Q4 2021 Essential Utilities Inc Earnings Call
Good day and welcome to the essential Utilities, Inc. Full year 2021 earnings call. Today's conference is being recorded at this time I would like to turn the conference over to Brian Dengler doesn't. Please go ahead Sir.
Thank you Madison Good morning, everyone and thank you for joining us for essentially utilities 2021 full year earnings call.
Brian Davis head of Investor Relations.
You did not receive a copy of the press release, you can find it by visiting the Investor Relations section of our website at our central Darko.
<unk> well, we will be referencing a webcast of this event can also be found there.
As a reminder, 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- Q1 0-K and other SEC filings for a description.
Such risks and uncertainties. During this call reference 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 posted in the Investor Relations section of the company's website.
For our agenda for today's call, we will start with Chris Franklin, Our chairman and CEO , who will discuss the highlights from 2021 and provide a company update next Dan Schuller, our CFO will discuss our financial results.
Chris will then provide an update on our growth strategy, a summary of our guidance and finally conclude the presentation portion before opening the call for questions with that I will turn the call over to Chris Franklin.
Hey, Thanks, Brian and good morning, everyone.
I know today's a busy day with a lot of news in the market, So I'm going to get right to it.
Let's start with a quick look at our 2021 highlights we had another strong year and happy to report earnings per share of $1 67 in 2021, which was the midpoint of our 'twenty one 2021 guidance. This represents growth really in line with our 5% to seven long term guidance that we've provided.
Our water and natural gas segments, we're both focused on infrastructure improvements and combined we replaced over 470 miles of main and invested over $1 billion in infrastructure.
Structure improvements.
And in a moment I'll talk about another example of the importance of this continued investment in infrastructure.
Our municipal acquisition strategy remains strong we announced the closing of two acquisitions last year, adding $36 $3 million in rate base and.
And in 2021 alone, we signed asset purchase agreements for six deals totaling $141 $5 million in purchase price.
And now we're working diligently on the closing and integration of plans and plans for the eight pending acquisitions that are total over.
$471 million in purchase price, our total rate base increased by seven 6% from $8 billion in 2020 to over $8 6 billion in 2021.
And finally I'm pleased to tell you that last year, we continue to make significant progress on our ESG initiatives.
While also receiving strong public Brexit recognition for our important work and I'll give you more detail on this in the upcoming slides.
Now this slide is pretty dramatic looking in 2021.
There was a focus a national focus really on infrastructure, our industry and our company continue to play a critical role in their renewal of water wastewater and natural gas infrastructure.
We recognize that it's our responsibility frankly to provide our customers and our communities with the well maintained infrastructure that is critical for safety and reliability.
You might recall in previous calls we've talked about some of the operational challenges that were brought on by external events I think about the outages in Texas that came as a result of winter storm Yuri and the flooding of our plant in our facilities from Hurricane Ida in southeastern Pennsylvania.
I was very proud that in each of those instances our operations teams met each of those challenges and overcame them.
But most recently and this is the picture you see here.
This from the National News a bridge collapsed in the Pittsburgh area and it was right inside of our natural gas service territory.
You may have seen this in the news, but as President Biden, who was already scheduled to be in town visited the site of the collapse.
The clubs did impact one of our large 16 inch gas mains, which was connected to the bridge.
I am really happy to be able to report, though that our quick action in our quick response and isolation of that impacted section of the pipe resulted in only minimal disruption to a very small group of our customers.
Really important there were no injuries associated with the gas main that was damaged in.
I just continue to be so impressed at the professionalism of our team that was able to act. So quickly to ensure the safety of the public while also allowing our system to continue to serve the rest of our customers that depend on our service to heat their homes and fuel their appliances.
And even though.
There were some weather related issues that were out of our control, we continuously improve our systems and make them safer and stronger and more resilient.
Now in addition to some of the projects we highlighted throughout the year like our solar field project in Illinois, and our new state of the art lab in Bryn Mawr.
Our efforts to replace infrastructure really should be highlighted as well.
In 2021, I mentioned that we replace over 470 miles of gas and water main and anticipate that over the next three years, we're going to replace about 1400 miles of pipeline.
There are major accomplishments.
