Q1 2023 Essential Utilities Inc Earnings Call

May 9, 2023

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Hello, and welcome to the essential utilities Q1, 2023 earnings call. My name is Melissa and I will be your coordinator for today's event. Please note. This conference is being recorded and for the duration of the call your lines will be within only.

However, you will have the opportunity to ask questions at the end of the call that can be done by pressing star one on your telephone keypad to register your question.

Require assistance at any point, please press star zero and Youll be connected to an operator I will now hand, you over to your host Renee marquee to begin today's conference. Thank you.

Thank you Melissa good morning, everyone and thank you for joining us for the essential utilities first quarter 2023 earnings call.

Unfortunately, Brian couldn't be here today can be done under the weather.

I'm Renee <unk>.

The director of Investor Relations at a central 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 a central Dot com.

I think we will be referencing and the webcast of this event can also be found on our website.

Here is our F. L. A as a reminder, some of the matters discussed during this call may include forward looking statements that involve risk uncertainties and other factors that may cause the actual results to be materially different.

From any future results expressed or implied by such forward looking statements.

Please refer to our most recent 10-Q10-K or 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 financial measures. A reconciliation of these non-GAAP to GAAP financial measures is included at the end of the presentation and also posted on the Investor Relations section of the company's website.

Here's our agenda for the call today, we will begin with Chris Franklin, Our chairman and CEO , who will provide an update on the company.

Next Dan Schuller Executive Vice President and CFO will discuss our financial results and lastly, Chris will then provide an update on our acquisition program and conclude the presentation portion with a summary of our guidance before opening the call for questions.

With that I'll turn the call over to Christopher.

Thanks, Renee and good morning, everyone. Thanks for joining the call.

Well, let's just start here with a quick mention that last week, we held our board meeting and our annual meeting of shareholders.

Very pleased to report that all of the items on the ballot were voted in accordance with management's recommendations. So we're very pleased with the outcome of our annual shareholders' meeting.

Alright lets take a.

Look at the first quarter.

We reported earnings per share of <unk> 72 cents and that was despite the unusually warm weather and the challenges of inflation and interest rates.

We mentioned in February that weather was warmer than normal and.

Similar weather patterns continued through March.

Mind, you that we don't currently have weather normalization in our Pennsylvania tariff previous owners of the company ever filed for it. So we're going to do it in our upcoming rate case, where we're going to file a Pennsylvania natural gas rate case ended the year. This year in that filing we will include weather.

Normalization now.

If the PUC follows its precedent decisions on weather norm.

We should expect to have it.

At the conclusion of a rate case.

That would be call it spring of 2024.

This will be the first natural gas rate case, we filed in Pennsylvania under our ownership so we need to get that work underway.

Now despite the unfavorable weather in Q1.

I wanted to tell you that we remain confident in our ability to meet our full year earnings per share guidance of $1 85 to $1 90.

We'll continue to evaluate our various options and initiatives that could help us make up for the first quarter weather one of those.

<unk> is was already in the plan, but it is a current sale process for our energy projects at peoples. So you may recall that we have we operate.

The Pittsburgh Airport micro grid, another district energy project, which is downtown and our composite combined heat and power project at a hospital in Pittsburgh.

Again, it was a planned process for this year and we expect to close the sale this year.

This transaction is consistent with our long time strategy of focusing on regulated growth opportunities.

In this case, we hope to continue to work with the buyer of these assets to develop new projects in the future given the residual benefits they have for our customers and for our gas utility.

Alright, let's talk about capital work.

In the first three months of 2023, we invested over $243 $7 million in infrastructure improvements as compared to $183 million in the same period last year.

Currently we have.

We have asset purchase agreements signed for nine municipal acquisitions totaling over $380 million in purchase price.

Finally, as you may be aware Earth day was in April .

So last month, we were excited to kick off our second annual essential birthday series of events throughout our 10 state footprint.

Really proud to mention that we had hundreds of employees participate in over 30 local volunteer events again this year.

These activities included opportunities for customer education employee volunteerism.

Community engagement and we make contributions from our company foundation to many of the environmental initiatives all of which was centered around protecting and providing Earth's most essential resources.

Finally, another announcement.

With Big impact was made recently on P farce.

The U S. Environmental Protection Agency finally proposed a maximum contaminant level or mcl core P fast chemicals.

