Q3 2020 Essential Utilities Inc Earnings Call
[music].
Brian thing. In addition, please go ahead.
Good morning, everyone and thank you for joining us for essentially utilities third quarter 2020 earnings call I'm, Brian Dingerdissen, Vice President Chief of staff and head of Investor Relations. If you did not receive a copy of the press release, you can find it by visiting the Investor Relations section of our website at a central DACO <unk>. The slides that we will be referencing in a web.
Yes at this event can also be found on the site.
Here's our forward looking statement 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.
Please refer to our most recent 10-Q 10-K and other SEC filings for a description of such risk and uncertainties.
During the course of this call references 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 on our Investor Relations section of our web site. After the presentation, we will open the call up for questions.
Here's the agenda for our call today, we will start with Chris Franklin, Our chairman and CEO, who will provide a company update my cure will then provide a people's update before turning the call back over to Chris to provide the third quarter highlights and talk about our E. S. T program.
Dan shortly our CFO will then discuss our financial results after.
After that we will turn it back to Chris for our municipal acquisition program and then conclude with a review of our guidance at the conclusion of the call. We will open it up for questions with that I will turn the call over to Chris Franklin.
Hey, Thanks, Brian and good morning, everyone. Hopefully you got some sleep last night after a long election night.
You know it's been nearly nine months now since we closed the transaction with peoples and as many of you recall the same amount of time since we activated our business continuity plan to deal with the pandemic.
I want to start today's call by letting you know that our company and its workforce are as strong as ever.
I continue to be in all of our dedicated workforce and the accomplishments we've been able to achieve despite the challenges of 2020.
All right, let's talk a little bit about the integration of the People's Company.
Each of my direct reports, whether he or she is from peoples or from Aqua now have teams that include leaders and employees from both legacy organizations, leveraging the best thinking and approaches from both utilities.
Our functional leaders like HR, I T et cetera.
Now support both water and natural gas our operations teams have really come together quite nicely in the spring to resolve.
The challenges associated with Covidien.
And then they have also been working very closely ever since.
We're sharing best practices related to operations and construction safety just to name a few and our engineers have been working together to accelerate the pipeline replacement program at peoples, which ultimately improve safety and reduces methane emissions.
We're also leveraging our scale for the purchasing of vehicles equipment and technology.
We're building efficient backbone infrastructure systems and applications to support both utilities and better serve our customers.
And we're using our larger frac platform to attract a more diverse workforce hopefully that gives you a quick sense of our integration process overall, it's really going well.
Now I will address our stock price here for a moment.
There are some micro and macro issues likely at play here.
I will point out that over the summer we entered into a forward agreement you will recall that to issue 300 million in equity and it took some time for this equity offering it to be understood in the market all in all I I think you'd agree that the $300 million forward went very well.
Now on the macro level I will point out the obvious we've been in the midst of one of the most contentious elections in our country's history and natural gas or at least fracking.
The central themes.
And finally, we continue to hear concern about the progress of our del core a transaction.
All impacting the stock price so let's talk about a couple of these issues OPUC both about the poor for a second and then we'll we'll talk a little bit about our view on natural gas. So first on the core we remain confident that will we will close delcor in early 2021.
The pandemic related issues have pushed our court date that was due to happen today.
At least a week out hopefully, we'll know that probably this afternoon, but.
Hopefully, it's only a week out we remain confident that the central question before the court, which is is there a valid and enforceable contract between the parties Thats. The key question, we hope that the results.
Of our of our time in court will be a positive result for the company.
We see this is a pretty straight forward question.
Before the court.
And we hope that we will get an answer from the court about 60 days or within 60 days following the hearing.
Either way.
There is no expected impact on EPS in 2021 from the Delcor acquisition, we've been saying that for some time.
I would guide against putting any pluses or minuses in your short term short term model for del Cora, but it will be accretive in coming years, but would not impact 22 truck 2020 or 2021 earnings per share.
All right, let's turn to natural gas.
First I want to acknowledge that natural gas companies have traded off obviously.
More recently and some investors have even begun to speculate that.
The future of of natural gas in the United States is is in doubt.
I want to take a moment to make a couple of things really clear.
Number one.
Lets ground ourselves in the projections from the non partisan us energy information administration.
It's expected that natural gas consumption will remain nearly constant in the United States through at least 2015.
The declines in nuclear and coal generation will obviously yield ground to renewables, but natural gas consumption is expected to remain constant that's really important.
I think a lot of people are missing that.
Secondly, we've said this many times as well peoples is situated over the Marcellus shale region and all the natural gas we serve comes from local sources and takeaway to that is that.
The plentiful and inexpensive natural gas will be available for a really long time in the Pittsburgh, Pennsylvania area.
Nothing not spend Weve not spent time in Pittsburgh, you might not know that pittsburghers.
Our proud of their natural gas history and understand its importance not only to their local economy, but also to national energy independence.
Next.
Our natural gas service territory is really in Middle Class America.
So to switch a home from natural gas to electric solar or wind wood cost in the range of $8000 to switch. It would also mean paying higher monthly energy costs.
I think it's fair to say our customers are unlikely to switch.
Now if we aggregated all of the greenhouse gas from all of the residential natural gas consumption in the country.
