Q2 2020 Essential Utilities Inc Earnings Call
[music].
Good day and welcome to the especially utilities Q2 2020 earnings call. Today's conference is being recorded at this time I would like to turn the conference over to Mr. Bryan singer Justin. Please go ahead Sir.
Good morning, everyone and thank you for joining us for essentially utilities second quarter 2020 earnings call.
I'm running Dickerson, Vice President and Chief of staff Investor Relations and communications. If you did not receive a copy of the press release you can find its like visiting the Investor Relations section of our web site at a central Dot Hill.
The slides that we will be referencing in a webcast of this event can also be found there.
There is our forward looking statements.
As a reminder, some of the matters discussed during this call may include forward looking statements that involve risks uncertainties and other factors that may cause the actual results to be materially different from any future results expressed or implied by such forward looking statements.
Please refer to our most recent 10-Q 10-K and other SEC filings for a description of such risks and uncertainties.
During the course of this call reference maybe made to certain non-GAAP financial measures. A reconciliation of these non-GAAP to GAAP financial measures is included at the end of the presentation and also posted in the Investor Relations section of the website.
After the presentation, we will open the call for questions.
For our agenda for today, we'll start with Chris Franklin, Our chairman and CEO, who will discuss highlights from the year to date and provide an update on our People's leadership team.
Dan Schuler CFO will then discuss our financial results.
Dan will be followed by that roads VP of strategy and corporate development, who will provide an update on our municipal acquisition program.
Finally, Chris Franklin will conclude the call and then open the call for questions.
With that I will turn the call over to Chris Franklin.
Thank you, Brian and good morning, everyone.
It's hard to believe that we're now almost five months in navigating through the Coca 19 pandemic.
And while none of us could've predicted the events that occurred the first half to 2020 I just continue to be amazed by the commitment demonstrated by our employees.
Our business remains as strong as ever because of their dedication to our mission.
In addition to achieving our mission.
Our primary focus remains the health and safety of our central employees and customers as we work through this pandemic.
But before we get started with the primary agenda, Brian just talked about on the call.
Touch on some issues that.
We believe are important as essential.
First.
Social justice issues have been the primary focus over the country really this summer.
The topic that should be a key topic, our Q focus of good companies and good people.
Long before the events. This summer I'm proud of the work that we've done and continue to do at awkward now essentially that essential to ensure we have a diverse and inclusive workforce at the company.
I'll tell you. This journey began to the top we built our board where more than 50 percentage of our members our diversity the racially or by gender.
Our work continues as we.
Try to make our workforce reflect the demographics of the communities we serve.
Sample today, 22% of our workforce is black were brown versus the industry average of 16%.
We've supplemented this work by creating black employee resource groups and women's employee resources groups among others.
Our work to make our management team more diverse has also been a key focus.
Today at the senior levels over the coping nearly half of my direct reports are women.
And just this year, we've hired several people color in key management roles.
In addition, we continue to work to diversify our supplier network. We've got a strong program to bring diverse suppliers into our network in all aspects of our work including professional services.
I want to highlight this effort to you our investors because its work that we believe in and work that we're committed to.
It's also work that has been well underway long before the events of this summer.
You can see that there is so much more work that needs to be done in this area at both our company and frankly in the country before we all realize our true potential.
The second issue I want to talk about this morning.
Has to do with the interactions between utilities and elected officials.
While we were reading about sort of the events occurring in Illinois, and Ohio over the last series of months.
It's important for you as our investors to know that we pride ourselves living up to the three core values, we posted frankly in all of our buildings across our company.
Among the three values is integrity.
Sure you that essential as processes in place to review of proven continuously monitor.
Charitable, giving political giving and lobbying activities.
We remain confident that word full compliance with all governing laws and regulations I'm also confident that our leadership team at our employees have made compliance with the law a central principle in the work, we do with elected and appointed officials across our 10 state footprint.
Also for your reference we we posted our corporate foundation, giving policies on our website get our ESG repair sheets in case you're interested.
Finally, the they'll glad to show were mentioned before we jump into the agenda. We're closely monitoring the infrastructure package that the U.S. House early this summer looked at and.
Anytime federal the federal government focuses our water and wastewater infrastructure, we consider a good thing because it elevates the importance of the work we do that being said the regulated water industry is working proactively.
To work to make sure that our customers benefit in the same way that customers have municipal water systems would benefit from any legislation.
Pass either in the Congress or in our states.
All right with that let's talk about the second quarter.
I'm really happy to to report on our continued progress on our objectives.
So far we've invested $346.6 million in infrastructure in the communities. We serve during the first six months of the year.
Of that 346.6 million.
217.6 million of it was invested in our regulated water segment.
And 129 million was invested in our regulated natural gas segment.
Importantly.
You should note that 53.5 million was invested by People's in the first quarter pre closing.
Now despite the brief kobin related pause in construction back in mid March we remain on track record capital spending of $950 million this year.
Our work on the Goodwin Tom ball get gas gathering system is also well underway I know many of you will recall this was an important topic during our regulatory approval process and we're happy to say we're on schedule there.
As a reminder, we have approximately 2700 miles of natural gas pipe to replace.
Which will be done through the Pennsylvania public utility commissions long term infrastructure improvement program. Many of you know that as the L. tip.
Pipe replacement program is very effective in our efforts to also reduce methane emissions in the environment will begin to report on that in the coming months in years.
Well, we said in February that once we own People's we would quickly elect and implement tax repair.
I want to report that we elected to tax repair soon after we closed in March by following our filing our paper work with the IRS.
