation, consolidated tariffs and then emerging legislation around the Water Quality Accountability Act, and I'll take you through these in a second. So you can see that we have fair market value now in 8 of our states where we operate. This began back in Illinois with Bruce, and we used that to get other fair market value legislation throughout our footprint.
This enables a community to receive a fair value for the system. And are authorized water and wastewater companies to purchase and earn on the appraised value of the system rather than the book value, as was the previous case. We get that appraised value into rate base as long as the commission thinks it's reasonable. And that's been a huge success for us. Next, in consolidated tariffs.
We have consolidated tariffs in 12 of our states. This allows us to purchase systems, integrate them into where we operate and share those costs across a bigger customer base. So it minimizes the customer bill impact on the acquired customers. And we've been very strident about using that across our systems and done a great job to get 12 states for consolidated tariffs. And then we have the Water Quality Accountability Act, we call leveling legislation.
It began in New Jersey with the Water Quality Accountability Act. And this is significant because what it does is leveling it levels the playing field between the municipal sector and the investor owns. And so all systems are now held to the same standards. It requires cybersecurity programs, capital asset management programs, responding to notices of violation in the same way across the systems and also a pipe replacement rate. New Jersey, 150 year replacement rate.
So it establishes that on an overall basis in New Jersey, and it's having a great impact. I think communities are now thinking, do we want to take this on or these are the things that we want to address. We have many, many other things to worry about in the communities. So let's talk to American Water about buying the system. We know that Indiana enacted similar legislation, Indiana Water Commitment, and many other states are looking at legislation across our footprint because this is good for customers.
This came out in light of Flint. We met with one of the state senators who said, I want to make sure that, that doesn't happen here. We want to advance this legislation. And again, many other communities are considering and states are considering similar legislation. So we're working very closely with the state legislatures to make sure this happens.
So we're really proud on how we're executing on our growth strategy. You can see the numbers here. Since 2015, we've completed 82 acquisitions, adding about 173,000 customer connections. A little bit more detail from water and wastewater. So of those 82, 50 of those were water acquisitions, adding 43,000 customers.
And the others were wastewater acquisitions, adding the 32 acquisitions, adding about 130,000 customers. So we've been growing in the wastewater side faster than we've been growing in the water side, and I'll talk about that in a minute. You can also see that we have 22,300 customers under agreement, meaning we've signed asset purchase agreements, but we're waiting for regulatory approval. And over the last 3 years, we've added between 12,014,000 customer connections through organic growth. So we continue to grow our business that way through organic growth in areas where we already serve.
You can see the box down the lower right, the targets that we're working on. These are 5 of the targets that we're working on, both water and wastewater. And you can tell that our growth strategy is not contingent upon one deal but multiple deals across our footprint. And you can look on the left there. We have a very disciplined approach to growing our business.
We leverage our corporate and state resources to find solutions for communities. That's the only way we're going to grow is to find solutions for communities. And we now have 6 50,000 customer connections in our opportunity pipeline. That's up from 500,000 in the last 5 year plan. So we continue to work with communities who are looking for solutions, and we're the solutions provider.
And so we're closing on a lot of deals, and we're building that pipeline to ensure that we meet the 1% to 2% going forward. So we strive to make the communities where we operate better. We aspire to have a big impact on these communities. And we talk about purpose driven. Our employees come to work every day.
This means a tremendous amount to them that we're changing communities where we operate. I want to take you through 3 examples. In Scranton, Pennsylvania, we've been operating the water system there for a long time. In 2014, we purchased the Scranton Sewer Authority, the wastewater system there, Scranton and Dunmore. They were facing a consent order, and the consent order was because they were violating their permit for discharges into rivers and streams coming out of this facility.
The consent decree required about $140,000,000 worth of investment over 10 years, and the city was having a hard time coming up with that money. So they weren't doing a whole lot. We approached the city about an acquisition, told them what we could do for them as far as having access to capital and then sharing those costs across our bigger customer base to minimize customer bill impact, we're able to successfully execute on that acquisition. Since we've taken over, we've invested $66,000,000 in the system. We give regular updates to the EPA and the Department of Environmental Protection in Pennsylvania, and they're thrilled with our progress in addressing that consent order.
We're just so proud of the work we're doing for our customers at Ernst Grant. Let's go to Ransom, Illinois. You saw it on the video. In 2016, led by Bruce Hawk and his team in Illinois, we purchased Ransom, Illinois' water system. They were under consent decree as well, and they had high levels of radium in their water source.
So the people couldn't drink the water. You saw how happy that customer was when we came in. So Bruce and his team spent a lot of time and 1,000,000 of dollars to connect that system to our ongoing to one of our systems there in Illinois American Water. We extended a line 10 miles. We put pump stations in to make sure there's the right pressure.
And those people today in Ransom, our customers can now drink their water. What's more important than that in life? And lastly, in Bel Air, Maryland, we've owned that water system for decades. We were facing a water supply challenge in times of drought. So we got creative.
We worked with local politicians to come up with this idea for a reservoir. So we work with everyone to locate, permit and then build a 90,000,000 gallon reservoir that's going to provide the needs of this community for decades decades to come and also unleash economic opportunity for the area. Because there was a water supply shortage, they stopped building permits. And so now we're providing a solution for a community where they're economically viable. So again, when we talk about purpose driven, this is why our employees come to work at American Water because of the tremendous value we're providing to communities.
So in closing, our regulated business is the foundation of our growth. We're poised and well positioned to invest, earn on that investment and grow through acquisitions for 5 10 years out and into the future. We have a strong track record of performance, and we're going to continue that performance because we have great people that come to work every day to work on behalf of our customers and do the right thing. And we're really proud of the teams that we have in place that every day come to work wanting to take care of our customers. So with that, I'm going to turn it over to Susan Harwick, and you're going to give a financial overview.
Thank you, everyone.
Thank you, Walter. We've talked about a lot here today. We've talked about what we do. We've talked about how we do it. We're going to talk now a little bit about how it translates into our financial plan.
