Q4 2020 Essential Utilities Inc Earnings Call
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Okay.
Good day, everyone and welcome to the essential utilities incorporated full year 2020 earnings call. Today's call is being recorded at this time I would like to turn the conference over to Brian <unk>. Please go ahead Sir.
Thank you Christina good morning, everyone and thank you for joining us for essential utilities 2020 full year earnings call.
I'm, Brian singer of distant Vice President and Chief of staff and head of Investor Relations. If you did not receive the copy of the press release, you can find it by visiting the Investor Relations section of our website.
We will be referencing and the webcast of this event can also be found on our website.
Here's our forward looking statement as a reminder of some of the matters discussed during this call may include forward looking statements that involve risk 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 filing.
For a description of such risks and uncertainties. During the course of this call of our referenced may be 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 in the Investor Relations section of our web site after.
After the formal presentation, we will open the call up for questions.
Here's our agenda for the call today, we will start with Chris Franklin, Our chairman and CEO, who will provide the company update on our successes from 'twenty.
Including our municipal acquisition program.
The next to ensure our CFO will discuss our fourth quarter and full year financial results. Chris will then conclude the presentation with the review of our guidance at the conclusion of the we'll open the call up for questions with that I would like to turn the call over to Chris Franklin. Thanks.
Thanks, Brian and good morning, everyone. Thanks for joining us today.
Let's start with the discussion.
Of the impact of this bitter cold winter weather that so many of us experienced in February.
And in terms of the impact on our operation of its really been of a tale of two cities.
To start with Texas first of all of our Hearts go out to those who were impacted.
And we're living with for days without electric and water service some frigid temperatures.
Last week.
Water systems and wastewater systems are highly dependent on power to operate our pumps and our plants. Some of the power went out in Texas. Many of our community well systems went down as well in fact of the peak of the winter weather.
We had approximately two thirds of our Texas customers impacted which is largely due to the wasn't rolling blackouts, we heard or brown outs as we as the power went down we I know we'd restored and then we'd have to go back out again once the once the rolling Brown It went through.
We quickly activated our incident command system to Marshal the necessary resources to bring service back to our customers as quickly as possible.
Brought in teams from our other state of operations.
To supplement the Texas workforce and they also brought with them supplies like bottle of water repair materials and equipment to supplement what we had in Texas.
We would always think about it but as our employees, we're working to restore service to our customers.
The themselves, we're dealing with personal hardships, resulting from the storm too.
I'd like to thank those dedicated employees and contractors that worked around the clock the restore service to customers.
While we still have some systems the under boiled water advisory from Texas at this point I'm proud to say that we have nearly all service restored only one system left the impacted and we're working as quickly as we can to restore there as well.
Just to remind you that we don't have natural gas customers in Texas.
And so there were no financial or operational impacts to our natural gas customers, which are in Pennsylvania, Kentucky and West Virginia.
I mentioned the impact of the weather was a tale of two cities and despite the extreme cold temperatures here in the mid Atlantic where the majority of our operations are we had very good news this winter, particularly in Pennsylvania, where we have been replacing water mains for nearly 30 years now.
We really saw the benefit of that investment over the last few weeks last few months even.
It's impressive to see that even during a difficult winter, we're seeing fairly low numbers of named breaks.
And as a result.
We have fewer service disruptions and less overtime than we had in previous years you can see by the chart on the right here there is real benefit to investing in infrastructure.
Alright, let's talk about some of the 'twenty 'twenty highlights.
The invested about 900 million in infrastructure and the communities. We serve during 2020 of which about 53 and a half million was invested by peoples in the first quarter before we owned the company.
This is once again, a record amount of capital spending for our company.
On the non-GAAP basis, adjusted income per share was $1 58 for the year up seven five per cent and I'll take you through more details around that when he presents the financial results.
Municipal acquisition strategy remains strong with six signed municipal agreements pending closing totaling $438 million in purchase price.
Finally, coupled with organic growth the company increased its water and wastewater customer base by 2%.
And increased its rate base by nine 6% ending the year with nearly one 8 million customers and $8 billion in rate base across our regulated segments.
Good year.
Alright.
Next slide here you can see a more comprehensive summary of the execution of our 2020 objectives.
These were the three primary themes, we set for 2020, we've talked with you before about this you saw at the our Investor.
The event despite the challenges of 2020, we still delivered on all three of these objectives and one of the most of the historic years of.
Of our company.
Throughout the year, we adapted our new combined water and gas business.
<unk> the effects of the pandemic and.
And through the dedication and resiliency of our people we remain focused on the mission of providing essential natural resources to our customers.
As I mentioned, our commitment to infrastructure improvement drove us to executing a record of investment assuring that our customers had safe and reliable service.