We recognize the Epa's proposed maximum contaminant level for <unk> chemicals. You. Remember. These are also called forever chemicals is an important step in protecting human health.

Now remember in 2020 in order to.

Better protect the health of our customers and communities. We serve we set an industry leading commitment to ensure all of our finished water across our entire footprint would not exceed 13 parts per trillion for multiple <unk> chemicals.

Also at that time, the EPA had a health advisory level of 70 parts per trillion for <unk> chemicals, we chose to adopt a much more stringent.

Standard to protect the health of our customers and communities.

To my knowledge, we're the only multistate company that made such a commitment.

Following year in 2021, we cut the ribbon on our new state of the Art Environmental Laboratory, which was just one of the two accredited labs and the only utility certified to test four P fast chemicals in Pennsylvania.

We believe our commitment to operational excellence along with.

The experience and expertise we've gained in our P fast mitigation work.

Will not only help us facilitate our compliance with the new EPA standards.

Also be an important.

Part of our value proposition to municipal leaders struggling with <unk> issues.

Now I'll remind you at the same time, we're also going to continue to advance our litigation strategy to force the polluters to pay the cleanup costs. So that our customers don't bear that total cost total burden of these costs.

And of course, we will continue to cooperate and support the EPA and their efforts to ensure all Americans have safe quality drinking water.

As the national focus on water quality and safety continues to gain momentum the technical and operational expertise of our people at essential utilities continues to be recognized.

We understand our responsibilities as a provider of utility services.

And it's also our responsibility to keep our customers and our communities well informed regarding their access to life sustaining resources, we provide.

We are reminded of this recently when a pipe ruptured at the at a chemical plant, which spewed chemicals into the Delaware River.

Yes in a half mile downstream from one of our water plants.

Fortunately our employees quick decision to close the plant intake ensure there was no impact to our customers and we were able to disseminate timely information provide reassurance of the safety of our water and Linda hand to neighboring systems.

I continue to be impressed with the professionalism of our team and their ability to respond so quickly to ensure there was no interruption to our customers.

You look at that photo in the center on this slide you can see that latex type material floating down the left side of the picture.

Most to intakes along the river that went on for miles. This was an important operational cash by our team.

And with that let me hand, it over to Dan to review the financial results, Thanks, Chris and good morning, everyone.

I'll start off with some of the first quarter highlights we had revenues for the quarter of $726 5 million up three 9% from $699 3 million last year.

Our regulated water segment contributed $267 3 million and our regulated natural gas segment contributed $441 3 million.

The largest contributor to the increase in revenues for the quarter was the recovery of higher natural gas commodity prices and therefore purchase gas cost increased by $28 6 million year over year for the first quarter.

Additional revenues from regulatory recovery.

Water and wastewater customer growth and other items also contributed positively or offset materially by decreased volumes in the natural gas segment due to the warmer than normal temperatures that Chris mentioned a moment ago.

O&M expenses decreased to $138 million for the quarter down from $142 6 million in the first quarter of last year.

Higher water production costs.

And growth from added water customers were offset by lower employee related cost.

Recoverable costs related to our natural gas segment customer assistance program improved bad debt and other items for the quarter.

Net income was down year over year from $199 4 million to $191 4 million and GAAP EPS was <unk> 72 for the quarter.

Next we'll walk through the waterfall slides starting with revenue.

In the first quarter of 2023 revenues increased $27 2 million or three 9% on a GAAP basis.

Youll notice the primary drivers were the recovery of higher purchase gas cost of $28 6 million due to the significant increase in natural gas commodity prices.

And regulatory recoveries of $22 9 million.

Customer growth from our regulated water segment, which includes both acquisitions and organic growth and other items provided an additional $6 4 million towards the revenue increase.

The primary offset to these increases was decreased gas volumes of $30 5 million from our regulated natural gas segment due to the warmer than normal winter weather.

And 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 thus associated revenue.

Typically the majority of gas is consumed by our customers and that's first and fourth quarters with the largest portion of gas being sold in the first quarter in Pennsylvania.

This winter for our regulated natural gas segment the weather in the first quarter was dramatically warmer than normal with 2330 heating degree days.

This metric compares unfavorably not only in the first quarter of last year, which was colder than normal but it also fall short of the 20 year first quarter average in Western Pennsylvania of 2814 heating degree days.

In fact this was the warmest first quarter in the last decade, and the fourth warmest first quarter since $19 55.

