Q4 2022 Essential Utilities Inc Earnings Call
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Good day and welcome to the Essentials utility just full year 2022 earnings call. This meeting is being recorded at this time I'd like to hand, the call over to Brian I think it does so please go ahead, Sir Thank you Sergey good morning, everyone and thank you for joining us for essentially utilities 2000 to 2022 full year earnings call I'm, Brian thing or doesn't.
Vice President Investor Relations and treasurer at essential.
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 co. The slides that we will be referencing and the webcast of this event can also be found on our website.
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 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 description of such risks and uncertainties. During the course of this call reference may be made to certain non-GAAP assignment national 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 Companys Webster.
Right.
Here's our agenda for the call today will begin with Chris Franklin, Our chairman and CEO , who will discuss the highlights from 2022 and provide a company update next Dan Schuller, Our executive Vice President and CFO will discuss our financial results Lastly, Chris will provide an update on our acquisition program and conclude the presentation with a summary of our guidance.
Before opening the call up for questions.
That I will turn the call over to Chris Franklin.
Thank you, Brian and good morning, everyone. Thanks for joining us.
Start off with some highlights from our 2022, a year our focus on operational efficiency and infrastructure improvement and service related priorities led us to another strong year reporting earnings per share of $1, 77, which is 6% better than last year and the midpoint of our.
2022 guidance. It's also in line with our 5% to 7% long term guidance.
Macro challenges of inflation and rising interest rates among other as you all know about.
Importantly in the context of that I want to point out that since I became CEO in 2015, my team and I have always met the guidance, we provided to the street, we take pride in our accuracy.
In 2022, we invested over one point over $6 billion in infrastructure improvements as compared to $1 <unk> 2 billion in 2021.
Our commitment to investing in critical infrastructure across our footprint has led to the replacement retirement and installation of over 430 miles of pipeline just last year throughout our water wastewater and natural gas systems.
These investments along with our municipal acquisitions led to rate base growth of seven 9%.
Our municipal acquisition strategy continues to provide consistent and steady growth opportunities.
And in 2022, we closed three atoms, adding approximately $120 million of rate base and over 23000 new customers.
These three acquisitions, coupled with strong organic growth.
Led to customer growth of two 7% for the regulated water segment.
Currently we have asset purchase agreements signed for nine municipal acquisitions totaling nearly $380 million in purchase price.
The success of our growth strategy has allowed us to report over a $1 billion in revenues from our regulated water segment for the first time last year.
I also want to take a moment to thank our employees, who have diligently worked through the installation of SA P.
In our water utility over the last year.
You may recall that our gas company already had S. P.
And we completed the conversion of our financials and expect a clean audit opinion, which if you're familiar with how this works the complication of installing SAP.
Is quite an accomplishment, we're very proud of it.
These installations are difficult and time consuming and we wouldn't be here. If it were not for the efforts of so many patient and hard work and get the company.
Finally, I think it's important to mention the work our natural gas teams did during winter storm Elliot and.
In late December just before Christmas our teams worked through extremely cold weather to keep our customers' natural gas flowing so that their homes would remain warm.
Our people work long hours and right through Christmas Eve doing an unbelievable job for our customers under those extreme conditions.
A real tribute to the folks working at our natural gas company.
So let's move on to the next slide and talk a little bit about ESG in 2022.
Earlier this year, we reaffirmed our ESG commitments and I am proud to report that as of year end 2022, the company made really progress.
Extensive gas pipeline replacement.
Renewable energy purchases.
Accelerated methane leak detection and repair.
And among many other initiatives have led us substantial reduction of our scope, one and scope two greenhouse gas emissions.
As of the end of the year.
We are estimating a 23% reduction in emissions from our 2019 baseline and we remain on track toward our commitment of 60% reduction by 2035.
In the fall of 2023, we're going to again published a fully refreshed ESG report on our website and it was award winning last time, we did it.
Keep an eye out for it it's always a a good read.
We also reaffirmed our industry, leading multi year plan to ensure that we that are finished water.
Does not exceed 13 parts per trillion of <unk> <unk>.
Across all of the states served by our regulated water segment.
While we continue to wait for the EPA to issue their mcl or maximum contaminant level, it's worth noting that two of the states in which we have water Robbins have already enacted their own thresholds, Pennsylvania.
Nearly 50% of our water customers are located has.
As set limits of 18 parts per trillion for <unk>.
