Q3 2024 Essential Utilities Inc Earnings Call
Thank you for standing by my name is Ellie and I will be your conference operator for today. At this time I would like to welcome everyone to the essential utilities of 34-24 earnings call. All lines have been placed on YouTube or any background noise.
After the speakers remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, followed by number one on your telephone keypad. If you would like to withdraw your question, press star and one again. Thank you.
I would now like to turn the conference over to Brian Dingerdissen. You may now begin.
Brian Dingerdissen: Good morning everyone and thank you for joining us for essentially utility's third quarter 2024 earnings call during which we will provide an update on new long term guidance. The slides that we will be referencing and a webcast of this event can be found on our website.
Brian Dingerdissen: As a reminder, some of the matters discussed during this call may include four looking statements that involve risk on certain keys and other factors that may cause the actual results to be materially different from any future results or expressed implied by such four looking statements.
Brian Dingerdissen: The answer is, refer to our most recent TENQ, TENKAY and other SEC violence for description of such risk and uncertainties.
Brian Dingerdissen: During the course of this call reference may be made to certain non-gap financial measures.
Brian Dingerdissen: of Reconciliation of any non-gap to get financial measures.
Brian Dingerdissen: is posted in the Investor Relations section of the company's website.
Brian Dingerdissen: We will begin the call today with Chris Franklin, our chairman and CEO, will provide an update on the company.
and then Dan Schuller, our CFO who will provide an update on the financial results before Chris closes the call with our guidance. With that, I will turn the call over to Chris Franklin.
Chris Franklin: Hey, thanks Brian and welcome everyone. We've got some really exciting news to share with you today. I've got some more color, but let me just run through it in a very, very brief summary on top here.
Chris Franklin: We had a great quarter. Financially, we had a strong capital investment so far this year and we have an approved Pennsylvania gas ray case that included a weather normalization mechanism.
Chris Franklin: We had a settlement in our Pennsylvania watered rake case, yielding us $73 million.
Chris Franklin: and we are re-instating our multi-year EPS guidance at a 5% to 7% growth rate through 2027, which importantly does not include Del Cora, any earnings associated with Del Cora.
Chris Franklin: and then we're also going to talk a little bit about our strong recovery from the hurricane halene that hit North Carolina. So a lot of good things to talk about for the quarter, so let me get into the details.
First, we posted 25 cents in earnings per share for the quarter, which was above expectations.
Chris Franklin: Our capital spending remains right on schedule this year. We've invested 9-132.5 million.
Chris Franklin: through the end of the third quarter and we'll spend about 1.3 to 1.4 billion.
Chris Franklin: to improve water, wastewater, and natural gas infrastructure this year. They'll get into more details about the financials for the quarter in just a few minutes.
Chris Franklin: So in September, the Pennsylvania PUC unanimously approved the first rate case for people's natural gas under our ownership. The approval included an annualized review increase of 93 million in a weather normalization mechanism.
You probably know this mechanism because others have it. It's designed to provide a greater financial stability and predictability for both our customers and our investors by mitigating the financial volatility associated with abnormal weather impacts.
Speaker Change: I know you were called it both this year and last year have been unusually warm weather and have impacted our results.
Chris Franklin: However, you know it could have just easily gone the other way and we could have had two abnormally cold years which would have negatively impacted our customers.
Chris Franklin: So this new mechanism will provide the ability to mitigate these abnormalities in weather and will should assist with reducing the volatility for all parties going forward.
Chris Franklin: I do want to mention that the office of the Consumer Advocate, the Foundation for Review of the approval and the PNG case, Daniel talked a little bit more about that in a minute, but I did want to mention that.
Chris Franklin: So let's talk about the water rate case, the aquapensiving at Rake Hase. We filed our briefs on October 28th and in those documents, you'll see that we have a set of an agreement designed to provide a total annualized revenue increase of 73 million of our water waste water operations.
Chris Franklin: We expect the settlement agreement to be filed formally on November 7th and available on the PUC website that time.
Chris Franklin: is important to note that this settlement agreement as all settlements would be remain subject to a recommended decision by the administrative law judges and approval by the PUC.
Chris Franklin: I should also mention that East Whiteland, you'll recall that acquisition as a wastewater acquisition in Pennsylvania, was excluded from the settlement and will be fully litigated in front of the PUC with an expected decision on that coincident with the Rade case decision in February.
Chris Franklin: Now, on the next slide, our significant progress on the two Pennsylvania rain cases have provided us the opportunity to re-establish long term guidance.
