American Water Works Company, Inc. (NYSE:AWK) Q1 2021 Results Earnings Conference Call May 4, 2021 9:00 AM ET
Company Participants
Ed Vallejo - Vice President of Investor Relations
Walter Lynch - President, Chief Executive Officer
Susan Hardwick - Executive Vice President, Chief Financial Officer
Conference Call Participants
Durgesh Chopra - Evercore ISI
Julien Dumoulin-Smith - Bank of America
Insoo Kim - Goldman Sachs
Steve Fleishman - Wolfe Securities
Richard Sunderland - JPMorgan
Verity Mitchell - HSBC
Operator
Good morning and welcome to American Water's first quarter 2021 earnings conference call. As a reminder, this call is being recorded and is also being webcast with an accompanying slide presentation through the company's Investor Relations website. Following the earnings conference call, an audio archive of the call will be available through May 11, 2021.
U.S. callers may access the audio archive toll free by dialing 1-877-344-7529. International callers may listen by dialing 1-412-317-0088. The access code for the replay is 10155150. The audio webcast archive will be available for one year on American Water's Investor Relations website at ir.amwater.com/events.
I would like now to introduce your host for today's call, Mr. Ed Vallejo, Vice President of Investor Relations. Mr. Vallejo, you may begin.
Ed Vallejo
Thank you Nick and good morning everyone. And thank you for joining us for today's call. And at the end of our prepared remarks, as usual, we will open the call up for your questions.
Now during this conference call, both in our prepared remarks and in answers to your questions, we may make forward-looking statements that represent our expectations regarding our future performance or other future events. These statements are predictions based upon our current expectations, estimates and assumptions.
However, since these statements deal with future events, they are subject to numerous known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from the results indicated or implied by such statements. Additional information regarding these risks, uncertainties and other factors, as well as a more detailed analysis of our financials and other important information is provided in the earnings release and in our May 3, 2021 Form 10-Q, each as filed with the SEC.
Reconciliations for non-GAAP financial information related to O&M efficiency ratio and return on equity can be found in our earnings release and in the appendix of the slide deck for this call. Also, this slide deck has been posted to our Investor Relations page of our website. All statements in this call related to earnings and earnings per share refer to diluted earnings and earnings per share. And for purposes of the anchor year on long-term EPS growth guidance, the anchor is weather adjusted 2020 EPS of $3.84.
And with that, I will turn the call over to American Water's President and CEO, Walter Lynch.
Walter Lynch
Thanks Ed. Good morning everyone and thanks for joining us. Before we move to quarter results, let me speak for a moment about our recent growth news. As you know, a key part of our strategy is to operate in states where we can best serve customers, drive efficiencies and continue to grow our regulated business. Recall that earlier in the year, we announced the sale of our Michigan operation and as you know in late 2019, we announced the sale of our New York operation. This slide shows what our new regulated service territory will look like after the announced transactions are completed.
Moving to slide six. We recently announced what will be the largest municipal acquisition in Pennsylvania American Water's history. On April 6, we signed an agreement to acquire the wastewater treatment and collection system for the City of York, Pennsylvania. This agreement will add an equivalent customer connection total of more than 45,000. As part of the agreement, Pennsylvania American Water will also continue to provide contracted wholesale waste water treatment and disposal for seven surrounding communities of York. We look forward to developing strong relationships that meet the needs of all customers, including those outside the city.
This is yet another example of our strategy to grow where we can add value. It was also executed under Act 12 of 2016, which allows municipalities to sell their water and wastewater systems for a price based on the fair market value of the facilities. New York Mayor Michael Helfrich said, "This is a new day for York, one filled with an unwavering optimism as our residents and businesses can finally breathe a sigh of relief for the first time in decades."
Turning to slide seven. New Jersey American Water announced an agreement during the first quarter to acquire the water and wastewater assets of Egg Harbor City, New Jersey. This municipally owned water and wastewater system serves approximately 3,000 customer connections. The agreement is notable as it's the first sale being executed through New Jersey's Water Infrastructure Protection Act or WIPA. That law facilitates the sale or lease of municipally owned water or wastewater systems that meet certain criteria such as significant noncompliance.
Egg Harbor City mayor Lisa Jim Petty said this sale will mean better infrastructure, stable water rates and millions in funds for the city. Additionally, Virginia American Water signed an agreement to acquire the drinking water assets of the town of Waverley. This municipally owned water system serves approximately 900 customer connections and it's our first agreement signed on the new fair market value legislation in the Virginia Commonwealth.