And 14 parts per trillion for <unk>.
In New Jersey has set limits at 14 parts per trillion for <unk> and 13 parts per trillion for <unk> and P. F.
Our commitment is at or below each of these.
Now regarding our employee and supplier diversity commitments.
We ended 2022 with people of color, representing 16% of our works towards our multiyear target of 17%.
We're also pleased to report that we exceeded our supplier diversity target of 15% in 2022 and continue to work to ensure we are aligned.
Aligning the makeup of our workforce and the spending on goods and services with the makeup of our customer base.
I'll remind you that we have been one of the leaders when it comes to connecting these metrics to incentive compensation.
Finally, we received a number of notable ESG awards and recognitions throughout 2022, including being renamed to Newsweek's America's most responsible companies list.
Renamed to three BL Medias best corporate citizens list and renamed as champion of Board diversity by the form of executive women with <unk>.
<unk> as a three plus company by $50 50 women on boards, highlighting the diversity of our board and we were also named business of the year by the Delaware County Chamber of Commerce.
Now in addition to these recognitions, we've continued to make strong advances in our ESG ratings.
Upgrades from MSCI analytics, CDP, and ISS have placed essential as an industry leader and at or near the top of our proxy peer group in 2022.
Folks. This is work that we are very proud of and plan to continue.
Now with that let me hand, it over to Dan to discuss our financial results, Dan Thanks, Chris and good morning, everyone.
Let's take a few minutes to review the fourth quarter highlights before moving into the full year, where we'll spend most of our time this morning.
We ended the quarter with revenues of $705 4 million up 31, 7% compared to the fourth quarter of last year.
Our regulated water segment of $273 1 million and our regulated natural gas segment contributed $411 $5 million with the balance coming from our limited nonregulated operations.
Higher natural gas commodity prices continued through the fourth quarter, and therefore purchase gas cost increased by $109 4 million year over year.
O&M expenses increased to $184 7 million for the quarter up from $158 6 million in the fourth quarter of last year.
It's maintenance expenses recoverable costs related to our natural gas segment customer assistance program higher water production costs bad debt and employee related costs were the main drivers for the quarter.
Net income was down year over year from $116 5 million to $114 9 million and GAAP EPS was <unk> 44 for the quarter in line with the prior year.
Next we'll discuss the full year financial highlights.
We ended the year with $2 $2 9 billion in revenue up 21, 8% from last year for the year. Our regulated water segment contributed 1.08 billion and our regulated natural gas segment contributed $1, one 4 billion.
This is the first year that the growth of the company pushed water segment revenue above $1 billion, which you really is something to celebrate.
Purchased gas costs increased by $261 7 million or <unk> 76, 9% compared to prior year.
O&M expenses increased 11, $5 to $613 6 million.
Operating income was up nine 7% to $661 2 million.
And year over year, net income increased $33 6 million or seven 8% from $431 6 million to $465 2 million.
And GAAP EPS increased 6% to $1 77, which was in the middle of our dollars 75 to $1 80 guidance range for the year.
Next let's walk through the full year waterfalls, beginning with revenue.
As you can see we had a very strong year revenue wise in 2022 revenues increased $409 9 million or 21, 8% on a GAAP basis.
You will notice that the purchase gas was the largest driver contributing 261 7 million of the overall increase.
This was due to the significant increase in natural gas commodity prices, which we have been reporting throughout the year, Fortunately, though gas prices have eased in recent months.
Forget regulatory recoveries from our regulated water and natural gas segments added a combined $81 1 million.
Over $63 million of this is attributed to water given recent rate cavity.
The portion related to gas is mostly due to increased surcharges for our customer assistance program, which has a one to one offset in our O&M expenses.
Increased volumes from our regulated natural gas segment contributed $26 million.
And Youll recall that weather has a very direct impact on gas consumption, which we see in that $20 million.
And so we closely monitor the heating degree days as an indicator 2022, whether in the Pittsburgh area was three 9% colder than normal resulting in 5648 total heating degree days.
Prior to 5139 heating degree days in 2021.
And in 2020 to over 80% of the gas was consumed during the heating season, meaning during the first and fourth quarters of the year.
Moving on combined growth and increased volumes from our regulated water segment contributing an additional $36 5 million and finally other provided $4 6 million in the overall revenue increase.
Next let's move on to the O&M expenses.
Operations and maintenance expenses were $613 6 million for the year compared to $550 6 million in 2021.
