Q1 2022 Essential Utilities Inc Earnings Call
Okay.
Good day, ladies and gentlemen, and welcome to the essential Utilities, Inc. Q1, 2022 earnings call. Today's call is being recorded at this time I would like to turn the call over to Brian Dickerson. Please go ahead Sir.
Thank you Kyle good morning, everyone and thank you for joining us.
I am Brian <unk> and head of Investor Relations. If you did not receive a copy of the press release, you can find it by visiting the Investor Relations section of our website at essential Dot cope the slides, we will be referencing a webcast of this event can also be found there.
Here's our forward looking statement as a reminder, some of the matters discussed during this call may include forward looking statements involve risks uncertainties and other factors that may cause the actual results to be materially different from any future results expressed or implied by such forward looking statements. Please refer to our most recent 10-Q10-K and other SEC filings for a dish.
Script share of such risk and uncertainties. During this call referenced maybe we've made to certain non-GAAP financial measures a reconciliation of non-GAAP to GAAP financial measures is included at the end of the presentation is also posted on our Investor Relations website.
Here's our agenda for today will start with Chris Franklin, Our chairman and CEO , who will discuss the highlights from the first quarter and provide a company update.
Next Dan Schuller, our CFO will discuss our financial results. Chris will then conclude the presentation with an update on our growth strategy and a summary of our guidance before opening the call for questions.
That I will turn the call over to Chris Franklin.
Thank you, Brian and good morning, everyone.
I wanted to start off this morning, just by letting you know that we held our annual meeting of shareholders last week and I'm pleased to report that all of the items on the ballot were voted according to management's recommendations. So a good meeting overall.
So let's talk about the first quarter.
We had a strong first quarter with earnings per share of 76 cents up five 6% Dan is going to talk to you a lot more detail about that in just a few moments.
But the first few months of the year, we invested approximately $183 million in infrastructure improvements.
In our combined water and natural gas segments that compares to $178 million in the same period of last year. So a little bit ahead of that schedule.
<unk> remained confident that our ability to execute the $1 billion investment is well in hand for the rest of 2022.
Now we continue to advance our municipal acquisition strategy with our previously announced closing of lower Makefield, Pennsylvania that transaction closed, which added about $53 million in rate base and 11000 customers to our water footprint in Pennsylvania.
We are diligently working on the closing and integration of our seven pending acquisitions totaling $418 million in purchase price.
I'm also pleased to report that we recently co hosted a hydrogen summit in Pittsburgh.
Purchase the purpose of the event was to bring together key stakeholders in a region that we know has long been at the forefront of energy innovation.
We continue to look at possibilities associated with hydrogen and will continue our discussions and our research.
Now the hydrogen event, along with the changing geopolitical conditions in the world continue to strengthen our belief that natural gas has a firm place in the short and long term energy mix in our country as well as many other countries around the world.
As we've seen in the macro environment.
Over the last several months the tone regarding natural gas and its future continues to evolve.
I think the public becoming more educated on natural gas and the importance of American energy independence.
Now like everyone else in the industry, we continue to monitor.
Public and private valuations of natural gas utilities in the market.
We also remain committed to making investments in our natural gas utility to improve safety reliability and the environment, all while growing rate base and earnings per share.
And lastly, as we continue to recover from Covid.
We're pleased to hold a large scale employee community volunteer effort associated with Earth day across all 10 states in our footprint.
As you know, we're very proud of our industry, leading ESG work and have shared some of that work with you in previous calls.
Our ESG website has also received important recognition in the market.
It was in that light that we held our first ever essential Earth day, which involved a variety of activities and opportunities for customer education employee volunteerism and corporate giving we kicked off the events on March 22nd with World Water Day and concluded the series on April .
<unk>.
Which was Earth day.
Over that course of a month, we hosted 35 events across our 10 state footprint and had nearly 500 employees volunteer almost 2000 hours of their time.
The activities range from Forest restoration and park cleanups to assisting with water filtration.
Essential also provided $580000 in financial donations to support 28 nonprofit organizations with their environmental causes.
We worked together with our customers and the communities we serve to assist in partner nonprofit organizations. We recognize we can make a significant difference in our communities.
And then with that let me turn the call over to you and discussion about our financial results. Thanks, Brett and good morning, everyone.