Earlier this month, we have reaffirmed our ESG commitments. So as of year end 2021. The company made strong progress in aligning. The racial makeup of our workforce with that of our customer base.
We ended 2021 with people of color, making up 15% of our overall workforce.
Our overall three year goal is to achieve a target of 17%, which really nicely reflects the population of the customers that we serve.
Last year, nearly 11% of our spending on goods and services was through the use of diverse suppliers. Our goal in this area is to achieve 15% over the next three years and as a reminder, you can find all the details on our commitments in our proxy statement as they are all.
Tied to our executive compensation.
The company remains on track to make progress.
Towards substantially reducing our scope, one and scope two greenhouse gas emissions.
This is largely achievable through the extensive gas pipeline replacement program and our renewal energy purchases accelerated methane leak detection and a number of other planned initiatives.
Since making these commitments the company has already achieved we have already achieved an estimated 7% reduction.
Scope, one and two emissions from that 2019 baseline.
And thats toward our overall commitment of a reduction of 60%.
By 2035 this is right on pace with the plan, we originally announced.
The company also reaffirmed our industry, leading multi year plan to ensure that finished water. What are we send to our customers does not exceed 13 parts per trillion of <unk> and Pf <unk> compounds across all states served by our water utility.
Now, we're not aware of any other similar commitment across the industry and our peer companies.
We were pleased to make the Newsweek and statistics America's most responsible companies list for 2022 really proud of this this is one of the more notable rankings and continues to add credibility and recognition to our already strong ESG profile.
I really have to complement our ESG ESG team for their continued strong advances in ESG ratings, which really transcends level in the company and includes most of US here, who are all focused on making progress.
Capping off a strong 2021, MSCI upgraded essential from Triple B to an a sustained Olympics made a major upgrade for US 23, three giving US a score is stronger than many of our peers.
D P or the carbon disclosure project maintained our b minus grade that's even after we incorporated our gas utility into the disclosure for the first time.
And finally, our ISS scores remain the best overall in our proxy peer group. These strong ESG scores result from the company's strong focus on ESG, and our well designed and well executed ESG work.
Of this work is tied to incentive compensation and highlighted in our award winning ESG Microsite. This is really strong work we've done.
Finally last week, we filed an 8-K, which amended our corporate bylaws, adding a notice requirement for shareholders.
Our board took this action after our normal annual review of governance policies.
This amendment aligns our shareholder notice policy with more than 80% of companies in the S&P 500.
With that let me turn it over to Dan talk about our financial results. Thanks, Chris and good morning, everyone.
Before we dive into the full year, let's take a few minutes to review the fourth quarter highlights. We had revenues of $535 7 million up $61 7 million from $474 million last year a.
Our regulated water segment contributed $243 8 million and our regulated natural gas segment contributed $285 million.
The largest contributors to the increase in revenues for the quarter, where the recovery of higher purchased gas costs.
Quarter, 2020 rate credits and additional revenues from customer growth as well as rates and surcharges and volume from our regulated water segment.
O&M increased slightly to $158 $6 million up less than 1% from $157 2 million in the fourth quarter of last year, primarily as a result of employee related costs.
Fourth quarter net income increased year over year by 13, 4% from $102 7 million to $116 5 million and GAAP EPS was up from 40 to 44.
Adjusted income was $116 5 million compared to $116 2 million for the same period of 2020 and adjusted income per share decreased from 46 to <unk> 44.
Next we'll discuss our full year financial highlights.
As Chris emphasized earlier 2021 was another strong year for essential I'll start off by reminding everyone that the prior year figures include operating results of our natural gas segment subsequent to the closing date of the peoples acquisition on March 16, 2020, so approximately nine five months of gas in 2020.
As compared to a full 12 months in 2021.
We ended the year with nearly one 8 billion in revenue up 28, 4% from 146 billion last year.
O&M increased by four 2% from $528 6 million to $556 million.
Year over year net income was up 51, 5% from $284 8 million to $431 6 million and GAAP EPS increased to $1 67, which is just above the midpoint of our guidance range of $1 64 to $1 69 for last year.
Last year being 2021.
In 2020, adjusted income of $322 1 million and adjusted income per share of $1 27 excluded peoples related transaction expenses and transaction related rate credit.
When compared to the adjusted income in 2020 earnings on a per share basis in 2021 increased 31, 5% to $1 67.
