Q2 2022 American Water Works Company Inc Earnings Call
Good morning, and welcome to American Water's second quarter 2022 earnings Conference call.
As a reminder, this call is being recorded.
Also being webcast with an accompanying slide presentation through the company's Investor Relations website.
A webcast archive will be available for one year on American water's Investor Relations website.
I would now like to introduce your host for today's call.
Erinn Musgrave, Vice President of Investor Relations.
Mr. Musgrave you may begin.
Thank you Jordan good morning, everyone and thank you for joining us for today's call at the end of our prepared remarks, we will open the call for your questions.
Let me first go over some safe Harbor language today, we will be making forward looking statements that represent our expectations regarding our future performance or other future events.
These statements are predictions based on our current expectations estimates and assumptions.
However, since these statements deal with future events. They are subject to numerous known and unknown risks uncertainties and other factors that may cause actual results to be materially different from the results indicated or implied by such statements.
Additional information regarding these risks uncertainties and factors as well as a more detailed analysis of our financials and other important information is provided in the earnings release and in our June 30th Form 10-Q, each filed yesterday with the SEC.
The reconciliation for the calculation of the O&M efficiency ratio a non-GAAP financial measure can be found in our earnings release and in the appendix of the accompanying slide deck, which has been posted to the Investor Relations page on our website.
All statements. During this presentation related to earnings and earnings per share refer to diluted earnings and earnings per share.
Susan Hardwick, our president and CEO .
Discuss second quarter and year to date highlights and our focus on managing costs and today's inflationary environment.
John Griffith, our executive Vice President and CFO , who will cover our financial results in more detail review of our affirmed 2022 earnings guidance and long term targets and we'll close with an update on recent acquisition activity.
Cheryl Norton, our executive Vice President and CFO will then review the progress of our investments year to date in the regulated businesses will share some key details and milestones for several of our active general rate cases, and will conclude with another of our ESG impact stories will then close by answering your question.
With that I'll turn the call over to American water's, President and CEO , Susan Hardwick. Thanks.
Thanks, Aaron and good morning, everyone. Let me also say how happy we already have John Griffith with us as our CFO and you'll hear more from John shortly.
Let's turn to slide five and I'll start by covering some highlights of the first half of the year in the first six months of 2022 earnings were $2 seven per share compared to $1 87 per share in the same period of 2021.
Results for the regulated business drove the majority of the growth accounting for 16.
The 20th increase well MSG and other results were up four cents as compared to the same period in 2021.
The regulated growth was in line with our expectations as we knew the first half of the year would be strong due to revenue increases from several general rate case proceedings completed in 2021 in early 2022 and from infrastructure mechanism filings. These higher revenues were partially offset by higher operating costs, which I'll talk more about shortly.
Our regulated business invested over $800 million in capital projects and acquisitions for the quarter and one and a quarter billion dollars year to date, reflecting great work by our teams responsible for executing these investments.
As you will recall the total capital investment plan for 2022 included the $235 million acquisition of the city of York's wastewater system that we were excited to close in May.
Coupled with our strong first quarter results our capital investments investments are off to a good start for the year and on pace to meet our two and a half billion dollar goal for the year.
We continue to stay focused on the planned and as you saw yesterday, we have now for the third time affirmed our 2022 earnings guidance and.
John will cover 2022 results and guidance in more detail a little later in the call.
Before I move on let me comment again about how excited we are to welcome the customers and employees of York's wastewater system to the American water family.
As we've said this is the largest acquisition in Pennsylvania American water history, and it's a great example of how municipal acquisitions are executed the importance of understanding the community's objectives can't be underestimated and we jointly created an opportunity that benefits all stakeholders.
And as we think about the competitive landscape for water and wastewater acquisitions, we continue to focus on growing in states, where we can leverage our competitive advantage as we've said many times before we target acquisitions in the range of five to 50000 customers, where we have constructive regulatory environments and existing footprint and.
Mass this critical mass is important and our efforts to promote customer affordability and cost efficiencies.