We had revenues of $699 3 million in the first quarter up 19, 8% from $583 6 million last year.
Our regulated water segment contributed $239 2 million and our regulated natural gas segment contributed $445 2 million.
The largest contributors to the increase in revenues for the quarter, where the recovery of higher purchased gas costs and additional revenues from rates and surcharges increased gas volumes and water and wastewater customer growth.
O&M increased to $142 6 million in the first quarter up from $125 1 million in the first quarter of last year and.
Employee related costs and expenses related to the gas segment customer assistance program, which are recovered through a revenue surcharge were the largest drivers of this increase in O&M for the quarter.
Net income increased year over year by eight 5% from $183 7 million to $199 4 million and GAAP EPS was up from 72 to 76.
Next I will walk through the waterfall slides starting with revenue.
In the first quarter of 2022 revenues increased $115 7 million or 19, 8% on a GAAP basis.
Youll notice that the primary driver was the recovery of higher purchase gas cost of $95 6 million due to a significant increase in natural gas commodity prices over the last year.
Rates and surcharges increased gas volumes due to colder weather and customer growth in volume from our regulated water segment provided an additional $23 million towards the revenue increase which was offset by $2 8 million of other items.
With that let's review the first quarter weather on the next slide.
As you know there is a strong correlation between weather and gas consumption and associated revenue. This winter for our regulated natural gas segment. The weather in the first quarter was slightly colder than normal with 2878 heating degree days. This compares favorably not only to the last two winters, but to the.
20 year first quarter average and western Pennsylvania.
As a reminder, the chart on the right shows how residential natural gas consumption in Pennsylvania was distributed throughout 2021, noting that just over 80% of the gas was consumed during the heating season, meaning the first and fourth quarters of the year with the largest portion of gas being sold in the first quarter.
In terms of commodity prices, our customers benefited from gas purchases at lower prices in the second and third quarters of 2021, as we injected gas into storage for the 2021 2022 heating season.
Going forward, we expect gas prices to remain elevated for a while due to the geopolitical situation lower than normal storage levels domestic supply and demand domestic demand and a supply lag.
Thus, we are currently putting more expensive gas into storage for the coming months.
However, pricing in the Appalachian Basin remains discounted to Nymex by 50 to one dollar.
Yes.
Almost half of the gas consumed by People's customers is withdrawn from our own storage and the rest is purchased as needed.
Next let's move on to operations and maintenance expenses.
Looking at operations and maintenance expenses for the first quarter expenses increased 14% to $142 6 million compared to $125 1 million for the same period in 2021.
The largest driver of the increase was $8 4 million in additional employee related costs, including compensation and benefit.
Defined contribution plan enhancements to match market conditions and maintain our workforce.
Recruiting costs and more expense related maintenance activities.
Gas customer assistance costs increased $6 8 million due mainly to increased commodity costs.
These expenses are recovered through a revenue surcharge.
The $2 4 million increase in other expenses reflects among other things the favorable prior year impact of an insurance reserve adjustment.
Inflationary cost increases contributed to the $1 5 million increase in production costs and our regulated water segment.
Organic and acquisition related water and wastewater customer growth also added $1 3 million and these increases were offset by $2 9 million in lower bad debt.
Now if we remove the impact of the customer assistance program rider as well as one time expenses the year over year O&M increase would be around three 5%.
Next we will review the earnings per share waterfall.
Beginning on the left side of the slide GAAP EPS for the first quarter of 2021 was <unk> 72.
Rates and surcharges contributed $2 six and increased volume from our regulated natural gas segment added another two three.
Continuing on other items, which include increased depreciation and interest offset by higher tax repair at peoples added one <unk>.
And growth from our regulated water segment contributed 0.8.
These were offset by <unk> expenses, which were up due to nonrecurring nonrecurring charge related to insurance as well as an office lease related charge increased fuel costs and labor costs.
The result is a GAAP EPS of <unk> 76 for the first quarter of 2022.
The 76 also includes the impact of $6 7 million additional shares from the forward equity sale that we settled in August of 2021.
These shares were not in the denominator when the <unk> 72 for the first quarter of 2020 was calculated.
Yes.