We also told you that we would file with the Pennsylvania Public utility Commission. This summer for treatment of the catch up portion of the tax repair.
That has been accomplished as of just today.
On the box the next box over knows that net income per share on a GAAP basis increased 16% compared to the same period last year, Dan could you give you a lot more detail and an overview of the strong performance we achieved in the first full quarter.
Of our ownership of peoples.
As well as the we'll give you a reaffirmation on our annual earnings per share guidance range of $1.53 to $1.58.
Now our municipal acquisition strategy remains strong with sign municipal agreements totaling over $300 million.
An expected rate base and over 200000, new customers. We also announced the closing of each Norton in Pennsylvania, adding almost 5000 customers and 21 billion in rate base.
Finally, another milestone for the quarter included the announcement of our first fair market value acquisition in Texas I.
I think most of you will recall that the fair market value legislation passed just last year 2019, that'll give you some details on that and just a few moments.
Finally.
On Tuesday of this week, the board approved to 7% dividend increase which marks the 29th consecutive year of dividend increases.
You can see here over the next slide the announced 7% dividend increased marks the Thirtyth increase in 29 years and the 75th consecutive year of quarterly dividend payments. So we're very proud of that our company.
Following the increased the annualized dividend rate will be just over a one dollar per share we take great pride in our long consistent record of delivering shareholder value. We also believe that our dividend policy is indicative of our financial strength.
I would say the board's action is a reflection of their confidence not only in our strategy, but also in our execution.
This next slide as an important one really proud of the leadership team we have at peoples and I want to take a couple of minutes make sure you will you understand what's happening with our with our management team there.
We announced in July that Joe Gregory the President of People's is going to retire.
Affect the shift to September onest.
Joe has been with People's for 33 years has really made significant contributions to the organization and really ending in the community as well throughout his career as influence the company will continue long after he retires I know I speak for all the employees.
Saying, how thankful I am to Joe for his leadership over the years and especially over the past the past four months since closing when we've had to deal with the onset of the pandemic as well as all of the integration work.
Sales leadership has been outstanding.
Well Im sorry to see Joe's tenure, and I wish him and his family the best in his well deserved retirement.
Now recently after conducting a national search we announced that by cure will be Joe his successor.
At People's as President.
Like most recently served as President and Chief operating Officer of Columbia Gas is Pennsylvania, and Maryland utilities is as strong as I'm, sorry, a long time president of the Pittsburgh community. So he's right at home in the new job.
He comes to People's after more than 34 years, with Columbia, which is a subsidiary of Nisource.
Mike is a true professional proven operator, and is really well known and well respected at the Pennsylvania. Pete you see we're very fortunate to have Michael onboard leading our gas company.
On June we also announced the appointment of Mike towards I as General counsel for People's and Kim experts and as Vice President Finance for People's Mike Tours Eye is also a native southwestern Pennsylvania spent the last 10 terms in the Pennsylvania legislature, including his last three terms as as speech.
Weaker of the house here in Pennsylvania.
Likes career is focused on creating jobs across the state and across various industries, which had a lot degree from Duke and with the prosecutor before and holding elected office and he's already hit the ground running very strong general counsel.
And it will help us uptake accompany the next level.
Can I parts and brings more than 30 years of extensive experience. Most recently Kim was vice President controller for H. and health solutions, there in Pittsburgh and or general industry experience and background as a former automakers great fit to lead the finance team for our regulated natural gas segment.
Now we are the full team in place we're looking forward to supporting them as these as they focus on continued employee customer safety ramped up capital plan in the same solid dedication to our core mission.
With that Dave Let me turn a few for our financial results. Thanks, Chris Good morning, everyone.
The second quarter end with revenues of 384.5 million up 75.6%. The People's acquisition contributed 149.6 million of this revenue growth.
While the remainder was largely due to rate increases volume and growth in our regulated water segment.
Oh, and an increase to 128.6 million in the second quarter up 48.8% from $86.4 million last year.
This was primarily a result for the addition of the People's operation and maintenance expenses, which will discuss further when we show the aluminum waterfall.
Net income was up 35.9% year over year from 54.9 million to 74.6 million and GAAP EPS was up 16% to 29 cents.
Although there has been little Im little financial impact, we continue to close to manner that Kogan nine came impacts in our business considering a number of metrics, including consumption billing collections I want them and capital expenditures some of which will discuss later in the presentation.
Let's walk through the details in the following waterfall slide starting with revenue.
As we go through the 75.6% revenue increase for the second quarter, you'll notice that new revenue related to People's which closed in March was the main driver, adding almost a 150 million.
Rates in surcharges increased volume and growth from our regulated water segment provided an additional 16.4 million towards the revenue increase which was offset slightly by other items of less than half a million dollars.
Next we like to provide a more detailed look at water consumption by customer classes. It directly correlates to the increased revenues for the quarter.
And you saw in the revenue waterfall, we did not experience an overall negative impact to revenue from cobot 19 year over year water usage was up slightly over last year, but where are the water consumption occurred changed dramatically.
With many customers working from home and favorable weather conditions residential usage was very strong up nearly 10%, which offset significant declines in most of our other customer classes.
While commercial and industrial are suffering it appears that both indoor and outdoor usage at our customers' homes are strong.
As a brief as we've discussed previously given the shut off Moratoria at St. Snacking, when totaling 19 emerged in March we're closely monitoring incremental increases in our bad debt expenses.
We're glad to see that many states, including our larger ones have indicated a willingness to explore regulatory asset treatment for incremental bad debt linked to covert 19.