Other items contributed $20 million of the increase and much of this was related to inflation related increases and lower capitalization and outside services and material supplies as well as higher insurance expenses offset by higher capitalization in the gas segment.
Employee related costs added $17 1 million, which included regular merit increases targeted market adjustments and expense for onetime inflation payments for non officer level employees as well as benefits.
The gas customer assistance program expenses, which are recoverable through our revenue surcharge increased to $12 8 million.
And expenses related to newly acquired water and wastewater customers added $6 9 million and increased production costs in our regulated water segment added an additional six 3 million.
We continue to see year on year.
Year on year increases in production costs with a largest inflation related increases for chemicals, and sludge handling and hauling.
Next we'll specs will spend a minute on the earnings per share waterfall.
Beginning on the left side of the slide with 2021, GAAP EPS of $1 67 inventory recoveries contributed nearly 22.
And increased volume from our regulated natural gas segment added seven.
Combined the increased volume and growth from our regulated water segment added another <unk> <unk>.
These were offset by $14.05 of other items, which included increased depreciation interest and taxes other than income taxes as well as 12 <unk> of expenses.
The result is a GAAP EPS of $1 77 for the year.
Moving on to regulatory activity and other matters.
In 2022, we completed rate cases, or surcharge filings in our regulated water segment.
Illinois, North Carolina, Ohio, and Pennsylvania, and we completed a rate case in our regulated natural gas segment in Kentucky.
For a combined total annualized revenue increase of approximately $88 8 million.
So far in 2023, we completed rate cases or surcharge filings in three of our regulated water states with total annualized revenue increase of three 6%.
Also we currently have base rate cases, our surcharge filings underway in North Carolina, Ohio, Texas, and Virginia for our regulated water segment and in Kentucky for our regulated natural gas segment.
Finally, I wanted to provide an update on the equity ATM program established in October .
This program gives us gives us a mechanism to issue equity over time as we continue to deploy a significant amount of capital to grow the business through both acquisitions and capital expenditures.
As of December 31, 2022, we had issued approximately 132 million shares.
And in January we issued an additional 389000 shares.
For a total of $82 $3 million net of expenses.
As we indicated in the slide deck, when we announced guidance in January we expect to raise approximately $4 million to $500 million in equity or equity linked securities over the next 18 months to maintain our credit metrics, while we invest capital and closed municipal acquisitions.
We continue to evaluate how to most efficiently execute this capital raise and the exact amount and timing is dependent on acquisition closings and other factors.
And with that I'll hand, it back over to Chris to discuss acquisition growth in our 2023 guidance.
Great. Thanks, Dan.
Let's talk a little bit about the municipal transit activity first.
You'll notice on the left hand side of this slide that municipal growth through acquisition has been a long and successful based component of our growth through acquisition strategy, which complements our continued investment in infrastructure in our existing business.
Just since 2015, we've added nearly 118000 customer equivalents and nearly a half a billion dollars in rate base to our water footprint through acquisitions.
Most recently, we announced the closing of the Oak Brook water system acquisition in Illinois, which serves approximately 4000 customer equivalents.
Including Oak Brook, we closed three acquisitions in 'twenty, two which which added over 23000 customer equivalents and approximately $100 million in rate base to our company combined with organic growth the company increased its regulated water customer base by.
Two 7%.
On the next slide here as of this call.
We have eight signed asset purchase agreements for nine systems across four states. All of these are in states, where we currently do business.
These acquisitions will add nearly 219000 customers or customer equivalents and totaled nearly $380 million in purchase price.
Now, let's take a minute and talk about the status of Dell Cora.
On our last call, you'll recall that we provided the PUC procedural schedule and our expectations of closing this acquisition in the first of 2023.
Based on the most recent legal and regulatory actions.
Mid year closing is now unlikely.
We now expect to close toward the end of this year.
And we continue to be confident that we will close the <unk> transaction.
And also continue to believe that there is a path forward in settlement that works for all the parties.
Alright on the next slide.
In addition to the signed municipal transactions on the previous slide our pipeline of opportunities for growth remain strong and healthy.
We are engaged in active discussions with municipalities and pursuing over 400000 potential water and wastewater customers as illustrated on this slide.
Our in state teams continue to focus on potential acquisitions that have at least 2500 25000 customers.
We believe our strong value proposition.
Including our ability to pay a competitive purchase price.