Given the 76 and earnings per share for the first quarter. We wanted to take a moment to remind everyone of how we think about net income by quarter.
These strong first quarter results fall above the midpoint of the range noted here on the slide for Q1, but.
As we've explained before and noted on the heat integrate day slide the seasonality.
The natural gas segment earnings.
The seasonality I should say, it's shifts earnings the first and fourth quarters as a result of winter weather.
While the first quarter was strong we still have three quarters to go and some inflation headwinds. Thus our stated guidance range of $1 75 to $1 80 remains intact.
Additionally, I'd like to remind all of you that we recently settled the tangible equity units or Teus that we issued three years ago as part of the peoples transaction financing.
Issuing these units tapped another pool of Investor capital and Thats helped our concurrent common share issuance.
We were pleased with the outcome of these teus as we were able to issue the minimum number of common shares given our positive stock performance since the issuance date.
Please keep in mind that the common equity, resulting from this final conversion has always been considered in our formal guidance.
And in each quarter since the issuance the estimated as converted common shares have been included in the diluted shares outstanding.
Thus the shares outstanding it should be modeling post this conversion continue to be at the 262 million share level.
Consistent with our commitment to maintaining strong investment grade credit ratings with S&P and Moody's the company expense expects to launch an at the market equity issuance program in the near term.
We will use the program to raise equity over time for municipal transactions and other corporate purposes and expected issuances will continue to be included when we develop our earnings per share guidance.
We expect the ATM program will provide us with an efficient and opportunistic way to raise equity as needed to support future investment opportunities.
Yes.
Moving on to rate activity in other regulatory matters.
So far in 2021, we've completed rate cases or surcharge filings in our regulated water segment in Illinois, North Carolina, Ohio, and Pennsylvania.
We completed a rate case in our regulated natural gas segment in Kentucky.
The combined total revenue increase is $13 4 million.
And as you are aware, we currently have base rate cases underway for our regulated water segment subsidiaries in Ohio and Pennsylvania.
And in accordance with statutory timeline, we expect our Pennsylvania base rate case to be on the commission agenda. This Thursday and new rates effective later this month.
With that I'll hand, it back over to Chris to discuss the municipal acquisition program Kriss. Thanks, Dan I appreciate it.
As I mentioned earlier in the call we closed on the lower Makefield transaction, which is a significant acquisition.
Added $53 million in rate base and about 11000 customer connections.
It represents nearly 25% increase to our wastewater customer connection number in Pennsylvania.
So this milestone acquisition also increased Aqua Pennsylvania's total number of customers served to more than a half a million dollars.
Many of you are familiar with the seven signed asset purchase agreements pending.
Which will add about 224000 customers or customer equivalents and a total of over $418 million in purchase price.
So, let's take a minute and talk about the <unk> transaction.
The Pennsylvania Commonwealth Court issued a decision in March.
Guarding the enforceability of our asset purchase agreement with El Cora.
Image re manned the Commonwealth Court found the Delaware County can dissolve the authority if it so chooses but our purchase agreement must be upheld regardless of whether delcor remains standalone or if the counting dissolves. The authority was very good news for us.
Following the court's decision.
We sent a letter notifying the public utility commission of the court's decision and requested that the PUC move forward.
As I've said before we remain confident that we will close the <unk> transaction.
I also wanted to take a moment and mentioned our Willis town acquisition in Pennsylvania as well you may have seen that the ALJ recommended that the PUC reject our Williston acquisition.
I think this is an important.
Policy indicator.
Essentially the question that is now posed to the Pennsylvania Commission is.
Duly elected municipal officials have the authority to sell or regionalize their water and wastewater utilities, even if theyre not out of compliance or financially troubled.
Youll recall that Williston is selling their wastewater authority to us.
To put it in the hands of a professional operator basically aqua. Despite the fact that the authority is not technically out of compliance.
Now we're optimistic that the Pennsylvania Commission will hold to its long standing policy that encourages regionalization and respects the authority of local elected officials hopefully we will see some more.
Movement in that in the coming couple of months here.
Now the next slide you've seen before.
Our pipeline of opportunities for growth remains strong and healthy.
Our value proposition to municipal systems is also strong and includes our competitive capital solutions.
Industry expertise and long term rate stability.