Lastly, you'll recall that we secured a 500 million dollar term loan in the early weeks cobot, 19th pandemic as it precautionary liquidity measure as did many of our peers for.
We're pleased to report that in June we paid back the term loan subsequent to our mid April $1.1 billion long term financing and a couple of months of financial performance. After the work from home orders began.
But that will move to the OEM waterfall.
Operations and maintenance expenses were 128.6 million for the second quarter compared to $86.4 million in the second quarter 2019.
The main driver was the 52.8 million condition of People's though in our other contributing drivers were employee related costs to 1.6 million acquisition and organic growth of 838000, an increase production costs of 215000.
Excluding the People's impacts, both transaction related costs and own and expenses.
As well as growth going on would've been up 1.8% on a comparative basis to last year.
The 19 is not currently impacting our on M&A significant way, we are seeing savings in certain areas such as travel related activities, which offset some of the kobin 19 related expenses like personal protective equipment cleaning and supplies.
Next we'll take a look the earnings per share waterfall.
GAAP EPS in the second quarter increased by 16% to 29 cents from 25 cents in 2019.
People's transaction costs contributed seven cents growth net of the dilutive effect from the equity offering added 3.6 cents and regulated water segment rates in surcharges volume and expenses together contributed almost four cents to the increase.
The decrease of 10 cents from other items, such as increased depreciation amortization and interest as well as decreased Aqua, Pennsylvania tax repair benefit brought us to a GAAP EPS of 29 cents for Q2 of 2020.
The next slide we want to take a moment to discuss the net income by quarter.
The slide that we presented at our Investor Day in February we just wanted to bring it back and discussed net income volatility by quarter, given the strong performance the current quarter and expectations going forward.
Turning to slide with Swiss sits our investors in constructing quarterly projections due to lack of historical comparisons and the many moving pieces as a result of the transaction and our new utility mix.
As you may recall as a regulated water utility there was limited seasonality and the summer months of Q3 is historically provided for our strongest results in terms of net income and we typically only sub movement of a few pennies due to weather.
And the combined company, including a regulated water segment and a regulated natural gas segment, we anticipate that the highest earnings will shift to the first and fourth quarters going forward.
This is of course result of the dramatic impact of whether measured in heating degree days on a natural gas utilities results.
Let's take a look at the bars in the range is on the slide.
We reported adjusted income per share on a non-GAAP basis for Q1 at 60 cents, which falls just slightly below the middle of the light Blue range on the first quarter bar.
We are reporting 29 cents for Q2, largely as a result of the greater number of heating degree days, specifically in April and favorable water consumption.
Thus we were at the high end of the range expected for the second quarter.
As we look forward to the third quarter, we'd like to reiterate the natural falloff of gas consumption will push us to the lower end of the light Blue range for Q3, which suggest a result, just above 20 cents in earnings per share for Q3.
And while no one can predict what the weather will be in the fourth quarter, we anticipate that we'll be right in the middle of the 25% to 35% range illustrated on slide.
Given our first half results in current projections, we remain confident in achieving full year earnings per share in our guidance range of $1.53 to $1.58 on an adjusted pro forma basis.
Moving on to rate activity.
In 2020, so far we completed rate cases are surcharges for our regulated water segment in Illinois, Indiana, North Carolina, Ohio, Virginia, and Pennsylvania totaling annualized revenue of 10.2 million.
And our regulated natural gas segment, we've completed surcharge filings in Kentucky in Pennsylvania, with total annualized revenues of $1 million.
In the coming months, we expect to receive new base rates are surcharges in New Jersey, Virginia, North Carolina, and Ohio for a regulated water segment.
And at this point in the year, we do not have any pending base rates are surcharges for our regulated natural gas segment.
Fortunately, our relatively limited rate case, sorry fortunes are relatively limited rates related activity remains on track during coburn 19, due to technology and continual virtual interactions with our regulators and counterparties.
As previously reported we elected to repair tax accounting method change in late March of this year for the People's Natural gas subsidiary, our largest natural gas subsidiary with about 633000 connections.
In terms of its impact for the second quarter at the tax repair benefits reduced income tax expense by $5.3 million.
We're pleased to announce it this morning, we filed a petition with the Pennsylvania, PC requesting accounting treatment for the approximately $380 million catch up deduction for capital invested prior to essentially ownership of peoples.
Our proposal include the sharing of the catch up tax benefits between our customers and our shareholders.
As proposed it would benefit all parties by extending the time until the next base rate case.
As such we wouldn't envision it changing our expected annual earnings growth rate of 5% to 7% in.
In terms of regulatory procedure, we expect this filing to be processed over a timeline similar to that of a rate proceeding.
And finally as we've discussed on previous calls we continue to look for the right time to issue approximately $300 million of equity this year.
That equity as you may recall from Investor day is necessary to appropriate capitalize core and other acquisitions in the pipeline.
Next I'd like to turn the call over to Matt roads for an update on strategy and corporate development Matt.
Thank you Dan.
Essential has been able to provide continuous water wastewater and natural gas service to the 5 million people. We serve during this challenging cobot 19 pandemic in this environment and during these uncertain times. The company remains strongly positioned to play an important role in solving today's infrastructure challenges and supporting our mission of delivering safe.
And reliable natural resources that are essential to everyday life.
Many of you are familiar with this slide and we continue to believe that utilizing this strategy, which leverages our core competencies as best for our company and differentiates essential in the marketplace.