Our technical and operational expertise our commitment to spend the capital to make improvements and our long term commitment to the communities. We serve all together make a compelling case to municipal governments, who are considering their options.
We will continue to focus on growth in all eight states, where we have water utilities and fair market value statues are in place.
Yeah.
On 2022, we like so many other companies were faced with rising interest rates inflation supply chain challenges.
However, the ability of our people to overcome these challenges and focus on integration growth and operational excellence provided us the opportunity to report such strong results for the year.
As we look at 2023, we remain committed to the pillars and priorities that ensure the safety quality and reliability to our reliability, our customers employees and shareholders have come to expect.
Now for those of you who have followed us.
You know that throughout our history, we have continuously reviewed our portfolio of assets and their contributions.
As a result of our most recent review.
Last year, we decided to sell our west Virginia natural gas assets, and we announced that sale early last month.
We believe that this decision.
Will be beneficial to the 13000 West Virginia customers because it will provide reached stability from rate stability and an opportunity for them to benefit from economies of scale in West Virginia.
We were we were very small there as you know the.
The completion of this transaction will also eliminate the outsize oversize draw of management attention that our west Virginia operations required.
<unk>.
Alright, now before we walk through our 2023 guidance I want to provide clarity on how we're thinking about the impacts of both weather and our acquisition program on the guidance. We provided you last month.
Dan mentioned earlier in the call the colder than normal weather in 2022 had a favorable impact on revenues.
And while it's very early in the year and we still have another month left in the first quarter.
Year to date 2023 weather.
For the region, where our natural gas segment is located has been approximately 20% warmer than normal.
This will likely be a topic for our next earnings call for first quarter, but as a reminder.
Fourth quarter has a significant impact on usage as well so it's far too early to determine the weather impact on our results for the year.
Regarding our acquisition program.
You may recall that <unk> was included in the guidance we provided for 2023.
Want to point out that we do not believe that the delay in the closing of Dell core alone.
Would cause us to fall outside our existing.
EPS guidance range for 2023.
So we'll continue to monitor the impacts of weather and acquisitions.
But we remain confident in.
In 2023 guidance, we released last night.
So I'll wrap up the call by reviewing that guidance, we expect earnings to be between $1 85, and $1 90 per share.
We're confident in the three year earnings per share growth of 5% to 7% through 2025.
And we will be investing approximately $1 1 billion.
Unregulated infrastructure, which is an increase of about 100 million annually over last year's plan.
We continue to expect rate base growth will be between six and 7% for water and.
And between eight and 10% for natural gas and that our growth will be between 2% and 3% for water.
And stable for natural gas other than obviously, the sale of our West Virginia properties as I just mentioned.
So in closing.
I want to mention that I believe the management team at essential utilities is among the best in the industry.
Our team continues to on an already industry, leading operational excellence, while continuously integrating acquired customers nearly seamlessly and all despite the numerous challenges.
Once in a lifetime pandemic.
Unprecedented inflation soaring interest rates.
And the installation of a major system SAP.
This team led all of this while meeting or exceeding the standards that our stakeholders expect.
I would say a truly amazing a 2022.
It's incredible to reflect on the dramatic growth. The company has experienced over the past seven five years in 2015, when the current leadership team came together our revenues were about $814 million and now in 2020 to just our regulated water segment revenue was over a $1 billion for the first.
Time.
Our annual Capex has grown from nearly $365 million to now over a $1 billion a year in that same time.
All of this could not have been possible without the dedicated team of over 3200 professionals that I am really incredibly proud to work with every day.
So on that note I want to conclude our formal remarks and open the call up for questions operator.
Thank you, ladies and gentlemen, if you wish to ask a question at this time. Please signal by pressing star one on your telephone keypad. If you wish to cancel your request. Please press star two.
And our first question comes from Brian <unk>.
From Northcoast research. Please go ahead.
Hey, Ryan Good morning, Ryan.
Question a.
A couple of housekeeping on the financials and then a big picture question for Chris but.
Dan in the waterfall, you mentioned the $17 million headwind from.
Employee related costs.
I mean, obviously thats not shocking given inflation and so forth, but do you expect that that.
Run rate of an increase to kind of moderate.
'twenty three 'twenty four is that kind of a onetime jump or we should we continue to expect.
Elevated inflation at that level.
So Ryan I think that will moderate in 2023 and 2024 there are few things in there like one that I noted in the script was.