We will continue to focus on growth in all eight of our water states.
<unk>.
Fair market value statues are in place in each of our eight states as well as a reminder.
Currently we are engaged in active discussions with municipalities and pursuing approximately 415000 potential water and wastewater customers as illustrated in the table that you see here.
Alright, alright wrap up todays call with a quick review of our guidance, we expect to earn between $1 75, and $1 80 per share this year.
We remain confident that our three year earnings per share growth will be 5% to 7% through 2020 for our capital plans are on track and we anticipate investing approximately $1 billion annually to rehabilitate and strength in water wastewater and natural gas systems through 2024.
Rate base is expected to grow between 6% to 7% for water and 8% to 10% for gas and customer growth is expected to grow between 2% and 3% on average for water and remains stable and natural gas. Finally, we remain committed to our ESG targets and we will continue to share our progress throughout the.
Year and with that let me conclude our formal remarks and open it up for questions Kyle.
Thank you, ladies and gentlemen, if you would like to ask a question. Please signal by pressing star one on your telephone keypad, if youre using a speakerphone. Please make sure your mute function isn't off to allow youll see that to reach our equipment.
Press Star one to ask a question we take our first question from <unk> Kim with Goldman Sachs. Your line is open. Please go ahead.
And two how are you.
Chris How're you doing.
Good morning, Dan.
First question just thinking through the next few years.
You've reiterated the $3 billion of Capex through 'twenty, four about 1 billion each.
When we just think about kind of the.
A flattish level of capex over the three year timeframe.
Math wise it implies lower rate base growth, just given a higher base.
Conservative are you on the organic side of things on the Capex versus your thoughts on I guess, the pace of Muni acquisitions, maybe playing into that as well.
Yes. Good question I mean, we as you know, we don't bake into that Capex any future acquisitions that we don't have signed already so.
We would expect it to be stronger given our pace of acquisitions, and especially given the size of some of the things that we're working on at the moment and of course. It doesn't include any of the follow on capital for than any of those acquisitions, we could do during that period. So it really we're talking about base capex and our <unk>.
Existing system Danielle.
I think that covers it Chris.
Okay.
<unk>.
Thanks for the color second question.
Going back to.
The Big strategy question I think Chris in your prepared remarks you.
Mentioned the.
I guess, the changing views, perhaps more recently about the role of natural gas in the energy mix here.
And how you continue to monitor the public and private valuations.
Curious your latest thoughts on.
Is that mix that you have at water G are essentially utilities without gas exposure and any timeline for making more of a.
Holly.
I can say on that strategy.
Yeah.
I'll start with the mix <unk>.
70%, we think about rate base, 70% water, 30% natural gas.
Certainly rate base growth is growing in natural gas.
At a faster pace just base.
Capital expenditures would say its growing faster of course, when you layer in acquisitions and we think we've got a strong pipeline. So we think actually we can outpace growth of gas with growth of water.
In the coming years. So that's our hope that we would continue to focus on water growth.
And it would outpace natural gas ultimately diluting natural gas a bit now going forward.
<unk>.
We are.
Really satisfied with our natural gas utility.
It's performing on every level as I've said many times before beyond.
Our expectations were.
When we bought the company.
The team is functioning extremely well and frankly.
We think in particular, the Pittsburgh region.
The country natural gas has a long long future.
We talked today on the call a little bit about hydrogen and its potential mix in that.
Long term formula there.
In the Pittsburgh region, hopefully get a hydrogen hub there out of the federal government.
Engage in that research we have.
Right infrastructure and are renewing infrastructure and bring our environmental footprint down. So I guess, that's a long way in sort of saying, we're very pleased with our investment in natural gas and we have no plans to do anything other than continue to invest in.
And building that capability there.
Got it thank you so much.
You bet thanks sensitive.
Our next question from <unk> Chopra Evercore ISI.
Hey.
Good morning, Hey, good morning, Chris and Dan. Thank you for the update Hey, just can we quickly touch base on Chester.
And what's the latest there.
Yes, So Chester city as you know.
Maybe.
<unk> made a public statement supporting its sale to us having run a request for proposal of course, it is tied up with the receiver there as you know and then the Chester water Authority has filed.