Next let's move on to operations and maintenance expenses.

Operations and maintenance expenses were $138 million for the first quarter.

A decrease of three 2% compared to $142 6 million for the same period in 2022.

Increased production costs, including inflationary increases and chemicals purchased water and sludge hauling and expenses related to newly acquired water and wastewater customers added a combined $4 5 million.

These were offset by lower employee related costs of $2 7 million.

Decreased gas customer assistance program expenses of $2 5 million and a decrease in other items of $2 5 million, mainly related to lower maintenance expenses and a nonrecurring charge in 2022.

And finally bad debt was lower by $1 5 million.

Next I'll spend a minute on the earnings per share waterfall.

Beginning on the left side of the slide GAAP EPS for the first quarter of 2022 was <unk> 76.

Regulatory recoveries contributed <unk> <unk>.

Growth from our regulated water segment added one.

And reduced expenses added 0.7.

These were offset by decreased volume from our regulated natural gas segment of over eight.

Other items of <unk> <unk> and.

And decreased volume from our regulated water segment of 0.1.

The <unk> impacting other includes increases in interest costs and depreciation offset by income taxes.

As a result of GAAP EPS of <unk> 72 for the first quarter of 2023.

As Chris mentioned earlier, we continue to expect to meet our annual earnings per share guidance for the year.

Okay.

Moving out of regulatory activity and other matters.

So far in 2023, we completed rate cases, or surcharge filings and core of our regulated water state for the total <unk> annual total annualized revenue increase of $3 6 million.

Also we currently have base rate cases, or surcharge filings underway in North Carolina, Ohio, and Texas for our regulated water segment and a surcharge filing in Kentucky for our regulated natural gas business.

As we previously indicated we expect to raise approximately $500 million in equity or equity linked securities. This year to maintain our credit metrics, while we invest capital and closed municipal acquisitions.

And with that I'll hand, it back over to Chris Chris. Thanks, Dan could look good segue, let's talk a little about municipal transactions, Matt Rhodes and his team have been busy as of this call. We have eight signed asset purchase agreements for nine systems across four states.

We have existing water operations.

So this includes the recently announced Greenville wastewater system that has over 2300 customer connections.

Also serves over 1700 additional customers through to wholesale customers in the neighboring townships of West Salem and hemp field.

Collectively these acquisitions are expected to add nearly 219000 customers or customer equivalents.

In total over $380 million in purchase price.

Five two in Frankfurt right.

Five transactions on this slide are on track to close in Q2 or Q3 of this year includes Shenandoah.

Southern Oaks you in your AUM in Frankfurt.

Other acquisitions expected to close in Q4.

2023 and of course, so in Q1 of next year.

As many of you know progress on the Dell Cora regulatory process is under a stay by the federal bankruptcy court handling the bankruptcy of the city of Chester.

Next hearing of the bankruptcy Court is next week May 15.

Settlement discussions do continue, albeit at a slow pace, but we remain optimistic that a settlement can ultimately be reached importantly.

<unk> rate projections, along with the last rate projections I've seen from <unk> continue to indicate that customer rates will be lower under our ownership when compared with Dell core remaining independent. So this transaction remains to be good for the customers.

It's probably important to read reiterate again that despite the delay in the core process, we still plan to meet our current earnings for the year.

I should also note that our sale of our small west Virginia gas operation remains on track and the regulatory process and we expect to close the transaction in the third quarter of this year.

So in addition to the Si municipal transactions on the previous slide we continue to see a strong and healthy pipeline of opportunities for growth.

As illustrated on this slide we are currently engaged in active discussions with municipalities pursuing over 400000 potential water and wastewater customers.

Our teams in each of our eight water states.

Focus on potential acquisitions that have between 20 525000 customers.

We continue to offer many benefits beyond just the competitive purchase price, including our technical and operational expertise commitment to spend the needed capital and make improvements.

And to provide long term clean safe reliable utility service to the communities we serve.

So let me wrap up with a reminder of our 2023 guidance that we had previously published.

As we've said throughout the call. We continue to expect to meet guidance for the year earnings is expected to be between $1 85, and $1 90 per share with three year earnings per share growth of 5% to 7% through 2025.

Our capital plans, including investing approximately $1 $1 billion annually to rehabilitate and strength of our water wastewater and natural gas systems through 2025.