Now as we approach our one year anniversary of the closing of the peoples transaction.
I'm pleased to report that we have successfully integrated our employees and customers and we will continue to work to adopt the best practices from both utilities across the platform.
I feel confident that our teams integration experience and expertise will prevent a little price.
Oh will prove invaluable as we continue to acquire water utilities across our footprint and beyond.
Here's the reminder of the municipal acquisitions, we closed in 2024 of our regulated water segment.
The six acquisitions include Campbell water system, you've seen that one before in Ohio East Norton wastewater system in Pennsylvania, Rockwell utilities at the water and wastewater in Illinois, New Garden, that's the wastewater in Pennsylvania, and a small one in North Carolina called Dogwood Knowles.
Together these acquisitions added over 12000 customers.
And.
Nearly $63 million in rate base.
Combined with the organic growth the company increased its customer base by over 20500 customers in 2020.
The slide.
We updated it since our presentation at the guidance event you can see the we now have six municipal acquisitions that have been signed.
And our pending closing.
The addition of Williston Township in Pennsylvania, which we announced just last month, along with the other transactions will add close to 227000 customers or customer equivalents when closed.
It's important to think about this.
Just on the approximate rate base of $438 million vs.
The signed agreements are expected to generate about $22 million of incremental annual income when theyre fully earning.
And these are great examples of our acquisition strategy at work and look forward to serving these communities and having them join the essential family.
Now the Cora is never far from our minds and I am sure not from yours, when you think about.
And the essential.
Bring you up to date.
Call that we receive the very favorable ruling in late December from the Pennsylvania kind of pleased court judge and the law suit with Delaware County.
Subsequently, we counting appeal that decision.
And in January of the PUC administrative law judge recommended that the transaction would be denied for three reasons. The first reason was we had some outstanding municipal and of Intervenors.
The second reason was.
They felt that we didn't include a rate stabilization plan and our application from the third one of the ongoing litigation with the county.
So since the ALJ issued the recommendation we have made significant proud of that progress and train of remedy. These situations. These issues and several of municipal intervenors have already withdrawn from the process.
Been constructive conversations with the remaining municipal intervenors, and we're hopeful and optimistic that they will also withdraw before the Pennsylvania public utility Commission rules on the case.
We've also taken measures to address the argument that we don't have a rate stabilization plan and we feel good about the progress on that issue as well.
Now the Pennsylvania PUC is expected to render their decision at one of the two regularly scheduled public meetings in March.
So we'll stay tuned.
With that the I'll turn it over to you.
Thanks, Chris and good morning, everyone.
Before we go to the full year lets start by taking a few minutes for review of the fourth quarter highlights we had revenues of $474 million up $248 million from $226 million last year. The natural gas business contributed $240 6 million of that revenue increase.
The figure includes the impact of $18 9 million of rate credits provided of natural gas utility customers at the condition of the Pennsylvania PUC approval of the peoples acquisition.
It also includes $92 8 million in purchase gas cost incurred in the quarter.
O&M increased to $157 2 million up from $85 3 million in the fourth quarter of last year. Again. This was primarily a result of the addition of natural gas operations and maintenance expenses of $72 6 million.
Net income increased from $64 2 million to $102 7 million and GAAP EPS was up from 28 to 40 cents as compared to the fourth quarter last year.
Adjusted income was up from $61 4 million to of $116 2 million net.
Adjusted income per share increased from 34 to 46 cents.
Next let's discuss the full year financial highlights.
As Chris noted earlier 2020 was the very strong year, one or we achieved or overachieve, our financial objectives in light of the pandemic. We ended the year with over 1.4 dollars 6 billion in revenue of 64, 4% from $889 7 million last year, the natural gas business contribute.
Approximately $521 million of this revenue growth.
Adjusted revenue for the year was $1 49 billion, which excludes approximately $23 million of rate credits issued the water and natural gas utility customers as a condition of the Pennsylvania PUC approval of the peoples acquisition.
But one of them increased by 58, 7% from $333 1 million to $528 6 million. This was primarily a result of the addition of the natural gas operations and maintenance expenses will discuss that further when we show the O&M waterfall.
Net income was up 26, 9% year over year from $224 5 million to $284 8 million and GAAP EPS increased by seven 7% to a dollar of 12.
After adjusting for transaction related expenses, great credit tissue to tell the customers and adding the pro forma adjustments of the normalized first quarter of gas results. Adjusted income was up from $139 6 million weighted.
Sorry, it was up $139 6 million or 53% and adjusted income per share was up seven of half per cent for a dollar of 47 to $1 58.
The top end of our dollar of 53 to $1 15 guidance range.
As we noted in our guidance call strong water usage contributed incremental earnings in 2020, but think about of normalized dollar 56, or so that's the baseline for future earnings growth.