Next let's walk through the full year variance details in the waterfall slide starting with revenue.
Okay.
In 2021 revenues increased to nearly one 8 billion on a GAAP basis Youll notice that the main driver was the additional $315 8 million from the first full quarter of gas revenue in 2021 compared to the partial first quarter in 2020.
The recovery of higher purchase gas cost rates and surcharges 2020 rate credits and growth from our regulated water segment provided an additional $115 5 million towards the revenue increase which was then offset slightly by decreased volumes in both our water and gas segments.
And with that let's review water consumption by customer class on the next slide.
Yeah.
Once more we wanted to take the opportunity to update you on water usage trends as we continue to return to pre Covid lifestyles.
As you can see here overall water usage in 2021 was neutral when compared to last year and 2021 consumption was less than 1% higher than 2019 levels.
With this return to normalcy residential consumption has fallen back to its 2019 level and commercial consumption has risen to its pre pandemic level as well.
And as a reminder, historically in the water business, we typically see a natural decline of about 1% annually and water usage as customers change out older appliances and fixtures.
Yes.
Yeah.
Youll recall that weather has a very direct impact on gas consumption and associated revenue. So we closely monitor the heating degree days as an indicator.
2021 started out relatively normal with the first quarter ending between the five and 10 year heating degree day averages.
However, the fourth quarter of 2021 was warmer than normal resulting in total heating degree days recorded over 5139, which was similar to the 5162 heating degree days in 2020.
The chart on the right shows how residential natural gas consumption in Pennsylvania was distributed throughout 2021.
Note that the largest portion of gas was sold in the first quarter and in total about 80% of the gas was consumed during the heat during the heating season, meaning the first and fourth quarters of the year.
This winter 2022 for our regulated natural gas segment year to date weather through February 15th was 10, 8% colder than normal and this compares favorably to last year's winter when year to date, whether it's through February 15th was 0.9% colder than normal.
Thus far in 2022 heating degree days were nine 3% higher than during the same period last year.
Next let's move on to the operations and maintenance waterfall.
Operations and maintenance expenses were $550 6 million for the year compared to $528 6 million in 2020.
Similar to the revenue slide Youll notice. The main driver was the additional $42 9 million from the full first quarter full first quarter of expenses for the gas business in 2021 compared to the partial first quarter in 2020.
Other expenses employee related costs growth and production in our regulated water segment contributed another $23 2 million for the year.
These increases in expense were offset by $25 4 million related to the peoples acquisition and $18 million reduction in COVID-19 costs and a small amount of nonrecurring expenses from 2020.
Yeah.
Next let's review the earnings per share waterfall.
Okay.
GAAP EPS for the full year of 2020 was $1 67, which as I mentioned was just above the midpoint of our guidance range.
We start on the left side of the chart with the 2020 GAAP EPS of $1 12.
And then we add back eight two cents of peoples transaction related expenses and $6 three from the 2020 rate credits that brings us to an adjusted income per share of $1 27 for the full year of 2020 with nine five months of gas operations.
Building from there the full year contribution of regulated natural gas segment versus the partial year in 2020 added 41 four.
Rates and surcharges added seven one.
And growth in our regulated water segment added another two points of course.
These were offset by other items of $5 three.
Lower volume for both our regulated natural gas and regulated water segment of $3 nine combined.
And another zero eight from.
From expenses, which results then in GAAP EPS of $1 67 for the year.
Given that were in the second full year of operating the natural gas segment. We brought this slide back as a reminder of how we think about net income by quarter as a water wastewater and natural gas company.
This should provide some assistance in constructing quarterly earnings projections reflect the seasonality in water and gas usage as we move into 2022.
Okay.
Moving on to rate activity in other regulatory matters.
In 2021, we completed rate cases or surcharges in seven of our eight water states.
And in two of our three natural gas states with a combined total annualized revenue increase of $31 million.
So far in 2022, we've completed rate cases or surcharges in four of our water states with a total annualized revenue increase of $8 2 million as well as a rate case in one of our natural gas states with annualized incremental revenue of $5 2 million.
We currently have base rate cases underway for our regulated water segment subsidiaries in Ohio, and Pennsylvania and as many of you are aware our in our Pennsylvania water rate case, the administrative law judge provided a recommended decision last week on February 18th.
