American Water Works Co Inc (AWK) Q3 2021 Earnings Call Transcript

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American Water Works Co Inc (AWK 1.69%)
Q3 2021 Earnings Call
Nov 3, 2021, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Aaron Musgrave -- Senior Director, Investor Relations

Good morning, everyone. I'm Aaron Musgrave, Senior Director of Investor Relations at American Water. On behalf of our entire company, I'd like to welcome you to our Investor Day. We know this is a very busy week, and we appreciate you joining us for today's comprehensive update. Let me first go over some Safe Harbor language. Today, we'll be making some forward-looking statements that represent our expectations regarding our future performance or other future events. These statements are predictions based on 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 factors as well as a more detailed analysis of our financials and other important information is provided in the earnings release and in our September 30, 2021 Form 10-Q each as filed with the SEC. The reconciliation for non-GAAP financial information used to calculate the O&M efficiency ratio can be found in our earnings release and is in the appendix of the accompanying slide deck, which has been posted to the Investor Relations page on our website. All statements during this presentation related to earnings and earnings per share refer to diluted earnings and earnings per share. In addition, for the purposes of the presentation, our long-term EPS CAGR range is anchored off of the 2020 earnings per share results, our last reported actual results.

As we do with every meeting at American Water, let me start with the safety message, as there is nothing more important to our company. Daylight Savings Time comes to an end for many of us this coming Sunday, November 7. As we turn back our clocks, it is important to recognize that it takes time to adjust to the shift and that the adjustments can span broader than sleep patterns. As an example, studies from the National Road Safety Foundation show that auto accidents increase when Daylight Savings Time ends due to driver fatigue and decreased visibility during rush hour traffic. With that in mind, I'll close with a few brief reminders to consider while driving over the coming weeks. First, make sure you slow down driving in neighborhoods or near where kids like mine may be playing at dusk. Second, remember to turn on your headlights to increase visibility during early morning and evening hours and third, keep your vehicle's headlights and windows clean both inside and out before you begin driving. And with that, I would now like to introduce American Water's President and CEO, Walter Lynch.

Walter J. Lynch -- President and Chief Executive Officer

Thanks, Aaron. And good morning everyone. I am Walter Lynch, President and CEO of American Water. I want to welcome and thank you for taking the time to join us today. We know you have a choice and where to invest your money and we thank you for your confidence in American Water. We are confident that throughout our presentation today, you'll continue to see that we're well positioned for success for decades to come and have an even more compelling long-term value profile for you our owners. We look forward to sharing our story.

Turning to the next slide. As outlined in our press release issued yesterday, American Water continues to execute on our strategies we laid out for you in February, operating where we can create the most value and now becoming a 100% regulated and regulated like business positioned to deliver even higher quality earnings. Today, we'll update you on our strategic focus and why becoming a fully regulated business allows us to accelerate on our commitment to build and maintain safe, reliable, and resilient water and wastewater infrastructure continue to put our customers first and deliver water and wastewater solutions where we can create the most value for customers and communities. Cheryl Norton, our Chief Operating Officer, will talk about our regulated business, focusing on our significantly increased capital investment plan, efforts to maintain affordable service, and our continued commitment to embed ESG principles throughout our operations. Susan Hardwick, our Chief Financial Officer, will cover the recently announced sale of Homeowner Services, our long-term financial strategy, 2022 earnings guidance and longer-term business plan along with our year-to-date and expected strong 2021 results. We will then look forward to answering your questions.

Let me start with our clear transparent strategy to operate where we can leverage our strengths and create value for all stakeholders. We create value when we focus our resources and efforts where we have scale, where we can drive efficiencies, invest in reliable and resilient infrastructure while enhancing our customers' experience and keeping their bills affordable. There is no other water and wastewater service provider in the United States with our scale and capabilities and that starts with a dedicated and talented people of American Water. Our company has an intentional long-term commitment to build and higher talent, inspire and reward high performance, create long-term development paths, and build a strong diverse team. Our successful strategic execution is driven by our inclusive high performing culture and our continued commitment to being a values-led company. Our values of safety, trust, environmental leadership, teamwork, and high performance guide us every day. We're cultivating deeply committed and passionate teams that care about our customers, our communities and each other.

Let me take a moment to talk about our business and our continued execution of our strategies. I'll start by reviewing our recent decision to sell our Homeowner Services business. Susan will cover the structure of the deal in greater detail. The strategic reason we executed this transaction was to further support our focus on the regulated business resulting in what will be a fully regulated and regulated like pure play water and wastewater company at close. Simply put, our core regulated business is strengthened by this transaction. We will be able to invest more capital in our water and wastewater systems as well as in acquisitions. I'll discuss our growth pipeline shortly, but there are many communities looking for solutions to serious water and wastewater challenges. The Homeowner Services business is a great business that we've grown over the past 20 years. Because of the nature of the business and its presence in the marketplace, we concluded that the opportunity to monetize that value and use the proceeds to accelerate our regulated investment strategy was in the best interest of all stakeholders. I want to say a special thanks to our employees of Homeowner Services for building this successful business. You're a tremendous team. We're thrilled with the transaction we've entered into with Apex partners and know that the business and its employees will continue to grow under their leadership. With a sharpened focus on our regulated business, we can grow and put our resources where we have scale, leverage constructive regulatory and legislative tools, drive further efficiencies and best serve our customers. After closing on the sale of HOS, our earnings will come exclusively from our regulated and regulated-like businesses providing long-term stable and steady growth. We know that higher quality earnings matter to those who invest in us. The opportunity to lessen the risk of more volatile earnings growth in exchange for the steady growth of regulated earnings adds to the American Water value proposition and the sale of Homeowner Services is just one example of our strategic execution. It's worth noting that we've announced multiple acquisitions in 2021 including our largest acquisition in York, Pennsylvania, which will add an equivalent customer connection total of more than 45,000. To date, we've closed on 14 acquisitions in 6 different states, adding approximately 7450 new customer connections. We also added 12,600 customer connections through organic growth to date, and we look forward to adding another 82,700 customer connections through 31 currently signed agreements in 8 states. Additionally, we continue to make progress on the sale of New York American Water. We fully expect the transaction to close by the end of the year.

So let's look at what the company will look like upon the closing of these 2 large sale transactions. This map clearly demonstrates our geographic diversity and how our scale and size are of key competitive advantage. American Water is the largest and most geographically diverse water and wastewater utility in the United States. Upon the closing of the sales of HOS and New York American Water will provide drinking water and wastewater services, including the 70 military installations we serve to an estimated 14 million people in 23 states. We operate in over 700 communities in United States with 3.4 million customer connections. In 2020, our top 7 states provided over 80% of our regulated businesses total revenue. Our Military Services Group is the largest provider of water and wastewater services for the military now proudly serving 17 installations across the United States. It's truly an honor to serve the men and women who serve our country.

Now turning to Slide 10. I want to highlight our industry-leading earnings growth outlook of 7% to 9%. As I mentioned, our regulated and regulated-like businesses will soon provide 100% of our projected EPS. Investments in the water and wastewater infrastructure and communities we currently serve and the ones we strive to serve will lead the way in our growth outlook and as Cheryl and Susan will cover, we will stay focused on prudent and efficient operating and financial strategies to continue to deliver on our growth targets. Turning to slide 11, as you may know, there is a bipartisan effort at the federal level related to an infrastructure package that we're dedicated $5 billion over the next 5 years to improve water and wastewater systems across the United States. The need for significant investment in water and wastewater infrastructure is widely recognized. Just this past fall, we saw the havoc the extreme weather caused for many water systems. This is in addition to an aging infrastructure, contaminants of emerging concern, ongoing efforts to replace lead and copper lines, and ever more complex water quality regulations. American Water is executing on our well planned asset renewal and upgrade strategy to drive modernization, improve efficiency, and increase reliability and resiliency. It's far better to address these challenges proactively than to wait until disaster strikes. Our new accelerated capital plan includes an increase of nearly $6 billion over the next 10 years, reflecting the continued needs in our existing systems as well as the increase in potential regulated acquisitions. American Water's investment thesis is unique because of the predictable and stable way we deploy our capital. We have the flexibility to scale our infrastructure investment plans up and down as capital needed for regulated acquisitions may vary because of deal timing. We've included $3 billion to $4 billion for regulated acquisitions in our new 10-year plan.