To date this year, we have added approximately 4,500 customer connections through closed acquisitions and organic growth. We have under agreement more than 86,000 customer connections, including the City of York. In total, the acquisitions closed so far this year and all those under agreement represent approximately $440 million in additional rate base and an estimated $115 million of follow-on additional capital expenditures over the next five years. And our growth pipeline remains strong with more than 1.2 million customer connection opportunities.
Lastly, I would like to provide an update on the sale of New York American Water. In late March 2021, the New York State Department of Public Service Special Council released the findings of their municipalization study. As expected, the study focused primarily on the need for tax relief for customers including recommendations to eliminate the Special Franchise Tax. The study also focused on the feasibility of municipalization. These findings were not addressed in the Governor's recently released budget.
Our New York subsidiary continues to work constructively with the New York State Department of Public Service, including through ongoing settlement discussions with all parties and we remain confident that the sale will be completed. We are working diligently to close the transaction. Assuming progress continues as expected, we believe that the net impact to New York results on 2021 results won't impact our 2021 guidance range. Further, we don't anticipate any impact on the expected timing of our previously discussed future equity needs.
Let's move to slide eight and cover first quarter results. Our first quarter 2021 earnings per share of $0.73 were up 7.4% compared to the first quarter of 2020. We invested capital of $342 million in the first quarter as we continue to balance that investment by focusing on operating and capital efficiencies, constructive regulatory outcomes and by leveraging the size and scale of our business.
As a reminder, we have challenged ourselves with a new O&M efficiency target of 30.4% by 2025. With this strong start to 2021 and continued execution of our strategies, we are affirming today our 2021 earnings guidance range of $4.18 to $4.28 per share. We are also affirming our long term EPS compound annual growth rate in the 7% to 10% range.
Turning to slide nine. Let's go through some the regulatory and legislative highlights in the first quarter of 2021. In February, the Pennsylvania Public Utility Commission unanimously approved a previously filed settlement agreement between Pennsylvania American Water and the PUC Bureau of Investigation and Enforcement. The request was driven by $1.64 billion in investment in 2019 through 2022. Pennsylvania American Water was authorized additional annualized revenues of $90 million over a two-year, excluding and agreed to reduction in revenues for tax savings passed back to customers as a result of the Tax Cuts and Jobs Act of 2017.
On April 7, the Missouri Public Service Commission approved an agreement reached by the party, the Missouri American Water's request for a rate adjustment. The rate order includes approximately $620 million in water and wastewater system improvements made since the end of 2017. Rates will be effective on May 28, 2021 and will result in additional annualized water and wastewater revenue of $22 million, excluding the reduction in revenue for tax savings passed back to customers, also a result of TCJA.
We also of the pending rate case in Iowa, which is moving on schedule and we filed a rate case in West Virginia on April 30. Additionally, as we reported previously, California American Water filed for new rates in July 2019. The case covers 2021 through 2023. In January 2021, California American Water submitted to the Commission a comprehensive settlement with the Public Advocate's office and several interveners. If the global settlement is adopted by the Commission without changes, revenues will increase by $33.5 million over three years with agreed capital investment of $165 million in 2021 and 2022.
And just yesterday, California American Water filed it's cost of capital application with the Commission. As part of the application, California American Water requested an authorized cost of equity of 10.75%, cost of debt at 4.35% and overall rate of return of 8%, which is sufficient to provide California American Water with the opportunity to earn a reasonable return on its investment. The case covers 2022 through 2024 with the revised cost of capital to be effective January 1, 2022.
Regarding the Monterey Peninsula Water Supply Project. As a reminder, California American Water refiled its application to the Coastal Commission on November 6, 2020. On December 3, 2020, the Coastal Commission sent a notice requesting additional information needed to consider the application complete. In March 2021, California American Water provided the request responses and once staff deems the application complete by statute, the Coastal Commission would have 180 days to process.
Moving to state legislation on slide 10. We continue to see states take action to help address water and wastewater challenges. In Kentucky, the Governor signed into law a new acquisition adjustment legislation. This law allows systems to be acquired above net book value when certain criteria are met. The law also establishes a timeline for a PFC decision on an acquisition, which is within 60 to 150 days of application approval. In Indiana, there are two pieces of legislation that have been signed into law that will benefit our current and future customers. Act 1287 creates a mechanism that reduces the required upfront cost to new customers for water and wastewater utility to extend service to underserved areas. And Act 349 establishes a tax rider for water and wastewater utilities based upon any change in state or federal income tax law.