Next let's walk through the details of the following waterfall slides starting with the revenue.
In 2020 revenues increased $573 million or 64, 4% on a GAAP basis of which 529 million was related to our natural gas segment. The figure includes a $165 $7 million of gas costs and the impact of $18 9 million of rate credits to the.
Natural gas customers.
Rates and surcharges increased volume and growth from our regulated water segment provided an additional $59 8 million towards the revenue increase which was then offset by $4 1 million of the rate credits issued to the water utility customers.
The $15 7 million increase to the volume reflects both water consumption and the wastewater volumes.
Would you be water consumption on the next slide.
We've been talking about consumption since Covid started because frankly, we didn't know exactly what to expect when we went into the situation last March.
In the fourth quarter overall usage was down <unk>, 9%. However, we continue to see strong residential usage, which was up two 7% offsetting the declines in the other customer classes.
As we review 2020 versus 2019 and consider the impact of COVID-19 of our business for the full year, we saw that residential water consumption increased close to 6% with more people working from home and with favorable weather. This.
The increase more than offset the declines in the commercial and industrial customer classes, both declining about 6% versus prior year. So overall for the year usage was up 0.8 per cent.
Next let's talk a little about weather and gas usage for the People's business.
As a reminder of heating degree day is a measurement designed to quantify the demand for energy needed to heat of building.
It's the number of degrees of the day's average temperature is below 65 degrees Fahrenheit.
As you can see on the chart on the left 2000 Twenty's started out relatively warm like below normal heating degree days in January and February.
The chart on the right shows how People's residential gas consumption of Pennsylvania was distributed throughout the year and in 2020 of about 78 per cent of the gas was sold in the first and fourth quarters of the year right those cold seasons.
This winter for peoples natural gas year to date weather through February is projected to be $3, 9% colder than normal based on actual weather through February 21st cause compares favorably to last year's mild winter when year to date weather through February was 12% warmer than normal.
But do recall that our 2020 adjusted income includes a normalized first quarter really normalize for the first 75 days, where we didn't own the business.
Next let's move on the O&M expenses.
Looking at the waterfall, you'll see that the addition of peoples O&M of of hundreds of $99 9 million as the primary reason for the increase in O&M expenses for the year.
Other contributing drivers include Covid related expenses for our water segment, including Covid related employee cost.
Growth and normal employee related costs.
Then offset primarily by savings in other costs, which reflect the number of onetime items.
Next we'll spend some time on the earnings per share of waterfall.
Bridging between GAAP and adjusted figures for 2019, and 'twenty 'twenty, you will notice that GAAP EPS in 2019 was $1 four but adding back the almost 44 cents from the peoples related transaction costs and the dilutive effect of the equity offering brought us to a dollar of 47 per share on an adjusted income basis for <unk>.
2019.
Continuing to the right the people people, including the full year pro forma adjustment added 21 cents followed.
Followed by regulated water segment rates and surcharges of expenses volume and growth, which together contributed over 20.
These were then offset by 31 cents from other items, such as increased depreciation and amortization of interest as well as decreased Aqua, Pennsylvania tax repair benefits relative to last year. So this then results in a dollar of 58 for the adjusted income per share for 2020.
Continuing to the right. The dollar of 58 has been impacted negatively by almost 32 cents related of the peoples full year pro forma adjustment of approximately eight cents from peoples transaction cost and six cents for the right credits. We discussed previously resulting in the dollar 12 of earnings per share on a GAAP basis that you mentioned right at the beginning.
Before handing the call back to Chris I wanted to take a moment to provide an update on the people of tax repair of filings.
Recently, we reached the verbal settlement on the key issues with the parties in the case and we'll file of settlement agreement on March the 11th.
Consistent with the parties' positions will give the tax repair benefits the the tax benefits related to a catch up adjustment back to our natural gas customers in the form of of credit over a five year time frame.
This outcome should not have an impact on earnings rather than using a portion of the catch up deduction to stay out longer as originally proposed.
Finally, our next rate case on a more normal cadence.
After review by the ALJ and the PUC, we expect the PUC order in the second quarter. However, there's no statutory timeline for this proceeding.
And being respectful of the process. This is really about as much detail as we can go into at this point.
With that I'd like to turn the call back over to Chris to speak about our 2021 priorities and guidance. The unflappable, Dan Schuller I talked to you of a slide earlier skipped over an important slide well done.
I won't go back to that slide but of it it's in the deck you've all seen it.
Other than to point out that we have a nice strong pipeline and the you know were in current discussions with our systems that total over 375000 customers. So we feel very very good about the pipeline of acquisition of municipal acquisitions, and we still remain confident that the the.
The the fact that we have fair market value of in each state, where we do business will continue to be a main driver of that healthy pipeline.