As we think about growth, we have very sizable capital opportunities to grow rate base. The water business has a robust internal capex program that has continuously backfill by new capital needs through our municipal acquisition program, which has a proven track record of success.
Our municipal program has been our growth engine over the last several years and we expect it to remain our primary focus for consistent year over year customer growth and rate base growth as capital investments are needed.
We continue to see significant water and wastewater municipal transaction opportunities of varying sizes, which is why our water and wastewater municipal initiative remains our top priority for growth.
As we have said the People's transaction was a unique and strategic opportunity because it has a pure play gas LDC located predominantly in Pennsylvania, and it has significant infrastructure investment needs, which drives organic growth.
As we have previously discussed the nearly 2700 miles of identified pipe replacement is quite you need considering many gas holiday season have already completed their pipeline replacement programs.
We are pleased with existing rate base rate base mix of our utility platforms at approximately 70% water and 30% gas in fact, we would be happy to see the contribution from water increase if that would mean, we have been successful in our municipal acquisition program.
We will continue to be very strategic and selective as we consider future acquisitions.
The final pricing of our growth strategy is market based opportunities or MBS days, which our nonutility businesses. While there are a few of these businesses within essential today and total they contribute only about 1% of our net income.
These include home warranty businesses investments in micro grids, and combined heat and power projects and others, which are complementary to the existing utility business and often have environmental benefits I will discuss two of these projects in more detail a little later.
Moving to the next slide.
We continued to discuss the importance of fair market value legislation as we position our company as a solution to municipal leaders on our last call. We were happy to report that this legislation is now available in all eight states, where we currently serve customers and our regulated water segment.
As Chris mentioned earlier in the call, we recently announced our first fair market value acquisition in Texas, which I will discuss on the next slide.
This slide represents acquisitions for our regulated water segment.
So far this year, we have closed the Campbell water system in Ohio, The east North on wastewater system in Pennsylvania and continued to advance the new Garden Rockwell Utilities Commons water and build core a transactions the signed agreement with Commons water represents our first fair market value transaction falling into 2000.
18 implementation, a fair market value legislation in Texas and they consist of approximately 1000 customers located in the Houston suburbs.
Regarding the core of our transaction continues to move forward with the Pennsylvania, PC regulatory approval process.
Just last week, we reached the milestone of dipping you see fully accepting our application there's been some news on the local media about legal challenges to the transaction, but we continue to believe we haven't enforceable and legally binding contract with Bill Cora, we expect the transaction to close in early 2021.
We have not experienced any major delays in the regulatory approval process due to cope with 19 and continue to closely monitor our regulatory proceedings. During this coven 19 crisis, we've ramped up communications with our regulators. So we can work together to keep our regulatory activities on track.
We continue to see a strong pipeline of municipal acquisitions, especially given the passage of fair market value legislation and now with economic pressures as the Coca 19 crisis continues we are anticipating more municipalities, we'll be looking for solutions to financial constraints, we stand ready to partner with these towns and cities on the water and wastewater utility.
So they can focus on other vital municipal programs and community projects.
Moving to the next slide.
In addition to our signed municipal acquisitions, we have a healthy pipeline of potential municipal deals to be included as part of our pipeline means that we are having active discussions with the municipality.
As illustrated on this slide we're actively pursuing acquisition opportunities totaling approximately 365000 customers.
Again, many of our recent municipal acquisitions have been wastewater assets, rather than water given the operation and compliance of wastewater assets can be more difficult for some municipalities to manage we see the same trend in our pipeline with the majority of the potential customer additions coming from wastewater systems, which are effectively regulated the same way as waters.
Systems.
Next similar to how we look for acquisition opportunities. It is important that we look for partnership opportunities and the communities that we serve one of the community partnerships, we'd like to highlight on this slide is the Pittsburgh International Airport Micro grid project, which peoples gas will build maintain and operate.
Through the use of on site natural gas and solar Pittsburgh will be the first major airport in the U.S. completely powered by its own micro grid, which is an independent electricity source. The airport will remain connected to the main electrical grid for emergency backup, but this project will allow increased reliability public safety and lower.
Emissions, while achieving cost savings for both the airport and at the tenants.
Through the use of five generators, which use onsite natural gas supply by people.
At approximately 7800 solar panels.
Microgrid will produce an equivalent amount of electricity needed to power more than 13000 homes, the project insurers and more efficient environmentally sustainable and resilient energy source for the airport using local natural resources.
In addition, People's is also formed a partnership with Allegheny Health network to build maintained and operate a combined heat and power project also known as CHP at the Wexford Hospital. The project will be more energy efficient and provide electricity hot water chilled water and steam to meet all the power.
Heating and cooling needs of the hospital this will reduce cost and improve reliability for the hospital and importantly will reduce emissions.
We believe the project is the first of its kind for a hospital in the region.
And with that I'll hand, it back over to Chris.
Thanks, Matt appreciated.
You know earlier this year during our Investor day, we presented our 2020 priorities.
We said that we would remain focused on operational excellence.
The integration of peoples.
And the continued focus on the Dell core a transaction process.
We said, we would remain committed to our municipal acquisition program that we implement our accelerated People's Capex plan, including the election of repair.
Of course of the time, we you know we will be facing a pandemic, but despite our work to overcome the pandemic. We remain focused on this quarter agenda, we remain committed to delivering on all of the priorities.
In addition to these priorities.
We continue our focus on SG initiatives.
Recently, we hired to a manager of EEG, John CAD Llano, who is focused on overall SG program of work every day and Thats all he thinks about.