Continue to expect that rate base growth will be between 6% to 7% for water and between 8% and 10% for natural gas and the customer growth will be between two and 3% on average for water and stable for natural gas.

Finally.

We remain committed to environmental stewardship sustainable business practices employee safety diversity inclusion enhanced customer experience and a strong community engagement. We're supportive of the Epa's proposed new regulations on <unk> and <unk>.

Continue to pursue our legal action against those polluter polluters to offset our overall cost of mitigation on the <unk> side.

Let me conclude our formal remarks and open the line for questions I'll turn it back to you Melissa.

Okay.

Thank you Sir.

As a reminder, if you would like to ask a question. Please press star one on your telephone keypad to withdraw your question. Please press star two.

We'll be advised when you ask your question.

<unk>.

And our first question comes from Ryan Connors of Northcoast Research. Please go ahead.

Great. Thank you good morning, Hey, Ryan.

Good morning, Gents three things for me. This morning, first is pretty quick and straightforward.

Nothing in Pennsylvania, right now.

On the on the right pipeline side.

<unk> filing in Pennsylvania, that's something that's contemplated for 'twenty three or is that you think will be a little further out.

Brian I would anticipate that we would have decent filings.

For both water and gas in Pennsylvania later this year.

Okay. Okay.

Secondly.

On the Chris you mentioned, the gas rate case, and the weather normalization component of that.

Conceptually.

If you are being asked you are taking a risk like you took in the quarter, where sometimes you get hit on lower volumes conceptually you get paid for taking that risk may be with a better return on equity. So what's your what's your thought process on the balance between.

Asking for the weather normalization, but trying to make sure that that doesn't end up.

Biting you on the backend if theres going to be an argument that less risk should come with less return in terms of an Roe.

Yes, I think what we found is as you look at other utilities, who currently have weather normalization in Pennsylvania, There's been no discounted return on equity and I think we would expect the commission stays with her with a precedent decisions.

We would see something similar in the case that we'd requested so.

Listen I think as.

He realized.

As it's constructed you will give away the upside as well as the downside, but I think when you think about water utility investors.

Typically people want.

Certainty steadiness right and so we think weather normalization is a better outcome than taking the down swings and the upswings.

Yes, okay.

And then lastly wanted to chat a little bit about this Delaware River spill cleanup and congrats.

So the team they're on a great job managing that issue.

We're very close to that here.

In terms of location and it really.

The way Aqua handle that really stood in contrast to a lot of the neighboring communities I mean, there was outright panic.

And a lot of the communities not only Philadelphia, but some of the Bucks County communities as well and you just didn't see that because I do think Ark was communication.

And remediation was was really it was really tight.

And so my question is.

Obviously.

You named it strength through the model lot locally, especially in Bucks County, with the with the whole acquisition attempt last year, how do you use something like this to get the message out.

And have you done anything to locally theyre trying to get that word out about what a great job. The company does relative to not all but some of the.

The local government owned systems out there.

Yes, it's a good question and I would say just just for clarity sake, Ryan you live here, so others may not.

When we say get dragged through the mud, it's really only with regard to acquisitions. The companys operational record is stellar and our general reputation in all of the communities, including southeastern Pennsylvania is really strong so, but where we get into these scuffles on acquisitions, we're always looking for opportunities to tell our story.

And I think a couple of things number one.

We started to get much much more favorable press.

It's a really.

Design strategy and I give credit to our new Vice President of Communications gene Russo Who's done a beautiful job in telling our story in a fashion that it is.

I think the people really resident resonates with people, but in this case in particular.

<unk>.

We had pushed down authority to the plant level in years past.

They may have had to go through the chain of command in order to shut down a plant intake that doesn't happen anymore.

Plant operators and management teams are really really on top of it and Thats, where the decision should be made and was made in this case. So we kept that contaminate from coming into the plant.

And then further to.

To be able to put the communication out there that was strong and steady as you as you mentioned.

Back to you make National News city of Philadelphia came out and.

Suggest that people may need to be in bottled water. So there was a huge run on bottled water in the city of Philadelphia.

Probably unnecessarily so in hindsight, but I think.

People have grown accustomed to our style of operational response, including communications and it was just something I'm very very proud of in this instance.

Okay.

Got it thanks for your time.

Thank you take care of Ron.

Okay.

Thank you and our next question comes from Paul Zimbardo of Bank of America. Sir. Please go ahead.