That we did in 2022.
Inflation related payment for our broad employee base. So I think non officer level. So that was that was something we did in 2022, which we would not expect to do in 2023.
We also did some select market adjustments compensation wise that I think at this point you feel where we've got those market adjustments behind us. So we would expect that to moderate too.
More normal sort of merit increases and increases in benefit costs going forward.
Okay and can you give us are you able to disclose the specific amount on that onetime kind of inflation.
Payment or no.
Yes.
What we did there Ryan as it is.
Call it $3 million kind of a $1000 across an employee base of 3000 people.
So that okay.
<unk> number on that.
It was just that Ryan as we thought about what employees we're paying for.
Groceries to grocery store gas the gas pump last year, we just thought this was a.
It's something that the company was able to do to help our employees out help ease that burden a little bit got it okay.
The other one was on interest expense.
Obviously it was a J.
Jump, which isn't surprising given where rates.
We have been and are headed but.
We should be aware of there in terms of variable rate aspects going forward and in.
And it also is that all kind of pass through or are there certain parent companies things related to peoples or otherwise that maybe aren't as quick of a pass through.
Yes, the way we think of that.
Ryan is the only place we have variable rate debt really is our revolving credit facilities and so we've got the essential Oliver and we've got revolvers at the bigger subsidiaries.
Cat side, we use it for gas purchase costs, but that's where we're seeing a pickup in financing cost. If you think of a year ago, we were.
Were LIBOR based and LIBOR was.
No.
We can pick a number 25 basis points or something quite low.
And this year its sulfur base to only because of the change I think of that so far is about 4%. So significant increase in the borrowing costs for anything that sits on that revolving credit facility. So that leads us to think about how do we how do we think about it.
Turning that facility out right.
2023, just like we we tend to do every year.
The rest of our debt tends to be long range fixed rate debt.
<unk> sort of utility financing.
Got it got it okay.
And then just my bigger picture question was we've heard so much about.
Affordability, and becoming a bigger issue, especially on the water side in the past.
One of the things I guess that seems to be emerging as these staggered multiyear rate increases instead of getting a rate increase right.
By the way get it over several years it looks like Thats the way your request.
Carolina is in fact structured.
Is that something you expect we should expect to start seeing.
More across the board or is that North Carolina more of a more of a one off.
So North Carolina, there was a change a couple of years ago that allows for this multiyear ratemaking and so this is the first time that we are in Afghanistan. We are taking advantage of that new construct.
Pennsylvania allows for an alternative ratemaking, which one could accompany could propose a multi year. It hasn't been used to any great. We saw one water case, where where that was was proposed but I think by and large all of them.
Other states are.
Actively one increase based either on a historic test year or future or.
Fully projected future test years, but.
So those are the only two places I would say we have any ability to think multiyear at this point Ryan I would say.
Youre right to ask about affordability. This currently.
A theme not only across the utility space at NAREIT and everything else, but it's even a theme in our boardroom.
We're very focused on affordability for our customers and to why we while we were the first to get out there with our Universal service program in Pennsylvania. That's why we continue to focus on affordability and all of our states. We think about grants for some of our <unk> mitigation work, we're doing which obviously then.
Passed directly onto only ratepayers customers not shareholders. So big focus on affordability in the industry and I think that that will remain true. These are tough economic times generally.
And I think especially for those that may.
It maybe have a little less.
This is an important topic.
So.
Youll see regulatory themes and probably.
Different.
Schemes I should say.
That companies will drive or the attempt to being continually more affordable.
Got it thanks for your time.
You bet yeah. Thanks, Brian .
And our next question comes from Travis Miller from Morningstar. Please go ahead.
Good morning, Thank you.
It drives good morning Travis.
Quick question in terms of I think I'll follow up really to what you just answered that when you take the charge.
<unk> annual rate adjustments versus base rate cases, how do you think about that balance currently and what do you think about in terms of the cadence for the base rate cases that makes sense.
Getting the idea of annual versus kind of whatever your run rate.
On the base case.
Recoverability varies a little bit state by state, but the mix in states like Pennsylvania is pretty good.
Than you.
The mix.
Yes, yes, yes.
Think about it.
Okay.
We probably it depends state by state we have different <unk> structures.
Pennsylvania for water increased rates up to seven 5% between rate cases based on the <unk> I think the Illinois models.
<unk>, 4.5%.