On the national level, we are pleased to see that water and wastewater infrastructure is included in both the administration's Build Back Better Plan as well as introduced in federal legislation. There continues to be a significant need to invest in water and wastewater infrastructure, not just within our system, but broadly across the United States. We think the proposed funding to state revolving funds for drinking water and the possible expansion of the water [indiscernible] program to directly benefit our customers. The administration's plan also includes the tax package and Susan will talk about in a moment.
Moving to slide 11. Customers remain at the center of every decision we make. This means smart investments balanced by efficient operations and capital deployment. For the 12-month period ending March 31, 2021, our O&M efficiency ratio was 34.1%, a decrease from 34.5% for the 12-month period ended March 31, 2020. As we know each quarter, our adjusted O&M expenses are slightly higher today than they were in 2010. Since then, we have added approximately 327,000 customer connections while expenses only increased at a compound annual growth rate of 1.1%.
Before I turn the call over to Susan, let me cover a few additional items. You may have seen in our 10-Q a discussion around a matter related to HOS. Likely you saw a note from a rating agency commenting in that disclosure. As noted in the 10-Q, I want to remind you that this is a matter that relates to a subpoena received by AWR, an American Water subsidiary that operates a portion of HOS. The subpoena seeks information related only to HOS' Metropolitan New York City operations. As we noted in the 10-Q, AWR is cooperating fully with the investigation. And while it's impossible to predict the outcome at this point, we do not believe that it will result in any material impact to our overall operations or financial results.
As a final note on the business, I would like to congratulate Mark McDonough, who was recently named President and New Jersey American Water and Steve Curtis who will replace Mark as President of our Military Services Group. These are great examples of how we build and leverage the deep bench strength of American Water. Both Mark and Steve have had increasing roles and responsibilities throughout their careers at American Water and our models of our values.
And I will end with a thank you to our employees for their continued response to COVID-19. We continue to execute our preparedness plans as we look to reintegrate those employees who have been working remotely. As always, safety is our top priority. This past March, we were very pleased that it was our first month in our history with no OSHA recordable incidents occurred throughout our entire company. Our commitment to zero injuries and incidents will continue because no injury is ever acceptable to us.
And with that, I will turn the call over Susan.
Susan Hardwick
Thanks Walter. Let's start on slide 13 with a bit more detail on the results. As Walter highlighted, first quarter 2021 earnings were $0.73 per share compared to $0.68 per share in the first quarter 2020. Results for the regulated business segment were $0.74 per share, an increase of $0.06 per share, primarily driven by continued growth from infrastructure investment, acquisition and organic growth. Results for the market-based business were $0.09 per share, a decrease of $0.03 per share as we saw an increase in claims in the homeowner services group, due largely to weather-related events. Parent company results improved $0.02 per share in the first quarter of 2021 as compared to the same period in 2020.
Moving on to slide 14. Regulated results increased $0.06 per share. As I said, we saw $0.19 per share increase in revenues from new rates in effect, as well as earnings from acquisitions. O&M expense increased by $0.08 per share and somewhat offsetting was an increase in depreciation of $0.05 per share in support of growth in the business. As previously mentioned, the market-based business results decreased $0.03 per share in the first quarter of 2021 as compared to the first quarter of 2020. The lower results were due to increased claims expense which was driven by extreme cold weather, primarily in Texas and Illinois and the continuation of stay at home activity that we saw throughout most of 2020 due to the pandemic. The parent results improved $0.02 per share in the first quarter of 2021 compared to the first quarter of last year. The improved results were largely driven by a number of small items that increased expenses in the first quarter of 2020, offset by higher interest expense to support growth in the regulated business.
While I am on the subject of results, I would also like to discuss the company's lower effective income tax rate in the quarter. This was primarily due to an increase in the amortization of excess accumulated deferred income taxes from the settlement of general rate cases in New Jersey and Pennsylvania that approved the timing and method by which the excess deferred taxes are returned to customers. The increased amortization of excess deferred taxes lowers tax expense and is largely offset dollar-for-dollar with lower revenue, resulting in no impact to earnings. We will continue to see the impact and the resulting lower effective tax rate as the amortization continues in these state and others as similar provisions are put in place. And as a reminder, the excess accumulated deferred income taxes resulted from the federal rate being lowered from 35% to 21% as part of the Tax Cuts and Jobs Act, as Walter mentioned.