And I'll spend just a few minutes on just a couple of key slides here to walk you through this. Again, we've talked about a number of these things today, but I think hopefully we can distill it here in just a few slides. First and foremost, I want to indicate that we are affirming our guidance for 2019 in the range that we had provided on our Q3 earnings call. So you can see the range there of $364,000,000 to $356,000,000 So again, affirming that guidance. Also at this time, we're establishing guidance for 2020, as you know, dollars 3.89 to $3.79 And I'll just address this right upfront to avoid a question when we get to Q and A.
I know that's on the low end of that 7% to 10% range that we've announced here. We understand that, and it's really driven by one simple reason, and that is because we are at that stage in our cycle where we've got 3 of our major states about to head into rate cases. So again, that sort of regulatory cycle is sort of natural, and it leads us into this situation where we have a little bit of a smaller growth rate into 2020. It's important to emphasize here that our long term range of 7% to 10% growth is still very much intact, and that is our long term expectation and no change in that. You've seen the triangle a couple of different times today, and Walter walked you through all the details of it.
And I think the important thing here again is to talk about multiple decades of capital investment opportunity. Again, we've relayed for you here the short term plan. Last year, as we've laid it out and then compared to this year, and I mentioned earlier, about $800,000,000 of incremental investment expected over the next 5 years, and then again a 10 year plan in that $20,000,000,000 to $22,000,000,000 range. The regulated business is the foundation of what we do, as we've talked about today. We do have the market based businesses that are very supportive of that regulated business.
They don't require a lot of capital. They provide cash flow that helps us fund the regulated business. So very important complement to what we do, But we are fundamentally a regulated business driven by investment and rate based growth. We talked about this, I think, briefly, and it's important again. It's a very simple slide, but I think it's important to look at this.
As we think about the growth in the regulated business and how we deploy our capital, the result is by 2024, we expect the regulated business to comprise 88% of our earnings profile, and that compares to 86% in this plan last year. Again, quality of earnings improving, and the foundation continues to be strong and getting stronger as we move forward. Again, rate based growth is a key driver for us and a key metric that we lay out. We have continued to say a 7% to 8% rate based growth CAGR over the 5 year period, and that expectation remains the same. It's very much in line with our earnings growth expectation around the regulated earnings growth, and we continue to think again multiple decades here.
Susan and I were laughing about this slide earlier. We really like the way this slide is depicted, where we've got one of our colleagues looking well into the future as it relates to capital investment and our ability to continue to grow rate base. We have a very long term view on our ability to do that. I mentioned briefly our market based businesses and how we think they complement the regulated business. And you know we did announce the sale of our Keystone operation.
It's a very small operation. But in that small action we took, we have further derisked this business. And the core of our market based business is around our homeowner services business and our military services group. Again, 2 strong businesses, earnings positive, cash flow positive and very supportive of the regulated business. We've continued to work hard on these businesses, on homeowner services in particular.
We continue to focus on the home the Pivotal Home Solutions integration is going very, very well. We continue to look for more opportunities to add customer connections there. And on the military services group, we now serve 16 bases. We announced 2 just in the last couple of months. So again, very strong and supportive businesses to the overall enterprise.
Let's talk a little bit about financing. How do we finance this business? And I'll talk broadly for just a second. We're going to continue our focus on traditional what I call traditional regulated financing models. We will be focused on traditional regulatory cap structures in all of our regulated jurisdictions, the fundamentals of which are important to us to make sure we can earn the appropriate return on the equity we've deployed in those businesses.
So we don't expect that philosophy to change. As it relates to the incremental financing for the incremental capital that we put in this plan, also as you know, in addition to Keystone, we did announce the sale of our New York operations. And as those two businesses close, we'll have a fair amount of proceeds from those two transactions to help fund additional investment in the regulated business. That, along with the assumption of now $500,000,000 of equity built in this plan to be issued. So the incremental roughly $800,000,000 or so of that financing sources will fund that incremental capital investment that we intend to make.
And I'll talk here about the $500,000,000 of equity because, again, I know others are interested in it. We've seen a couple of comments on this already. I will tell you we have it in the plan today as a single issue, roughly in the middle of the 5 year plan. And we've looked at a number of scenarios around that. And for purposes of this planning, we think it makes perfect sense to do it that way from a cost effective efficiency perspective.
It's not a terribly large issue. Dollars 500,000,000 is sort of on the margin of being significant. But I'll also tell you, we'll continue to evaluate this. As this plan evolves, and you heard a lot of conversation today about how the plan moves around in terms of where and how we invest, We'll continue to look at the financing plan along with it, too. And if there is a more logical or some scenario that emerges different than what we have planned, we'll certainly take that into consideration.
But again, right now, it's a single issue, roughly in the middle of the 5 year period. This page, I think, is, for me as the CFO, sort of the key page for us to spend a couple of minutes talking about. Credit ratings, as you know, were at A- at S and P, Baa1 at Moody's. We believe this plan, as we've laid out, very supportive of the continuation of these ratings. We don't see any concerns relative to our current rating outlooks.
The lower left of this slide, I think, is also very important, debt to total capital. You can see in our previous plan, we had an expectation in 2023, which would have been the end of that 5 year period, a roughly 61% to 62% leverage model. We now look at this to be 59% to 60%. So some have asked or commented about sort of the size of the equity issue relative to the rate base investment. You can see part of that result here is a little bit less leverage on the balance sheet.
Again, our balance sheet is extremely strong at the outset. We think it's never a bad idea to create a little bit more flexibility in the balance sheet, and this certainly, we believe, allows that to happen. On the right hand side of the page, we typically show you here our maturity profile. We do a great job with our finance function to stagger our financing model so that we don't have any concerns relative to refinancing. And you can see this is stacked very nicely and don't have any concerns around that.