Also as we grow in each state, we will have a greater voice to help solve industry challenges through legislative and regulatory policies.
So while we won't be awarded every opportunity. We pursue we know that there are plenty of communities in need and we believe our 135 plus year history of delivering safe clean reliable and affordable water and wastewater services will enable us.
To continue to achieve a high success rate in our pursuits.
The final highlight I'll cover here is that the military services group had another great win at the end of the second quarter and I'll, Let you I'll give you the details but the award of our first Navy contract at Mayport adds to the 17 other military installations that we're very proud to serve.
Turning to slide six I'll take a few minutes here to provide a review of the macroeconomic environment and how we are managing the impacts to the company.
Our focus on operating efficiency is not new as you know in the chart at the bottom of slide six you can see the result of our disciplined focus on managing costs as we grow the business.
This focus has positioned us well to have managed through much of the pressure so far on supply and even cost increase is brought about by the effects of the pandemic.
Now as we are in what may be an extended period of inflationary pressure, we continue to exercise our disciplined approach to cost management by leveraging our scale and through mid year. While we are experiencing cost increases in certain supplies and energy the impacts to date have been fairly modest.
In terms of our most significant cost labor is our biggest operating expense by far we work regularly with our union leadership to secure contract renewals and so far we have been able to achieve very fair outcomes.
Our our nonunion workforce, we're focused on filling key roles in maintaining our practice of competitive compensation.
Chemical costs in purchased power are usually the next biggest operating cost.
While our supply chain strategies and purchasing power have helped mitigate chemical cost increases, especially as compared to our peers. We do expect higher O&M costs. This year due to higher chemical prices.
For many years now the supply chain team has been successful in partnering with operations to secure reliable cost effective power and fleet fuel contracts across our footprint.
And because of these efforts, we expect only modest power and fuel cost increases in 2022.
Overall, we estimate an impact of about six to eight cents per share of these types of cost increases year to date, which we've been able to generally offset through other results.
Later, John will talk more about the possible impacts on the year, but as I said, we are confident in our ability to hit our earnings expectations for the year.
And perhaps one final comment before I talk about how we're pursuing regulatory solutions for this rising production cost environment.
Certainly a lot has been written over the last few weeks about pension accounting and expense levels going forward I simply mentioned that our pension plans were funded at just under 90% as of year end 2021, with a roughly 50 50 target allocation for equity and fixed income.
Though there has been much volatility in the equity markets through mid year I would remind you that the pension obligation remeasurement will be done at the end of 2022 and that will drive the determination of our 2023 expense. The accounting method. We use includes using the fair market value of planned assets at year end to establish.
The expected return on plan assets and we also use the quarter approach for amortizing gains and losses.
These message methods were selected many years ago and have resulted in moderate variability in pension expense, both favorable and unfavorable over the years, which we've always managed as part of our overall cost management approach. This.
This includes regulatory solutions, such as the pension trackers, we have in place in Missouri in California.
And updates to pension expense in active general rate cases.
As an example of how we are addressing these costs and current cases in the Illinois case currently on file we requested and received approval last week to update the requested revenue requirement for increased costs, including an estimated increase in pension costs.
That request will be considered in this case.
And that goes to my final point on this slide around regulatory solutions. Our teams throughout the company know that regulatory execution is vital to meeting our earnings objectives, and our financial plan generally the.
The regulatory solutions, we are pursuing such as cost deferrals and expense recovery recovery mechanisms in all of the current active cases are closely aligned with the interest of regulators and customers in managing affordability and limiting variability of customer bills.
This is no doubt a challenging environment, we all find ourselves in but we remain confident in our ability to manage through it using our disciplined approach to cost management and our ability to execute effectively in the regulatory environment.
And with that let me turn it over to John to cover more detail on our operating results and financing plans John .
Thanks, Susan and good morning, everyone I recall, Susan saying on our first quarter earnings call. If it had been a privilege to serve as CFO , but she was thrilled with her last one in the role so before I get started with the results. Let me just say that I'm thrilled to take the baton from Susan as CFO at American water and join this great team.