Moving on to slide 15. The continued successful execution of our regulatory strategy is a key element of our ability to consistently deliver financial results. To date, the regulated businesses have received $123 million in annualized new revenues in 2021. This includes $92 million from the Pennsylvania and Missouri rate cases discussed earlier, excluding the agreed reduction in revenues for tax savings passed back to customers and $31 million from infrastructure surcharges. In addition, the Pennsylvania rate case includes the second step increase of $20 million effective January 2022. We have also filed requests and are awaiting final orders on three rate cases, totaling an annualized revenue request of $61 million. And as Walter mentioned, we are also closely following President Biden's tax proposal and evaluating the impact that the current proposal would have on our long term growth strategy. While there many proposed provisions that need further analysis, our early indications are that there will be minimal impact to our plan.
And finally, moving on to slide 16. On April 28, 2021, our Board of Directors increased the company's quarterly cash dividend payment from $0.55 to $0.6025 per share. We continue to be a top leader in dividend growth. We have grown our dividend at a compound annual growth rate of about 10% over the last five years, significantly outpacing our peers in the Dow Jones Utility Average and the Philadelphia Utility Index. We expect to continue our dividend growth at the high end of the 7% to 10% range, as we know that it's very important to many of our shareholders. Also, we continue to target a dividend payout ratio of 50% to 60% of earnings. As this quarter's results demonstrate, we continue to consistently deliver on our earnings commitment. Regulatory execution along with the results from our market-based businesses allows us to continue that performance. We believe that delivering on results combined with our strong earnings growth and superior dividend growth expectations provides excellent value for our shareholders as we continue to outperform our peers.
And with that, let me turn the call back over to Walter for a few closing remarks.
Walter Lynch
Thanks Susan. Before we move on to your questions, in April, we were very proud to issue our first annual Inclusion & Diversity Report. This report highlights the efforts we have undertaken and the strides we made advancing our commitment to inclusion and diversity. ESG is a journey and our I&D Report is another way that shows how we are constantly striving thanks for the contributions of every employee to build and inclusive and mutual respect in the workplace.
To launch this report internally, we were honored to have Mr. Earvin "Magic" Johnson join us virtually for conversation on inclusion, diversity and on allyship. Additionally, we had an incredible community healing discussion with our employees to provide a chance for even more open and honest dialogue on inclusion. We believe that a company's strength is it's people and the diversity of our workforce makes us even stronger.
With that, we are happy to take your questions.
Question-and-Answer Session
Operator
[Operator Instructions]. First question comes from Durgesh Chopra of Evercore ISI. Please go ahead.
Durgesh Chopra
Hi. Good morning, Walter and Susan.
Susan Hardwick
Good morning
Walter Lynch
Good morning Durgesh.
Durgesh Chopra
Thanks for taking my question. Good morning. Just, I have couple here. First, Walter, just to clarify, the New York American sale process, I know a lot of moving pieces. But are we still targeting a this year close? Is that the current plan?
Walter Lynch
Yes. That's right, Durgesh. We are still working through with, as I said in prepared remarks, still working through with staff and others. And we are hoping to be expecting this year.
Durgesh Chopra
Understood. Thank you. And then just on the subpoena. Can I just clarify that this is related to specifically homeowner services within American Water Resources business? And the information that you might be sharing, is that just New York specific or are there are other states involved in the subpoena?
Walter Lynch
Yes. It's specific to our New York City Metropolitan operations in HOS. That's exactly right, Durgesh.
Durgesh Chopra
Got it. And obviously there is no set time line here as to how this matter gets resolved?
Walter Lynch
No, not at this point. Again, we continue to work in cooperating the investigation.
Durgesh Chopra
Okay. Understood. Just one big picture then. Walter, just your thoughts on the Biden sort of the American job plan. They talk about several hundred billion of investment on lead and then water and wastewater assets. What are the implications to your existing business? And then just your regulated acquisition growth strategy?