And any sort of a two year period.
North Carolina has won North Carolina has one.
I think Travis maybe to get to kind of what your question is here.
As we think about.
Pennsylvania.
Between.
What we have in the disk and what we proposed in our rate case and expect to achieve in that rate case, we're thinking on the order of 5% per year.
But thats a combination and what that could mean is we run a rate case every three years or we can shorten that cadence a little bit to something shorter but think in terms of that.
5% per year in total over over.
Rate case period.
Okay, Yes that makes sense now that's what I was asking so okay, great and then.
Higher level question municipal growth.
It seems like when you have the puts and takes over the last few quarters you've been excluding.
Cora <unk>.
Somewhere in the 100000 and correct me, if I'm wrong the numbers wrong, but.
100000, or so run rate of pipeline, what's the macro.
Environment look like is there something there.
It's either holding back the pipeline over the last few quarters and then it could accelerate or is this kind of a run rate pipeline that.
You would expect I think.
The pipeline is strong we talked about 400000 customers in our pipeline so that piece of it's strong, but it's chunky and it always has been chunky in other words, we will have a big year and then a little slower one at all there's so many factors travelers that go into it.
From a local politics to macro economics.
Interest rates and other drivers, but I would say to.
The activity of the discussions that we're having currently are really encouraging and we.
We're generally very optimistic about.
Not only the near term, but the long term in terms of municipal prioritization.
Okay, great. Thanks, so much I appreciate the thought.
You bet take care Travis.
The next question comes from Greg <unk> from UBS. Please go ahead, Hey, Greg Hi, Greg Hey, Good morning. Thank you.
Just wondering if you could sort of.
Speak to the stay order on Dell quarter review in Pennsylvania.
Sure.
What's the.
What's the.
Process and outlook there. Thanks.
Yeah sure. So just for clarity there are two stages that we talked about that are that are in play here. The one stay is really between.
It's really regarding the Chester City bankruptcy, you remember Doug <unk> serves the city of Chester and.
So in $19 73.
<unk> city.
Basically contributed or sold their assets too.
Dell Cora and they have reversionary right. So.
Currently the bankruptcy has an automatic stay on the Dell core are proceeding now.
Today, we're in court with with the bankruptcy court.
Trying to get relief from that automatic stay.
So that's one stay hopefully we'll see some reaction from the judge usually bankruptcy courts move pretty quickly so who knows that may be equipped fairly quick answer from from the judge there.
The second stay is from the administrative law judge at the public utility Commission.
So.
That stays based on.
What.
What the county has the <unk> has filed in terms of.
Municipal Court case in in Delaware County for seeking clarification on two items.
Now.
At the.
The ALJ stay we have the ability to.
To file.
And there are locked at Torrey.
Which basically asks the five commissioners then to vote to uphold the stay or relieve the stay and so we are currently thinking about our options clearly we want to see first how the bankruptcy court.
Those today and then and then we'll look from there but those are the two stays that are in place and I know, there's a lot of moving parts, but that's hopefully clear to you.
I appreciate it thank you.
Got it.
And our next question comes from David Vernon from Baird. Please go ahead.
Hey, guys congrats on a good quarter and thanks for taking my question.
Thank you.
Just wanted to ask quickly about your guys' guidance for capital investments increase of an extra $100 million per year do we think about this as an acceleration to your previous growth plan.
Part of it being related to inflationary pressures and then I guess follow up to that would just be anything youre seeing on supply chain difficulties with investment. Thank you.
Yes.
You will take the supply chain, one firsthand sure yes, I mean in terms of supply chain I would say that throughout the.
Throughout the pandemic and post pandemic, where they had been supply chain constraints, we've generally been able to obtain things that we need.
Some some items larger diameter things larger amateur pipes larger diameter valves and fittings and such have been more delayed and so we've had to plan ahead on projects like that.
The one place we continue to see some delays at things that are related where we have micro chips.
So specifically with Hertz related to our meters that we've got some supply chain constraints. There, we're starting to see that open up a bit but there.
There've been there've been some challenges, but nothing that we've not been able to work through during these last couple of years first there.
And then.
Yes, we think about that.
<unk> from kind of a $1 billion a year at a $1 $1 billion a year on average you're seeing the opportunity to to continue to invest capital and thus increase that rate a bit but to your point.
Capital costs are up so that's factored into that total.
Dollar objective as well.