Let's move to Slide 12 to discuss how we balance investment opportunities with customer affordability. This is a disciplined and holistic approach focusing on operating and capital efficiencies, constructive regulatory and legislative policies, and a large increase in customer base. It comes down to driving efficiencies in areas where we've been successful effectively leveraging technology, taking advantage of our size and scale through supply chain, not only around price but access to critical supplies and driving our cost management through a culture of continuous improvement. We reinforce our operational efficiency efforts by focusing on capital efficiency. We understand that driving capital efficiency allows us to do more with the same amount of money. We employ a value engineering step in all large projects to optimize cost and performance of our project. We also continue to receive timely recovery of our investments through regulatory mechanisms across our footprint. These mechanisms reduce regulatory lag and extend the time between general rate case filings, which enables us to mitigate the size of rate increases from base rate cases.

Finally, our large customer base plays an important part in minimizing customer bill impact for this needed investment. We're able to spread the cost of these investments over a large state customer base, and again, leverage our efficiencies to minimize customer bill impact. Over the past 10 years, our O&M efficiency ratio has gone from 46% to nearly 34%, and we've challenged ourselves with a new O&M efficiency target of 30% by 2026. We're confident in our ability to hit that target. None of this would be possible without our people. Our employees are passionate about our customers and know how savings directly benefit them by keeping bills affordable. This is our culture and it's been so instrumental to our success in driving efficiencies. As you're aware and we've shown you many times before, our industry remains highly fragmented, creating ample opportunity for consolidation and efficiencies. There are approximately 51,000 community water systems and approximately 16,000 community wastewater systems in the United States compared to approximately 3800 electric utility systems and 1400 gas utility systems. This is significant for 2 reasons: first, these numbers illustrate the large volume of opportunities available. Second, many of these smaller communities are facing infrastructure challenges that require capital investment. Due to competing priorities, funds may or may not be readily available and the large amount of capital investment required must be distributed across a small customer base. This can significantly impact rates and affordability.

Turning to Slide 14 in our competitive advantages, because of our large customer base, we're able to spread capital investment costs, helping to maintain affordability for our customers. Another advantage, an important piece of our growth strategy is our ability to acquire wastewater systems within or near our water footprint. Our water operations make up approximately 93% of our business while wastewater is only 7%. This presents a tremendous opportunity because we have the operational infrastructure, equipment, expertise, personnel and relationships with communities where we already provide water service. We've executed a multiple successful wastewater acquisitions adjacent to and within our existing water operations. Some of these include Scranton and Exeter, Pennsylvania where we added 31,000 and 9,000 wastewater customer connections respectively and in Alton, Illinois where we added 23,000 wastewater customer connections and in Long Hill, New Jersey, we added 2800 wastewater customer connection. Wastewater acquisitions are a key growth opportunity and will continue to be going forward.

Turning to Slide 15, foundational to our strategy is operating and constructive regulatory environments with supportive business climates. We're proud to have worked with many stakeholders and constructive regulatory and legislative outcomes at the state level ultimately benefiting the communities we serve. This foundation gives communities more options to solve water and wastewater challenges and American Water more opportunities to help those communities through acquisitions.

Let's move on to Slide 16 for an update on our pipeline of acquisition opportunities. As we communicated earlier this year, we've increased our regulated acquisition EPS growth target to 1.5% to 2.5% and at the same time, sharpened our focus on our regulated investment and acquisition strategies. American Water is focused on growing in states where we can leverage our competitive advantages. As of today, we have a total of 31 acquisitions under agreement in 8 states and our 5-year opportunity pipeline is increased by over 60% in the past 12 months, growing from about 800,000 customer connections to over 1.3 million today.

Moving to Slide 17, let's discuss our Military Services business. Our business model centers on adding new military installations to our portfolio and then optimizing revenues on those bases. As you can see here, we have a potential of about 70 additional opportunities in the years ahead. Additionally, we can optimize revenue through constructing new infrastructure projects on base. A military installation's mission can change or expand or new technologies or system improvements maybe identified that improve efficiency or sustainability. We work with our bases to identify and leave these needed infrastructure projects. This regulated-like business has also been a key part of building talent within our organization. For example, our President of New Jersey American Water, Mark McDonough, previously served as president of our Military Services Group, because serving a military installation is very similar to serving a large system. The experiences our employees gain in safety, customer service, and asset management are highly applicable in our regulated operations, and again, we're extremely proud to provide essential services for the military men and women and their families.

Let's turn to our long-term growth story in Slide 18, covering our 5-year plan. You'll recognize our projected growth triangle with our regulated infrastructure investment serving as the foundation reflective of an increased capital plan made possible by the proceeds from the Homeowner Services sale and our previously announced larger growth expectation from regulated acquisitions. You can also see that we have narrowed our long-term EPS CAGR range to 7% to 9%. This narrow target range reflects the shift to higher quality earnings as we increase our capital spend for both system improvements and acquisitions. Of course, the accelerated spend will take time to be deployed and ultimately to be included for rate recovery. That ramp up will result in a bit slower earnings growth rate early on as the spend accelerates, but the result is earnings that are more consistent and predictable. We're confident that we can deliver on the components of this triangle and believe moving to a 100% regulated and regulated-like business best positions us for long-term success. We have a clear strategy focused on what we do best, and it starts by operating, where we can create value, leverage our critical mass, drive efficiencies, and increase opportunities to provide water and wastewater solutions. We're able to advance our capital plan making critical investments in our pipes, pumps, and plants hardening our assets against extreme weather events and deploying technology that will help us work smarter and more efficiently. We'll will balance that investment through a disciplined regulatory strategy and strategic cost management to support customer affordability, and again, while there is a ramp-up time related to increased capital and acquisitions and the recovery of those activities, out earnings will be more consistent and stable in the long term. And finally at American Water, ESG is core to our business and integral to our success. It's who we are, what we do, and how we do it. Living by ESG principles is our commitment to operate in the most responsible manner possible. I'd like to highlight a great example of how we embed ESG into our operations on Slide 19. In 2016, Pennsylvania American Water acquired the wastewater system assets of Scranton Sewer Authority, a combined sewer system that provides wastewater service to approximately 31,000 customer connections in Scranton and Dunmore. Pennsylvania American Water was already the public water service provider for these communities and brought both the technical expertise and financial resources to meet the Scranton Sewer Authority's unique challenges, provide a long-term wastewater solution, and maintain reasonable rates for the customers. Prior to significant upgrades made by Pennsylvania American Water, it was estimated that during a typical year, nearly 700 million gallons of combined sewer overflow discharged into the Lackawanna River, negatively impacting the water quality of the receiving streams. After Pennsylvania American Water purchased the system implemented numerous improvements and invested capital, the overflow volume had been reduced by 70%. We continue to work collaboratively with the state DEP on additional capital investment to further reduce the overflow volume and protect the local environment. This story demonstrates the interrelationship of our competitive advantages and how our leadership in applying ESG values complements our regulated growth strategies, all to improve the communities we serve and to deliver meaningful value to shareholders.