So with that turning to slide eight let me provide a few more details on second quarter results regulated results in total increased <unk> <unk> per share compared to the prior year. We saw a <unk> 16 per share increase related to higher revenues from new rates acquisitions and organic growth as a reminder, prior year results reflect.
An estimated <unk> <unk> per share of favorable weather in the second quarter O&M expense increased by <unk> <unk> per share, which reflects some of the effects of inflation on chemical power and fuel costs depreciation expense increased <unk> <unk> per share in support of growth in the regulated business.
Market based business and other results increased <unk> <unk> per share in the second quarter of 2022 as compared to the second quarter of 2021. These results. In 2022 include interest income on the seller note and earnings from revenue share agreements from the 2021 sale of homeowner services of <unk> <unk> per share while 2021 result.
It's included <unk> <unk> per share of operating earnings from HOS results for the other segment also include interest expense.
Our long term debt financing in both periods, which has increased year over year related to HOS. I also wanted to note that we recorded the final working capital true up entries for HOS and the first half of the year amounting to eight cents of earnings as we previously disclosed we recorded a <unk> <unk> loss on the sale of New York American water in the first quarter.
As is often the case with an organization of our size. It is common to have in any given year, a number of pluses and minuses, but generally offset.
Net earnings contribution of <unk> <unk> per share from these final two sale related entries and has helped to mitigate the impact of the inflationary pressures we have seen so far.
Moving to slide nine consolidated results increased <unk> 20 per share for the year to date period compared to the same period last year driven by driven by many of the same factors as in the second quarter results from the regulated business increased 16 per share for the year to date period, we saw a 34% 34 cent per share increase on <unk>.
Here revenues somewhat offset by increases in O&M and other operating expenses of eight cents per share and depreciation of <unk> <unk> per share.
The market based business and other results increased <unk> <unk> per share for the year to date period compared to the same period last year with generally the same drivers as mentioned for the second quarter results. Overall, we are pleased with our financial performance over the first half of the year. The first half performance sets us up well to deliver on our full year financial plan.
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Speaking of our 2022 plan, let's now turn to slide 10, after a solid start to the year as Susan mentioned, we are affirming our 2022 earnings guidance range of $4 39 per share to $4 49 per share. We expect strong revenue growth to continue in the second half of the year as we continue to earn returns on our infrastructure.
Investments from prior years and see additional growth from acquisitions second.
Second half results when compared to the prior year will be tempered by the sale of our New York American water operations earlier, this year, which historically had its biggest earnings contribution in the third quarter of each year and as we mentioned, while we are working diligently to limit the impacts to the business of rising costs. We expect to see continued pressures in the second half of the year.
Primarily related to chemicals and interest expense as we've mentioned previously we will not see any material earnings in 2022 from the redeployment of sale proceeds for HOS in New York, but the expected earnings from interest on the seller note and revenue from the utility revenue share agreements will nearly offset the loss of the prior annual earnings.
Contribution from HOS as our team as previously shared we will continue to ramp up our capital investments over the next few years as a part of the accelerated investment plans rolled out last November the earnings from that ramp up of investment will follow.
Finally, I'll just reiterate that we are confident in the long term financial targets, we have in place, including 7% to 9% EPS growth.
And 8% to 9% rate base growth, we acknowledge the current macroeconomic headwinds and our factoring those in as we progress through our annual budgeting and planning process. This summer.
As expected we will provide an updated outlook later this year for 2023 and the longer term.
Turning to slide 11, and the acquisition piece of our growth Draggle. We were pleased to announce in May our closing of the purchase.
Of our part of the purchase of the city of York's wastewater system for $235 million, where we are now serving approximately 45000 customer connections. This agreement was executed under Pennsylvania's fair market value legislation, which is a framework that exists now across 12 at this stage in which we operate.