I should remind you, we've got $2,250,000,000 line of credit in place and plenty of capacity on that to the extent we need it. I also should mention embedded in this plan is about $800,000,000 of permanent financing, debt financing in 2020 and some additional refinancings that we'll do along with that. Another very important part of our story, which we are not changing again, top leader dividend growth. The expectation around the dividend is the continued growth at the high end of that 7% to 10% range. You can see our performance historically, and we certainly expect that to continue.
And finally, let me just wrap up here again with sort of the compelling story of American Water. And again, you've heard these points today. I'm going to repeat them to you again. Long term earnings growth, 7% to 8%, clearly one of the fastest growing utilities in the sector. We're going to continue to grow dividends at that high end of the range, as I just mentioned, top quartile utility dividend growth while maintaining a balance sheet or a payout ratio in that 50% to 60%, which allows us to be focused on the balance sheet as well.
Maintaining our predominantly regulated risk profile. As I mentioned earlier, the market based business has 12% of our earnings profile in 2024, an improvement of where we were last year. So again, the foundation of this business is regulated operations and regulated growth. We're going to invest over $20,000,000,000 over the next decade in capital, and it's all about water quality and the safety and security of our infrastructure. Top leader in utility sector, the combination of our EPS and dividend growth continues to be a top performer on shareholder return, and we're very proud of that, and we have absolutely no expectation or plans to change that.
So again, I think this is a nice sort of wrap up of the things we've talked about here today. I think fundamentally, we are a business that is very, very strong, continuing to deliver service to all of our constituents, and we're very proud to be able to do that. And I'm going to turn it over to Susan, have her come back up, and she'll make few closing remarks and then we'll be available for Q and A.
So, a great story and we're running ahead of schedule. This is good, right? This is how we run our business. I do want to close just a few comments about this idea of doing well by doing good, doing well, of course, financially by doing good, doing the right things the right way. It was interesting, I got a chance to speak in New York a few weeks ago at the Corporate Champions Breakfast put on by the Women's Forum of New York, and I was introduced by Ron O'Hanley.
And I talked about the fact that when the business roundtable CEOs came out with their comment about doing well by doing good or corporate purpose, meaning that it's beyond shareholders, it deals with everything else, it was kind of surprising some of the pushback from a few organizations that said, oh, you're taking away the focus on shareholders. This is wrong. What's happening? Those type of things. And we were kind of surprised at that because the fact of the matter is the financials that you see are an outcome.
If you're a company that's in this for the long term, which we are, we don't make decisions for the quarter. We don't even make decisions for the year. You heard today we're making decisions for 5 years, 10 years, 20 years, 30 years down the road. And the only way you have sustainable financial success is you do the foundational, functional, fundamentals the best, better than anybody else. That means you have employees who are empowered, engaged and who take ownership in what you do.
It means that you have customers who know they're at the center of what you do. It means that communities are better because you're there. And it means that regulators can trust you that there's a trust factor there. So, this doing well by doing good is about these things and that's all this slide says. The how is just as important as the what.
We've mentioned this to you before, but our performance reviews at American Water are 50% based on the goal attainment or the whats and 50% is based on how, how they do it based on our values. We have actually terminated employees who delivered business results, but did it in a way that was destructive to the culture and values of our company. It's a tough thing to do, but you do it because the long term health of the company to deliver results to our investors and our shareholders long term depends on us doing the right things and not being the next headline in the newspaper. So these are just some things and gratefully, I know you feel I will not walk through all of these, but we do think it's important and we can stand up here and tell you how ESG or for us those things that just mean the planet, treating customers and employees and communities right and governance, how we run our business is good. These are just some of the awards that we've been recognized from outside the company over the past year or so.
So the doing well. So doing good, yes, that's all great. But what does it mean for the shareholders? What does it mean for investors? What does it mean for the people who own our company?
Our investors, we understand that you and your clients own our company and we want to treat you that way. This is over the past 5 years and the past year, the daily stock price, the historical EPS growth compared to the UTY and the average of our water peers and historical dividend growth. So you can do well by doing good. You can deliver the financial results over a long period of time by doing the right things the right way, by making sure you look in the future and you look at the problems that haven't happened yet and you make sure they don't happen to our customers, the things you heard the water quality panel talk about. I mean, those are big deals.
And over the years, we try to learn from things we do well, but we also learn from things that we don't do so well. And that's where this re kind of basing to our fundamentals. The teams that do the best that win are the ones who do the basic fundamentals better than anybody else. And that's our focus. We love the technology.
We love all the stuff you've heard about. We love the R and D. But at the end of the day, we've got to do the fundamentals better than anybody else. We've got to have plant operators who understand how to run our plants better than anybody else. We've got to have water quality specialists who make sure that every sample is taken and that we look and see everything.
We've got to have engineers who look at design. We've got to have accountants with an eye to detail making sure that everything we do is right. And when you're a complex organization, our story is simple, but running this from coast to coast with states with different standards, different compliance, different things is one thing. But to do that in a way that our customers never worry about us and actually we don't want our investors to worry about us to know that their investment in us is safe and they're not going to be surprised by anything we do. So you can do well by doing good.
And I'm going to wrap up with this and we'll do Q and A and actually get you out of here early. We did a big strategy session with our Board of Directors in October for 3 days. We rolled out the stuff you saw the high level of today. We spent 2.5 days and then we had a board meeting going through how we're going to do this. And we showed our board these things we talk about.
We actually have metrics and measures for the next 5 years laid out that we can be held accountable by our board for. It's very different for us. Even some of the areas, they're very stretched, so that we can be measured by. But we sat back and we said, at the end of the day, can tell you what our values are, our strategies, you can hear all this stuff. But what are the beliefs that we have at American Water that underlie the foundation of what we're doing?
And sat down and thought through this and this is what we shared with our Board. Number 1, the world is changing rapidly and we must adapt or we will cease to exist, period. You can't keep doing the same things the same way and expect you're going to deliver better and better financial results, period. That's just pretty fundamental. Our purpose and values don't change, but our strategies and how we execute will.