Even the cost of pipe is almost double over the last year or so and so.
<unk>.
Conceptually you get less done.
We're trying to be as efficient as we possibly can but but you get less done for the same dollar and so.
I would not consider this in the category of a.
An acceleration, but more as we continue to identify capital opportunities.
We're working through those and then of course, we're trying to stay pace with with the needs of the infrastructure needs.
Especially our pipe replacement needs both in water and in natural gas and those those don't go away despite the price increases.
Thanks, So much you.
You bet. Thank you.
And as a reminder to ask a question. Please press star one on your next question comes from Jonathan Reeder from Wells Fargo. Please go ahead.
Hey, Jonathan Good morning, Jeff Good morning, Good morning, Jonathan.
How are you guys doing this morning.
All good well thanks Scott.
Good Hey, I appreciate bring foreign Bill core can you just indicate whether your expectations for closed now towards year end do those rely on the ability to reach this potential settlement or is that schedule.
Based on the latest legal challenges playing out say getting addressed in a fully litigated process.
Process resuming.
Public Utilities Commission.
Yes, I would say probably a combination Jonathan here's how we think about it we're still going to have to go through a full PUC process right. We would expect it to have evidentiary hearings.
In February the 14th and 15th I think where the original dates those are now pushed off will still need to go through those once the stay is lifted and so well.
Whether you call it a fully litigated or but I would say it will be a continued to be a full process.
Certainly a settlement if we could reach one then relieves the any opportunity for additional delays and appeals and so that's why I think about a settlement is as optimal for closing this year.
I don't want to mischaracterize, those discussions, but I would say they are constructive conversations and ongoing conversations.
I remain.
Optimistic about a settlement.
Okay. So the conversations are still occurring you think they are constructive and I'm still hopeful.
Hopefully we get there okay.
Okay and then second question you opened the call, noting that the team has always delivered on the guidance ranges and you made the comments later with respect to year to date weather headwind.
And obviously the delay in the Cora do you have other levers that you can pool and perhaps planned the pool if needed to offset the weather impact I mean I know.
Essentially the reputation of running a pretty lean ship already but might there be some temporary cost offsets that you could implement later in 'twenty three if needed.
Yes, I think the short answer is yes.
Yes, probably some things Ryan is that we're evaluating now Jonathan.
Jonathan sorry, so we're evaluating now that.
We may be able to say more about it progresses here, but certainly we are always to your point had a strong cost culture, and we're really encouraging that today as people look at expenses sort of that.
I think before you spend do I need this what is the quantity I really need what do I have the optimal price et cetera. So.
Ensuring that that remains a strong part of our culture really is critical here in 2023.
Right right Okay great.
It's hard to control the weather so.
Good luck offsetting that.
If need be and looking forward to hopefully a dock work move forward.
Thanks for taking my questions.
Alright take care Jonathan.
Okay.
Thank you and we have a follow up question from Ryan <unk> with Northcoast Research. Please go ahead. Your line is open.
Hey, Brian just a quick follow up if I could yes. Thanks, Chris.
Thanks for all the updates on the core but given that we're talking about it in the context of the bankruptcy proceeding Chester itself.
Can you update us how we should think about.
Just the water authority and that's whether the chance that that re emerges as we go move through the bankruptcy proceeding.
How they choose to solve the fiscal issues.
Yeah, Yeah listen we'd all just be speculation at this point Ryan, but my two cents is that.
There's no other option they don't have another asset.
That is deep short of a massive.
Bail out from the state or federal government.
The only option they have.
Including restructuring is.
Is to sell that asset now.
Still tied up remember, even if the the receiver says sell that asset.
There is still a Supreme Court decision that then would have to be move ahead and the.
A final determination that the city in fact owns that asset. So I would say that that is not a front burner issue for today for us.
We see some other exciting things but.
While we will continue to be.
Engaged there and certainly as <unk> progresses, and we become.
A utility in the city will be will be of great interest in making that.
That all work together and improving the conditions inside the city.
That's helpful color. Thanks again.
You bet.
Thank you as there are no further questions in the queue I'd like to hand, the call back over to Christopher Franklin for closing remarks over to you Chris.
Thank you all for your time and for joining US today, obviously, we're always available for follow up questions, Brian Dan and I are available anytime. Thank you again for joining us.
Thank you. This concludes today's conference call. Thank you for your participation ladies and gentlemen, you may now disconnect.
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