Let me now turn the call over to Cheryl to talk about our regulated business.

Cheryl Norton -- Executive Vice President and Chief Operating Officer

Thank you Walter and good morning everyone. I'm Cheryl Norton, Executive Vice President and Chief Operating Officer at American Water. In this section, I'll talk about our increased capital plan, efforts to maintain affordable service, and our continued commitment to embed ESG principles throughout our operations.

Let's start with the state of the water and wastewater industry. Turning to Slide 21, you've seen this before, but it clearly articulates the issue. The American Society of Civil Engineers' latest report card for America's infrastructure issued every 4 years since 2001 recently gave the nation's drinking water systems a C minus grade and wastewater systems a D plus grade. They have also estimated that the needed investment over the next 25 years is $1 trillion. Many drinking water pipes were laid in the early to mid 20th century with a lifespan of 75 to 100 years. Utilities average a pipe replacement rate of 0.5% per year. At that rate, it will take an estimated 200 years to replace the system and more than double the useful life of the pipes. In contrast, over the past 5 years, American Water's replacement rate has averaged around 150 years. Our current 5-year capital plan will drive American Water's average replacement rate down to approximately 110 years. Clearly, the infrastructure need in our industry is widely recognized. We welcome the attention and support that our industry is getting at the federal level. As Walter referenced and put it into context, the bipartisan effort supports 55 billion dollars to be spent over the next 5 years, of the $1 trillion water and wastewater infrastructure needs. American Water is well positioned to help provide solutions to water service challenges for decades to come.

Now let me talk about our capital plan in greater detail. As mentioned by Walter, the sale of our Homeowner Services business will enable cash proceeds to be redeployed into the regulated water and wastewater business in the near and medium term, allowing us to accelerate our capital spending plans. We plan to spend $2.5 billion in 2022 and $13 billion to $14 billion over the next 5 years, which is an increase of approximately $3 billion over the 2021 to 2025 business plan we shared with you earlier this year. On the longer horizon, you can see that we plan to spend approximately $28 billion to $32 billion in our regulated business over the next 10 years, reflecting an approximately $6 billion increase compared to the plan we shared with you in February. And let me also underscore that our capital investment generates significant economic benefit to the local and regional economies. According to the US Water Alliance, for every $1 million we invest in our infrastructure, we create 15 high paying jobs for our communities. So our planned investment of $13 billion to $14 billion over the next 5 years has the potential to create or sustain about 200,000 jobs in the communities we serve. As we've refined our overall spending plan, we have also refined the mix of the planned spend. Let's spend a couple of minutes discussing some adjustments we've made to our allocation of capital expenditures, specifically the increase of our infrastructure renewal and resiliency segments. As you are hearing throughout our presentation today, our capital plan is very much aligned with our environmental goals and other ESG related values that we prioritize as a company. The largest component of our capital investment continues to be infrastructure renewal, now at 68% to 70% of our total capital plan through 2031. These investments are primarily for pipe replacement and upgrading water and wastewater treatment facilities. We've also expanded our capital spend related to resiliency to further invest in reducing and eliminating leaks, improving cyber and physical security, and increasing resiliency of essential assets to climate variability. We now expect these investments to represent 10% to 12% of our 10-year capital plan. Our commitment to make needed investments to enhance water quality remains very strong, including steps we're taking to improve our water sources such as expanding our comprehensive source water protection programs in 5 states. Every water provider must be prepared to address a broader range of contaminants and be ready to meet more stringent regulations. Finally, we will continue to invest in new technologies to enhance our customer experience and enable our employees to drive efficiencies. Here in New Jersey, we have recently experienced a stark reminder of why resiliency is such an important component of our capital investment plans. In the aftermath of Hurricane Ida, I'm proud to share that New Jersey American Water successfully withstood widespread flooding, and drinking water quality was not impacted in any of its service areas. We also witnessed the value of our resiliency investments in our Pennsylvania, Maryland, and New York operations. As pictured on Slide 24, this includes our crucial Raritan-Millstone water treatment plant. This plant was reinforced with a $37 million flood protection project in 2018 to withstand floods that are categorized to occur on a 500-year frequency in line with standard supported by the US Environmental Protection Agency and the Army Corps of Engineers. Prior to the investment, the Raritan-Millstone facility was designed to sustain a 100-year flood event which is marked by walls with an elevation of 44 feet. During what became Tropical Depression IDA when it hit New Jersey, the Raritan River crested at a record of nearly 45 feet, well below the new protection threshold of 48 feet. If this storm had happened prior to 2018, we would be telling a different story today. The investments we made to protect this critical facility have proven to be invaluable by holding up against this historic flood and enabling us to continue to provide water service to the more than 1 million customers who get their drinking water from this plant.

Moving on to our regulatory strategy on slide 25, our theme continues that we are most successful and we operate where we can leverage our strengths. As Walter said, we create value when we focus our resources and efforts where we have scale and where we can drive efficiencies, all while enhancing our customers' experience and keeping their bills affordable. It's beneficial to our customers that across our diverse geographic footprint, we operate in many states that have constructive regulatory mechanisms that enable needed investments and provide a reasonable rate of return for those who invest in our company. We have engaged with policymakers and regulators for well over a decade to find the best ways to invest in water and wastewater infrastructure while always putting the customer first. In the states where we operate, 17 new mechanisms have been added over the past 10 years. As water and wastewater industry challenges grow, we will continue to focus on constructive regulatory and legislative outcomes in the years to come.

Let's move to Slide 26 and discuss timely recovery of our investments across our footprint. Through regulatory mechanisms such as forward test years, we are able to reduce regulatory lag and extend the time between general rate case filings. This enables us not only to earn our allowed return, but also to mitigate the size of any rate increases for our customers. We expect nearly 2/3 of capital investments over the next 5 years to be recoverable through these mechanisms, and we continue to engage with policy makers where we operate in similar efforts to support critical investments and solutions to water and wastewater challenges.

Moving on to slide 27, as we've shared with you before, we take a strategic approach to managing our cost that is centered on value-added technology, leveraging our size and scale to create a cost-effective supply chain, and embracing a culture of continuous improvement. Technology enables us to drive efficiencies in our business and to provide an excellent customer experience such as through making data available to our customers, so they can better manage their usage. Technology investments also enhance customer and employee safety by leveraging intelligent alert systems to detect and fix leaks earlier. Through our supply chain strategies, this year we have saved over $60 million by leveraging our buying power across our business, such as cost savings related to purchases of pipes and vehicles. Our supply chain strategies also continue to mitigate cost increases for chemicals, valves, construction materials, and other safety supplies. Our team has strong relationships with key suppliers to ensure we have priority when items essential to operating our business are in short supply. This was especially important during the initial phases of the COVID-19 pandemic, and it continues to be critical, as we see significant pressures on the national supply chain currently. Our industry position has allowed us to avoid much of the significant price and availability impacts experienced by others. Of course, technology and supply chain strategies are only as good as the people who execute them. A key part of our culture and our success in achieving efficiencies is that our employees are passionate about our customers and keeping their bills affordable. Our employees understand that for every reduced operating dollar, we can invest $8 in capital with no customer bill impact. Additionally, by embracing a spirit of continuous execution and innovation, we expect to continue our long-term success in managing operating costs for the business.

