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AA: You recently announced a major investment in infrastructure upgrades. Can you address why infrastructure is a challenge, and how Aqua America intends to approach that challenge?
CF: Major investment is needed in the water utility space. The U.S. Environmental Protection Agency expects the need to spend $384.2 billion on water infrastructure, and $292.2 billion on wastewater infrastructure, over the next twenty years.
We at Aqua believe we can be an important part of the solution to the nation’s infrastructure challenges, both from financial and expertise standpoints. We have plans to invest more than $1.2 billion in infrastructure improvements through 2019. We have seen evidence of failing and crumbling infrastructure throughout the country, and have witnessed the effect it has on our local communities. Consistent and ongoing upgrades and replacements of water and wastewater lines are imperative to ensure high quality service for our customers, and for citizens across the U.S. The opportunity to deploy capital allows us to contribute to the solution of the infrastructure problem while growing our rate base and improving shareholder value. Our expertise in water and wastewater presents mutually beneficial opportunities for Aqua America and local communities.
“The board recently approved a 7 percent increase to the quarterly dividend, the twenty-seventh dividend increase in twenty-six years.”
AA: What other challenges or goals are being targeted by Aqua America?
CF: We are targeting 1.5-2 percent customer growth for 2017, and currently have five deals representing nearly 10,000 customers and more than $100 million purchase price pending. Additionally, we are evaluating approximately 70 additional new opportunities within our targeted size range of 2,500 to 25,000 customers.
Acquiring new systems comes with different complexities, so our challenge is to continually identify and evaluate options, and work within the regulatory environment to expand and increase our company’s value. We believe Aqua can play an important part in the rehabilitation of U.S. water infrastructure, recently given a D grade by the American Society of Civil Engineers.
AA: Utility investors tend to focus on dividends. Can you describe Aqua America’s dividend philosophy, and what investors should look for in the future?
CF: Almost 50 percent of our company is owned by retail investors, which is unique for a company of our size. Investors can look for a continued emphasis on returning value to the shareholders via our dividends. The board recently approved a 7 percent increase to the quarterly dividend, the twenty-seventh dividend increase in twenty-six years. Our record of paying a dividend for 72 consecutive years shows Aqua’s commitment to returning value to the shareholders. Since July 1, 2015, when I became CEO, our total shareholder return is over 35 percent.
AA: You have what you call an “aggressive growth-through-acquisition strategy.” Would you describe what that means?
CF: Aqua’s strategy has long been to acquire water and wastewater systems to help solve the national infrastructure problem and to grow our customer base. Several of the states where we provide service recently adopted “fair market value” legislation. These new laws allow municipalities to sell their systems for prices that reflect current market value. As a result, we’ve seen a significant increase in interest in privatization of municipal water and wastewater systems.
Municipalities often don’t have the capital to continually update their infrastructures, like Aqua and some other regulated utilities do. We see this as a mutually beneficial arrangement, where we bring our professional expertise to the community while the municipality sells its system for funds it can redirect to other important local priorities.
Aqua is constantly looking to deploy capital into useful projects through targeted research and disciplined business development efforts. As noted above, hundreds of billions of dollars are needed to upgrade the nation’s water infrastructure. Our acquisition plans include the consolidation of the fragmented U.S. water market, and our acquisition strategy focuses on our core capabilities of capital deployment, regulatory expertise, and operational excellence. Simply put, we have access to capital to invest in infrastructure, credibility in the regulatory environments where we operate, and we can utilize our operational knowledge to increase the efficiencies of our operations. Our management team has many years of experience in successfully applying this model to grow Aqua’s business.
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