Speaker Change: This guy's...
Chris Franklin: which I'll review in more detail later includes EPS growing at a compound annual growth rate of 5% to 7% for the next 3 years, that's through 2027.
Chris Franklin: Continued Ray Base Growth of over 8%.
Chris Franklin: Combined and our continued commitment to improving and upgrading water waste water natural gas infrastructure by investing 7.8 billion over the next five years through 2029.
Chris Franklin: Importantly, we expect to achieve this EPS growth without including an ancient EPS from the Dept. Core Transaction.
Chris Franklin: So to be clear, we remain confident that our valid and enforceable asset purchase agreement will ultimately prevail and that we will close the Delcoor transaction.
Chris Franklin: But we want to remove any potential overhang that might be associated with the delay closing of Del Corra to take it out of our numbers.
Chris Franklin: And we believe this guidance communicates the right balance of growth for our investors, built on the right level of infrastructure investment that ultimately results in rates that are affordable for our customers.
Chris Franklin: A totally win win
Chris Franklin: As this slide indicates, we've consistently executed our plan to grow earnings between 5 and 7% every year. We've delivered these results despite elevated inflation, higher interest rates, and some of the warmest weather on record in our natural gas territory.
Chris Franklin: Hopefully, our most recent achievements and the containers strong results indicated on this slide, underscore our ability to execute and our regulatory credibility in the jurisdictions where we operate.
Speaker Change: All right, let's just take a moment we were hit hard by the hurricane as so many people were in our country, particularly in the south. And we want to talk a little about the impact of hurricane healing on our North Carolina operations.
Speaker Change: Thankfully, our team was quick to respond, clearing trees and other debris that allowed us to do some damage assessments early on after the storm had passed.
Speaker Change: We prioritize communications with our customers most importantly, providing regular updates through a disruption map and other forms of electronic communication and physical communication.
Speaker Change: and at Cedera. We also dispatch the Special Reconnaissance team equipped with drones to inspect damage in areas that were either inaccessible or unsafe, particularly in the more mountainous communities where we serve.
Chris Franklin: Now in total, 90 of our systems in North Carolina were impacted.
Chris Franklin: but through really strong work by our teams.
Chris Franklin: All the six systems were back up in just five days after the storm. And as of October 19, everything was back in power and repaired and fully functional.
Chris Franklin: We're grateful for the patience of our customers and the understanding they provided and we also appreciate the dedication and extensive work effort of our North Carolina team.
Chris Franklin: With that, let me turn it to Dan and he's got cover our financials for the quarter inch regulatory matters. Thanks Chris, and good morning everyone.
Dan Schuller: The first mention, we're pleased with the financial results for the quarter. On this slide, I'll discuss high-level Q3 financial highlight, and then we'll get into the details with the waterfalls.
Dan Schuller: I read on the third quarter of 2024, we're 435.3 million, marking an increase of about 6% compared to 411.3 million in the third quarter of 2023.
Dan Schuller: This increase was driven by rates and search charges, increased water sales, and increase the price of gas and water customer growth.
Dan Schuller: These factors far off set the minor revenue decline from lower natural gas sales.
Chris Franklin: The Corly Operations and Maintenance Expenses is decreased for the third quarter compared to the third quarter of 2023.
Chris Franklin: 50 Cress was primarily due to a reduction in bad debt expense and a decrease in expenses associated with the West Virginia Gas Utility Access and the Pittsburgh Area Energy Project, both of which we have divested.
Chris Franklin: We achieved quarterly earnings for sure of 25 cents, which we've heard of 30 cents in earnings for sure in the third quarter of 2023.
Chris Franklin: So while we had an increase in revenue and a decrease in onem expenses, last year's EPS in the third quarter was positively impacted by significant one time tax repair benefits associated with the natural gas state harbor, which of course didn't repeat this year.
Chris Franklin: Next, looks through the waterfall, is going to the first the revenue waterfall.
Chris Franklin: Moving left to right, we have regulatory recoveries of over 11 million, with the vast majority of this increase coming from the regulated water segment.
Chris Franklin: Plus, over 10 million in increased water segment volume and about 4 million coming from an increase in purchase gas cost as well as acquisitions and organic growth in water business.
Chris Franklin: This is off that slightly by lower volume of gas sales due to the warmer than normal weather as well as the other category.
Chris Franklin: Revenue is from the regulated water segment increased just shy of 8% for the third quarter of 2024 compared to the same period in 2023.