Moving to Slide 28, you can see that we have made steady and significant progress in driving efficiencies in our business. Just to put things into perspective, our adjusted O&M expenses are just slightly higher today than they were in 2010. Since that time, we have welcomed approximately 342,000 customer connections while expenses only increased at a compound annual growth rate of just over 1%. Customer growth and managing costs over the last decade have been key to our strategy of keeping our customers' monthly bills affordable as a percentage of their household income. Over the past 10 years, our O&M efficiency ratio has improved from 46.1% to 34.3%, and we challenged ourselves with a new O&M efficiency target of 30% by 2026, which we're confident we can achieve. To get there, we will continue executing on the cost management strategies and regulatory recovery of invested capital as we have discussed here today. We will also continue executing on our target for growth through regulated acquisitions to gain scale efficiencies and achieve reasonable O&M cost per customer. Importantly, I'll close with a few comments about our continued commitment to ESG principles throughout our business. At American Water, ESG is not simply environmental, social, or governance individually, but it's the sum of all 3 areas coming together and overlapping with our corporate values and strategy. Let's talk about a few of our goals for a moment on Slide 30. Earlier this year, we added 2 new goals regarding water efficiency and water resiliency, and I am pleased to share that we are on track to meet both targets. By 2035, our goal is to reduce the amount of water delivered per customer by 15% compared to a 2015 baseline. Over the past 5 years, we've already accomplished a 4.3% reduction in water delivered per customer and as I just mentioned, are in line to realize this long-term goal. We are also on track to meet our water resiliency goal, which states that by 2030, we will have improved our water system resiliency by increasing our utility resilience index weighted average by 10% from a 2020 baseline. These goals are the right thing to do for the communities we serve, and they will enhance our leadership position in ESG. We also encourage you to check out American Water's 6 biennial sustainability report that was released in September and covers our industry leading performance in 2019 and 2020.

With that, I'll turn it over to Susan.

Susan Hardwick -- Executive Vice President and Chief Financial Officer

Thank you, Cheryl. Good morning. It's good to be with you this morning, and we certainly look forward to seeing many of you in person at EEI. I'm Susan Hardwick, Executive Vice President and Chief Financial Officer of American Water. You have just heard from Walter and Cheryl about the various elements of our strategy. Now, let's talk about how that translates into the financial plan. But before we get into our longer-term financial outlook, let me take you through the highlights of our strong 3rd quarter and year-to-date results. In the 3rd quarter of 2021, earnings were $1.53 per share compared to $1.46 per share in the same period of 2020, an increase of $0.07 per share. Results for the regulated business drove the increase of $0.07 per share while parent company and market-based business results were flat as compared to the same period in 2020. Regulated results for the quarter reflect increases related to the continued execution of our investment strategy but were offset somewhat by an estimated $0.07 per share decrease year-over-year related to weather that was cooler and wetter this year compared to last. For the 9 months ended September 30, 2021, earnings were $3.40 per share compared to $3.11 per share in the same period of 2020, an increase of $0.29 per share. Earnings in the regulated business increased $0.34 per share, while the market based business results decreased $0.05 per share compared to 2020. Parent company results were flat as compared to 2020. Regulated results reflect an estimated $0.04 per share decrease year-over-year due to weather in 2021 that was cooler and wetter as compared to the same period in 2020. Regulated results also include the impact of increased revenues from new rates as well as earnings from acquisitions. Operation and maintenance costs and depreciation also increased in support of growth in the business. Market-based business results decreased compared to 2020 from an increase in claims in the Homeowner Services Group in the first half of 2021, as we've previously discussed. Our solid performance thus far in 2021 is the basis for affirming our 2021 guidance as shown on Slide 33. As we look forward to 2022, we are establishing EPS guidance for 2022 a $4.39 to $4.49 per share. This reflects a sharp focus on the continued growth in our regulated business and the start of a business that is fully regulated or regulated like. The EPS expectation for 2022 assumes that the sale of Homeowner Services closes by the end of 2020. While we will be redeploying the initial proceeds from the sale into investment in the regulated business, it obviously takes time to ramp up that investment and earn on it from a regulatory perspective. In the meantime and ultimately in addition to earnings from investing that capital, 2022 earnings expectations reflect the 7% fixed interest to be earned on the note receivable from the Homeowner Services sale. 2022 expectations also reflect the earnings that will come from the revenue share arrangement we have entered into with Apex for services to be delivered by Apex to a certain number of our regulated customers. Longer term, we expect our earnings growth rate to be in the range of 7% to 9% narrowed slightly from our prior long-term expectation. This narrowing reflects a slight shift away from more volatile non-regulated earnings to the more predictable steady earnings growth that comes from a fully regulated business. We also believe that this long-term outlook extends well into the future as we continue to ramp up our increased investment outlined in the plan we have been discussing here today. We believe this outlook continues to position American Water as a top tier company in the utility industry in terms of expected long-term growth, 100% of which will be driven by a regulated and regulated-like business upon the close of the sale of Homeowner Services.

Turning to Slide 34, the foundation of our growth, as both Cheryl and Walter mentioned, is our investment in rate base through upgrades to our existing systems and through acquisition. As you've heard today, we are stepping up our expected investment in regulated capital spending and as I've mentioned previously, I think the important thing here is to continue to emphasize that there are multiple decades of capital investment opportunity in the regulated business. With the continued support of regulatory and legislative environments, and as I just mentioned, we would expect the long-term growth rate range we have established will continue longer term. I should also add that our Military Services Group does not require a lot of capital, but it does add incrementally to our earnings growth expectation as we have continued to show on our growth triangle. As you can see now, after we have closed on the sale of the Homeowner Services business, the expected contribution from the remaining market based business is lower at about 0.2%. MSG remains important to us for many strategic reasons in addition to its regulated-like earnings contribution. As we turn to Slide 35 to discuss rate base, Cheryl covered with you that we are expecting to invest $28 billion to $32 billion in regulated capex from 2022 to 2031, a $6 billion increase in capital investment compared to our prior plan. As a result, we now expect our long-term rate base growth to be in the very strong range of 8% to 9%, up from the prior target of 7% to 8%. This additional capital investment will be funded in part by the proceeds from the sale of Homeowner Services.

Moving to Slide 36, before we dive into the financing plan, I want to provide additional details related to the announced sale of Homeowner Services. The key driver to this transaction is our ability to transfer value from one of our market-based businesses into accelerated investment in our regulated business. As we have said, it will take some time for regulated earnings to ramp up following the investment as we deploy all of the proceeds into the regulated business. That's why we structured the deal to include a 5-year, $720 million note receivable with a maturity date at the end of 2026. We will earn 7% on that note for a steady stream of earnings the next several years while the regulated investments are being made. As I'll cover on the next slide, these proceeds will also allow us to significantly limit incremental equity needs over the next 5 years as we fund the accelerated capital investment plan.

Turning to Slide 37, as expected, we will rely primarily on our operating cash flows to finance the business. We expect operating cash flows to be roughly $8.7 billion over the next 5 years. We're planning to raise a total of $5.2 billion of long-term debt net of maturity repayments coupled with them about $1.1 billion in equity needs, which is up only modestly from the 700 million we discussed in February. That, combined with roughly $1 billion of net proceeds from the sale of our Homeowner Services business and about 500 million net proceeds from the sale of New York will finance this 5-year plan. If you were thinking back to the same discussion in February, this current plan represents an increased investment of about $3 billion as we've said. The incremental need will be financed with about 47% equity sources and 53% debt, which is supportive of our focus on the balance sheet strength and our overall debt to capital goal.