Our triangle hasn't changed, but you heard today all we're doing in terms of how we're going to do it. Radhaswamanathan is our Chief Technology and Customer Officer. He's amazing. He personally has patents on artificial intelligence. He worked for NextEra for 12 years, helped them when they were rolling out their smart grid and smart meters years ago.
We are developing our own technology in house. So why is that a big deal? You talked about we're on the leading edge of water contaminants and water quality. If we don't have the technology it leads, if it's not out there in the public, how are we going to be ahead? I'll give you an example.
The water sensors that you kept hearing about, a lot of them weren't even on the market that we needed, so we built them inside. For example, there wasn't a sensor out there to detect coal ash. So the head of research came to me and said, you can't go out and buy coal ash. So I said, I think we can handle. We've got enough contacts with our executives in the utility industry.
I think we can find some coal ash. And so we got it and we built our own sensor. So the ability in house to do that, I'll tell you something else practically. We don't have expensive high cost consultants. We don't have to do upgrades every 12 to 18 months on major systems.
We are taking feedback from employees and customers and we're updating our systems every week and there's no end to it because we're doing it in house. I'll give you an example. We rolled out an enhanced customer portal. And when we rolled it out, we've got a section there, tell me what you liked and didn't like. We there's a place that every customer comment goes to.
Now we're getting comments from customers like, I gave you this recommendation and I logged in 3 days and you had changed it. That's what personalized service means. So the way we do that is going to be critically important. Safety will always be our top focus for our employees, our customers, our communities. Stop.
If we're not safe, if our water is not safe, nothing else really matters and nothing else needs to be said. Our customers are why we exist and we need to act this way. I hope you never hear anyone from American Water in any one of our states ever use the term ratepayer. They are not ratepayers, they are customers. And how you deal with them emotionally, it makes a big difference in how you think about them.
Another thing with technology, how many of you have like a Delta or American Airlines or airline app on your phone? Rada was on the line with Delta. He said, let me ask you a question to a customer call rep at Delta. What are you seeing that I don't? She said, well, actually nothing.
You see the same things I see. I'm just helping you walk through it. We were developing a customer new customer web page at the time. We're going to have another one out the 1st of next year. And we were developing a new tool for our customer call center reps and we stopped it and said, there's something here.
Let's stop these 2 separate developments and let's develop the next customer portals that we roll out in 2020. What if the customer can see almost everything our own call center reps can do and they can set up their own appointments and they can do all of these things that they can do with other industries than our utilities. And that's what we're working on right now. And the worst thing is if somebody wants to call in, which is fine, we're going to have real life humans. They can walk them and they can the customer can see on their screen and we can walk them through it.
That's what it means to put customers in the center of everything you do. Our people are the heart and soul of our company. We have to make sure we get the best from them. And that is having a culture where everybody is included and everybody feels a part of the company. This last one people I work with get very tired of me saying this.
Companies, you're either growing or you're declining. There is no staying the same period. If you're not growing, you're going backwards. And as soon as you think you're where you need to be, you're already declining. That's just it, right?
You're growing or you're declining. There is no 3rd category. And the last one, you've heard us say over and over, those who execute the best on the fundamentals will win. The basic blocking and tackling allows you to do the really cool plays. But if you don't do the basic blocking and tackling, you don't have the opportunity to do the really cool plays.
So fundamentally, this is these are the beliefs that we have built, our planning, our culture and what we're doing. So with that, we are through with our prepared remarks and now you have a chance to ask whatever questions you want to ask from us or anybody else you heard from today.
Hi, Chris Turnure at JPMorgan. I think, Susan, you mentioned some rate cases creating pressure in 2020. Could you just walk through those and kind of the timing there? And then, as we think about 2021, will those have an impact? Will any equity have an impact or the New York sale on that growth rate versus the long term CAGR?
Yes. Let me make a couple of comments there. And we have not specifically identified which states and the exact timing. I would tell you it's sort of 3 of our largest states. And if you go to we've got a page in our appendix and Ralph or Ed can tell you exactly which, but we've got a schedule that shows each of our jurisdictions and the last time they were in, so you can sort of look at that list and kind of figure out who's next.
The timing will be staggered a bit. They are all very proximate, but obviously not literally on the exact same schedule. I think you could assume that the lion's share of the impact of this, again, just for lack of a better term, lag, will be in the 2020 year. We'll start to see the results of those cases start to come in 'twenty one. So I would just assume most of it's in 'twenty.
And your follow-up was the last question.
Just anything kind of bleeding into 'twenty one from the New York sale or equity issuance or other factors that might deviate from the long term CAGR in that year?
I don't think so. The way we have thought about the reinvestment of the proceeds, and again, we don't have an exact closing schedule in the New York sale. I think we've said a year ish. We'll take those proceeds. We've got plans to sort of immediately reinvest in the regulated business.
So presumably, we'll put those dollars to work in jurisdictions where we can quickly sort of see the results of that investment. And then as I mentioned, the equity issue itself is sort of tagged for kind of middle of the 5 year period. So they're not the investment is not quite lined up with that financing. But again, it's there's not going to be much of a material impact. So I think that's an issue you can sort of ignore for 'twenty one.
Dhrughast Chopra with Evercore ISI. Susan, just to follow-up on the rate case question there. Given where interest rates are, I mean, there's a lot of discussion on ROEs coming down. What are you assuming in your 5 year plan in terms of a lot of ROEs? And then I have a quick follow-up on cash taxes.
Yes. We've not sort of varied our view on ROEs. I mean, obviously, it's something that we watch very closely. And there is a relationship to interest rates, of course, but there's not a sort of perfect correlation there. We've really just not altered our view around ROEs.
We think we have very strong arguments and support for our request that we'll make in those days. So really no impacts there.