We will equate to about 4% of the of the country's total greenhouse gas emissions. So minor in the scheme of things I think that sometimes gets gets lost in the discussion as well.
I think those of you who know us well know that at Aqua America, we were always in environmental leader over many years, we have been demonstrate we have demonstrated our commitment to be responsible stewards of the environment.
We specialize in rehabilitating underground infrastructure and.
And peoples gas is really no different than Aqua America was before we were combined we believe as the new owner of the business we.
We can modernize its infrastructure and apply industry best.
Practices to aggressively reduce emissions and adopt advanced technologies.
As essential utilities, we plan to set a credible and aggressive intermediate term emissions reduction target by early next year.
We will continue to evaluate technologies and strategies to further reduce emissions in the longer term.
So in summary, while the media May have you believe that natural gas will go away over the next decade or whatever they are saying today.
That clearly does not line up with the objective reality of energy use in the United States in fact, it's quite the opposite.
I'll say this as clearly as I can we are very pleased with our purchase of peoples is performing extremely well and we believe we have a long and successful future with peoples and Aqua as essential.
Now I'm really pleased to introduce our new leader of our natural gas business, Mike cure.
Mike is our new president of the peoples gas company and joined US in August concurrent with the retirement of Joe Gregory who was our longtime leader of People's operations over there did a great job and we.
We wish him well in his retirement.
Next a native of Pittsburgh comes to us from Columbia gas, where he spent.
34 years, a 34 year career, there and most recently was president and COO.
Of Columbia's PA and Maryland operations.
I'd ask Mike to provide some of his early observations about people's and to provide his perspective on the natural gas business in Pennsylvania were 690000 of our 740000 customers reside Mike.
Thanks, Chris It's certainly a pleasure to be with you today as a native of Pittsburgh and must tell you that I have long respected the peoples gas company for its leadership in the community and I'm, absolutely thrilled to have the opportunity to lead the utility.
Yes, although I join peoples, just three months ago I've been in the natural gas business for few years now and while there is always opportunity for improvement I'm happy to tell you that I'm impressed with our management or.
Our safety culture, and our safety record.
Post the team is well trained and maybe equally important we're very committed to both employee and customer safety in fact people who was honored by the American gas Association in 2019.
Receiving an industry leader accident Prevention award for achieving total days away restricted our transferred would you start.
Rate lower than the industry average.
I found the depth of management to be remarkable if you count the years of service for my senior team alone.
We have nearly 263 combined years of service and the natural gas industry.
The team is well prepared to take the company to the next level, including the ramp up our capital plan.
In fact, we are preparing to invest nearly 1.4 billion of capital in the replacement of aging gas distribution infrastructure over the next three years and over the next 15 years, we will replace nearly 2700 miles of.
Distribution facilities.
Tom you combine two companies together you have a melding of cultures and thats going to take care and efforts. My early observations of the combination of off quota and peoples as now essential indicate the cultures are very similar to start.
Which will make integration much easier I've been pleased with the spirit of cooperation among the teams and the full integration of the management teams I.
I believe we are developing a strong combined culture that will provide a strong and resilient company.
People's has always been a part of the fabric of the Pittsburgh community.
Companies visibility and community assistance has been particularly important during the pandemic.
I should also mentioned that the customers have access to nearly $27 million in customer assistance through the use of programs like lie he below income heating energy assistance program and cap the customer assistance programs. So the customers in the.
Fine helping to paying their bills and remain safely in their homes.
Natural gas is by far the most effective energy source heat homes and businesses in colder climates, and let's remember that our LDC or local distribution company People's has access to an abundant low cost supply of natural gas given our position directly above the magnificence mark.
Fellas Utica supply basin LOE costs commodity in this region.
Have also presented peoples the opportunity to make investments and modernize our distribution system with limited impact to the total bill of our customers all while enhancing safety and reliability.
As a native to southwestern Pennsylvania, it's hard to underscore how much natural gas is a part of the fabric of this community I see this as a region where business leaders legislators regulators and communities work together to protect our environment and keep our economy vibrant as well.
What parts of the country mandate the move away from natural gas more quickly than others. For example, the West Coast peoples is located in a geography, where I would expect natural gas to remain an essential part of the energy picture for generations to come.
Taking a look at the slide here I'd.
I'd like to make a few points that further the discussion on the sustainability of natural gas I won't make every points on this slide as you can read those on your own but I believe natural gas will remain a vital part of the nation's long term energy solution as natural gas remains an affordable abundant safe and reliable.
Our solution to our energy needs.
The United States is natural gas rich it has supplied to fulfill the country's energy needs for the next century as Chris mentioned, eliminating the direct use of natural gas in homes and businesses would be an expensive and practical way to address greenhouse gas emissions.
In fact as the demand for natural gas has never been greater it's estimated that one new customer connects their home to the natural gas distribution system every minute now providing service to 179 million Americans or roughly half our country.
Conversions to alternatives are expensive and would result in an increase in households have nearly a thousand dollars annually in their utility bills.
The reality is when you add up potential equipment conversion costs higher operating costs the impact of moving away from natural gas will be profound.
On every household.