Now, turning back to the big picture on Slide 38, as we execute on our plans in the coming years, it is very important for us to maintain a healthy balance sheet. As you know, we have maintained an A credit rating with S&P and a Baa1 at Moody's. We believe this plan, both the level of investment and how we intend to finance it, is supportive of our current credit ratings. We are proud of our strong credit profile, and we'll continue to work hard at maintaining it for the benefit ultimately of our customers. The upper right side of Slide 38 is our debt to total capital metric. You can see that this new plan will position us at approximately 60% debt to total cap ratio where we indicated last year we would be and down from 62% at the end of 2020. The bottom left of the slide shows our debt maturity profile for the next 5 years. This is a very manageable refinancing profile which we worked very hard to achieve. We've had very favorable debt capital market transactions over the past several years including earlier this year that have allowed us to effectively build this financing structure. Also on this slide, you can see a glimpse at our liquidity, both now and what we expect in the 5-year plan. Our current cash balance of $70 million coupled with our ability to access $2.25 billion through our revolving credit facility is sufficient to ensure adequate funds to meet all of our liquidity needs.

Next on Slide 39, we are proud to have delivered top quartile utility dividend growth over the past several years, while maintaining a reasonable payout ratio. In line with our derisking of the business with the expected close of the sale of Homeowner Services yet this year, we are affirming our compelling long-term dividend growth target at the high end of 7% to 10%. We are narrowing our long-term payout target range to 55% to 60% which will allow us to fund our significant regulated investment plan, fund our dividend growth strategy, and maintain a healthy balance sheet. And finally, on Slide 40, let me just summarize some of our industry-leading financial metrics that help tell the Great American Water story. Our company remains one of the fastest growing utilities in the entire utility sector. We are committed to focusing exclusively on our regulated and regulated-like businesses over the long term. The foundation of our growth for our business is rate base growth through regulated capital investment focused on water quality and the safety and security of our infrastructure. The combination of our EPS growth, our strong dividend, and an ESG premium continues to be rewarded by investors securing our place as a top performer in the utility sector on total shareholder return for many years now. As you can see on this slide, we have delivered an exceptional total return to shareholders of 169% over the past 5 years. Based on this plan and our history of executing on our strategies, we expect to continue to deliver a very competitive total shareholder return for many years to come. This is a business that is fundamentally very strong, and we continue to deliver excellent outcomes for all of our stakeholders. We are very proud to be able to do that.

And with that, I'll turn the call back over to Walter for some closing remarks.

Walter J. Lynch -- President and Chief Executive Officer

Proven and predictable financial performance is an outcome of the successful execution of our strategies. I think you've clearly heard today that we're confident in our long-term success. This confidence is rooted in our strengths including our decision to focus all our efforts around 100% regulated and regulated-like businesses. Our strengths within these businesses start and end with an unwavering commitment to safety. To us, health and safety is not just about physical health, it's also about emotional well-being. Safety is a leading indicator of our company's health. Simply put, if we get safety right, we can get everything else right. We must get the fundamentals right too. Operational excellence helps us work smarter and it enables us to provide safe, clean, and affordable water services for our customers. We also go beyond minimum requirement, so we can be an industry leader in operational and environmental excellence. This can only be achieved by collaborative high performing teams. Creating an equitable culture where people feel valued, included, and empowered is critical to our ability to serve our customers every day. Our employees know how they contribute to the success of our company, and they are inspired to make a positive difference for our customers and for the communities we serve. Solving water quality challenges and improving the region's environment by strengthening water and wastewater systems is core to our purpose and when we grow, we're able to leverage our scale, we can invest more, create stable jobs, and make a community better for generations to come. How we work is just as important. ESG is an affirmation of the values we have upheld for decades. It includes environmental leadership in sustainability, operational excellence, employee engagement and equity, safety, active community engagement, civic and charitable involvement, and transparency and good governance all are foundational to our corporate strategy.

Turning to Slide 43, in conclusion, here is what you can expect from us. Our fundamental investment strategy has been strengthened and will result in higher quality, more stable earnings with long-term EPS growth of 7% to 9%. We're increasing our capital investment by nearly $6 billion over the next 10 years, driving strong rate base growth. We remain confident in the increased EPS growth through regulated acquisitions in the range of 1.5% to 2.5%. We continue to expect long-term dividend growth at the high end of 7% to 10%, and we'll continue to build on our high performing culture focused on safety, inclusion, and diversity while further embracing ESG principles. We're a top leader in the utility sector and we hope today's presentation has provided you with a transparent strategic path to our long-term success. We plan to continue to deliver exceptional value to our customers, employees, and shareholders, much like we have over the last 5 years as we've delivered a total return of 169% to our shareholders. For us, success is about enabling our employees to perform at their best. It's about leading a team of extraordinary people doing critical work. It's about investing in people, communities and helping our country solve its water and wastewater challenges. We're excited about the future, and we thank you for being on this journey with us.

Now I'd like to turn it back to Aaron for information about participating in our question and answer session.

Aaron Musgrave -- Senior Director, Investor Relations

At this time, for members of the investment community who wish to ask a question, please dial in using the instructions we provided in a previous email. We will now take a 5-minute break.

Operator

Ladies and gentlemen, welcome back to American Water's fall 2021 virtual Investor Day. Before we begin the question-and-answer session, I will turn the call back to Walter Lynch, President and CEO for a few comments.

Walter J. Lynch -- President and Chief Executive Officer

Thanks Eileen. Before we move to questions, I want to provide an update on our York wastewater acquisition. On October 29, we received a formal Pennsylvania Public Utility Commission acceptance of Pennsylvania American Waters application for the acquisition of York Wastewater. We remain on schedule to close in the second quarter of 2022. York is another great example, providing solutions to water and wastewater challenges where we can leverage our scale and drive efficiencies. It should also be the case in Chester, Pennsylvania where as you know, Pennsylvania American Water offered the highest purchase price for that system. We believe our submitted superior offer, which was the highest by $15 million, will provide the most benefit for that community. We eagerly await the receivers decision as we would remain in competition to acquire the system. Also, Cheryl spent some time in our accelerated capital plan as it relates to the resiliency of our systems. I just want to highlight that again. You saw the incredible photos of how our flood wall protected our plant, enabling us to continue to provide water service for more than 1 million people in Central New Jersey during Hurricane Ida. Proper planning and key investments in projects like the flood wall are critical to our business. This is fundamental to our capital planning process and has been for decades. Time and time again, we've seen the benefit of our resiliency investments and how they allow us to continue to provide essential services even during significant weather events.

With that, we'll take your questions now.

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator Instructions] Our first question today comes from Insoo Kim with Goldman Sachs.

Insoo Kim -- Goldman Sachs -- Analyst

Yeah. Thank you. My first question, just want to touch on the 2022 EPS guidance. It seems like just year-over-year growth from the '21 guidance midpoint in place just about 5% growth, which is maybe $0.15 below what 2022 would be based on like the midpoint of the prior 7% to 10% growth guidance, could you just give us a little bit more detail if you could on how much of that change is driven by the net impact of the HOS sale and if there is anything else adding to that and just on top of that, I don't know if you're able to also give whether it's on actual or 2021 expectations on what the HOS EPS contribution would be?

Susan Hardwick -- Executive Vice President and Chief Financial Officer

Good morning Insoo. Susan. Let me make a couple of comments to address your questions and then obviously Walter can add to it. I'll start sort of in reverse. Your first question about sort of the base. We have done our analysis in our long-term guidance off of the last actual result 2020. So that's how you should think about sort of growth rates. As it relates to the impact in '22 from the sale of HOS, obviously being late in the year and our expectation that we'll close close to the end of the year on that transaction, not much time to get the increased investment sort of up and running in 2022. Obviously, we've got plans to accelerate that investment as we've talked about here today, but it will take a bit of time for that investment to get in place and start to earn. I think you can think about sort of the net impact from the sale of HOS offset by interest on the note and that beginning ramp up from the investment of about a dime or so impact to 2022 from what otherwise would have been sort of a continuation of the business.