Hey, Paul Good morning, Paul.

Hi, good morning, Tim.

And could you just give a little more quantification on some of the offsets to that the very warm weather again Delcor timing I think you mentioned that there's an asset monetization and plan just if you could quantify that and help build up the bridge a little bit to that full year guidance.

Yeah, Yeah listen it's a process that.

It is taking place right now and so.

I can't give a whole lot of detail on the process, but there is a process to sell the.

CHP.

As well as well as the micro grid in at the airport.

And as well as the.

The steam system in the city.

It's three three projects, we think about them as a unit.

But they're not interconnected and.

And there is an ongoing process. So I can't give you a.

Great deal of detail, Dan do you have anything to add to that I guess, the only thing I'd add Chris.

Paul as you would expect we're taking a really close look at our O&M expenses. This year to see if there are areas, where we should be optimizing and then also being exceptionally diligent diligent with regard to regulatory filings whether that to pass there were six filing being diligent with respect to those and frankly, we've been helped.

By a little bit of colder than normal weather in in the April timeframe and into May which has helped a little bit when we think about the significant shortfall in the first three months.

Okay.

Okay understand that on the call slacks.

Then shifting over to the credit side.

What <unk> does that do you expect now for 2023, and if I read the materials right. It looks like you went to the top end of that $400 million to $500 million range. Alex all in 2023, if you could just help explain that evolution there.

Well I think when you think about <unk> debt.

You also have to keep in mind, we're in the middle of repair at peoples too so.

Where we are.

Where youre seeing a lot of our.

Our income come from.

Come from the tax line, which I just want you to keep that in mind as we think about how the credit credit is you don't always see exactly how we see it.

But are are what we will say is our in our five year plan or <unk> that continues to move northward in a positive fashion.

Yes, that's absolutely right, Chris and I think maybe just for clarity, but we've been told is that.

And this is why the communicated that our downgrade threshold this 12% <unk> to debt and if we're below that on a sustained basis, we would we would be having conversations with the agencies.

<unk>.

Given what Chris mentioned about repair we tend to have a conversation with the agencies, where we calculate episode of data and kind of a straight basis and then we also add in adjustments for the fact that we've been out of rates in Pennsylvania due to repair so rather than seeing a pickup in SFO and having the revenue associated with those earnings.

That rate base, we're picking up those earnings on the tax line. So we do an adjustment for that and we have conversations with respect to weather as well so.

I think.

It's fair to say that yes.

Yes.

We have an impact here relative to weather as well as interest rates and so we're working to.

Offset that and I think importantly, and this is this is something about Paul as we come through the peoples rate case, right, which we will file at the end of this year.

That <unk> calculation becomes much more straightforward and I think alignment with how the credit agencies see it and how we see it.

It becomes very clear so that's the only another.

At this time next year things should return to what we would call normal but in the meantime, there is a little bit difference in how we think about those numbers versus some of the credit agencies.

Okay, I appreciate that and I can follow up offline as well, but it sounds like that changes kind of in response to kind of preserve against that the rate again trigger is that fair.

Yes, I think it's fair that.

We're always looking at what's the right way to finance the business and these things evolve over time and they are all from quarter to quarter and so we put a little more.

A little finer point on what we said today in terms of the amount of equity that we would look to raise.

Okay.

Great and then following up since you mentioned it I know there was that new IRS guidance on natural gas repairs tax just any implications or impact on earnings cash flow or anything of the like thank you very much.

Yes, so Paul that literally just came out a few weeks ago, and obviously had been anticipated for a long time everyone's just trying to get their hands around it today to see what is this possibly mean in and working with the various.

Big four accounting firm, so let us do our work on that and we will get back at a later date, when we know more but it's as I say really early days.

Okay I appreciate thanks, a lot team.

Yes, Thanks Paul.

And our next question comes from Travis Miller of Morningstar. Please go ahead.

Good morning, everyone. Thank you, Hey, Travis Hi, Trevor.

Back on the Pennsylvania gas potential filing here later this year apart from the stuff you've already discussed row, the tax issue the weather normalization.

The core part of the rate case, what are you thinking or what have the trends been.

Since the last filings since the acquisition on stuff.

Stuff like O&M and capital investment.

Some of the other core items.

Yes, so as you can imagine Travis we've made significant capital investments since the prior rate case.