So let me come back now to to the proper slide.
Our 2021 priorities so let's take a look at these priorities, they're very similar to what we saw in 2020.
The we intend to remain focused on integration growth and operational excellence of this year of 2021.
I can tell you that the emphasis on operational excellence and ensuring quality service is ingrained in our culture and it's part of our history at essential and so we'll work to instill those same values in our new colleagues the join us from each of the acquisitions that we do once they're integrated.
We will remain focused on our capital program the continuously improves our customer experience and we'll continue to build on the strong ESG initiatives that we announced earlier in the year.
Let's talk about guidance now.
This slide is just a reminder of what we've shown you already adjusted income is expected to be $1 64, two of $1 69 per share. Our capital plans include spending of about a $1 billion unregulated infrastructure of this year and nearly $3 billion in 2020 between now and 2023.
Rate base growth is expected to be six to seven per cent for water eight to 10 per cent for gas.
Customer growth is expected to be between two and 3% on average for our regulated water segment.
Lastly, we set achievable I think he would agree yet aggressive ESG targets, including a 60 per cent reduction.
In.
Our greenhouse gas emissions by 2035 using 2019.
As our baseline.
And we will continue to work to ensure that our water throughout our entire footprint never exceeds 13 parts per trillion of P Force.
And finally, as we approach our one year anniversary as the essential utilities, we're reminded that our 135 year old company has now been on the New York Stock exchange for 50 years.
Our company remains strong and dedicated to our mission of providing essential natural resources to our water wastewater and natural gas customers and we believe we are well positioned to play a critical role in solving our country's infrastructure challenges, while recognizing our responsibility to keep rates affordable.
And to be an industry leader in protecting the environment.
So that concludes our formal remarks, and we are happy to take questions from here.
Thank you at this time, if he would like to ask a question. Please press star followed by the number one on the telephone keypad, if you're calling from the speaker phone. Please make sure you don't function is often true you're saying upcoming chocolate note.
The first question we have today is from into Kim from Goldman Sachs. Your line is open.
Thank you.
Hey, good morning, it does seem like when we met I when the bad enough New York for the life Analyst day last year.
Oh Wow.
Yeah definitely it feels like a while my first question is.
Regarding Texas I know the Texas from the water business as you know about what six per cent of rate base or so of the total water rate base, but the just give a little bit more detail on the other.
The type of crossover incurred through this the past couple of weeks and the regulatory process of recovery and all of that.
Sure Yeah, I think from from the ability to recover our operations team really good of exemplary job.
And it was it was across the platform we had people from our purchasing group looking at where you can purchase fuel and the generators moving we had the pallets of a bottle of water coming of communities and the equipment all of the all brought in and team brought in as well. So I thought the response was exemplary given given the circumstances.
Of the closure of roads in the ice conditions and everything else.
So feel very very confident that we did a nice job there now in.
In terms of cost I would not call the cost material cost.
These these things we did to recover we'll capture we always do we're used to capturing these costs of the result of the summer storms typically hurricanes and other so this is not unusual for us.
And in terms of we shut down our or of delinquency on our customers in Texas for a while so that they weren't getting phone calls about like bills will turn that back on soon.
We wouldn't expect a of major impact there either.
So I don't expect the there to be a material impact, but let me let me toss the ban here to get his opinion as well, yes, I think Chris you're right on it and then two just to give you a sense of it think of Texas as the about four and a half million dollars a month in revenue. So if we lose a few days there because customers are using lots of water.
Not a material impact on the overall essential business and as you started out and Chris added debt. We are aggregating these costs be the non capitalized repair costs are overtime expenses of bottled water and we'll look to recover them just like we have for hurricanes and so forth in the past.
Just one last thing to add to that the impact really wasn't about our system not being winterized at all it was really about lack of power. So we win when the when the lines went down in the cold Snap you know we did have some main breaks, but but we didn't have the major.
The pump houses or wells go down.
Yeah, and they want the thing to add to that question as we think about powering those warehouses and such.
And so we've got contracted power in place with the with one of the major players for wholesale power that covers the majority of our systems in Texas and the other systems since the get power from local cost per authorities, but all on the regulated rate. So when you see things on the news with the very high electric bills, we've been insulated from from the the pizza.
Check the electric prices.
Got it.
If you're saying the cost of aren't that material I guess, when we think about the 'twenty 'twenty, one guidance and the midpoint of that you'll still be able to do other than and the fact item.
That's correct yes.
Got it just one more broader question speaking of taxes.
And acknowledge I think a lot of the issues that happened where because of the theme of trickle outages, but.
Do you think that out of all of this.
It prevents you from your standpoint, a and increased capex opportunity in the state or potentially just an increased focus on expanding our footprint there.