In addition to existing technologies, which have dramatically reduced emissions the emissions profile of the natural gas industry in recent years.
Our opportunities for further improvements for example, our energy renewable natural gas. This is a climate neutral pipeline compatible gaseous fuel derived from biogenic or other renewable sources the industry and our company are looking at opportunities to do more or Angie.
Today, as we said People's acquires over 1.5 billion cubic feet of renewable natural gas annually within its portfolio and we plan to do more.
In closing I look forward to leading the People's team and we believe we can do great things together as we look to continue and to provide quality service to the communities that we serve.
With that I'll hand, the call back to Chris.
Thanks, Mike and nice job flicked, great to have you on the team.
I would just leave you with one final thought on this topic before we move on.
And that is that given our natural gas utility people's given its rate base growth, it's positioned geographically and its access to gas among many other reasons.
It should be thought of differently than many other gas ldcs across the country.
For regulatory reasons and everything else.
And specialty should be thought of differently than men and natural gas utilities in called Pacific regions or coastal some of these coastal communities are.
Right.
Now, let's take a look at the highlights for the quarter.
We have invested already $607.6 million in infrastructure in the communities. We serve during the first nine months of the year of which $377 million was invested in our regulated water segment and $230.6 million.
What was invested in our regulated natural gas segment.
I just want to point out that about 53 million.
Was invested by peoples in the first quarter pre closing.
So bottom line.
We remain on track for a record capital spending of $950 million in 2020.
Now in the box you also see that on a non-GAAP basis adjusted income per share decreased to 23 cents from 48 cents when compared to the same period last year, and Dan's going to taking more and more detail on those financial results in just a moment.
Our municipal acquisition program remains strong with signed me that assigned municipal transactions municipal agreements I should say totaling over $360 million in expected rate base and over 212000 customers and customer or customer equivalents.
We just recently closed the water and wastewater acquisition.
Of Rockwell, Illinois utilities Thats in Illinois.
And announced the signing of lower Makefield in Bucks County, Pennsylvania, which was a $53 million acquisition with 11000 wastewater customers.
Finally in the last box.
We're excited to point out that our latest SG report that was just published just a few weeks ago and I'd encourage you to take a look at it you find it through our web site.
Our new FCC really really strong is cheap so I would say.
And with that let's use that as a segue to the next slide here and talk a little bit about ESG.
Sustainability has always been a core part of our corporate culture.
And it's been a personal priority of mine as well since I became CEO in 2015, we've really made an SG priority, we started with board refreshment.
Our board is a nine members.
About a third of those right exactly a one third of those are women and other two members are black our diversity helps to facilitate better discussion and better outcomes and I firmly believe that.
As I mentioned.
We've been ramping up our SG communications since last February and even before the peoples transaction, our LSG, our LSG team published the first SG tear sheet.
And dramatically enhanced our 2021 proxy last spring.
Since then to ensure we provide transparent and comprehensive reporting on our work we hired a full time in house SG manager.
Most recently, we issued a new and more detailed DST report as I, just mentioned and a digital micro site format really.
Really easy to navigate our issue web site will be the home of all of our future related news and disclosures.
Now on the water side, we made some important announcements earlier this year and we've talked about these we said that by 2020% to 60% of our energy will be sourced from renewable sources. We also said that we believe we stand alone as a multistate water utility in our commitment to test every source of water in our.
States and treat any source that detects p. fast above 13 parts per trillion recall that the federal health.
Advisory level is it 70 parts per trillion. So this is a sizable improvement from what the federal government provides as their guidelines. This this is really this is a significant commitment.
On the natural gas side as I mentioned in the first quarter of 2021, we'll announce an aggressive but achievable set of targets for emissions reduction.
I want to do this before we reach the one year Mark of ownership. So we'll give it probably January timeframe.
Remember, we have significant pipe to replace it peoples and each length of pipe that we tighten up quantifiably reduces methane emissions. We plan to report those reductions in our SG reports in the future you sense each mile of pipe replaced is expected to reduce fugitive.
Methane emissions.
By the equivalent of.
50 metric tons per year of Seo too.
This is the same as taking 11 cars a year off the road for every mile of pipe at pretty entered pretty pretty important.
Let's not forget that while we.
While all this effort reduces methane emissions the pipeline replacement program also contributes about 8% to 10% rate base growth.
Annually over the 15 years.
So with that let me pass it over to Dan for the financial results.
Thank you Chris good morning, everyone.
Reviewing the financials for the quarter, we ended the third quarter with revenue of $348.6 million up $105 million from $243.6 million last year.
The natural gas business contributed $92.1 million of this revenue growth while the remainder was the result of rate increases volume and growth in the regulated water segment.
We're also reporting adjusted revenue of $352.7 million, which excludes approximately $4.1 million of great credit issued water utility customers, which were as a condition of the Pennsylvania PSC approval of the peoples acquisition.
Oh and have increased to $136.2 million up from $82 million in the third quarter of last year. This was primarily a result of the addition of the natural gas operations and maintenance expenses, which will discuss further when we show the open end waterfall.
Net income was down year over year from 88.5 million to $55.7 million and GAAP EPS was down from 38 cents to 22 cents.