Well, and to add to that, Durgesh, so 5 years ago, the average authorized ROE was 9.9, it's about 9.8, making critical investments into safe water is able to be strong, especially where you have systems that are challenged. So I think that's a beneficiary as people are looking at this as a long term decision and not a short term decision.
Thank you. And then just can you remind us, Susan, for our models, when will you be sort of a material cash taxpayer? And then your peers have kind of implemented repairs very successfully in Pennsylvania on the water side, and they're looking to do that on the gas side, as you may know. So any thoughts around or any color around that thought process? Has that changed?
Let me answer the first part. No change in our expectations around cash payment for taxes, and I think we've been saying that's through 'twenty. We probably don't expect to be in a cash tax paying position. I think we'll start to see that in 'twenty one, and it will accelerate from there. And I would just make sure it's very clear.
We're talking solely federal. I mean, obviously, we're paying state taxes throughout the jurisdiction. So this is just an incremental change relative to federal. And that's also, I think, reflective of our current planning. I mean, we are continually looking at tax planning strategies.
And you mentioned repairs is one that we continue to evaluate, and we are looking at opportunities where it may make sense along with other strategies. It's just it's part of our robust process. And again, I think that timing around payment of cash could change, I would say not materially, based on some of the strategies we'll continue to look at. Susan,
I guess for both all 3 of you all actually.
The 2 Susans and the
2 Susans.
2 Susans. When you think about the annual capital budget and the amount of capital over dozens of years or decades ahead that you could actually spend to replenish the system. In the commentary that the impact on the customer rate is kind of the main thing that keeps you from investing more, is it the rate change relative to historical rate changes that you look at? Or is it the absolute rate relative to other water utilities in that exact same state that you look at? Or is there some other metric you look at that helps kind of define what's an acceptable rate of change to the customer bill?
And I'll start. So it's a little of both, but really we look at the percent of the increase of what they're already paying. Water bills typically are much less expensive than electricity, for example. And across the footprint, if you take out Monterey, California and Long Island, New York, it's anywhere from $30 to $70 a month on average, a lot less than the others. So the overall isn't that impactful.
But the Environmental Protection Agency has actually come out and said that they believe that affordability is about 2.5% of the average family of foreign income in the U. S. Would be appropriate for water. We're like 0.9%. So by any of those standards, but at the same time, we don't want to have rate shock because we need to do this year after year after year for years down the road.
So it is pretty much based on increase over where they are now and that's how we look at it. There are some states that welcome and say, listen, the bills are low. We need more investment. We're okay if you go over 3.5% and there's some of those that we have and we do build in more investments in some of those states. But it's an art and a science and there's not one, well, this is more than 3.5%, we won't do it.
But we look carefully at the situation in each state. But we also want to make sure that by any definition of affordability that it's there.
Yes. This is part of our planning process, and we work with our state presidents to get a good view as to what do they think our customers can pay. And then as Susan said, it does vary by state. On the average, it's 3% to 4% a year we're asking our customers to pay. And that's why it's so important that we continue to drive efficiencies in the business.
So we continue to mitigate that increase. We're investing $1,600,000,000 a year. That's a lot of investment in our system that we need to make to improve the customer experience and make sure that we're addressing all the issues we have to address. But we're only going to do that if we can minimize customer bill impact. And again, that's why the efficiencies are so important.
And I go back to that's a real strength of water over the others. We don't have this big spiky capital deployment. It's very smooth. You've heard from Susan and Walter and others today, we got a problem with permitting or scheduling. We just kind of push it out to the next year and pull forward.
So it's a very predictable and smooth deployment, which is not inherently has the risk of large projects.
And the only thing I would add to that, solely from the CFO seat, that strategy is very, very helpful from a financing perspective, obviously. I we can enjoy sort of the same ratable financing impact with a plan like this that I don't see financing needs sort of bouncing around and incur sort of needed financing in periods that perhaps I wouldn't want to do it. So again, it's a very logical approach from all sides.
Julian?
Yes. By the way, again, Julian Wilson, Bank of America. Congratulations to all of you.
Thank you.
So, best of luck. So, maybe just to follow-up on some of the last questions here. On New York, can you talk a little bit more about the strategy and if any shifts at all? I mean, obviously, it seems like there's some discrete fact patterns that fit for why you pursued that. But talk about, is there more pruning to come?
Is there more reduction in states or add some states? If you can talk on that, Seth. And then I have a follow-up on one of the last questions.
So we have spent the past several months, as we always do, looking across our portfolio of businesses. We always do this. We look at the business. We look at the strengths where we deploy capital, those type of things. After months of looking, we decided there were 2 businesses that probably someone else could run better, only 2.
And I'll go ahead and answer the latter part. No, there's not any plans for any further divestitures. And these were 2 for different reasons that we thought others could probably come in and do run it better than we could, Keystone and New York. But by that process, we also looked at every single business and decided that's not the case in any one of our other businesses. So we have no interest in any of our businesses to do further divestment.
In terms of new states, as we've mentioned to many of you before, we're always looking at every state. We have a map in our corporate business development. Aldi Warnecke is here. That reports to him. We have every state in the nation that is either green or yellow or red in terms of attractiveness that we'd want to get in, in terms of states we don't serve.
We look at regulatory environment, business environment and most importantly, can we get to 50,000 customer connections in 5 years? If we can't, we tend not to go in there. Walter talked a lot about the value of efficiency and being able to be cost effective. We believe that in any new state, if we can't get at least 50,000 customer connections, we can't be cost effective enough to complement our brand and brand is very important to us. Absolutely.
Briefly, then on the other side of the equation, you guys just talked a little bit about this equity raise and maybe Susan, I'll look Susan, the left here. If you can comment just briefly about the thought process, equity timing seems like in the mid part of your plan, that also seems to be when you're talking about cash taxes. You also just alluded to potential other strategies, and I know you've been thinking about this as an organization for a bit of time. Could we see that shifted out? Also, I suppose, to the extent to which you're pursuing equity in the mid part of that period, you're reducing leverage, you're stable with the agencies.