Well I think there's there's a key consideration the the always the question of when you'll have a series of community well systems throughout the state like we do in Texas, North Carolina, even Virginia the.
Question is how many of the standby generators do you the purchase and keep at the ready we typically regionalize those and then we move them to storm zones and and and.
The well before storms and that sort of thing, but we don't have one per system and I'm not sure that that's the prescription here either but I think it's safe to say that we will want to.
Go and get more generators theres. The there was that natural rub between the regulators are saying how much of that you're really going to spend for a generator that sits there you know a huge percentage of its timing is never used.
The regional approach seemed like a good approach, but you know you have a an event like this you could certainly make an argument that we should own more generators and so I think there are capital opportunities there and we'll pursue those and then there are the ongoing capital that we're spending even prior to the storm is.
Putting the skate of category, which is our ability to operate where since one of the warehouses down.
Out of power.
Or in some cases, the even remotely control of it but that was already.
Work in progress and so that will be capital that will be spent in addition.
Got it thank you so much.
You bet.
Yeah.
And next broker channel Oh, sorry discipline on it.
And next we'll go to Ryan Connors from Boenning and Scattergood. Your line is open.
Hey, Ryan Hey, good morning, Thanks for taking my question how are you.
Oh Wow.
I hadn't thought I had intended to ask about Texas, but since you're on the topic.
Just bigger picture, there's a lot of talk about how that the situation. There is sort of indicative of the broader problem with the grid in terms of the reliability more renewables being less.
Reliable and so forth. So if you look at your states.
Our of material to the earnings stream.
Do you have any other vulnerabilities in the other states where you know.
Something like that could happen debt, but there might be an impact.
Yeah, It's a good question.
Let's say.
Not the not that I'm aware of today, where.
We're largely in P. J M P. J M up here not not in ERCOT.
But I I think the you know if you're if you think about this storm as a never before then you know you you say well what else could happen and it's a good time to revisit these things and say okay. One of the you know once in 100 years of 500 year issue that we should be thinking about and be prepared for.
But and that's my initial thoughts and you have some of that of that yeah, and I think I think Ryan ERCOT different market right. It's a it's an energy market.
You know the belief higher guidance debt when power was needed someone would show up to deliver that power, but they didn't really regulate the power producers in the powder producers, who didn't have to weather eyes of winterize their equipment that led the problems you're all set.
Our producers in ERCOT, who don't have to hold the firm capacity on pipelines in order to ensure their ability to generate power. So P. J, it's very different in that regard debt.
You've got to have that pipeline capacity in order to the.
To bid into the market. So yeah. We do think it is it is different and as you know ERCOT really doesn't have the interconnects to allow power in to any degree from the outside of ERCOT. So when they have a problem there. Unfortunately its itself.
It gets the entrenched if you will.
Got it got it okay.
The Unbilled Cora I wanted to just wondering if you could drill down towards a little bit Chris on your comments, you mentioned that one of the issues with the.
The rate stabilization fund that's one of the issues that were sort of range of that adverse proposed rule can you just let us know just conceptually what exactly.
They took issue with.
And how you're.
Getting them onboard of more comfortable there on that particular issue.
Yeah, I'm, the I'm going to oversimplify. This just for the call, but I'm happy to go into more detail, but a lot of it has to do with the.
Putting the credit on the bill on the customer's Bill right. So the easiest way to do these things is to say you know the customer used so much.
Volume in the base facility charge.
It comes with total then subtract out the.
The the the dollars that would come in and offset it from the trust and then you have of net total debt that to US was the simplest way to do it I think because because of the rate stabilization is not in the tariff.
Technically.
There are some of the advocates who believe that it should not be on the bill and I think we're willing to concede that at this point, there or listen to the there's a lot of ways. The skin. The cat we happen to think that was the most efficient way to do it but certainly there's other ways to give that those trust dollars back to the customers and so we've now proposed to to remove it.
From the Bill and I think we've addressed the issue we'll see.
Okay.
Glad you oversimplify it because that's a sort of income.
As complex as I can take down.
Now on the.
On the one of them.
The last thing of all of the PUC.
But that decision of the looming now.
What's the what's going on with that said the seat there I mean, it seems to me I know you don't have any inside the.
Baseball of that necessarily than anyone else, but it seems like it's coming up on a year since that students new Canaan that seems like along the time of unusual is that the case and I guess, what's driving that I assume maybe COVID-19 and so forth, but any color there on that on the open seats.
Yeah, I mean listen I'm of is I'm gonna observer of like everybody else, but the the governor did say the name over he sent the same name over twice.
And the Republic, considering the Democrat the Governor of Democrats and in Pennsylvania, The the Republican Senate has to approve the PUC commissioners as publican and so.