We are again, providing adjusted income and adjusted income per share lines, which adjust for the transaction related water rate credits that I mentioned adjust.
Adjusted income was down 27 million to $58.6 million and adjusted income per share was down from 48 cents to 23 cents.
This results in line with the adjusted income per share guidance of $1.53 to $1.58 for the full year.
Next we'll discuss the details using the falling waterfall slide starting with revenue.
As you walk you to $105 million revenue increase for the third quarter, you'll notice that the revenue related to our natural gas segment.
Was the main driver, adding $92.1 million increased volume growth from our regulated water segment rates and surcharges and other provided an additional 17 million towards the revenue increase which was offset by the $4.1 million of rate credits issued to water utility customers in the third quarter.
The 3.9 million growth component is primarily due to the acquisition of wastewater systems.
In the fourth quarter will provide nearly $19 million of rate credits to natural gas customers to fully satisfy the rate concessions included in the Pennsylvania regulatory approval.
Given the nearly $10 million in incremental revenue from volume, let's discuss our third quarter water consumption on the next slide.
We experienced a material overall positive impact due to volume during the third quarter. Despite co hit year over year water usage was up 5.5% with many customers working from home and favorable weather residential usage was again very strong up over 10%, which offsets declines in most of our other sales.
Segment.
Although commercial continued to be down it rebounded significantly from the second quarter, when you'll recall that we were down about 16% versus last year.
As we've discussed previously given the shut off Moratoria that states an active uncoated 19 emerged in March we continue to closely monitor incremental increases in our bad debt expense and the timing of when these moratorium will be lifted.
As you can see on the right all of our states have lifted their moratorium exception of Pennsylvania for this is expected to occur in the next few days and New Jersey, where the more returns should be lifted in March of 2021.
As more entry are lifted we resume our regular delinquency procedures.
During the quarter, we increased our bad debt reserves by $6.8 million across water and gas and identified potential regulatory assets filings for much of this as we expect to be able to seek recovery of Coleman related increases in bad debt in several of our key states.
With that let's move to the OEM waterfall.
Operations and maintenance expenses were $136.2 million for the third quarter compared to $82 million in the third quarter of 2019.
The main driver was the $62.2 million addition of people. So we are now.
Other contributing drivers, including cold and related expenses for our water segment included including covered related employee costs growth and normal employee related costs, which were offset by other cost and the impact of last year's peoples acquisition related expenses.
Other bar that you see in the middle of the page includes overhead savings a reduction in insurance reserves and a combination of beneficial onetime items this year and detrimental onetime items last year.
For our regulated water segment third quarter, owing on expenses decreased 2.2% relative to last year.
Next we'll spend some time in the earnings per share waterfall.
Again, this presentation bridges between GAAP and adjusted figures for both 2019 and 2020.
GAAP EPS in the third quarter of 2019 was 38 cents, but adding back the almost 10 cents from the dilutive effect of the equity offering and the People's related transaction costs brought us to 48 cents per share on an adjusted income basis for Q3 last year.
Continuing on volume expenses regulated water segment rates and surcharges and growth together contributed almost seven cents, which were offset by 23 cents from the peoples contribution along with 8.6 cents from other items, such as increased depreciation amortization and interest.
And decreased Aqua, Pennsylvania repair benefit relative to last year.
Then results in the 23 cents for the adjusted income per share for the third quarter of 2020.
Now remember the 23 cents impact of People's here includes the dilution from the share issuance to financial performance the gas business in this low usage quarter and other onetime impacts.
Finally to do create decrease of 1.1 cents due to water rate credits utility customers in the third quarter brings us to GAAP EPS of 22 cents for Q3 2020.
As I mentioned earlier the fourth quarter of 2020 will include additional rate credits of approximately $19 million to be issued to the natural gas utility customers.
Let's look at rate activity on the next slide.
In 2020, so far we've completed rate cases or surcharges for our regulated water segment in Illinois, Indiana, North Carolina, Ohio, Virginia, and Pennsylvania totaling annualized revenue of 21 million.
In our regulated natural gas segment completed surcharge filings in Kentucky, and Pennsylvania with total annualized revenue of $1 million.
In the coming months, we expect to receive new base rates or surcharges in New Jersey, Virginia, and Indiana for our regulated water segment.
At this point in the year, we do not have any pending base rate or surcharges for our regulated natural gas segment.
Our relatively limited rate related activity remains on track despite co bid and we continue to have regular virtual interactions with our regulators and our counterparties.
As we announced in August we filed a petition with the Pennsylvania, you see requesting accounting treatment for the approximately $380 million catch up deduction for the tax repair eligible capital invested prior to essentially ownership of peoples.
Receiving has been assigned to an administrative law judge per the normal process and we're in the discovery phase of the proceeding if.
If needed evidentiary hearings are scheduled at the end of January.
At this point I'd like to turn the call back over to Chris for an update on our municipal acquisition initiative.
Dan Thanks.
Our many of you familiar with this with this slide you've seen before which represents our acquisitions for the regulated water segment.
So far this year, we've closed the the Campbell water system in Ohio, East Norton wastewater system in Pennsylvania.
And Rockwell utilities in Illinois.
We continue to advance the.
The new garden.