Two the Supreme Court appeal to the Supreme Court the Supreme Court more recently accepted that appeal and so that will play through the courts over the coming year now.
In the intervening time as we've discussed many times the political.
Wins have shifted in Delaware County, and the surrounding counties since the last.
Set of board members were appointed at the Chester Water authority. So they all serve five year terms, they're all up this year.
Again this summer.
So we will probably see a short term.
Shifting the leadership of that water authority, whether that changes people's minds on.
<unk>.
The stature of independents and everything.
To be seen but I think the way to think about this is short term potential change given mix of.
Our board members long term, we see what the courts have to say the Supreme Court has to say in terms of the appeal and that's all about we can say about at this point.
Got it.
I mean is there a timeline here Chris.
Investors should be following or Theres no set schedule at this point is the sort of the Supreme Court takes on the case in other moving pieces.
Yes, the Supreme Court really doesn't set a timeline. So we are at there.
The disposal of the court.
So I really can't give you a timeline I can tell you that the the changeover of the board members will be this summer call. It late summer got it.
Thank you and then Dan just on the ATM ATM common here.
Just.
One can you just confirm for us and I think that's the case that when we think about your long term targeted EPS growth rate of.
5% to 7%.
That.
Incorporates and includes any equity issuances.
You may do.
Thats correct for cash.
Okay, perfect and then how should we think about utilizing this ATM as you announce more acquisitions or is going to be more sort of.
Grammatically nature every quarter and things like that I don't know if you can share any color on that front.
Yes, great Great question.
I guess, where I'd put it is the tie.
Timing of issuance depends on a few things right. It depends on the municipal acquisition program and the timing of those transactions and when we see though is getting through the regulatory approval process and closing it all depends on our share price at the time as the share price at a price where we'd like to issue more stock or not so.
A few different factors come into play there.
And as Chris noted right, we've got about $418 million of signed acquisitions, yet to close that was on one of them.
Slide <unk> spoke about and so as we've talked to finance those with a combination of debt and equity plus obviously, we've got a robust capital investment program that we need to support so we think of this as.
The best way to support our our credit metrics well.
Making acquisitions and doing our capital program.
Got it.
For the update today morning, guys. Thanks, a lot.
Thanks take care.
Our next question from Ryan Greenwald with Bank of America.
Hey, Ryan Hey, guys good morning.
I appreciate the time.
Maybe piggybacking off that a little bit here. How are you guys kind of thinking about the magnitude of equity needs through the base plan.
And you alluded to your commitment to the gas business a bit there, but any change in how you're kind of thinking about potential monetization to offset <unk>.
Whats needs, particularly kind of given the public market backdrop here.
Okay.
Not at this point in time.
At this point in time, we see these this.
Our equity need thing being financed externally, we see ourselves using this ATM.
Finance those and.
In the plan, we have the $418 million of signed acquisitions and we talked about of course, we're looking to add to that all the time throughout our states with our active business development program. So.
Hopefully we are.
Using the equity to support transactions as they come in and we're getting more transactions that and over time require investing more.
At one time rate base right.
Chris anything to add to that yes, listen I think.
<unk> of our base capital plan, our base Capex plan and the equity needed is baked into the plan Thats why youre getting the.
Projected three year EPS. So all of that's baked in if we view acquisitions as Dan said, then we will add the equity component.
Sorry to finance those at a 50 50.
The good news about that with an ATM is you have call. It eight 910 months too.
To get regulatory approvals and raise the capital through an ATM raise the equity through the ATM.
That's how we see it as another useful tool basically in paying for as Dan said, it's flexible, but largely I think about it is related to acquisitions.
Understood and outside no Korean Chester here, any particular sizable muni opportunities that are on your radar in the near term.
Yes.
Yes.
Any additional color you can add.
[laughter] right, that's harder for us to do right.
Yes, we're working on some good size opportunities, we really are and as soon as we can begin to share some of the.
Color around that I'd love to do it but.
Hard to do that while we're in the midst.
Fair enough I'll leave it there and looking forward to seeing you guys next week.
Sounds good sounds good.
<unk>.
We will take our next question from Ryan Connors with.
Okay great.
Hey, Ryan.
Good morning, Thanks for taking my call.
So first one was really hey, Dan personal was really for Dan actually you talked about this rise in employee related cost it really did.