The the Senate has decided not to approve a that.
That individual twice now and so it's a bit of a stalemate and as you know from from Brian I know how close you watch the commission here in Pennsylvania.
There have been plenty of votes of in a two two vote and so it is a difficult situation. So I think and I know it's on the minds of the Governor I I I and I also know that commissioner sweep of his seat is coming up in the next months here as well. So now we have one of potentially two seats I havent heard formally.
The other commissioner suite is staying or whether he'll retire but.
We'll have to see how that develops but that's been the then you have two names that need to come over to the Senate so out of it.
Assume in all of that Ryan there will be a deal between the Republican Senate and the Democratic Governor.
Mhm, Okay, Yeah, well watch that one and then lastly, if I could sneak one more of an Dan. This is I guess from your more but.
If you could help us GAAP.
Gas novices out a little bit.
You know obviously you had purchased gas costs really ramped in the fourth quarter.
I assume based on the weather that's gonna be another pretty big sequential ramp there given the annual guidance, but can you kind of help us out on the seasonality on that on that line how to think about that is moving to the first.
First quarter. It just seems like it's really jumps all over the price.
Yeah, I think for now we probably need to do is kind of points of back to what we had shown before in terms of of.
You know the the usage percentages and we showed those we show there is again at the analyst day, what's what's potentially use.
[noise] you know in each quarter and then the net income for the quarters. If you go to the analyst day presentation page 41, you'll see what we showed as well yeah.
Proximate breakdown by quarters, and the and of course. He has a range is because there is that seasonality.
The gas usage and also to some of the being water usage.
The used it gives you a guide to how cold the ride.
I think as I said at the in the Analyst day too you know we have the ability to.
You know over time as.
As we start to see the way. This this manifests itself in the financials, yeah, we'll all be able to refine what that debt.
Quarterly mix of net income should look like.
That's why that I mentioned, it's actually it's actually in the appendix for today's today's presentation as well.
Okay. Okay.
Hey, good luck, thanks again guys.
Yeah, Thanks, Ryan take care.
Oh, that's still got to they're just chappell from Evercore ISI. Your line is that from.
Yes.
Good morning.
Hey, good morning, guys. Thanks for taking my question.
One quick one.
The the backpacks, that's up filing can you just remind us.
All of the original plan.
Our Pennsylvania rate case filing wasn't later this year.
Yeah. So so.
I guess, you're asking about the repair tax the people's repair tax from the Aqua, Pennsylvania rate case.
I'm sorry so.
You mentioned Oh, yeah.
The bank maintained the high.
Yeah.
Yeah, Yeah, let me, let me take care of that so that's really the the catch up deduction on the repair and you get for peoples for the PNG subsidiary, where we had originally proposed there was a a splitting of that catch up deduction with some of that going to the customer with some of that coming to the to the the shareholder.
But what the piece of the shareholder would've done effectively would've just kept us out of rates longer without adding to stay out period. It wasn't ever about incremental earnings. So you know the outcome here of the conversations that we've had with the statutory advocates.
It's really leading to a situation where 100 per cent of that catch up deduction would go to the customers and over a five year time period and what that means is we would be backing from me kind of more normal cadence so rather than stay out because we had some of that catch up we would just come in sooner than that.
But think about it as you know no.
No impact on the guidance earnings because of the guidance earnings out of the 'twenty, one 'twenty two 'twenty, three and really shouldn't be any impact beyond there because we'll have you know.
New rates at some point.
Understood and thanks for clarifying that and yes, I did have a great piece of that I was mixing the watering piece of debt. So, but thank you for qualifying debt essentially the.
Does that mean that you have the customer credit and on the on the gas side, you'll be going into a more regular weight and things of that sort of debt at the end result of at the booth.
Yeah, we'll just go in sooner than we would've otherwise.
Perfect and then one last one real quick any color on timing of the equity in the plan the incremental equity will cause the sort of more predicated on as you in the islands nodes or do you have of particular timeframe within the next few years when you kind of do this.
Yeah, let me instead of the and the last calls really we'd give more specificity there as we get closer to those issuances and yeah. We're not we're not really kind of.
Point, where we can do that today you know as you think about that forward sale that we did last August.
No we would look to use that equity at the time that we do the Dell core of transaction. So we draw that down you know it was a little bit of cushion before the the transaction itself and then and further issuances will give you more details as things get closer.
Alright, Thanks, guys much appreciate the update to the.
Thanks for the gas should take care.
And that could slip out of two Travis Miller from Morningstar. Your line is open.
Good morning, I grab of Hugh.
Hey, Travis.
If I could I wanted to go back to the Texas, Texas thing and think of a little higher level and get your thoughts here and it seems like whenever you pick the utility industry has some kind of a big headline issues from that happens it leads to industry wide policy changes and developments and I was wondering if you kind of.