Commons water and Dell corporate transactions.
And as I mentioned, we recently announced a signed agreement with lower Makefield in Bucks County, Pennsylvania to acquire their wastewater assets for $53 million or about 11000 customers. These signed agreements are expected to generate about $18 million of incremental annual earnings we.
We expect to execute asset purchase agreements on probably two or three other transactions by the end of the year totaling over 10000, EDI user equivalent dwelling units and over $70 million of purchase price. So we're doing really well this year with our with our water wastewater acquisitions.
I mentioned the status of the core earlier in the call. So I was going to suggest that I take questions.
In the <unk> in a moment, rather than reiterate again, but which would reiterate our confidence that we will have it we have a valid contract and then we'll close the transaction in early 2021.
Now in addition to the segment is both acquisitions that we just mentioned we have a healthy pipeline.
Potential municipal deals our pipeline includes acquisitions were opportunities.
Our our active rate, we have our active discussions with potential sellers.
And as illustrated by the slide we are actively pursuing acquisition opportunities totaling about 302nd 60000 customers. So really strong pipeline at this point.
Over a multiple states.
But before we wrap up our discussion on the strategy piece year I should mention that.
We were part of a joint venture that owned overall water pipeline that was built to deliver water to the Marcellus shale region.
Pipe was originally built to reduce the trucking activity associated with bringing wells water to the front to Frac wells and some of you may recall that.
But the venture was not as successful as it was envisioned to be and as a result.
It was written down when I became CEO and now in October just last month, we sold our interest in that joint venture.
So that is now behind us.
Let me just wrap up with with guidance here, we are updating our 2020 guidance. We believe is the company's current position.
Will allow us to deliver at the top end of our adjusted income range of $1.53 to $1.58 per share on a pro forma 2020.
The rest of our guidance remains unchanged and we expect to announce new annual guidance early in 2021 will plan to provide another three years of guidance as we have done previously and with that let me open the line for questions.
Thank you and ladies and gentlemen at this time, we will open the floor for questions. If you would like to ask a question. Please signal by pressing star one on your telephone keypad now.
If you are using a speaker phone. Please make sure that your mute function is turned off to allow your signal to reach our equipment and begin that star one to ask a question.
Our first question comes from Julien Dumoulin Smith with Bank of America.
Hey, good morning.
Hey, thanks, so much Chris and the whole team here.
Perhaps I wasnt going to start here, but in light of your commentary I'd be curious what do you think this strategically means for the gas LDC space, Chris I mean, certainly your observations are not lost on us, but curious if there are.
Implications to the obviously you all have been.
More on the acquisition side, but that but im curious if you can opine across the broader space.
Yeah listen I think it will.
As I mentioned, we think we're in a hyperbolic situation with the elections and the whole discussion.
So I think there's a lot of factors contributing currently let alone I mean listen there's an EPS cheap.
Moving were part of it to them to make the the country and generally the world Greener.
But I really believe that natural gas plays a prominent role in that work and we'll we'll for a very long time, and so I believe Julian that once the once people get really grounded in the facts I.
I think we'll see some improvement now not all gas ldcs are the same and Thats why I say I really.
One of the spend time today differentiating.
The gas LDC that we purchased that sits over top of the Marcellus shale region.
And has low cost gas for a very long time versus you know so the the areas where people are passing legislation to to prohibit.
New natural gas opportunities Pittsburgh, Pennsylvania is very very different and very as I said very proud so.
In total I think you'll see.
A return recognition to the to the importance of natural gas as not only part of our.
Energy independence in this country, but also as a as a prominent part of of the of the greening.
It has to be whether or not a cold start a nuclear plant when when it's not windy comments not sanea youre going to depend on natural gas, so very efficient way to here at home and so hopefully that gives you a little.
A little insight into how we're thinking about it.
Okay, all right fair enough it Doesnt sound like too many strategic implications does as I hear from you.
But but I want to pivot in this point back to the other stuff.
Strategic actions you have pending already.
With respect to Delcor here, we understand you expect to close in one Q, but can you just walk through the timeline for clarity I know you kind of alluded to that already and how we should think about the cadence of pulling on the equity.
Yes, well, let's let's think about this first on the on the on the acquisition of del Cora. So a lot of moving parts to that there's a there's a court date coming up was supposed to be this week were were still hoping it's going to be next week, but we'll we'll probably know that sometime later today.
And then there's the obviously the public utility commission process that will wind.
Through and we've got to a pandemic over top which always delays things a little bit so I would say.
We're not locking ourselves into the first quarter, but I would say you know probably.
Probably fair to fair fair to think about.
March April timeframe in terms of.
When we might get it done.
Now for the equity and I'll pass over Dan here in a moment, but remember when we when we talked about our $300 million equity offering that wasn't all for del Cora that was that was free for use of a lot of you see it was as we went through this we've got a lot of.
Work going on with municipal acquisitions, and pretty pretty chunky sized acquisitions and so as we continue to do that we've said that we'll we'll continue to need it.
Need to pull down equity in order to finance. These these acquisitions then you have something to add on the on the equity portion, yes julianna.