Walter Lynch
Yes. Durgesh, let me start with, we are really happy that the administration is focusing on water and wastewater as part of the infrastructure plan. So we like the attention that the industry is getting. And we think that the plan will benefit our customers, primarily by having access to low interest financing that's part of the plan. And so we access it right now on the water side. We want to get access on the wastewater side. That's a growing segment of our business and we want our customers to benefit like others from the low interest loans. So overall, we are very excited about the program and we want to participate like the municipalities do on the wastewater side.
Durgesh Chopra
Perfect. And just does it increase your footprint on the regulated acquisition side? Or does it, since there would lot of aid given to systems across the country, does it derail your regulated acquisition growth strategy? How would you sort of characterize that?
Walter Lynch
Well, as we have said and I have said in my remarks, there is significant need out there in the water and wastewater side. For us, it's not going to change our plan. Our pipeline continues to grow. We are going to continue to provide meaningful solutions for communities and we are committed to our plan. We don't see any change to our plan going forward.
Durgesh Chopra
Understood. Perfect. Thanks guys. Much appreciate the time.
Walter Lynch
Thanks Durgesh.
Susan Hardwick
Thanks Durgesh.
Operator
Thank you. And the next question is from Julien Dumoulin-Smith from Bank of America. Please go ahead.
Julien Dumoulin-Smith
Hi. Good morning team. Thanks for the time and opportunity. Maybe to kick things off after Durgesh's question here. Can I follow-up and ask you guys about your latest thinking on the administration just around the PFAS regulation? Hazardous determinations there and just obviously there is a lot of different pieces that could move here. Any, at least preliminary thoughts on where things could go and more specifically how that could impact your business?
Walter Lynch
Yes. Julien, thanks for the question. We think there is going to be a lot more focus on PFAS in this administration. I know they formed a task force, I believe it was last week, to look at what are the next steps to establish an MCL. Right now, there is a health advisory limit of 70 parts per trillion and we think that there is going to be a lot more focus on it. So we will have to wait-and-see. But the EPA is really science-driven. They may want to make sure it's based on science. And I think there is going to be a coming together of the science and the need to establish an MCL. And we look forward to participating and working with the administration to establish that.
Julien Dumoulin-Smith
Got it. And hazardous determination, that's just part of the broader context here, right?
Walter Lynch
That's right. That's all part of this work that's going to be going on.
Julien Dumoulin-Smith
Got it. All right. Excellent. And then I suppose a little bit more nuanced here. As you think about the impact here in the quarter on the market-based business here, you are probably still broadly within plan on the year and have some offsets. Just can you speak to that? Obviously, the payouts and the warranties, et cetera, obviously still elevated here? Just if you can speak to that a little bit on the offset, et cetera and how you are tracking?
Walter Lynch
Yes. With the HOS business, we are seeing higher claims on the wastewater side. People are spending more time in their homes and that's causing families additional breaks that we are having to repair. And then on the partnership side, we have seen a little bit of a slowdown in those partnerships. Yet, we still have a really good pipeline of opportunities. So those are the two areas, I think, that a been somewhat impacted by the pandemic in our business going forward.
Susan Hardwick
Julien. I might just add on that point. In addition to what Walter said, we did see a little bit higher claims in the quarter from these weather-related events. We did see some water claims, particularly in Texas, Illinois and a few of the parts of the country, really driven by the extreme weather that occurred. And we would expect, of course, that to now sort of be over. Some of the wastewater claims that Walter's talking about, as long as we continue this bit more stay at home, we may see elevated claims there. But I think the exposure to the weather-related, we have isolated in this quarter.
Julien Dumoulin-Smith
Got it. So how do you think about that relative to full year? Obviously, if the wastewater continues a little bit elevated, just offsets, et cetera? Probably not too material, right?
Susan Hardwick
It's really not too material now. And we saw roughly a penny or so of that impact related to the stay at home activity in this quarter. And as you can see across the country, states are starting to loosen up. So there will be some return. So I certainly think we will see this start to mitigate. And in any event, we don't see it as material for the year.
Julien Dumoulin-Smith
Excellent, guys. Thank you all very much. Have a nice day.
Walter Lynch
Thanks Julien.
Susan Hardwick
Thanks Julien.
Operator
Thank you. And our next question from Insoo Kim of Goldman Sachs. Please go ahead.
Insoo Kim
Thank you. Just a couple for me. The first one, with the recently announced Pennsylvania, New Jersey transactions, how do you think about potential cadence and magnitude of the equity guidance that you gave at the Analyst Day? Just thinking through 2021, 2022, if it's going to be split up? Or are we still assuming kind of, say, April's number is one year?