Pretty nice jump there and you did give some of the color comp and benefits recruiting costs, but.
Can you just discuss.
What that looks like is that is that.
Just a function of the environment, we're in and we're going to continue to see that ramp up given this tight labor market inflation or other things in there that were just hot in the quarter that that will kind of settle down going forward.
Yes, there are actually a number of things in there that are onetime kind of hot in the quarter to use your terminology. There. So we did go ahead and put in a couple of 401K enhancements as I mentioned really to match market and make sure that we're retaining our workforce.
There are a few other things in there that are.
Not not regular course, but we'd like them to be like business development bonuses that get paid things like that but they're not.
They're not a standard compensation expense.
So.
The analysis, we've done as we've sort of.
I guess, what I'd characterize that is if you just look at that headline number for the.
The increase in employee related costs, it kind of oversimplifies the.
Fact here if we pull out these.
These one time type expenses.
Well, a more a more normal level I don't want it they.
You should be careful in my terminology, but certainly as I said, if we look across the whole of the.
The O&M waterfall there if we remove the one time expenses and we removed the customer assistance program increase.
We would get to about a three 5% year.
Year over year increase higher than higher than normal higher then we think about our 225, 3% type of range.
But we are in this inflationary environment and we are seeing some incremental costs related to employees and we did see as I noted earlier.
Incremental expense related maintenance activities as well.
Got it okay, that's actually really great detailed color thanks for that Dan.
And then my other one was more strategic I mean, Chris you talked about the Williston proposed decision that you mentioned I.
I guess the battleground issue at play there being whether these quote unquote non distressed.
Systems should be subject to sale, but importantly, you noted that as it did the decision also that whats at stake is not only privatization, but regionalization.
Which sort of suggests that the Senate anti private decision, it's an anti.
Economies of scale decision.
So a couple of questions related to that is that the proper characterization of it number one and then two does that make the.
Or are there other big regional systems around the state sort of your allies.
Your writing briefs on that in terms of supporting that and saying Hey, we're we're a publicly public.
Public sector system, but what we want to be able to acquire as well.
Or is it really just a base level kind of a cynical anti prioritization play at the end of the day I mean with what's the read on that.
Yes.
I'll give you my thoughts I don't want to characterize the judge's decision was.
We are pretty detailed decision over 200 pages. So.
There was a lot of thought that went into it but.
My take from it is that the judge was basically saying to the commissioners. This is your decision.
On a policy level not mine.
And we kind of need to make it.
I would like to think that.
The commissioners will think about it in the same way, we do and that is this long term view across the country not just in Pennsylvania that regionalization of water and wastewater systems is important to long term viability and therefore, the policy remains consistent with where they've been for many many years.
That's why.
I tend to think this is going to be a fairly straightforward decision for the commissioners themselves, but I think the alj's need to hear from the commissioners that in fact this is the case.
So it is a it is an important policy decision.
I don't want to make any.
Can you comment on whether it's cynical or anything else I just I just think it's an important policy decision that the commissioners have before them.
And then lastly, just just you've talked you've talked about SMB and all your states having it.
And then you've talked about that being a national trend, but really I mean, as we can see from our discussion here in Pennsylvania. It really does seem to still be far and away. The most active region.
And.
Can you discuss the reasons behind that I mean, why have we seen.
Other states implement the legislation, but really not take off the extent, Pennsylvania has even though it's been in place for a few years in some of those areas.
Yes, it's an interesting dynamic Ryan.
<unk>.
Probably.
A longer conversation, but I would just make a couple of maybe thoughts here that.
There is safety in numbers right once a couple of municipals successfully.
Transact and others look at it and say.
That actually worked out well for for the municipal.
For whatever reason they do it right and there have been a number of reasons could be from compliance issues to economic viability to simply economic development funds or tax.
Paydowns.
Saved pensions.
All kinds of reasons, but as.
Municipal see others doing it doing it successful late successfully.
I think there is more and more interest and that's certainly what's happened in Pennsylvania, and I think what we're trying to do in some of the other states.
Is get that started get people comfortable so they see it's a it's something that you don't lose your election over.
It works out financially it works out operationally and then selling to.
Regulated utility gives the adequate protection to ratepayers I just think it's a.