Which kind of implied there is that timing of pulling down the equity and I just wanted to reiterate our August timing was was really driven by the fact that wanted to make sure. We were in a good position to close these transactions. We obviously wanted to to price the stock at a strong price from a share price perspective, and we wanted to avoid the VA.
Volatility going into this election cycle and certainly we've seen that volatility play out really kind of since the time that we did that equity forward. So we really really we're quite pleased with the timing of that equity forward coming right off the last earnings call and.
Put us in a position where when we need that equity for that transaction. We will issue those shares will settle that forward and we'll get the proceeds we need to close the.
The the del quite transaction as well as other transactions.
And in the meantime, you don't sensitive to forward Julien those shares won't count in our.
In our denominator when we think about earnings per share unless there is material price movement, but without that Tom.
You don't count those shares.
Alright.
So we're quite pleased with it.
Got it so sorry, if I can see.
Another one quickly in here obviously.
Shrinking in the water seismicity with Brad the large ready at that.
Look like they're curbing some of the other impacts can you talk very quickly about the big gas LDC side of equation as we talk about.
Coming into their impacts on coated in the back half of the year.
Yes, it's a little it's a little early to tell and obviously, we're coming out of Q2 Q3 that are low gas usage months I would say, we didnt to know is month see what we would call.
Meaningful impact that was due to co that and as you know.
Weather and heating degree days tried gas usage more than anything else and so we are we're we're confident as we go into this fall that will we will see usage.
Correlated with the weather and I would say from our conversations in Western Pennsylvania, we're not seeing significant.
Load, meaning manufacturing heating loads things like that.
Manufactures offline that would would really impact.
The consumption in way other than that and it being weather driven.
Excellent. Thank you guys. Thanks.
We definitely.
Our next question will come from Ryan Connors with Boenning <unk> Scattergood.
Thanks, Good morning.
Yeah, Hey, good morning, guys and you've got some.
It seems like you've got a knack for timing this year I remember the Dow was down about 4000 points the week of the analyst day and then.
And then another interesting day to day to be to be active here. So.
Anyway. My first question was just I appreciate the waterfall Dan on on the earnings in the revenue, it's very helpful. But it seems like to own them expenses came in pretty well above our model I think and I think that might have been a factor in being a little little shy of consensus as well so.
Yes, I think based on what you've said that seems to be driven more by the people side. So at least for those like myself worth somewhat newer to the gas side can you just kind of walk us through some of the moving parts there on the expense side for pupils.
Yes, let me first comment that.
You're right in terms of where the expenses are that we've added that that new expense from peoples and.
Frankly, we don't we don't see that we've not we've got no comparison to that expense in prior quarters.
When you look at the regulated water segment and you will see this in our segment reporting when the Q comes out you will see if you look at the LM line for the regulated water segment year on year and you do the math, you'll see that that's down about 2.2% so comfortable with where expenses are there.
On the people side, what we're doing here is we're really just kind of adding in the the people's expenses this year and.
Im not sure kind of.
The basis for your model relative to kind of what what we're reporting for the first time so.
Maybe that conversation, we make sure we have another kind of offline.
Sure sure Okay, and then a couple other kind of big picture questions. One is.
Any WSE had their big annual Shindig.
Last week virtue of course, and all the things that was interesting is Nehru was there on there.
Looking about sort of more federal involvement in the water utility space, whether it's things like sales period.
Turgeon, so cold water grid investment in things like a lie heap for water.
Oh that sounds great on on the surface, but then again one of the great Differentiators for water is that you are regulated closer to home.
So I guess did you happen to hear those comments and and what's your reaction to that concept of greater federal.
All but is there some of that stuff moves forward that you kind of get pulled into this.
Some kind of regulatory constructs that.
Maybe ultimately counterproductive.
Well.
Let's let's use. The example that you pointed out there have like I do think Ryan that as people become more and more aware that.
The cost to serve water is climbing given the massive capital expenses that we've got to put forth.
There is going to be a a need for some customer assistance beyond what we've been able to provide in.
In the in the way we've been doing it in the past. So we are going to as I think you know this we are going to submit in this rate case, our next water rate case, a universal service program for the first time.
It will be the first water utility in Pennsylvania to do it we're going to we're going to submit that.
But listen when we when we look at what's happening at People's they'll all all in People's provides about $27 million of assistance to their customers and.
A lot of that comes from the federal government, they're probably ought to be some consideration as water prices continue to climb as well and and I think it's tough to say thats going to come from the state. It should probably be provided in the same way that the the gas utilities and the electric utility to get their supplements. So I think there are some advantage of that as per.
Basis continue to climb but.
You know I agree with you I prefer not to get sucked into the red tape of the federal government for many other issues other than maybe customer assistance.
Okay.
Okay. That's fair and then my last one was just and you kind of alluded to earlier, Chris about the.
The rate case in Pennsylvania, I mean, you came into coded with a pretty light rate pipeline, which is.
Maybe lucky maybe good but sort of good timing because the optics of trying to go out for rates right now is not great.
But we've got this case shaped recovery, where the there's a segment of the population that's going to be struggling for a while.
How do you think about.
Sort of these sequencing in base rate case.
To that I mean is there.
Is that the optics of that in the politics of that and then how does that affect the timing of what you ordinarily would be doing right now in terms of sizing up the various rate cases.