Our primary objection to this recommended decision is the suggested eight 9% Roe.
We simply don't believe the ALJ stance on the ROE is in alignment with long standing precedent decisions on this matter.
As a data point, although American had a black box settlement. They estimated an ROE of nine 9% in their most recent case in Pennsylvania, and Additionally, the published quarterly <unk> ROE is currently nine 8%.
Next we will file exceptions that will then be included in the materials considered by the commissioners, while they're drafting their order and in these exceptions, we will vigorously advocate to support our position on a row.
In accordance with the statutory timeline for Pennsylvania, We expect this case to be on the May 12th Commission agenda, and we would then implement new rates in may of 2022.
And with that I'll hand, it back over to Chris to discuss the municipal acquisition program.
Thanks, Dan I appreciate it.
Each year, we supplement our base strategy of investing in infrastructure.
In our existing business with the acquisition strategy.
To supplement it.
Buying water and wastewater municipal systems essentially right.
This slide shows the acquisitions, we closed in 2021 for our regulated water segment.
The two acquisitions include the Commons water system in Texas, and the village of Bourbon as well.
Wastewater system in Illinois, together these acquisitions added about 7700 customers and about $63 3 billion in rate base combined with organic growth.
Combined the company increased its customer base by over 21000 customers in 2021.
Now since 2015, we've added over 94000 customers and $361 million in rate base through our water and wastewater growth through acquisition program.
Now on this next slide.
Seen this before I think or.
Versions of it.
We have eight signed asset purchase agreements pending.
Which will add nearly 235000 customers or customer equivalents and total over $471 million in purchase price. This.
This includes the southern Oaks water acquisition that we just announced earlier this month.
This is the second fair market acquisition.
Fair market value acquisition, and the state of Texas.
Based on the approximate rate base of $471 million. These signed agreements are expected to generate approximately $23 $5 million of incremental annual income once they are fully earning.
And this is before any incremental capital that these acquisitions might require in the future.
We continue to remain confident that we will close the Dell core transaction.
The litigation with Delaware County regarding the enforceability of our asset purchase agreement with Dell Cora was heard by the Pennsylvania Commonwealth Court panel last October and.
And we are awaiting that decision could be here.
The day we.
We are also hopeful that we can still reach a settlement with the county, which would help us accelerate the closing of this transaction.
Now in addition to the signed pending municipal transactions on the previous slide our pipeline of municipal opportunities remains really healthy and strong.
Many of you are familiar with this slide at this point, which illustrates acquisition opportunities, where we're engaged in active discussions with municipalities.
Currently we are actively pursuing approximately 415000 potential water and wastewater customers.
No there was a number of contributors.
That get us to this strong pipeline.
Number one we have fair market value legislation in all of the eight states, where we have water utilities.
Number two.
We currently operate in states that I believe have fair regulatory environments number three is our continued ability to offer a strong low cost capital solutions.
Of course number four would be our industry expertise and our long term rate stability that we've provided over the years.
So regarding Chester water authority.
Recall that last fall the Pennsylvania Commonwealth Court ruled in a five two decision that the city of Chester is the rightful owner of the Chester water authority.
And that was immediately followed by the Chester City Council unanimously passing.
<unk> ordinance, declaring aqua as the winner of its RFP process and requesting that the receiver expeditiously provide consent.
<unk>, the Chester water authority to Aqua.
Because the court appointed receiver and the city must agree to the ultimate solution to the city's fiscal crisis, we continue to wait to hear the public position of the receiver.
However, given the city Council's action, it's really unclear to US why there is any confusion in the market as to the city's preference to partner with us going forward.
Alright.
'twenty, one we overcame significant external obstacles and we had a very successful record breaking year. We now look forward to building on our successes in 2022 and remain focused on integration growth and operational excellence. This year, a good portion of that focus.
We'll be on all of the acquisitions, we announced and the opportunities in our pipeline.
One of the benefits of the combination with peoples is that we are leveraging the people's reputation in Pittsburgh in the Pittsburgh area too.
Purchased water and wastewater systems last year's acquisition of Beaver Falls is a great example of leveraging the gas utility to grow the water utility.