Turning to a review of the nearly 30000 customer connections under agreement as of June 30th Egg Harbor City is expected to close in the second half of 2022 at Harbour City as the first transaction under the New Jersey water infrastructure Protection Act importantly, we believe other municipalities will benefit by this legislation in the future.
Is it allows communities with significant operating challenges to avoid a public referendum and swiftly partner with a provider like us to address their issues.
And just yesterday West, Virginia American water announced a signed agreement with Jefferson utilities to purchase various water and wastewater system assets of Jefferson utilities for $30 million. The combined systems serve almost 4000 customer connections in West, Virginia, and we expect to close this transaction by the end of this year.
The acquisition pipeline is still quite strong at approximately $1 3 million customer connections. The pipeline represents a multitude of potential acquisitions across many states in our footprint, including several additional opportunities that have emerged since our last call as well as the removal of two large deals York now closed and another.
Entity in Pennsylvania.
Move to slide 12, and a reminder, that we have a strong balance sheet and credit profile I believe that our plan both the level of investment and how we intend to finance. It is supportive of our current credit ratings. This includes the $1 $1 billion of equity financing. We have previously discussed as we focus on achieving our long term debt to capital target of.
60%.
We will continue to work hard at maintaining our industry, leading credit ratings for the benefit ultimately of our customers. Importantly, these strong issuer ratings are also applied to our senior unsecured debt offerings, enabling us to achieve strong financing outcomes like our recent debt offering in may the summarized in the appendix of todays slides.
The other thing I'll point out on this slide is our debt maturity profile in the bottom left of the slide and a rising interest rate environment. It is important that the company has taken a ladder approach to long term debt financings over the years in order to minimize interest rate risk I, certainly agree with that strategy and expect to continue that wise approach with that I'll turn.
At over to Cheryl to cover our capital investments and military services group results in more detail Cheryl.
Thanks, John and good morning, everyone, while I, usually start by reviewing the regulated segments operating results I want to start today on slide 14 by covering the announcement coming from our military services group just a few weeks ago I am So proud of Msg's latest award our first ever Navy contract. This contract continues the team's streak.
Of utility privatization wins at military installations in recent years with the addition of the wastewater contract with Naval station May Port. We are currently serving 18 installations with between 30% and 50 years remaining on these contracts. We also have two other bids outstanding one of which is expected to be awarded in 2023.
And as you can see we have a potential of about 70 additional opportunities in the years ahead.
Msg's business model centers around adding new military installations to our portfolio and then optimizing revenues through new infrastructure construction projects on the bases we serve a.
Military installations mission can change or expand or new technologies or system improvements, maybe identified that improve efficiency or sustainability, we worked with our military partners to identify and lead these needed infrastructure projects again, we're extremely proud to provide vital.
For the military personnel and their families and the civilians that support these missions.
As we turn to slide 15, let's cover our regulatory activity in our states shown here is our summary of completed rate cases in 2022 and key facts for each of the rate case filings. So far this year.
In the appendix, we also share some details of changes in our infrastructure charges year to date.
These key efforts reflect susan's comment on our team's ability to execute our regulatory strategies.
As you can see on the slide our New Jersey case is the furthest along with constructive discussions happening over the last few months. We're really pleased to report that on July 25, the parties to the New Jersey base rate case filed a stipulation of settlement with the office of administrative law resolving all pending ish.
In the preceding.
The parties are waiting for an initial decision from the administrative law judge and once issued the matter will be returned to the board of public utilities for a final determination.
In Illinois.
It's been about six years since our last general rate case, and progress has been steady since our February filing.
Evidentiary hearings will start next month, and we expect an order in the case by January Importantly, Illinois utilizes a forward test year for ratemaking purposes, which is helpful. During this period of rising costs faced by the business.
In Pennsylvania, we filed a general rate case in late April and are seeking recovery of over $1 billion of investments the cases proceeding as planned including evidentiary hearings that will occur in September and with an order. In this case also expected early next year, Pennsylvania also uses a forward test year for <unk>.