Yeah, It's an important question and one that that we spend time, considering all the aspects of that when you think about Dom as larger unit as the Pennsylvania water utility is for the company you really have to remain on a cadence.
Given given the continued capital spend that everything else listen I hope, we have a vaccine out shortly here and by the time, we're we're filing.
Filing a rate case, we're well into two national vaccination for COVID-19.
And of course, we'll continue to evaluate things as we get deeper into the spring but.
Suffice to say it does you know the national.
Issue.
The issue of of the pandemic.
Does play here in Pennsylvania, and would impact how we think about a rate increase I can't tell you at this point.
That were that there is any plans to alter course, but but it certainly will be in the consideration.
And then Chris I'd add to that.
The Universal service program a proposal for that helps to address the people that are on that that downward leg of that case shaped recovery Ryan you mentioned yep Yep.
Okay Super.
Super light thanks for your time.
Yes, that's right.
We'll take our next question from Insoo, Kim with Goldman Sachs.
Hey, Andrew.
Good morning, Frank.
Question is on the equity side.
On a hypothetical basis, if the bellcore transaction fails to close how do you think about the amount of equity that you.
Our expected to pull from the forward do you still expect it to do the full amount or could it be something less.
Well its remember on a gigabit per second.
Let's remember that we have other transactions into that are you know pretty chunky here and a couple of others that we think we're on the precipice of oven of announcing them, but we obviously, we hope things stay on course, but but there are multiple uses for that for that equities.
Dan when you jump in there, yes, I think you're exactly right, Chris I mean, it was interesting commencing you talked about.
Lower makefield the size of that being.
$55 million and 11000 connection.
A year or two ago on this call. Good thought that was a huge acquisition right now, we say kind of matter of factly, but yes.
Yes, we see a number of things that look like that in terms of size or bigger and could help to absorb that equity I mean, I think and it will continue to evaluate it as the.
Got.
Call it.
You know 910 months left on that.
And the ability to settle that forward. So we've got a lot of time here for that cohort transaction to play out and for other things of scale that we're working on to play out as well at this point, we certainly anticipate that we would physically settle that forward, but there are options to take cash settle or partial cash settle as well.
Yes makes sense understood.
Then just my other question is going back to the gas strategy, Chris I know, you and I've spoken about that and the reasoning for the peoples gas acquisition definitely appreciate the reasoning and the advantages that you people has been the marsalis, but just.
Just going forward from a longer term strategic business Miss price mix perspective are you still committed that future growth, especially when it comes to M&A will happen only in the water side versus on the gas LDC side.
Yes, Yeah, let me say that clearly you'd I've had this conversation before we we are not spending any time on the natural gas side.
For on the EBIT for M&A, we're spending a heck of a lot of time growing the rate base bye bye bye, replacing pipe at People's ramping up that program. So.
As we've said before you know that the rate base that has grown 8% to 10% a year. So it is fast growing weve without doing M&A and that's that's that's allowed US then to put all of our M&A focus on the water side and its and its really yielding nice results. So I'm. So you said it exactly right, we're not spending any time on the gas.
Aside for M&A, it's all of the water side.
Got it thank you so much.
You bet.
And as a reminder to our audience. If you would like to ask a question. Please press star one now.
Well take our next question from Durgesh Chopra with Evercore ISI.
Hey, guys good morning Durgesh.
Great and then good morning, Thank you for taking my question.
Can I, just clarify really quickly and Chris appreciate the all the detail around gas.
That's very helpful color and perspective from you just can I go back to del Kora and can you talk about procedurally what are the milestones that we should be watching out for.
Towards the approval process. Its the court order then the commission order can you just talk about that.
Sure sure.
First the the the.
The court hearing in what's called Covenant, Please Court County Court, Pennsylvania a.
We expected that to be this week it had to be moved to hopefully only a week out and that this decision by the court, there's and I'm going to be.
I'm not a lawyer is going to be Super a simple in how I describe it is that the judge has to decide is there a valid and enforceable contract in place and clearly we believe there is and.
And plenty of evidence of that so we think.
The court should look very favorably on our position there. So we expect that to be sometime next week and then we expect probably you know call. It 60 days maximum the judge has actually been working pretty quickly in that case so.
It might be sooner, but but I would say within 60 days, we would we would know what his decision is on that.
Assuming he decides the way we think they should go.
Makes the that makes it pretty easy to.
And then continue to move on.
To add to that focus on the commission so the commission.
Proceedings next week are the evidentiary hearings for del Kora, and so they'll move through the process. There and then we would expect the commission to wrap up sometime in the March timeframe with their work and and which would allow us to close call late March early February or early.
April probably april's the more appropriate timing.
Got it and if you in any event.
And I know you have a very successful history invented union, but in any event that the judge here has an adverse ruling is there sort of forum for appeal and things like that.
Yeah. So of course, we could go to the Commonwealth Court and an appeal it.
But I.
I I think.
Well you can never suppose what would a judge might come up with but you.
It could be more nuanced.
Yeah, because the second question is the contract between.
Hello, and Dell, Cora or Aqua and the county of Delaware and.
That's probably the more nuanced approach and frankly I'm.