Walter Lynch
Well, first, let me talk about the growth. And we are really excited for these two acquisitions in our two biggest states. It's all part of what we are doing in providing solutions for communities with the City of York on the wastewater side and then Egg Harbor City. In the first WIPA, that's really important, the first WIPA acquisition and we are hopeful many other communities are going to see the benefits of that and continue to sell their systems to New Jersey American Water and Pennsylvania American Water. But it's really about providing meaningful solutions.
And again, as we have talked about having consolidated tariffs and the ability to spread those costs across a big customer base, over 700,000 customer connections, really helps those communities to mitigate and minimize customer bill impact. So that's a competitive advantage of ours. It's part of our strategy to make sure that these communities understand the value that we can bring to them through investment and I want the spotlight the follow on investment and how significant that is to our growth and to providing solutions for communities. So we are really excited about these two acquisitions and how they are going to play into future growth in Pennsylvania and New Jersey.
Susan Hardwick
Insoo, maybe let me just comment on the equity needs, because that was a follow-on part of your question, I think. When we built our plan and laid out our financing plan over the five years, we anticipated an increase in our growth from acquisition and we reflected that at Analyst Day. Now whether or not we have identified these specific transactions, that's a different question. But we had anticipated a step-up in growth and built our plan accordingly. So long answer to your question, I don't see any change from these specific acquisitions that we have now highlighted, any change to our equity financing timing or any of other our financing plans over the course of the five years.
Insoo Kim
Got it. Just from a timing perspective, is there a possibility that we could see some of that equity in the 2021 timeframe? Or is it more beyond 2021?
Susan Hardwick
No. It's beyond 2021. At Analyst Day, I think we indicated that there is about $700 million of equity in the five years and it's still roughly in sort in the middle of that five year timeframe. So no, I would not anticipate anything in 2021.
Insoo Kim
Got it. And then my second question, I guess maybe for Walter is, obviously these two acquisitions in states that have favorable systems in place for such growth. With the pending New York sale and then the recently announced Michigan divestiture as well, when you just look across your footprint in the different states, you don't have to name any, but are these opportunity to potentially monetize some of the other states to concentrate more on the jurisdictions that offer better systems for organic and inorganic growth?
Walter Lynch
Yes. We do a constant assessment of where we are operating, where can we provide the best value for customers and where can we grow our systems. And we will continue to evaluate our footprint. But we are really happy where we are right now and we continue to grow. If you look at our pipeline, we are growing. We have eight states where we have 32 agreements. So it's not just in one or two or three states. It's really across our footprint. And we will continue to provide solutions again for communities across our footprint.
Insoo Kim
Understood. Thank you both.
Walter Lynch
Thank you.
Susan Hardwick
Thanks Insoo.
.
Operator
Thank you. Next question comes from Steve Fleishman of Wolfe Securities. Please go ahead.
Steve Fleishman
Hi. Good morning.
Susan Hardwick
Hi Steve.
Walter Lynch
Good morning.
Steve Fleishman
Hi Walter. So just a question on the disclosure of this subpoena in homeowner services. I guess it doesn't say, I think, in your release just if the company has done its own investigation and if they determined anything was done wrong? Do you have any color or information on that?
Walter Lynch
Yes, Steve. And given that it is an ongoing investigation, we really can't comment any more on it other than what we have in the disclosure.
Steve Fleishman
Okay.
Walter Lynch
All right.
Steve Fleishman
And then, Walter, on your year-end call, you had kind of hinted at a larger acquisition or more growth coming in your tuck-in acquisitions and the like? Should I assume that was the York deal the ended up officially getting announced? Or is that still relevant for something else?
Walter Lynch
Let me approach from this, we continue to build our pipeline. We continue to, again, provide solutions for communities. And if you look over the last year, we have almost doubled our pipeline. We have the biggest acquisition in Pennsylvania American Water's history. So we are going to keep doing much of the same, Steve.
Steve Fleishman
Okay. Great. And then just on the New York American sale. If I understood you correctly, it sounds like neither your forecast nor your equity timing should be impacted at all by whatever happens with the outcome of the sale?
Walter Lynch
Yes. That's correct, Steve.
Steve Fleishman
Great. That was very clear. Thank you.