Sort of Crystal ball here kind.
And look into it what type of water related.
Policy changes do you think might take place either in Texas or more even more broadly across.
The water industry.
Yeah, I would think that one of the outcomes is what I alluded to a little bit but to go which is the additional redundancy.
On power.
What that what what form that takes probably varies by by the company as I mentioned, the we have a system of of small community wells across Texas, where we show how that is how we serve our customers in a large part of it one surface treatment plant, but.
You know when you think about that versus the the city of Houston versus Boston and the challenge is the larger systems have.
The in place a redundancy and and then.
You know as you think about pump stations throughout the end for wastewater as well I would think that power redundancies is gonna be a big component and that's that can be of cost item of a pretty good sized cost item, depending on what people have in place today.
As of as you know that the the challenges around winter weather just didn't.
It didn't appear to be as large of of risking in areas like Texas as they did in the north where we've hardened ourselves too.
To that kind of weather before Dan you of any of that Oh, No I think youre right on there Chris.
Yeah Okay.
And then I'm like gas side of it kind of a similar thing it appears that the gas distribution utilities zone. There did quite a good job in terms of reliability and despite of the pricing of spikes, but pretty good.
On the reliability.
Do you think this perhaps changes some of the conversation that's been going on in terms of electrification of heating and maybe moves gas up a little bit and public perception.
Well certainly we saw there in Texas were about 17 18 per cent of the power comes from wind power you know when that wind power goes down you need generation to come in to fill that gap and and natural gas stepped in to fill that gap, but you know given the natural gas.
Production facilities are reliant on power as well when rolling blackout started they were impacted servicers couldn't get out to serve as well of especially the deal with handling of the produced water. The things started to freeze up and are you.
Yeah.
That's what kind of created the issue for us for the natural gas companies.
You know they they too need to you know if we're going to if the right.
We're going to continue to have it.
Fairly dramatic weather the winter innovation matters for them too and of course, if you think about gas supplies in the Marcellus or the Utica.
Yeah.
These vs. The whole natural gas supply chain is pretty well winterized debt to make sure of that it's protected from those events.
Do you think about conversions, we we just don't see them in the areas, where we serve conversions from natural gas to the two electric.
For heating, we just don't see it I I wouldn't assume that we wouldn't see it further here. Unfortunately.
Many of the customers most of the customers we serve sit on top of the Marcellus shale region. So we're unique in the the local gas as it is right there and obviously, we're heartened for wintertime winters have always been cold in Pittsburgh and and even in some areas of Kentucky, and West, Virginia, where we serve as well so I think that we're well.
Position not only to the hold our customers put developers continue to put natural gas in two new developments in the regions, where we serve so I I don't I don't see any movement in the areas, we serve away from natural gas to electric.
Absolutely crushing and cold regions.
There are no more efficient heating source than indirect fire of natural gas.
Sure sure no I appreciate that.
Thank you very much.
Sure.
And that's the that too Ryan Greenwald something cause of America. Your line of our plan.
Good morning, guys.
So just to clarify on the commentary around peoples gas in the country of component under the terms of the settlement you would expect to file in 'twenty three from new rates in 'twenty four.
Think about it is any of that go behind.
Is it in that timeframe I mean, you'll you'll see.
You'll look for the settlement agreement when that comes out on March 11th and it'll get clarity around these things.
Got it and.
And then can you guys just kind of help frame, how you're thinking about the COVID-19 impacts in 'twenty. One here and then maybe looking out a bit further any thoughts around more structural shifts in low demand among classes and sustainability of the cost cuts.
Yeah, let me start the I'll kick it over to Dan you know first of all of them.
Like most utilities and probably most companies we remain with the the majority of our employees coming to work every day servicing.
Natural gas and water and wastewater customers. So the majority of our people have never stopped working in the field are our two primary offices in Pittsburgh in the Philadelphia area.
Remained largely the skeleton crews, but we we see a return to a rotation of work.
Flea coming in the next month, or so where we could get a third of our employees in a given timing of rotate them through so.
I think from an employment standpoint, we're in pretty good place now our bad debt expense continues to be one that we're working through here.
Obviously you have.
Receivables the aging at a level of we've not seen before having said that and in most areas, where we do business. We do have the ability to take.
Take a rig asset and and see if we can get some recovery of those and I do believe that.
Once we were able and in every case to get back to full collections mode.
We will get the payment from those who can afford to pay and will help provide help for those who can't and and I. You know given the fact that we reserve on our accounts for the eighth of accounts receivables.
I wouldn't expect to see a major issue there because that expenses already been taken as we go.