Just talk a little bit more about the thought process to why pursuing equity too.
Yes. I think
I'd answer it in a number of different ways. Obviously, we have relatively low cost of capital. So there's an opportunity to use that currency to help fund this plan. It allows us to accelerate the capital spending with a source of financing. It allows us to take a bit of leverage out, all of which we've covered and you've indicated here.
The other thing I would just say though is that while it is our plan and we think it is the best version of the plan today, we will continue to look at it for all the reasons you just said. I mean, if we are if we find ourselves in a different position from a cash flow standpoint, it may one way or the other. We may look at and I know we've gotten lots of questions in the past about an ATM like program. Does that make more sense? Does it fit more logically with the type of spend that we have?
It's certainly a good question. Again, we think from an efficiency and effectiveness standpoint, this is just as simple as you could get, sort of a drop in issue somewhere in that middle of the period, but we'll continue to look at all of those factors and figure out whether or not this is ultimately best plan. I can tell you we've modeled all of a variety of scenarios, and they don't materially change what we've talked about here today. The long term look, the growth trajectory, all of it really unchanged regardless of what profile we put on it.
Could you talk a bit about the market based businesses? It didn't look like you allocated any CapEx to those business lines in the 5 10 year plan. So I'm wondering how you're thinking about them now that you've pruned Keystone, how you're thinking about capital allocation and growth of those remaining businesses?
Do you want to you go ahead. Yes, I can start. We've sort of said routinely that these businesses just as a group are very capital light, and it's even more so now with Keystone sort of out of the mix. The homeowner services business is truly a services business and doesn't really require much at all. On the military side, we don't make that investment.
I mean, that is not that's not the capital we put forth. We are executing on the capital plans of the military as an example. So not large requirements there either.
And I think the bigger picture is there's we like the 2 businesses we have in market based, Leslie, but there's not a desire to go out and find any other market based businesses.
I think it's important to note too that we just won 2 bases, and we did mention that during our presentation. Mark Dunn is here in charge of our military services group, really proud of our work in winning 2 of the 2 that were awarded in the last year. And one of them is West Point, very important military installation.
As of West Point, correct.
And the
other is Joint Base San Antonio. Go Army, absolutely. And the other is Joint Base San Antonio, 4 different facilities in the San Antonio area. We are so proud of our teams that are delivering just tremendous service to the military families. And we're going to continue to grow that business and we've got a great team in place that's going to continue to execute on our strategy.
So if Mark McDonough will stand up, President of Military Services and I want Eric Palm, who is the President of Homeowner Services and we didn't talk about them a lot. I have to tell you, Susan mentioned earlier, the Pivotal integration has gone so smoothly. We're recognizing the synergies even better than we thought we were. It's a strong business. It's growing.
And Eric and his team just continue to do a fabulous job. We also this is so important. When we started this business in the early 2000s, we American Water. We did it as a service for our regulated customers who didn't who basically didn't realize they owned the water or sewer line between the road and their home and it was very much a customer irritant. Well, we decided to do an analysis and we looked at 4 of our states where we're able to be on bill and we looked at our regulated customer, customer satisfaction on the regulated side with whether or not they had these warranties.
We were blown away that there was a 9% more favorability for our regulated customers with their regulated business if they had these warranties that are provided by our market base. So this is not just a strong contributor to cash flow, very capital light. It also is an integral part in the states where we offer these services to our regulated customers where we have found a statistically significant indication that it is a customer satisfier. That also helps us on partnerships that we're doing with cities or other utilities to be able to show them this data.
These are 2 great businesses that complement our regulated business. And we couldn't be more proud of Susan said of the teams that are out there providing great service for our customers every day.
Hi. Haikadur with S&P Global. I'd like to follow-up on Leslie's question. Can we talk a little bit more about the opportunities on the military base side? What kind of RFPs are out there?
What is the size of the market? What kind of expectations do we have in the next 2 years as far as the timing of additional bases being announced?
I believe right now we're in 5 different proposal cycles. And typically, they take anywhere from 24 to 48 months. West Point took 10 years because it was on and off again. But we're participating in 5, and we do expect more in the out years as the military continues to put these out. But we don't comment on win rates or anything else, but we've been very successful because of our great team.
Typically, we pursue those that are about $250,000,000 or more over the 50 years. So they're sizable opportunities for us.
One thing that's important on the military is it's considered to be a best value decision by the Department of Defense. It's not who is saying we'll take the least amount of revenue over that period of time the way the contracts are set up. The things that you heard Walter's panel and Lauren Weinrich and others talk about, there's a lot in the headlines about the concerns about these PFAS, because of all the firefighting foam and everything that's happened on military bases getting in groundwater. Because of our proven history of dealing with this, including as Cheryl said, 4, there's been 2 different of the military bases in New Jersey, we've actually gone and done on-site mobile decontamination. The ability to provide answers and solutions beyond just price is a big deal to the Department of Defense.
And we believe that's a competitive advantage we have with our R and D work that we're doing.
Picking up on the point of pollutant remediation with cost justifying in the eyes of the community, Air pollution is easy if the particulate matter levels go down, the kids aren't in the ER. The calculation on return on the investment is pretty easy. It's a lot tougher with water. PFAS doesn't put people in the ER, at least now. So the question is, are you doing modeling on paybacks on the investments in these more elusive but wicked contaminants?
And if there are any examples in the public domain, could you bring them to us?
In terms of specific we run scenarios. So until you know, the thing about PFAS for those that you're obviously very educated on this is that they stay in the body and they stay in organs for decades. They've been tied in some cases to higher incidence of cancer, especially as they accumulate in kidneys, in liver and different things like that. So what we do is we try to take the best of proven science, because you can go and find anybody saying anything whether it's proven or not. So our scientists, Lauren, Sheryl, some of the other folks, we look at the predictability and what we're able to do is we may not say this is worth X amount of money, but we take it upon ourselves.