Insoo Kim -- Goldman Sachs -- Analyst

Got it, OK. And my second question, it could be either again for you Susan or maybe Chris as well, recognized your point on the time needed to deploy the regulated capital and get recovery and return on that. I think you made it a point to keep the long-term dividend growth rate at the high end of that 7% to 10% range, and I think the current payout ratio as of I think this year expect it could be around in that mid 55% range or so, can you just, if you were to keep that higher dividend growth range for the longer term that would either imply potential acceleration of EPS growth to match the dividend growth over the longer term or something would have to give on the dividend side, could you just give us few more thoughts on that?

Susan Hardwick -- Executive Vice President and Chief Financial Officer

Yeah, a couple of thoughts. We do think that the ramp up in the investment is a critical part of this discussion we're having here today. We talked about $3 billion of additional spend over the next 5 years and $6 billion over the next 10 years. Our expectation that we have plenty of work to do. We've talked about this for some time, decades of investment opportunity and this is really an opportunity from having executed on the HOS sale to really advance and accelerate some of that spend. We're confident that we can continue to be very successful in navigating the regulatory arena to get that spend sort of in place and earning. We will continue to use the mechanisms that we have in place and continue to look for opportunities to expand them in other states and even in the states that we have them to make sure we're fully maximizing the use of those mechanisms to get those investment sort of earning timely. But as we said, it will take us some time to kind of ramp that up. As it relates to the dividend and you're right to point out that we have maintained the same guidance relative to the dividend and we're still confident we can continue to keep up that pace. We did narrow the range of our dividend payout expectations to 55 to 60. We had previously been at 50 to 60, so it is just a tick higher at mid point than where we have been before. We're confident that this plan, as we out we look out over the next decade, frankly, that this plan really will continue to support that. I think I would continue to emphasize that the long-term guidance we've provided of 7% to 9% on earnings really reflects this acceleration of the spend and really secures I think very steady and predictable regulated earnings growth and we're very confident in our ability to deliver against this plan and all the metrics we've laid out here today.

Insoo Kim -- Goldman Sachs -- Analyst

Got it. Thank you so much.

Walter J. Lynch -- President and Chief Executive Officer

Thanks Insoo.

Operator

Our next question comes from Durgesh Chopra with Evercore ISI.

Durgesh Chopra -- Evercore ISI -- Analyst

Hey, good morning, Walter and Susan and thank you for taking my question. [Speech Overlap]. Hey, Walter, good to hear from you. Just first question to Susan and/or Walter, Walter in your commentary you mentioned slower growth in the beginning and then sort of as we get a return on investment great case and surcharges, etc., that picks up, can you talk about the cadence of growth, let's say, in 2023-2024, is that going to be in that 7% to 9% range or is that going to be below that 7% to 9% range?

Susan Hardwick -- Executive Vice President and Chief Financial Officer

Well, Durgesh, I think you've hit on the key point at the outset there the ramp-up is an important part of this discussion we're having today. I think the important thing for you to focus on is our guidance relative to '22 that reflects that the ramp-up from the spend as I mentioned a minute ago to into about a dime impact you can assume in '22 as a result of the sale and sort of the net impact of the ramp-up. I think the other thing you should focus on is the long-term expectation that we've set 7% to 9%. We're very confident in the ability to deliver 7% to 9% over the long term. Certainly the 5-year and I think even arguably beyond the 5-year, our expectation that that growth rate would be continuing. We've never said that any particular year and '22 is a good example of it sort of hits right in that range, but I think longer term, you should just think about the 7 to 9 as the expectation.

Walter J. Lynch -- President and Chief Executive Officer

[Speech Overlap] here too. Sorry, Durgesh, you have another question?

Durgesh Chopra -- Evercore ISI -- Analyst

No, please. Please go ahead. I do have a follow-up question by I want to hear what you have to say, Walter.

Walter J. Lynch -- President and Chief Executive Officer

Yeah, in the ramp up of that capital also takes into account are pipeline of opportunities and it grew 60% in the last year and we're going to continue to pursue and obviously work with these communities to purchase their systems and then invest subsequent to the purchase and typically there is a lot of investment needed in those systems when we buy them. So all that is included in here, and we just feel really confident about the growth in our, in our earnings based on the fundamental of just foundational investment of 5% to 7% but also buying these systems and turning them around as I highlighted the Scranton Sewer Authority, we're doing that all across the country, and we're really proud of that.

Durgesh Chopra -- Evercore ISI -- Analyst

Got it. Appreciate it. And appreciate that. And then just in terms of the New York sale, how should we think of, so you're targeting completing that this year. What is that, are those proceeds factored into your, your equity plans and could your equity plans change if things change there? Previously, you've talked about sort of no change to the equity plans with or without New York sale, can you just talk to that?

Walter J. Lynch -- President and Chief Executive Officer

Yeah. And as I said in our video that we still remain very confident that it's going to close by the end of the year and that capital is in our plan. Susan will expand and then a little bit.

Susan Hardwick -- Executive Vice President and Chief Financial Officer

Sure, yeah know you've got it right, Durgesh. The 500 million of net proceeds we're anticipating from New York is built in this plan already, it had been built in already, and it certainly is an element to the overall financing plan. If we were to not close this year, if it spills over into next year, which again we don't expect at all. I don't think it changes this financing plan at all. We just, it could be a bit of a timing issue. But we fully baked it in and expect it to be executed as Walter said.

Durgesh Chopra -- Evercore ISI -- Analyst

Understood. And just one last question if I may, just in terms of the credit profile like what's your initial dialog been with credit rating agencies, does this actually, is this a credit accretive event, given you're increasing your regulated earnings profile and what kind of, I think total debt threshold you might be targeting? Thank you.

Susan Hardwick -- Executive Vice President and Chief Financial Officer

Yeah, it's a good question, Durgesh and really not going to comment much on those discussions with rating agencies. As we have said here, we're very confident in this financing plan and it supports the current credit ratings that we have outstanding and obviously we'll spend time with the agencies as we always do, but I don't anticipate any impacts, there.

Durgesh Chopra -- Evercore ISI -- Analyst

Thank you.

Walter J. Lynch -- President and Chief Executive Officer

Thanks, Durgesh.

Operator

Our next question comes from Ryan Greenwald with Bank of America.

Ryan Greenwald -- Bank of America -- Analyst

Hey, good morning, everyone.

Susan Hardwick -- Executive Vice President and Chief Financial Officer

Ryan.

Walter J. Lynch -- President and Chief Executive Officer

Morning.

Ryan Greenwald -- Bank of America -- Analyst

I appreciate the time this morning. Maybe just to start. Just to be absolutely clear, the 7% to 9% is off the '22 base?

Susan Hardwick -- Executive Vice President and Chief Financial Officer

No, it's of 2020 our actual results. Yeah.

Ryan Greenwald -- Bank of America -- Analyst

And then you guys are just kind of expect to ramp as investments come online here?

Susan Hardwick -- Executive Vice President and Chief Financial Officer

Right.

Ryan Greenwald -- Bank of America -- Analyst

Got you. And then to follow up on Insoo's earlier question, can you just provide some context in terms of what percent of EPS contribution Homeowner Services has historically made up in terms of the market-based business?

Susan Hardwick -- Executive Vice President and Chief Financial Officer

Yeah, historically, of our total market based business contribution, you can think of Homeowner Services about 75% of that, on a historical basis.

Ryan Greenwald -- Bank of America -- Analyst

Great, thank you. And then just in terms of the $1.1 billion in equity, any additional clarity you guys can provide in terms of the cadence. I know you guys kind of alluded to the middle of the year here, but would expectations for all of that to going to be at once and any additional color there?