We also continued to collect any additional cost for example, we have some retrofitting going on and in our offices. So we continue to collect those costs of the aggregate those I would not consider those to be material at this point, but but nevertheless, there you know as we prepare to bring people back into the office, we want them look the.
Two of them to capture of those costs and then once you are when you kick in from here yeah. Thanks, Thanks, Chris and Ryan I guess as you think about where the consumption occurs and we continue to see more people working from home and higher consumption there.
I think marginally, but I think lots of people are ready to return to work and sort of get back to normal and and with that you'll see that the.
Residential consumption will come down a little bit more toward normal and commercial consumption will naturally pick up as people are in the business you know in the workplace and using the local businesses in search of our customers and that the.
And that commercial category. So I think that's I think we kind of come back to.
A more normal picture of where the consumption occurs if it's you know.
When that ex the one that is you know it's the first half of their price.
I think second half of the year and we start to see some return to normalcy. Once the vaccinations are more widespread you know what anecdote I'm involved with the large employers here in the Philadelphia region and.
Anecdotally as we as we get together, we expect the probably 80% of employees will be back to their normal schedule 20 per cent will not and that could be a rotational aspect.
Aspect of that 20%, but they.
They do expect to see 80 per share it back in the office.
Thanks, Chris I'll leave it there thanks guys.
Yeah. Thanks Ryan.
Some of them again, if you'd like to ask a question. Please press star followed by the number one on the telephone keypad at the time next well go to Jonathan Reeder from Wells Fargo. Your line is open.
Hey, Jonathan Hi, Jonathan.
Of course, I'm, Dan how are you guys doing.
Pretty lungs.
A couple of clean up questions, perhaps so how should we view the benefits of the W. T. R. G of the repairs tax settlement or you know what was your motivation from reaching it if it doesn't help push out the timing of the next rate case.
You guys proposed.
Well think about it in this term Jonathan you know listen.
We are still in the midst of Covid.
Regulators are doing their job and and trying to hold the Utah.
So the costs are down.
So it's in that atmosphere that we're that we're that we're in right now and so I think as of Pennsylvania regulator, they're there they're thinking about what can come to the customer and not the shareholder at this point.
Yeah.
I think that's happening across the country of as I, just put that as a backdrop of I mean, there's the whole lot of discussions had been occurred in the context of of that the Dan said, we can't talk a lot about of settlement that that is not fully public are inked yet.
I should say.
Proved yet by the by the I O J of the and the.
PUC, but I mean I think.
Think about it in that context.
And of that makes sense.
Maybe a bit of the goodwill gesture stuff, so or yes, no kind.
Trying to reach a settlement with Delaware County on the non core of dealers that ship sales at this point.
Is of Great question, I would love a settlement with Delaware County, I would love a settlement of the Delaware County.
I think they are spending millions now of millions of dollars of taxpayer money to to fight a battle that debt ultimately I don't believe that they can win and so if there was a way to settle. This then then I would like that we.
I think now probably everybody's focused on the next couple of weeks to see what the Pennsylvania Public Utility Commission does.
So, let's see how that decision comes out and maybe theres the opportunity to.
Get back to the table, but I you know I'll I'll speak for the essential team, we we'd love to see yourself.
Okay, I encourage you kind of a.
Segue into that with the the P. P C do they have the option to extend the.
The March 26th statutory deadline tomorrow, the city opened the record and consider new evidence or what exactly are the rules around their ability to consider are these more recent developments now.
You know Jay concerns.
Yep Yep, so sort of there are several in the so keeping him choices outlined niche where we had our board meetings. The last two days and so this is widely discussed in of inside but the the commission has several options. One obviously is a that approval.
And remember there's four commissioners to would be I'll call. It the stalemate of two two votes abstained.
It would sit three would be of denial.
And four would be something like of reman, where the the the the the commission could say Ah Aqua essential has done more work on the issues raised by the L. J L. J you should can you you should reconsider the work in the and the evidence and send it back of the ALJ and then the ALJ would send it back up to the.
Commission again, which I think is a possibility as well. So those are those are probably the the more likely options that the.
The PUC has the front of them.
Okay. So if it is two two.
And the pie.
Most of the top one of them it does not approve not denied or.
Yeah, It could just sit.
For a while until the commission has of at another member of one of the members changes their mind.
I am.
Hopeful that that's not the case Jonathan but.
We will see in the next couple of weeks.
Okay. Okay now the yearly watching and good luck with that I appreciate the additional income.
You got take.
Take care of Jonathan.
And at this time I'd like to turn it back to Chris Franklin for closing remarks.
Hey, Thanks, everybody for joining as always Brian Dan myself. The whole team here are open for follow up questions should you have the open issues that you want to chat about after this thanks for joining us today.
Yeah.
And that does conclude our call for today. Thank you for your participation you may now disconnect.
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