Our integration of new acquisitions will remain a core competency and focus for the company going forward. Our plan is to ensure that we seamlessly onboard customers and employees to our world class platform.
So excluding <unk>, we expect to add close to $200 million in rate base in this year or early next year based on expected regulatory approval timelines.
Additionally, we expect to sign agreements for at least another $100 million of acquisitions and potentially much more in 2022.
These would not close of course until at least 2023.
We will invest another $1 billion in infrastructure, sometimes that sounds easy, but this does require a very sophisticated planning and day to day effort to complete the work.
We will continue our ongoing progress on ESG commitments to maintain our leadership position among our peers and lastly, we expect to resolve the Aqua, Pennsylvania rate case before the Pennsylvania Public utility Commission.
So let me wrap up by reviewing the 2022 guidance released earlier in the month for 'twenty. Two we expect earnings to be between $1 75, and $1 80 per share.
We're confident in our three year earnings.
Per share growth of 5% to 7% through 2024, but we'll always be respectful of our regulators and ongoing rate activity as we've discussed many times.
Capex, we expect to spend approximately $1 billion annually to rehabilitate and strengthen our water wastewater and natural gas systems through 2024.
Rate base will continue to grow.
Between 6% and 7% for water and between 8% to 10% for natural gas.
Customer growth is expected between two and 3% on average for water and stable for gas and we remain committed to our environmental stewardship, our sustainable business practices employee safety diversity and inclusion customer experience.
<unk> engagement and are always happy.
To not only reaffirm our ESG commitments today, but also to share the progress we've made toward our targets and with that ill conclude my formal remarks and take some questions. So Madison, Let me turn it back to you.
Alright. Thank you so much if you would like to ask a question. Please signal by pressing star one on your telephone keypad.
The next speaker phone, please make sure your resumption of churn.
Your line is taking on to reach our equipment.
Again.
Star one to ask a question.
Go ahead and take our first question from Doug cash Chopra with Evercore ISI.
Hey, good morning.
Hey, good morning, Thanks for the update just can.
Can you.
And your 2022 guidance and the.
The 5% to 7% growth rate.
Can you remind us what sort of.
Equity or financing needs are embedded into that into that plan I'm thinking base business plus acquisitions any color there.
Yes, let me take that Jordache. So you know as we've said a number of times on these calls.
Tend to support our credit metrics in order to maintain our credit ratings.
So we will be investing.
As you know, we're investing $1 billion a year, we're making a number of a municipal acquisitions.
So from time to time, we will issue equity.
To keep our credit metrics and balance.
In terms of specifics for 2022 and beyond really waiting for some more clarity on our larger transactions.
Before we provide much additional color. However, I will say, we are likely to announce an ATM program at some point later this year to raise equity as needed.
Got it that's helpful and maybe just August .
Obviously, Chris just.
High level strategic thoughts, we've seen a ton of transactions in the marketplace you referenced it in your <unk>.
Remarks, obviously today.
Any updated thoughts or or.
On sort of your portfolio of assets and some of your peer utilities have kind of.
Taken taken sort of made some opportunistic moves to recycle capital back into the business eliminated equity need just any thoughts there.
Yes clearly.
On a lot of levels natural gas is front and center in the news today, whether it's internationally with with the events of with Russia, and the Ukraine or or.
Other transactions in the market so natural gas is really.
Important thought now what.
What I've said before and I'll, just underscore again today for either gases.
We know the value of our gas utility we know that.
It's a valuable.
<unk> not only.
I should say entity not only.
In the general market, but specifically in the private market, which we can see continue to see having said that though.
We'd like to see what happens with the.
The public market.
Multiples this year.
We like this company this company is operating.
In excess of all of our projections meeting financial safety operational.
It's a really nice company and so at this point, we're going to continue to March forward. This year, knowing that we have options but.
Also that we see.
Probably a return at.
At some point to more reasonable multiples and the natural gas market and potentially here.
If this country wants to remain energy independent.
Our refocusing on the importance of natural gas in the United States. So we're going to we're going to stand Pat for now.
And continue to look at this as we move forward.
Understood. Thank you guys I'll jump back into queue, and let others ask I appreciate you, giving me the time.
You bet. Thanks Rakesh.
And we'll go ahead and take our next question from <unk>, Kim with Goldman Sachs.