It is an education process that takes place over time.
Yes, that's helpful color. Thanks for your time today guys.
Yes, Thank you Ryan take care.
We are moving forward to Ben Carlo.
Your line is open.
Okay.
Hey, guys good morning.
Good morning, Hey, could you guys just walk through.
I don't think you have gas exposure, but just because of volatility because you walked through.
Now how it works.
And the gas business and then.
And my second question just on.
In terms of Capex for the first quarter I know you guys do.
Better than last year, but just any kind of.
Any kind of constraints, you're seeing whether it's supply chain.
Shipping.
Like for the rest of the year that we should watch out for thank you guys.
Yes, maybe I'll start and then Chris can chime in as well.
Let's start with the Capex program and supply chain.
We have had certain things over the last year and a half that have taken longer to get so we've adjusted our ordering patterns to accommodate for that we've also ensured like with our pipe producer that we have supply and a certain number of truckloads coming in every week to our capital program.
The states, where we use that pipe supplier for productive iron.
And so I would say we have seen some supply constraints, we've seen price increases as you would expect with commodity costs up things that are.
Steel and concrete and wood and plastic H H D. P. We've seen those things.
But.
We don't think that in any way puts our capex program in jeopardy. We've adjusted to that we are on track at this point in the year, we see no reason we wouldn't.
<unk>.
Capex program this year across water and gas.
And then coming to your first question.
You are correct.
We don't really have what we'll call exposure from a gas price perspective, the commodity perspective, meaning we don't make any more or less in terms of margin with higher or lower price gas.
The way the way it works for us.
We start buying right about this time of year.
<unk> gas, we put it into storage between now and October we put just under half of the gas need into storage through that buying program. So think of that is buying at today's cost next month's cost.
July cost.
Build that up and then Thats and then the other half will come as we through the rest of them through the heating season, we both Paul from storage and buy gas on a spot basis thats needed.
And then from a price perspective to our customers, we basically we aggregate those gas costs.
We set a gas price in October based on the costs that we've already incurred and the cost we expect to incur and then we true that up with.
Our gas cost adjustment, we do that a couple of times and then if theres a tail it would flow into rates the following year, but those gas prices.
Eventually get fully recover from our customers.
Either the base rate or the gas cost adjustment.
Great. Thank you.
Certainly.
Next question from Jonathan Reeder with Wil.
With Wells Fargo.
Hey, Jonathan Hi, Jonathan.
Hey, Good morning, Hey, Chris Dan I may have missed it but how large of an ATM program do you anticipate establishing.
Yes, we've not we've not quite finalized it but think of it around $500 million.
Okay, Great and then.
Chris on the <unk>.
Rate case, if for some reason.
Isn't on the agenda for this Thursday, do you implement interim rates or what's the implication for that.
No it'll be on the agenda because statutory.
Need to install rates by that by the 19th of the month. This is the last meeting before that so it'll be on the agenda.
We don't have the ability to put.
Put rates.
Under bond.
Pennsylvania always ask before the statutory deadline.
Okay, but like in theory, if they wouldnt.
It doesn't sound like it.
But then just the case, though in his file downloads.
Your question gets approved as filed would that be all back.
Yes.
I don't know the answer to that because they've always meet the statutory deadline.
I don't know the answer to that Jonathan I'd be happy to check with our regulatory team and give you a <unk>.
Firm answer, but I fully expect it to be on the agenda.
Okay any anything to like read that it wasn't on like the last again, they're just.
Taken their time and I guess.
It looks like they're going to kind of reset the.
<unk> are you now.
They are everything like that.
Anything that you would have those more concerned that it's coming down to the wire versus an earlier meeting.
No no I don't think so.
Down to three commissioners as you know and.
I know there was a cancellation of one of the meetings and so now we're down to the meeting and plenty of time between.
The meeting this weekend.
And the time to install the right. So we havent been particularly concerned.
And so I wouldn't read anymore into it than that.
Okay, Great and then last on just following up on the Williston stuff.
Pennsylvania is fair market value loss specified that it has to be a trouble system.
Yeah.
Yes.
No it does not.
That's why I think this is a pretty important case.
Great. Okay. Thanks for the update and yes looking forward to seeing you guys next week at AGM.