Making purposes, our cases in California, and Missouri, where just filed earlier this month and are progressing as expected so far.
And finally as you know we have another case active in.
And Virginia from 2021 that we expect to bring to conclusion in 2023.
The common thread in all these cases is to focus on recovery of extensive infrastructure investments totaling over $4 billion and in some cases the roll in of acquisitions as we continue to ramp up capital investments over the next few years. It will take time to see recovery of these investments and rates we expect to.
Continue to file general rate cases every two to three years in our larger states with the ability to go in sooner, if we see lingering inflationary impacts or excessive lag from investment limiting our ability to earn our allowed return clearly regulatory execution is critical to the success of our plans and we are very <unk>.
And our teams that lead our regulatory efforts.
As always we remain very focused on customer affordability, our emphasis on cost and capital efficiencies coupled with our customer growth efforts have continued to deliver very affordable bills as a percentage of household income for most of our customers. We also continue to evolve our strategies around rate design and customer assistance programs.
Grams to help our customers who are challenged with affordability.
On the Legislative front, there were three additional pieces of legislation passed since our first quarter call one in Illinois, one in Tennessee, and one in Missouri, The Illinois Bill is an important one to help address the affordability of our bills with certain customers. The Tennessee Bill requires all utilities in the state to implement a cyber security.
Plan, and we are well positioned to comply and lastly, the Missouri Bill requires the utility to defer any difference in what was actually paid in state or local property taxes compared to what was used to set the revenue requirement.
We believe our legislative efforts benefit our customers and give community has more options as they seek solutions to water and wastewater challenges.
On slide 16, we summarize rate filings completed so far in 2022 as well as total annualized revenue increases being requested and currently active cases, the total of $598 million in pending cases, which includes three infrastructure surcharge proceedings reflects the request.
Amounts in the various cases generally speaking we would expect the final revenue increase granted in each case to go into effect in 2023 or 2024 in the case of California.
Turning to slide 17, our regulated business leaders and their teams did a great job again in the second quarter executing on our increased capital plan.
It took a significant effort to safely and efficiently complete the several 100 projects that improved our systems and drove capital investment higher by nearly $300 million in the first half of the year compared to the same period last year.
This result keeps us on pace to hit our goal of approximately $2 billion of regulated capital investment spending in 2022, the foundation of our earnings growth triangle.
Moving to slide 18.
I'll just highlight that our continued execution on capital investments both infrastructure projects and acquisitions are succeeding in growing our regulated rate base.
This of course drives earnings growth, while we remain focused on operating our systems safely and efficiently to the benefit of our customers.
Like we have been doing the last several quarters I'll close on slide 19, with another story of ESG impact at American water. This one comes from a collaborative project between New Jersey American water and <unk> clean energy ventures.
The partnership is constructing the largest floating solar array in the U S. On a lake next to our <unk> water treatment plant.
Upon completion later this year. This eight nine megawatt installation will provide 95% of the plants annual power needs and will help reduce our annual greenhouse gas emissions.
This is another example of a project that creates a financial operational and ESG win for us and our customers.
So with that I'll turn it back over to our operator to begin Q&A and take any questions you may have.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
If youre using a speakerphone, please pick up the handset before pressing.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Richard Sunderland with Jpmorgan. Please go ahead.
Good morning, and thank you for the time today.
Maybe starting with inflation and your guidance reaffirmation could you frame a little bit of the QA to inflation risks relative to the six 8% impact year to date I guess in particular is there any reason.
The headwind.
Be ratable and then given you had the horse Venice in one H that offset how do you think about offsets over the balance of the year.
Good morning, Rich, Yes, let me, let me make a couple of comments and certainly have John weigh in here.
I think we made it hopefully pretty clear in our prepared remarks first of all that we affirmed guidance for the year. So as we think about expectations for 2022, we're quite confident in our ability to to hit the targets we've established for 'twenty two.
We did indicate that we continue to see some pressure in headwinds.
Around particularly chemical costs and energy costs.