Earlier this month.
We'll be built we'll be filing our annual CDP survey and we anticipate publishing.
Our updated SG report later this fall.
I continue to believe that we have a strong.
Yes, GE story to tell and John the team are working to take our SG work to the next level.
With that.
Talk about guidance.
We are reaffirming our 2020 guidance recognizing that were not completely out of a pandemic. However, we believe the company's current position will allow us to continue to deliver strong results for the remainder of the year.
Adjusted income is still expected to be $1.53 to $1.58 per share on a pro forma basis for 2020.
But then spent some time, providing you outlook that insight into where that that fall. It falls in the various quarters. This is important to think about especially as you do your work for the third quarter projections. So hopefully hopefully those that chart is helpful fuel.
Our capital plans remain on track as we anticipate spending approximately 550 million on the regulated water segment and approximately 400 million on the regulated natural gas segment.
We anticipate investing approximately 2.8 billion across the potential platform through 2022 driving rate base growth on the water side of 6% to 7% and driving rate base growth on the natural gas segment up 8% to 10%.
Lastly, we expect annual customer growth to be about 2% to 3% on average for our regulated water segment and with that let's open it up for questions.
Thank you if you'd like to ask questions. We signaled by pressing star one on your telephone keypad and if you're using speakerphone. Please make sure. Your mute function is turned off to like your signal to reach our equipment I guess I wanted to ask a question off at this moment, Hello, everyone and opportunity to signal for questions.
And well go to our first question from Ryan Greenwald of Bank of America.
We Ryan morning, guys.
Appreciated Ryan this morning.
You bet can you provide a bit more color just around the acquisition platform and taxes. Following the latest announcement the magnitude of opportunity there and the efforts underway in the state and just kind of what you're seeing in terms of the competitive landscape.
Sure Matt with day, Yes, sure, we're very optimistic about opportunities in Texas as we talked about on the call. We just announced our first fair market value deal. There is an investor owned utility with about 1000 customers.
We see other investor owned utility opportunities other municipal opportunities there and we are now do we have fair market value in Texas, We really expect and hope that it opens up so it's a big focus of ours, we have business development people in the state of Texas. They are working actively having discussions. So so we do think theres additional.
Opportunity there is Texas is interesting place because you have municipal utility districts as well that particularly around the Houston area. So it makes it a up a bit of a different animal than what we experienced in some other states and so we've been working hard to to open the market there and I am with Matt I think the FMT legislation will will.
At war and increased activity in the state.
Got it and then more broadly just kind of thing going across the rest of your jurisdictions on the water side.
Any particular states, where you're seeing the most opportunities are.
Particular state that expanding outwards most competitive.
Yeah, we continue to see a lot of activity in Pennsylvania.
And also in places like Illinois, and now in Ohio.
Not coincidentally, we've had fair market value the longest in Illinois in Pennsylvania, and so thats part of their even when we see a lot of continued activity there, but yes, given we now have fair market value at all of our states, where we're starting to see.
Additional activity in places like Texas in Virginia, North Carolina, as well, so while Pennsylvania. It probably is still our busiest state where we're definitely seeing more activity across our other states as well and were importantly, we're trying to add new tactics as we as we approach and make our solutions available to.
To to the various municipals that need us, especially it at this time when we know that we're more municipal distressed for them for cash and so.
For example, we're making offers where we just think that the municipal is in trouble or need help we'll now open the door and actually offer to buy their system as opposed to you don't get a call where we for an RFP. So I think you'll see increased sales tactics as we move into this period to to offer bed.
Our offer our solutions on a on a proactive way.
Got it and then just lastly in terms of the types of component filed this morning, it sounds like you're not kind of change in the 5% to 7% longer term guidance. There, but are you able to provide a bit more granularity in terms of the contribution on EPS basis.
Could materialize out of that.
Okay.
It's hard to do at this time and what we're doing Ryan is really.
Proposing a concept here construct were at ketchup deduction of benefit from it would be shared between the customers and the shareholders and you can imagine customers getting.
Certain credit on their bill to reduce their bill over a period of time and then to benefit the shareholders. What we'd look for us filleted at to bring some of that back later to extend that time until the next rate case, and when I say seven seven till next rate case, you might say will that benefits customers too and I I would say, you're you're absolutely right. So that's.
Thats, what we have proposal in four and.
It's it's it's newly filed its kind of an on its likely an open that are now its Pennsylvania PC. So you probably can't provide really any more color on it than that.
Fair enough appreciate the time.
Yes, Thanks Ron.
And we'll go to our next question from Ryan Connors owning an adequate.
Hey, Ryan.
Good morning, Thanks for taking my questions.
So I wonder if you'd give us any regulatory update on the on the issue of the service disconnection Moratoriums in Pennsylvania, I know the PC split on that issue back in June but they did a public meeting this morning, I Didnt didn't hear it come up at all so any update on when that one.
When they might expect to move on that one way or the other extending it or rolling that back.
Yeah, I think it's important question.
Yes, the good news, even before I get into the timing. The good news is a Pennsylvania has given provided some some relief in the form that.
Both allow regulatory asset for cobot related bad debt expense, so right from that standpoint, it's still cash flow issue, but but it's not necessarily at pinedale issue long term and hopefully frankly that we hope customers pay their bills there will be at issue at all but in terms of being able to to enforce a shut off or non pay.
You know the commission has brought about two times my knowledge.
And that each time the good commission has been a split two too.
We're still missing a fifth commissioner.
When Christie place I retired from office, we don't have a fifth commissioner now.