As Chris noted the prior rate case was really done.

Before our ownership of the company. So yes, we would see this and the other thing that I.

I guess it was included in the last one.

Well included here is fully.

Fully projected future test year. So in this case look for this to recover the capital that we've invested so far the capital and expenses through that fully projected future test year.

To incorporate.

The repair benefit into the case, so that that require as part of the nation.

I should say it this way attacks.

Lower effective tax rate from repair becomes part of the revenue requirement and thats. The benefit of repair is going to the customers and then as Chris noted weather normalization. So those are the points I guess I would make in terms of and obviously any of the inflation that we've experienced we start to pick up.

Hello.

Yeah.

Yeah, yeah, Okay that makes sense.

<unk>.

And then more of a high level conceptual question talking about that 2% to 3% customer growth for water flat for gas.

Again, just high level. It seems like when you build a house you need water and gas.

So.

I'm wondering I'm wondering if you could square the difference are you seeing.

More houses electrify.

Is there some kind of efficiency I don't know what.

What are the thoughts there was the big Delta.

I think it's mainly geography, so if we talk about.

We have.

Larger organic growth, we'd probably be more of that organic growth in southeast, Pennsylvania than southwest and we see that larger organic growth in North Carolina, Texas and.

Indiana around Indianapolis area. So we do tend to see more building. If you will in our service territories in those states that I just walked through.

<unk>.

Just seen recently a couple of housing developments.

Overall gas in the Pittsburgh region, which which says it's still growing but not enough to really move the needle that's why we call. It we call it steady.

And even Chris maybe.

Pulled some data recently and it's hard to get exact date in terms of housing construction and gas connections out in western Pennsylvania, but we are saying there is still that that desire to have natural gas in new construction and so we think that pretty well correlated out. There then as you see new construction around Pittsburgh they are.

<unk> connections.

Okay. So no material kind of electrification type of trends that you're seeing now.

We're not seeing any trends in the areas, where we serve right no concern at all.

Okay very good that's all I had thanks so much.

Take care of Travis.

Thank you. Our next question comes from Greg <unk> of UBS.

Please go ahead, Greg good.

Good morning, Greg Hi, good morning.

Just wondering.

What sort of updates on P pause, we should be looking for around the.

They may 30th filings with the EPA.

Yes.

I think.

A couple of things one.

The current rig suggests that we would have our work complete on mitigation by 2027, I think thats going to be a stretch.

<unk>.

I think hopefully.

Hopefully that gets extended a little bit but.

We're running as fast as we can it's just a it's just a big effort secondly, I would say this is a much bigger project or set of projects then.

I think EPA is.

Is talking about it I think.

They are probably coming to terms with it but they've estimated that this is the cost for this is that nationally is somewhere around 2 billion and I would say that's a.

Gross underestimate and I think that will come out as time goes along here.

As we look at the projects across our areas if theres concentrations. So it's not focused on you know systems.

Our systems across the platform is focused on key areas.

Like North Carolina, New Jersey.

And it's a little spotty. So it's not it's not like you take this and spread it over the whole customer base, but when you think about where we were at 13 parts per trillion and the costs associated with that and now where we are at four parts per trillion. The mcl that EPA has announced its fairly dramatically different.

Four parts per trillion is almost non detect and so the costs are are vastly different.

Listen we're going to be supportive.

I think the.

The administration is going to go down are going to.

Pressed this one so we don't anticipate seeing any changes we think before parts probably goes in and.

And we will do our part to get there.

Okay. Thanks.

You bet.

Yeah.

Thank you and our next question comes from David Sunderlin of Baird. Please go ahead.

Good morning, Hey, good morning, guys.

Thanks for taking my question Yeah. Good morning.

Good to see some updates on the pending unique transactions and the five that are going to close in the next two quarters roughly.

Wanted to ask high level thoughts on any changes that have been in the pipeline, whether there have been difficulties or opportunities related to the worsening macro environment banking stress or any difficulties you guys are seeing with maybe competitors, having financing challenges or just any opportunities that may be coming in that pipeline.

Yes.

<unk>.

The news over the last several months has been.

Of what could have been a fairly large player in the in this space right next era decided to exit the space. So that's probably one of them one of the interesting pieces of news.

I haven't heard.

Particular financing challenges of peers, but I think what you'll probably start to see some challenges materializing in the municipal sector.

And certainly <unk>.