Hey, Hey, Hey, guys first question on the three year Capex of 24 $1 billion a year again 'twenty two through 'twenty four relatively consistent with the 'twenty one through 'twenty three range just wondering.
No dollar amount increase there and if you just think about the rate base CAGR with the base getting larger that typically with the roll forwards you see other utilities on raising the Capex just wondering how conservative this assumption is that weather.
The missing piece on sustaining the growth is coming from.
Expectations for accelerated pace of municipal M&A.
Yes, let me start with the Capex, we think for the size company, we are spending $1 billion a year is.
Is right in our sweet spot.
Both in water and in natural gas.
This is a careful exercise.
Many of us in the utility business talk about spending capex like that.
Just.
Coming to work every morning, and it's obviously a lot more than that.
And we need to do these things.
With precision and again so for the size company. We are we think the $1 billion is a good fit for US now as we continue to do.
Acquisitions, and particularly acquisitions of size with follow on cap capital there might be other opportunities, but we have to judge those.
Unit by unit and we can provide some color on.
The follow on capital as we do these transactions, but that's generally how we think about it Dan anything to add to it I think that's absolutely right, Chris maybe the only thing to add.
When we think about growth the only thing we would include.
Our capex.
Is.
Capex associated with acquisitions, which have already been signed which are in the process of being approved that is included in our capex.
Think about Dell core for example.
Capex.
The step up in Capex for Dell Court is really out beyond this three year period. So you don't see it in these three.
Dollar numbers that you referred to it would be beyond that.
Right.
That makes sense.
On the Pennsylvania, the Aqua, Pennsylvania case.
It seems like based on the read that to your point it was largely more on the ROE side that was.
Most.
I guess, what resonated with us versus rate base or other items.
When you think about the points that came up in <unk> or other recent pet for Vaca.
Pennsylvania cases out there anything the ALJ here pointed to on the reasoning for the ROE that.
Kind of differs from what others have said in other cases.
No I would say here what we saw is the ROE that the ALJ has used is came straight from one of the statutory advocates.
Yes.
So yes it was.
Barely.
It appeared to be a fairly straightforward kind of selection of the ROE.
As we said, it's just not in line with historical precedent in Pennsylvania.
<unk> received $10 two 4% their most recent rate case, Columbia gas received $9 eight 6%. So we do think that.
Well first of all I should say.
The ALJ supported a number of other our other position so on those things I think.
We felt that the outcome was appropriate it is really the biggest issue. There is a few other things, but the biggest issue is the ROE.
And we think that with our exceptions being filed here shortly.
And the PUC.
PUC commissioners considering those exceptions.
Ultimately well end up with an ROA much more in line with historical precedent here, Yes, I think Dan.
The ALJ, if I'm not mistaken referenced.
The pandemic effects of the pandemic.
The recommendation, which list.
We all have been living through that all countries have been living through that the whole world really.
But to have an effect like that on a on a recommendation.
Overreaching I think at some level, so hopefully the commissioners see fit to to stay with the continued.
Longstanding precedent decisions on row, Yes agreed.
I agree.
Got it thank you for that color. Thank you.
Got it thank you take care.
Yeah.
And we'll go ahead and take our next question from Ryan Connors with Boenning and Scattergood.
Good morning, Brian Hey, Ryan Good morning, Thanks for taking my questions.
I wanted to just follow up on this this issue with the natural gas.
Pierre take out this morning, obviously, a huge premium raises an eyebrow.
With you Chris that when there is an inefficiency or in the market driven by ESG, you want to be a buyer not a seller right. So.
We would kind of be on your side, but my question is you can't really obviously delve into specific deals, but do you get approached.
Not on that deal specifically, but in general I mean are you are you being approached on when things are up for sale.
And sort of just turning that down or is it pretty well known that you're not.
Non interested in expanding gas or are you interested in expanding gas does that does that change your viewpoint on that at all.
Yes, I think we've been really public and our position on this at this point Ryan in for some time now saying that.
We're not pursuing any natural gas growth by acquisition and so no I mean listen we're always aware of that yes.
That bankers are always talking so we're always aware, but I don't think I would say anybody is pursuing is hard knowing our public position.
Don't think that in today's environment.
It would be beneficial for us to buy more natural gas given given the differential in the.
So.