Susan Hardwick -- Executive Vice President and Chief Financial Officer

Yeah, I know this is an area that frustrates people when I answered every time, but I'm going to do the same thing I always do. We'll continue to look at tools to use to execute on the equity issues, what makes the most sense whether it's sort of a block trade or we do an ATM like program, we're continuing to evaluate those options. I think you can think about it in the same context we have talked about it in the past. The only change really here is we've probably shifted it out one more year in terms of the, the starting point of the issues. So before we would have been in the middle of the 5-year period, we're still in the middle of the 5-year period. Obviously, we roll the plan forward a year, but I think you can think about it in those terms, sort of the middle of this this upcoming 5-year period.

Ryan Greenwald -- Bank of America -- Analyst

Great. I'll leave it there. Thanks so much.

Susan Hardwick -- Executive Vice President and Chief Financial Officer

Great. Thanks, Ryan.

Walter J. Lynch -- President and Chief Executive Officer

Thanks, Ryan.

Operator

Our next question comes from Angie Storozynski with Seaport.

Angie Storozynski -- Seaport Global Holdings LLC -- Analyst

Thank you. So first, the New York asset sale, those regulated earnings are not included in the 2022 guidance, right, because the asset is supposed to be converting of '21, that's correct?

Susan Hardwick -- Executive Vice President and Chief Financial Officer

That's correct. Yeah.

Angie Storozynski -- Seaport Global Holdings LLC -- Analyst

Okay. And then on the military services earnings, I mean I see the growth pyramid and really slight growth coming from that portion of your business, even though you have one additional sizable contracts. Is it just because it's a very long-term view? I mean, or has there been any change in your prospects for this business?

Susan Hardwick -- Executive Vice President and Chief Financial Officer

Yeah, let me first answer and Walter can jump on this one too. I would say it's really a. Well, first of all, I don't think we've seen any real change and how we view this business and what the prospects are for it, and Walter can comment further. In terms of the growth rate, it is such a small slice of our overall earnings profile and growth profile. As I said a minute ago, if you were thinking about market based historically, HOS was the lion's share of those numbers, both in terms of earnings and even the contribution to growth. The military business is more of a steady growth business just like the regulated business. That's why we like it in this profile here. It very much behaves and looks like regulated earnings. So it's just, it's just a small slice.

Walter J. Lynch -- President and Chief Executive Officer

Yeah, and we're really confident in this business going forward. There are about 70 opportunities that we see that possibly can come out as far as privatizing and again as a reminder, these are long-term contracts. We earn on an O&M contract with the municipality or with the different bases and then managing their capital programs. And so this reflects our assumptions over the next 5 years and again great business, very regulated like the most regulated like business we could own and we're proud to serve the men and women in the military. So it's just a great win for us.

Angie Storozynski -- Seaport Global Holdings LLC -- Analyst

Okay and then lastly, this increase in the regulated rate base growth, that is inclusive of municipal M&A, right? It's not just the core, the underlying business. It's also plus the municipal M&A, hence the.

Susan Hardwick -- Executive Vice President and Chief Financial Officer

Yeah, that's correct, Angie, Yeah, that's correct.

Angie Storozynski -- Seaport Global Holdings LLC -- Analyst

Okay, that's all I have. Thank you.

Susan Hardwick -- Executive Vice President and Chief Financial Officer

Great, thanks. Angie.

Walter J. Lynch -- President and Chief Executive Officer

Thank you.

Operator

[Operator Instructions] Our next question comes from Jonathan Reeder with Wells Fargo.

Jonathan Reeder -- Wells Fargo -- Analyst

Hey, good morning. Most of them, [Speech Overlap]. Morning. But yeah, good morning, how are the 275 million of taxes from the HOS sale incurred. Is that all at closing such that rather than the $480 million of cash, you're saying you get, it's actually only like $200 million?

Susan Hardwick -- Executive Vice President and Chief Financial Officer

You can assume it all at close.

Jonathan Reeder -- Wells Fargo -- Analyst

All the taxes are at close?

Susan Hardwick -- Executive Vice President and Chief Financial Officer

Yeah.

Jonathan Reeder -- Wells Fargo -- Analyst

Okay. Walter, can you talk about affordability a little more. I mean, how is it being maintained with this higher level planned capex. I mean, it seem to be this new plan will be putting pressure on rates in the O&M stretch targets only lowered by kind of 40 basis points from where it was before, and that's kind of kind of what you would expect, I guess, in a typical year or maybe in other words, it isn't like you're projecting all these new kind of cost savings that all of a sudden created headroom for this new capital on customer bills?

Walter J. Lynch -- President and Chief Executive Officer

Yeah. Thanks, Jonathan. As you know, we've had a focus on affordability for a dozen years now, and I think we've done some great work in our O&M efficiency. That's going to continue. And as I said, we established a new target of 30% by 2026. So that's going to create the headroom for this continued investment, but we view the opportunity to accelerate our capital programs just as a great opportunity to continue to replace pipe upgrade all our water and wastewater facilities, spend money and focus on resiliency, and you can see the benefits of that spend over the last decade and how these major systems continue to provide service during really terrible storms, and we're going to continue our focus there. So if you look at on a monthly basis, our monthly bills range anywhere from $25 to $65, and so when you look at a percent increase, it's still small. We're still against every measure, we are still very affordable from the EPA measures and water and wastewater as a percent of meeting income our own measures. I mean, we still think this added investment will provide such value that it's offsetting an increase in customer bills from a percentage perspective, and we're probably looking anywhere from about 5% increase on bills over the next 5 years.

Jonathan Reeder -- Wells Fargo -- Analyst

Okay. That was going to be...

Walter J. Lynch -- President and Chief Executive Officer

We need to continue. Yeah. We just need to continue to increase our investment and this provides the opportunity to do that.

Jonathan Reeder -- Wells Fargo -- Analyst

That helps. And then I guess the other question I have is just the year-end rate base number of $16.4 billion this year, it seems kind of high, higher than what the prior 7% to 8% rate base growth would have been implying off of 2020 is $15 billion. How do you kind of get there. I'm assuming that 16.4 excludes the 375 million from New York, whereas the the $15 billion at year-end 2020 included it.

Susan Hardwick -- Executive Vice President and Chief Financial Officer

Yeah, I think that's right around New York. I would just say it is a function of the spend, and what we intend to be ramping up spend for and the acquisition work that we're doing.

Jonathan Reeder -- Wells Fargo -- Analyst

I mean, I know before you expecting 1.6 billion of regulated capex in '21 plus 300 million of M&A, are those number is going to be hit. They're going to be exceeded?

Susan Hardwick -- Executive Vice President and Chief Financial Officer

I think our expectation is to hit those. Yeah. We expect to hit those numbers.

Jonathan Reeder -- Wells Fargo -- Analyst

Okay, all right, thank you so much for taking my questions.

Susan Hardwick -- Executive Vice President and Chief Financial Officer

Sure. Thank you, Jonathan.

Walter J. Lynch -- President and Chief Executive Officer

Thanks, Jonathan.

Operator

Our next question comes from David Peters with Wolfe Research. Mr. Peters, your line may be on mute.

David Peters -- Wolfe Research -- Analyst

Sorry. Hey, can you hear me?

Susan Hardwick -- Executive Vice President and Chief Financial Officer

We can, David.

David Peters -- Wolfe Research -- Analyst

Yeah sorry. First question I have is just on the elevated capex plan. Does that at all change the cadence of of your rate case filings in the major states? I think historically it's been every 2 to 3 years. But would you have to file more regularly now in states like Pennsylvania, New Jersey, and Missouri?