We also highlighted that we're working diligently in the regulatory environment to ensure on a go forward basis that we have those costs addressed and as Sheryl pointed out a number of our cases do have forward looking test year. So were hopeful that we can limit any exposure here really to 2022. The other comment that we made and you obviously.
Lee pointed out the HOS gain.
That was recorded which again those sorts of transactions are not terribly uncommon. When you have a transaction of the size. We had last year. When we sold HOS just final working capital true ups and I would say they are final we don't expect anymore.
Activity related to that transaction.
That was.
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A benefit to the first half of the year and that certainly helped us offset some of those cost increases.
But I'd also say, it's not uncommon for an organization of our size as John remarked to have pluses and minuses throughout the course of the year and our focus on cost management our focus on.
How we operate how we are focused on efficiency will continue to have.
The levers that we can pull to offset exposure that we may see in the second half of the year. So that's our plan and again I'll just say it again, we affirmed our guidance for 2022, and we fully expect to hit those targets for the year.
Got it I appreciate the color there.
I guess, just turning to this topic, but on a macro level with the commentary around capex.
I'm curious what you're seeing on that front is there potential for either.
The dollar spend to go up given the inflationary factors or.
The other home less pipe replacement to occur under decline.
Budgeted Capex, just curious how you're thinking about that into the budget update.
Yes, and Sheryl can weigh in here too from an operating standpoint, but we don't see any change at all in our plans in terms of the amount of work we're doing.
We may see some cost increases there on pipe, but I would tell you again, our supply chain folks have done a tremendous job both managing the availability of supply.
And the cost increases we've experienced they really have been fairly modest on those types of commodities.
And again, we don't expect any change in our in our plans to invest Cheryl anything to add there, yes, I would just say that we've always got.
Hundreds of projects pretty much ready to go that we know needs to be done across our systems and so we have some flexibility and how quickly we move those those projects forward, but at this point, we've been able to manage through any supply chain delays and any cost increases and still get the work that's been prioritized done and continue.
To do that.
We think in the years coming so no no real concerns there just being flexible in how we approach those projects.
Got it.
And just a final question you talked about how it should impact are you able to quantify the potential headwind in 'twenty three.
No not at this time, obviously as we said in our prepared remarks, we do need to get to the end of the year, we will do the remeasurement there.
And we'll see where we are but again, our focus would be to.
Use all of the tools that are there.
Disposal to manage those types of increases I mentioned into my remarks around regulatory approaches we've got trackers in two states already so that will mitigate it there in two of our largest states by the way.
And we're continuing to focus on regulatory solutions in all the cases, we have currently on file to address that specific cost.
We're optimistic we'll be able to manage through whatever increases we may or may not stay there.
Understood. Thank you for your time today.
Thanks Rich.
Our next question comes from <unk>, Kim with Goldman Sachs. Please go ahead.
Hey, Thank you.
My first question going back to I guess thinking about the 'twenty two guidance a little bit given the year to date results.
I think on Slide 10, you said that the second half of 2002, EPS will be lower compared to two H 2021.
I'll take the last four quarters worth of EPS. It gets to kind of I guess, the midpoint of where 'twenty two guidance for B to H 2022 is going to be lower is that implying that at least in the range youre trending towards the bottom half of the range.
I don't think you should assume that what we tried to point out on slide 10 is simply the reality of our earnings profile, we're pointing out that in the prior year you would've had results from New York.
We just didn't want folks to Miss that as you think about what your expectations are for each of the remaining two quarters.
We obviously you've talked about inflation here.
Are they.
The headwinds we may experience and again, our strategy is to try to offset those impacts what we've continued to say is we've affirmed our guidance for 2022, and we're very confident in our ability to hit that.
Okay got it.
Take that in addition to the other commentary on.
Demand rates and inflation too.
Wanted to isolation, okay that makes a lot of sense.
The.
Second question.
Last month, the EPA put out new advisors for PFS. Another four of our chemicals I know a lot of this is more state based some of the states have mandates from how their own recommendation.