Im not sure what matters to us.
We know we have a signed contract and it's enforceable and so we feel confident that whether it's through the county or or direct without Cora.
That contract is it forcible so.
I'll leave it there.
Yes, no that's great. Thank you appreciate you address granular there and then just going back to just any any update on the on the catch up provision off of.
Of income taxes on peoples gas that is bending when the commission is anything new there and when to expect a final decision.
Yes.
As you'll recall, we filed that right about the time of the last earnings call.
Then we had a.
Pre hearing conference with the Alan J. in early October that really outlined the procedural schedule.
And.
As I noted in my remarks earlier that has us with evidentiary hearings right at the end of January.
Whether there are hearings or whether we settle that is still probably plays out until.
A final order sometime early in the second quarter of 2021, just as these things go you know they havent certain cadence and a timeframe and.
There are five.
Hi, all there are reply brief stars on all their server bottle all of these steps that just take time before the administrative law judge right a proposed decision and it ultimately goes to the commission for.
The deliberation accretion on an order if you will so I think we're kind of in wait and see mode. Obviously, we're working our way through that.
But you know.
I would remember durgesh to that don't think about this and increasing earnings in the near term think about the way we propose that when it really does in that that sharing of the benefit between ratepayers customers and.
Shareholders, but it really does is that it.
It would help us to.
Data rate longer helping to achieve the revenue requirement in the out years, then kind of 24 25, rather than bringing earnings forward and having incremental earnings in the near term.
Got you.
No that that's great then thank you.
Hi, guys. Thanks.
Thanks for the time, thanks, guys.
Thanks take care.
Well take one more question from Jonathan Reeder with Wells Fargo.
Hey, Jonathan.
Hey, Thanks for taking my question guys. So Chris I think you kind of alluded to a little bit, but I think the court had the hearings.
A few weeks ago focused on the creation and use of the trust by Delcor how did those go.
Well.
I don't I don't think there's decisions out yet on on the on the <unk> you mean that the arguments went well I think and obviously, we're a third party to that Jonathan as you know rated the trust is really an issue between Dell Cora.
And and ultimately the county is is that we would prefer not to see a trust, but we're a third party that the judge's rulings haven't come across on that so but on all of the procedural work that the judges ruled on it.
It's all gone gone very well.
We've been very pleased with every one of the rulings.
So I would imagine that we would hear more on that trust going forward.
Well Jason.
John just to separate them, Mike, but the trust one being 60 days potentially after that hearing date men.
One on the asset purchase agreement would come even leaner or will it be just one kind of global ruling many hands down.
Well I think I think the judge is pushing you know.
The judge we'd like to see you know.
Settlement discussed off she said that report publicly.
And so I'm, obviously not going to comment on that but.
I think you're thinking about it the right way to separate decisions.
One of the trust and one on the enforceability or the the the contract itself and I think your time frames are probably about right. So.
But listen there's a lot of ways to come out of trust. It doesn't have to be called a trust it could be a fund it could be under the auspices of the of the county versus Delcor, either there's a lot of other words, it's not a that's not a go no go issue necessarily it it may be the current form of the trust.
Hi.
I hate to go down this road, because we're getting into probably a.
More sensitive area, but I would not think about the trust issue as a as a deal killer anyway.
Okay, and so you do.
Do you think there is still a chance that it gets settled.
The judges incurring it like are under active discussions and I know you can't go into the details there are but you know.
Thats still a potential pathway.
Okay.
I'm sorry.
Yes that one more time Jonathan.
Im just I know you said that the judge is encouraging and parties to settle our yes discussions.
Should we assume that there are active discussions going on like is that a.
Potential like real pathway at this point, even though we might be you know only a month or two away from a judge's ruling otherwise.
Listen the settlement is always a possibility, but I can't I can't come.
Comment on on.
On any kind of settlement discussions.
Okay, but they are occurring.
I can't I can't say, Jonathan I really fortunate I can't say.
Okay, and then lastly.
[laughter].
Garden, a settlement and ER and repairs tax you've got it sounds like you're optimistic about reaching a settlement before.
We're hearing is that kind of based on the intervener testimony that you've seen or.
You know how should we be thinking about the prospects there.
You know at this point, Jonathan we're really just working through the process and we've got.
Five rigs back from the various intervening parties and we're working through those and we'll obviously respond.
So I think it's really just too early to give you any more color on it.
As I as I.
As I said earlier, we're progressing through it and I can't wait to run a wait and see in terms of how that timeline and how that time evolves here, but we're obviously going to do everything we can here too.
To make the case for this.
Proposal and as the sharing of benefits between customers and the shareholders in a way that's good for all parties and keeps us on rates longer.
Okay. Yeah, no appreciate that yes, good luck and are looking forward to those announcements before the end of the year that you alluded to Chris on the M&A great. Thanks. Good good you bet, Thanks, Jonathan take care.
I'll now turn it back to Chris for closing remarks.
Our folks. Thanks, so much for spending time, there was a little bit more lengthy call, but Dom I think there were some important information that hopefully we traded here I'm always available for follow up thanks again have a great day.
Ladies and gentlemen, this concludes today's call. Thank you for your participation you may now disconnect.
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