The.
The governor just sit over a name to the Senate This week.
Haley book and so we'll see what how that develops but the best estimate I think is that we would see some some action by the commission in the September timeframe remember.
There are out there there comes into a winter moratorium later in the in the fall coal that the December timeframe, where were again faced with no shut offs forum on the water side for water related heat and often certainly on the gas side. So these are considerations I think the commission would we think about it.
And allow some period.
Between.
The September timeframe, Andy the moratorium.
Winter moratorium to be able to to clean up some of the bad debt issues.
Yes, I can give you Ryan got it Okay, and then I mean, that's kind of dovetails into my my other question, which is somewhat big picture nature. I mean, you mentioned its cash flow shoe not an earnings issue, but the longer it goes on it because the risk that it then it becomes an earning issues earnings issue. So I guess my other question.
It's sort of.
It seems to me like when you look at the overall regulatory dynamics Rickover. This seems like the water utilities have been caught in kind of.
Caught in the middle here on the one hand, you an essential service no pun intended so you've got to keep operating which cost money at it. Another hand, you any kind of monetization, whether it's a rate case whether its.
Collections of shut off.
That's sort of a third rail right now so what's your reaction to that and what can be done sort of help turn the tide and bring some balance back into the regulatory compact if in fact.
You know this thing in terms of the job market in unemployment and household impact does end up going on for another year or more.
What's being done to kind of balance some of that out.
Yes.
Let me start was saying we are.
Always focused on affordability for our customers start with that so we we understand what a lot of American families are going through right now and and so.
And we use a lot of a lot of issues.
You know around collections. During this time. So we can now we can help customers. In fact, you know about $27 million have helped comes to the customer a year on the people side on on gas bills through like E. But other programs. So a lot of lot of lot of help we try to provide for customers to make it.
Now, having said that listen I think we we believe that.
You're better off Haley these issues.
With a.
More surgically and not with the blunt instrument would I mean by that has a broad moratorium probably isn't as effective.
It's.
It's important that we give customers who needed the help that they need all the other head customers, who take advantage of it there needs to be some discipline and so we continue to advocate.
Commissioned by commission for a more surgical approach rather than a.
On approach, where we outwards abroad moratorium so.
You know all I can say Ryan our intent stage state by state we were in those conversations two of our states are already have already gone that way and reinstituted.
The collections and that would be West Virginia in Texas, and then we have four more states who are lifting their restrictions in August and then it looks like the remaining for would be sometime in September to the best of our knowledge, but those conversations continue at each of our states.
Got it okay, and just one more just just going back to the prior question there on that on the municipal acquisition pipeline definitely seems like you're sort of punching very much at or above your weight in terms of your pipeline and deal flow and then sort of outpacing the industry you really.
Actually it seems like in Pennsylvania, which is pretty impressive given it's a very competitive market. So and you look in local press reports indicate there might be more on the way there. So one of the factors that are enabling now what does it about your process that you think is giving you that edge or do you think that's just timing and that's you know you're on a hot streak and you know that'll that'll all even out over time.
Yeah.
It's all management, Brian [laughter] I'm Kidding of course, but you will listen we stay at a pretty hard and.
I think the be offering we have let's face it too. We are we have a nice reputation in the area. We serve we worked really really hard to two to lead our communities and so that reputation is long built right and so some of these transactions were talking about our right on top of the water customers. We currently have.
So that gives us a little bit of an inherent advantage.
Given our location and our reputation, but but beyond that all of these deals are political at one level or another some more than others.
And there's various opinions and the larger they get and as you know, we're doing larger and larger municipal transactions now the larger they get more people have opinions and so I think the nature of these days is we're going to have to just kind of.
Stay the course and as we've done with Dol Cora file it make sure that we've got all the necessary documentation for the commission and allow people to participate in that in that process as they as they see fit oppose it if they need to but but but let the with the regulators and legal.
Judges in some cases determine ultimately what the outcome is but I was not.
As as they get bigger we're going to see more and more people have have an interest and take a position and that's just the nature of these things, but we're comfortable will continue to close.
Great. Thanks for all the detail and thanks for your time.
You bet. Thank you right.
And moving on we're going to quick question from.
Evercore ISI.
Did you guys, Hey, you guys, Hey, Hey, guys. Good morning. Thank you for taking my question and they're very very solid quarter.
Maybe just a nice start off with.
Well I think there's actually mentioned over it impacts and they're seeing.
Pretty material earnings impacts from Cowen.
And you just maybe help us understand how much was weather.
An offset to the extent that you can during the quarter and what do you see in terms of no normalized.
We're showing western declines.
Sure Dan, Yes, yes, absolutely I mean, I think if we think about whether and weather was helpful. For US said and you saw it certainly in the in the mid Atlantic and we would say too, but you seem with some of this work from home is people out take care their lawns, there now watering or lawns and the weather has been conducive to keep.
That watering up so that could be for us as much as a couple of pennies of of incremental earnings here and so that is that is helpful. But I'd say in terms of when we identified the actual coal that impacts and.
P and cleaning expenses and things like that yeah, there, they're relatively modest numbers that are in their own m. waterfall, we showed earlier.
So.
They're not not big figures for put into there and then as we did say you know there's a bit of an offset because we effectively stock our travel so you're not seeing you know you're not seeing people traveling between our eight or 10 states now we're not going to conferences.
As you know you haven't seen Brian and Chris myself or Mad at any investor conferences right. We stop that so there are some savings there that helped to offset those expenses as well.