And I have to tell you, Cheryl, I'll share something Cheryl did with the New Jersey Assembly and the Senate. We go and say, here's what the facts are. This is a risk. We don't know when this could become a point at which people die and it's basically proven or basically attributed to the PFAS. But what we can tell you is, you don't want to be the ones to have kept us from doing what we need to do.
Cheryl Norton did a testimony before the New Jersey Senate and it was on lead and people loved it because she said, here's what we're seeing. Here's what we're doing. Here's why our customers don't need to worry about this. And I will tell you that the support we're getting even without running a statistical model that says this is worth $4,300,000 or this is worth X, painting the picture based on the facts that this is something with water, it's not all financial. With water, it is a health issue.
We are the only utility service that people ingest. This is as much about health as it is utility. We have been able to make that argument quite effectively by using science and the data and without being using scare tactics saying, if you don't do this, the sky is falling. It is this is the real risk. Here's what is it worth $10,000,000 to do this so that we can prevent this from happening?
Very few commissioners or legislators are going to say, no, dollars 10,000,000 that will be $0.05 a bill a month for your customers is worth that. But you know what, it's incumbent upon us to form those arguments when you can't put everything to a quantitative number. And I don't know, Sheryl or Lauren, you guys may want to add something to that. Standing to the microphone, Ralph, if you can. I think Cheryl, both of them probably.
I think so both of them.
They'll correct
if I said anything wrong. I just wanted to make a quick comment that a lot of the when we're looking at different treatment technologies for emerging contaminants that may those treatments have not been widely used across the United States, let's say, We're comparing what we have as known technologies and we're looking at the cost efficiency for that treatment over time. So there is an operational efficiency we're looking at. We're leveraging the information that we have for the engineering solutions we've put in place for certain compounds that we need to remove. We're using our expertise in the operations that we've done for the full scale removal of PFAS where we have had to put that in place.
And we've been doing piloting for new technologies that are emerging on the markets, also bringing that back to the manufacturers and the technology development to say, this is what we need. This is where either our information isn't is maybe in some cases better than what the manufacturers are putting out because they haven't tested our water quality. We're doing those tests and we're running those pilots so that we can ensure we have the right treatment going in and where we can leverage cost savings if that's possible. Ultimately, it comes down to what's the best technology that we can put in place to remove the contaminants of concern and get that safe water out the door.
Kevin, do you have anything to add?
Sure. Thanks, Cheryl. Cheryl? Okay.
Yeah. I can just add real quickly, to kind of tie it all together, we don't do any of the basic work to say this compound is going to impact people if they drink it over 70 years and this is what's going to happen. We don't do any of that. That's really not our level of expertise. But once that science is available, as Susan said, we utilize the data to do exactly what Lauren said, identify the treatments that are available and look at which ones are the best ones for us, for our customers, for maybe the combination of contaminants that we have.
For example, one of the wells we have in New Jersey has both PFOS and 14 Dioxane, so lucky us. We can't shut that well down, so we've got to find treatment that will take both of those compounds out of the mix. And so we focus all of our efforts and time on really finding that right treatment for the best cost and the one that's going
to be most effective.
And I think it's important too, we talked about PFOS that the EPA has established a health advisory of 70 parts per trillion. 4 or 5 states have determined that that is not where they want to be, and they're actually lower and more stringent. And we do work to develop technologies to get down to that lower level. And that's what we socialize with the commission, looking for that right treatment technology that's efficient but meeting the needs of the EPA and the state.
First, congrats to all 3 of you and thanks for inviting us here today. But I was hoping to get an update on 2 things. One, Jacksonville, if you could give us an update of what your interest is, if you're partnering with anybody and where the process is? And then secondly, the desal plant out in California where that is?
I'll take the first one and Walter can have the second one. Mine will be very short. We respect the process and we're not able to comment further on anything beyond what the city and JEA has put out publicly.
And I'll take the second one.
I got the easy bird.
Well, the desal facility, Monterey Peninsula Water Supply Project is still ongoing. We were expecting to get commission approval from the Coastal Commission last month. The Coastal Commission staff did their analysis and determined that they were against the project for a number of reasons, saying that they think that the other ground the other facility, the Monterey Pure Water Facility can provide the water to meet the demands of the peninsula. We obviously disagree with that. We think the commission disagrees with that.
They actually delayed the vote from November into March. They have time to substantially go through the details and vote on the issue of issuing the permit to us. So we think that was a positive that they didn't go ahead and vote, but they're actually going to look into it in more detail so they have an informed decision. We believe that that is necessary on the peninsula. The commission agrees with us.
The commission approved that back in September just to approve the Monterey Peninsula Water Supply Project. So we know the commission met with the Coastal Commission and put their views out there as well, but we're still confident that we're going to get the decel.
Just purely in a financial thing. You called a couple of pretty high cost munis yesterday. And I wondered whether you how you look at the in your projections, the mix of tax free and taxable financing going forward and the relatively attractiveness of each?
Yes, it's a good question. And again,
it's part of our overall financial plan. We continue to monitor opportunities. We are always looking for the right mix and the right time to execute on our financing strategies and really all again with the eye toward the customer and how we can best reflect the appropriate capital structure from both a mix of capital and the cost of that capital to the benefit of our customers. So it's really market driven. It's opportunity driven.
We evaluate sort of early retirements from a cost perspective. All of the things you would expect us traditionally to do in that evaluation, we are customer and how we can reflect the appropriate cost of capital at the right time for our customers. I mentioned earlier, we do have a small amount of refinancings planned in 2020, but they're not I would not call them necessarily early from a cost incurred perspective. They're just going to be opportunity driven when we might be able to see some opportunity in the marketplace to do it. And again, we'll take advantage of those opportunities when they present themselves.
We've built in a small amount in 2020, but it is relatively small.
Really, 2 back to back but related questions. First one is, how do you think about what is the optimal credit rating? And what's the you could make the argument of should a utility holding company that, as you all talked about, doesn't really have lumpy CapEx like an electric one would. Do you need to be A rated? I think that's the first question.