Okay, you guys have.
Had your.
<unk> targets as well just based on the new advisory is any thoughts on your operations on the PFS and other chemical levels, whether that translates into capex opportunities or other expenses.
Yes, it's a good question and obviously, it's something that we're very focused on and I'm going to let Cheryl comment on how we how we see this latest news yes. Thank Susan what EPA put out recently, where health advisories and there is no regulatory requirement for us to test or to meet any certain levels with those health.
Advisories.
As advised varies were extremely low in our opinion below the detection limit of the methods to test for <unk> compounds and so we're anxiously waiting to see what EPA comes back out with as far as a real regulatory limit, but we have tested all across our footprint, we know where.
We stand and we have already started looking at what capital projects would be necessary going forward and any regulations in states other than where we're at today will mean future capital investments.
Got it that's good color. Thank you very much.
Thanks into.
Our next question comes from Angie <unk> with Seaport. Please go ahead.
Thank you just one.
Comment on 2022, so you remember in the past you used to say that.
Can have about a seven positive or negative swing for the year.
So I'm just wondering if that's still the case and.
I see that Youre, calling for water conservation and at least parts of New Jersey, and I'm, just wondering if that could potentially cap this earnings benefit.
Yes, good morning, Angie I'll, let sure I'll comment in a minute about what's specifically happening in New Jersey.
No we havent really seen to date through June much of a weather impact.
We're all I think across the country sort of sweating. This quarter. So we'll see what it does to <unk>.
<unk> here in this third quarter.
We probably moved away from that sort of quantification I think what we've historically done there. So we'll just need to wait and see what impact it does have on demand.
In this quarter and Cheryl do you want to talk specifically about what's going on in New Jersey, Yes, We've got two areas in New Jersey, where we have seen peak usage rise to the level that we feel it's important that we start to encourage or specifically ask our customers to conserve water only on alternating days.
Put steps like that in place so that we can kind of shave off those peaks and that we can.
Serve our customers continuously without any kinds of dips in pressure or anything like that so so we have seen usage spiking and thats why youre seeing those conservation messages come through.
Okay.
Changing topics.
And I know, it's debating you.
We see this propose the minimum effective tax rate by 15%.
Overnight that it seems that in it.
Might pass.
Could you could you tell us how you think it's going to impact your.
Well you correctly earnings protection.
If anything else.
Our cash flows.
Sure. It's a good question and obviously, we need to kind of desktop analysis that has been done around this topic again and as you said, it's sort of back new in the news and I think as we've talked about this in the past it really is probably an impact on cash flow primarily.
Ultimately any impacts to effective tax rates gets.
Worked through the customer bills, so I would say, it's probably cash flow.
And I think.
Well again, just need to look at our analysis that we did at the time I don't recall, it being terribly material, but we'll just need to dust it off and see if there's anything there to report.
Awesome and then just my last question on municipal M&A I appreciate all the comments.
And you had in your prepared remarks, but.
Is there anymore you can.
You can share about.
This one.
I wouldn't say an award because it has an exclusivity period silicon photonic locations when to your competitor.
I mean, we have little to no insight into what terms do you propose to versus <unk>.
<unk>, Pennsylvania, but.
I mean is it as simple as the highest price wins.
Or do you have some other competitive advantages that about the location of the service territory what is it that.
That you might not be winning these contracts is such a big balance sheet.
No contracts well, yes.
Sure I'm, obviously not going to comment on any details here.
I would simply say, it's never that simple.
I think it's important to go back to the comments that John made in his prepared remarks that we've got a pipeline at 1.3, we just closed in New York, we talked about the acquisition.
Virginia, We just announced yesterday, we have plenty to do in this space.
There is plenty to do and we're doing a lot.
<unk>.
We take every opportunity seriously and we approach everyone with the same rigor.
The same metrics the same approach to.
Benefits that can be provided to communities and we've put our best foot forward and then we move on.