Understood and yeah, I haven't seen you guys in an issue for the record but.
Hello.
In terms of that in terms of the declines axles demand declines anything in there, obviously largely residential footprint, but nothing alarming there I'm guessing right I mean in terms of what you're seeing so far.
No I think Thats, that's kind of what we expected going in before we saw the data.
And then as we said right on our last call in our last call. We've just gotten the April numbers and said we were basically kind of coming in on on budget for April so by that point, we started to see this that the residential was making up for the declines and the commercial industrial and other segments, rather customer classes. So what we what we wanted to.
So curious just.
Quantitatively put that on the slide and let's just see exactly what's going on there. So far during this period compared to the same period last year, Yeah, I had been going into it isn't doesn't watch this over the over the last several months there yes.
You can imagine and is probably various computed accompanying jurisdiction just jurisdiction, but there was obviously concerns over.
Businesses, such as industrials that maybe had supply chain issues or other issues caused them to decline production and therefore decline there consumption and certainly as you look at this probably some of that happened, but but it doesn't appear to be as bad as it might have.
Has made it could've been a at least at ARIA and that's what that's going to vary company a company in the jurisdiction by jurisdiction as I said.
Yes, I think I understood.
Understood very helpful. In terms of just the equity issuance timing.
On Bellcore out why do it this year why not just just wait for the deal and do it subsequently any thoughts on that front.
But the thing about on that right you have to think about on timing. So Dan you want to.
Go through our how we're thinking about yeah, a little bit and you know Turkish they say you know some weight to raise money to the point, where you really need it right silverline, because we think about it delcor at closing and how do you kind of get ahead of that and make sure that we're ready for it.
Yeah, just want to make sure that we pick the right time here in this back half of the year to raise that equity and as you know if you look.
Too far out here, you start to see the election and who knows from an.
Equity market perspective kind of what happens around that I think thats right you know the economy, what happened to the economy. If this a koby continues into next year. There's just a lot of convinced that could cause some volatility. So I think we're going to look for we're going to be opportunistic in terms of planning and do this weekend for years for.
Equity raise.
Understood. Thank you and just one quick follow up hopefully for Matt.
In terms of MBS very very interesting, but you know how are you is this going to be a business model, which is going to be capital light contract bread businesses or you know Oh, you plan on deploying balance sheet. There too just any color on that front would be great Matt.
Yes, the I would say, it's a mix.
It it People's for instance, they they have a few different it'd be a phase one is a home warranty business, which is very capital light right. The it's a fast growing business and we like the business, but it's it doesn't require much capital on the other handed and they're doing projects like the Pittsburgh Airport in mice in CHP projects at hospitals.
Which are more capital intensive Friday to spend the capital they basically.
Develop those projects and manage them and so so that does are definitely a little bit more capital intensive so it's a little bit of a mixed bag, depending on the business and in both people bandit it Aqua.
Understood appreciate Nicola guys be safe and thank you so much.
Yes, I guess is answer dash take care.
And we'll move to Andy <unk>.
Seaport global.
Thank you.
Two questions why is that so far we're seeing he thought those codes that mostly related to your customer classmates magazine that residential customers are consuming more on that just the normal weather basis and that also.
Correct Cnine side now just like we hope.
At least hope to see on the electric side I would argue that.
Coal that should make no I read that sensitivity hi, Eric I take that there's one there's a change in the customer mix. That's also the.
It's a conventional customer it's more let me walk it seemingly to widen terrible weather both of the water side and the gas side. So what I'm trying to say that is actually a scenario, where you know given what we've seen so far this summer.
Who ends and assuming that the winter is going to be at least normal we could have actually a weather benefit both on the water side and the gas side, which wouldn't be.
Well not only offsetting pullbacks also but also additive to your guidance.
Well you know from your lifts the God's ears right [laughter].
It's businesses. These things are hard to predict I mean, I think you you're a couple of your suppositions. There are accurate that is more people are at home. So therefore, I'm probably more people have done yard work plan things this year and our watering are launched than before so I think all those things are accurate as they get their bills to move their way through the summer will they can.
Can you at that rate that's a question.
What do I get my Bill maybe.
One of my my spouses out of work and so we're looking at trimming expenses. So we just don't know Oh edgy I think our best estimate at this point is right within that guidance range that we've described and.
Could could there be upside I guess potentially but but were in our best estimate at this point, we are within the guidance range.
Okay, and then secondly, I know that you have just style.
Catch up that protect application that and even if there is a sharing mechanism I don't think that we were expecting to file and now that they keep on the gas side that who 2020 tool and so.
Again as long as the best sharing many anything for shareholders that should still be GPS additive versus the original plan now.
I guess way say this is you know we've we've made a proposal in such a way that we would be stretching the time until the next rate case beyond what you were expecting so going farther out from there and frankly farther out than than what we would have planned by using some of that benefit too.
In that later period makeup for what you'd call a revenue requirement shortfall. So do that continues a heavy capital spend due to continued heavy capital spend over that period of time. So yes, we see it really driving that.
Extended period between the last rate case in the next rate case, which we think it's really good for all stakeholders.
Mhm, Okay, and lastly, I know that the question was already asked I mean, you in your data not showing any net impact of collateral negative impact the impact of call that on your earnings.
In that I, you know year to date, Ethernet and especially for the remaining remainder of the are you assuming that Pennsylvania allows you to defer any cold weather related expenses, both basically expenses and bad debt.