Susan Hardwick -- Executive Vice President and Chief Financial Officer

David, we don't currently think so, and you're right, we have been on sort of that 2 to 3-year cycle with really all of our states, but certainly the major ones. We don't expect that to change materially. As I said before, we'll be looking to make sure we maximized mechanisms in each of our states where we have the opportunity to do so. We will make sure that we're as efficient as we can be around the timing of investment and rate base cut off periods in filing of rate cases. So it may move by a month or a month or 2, but we don't expect any material change in the cycle.

David Peters -- Wolfe Research -- Analyst

Okay, thanks for that. And then just, so just on. I mean, you mentioned the slower growth I guess within the 7 to 9 until a lot of that capital starts to get recovered. Can you just remind us when is kind of the next big rate case cycle that maybe you expect to see a little bit more of a step-up I guess within that 7% to 9% range?

Susan Hardwick -- Executive Vice President and Chief Financial Officer

Yeah. If you go backward, we expected '21 to be a, an earnings uptick year because of rate cases. So the cycle would have been sort of 20 new rates coming into '21. We're sort of back in that cycle. So we will file a number of cases in 2022 with the expectation of new rates coming out of the '22 year into '23.

David Peters -- Wolfe Research -- Analyst

Great. And then last question I have just around the HOS sale, curious if you could talk a little bit more specifically on the revenue-sharing agreement, how many customers would that impact in theory and how meaningful is that to the overall earnings of the business?

Susan Hardwick -- Executive Vice President and Chief Financial Officer

Yeah, we haven't provided a lot of detail on that and probably still won't here. I think you can think about it in terms of the starting position is that we'll have existing, our existing on-bill arrangements in 4 of our states will have those those agreements in place with the buyer, Apex, here right at the outset, but they're going to continue to look for opportunities to grow that segment of the business, so more opportunities with existing footprint and then we'll continue to look at other states that we currently operate in and hope to replicate that arrangement in other states. We don't have any of those in place and that will be sort of a growth opportunity, I think, and I think we just need to wait and see how this sort of unfolds. So we're not going to provide much more insight into how we're thinking about it just yet.

David Peters -- Wolfe Research -- Analyst

Okay, thanks, that's it from me.

Susan Hardwick -- Executive Vice President and Chief Financial Officer

Thanks, David.

Operator

Our next question is a follow-up from Insoo Kim with Goldman Sachs.

Insoo Kim -- Goldman Sachs -- Analyst

Hey guys, thanks for taking the follow-up question. I just wanted to without getting too granular just clarify and make sure I understand the 7% to 9% that you're talking about it. Susan, I think you said it's based on Slide 33, it is off of the, the actual 2020 EPS, so I guess, when we think about not on an annual basis, but the 7 to 9 by 2026 we should assume that off of that 20 base that CAGR as of '26 should reflect something in that range, right, and just when I'm doing the rough back of the envelope math based on what '22 rebase would indicate that means that in that latter half of the this plan through '26 that you'll have pretty decent size growth to to get the CAGR to that range, is that the right way to think about it?

Susan Hardwick -- Executive Vice President and Chief Financial Officer

Well, I think you have a number of elements correct in that, your analysis there. the base is last actual 2020 weather normalized earnings of $3.94 that we have shown here on this slide, our long-term expectation is 7 to 9, and we've given you guidance of '22 and that's about it. As we continue to say, we don't give guidance on the interim years, you can think about the ramp up of capex as we've talked about today. There is likely an acceleration of earnings in this period, but it all depends on how quickly we can deploy the proceeds and how quickly we can get them in recovery, what the annual profile will look like.

Insoo Kim -- Goldman Sachs -- Analyst

Got it, OK. So, the weather normal the 384 is what you're talking about for 2020?

Susan Hardwick -- Executive Vice President and Chief Financial Officer

Correct. Yeah.

Insoo Kim -- Goldman Sachs -- Analyst

Got it. All right, thank you so much.

Susan Hardwick -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

Our next question comes from Verity Mitchell with HSBC.

Verity Mitchell -- HSBC -- Analyst

Good morning everybody and thank you very much for the presentation. I was really interested in Slide 11 accelerating capital investment, and in particular that section on technology and innovation operational efficiency. So can we assume that all of that pie chart goes into rate base. Is that how we should be thinking about it and maybe you'd like to expand a bit on some of your ideas for innovation and technology?

Susan Hardwick -- Executive Vice President and Chief Financial Officer

Yeah, I'll answer the first part, really all of the pie chart here goes into rate base ultimately. Yeah, we just wanted to give a little bit of detail on where we focus our spend and Cheryl, maybe you want.

Walter J. Lynch -- President and Chief Executive Officer

Let me just lead in and just, we're doing a lot of great work from a technology perspective and looking at innovation and doing what we can internally but also leveraging the technology in the marketplace to really meet our customers' needs in the best way possible and in the most efficient way possible. And with that. Cheryl?

Cheryl Norton -- Executive Vice President and Chief Operating Officer

Yeah and then efficiency piece is really important to the conversation here because when we talk about our O&M efficiency ratio and keeping our customers' rates affordable, we make these investments so that our business can actually be more efficient and more effective and really serve our customers at a higher level. So those investments are incredibly important and that's why they are part of our rate base, but they also are driving efficiency in the business. Some examples would be around how we're handling. We just launched a My Water program for our customers and it makes our customer service reps a lot more efficient, and it also allows our customers to do a lot more self service for themselves. And so we're excited about the launch of that and have rolled it out to a couple of different states, but we will continue to do more of that across the business. Also just being able to go out and track the work that's being done and make sure that we are doing the right jobs at the right time through technology has been a huge lift for us. So there is many different examples. But those are a couple.

Verity Mitchell -- HSBC -- Analyst

Thank you.

Operator

Our next question is a follow-up from Jonathan Reeder with Wells Fargo.

Jonathan Reeder -- Wells Fargo -- Analyst

Just one quick cleanup question if you don't mind, but what's the total value of the 31 M&A deals that you currently have pending. I mean, I know you got the chunky York deal in there.

Susan Hardwick -- Executive Vice President and Chief Financial Officer

Hey, Jonathan, let us follow up with you on that. I'm drawing a blank right now what the total is, but Aaron or Mike can follow up with you on that.

Jonathan Reeder -- Wells Fargo -- Analyst

Okay. I appreciate it. Just kind of a modeling question. So, thank you so much.

Susan Hardwick -- Executive Vice President and Chief Financial Officer

No problem. Thanks, Jonathan.

Walter J. Lynch -- President and Chief Executive Officer

Thanks, Jonathan.

Operator

This concludes our question-and-answer session. I'd like to turn the call back over to Walter Lynch for some closing remarks.

Walter J. Lynch -- President and Chief Executive Officer

Thank you for joining us today for this important update to our company's business outlook. We value your participation and hope that transparent discussions like this give you confidence in our company and the value of all stakeholders. Our Investor Relations team is ready to help answer additional questions you may have. And for those attending EEI, we really look forward to seeing you there. Thanks again for joining us and please stay safe.

Operator

[Operator Closing Remarks]

Duration: 84 minutes

Call participants:

Aaron Musgrave -- Senior Director, Investor Relations

Walter J. Lynch -- President and Chief Executive Officer

Cheryl Norton -- Executive Vice President and Chief Operating Officer

Susan Hardwick -- Executive Vice President and Chief Financial Officer

Insoo Kim -- Goldman Sachs -- Analyst

Durgesh Chopra -- Evercore ISI -- Analyst

Ryan Greenwald -- Bank of America -- Analyst

Angie Storozynski -- Seaport Global Holdings LLC -- Analyst

Jonathan Reeder -- Wells Fargo -- Analyst

David Peters -- Wolfe Research -- Analyst

Verity Mitchell -- HSBC -- Analyst

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