It's going to be interesting to see how this year plays out though in terms of what the public market responses to all thats happening. So we will see but where our position is is pretty firm now and Fortunately the water market is very hot and we're doing real well growing in the water side.
Speaking of that water growth I mean, one of the.
Selling things about the multi utility format to us is the opportunity at some point to build certain franchise territories, where you've got both water and gas because there are huge synergies there we know that from municipal.
Towns that do both and they coordinate their digs and things like that is there any are there any water deals where you think you would be able to create some actual overlap between gas and water over the next.
A few years.
Well, the easiest one to call out and I wouldn't be.
Any secrets, but.
The city of Pittsburgh is needs a solution.
And while there's been a change in administration there.
They are still getting there.
Their feet wet in the issues that theyre dealing with Pittsburgh, but.
That would be an obvious one where we could where we can provide a solution, but I think in that whole Pittsburgh region. There are opportunities for us for growth and for solutions that we could provide and while were in the street as you talk about here.
We could we could make infrastructure improvements by opening the street once rather than multiple times.
Even with coordination among utilities, often we still see streets being opened at different points in time and it just adds to the cost for customers. If we could combine boy I'll tell you what.
It's a powerful.
Powerful combinations.
Good then one last one for me.
Just I wonder if you could give us an update there was a house bill in the Pennsylvania Legislature called 1936, $193 six and it was floated last I think October kind of went dormant I guess not the idea behind it was to limit the fair market value to distressed systems and we've been looking around can't seem to find any update there is that moving ahead at all or.
Any any color you can give us on that one.
Yes, but to my knowledge that is not going anywhere I think.
I spend time in the state capital regularly.
And I don't I don't find.
Leadership, particularly in the Senate, but even many leaders in the house interested in in limiting that these why would why would they want to take away a tool from from.
Municipal governments that they have today, they can opt not to use it they don't want to use it but this is an important tool that they that they have in their tool belt.
Listen there is some.
Municipal authorities, who I think would be out there advocating against it and maybe promoting it with their favorite legislature legislators or because they want to stay independent.
Despite what their overall constituents of your customers might want and.
So youll have some of that chatter, but I don't see that going any place Ryan.
Got it okay. Thanks for your time.
You bet take out Ryan.
And we'll go ahead and take our next question from Ryan Greenwald with Bank of America.
Hey, Ryan.
Hey, good morning, guys.
Appreciate the time, so maybe starting on the financing.
Any good way to think about the percent of that additional acquisitions from here that would be financed with equity.
Yes, I mean, right I think the simple way to think about that.
From here forward.
Obviously things.
Change with the peoples acquisition, if you remember before the peoples acquisition, we had credit metrics that were very high with lots of room on our credit metrics and so we could make municipal acquisitions and do those exclusively with debt.
With that acquisition, we've really reset our credit metrics and so at this point as you think about us doing transactions.
You should really think about each of those transactions effectively be fine being financed half equity half debt. So I think thats the simple way to do that Ryan.
Got it that's helpful and then not to push too hard, but just in terms of the gas business.
Other transaction here at two times rate base and <unk>.
Alluded to earlier, all eight states out of the fair market value legislation in place here you can deploy it back into water at one time. It seems like you guys are being a bit patient here in terms of a public marker, but can you just dive a bit deeper in terms of your strategy or how you're thinking about that relative to the one time on the water side.
Particularly given the fact that your your financing needs at a 50% equity.
Yes.
Sure.
Happy to.
Revisit again, but I think we've been pretty clear on how we're thinking about this listen.
I think as a general matter, if you think about who should own gas utilities.
And others may have different opinions, but I'll say I would rather have a strategic one a gas utility.
We make the investment we are improving the environment, while we do it.
And we're doing it with safety and all of the concerns tied to the compensation of the management team.
You want companies like ours running gas utilities in this country.
<unk>.
Appears to be.
A shifting tide.
Moving to two.
Infrastructure owners.
Not that are not strategic necessarily.
And so we know that that option exists, but let's see what the market's doing here in 2022, and let's see where we are this year I just.
Again, we've only owned this asset for about two years.
Sure.
A company that's 135 years old.
And we've been successful in our business not because we thought the short term because we always think long term and I think that applies to our thinking here as well. So we're going to stand Pat for now hopefully that answers your question.