And then the second is kind of the counterbalance to that is, given just where your equity valuation sits relative to your own history, Let's kind of ignore other utilities, but just your own trading history. If you decided that having that kind of fortress balance sheet is the main goal and you also had the opportunity to accelerate some of the capital or some of the acquisitions, why not do materially more in terms of the equity financing over a multiyear timeframe when the market has given you the opportunity?
You keep asking me this question. Let me address the first, first. So optimal credit rating, as high as it could be. I mean, I think it's an interesting question that I don't have a great answer for. I mean, we like where we are, certainly.
The sort of, for lack of a better word, divergence between S and P and Moody's, we've talked about this quite a bit, that it's really just the views that the agencies take relative to the sort of vision into the forecast. Moody's doesn't look quite as long, and they pick up this sort of cash impact or cash shortfall from tax Tax Reform Act. We think that's really the driver of the bit lower rating at Moody's. I would say, conceptually, your question about a company of $22,000,000,000 market cap, does it need to be an A? Or is it just as strong at an A-?
I don't think that an A- credit rating is at all bad, certainly, of an enterprise of our size.
Let me tie that though to your second question. Before you move on, one thing I want to comment about the credit rating though is when before the Tax Cuts and Job Reform Act, we had people say, why do you have why is it important for you to keep an A? At that time, it was before we were downgraded by Moody's. And we said we like to keep optionality. For utility to keep some level of optionality on your balance sheet, Is there going to be a recession or not?
You guys I mean, you can go turn on the TV, you can talk to whoever and you can get fifty-fifty on either side. But isn't it great if you're prepared regardless of what happens? So while it may not be an A or A minus, the ability to have a strong enough balance sheet to deal with something that happens that could put a strain on it. If we had not kept that conservative view on our balance sheet before the TCJA, would have been struggling like a lot of other utilities were, we didn't. And as Susan said, with Moody's, they only look through 18 months.
We bottom out kind of in 2022 and they wouldn't look past that or 2021, they wouldn't look past that. S and P did, they didn't go down. We think hopefully we're looking at everything now. So it is what is the value of optionality from a risk mitigation standpoint is how I look at the balance sheet. How can you be strong without losing value, but keep your optionality for when those times come so that you stay steady and strong?
Yes, absolutely agree with that. And to your second question about sort of the low cost of capital today and should we take advantage of that, this is what we did talk about when we saw you, I think, at EEI. And our comment there again, first of all, we start with a strong balance sheet. Optionality and flexibility is hugely important, but I and we are building in an equity issue in this plan, as we talked about here. We're taking advantage of that to deleverage the balance sheet a bit, which I think is great.
But I don't see any reason to issue equity just because, just for the sake of it. There's no reason to do it to create an unnecessary level of flexibility in this balance sheet. I mean, there's a nice balance in there somewhere, and I think that's where we are. I think this plan, as we've laid out and the $500,000,000 of equity that we have in here, and again, I said it at the outset, it may look to be a bit outsized relative to our growth in CapEx, but it's for the reason you're hitting on. I mean, it gives us a little bit more flexibility.
It deleverages that balance sheet just a bit. It prepares us even more so in an environment where we see some sort of economic downturn potentially. And again, it's going to allow us to continue to do what we do, which is grow this regulated business, continue the investment infrastructure.
And you saw that what Walter showed about growing opportunities for regulated acquisitions. Optionality provides whether it's the small ones, there's nothing large that may have been in the newspaper that is part of any type of plan we've got. This is not depending on some large acquisition. It's just the continued this year what will close 2019. So it's just that continual every day in our states doing the business we do every day.
Well, you can hang around here as long as you can hang around here, because we would love to have you here. I think there's maybe some refreshments, maybe not outside. But at the end of the day, the one thing that is most important to us is for you to understand. This company has been around since 18/86 and we continue to grow, be strong. And what we love about it is a story that's easy to understand and succession planning, people development is such a critical part of what we do that whether it was 6 years ago when I start, April 1 when Walter is at the helm, whatever it is, you saw the talent that we've got in this company.
The best thing that we as leaders can do for a company is make sure that whenever there are changes, whenever there are challenges, there's no blips in the system, that there's no ripples in the water and that your investors can sleep well at night. And what you saw today is that our story is not changing. We're just evolving to the next. We're doing things differently. But what we're doing is there and we're sticking to the fundamentals with people who are the best people in the entire industry.
So we appreciate you being here. Lots of questions, Ed and Ralph and Abby. Again, shout out to Abby, our new ESG Manager in Investor Relations. We're very excited about her being there. She really, really has been blown away by the depth of all the different ESG mechanisms out there and surveys out there and we were visited by S and P and different folks and Moody's on the ESG.
It's been great. We've had great discussions. So but we also want to just closing, thank you, and then I want Walter to close it out. We really take seriously the fact that you have clients whose retirement depends on their portfolios that you're recommending and that that depends on us delivering what we tell you we're going to deliver. We know that while we tell our employees while it's institutional investors these are people's 401s, these are people's pension plans, these are people's investments that their livelihoods depend on.
Know that we take that as seriously as we do our customers and our employees. And they depend on us and we don't want you to ever, ever say I wish I hadn't put my trust in them. Not that we'll always be perfect, but we'll always be open and transparent and keep in mind who we're doing this for.
And I want to thank Susan for her leadership since joining our company. She's had a tremendous impact on so many people, including myself. And we're a much better company in so many ways. I think that the biggest success we've had is making sure that our employees are safe every day, and she brought that passion to our business. I just want to say thank you.
And going forward, we're committed to the strategy. Susan and myself and the whole executive leadership team and the entire business. And we're going to execute on this strategy like we have and continue to do great things for all of you.
And we did not choose Susan Hardwick as CFO, so there would still be a Susan in executive leadership. So thank you very much. And if you got any questions, just
let us know. Thank you.