That's probably I'll have to say about that.
Again, we've got lots of great opportunities here.
Okay. Thank you.
Thanks Angie.
Our next question comes from Michael Gaugler with Janney Montgomery Scott. Please go ahead.
Good morning, everyone.
Good morning.
On Slide 15, Cheryl mentioned, Illinois, the low income assistance plans.
Now in place just wondering do you have them in most or all of the states you operate in.
Yes, Michael we have low.
<unk> income assistance programs all across our footprint, but we're also looking at how we can expand those or we can make those more accessible to additional customers. We realize there are just some customers out there that no matter how affordable our bills are they're going to struggle to be able to do that so we're also working at the federal level trying to get.
As much support for our federal assistance program. The <unk> program has been hugely popular and helpful for our customers across our footprint in the states, where they have implemented that so we're going to continue to try to work at the federal level to get more federal funding as well as some of those local or more utility.
Based programs.
So, Illinois, then was though just to be clear, Illinois was the last one.
In terms of.
Adopting this type of legislation in your system.
Well Michael This is this is a separate piece of legislation.
I wouldn't say that there is legislation in every state we have our own program our help to others program.
That all of our state participate and all across our footprint. So our customers have had some access to low income assistance for years now.
Okay.
So all I had.
Okay.
Thank you Michael.
Okay.
Our next question comes from Ryan Greenwald with Bank of America. Please go ahead.
Good morning team John Congratulations on a new royalty pleasure to connect.
Thanks, very much Ryan.
Absolutely appreciate the update just to follow up with brief on the pension comments you guys had previously disclosed a 90% loss through mid May what was the pension asset performance through June 30.
I don't know Ryan.
I don't think its something we have got at our fingertips I don't I don't know what you can divine from the Q on that.
Yes, we don't have anything out there Ryan to answer that specifically.
Understood is it fair to extrapolate the $9 million pension expense from the <unk> rate case for the balance of the company, assuming like a 20% allocation.
No.
Any color on the best way to kind of think about that.
Well I think I think that's a difficult approach.
Yeah.
Those are estimated cost as of a set of.
Analyses, we did for the rate case.
I think the answer really to the question is.
You really just have to wait until we get to the end of the year and we see really what the impact is going to be going forward and I would just reiterate what we said in our prepared remarks that.
We are working diligently in many of these open cases to address these costs as Cheryl highlighted.
All of these jurisdictions have forward looking test years, and we have worked hard to either include these costs. Our estimates of these costs in those rate cases, or we have proposals on.
On the docket to be able to address go forward exposures and to the extent, we don't cover those costs timely enough in rate cases, we will continue to focus on.
Ways to mitigate those impacts through other cost management efforts other things. So I don't think you can.
Really draw any broad conclusions based on what you've seen to date either in terms of market performance or even in our own filings I think you really just got to wait until we have.
More insight into expectations at the end of the year and then we will we will certainly tell you how we think about it but I'd also tell you again remind you that John commented in his remarks, we've affirmed our long term guidance here.
So as we think about this going forward, we're certainly confident in our ability to manage the cost both from a just a straight cost management standpoint, and regulatory solutions.
Understood and then maybe just lastly, the Pennsylvania Governor's move earlier this month to reduce the corporate tax rate any initial thoughts on potential impact for you guys in there and how this could play into the rate case dynamics.
I don't really have anything to say about that at the moment again, we'd be considering those types of impacts in this current case, so nothing really to comment on there.
Fair enough I will leave it there. Thank you for all the time.
Thanks Ryan.
Our next question comes from Gregg <unk> with UBS. Please go ahead.
Yes, thanks for taking my question.
Good morning, Greg.
Good morning.
<unk>.
But another one on pension.
You talked about the quarter method, what what's the.
The.
Size of the quarter that you use.
Well I think the sort of standard approaches 10%.
And.
And thats across that's generally across the company.
Okay.
Right.
Just a single plant yet.
Okay.
I appreciate it.
Alright, Thanks, Greg.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.