Walter Lynch
Okay. Steve, thank you.
Susan Hardwick
Thank you.
Operator
[Operator Instructions]. Next question comes from Richard Sunderland, JPMorgan. Please go ahead.
Richard Sunderland
Hi. Good morning. Just maybe following up on that last point real quickly. The sale timing, would it impact where you land within the range of you 2021 guidance? Or phrased differently, you have some timing assumption associated with close presumably baked in/ Can you disclose what that assumption is and what a quarter or two difference may do to where you land link in the range?
Susan Hardwick
Hi Rich. It's Susan. I am probably going to add much more detail to that. I would just echo what Walter said in his prepared remarks and in his answer a minute ago. We just don't see it having any impact on 2021.
Richard Sunderland
Fair enough. Thank you. And then just separately curious at a high level in terms of your O&M efficiency ratio. What impacts you have seen on your efforts there over the past year under the pandemic and what that may mean for progress and efficiencies going forward as we reopen?
Walter Lynch
Yes. It's been a big focus for us, as you know, Rich. And we are going to continue to focus on every area of our business where we can drive efficiencies. We have improved it from 34.5% to 34.1%, as I said in my remarks. And we are confident that we can hit our goal in 2025 of 30.4%. So we are going to continue to do the things that we have been doing, focusing on technology, leveraging our supply chain and really leveraging our culture of looking for every dollar that we can save and continue to provide the service that our customers expect. So that's the journey we are on. We are going to continue to execute on that. And we are confident in our goal in 2025.
Richard Sunderland
Great. Thanks for taking my questions.
Walter Lynch
Thank you.
Susan Hardwick
Thanks Rich.
Operator
Thank you. And the next question comes from Verity Mitchell of HSBC. Please go ahead.
Verity Mitchell
Hi. Good morning everyone. And I have just got another couple of high level questions about geography, which is something I am always interested in. When I look at your coverage across so many states, does the Biden proposal change the view of your opportunities across states? I mean, you have already said that it's not going to change your growth trajectory. But any nuance there? And also in terms of what we see in terms of major regulatory mechanisms in states now that you would like to see? Thank you.
Walter Lynch
Yes. Hello Verity. Walter here. Yes. The administration's proposed plan does not change our outlook at all on acquisitions. Again, we continue to build our pipeline of opportunities. We are providing meaningful solutions and really when you look at the size of our business, how long we have been in business since 1886 and the expertise that we have and the ability to share costs across our customer base, we bring tremendous value to communities and they realize that. And that's why they are talking to us about potentially selling their water and wastewater systems.
Verity Mitchell
Yes. So I just want to know whether the states in which you are active, the Biden proposals create new opportunities in particular states?
Walter Lynch
I am not sure it will create new opportunities. The great thing is, it really talks about water and wastewater where before we were always left out. And I think is a realization in this country that there is so much fragmentation, so many improvements that need to be made that the private sector and American Water can play a really integral role in moving that forward. And that's what we are excited about.
Verity Mitchell
And so what's missing in this? What would you like to see that's missing in terms of fair value or surcharges? What missing there?
Walter Lynch
Yes. We continue to work with states on fair market value legislation. As I said, Kentucky is now the 11th state within our footprint to have fair market value legislation. It's really an affirmation of the value that we provide and I think the recognition of the legislatures and the governors that they want us to play a role in consolidating the market and adding our expertise to many of these small system that don't quite have the expertise. So we do have in the appendix an overview of fair market value by state and the specific parts of the fair market value. So refer to that and you can see, again, 11 out of our 16 states have fair market value legislation and we are going to continue to work with states that don't have it and continue to work to tell our story about the values we can provide.
Verity Mitchell
Great. Thanks.
Walter Lynch
Okay. Thank you Verity.
Operator
This concludes our question-and-answer session. Now I would like to turn the conference back over to Mr. Walter Lynch for closing remarks. Please go ahead.
Walter Lynch
Thank you for joining our call today. We appreciate and value your participation and the work you do on behalf of your clients. We hope our open and transparent discussions give you confidence in our company and the investment of our stock. As a reminder, our Virtual Annual Shareholders Meeting will be held next week on May 12 at 10:00 AM Eastern Daylight Time. We hope that you will join us. In the meantime, if you have any additional questions, please call the IR team and we will be happy to answer them. Thanks again and be safe.
Operator
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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