On on bad debt, we're assuming that we get some treatment on coke and related bad debt expense right. That's a regulatory asset that and that's that's a commission it already issued guidance on that so one bad debt expense, but not on other corporate related expenses, we we.
We think we could offset those with other opportunities for savings.
Associated with Covidien not associated with code, we think there's opportunity to basically hit our numbers without without damage from for the focus related expenses.
Okay. Thank you.
Sure.
Thanks entry into <unk>.
As a reminder, you May proceed star one on your telephone keypad. If you do have a question at this time.
And we'll go to Jonathan Reeder of Wells Fargo.
Hey, John.
Good morning Mario.
Pretty well how about you know.
Oh.
Pardon me alignment burn.
Well I forget the tunnel.
Right right.
Yeah.
You are hearing what the size of the repairs tax.
Catch up bottom was and is that the amount of income.
Shielded or is that the net income impact.
[noise], so silly $380 million approximately creative and that is the deduction. So the benefit is effectively.
Tax rate multiplied by that deduction.
Got it.
Okay and that that benefit is then what flows through the income statement.
Right. Okay. So then the portion that you request to accrue shareholders. I mean, it sounds like are you asking what's going to you might add needed to keep your on Darwin consistent with the allow levels as opposed to some sort of predetermine amortization over a multiyear period like Ms Dawn.
Water side.
Yeah. It's.
It's a it's a bit of that that pre determined but I think you know time will tell here. This is I. Just said earlier. This is now an open matter in front of the pay you see and just want to be respectful of that process.
Some senior knowledge, it's actually adjudicated, but I think I think two interesting to me but is it.
But I think we could change on is thinking about at the right way, Yes, John and you are thinking about at the right way I would agree.
Okay, and then issues to request has that been sheet by any like relevant discussions you've had with regulators are key intervenors over the past few months.
More.
Yeah, that's just purely presenting it to them for the first time in Seattle area.
Well I am confident Dan and Kim and the team for for the work they've done on this because there have been pretty meeting. So this is not.
This is not the conditions are there where they are the staff first exposure to this they've done a very very nice job with communications on this and so.
Well I wouldn't say.
I would characterize it as we guided by the by the rain later on how to file I would say, they're not they wouldn't be surprised by what they saw with it today.
That's correct, Chris we have we've had good very good conversations and socialize. This concept with the various parties in advance we try to create something Jonathan that is a win for everybody long term and short term.
Were the customer really benefits and the shareholder benefits bicycle by some portion as well so.
We really try to craft the compromise situation.
Right I don't really helps to the yeah.
So it supports the the elevated level of capital deployment as well. So you know like it's that longer stay out plus continued capital deployment to replace pipe to really drive same thing reliability in our system as well as we think about the recovery from even covert here the economic condition associated along.
We believe the longer we can stay on race in the gas utility and at the same time continue to focus on the replacement the pipe reliability of for environmental reasons, we think thats the strongest outcome.
Oh, yeah that'll make sense I appreciate that color lastly, you know I know, it's not a five year really in but you are interested in it where do things stand and the whole legal fight between like Delcor.
The city council or whatever.
[laughter].
We just started and I'll take it Matt for further but so.
We have filed as Matt said his present, a presentation, followed with PC living simply fully accepted or application. So that's good news for the process.
Normally not winding through the PC and you that's a tough to find time period. So that we take it to call. It early 2021 stayed on his career track as the county has has.
Now now knows that they have.
It's very public what the numbers ours for the proceeds are somewhere around $200 million from this so the county I think is concerned about the koby cases, they've had encode related impact and so I.
I think there are carefully watching those expenses and I think.
At least one of the County Commissioners I said to me that they were done that they would like to have some of those proceeds.
Tax payers as opposed to simply repairs.
It wasn't at the end of the day, a proceeds from the sale or it's going to be largely up to the county, where this will remain a distrust.
I thought it was a very creative idea that DUC, where it came up with to say, we're going to take the entirety of the proceeds put them in a trust and then offset future rate increases because as you know and Weve indicated we have about $700 million capital spend adult Cora.
Expanding implant redirecting flow, so it's going to be a a heavy lift over the next year is a eight years and so we thought the solution was pretty good but again as I said, a few moments ago politics, or what they are and I think that we'll see things so sometimes through their own licenses that were going to have to work through those issues.
At this point, we we would expect the judge in the county to a ruling sometime in early September September on what he thinks about the situation.
Yeah, I might add Jonathan's, who is yes, we are in our legal proceedings on going so we can't comment too much but but we do have assigned EPA in place and we're confident that legally binding agreement and so we continue to progress you know with that in mind, then and are hopeful that will get this transaction closed in early.
2021.
Okay. Thanks, Chris that judge ruling that you said in mid September that would determine what are the calendar. He has a right.
And even the proceeds or actually sell out maybe what right they have to it.
And you know I guess or whatever appealed it's more about the parent.
Yes.
The transaction.
Yeah, I think it's more about whether the county in the range to stop the transaction right really county, right step in and intervene today in a in a contract that exists so.
It's a pretty important decision by the choice in September.
Less about the trust and more about the.
The counties ability to dissolve the authority and intervene in the midst of a transaction.
Okay, all right. Thanks, I appreciate that clarity.
You bet Thanks, Jonathan.
And with no further questions in queue I'd like to turn the conference Dr., Chris Franklin for any additional or closing remark.
Thank you all for joining us this morning, great questions and obviously were available for follow up if after already Brian and that Dan and I am are all available. Thanks, So much every day.
I guess that does conclude the call we'd like to thank everyone for your participation you may now disconnect.
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