You bet Thanks, Jonathan.
Next we take from Gregg <unk> with UBS.
Thank you hi, there.
Do you have a.
<unk> on closing the east White, Linde and Beaver falls.
Acquisitions.
Okay.
Yeah, Yeah. So each waveland later this summer maybe early fall.
And then.
Beaver falls, probably just after the first of the year first quarter next year.
Great. Thanks.
Okay.
Moving forward to Verity Mitchell HSBC.
I've already good morning, and good morning.
I just wanted the phone bill.
It's been discussed a couple of times.
And I just want to know.
<unk> discussion.
And come up with.
And alright.
Alright that is regular.
It's good question it will be noted by the ALJ and and also just on the timing that would be really helpful. Thank you following up yes.
Well.
Worried I am not sure I would say I am worried about it because the alj's.
There are.
I would say with some level of irregularity or overruled by the by the commissioners themselves on all sorts of issues, so I'm not particularly concerned.
I do think that it tees up a really important policy discussion.
Once resolved Verde will be.
Should be a non issue for other ALJ right. Once the commission clears. This gives an opinion that that.
Hopefully that they in fact support this regionalization despite.
Not being <unk>.
Technically troubled.
Then I think that will clear it up for the future and my hope is that that's where it lands.
And timing the second piece was on timing.
I would think that this gets acted on in one of the summer meetings by the commission.
So.
They don't Theres been no timing announced but I would I would think that this would get some activity. This summer.
Alright, great.
Thank you.
Take care.
Thanks.
Once again, ladies and gentlemen, please press star one to ask a question.
We take over next question from Travis Miller with Morningstar.
Hey, Travis good morning, everyone I wanted to thank you.
Two high level questions on inflation, I think you've talked in the past about health inflation could actually a positive in terms of the acquisition strategy from municipalities are facing higher costs wondering if that's still the case, if you're seeing that play out with your development team.
And then the second question was just okay.
Okay go ahead.
Okay.
Okay.
I think that that's a real possibility, although I don't think we've seen that necessarily materialize.
At this point I mean, given the fact that we can buy things like.
Pipe and equipment at at mass and kind of using economies of scale and we were just buying.
Yeah.
This is the most smaller municipals can't purchase that gives us a little bit more room.
In comparison.
But.
I think about it as additional upward pressure on their rates, which they hate to raise rates, so that compared to whatever compliance or other financial.
Financial pressures or compliance issues, they have only create additional upward pressure and therefore potential consideration for solutions, we might bring.
Okay, Great and then second is how windows as inflation kind of flow through gas versus water bills obviously.
Obviously, the gas bill a very direct flow through there how do you think about inflation in terms of especially energy costs.
Through water bills, and how is that trending.
Yes, it's good question now.
We think about inflation flowing through our gas bill.
Inflation that you see coming through the Bill really is the commodity cost inflation for the natural gas itself.
Other inflation.
Maintenance costs labor costs fuel costs things like that.
Those have to be picked up in a rate case typically that's how they would come back through.
Similarly on the water side inflation really comes through.
<unk>.
Materializes and our cost structure, and then we'd have to be recovered through a rate case.
In terms of energy asked specifically about energy.
For electricity.
We have more exposure than some of the places where we use.
Co ops for our energy production and supply we have less exposure, where we have long term contracts in place long term power purchase agreements.
Yes, I would only add then the only other impact on the capital plan if inflation were to continue to run.
Theoretically Travis we would we would spend still the call it $1 billion a year, but get less done for the money right. So fewer miles for example, a main could be installed now as we look at that today, even though we've had significant increase in our cost of call. It ductile iron.
For pipe.
Labor since we have contracts labor has been fairly steady, which is the largest portion of that capital plan and so our capital plan really hasn't been impacted dramatically at this point.
But that is the will be the potential impact would be less work done for the same spend correct yep.
Okay got it that's helpful. Thank you very much.
Hi, Travis.
It appears there are no further question at this time I'd like to turn to.
The call back to Chris Franklin for any additional or closing remarks.
Thanks for joining us everyone and as always.
Dan myself, Brian always available for follow on if you have other questions.
Great day. Thanks.
Yes.
This concludes today's call. Thank you for your participation you may now disconnect.
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