<unk> will contribute right.

We believe the <unk> issue as much larger again EPA is estimating and once the municipal find these challenges again, assuming that enforcement will be a key element. Here then there will be a lot of municipals looking for help on <unk> and whether that has helped implementing their own.

Solution, where we might be able to help or.

Oh My Gosh. This is so expensive we need to exit.

So that could be.

Key contributor toward our acquisition program as we offer our set of solutions.

That's helpful. I appreciate the time guys. Thanks, you bet.

As a reminder, if you'd like to ask a question. Please press star one on your key pad.

Okay.

And we have our next question comes from Jonathan Reeder of Wells Fargo. Please go ahead.

Hey, Jonathan Good morning, Jonathan.

Morning, Thanks for the time.

My questions have been asked but just a few follow ups.

I guess given the offsetting the efforts already made in the favorable Q2, whether that you kind of mentioned how much additional work do you think you have to do to fully offset what I think was roughly eight headwind from Q1 gas volumes.

Yeah, Let me just clarify because I don't want you to.

Over think the impact of <unk>.

Or estimate the impact of warm called I should say April .

Think about it.

<unk> weather impact in the first three months of the year.

We might have a sort of a penny of that coming back in the fourth quarter, maybe a little bit more but.

It was just one month and as you know when you get into April your heater just kicks on less so it's not days as we go further towards summer don't have as much impact as they do in January February and March.

So we have we have.

No work to do here as Chris mentioned, obviously, though the sale of the energy project and the O&M focus and diligence around.

Our regulatory filings that I mentioned all of that all contribute to that work in terms of making up for that shortfall.

Okay.

O&M decrease that we saw in Q1 was that related to you guys starting to kind of flex that muscle already or.

And thats not really kicked in yet.

I would say, it's a mix there were some other things that helped in Q1, certainly weather being warmer you do have a few of our main breaks lower maintenance expenses I'd say.

Some of that focus you would've seen in the first quarter, but.

More of that focus is to play out through the next nine months of the year.

Okay.

Got you and then.

I think you can kind of do we.

Due to that you put a finer point on the amount of equity you need I think you said $500 million in 2023, so kind of.

Two questions on that does that 500 million I guess does that include the $50 million to $75 million that you issued in late 'twenty two under the ATM.

And what was that total look like.

Delcor slips into 2024 from a close perspective.

Okay.

Yes, there is a lot of some specificity there Ryan let me.

Let me talk about that a little bit.

So we think about kind of approximately $500 million more incremental to what we did under the ATM.

That's the first part of that and then as we continue to evaluate our credit metrics relative to acquisitions.

Well, we'll give more clarity beyond this point. So this is what we're going to talk about I think I'll leave it at that today.

For the year, so far too.

Under the ATM, if you think about the raise we did some last December we did a little bit in January , but it's less than $20 million worth.

It wasn't a big number.

And as we think about I guess.

I mean should we still be thinking Mike.

The M&A deals are 50, 50 or because of the spot around the credit metrics.

Uh-huh capitalizing.

Or the equity portion being greater than 50% now.

No I think 50 50 is the right way to think about acquisitions, but I also.

We would remind you we have a significant capex program that we're running today too so.

It's capital it's acquisitions I think of the big dividends the cash users.

All demand all demand that we continue to look at how we finance the business.

Okay.

Okay, and then lastly did you give an estimate on what the expected proceeds from.

The sale of those kind of three people's projects or is it Mike anything meaningful.

And equity offsetting perspective.

We're in the midst of a process there so we really can't comment on that.

Either what we think that what we think that that top line price could be or.

What kind of gain might be.

Built into that.

Okay, the gain would flow through to help I guess.

Hitting guidance this year.

Yes, yes, I think that's twofold right.

<unk> that helps from an income perspective, and their proceeds that help in terms of financing the business.

Thanks Catherine.

Another means.

Okay Awesome I appreciate you taking the time here. Thanks, alright, thanks, Jonathan take care.

Thank you at this time, we have no further questions I'd like to hand, it back over to Chris Franklin for any closing remarks. Please go ahead, great. Thank you everybody for thanks for your time today as always we will remain available for questions follow ups.

Anytime Rene standard in today for Brian Brian we back in action as soon.

I appreciate you being with us today take care.

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Sure.

Thank you everyone. At this time you may disconnect Hope you can stay on the line.

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