Absolutely that's helpful. And then maybe just lastly, it sounds like Dell corn developments could be any day now any thoughts around timing expectations for chapter.
Chester is a little bit more complicated.
Gesture.
Water authority applied for what they call Alex Hutter, or it's really an application to appeal before the Supreme Court, that's been months and months ago. So I don't know whether the Supreme Court is going to take that case or not but.
In the meantime, we wait for the receiver to publicly disclose where he is on it.
I recognize he had pensions to fix and.
All kinds of cleanup to do with the city finances, so that takes time and we've been patient but at this point there is alignment in the city around a sale to us.
And.
There is there will be continued developments at the authority level I think there'll be another turnover of that board of the authorities board. This summer and so I think there will be developments, but.
Meantime, I think the key.
Factor here is what will the receivers next move be and there's no specific timeframe associated with his next move.
Great I will leave it there so you guys soon.
Thanks Ryan.
And we'll go ahead and take our next question from Travis Miller with Morningstar.
Hey, Travis good morning.
Thanks for taking my question.
Think about inflation if inflation stays at these elevated levels for a while what does that do to the water acquisition.
Our strategy does it make municipals more likely.
Go ahead because of the investments become more expensive.
Most likely for some reason wanted your thoughts around that.
It's a great question.
I think.
Let's let's assume a sustained inflation not not just the.
Transitory if you would.
And I think sustained inflation would require municipals to consider rate increases that is a nightmare for most municipal.
Don't want to go near a rate increase because it's the same thing as tax increase and therefore, they put their reelection in jeopardy. So I would I would tilt the.
The waiting here toward helpful rather than harmful as we think about inflation impacts on the purchase of future water and wastewater municipal.
Okay, that's great.
And then also looking at the opportunity set and then obviously the deals you have in the works right now seems weighted toward wastewater and let's just take <unk>, because obviously, that's a big one.
The other ones.
Is there something about wastewater either today or within your business strategy.
That looks more attractive right now and might be ongoing a larger share of your acquisition.
Yeah Yeah.
Some people would say wastewater stinks, we don't think so.
[laughter].
I think I think the way we look at wastewater it's same as water.
It really is it the same economic model. It's the same regulatory process. It's the same recovery.
I think the reason that wastewater gets little more traction is because most towns municipals are less.
They have no affinity to the wastewater were often we say water is local and so often we see local water authorities.
Being considered.
<unk>.
Strongly with the city council or whoever the local.
Officials might be they feel some affinity toward the water so and then on wastewater.
It gets expensive is you have to put replace waste wastewater pipe.
Or make improvements to plant those are really hard for municipals to stomach and so they often look at look at exit and I, just think that that it's fairly straightforward and that's why we see more wastewater transactions in water.
Okay, Okay great.
Sweet answer.
[laughter] hinges upon.
Thank you Thats exactly.
Travis take care Travis.
Alright, and as a reminder, that is star one to ask a question. We will go ahead and take our next question from Jonathan Reeder with Wells Fargo.
Hey, Jonathan good morning.
Hey, Chris just one question remaining for me, what's the process for the PUC determining the nine 8% discrete.
I think they have another quarterly quarterly review on that in April .
Yes.
I'm, probably not going to be able to give you. The detail that you may be one, which we could follow up but it's a calculation that they that they publish publicly each quarter as you know.
I, probably can't get into the Formula.
Necessarily without revisiting it Jonathan yes, probably something to follow up with Brian and Renee on it.
Help me with that process.
Okay, yes that would be useful I would think that would perhaps be you know the.
The most recent I guess indication and maybe where their mind might be on the Roe.
To be honest I'm not familiar with all of that that ROE is kind of determined so that would be helpful. Thanks.
Yes, and we agree with you that it really is a very strong reference point here.
Yes.
Alright, Thanks, Good luck with the final outcome there.
Thanks, John Thanks, Jonathan take care.
It appears there are no further questions at this time, Mr. Franklin I would like to turn the conference back to you for any additional or closing remarks.
Thanks, everybody for joining us today and as always we're available for follow up Bryan Renee, Dan and myself.
And look forward to talking to you. Thanks, so much.
And this concludes today's call. Thank you all for your participation you may now disconnect.
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