AWK / WTRG 2Q26 Preview: 2Q26 Preview: More about Merger & Regulatory than results.

Research evidence excerpt

AWK / WTRG 2Q26 Preview: 2Q26 Preview: More about Merger & Regulatory than results.

Barclays | North America Power & Utilities

the company is expecting a decision on the rate case at the next PA PUC hearing on July 16th.

The commission is expected to rule on the ALJ recommendation from May, which was a

constructive recommendation. The ALJ recommended a 9.7% ROE, a capital structure of

55%, and a revenue requirement of $83mn. Even though bill affordability is a significant

political issue in PA, as well as across the nation, we have not yet seen this impact water

utilities in the state. Given the Governor did file commentary in the WTRG gas case, reiterating

his letter regarding lower returns (cap structure and equity ratio), it's important to see this

commission approved by the PA PUC with limited modification. We note water companies

have some of the more material impacts to EPS on ROE reductions - taking the Governor's

letter at an 8.2% ROE would produce -13% / -3.5% negative revisions to WTRG/AWK EPS,

respectively, on a 2027E standalone basis - before considering more punitive equity cap

structure look-throughs.

• AWK/WTRG Merger: AWK has received approval of the merger in Ohio and Kentucky. As of

the June slide deck, the outstanding states are PA, NJ, NC, TX, ILL, and VA. Even though all of

the jurisdictions are critical for approval, we note that PA is the most critical out of all of the

jurisdictions because PA represents 27% of the 2025 rate base. The joint applicants are trying

to schedule discussions with intervenors during the settlement window, which is a typical

process during the settlement period, but both applicants are also prepared if the case is fully

litigated. The next critical dates in the case are: surrebuttal on July 23rd, hearings will be held