Chris Franklin: We saw excessively warm and dry weather at various times in the mid-Atlantic as well as in Ohio, which in turn led to higher water volume. But we experienced lower water consumption in Texas and in North Carolina.
Chris Franklin: Next, we'll talk to you to be on Amon Flight 10.
Chris Franklin: We saw a relatively modest increase of approximately 1.6 million in water production costs due to the higher volumes previously discussed.
Chris Franklin: and among the smaller increases to O&M, where the impact of the customer rider in the gas business, routine increases in employee-related costs and customer growth in the water segment.
Chris Franklin: The overall reduction to O&M costs was primarily due to a decrease in bad debt expenses and a reduction in expenses related to the now-deveasted West Virginia Gas Utility Access and the Pittsburgh Area Energy Project.
Chris Franklin: Importantly, our year-to-date O&M performance is quite strong, expenses only up about 1% over the previous year, which demonstrates our continued commitment to operating efficiency.
Chris Franklin: Next looks like the EPS waterfall on slide 11.
Chris Franklin: Starting in the left of the EPS Waterfall, with 30 cents from last year, the next thing we see is the nearly three-cent increase from regulatory recovery and close to three cents from increased water volume.
Chris Franklin: The benefit of zero point six cents from the decline in expenses and zero point three cents in customer growth in the water segment.
Chris Franklin: He's increased his loss at slightly by decreased gas consumption, and then more materially by nearly 11 cents from other, which reflects lower tax repair benefits and increased depreciation and interest expenses.
Chris Franklin: As I noted earlier, the lower repair tech spent at this year are mainly the result of the timing of the natural gas state harbor impact in 2023.
Chris Franklin: In conclusion, we're pleased with performance for the quarter given strong results in the water business and slightly lower expenses year over year.
Chris Franklin: More importantly, we remain on track for a year in line with our guidance and investor expectations once we adjust for the sale of the energy project and normalize weather for the gas business.
Chris Franklin: A tribute to the guidance we provided in February, updated in May, and reconfirmed in August as well as today.
Chris Franklin: We provide a guidance for 2024 net income for diluted common share to be $1.96 to $2.
Chris Franklin: We expect to achieve this once we consider the gain on sale and whether impact.
Chris Franklin: So think about it this way.
Chris Franklin: Due to the energy project sale.
Chris Franklin: Gaffer and Ays for Share will exceed our guidance range, but if we subtract the 24-cent gain from that figure and add back 8 cents to reflect the warmer the normal weather in Q1 and Q2, we'd expect a result into the dollar 96 to $2 EPS guidance range.
Speaker Change: As Chris mentioned in 2024 we expect in the vest between 1.3 billion and 1.4 billion we're on track to do this as we've already invested over 932 million through September.
Chris Franklin: Turning to the next slide, let's look at regulatory activity.
Chris Franklin: The Pennsylvania Natural Gas, or PNG Rate Case, was filed in December 2023, and we received an order from the Pennsylvania Public Utility Commission back in September.
Chris Franklin: This order included an annualized revenue increase of 93 million, mainly due to the doubling of rate-based due to replacing aging infrastructure since the last case, as well as weather normalization, which is good for both customers and investors.
Chris Franklin: It's order also fully incorporates the repair tax benefit into the revenue requirement, thus benefiting our customers.
Chris Franklin: This case has a fully projected future test year that extends through September of 2025. Rates went into effect on September 27, so you'll see the increased revenue from the case in our two four results.
Chris Franklin: Unfortunately, as Chris mentioned in a highly unusual action, one of the parties that didn't sign out of the settlement agreement.
Chris Franklin: The Office of the Consumer Advocate has appealed the PUC's order to the Commonwealth Court and has asked for a remand of the PUC. Essentially claiming that the PUC needed to include more information to support its findings to approve the rate increase.
Chris Franklin: We believe that the order is very sound and while based on a non-unano-acetament with all parties except for the OCA, it was supported by both the administrative of law judge and the commissioners who voted 50 to approve the order.
Chris Franklin: We'll be supporting the Commission and its order on appeal, and we're closely monitoring the situation.
Chris Franklin: The company does not expect accounting implications related to this appeal process.
Speaker Change: Moving on to the next slide, as Chris mentioned, we've reached a settlement for the rate case that we filed for Aqua Pennsylvania in May of 2024.
Speaker Change: The settlement would be reviewed by the assigned Administrative Law Judges and then the Commission.
Chris Franklin: Once approved, we expect the new rates from this settlement to go into effect in February of 2025.
Chris Franklin: This rate case includes a fully projected test year through the end of 2025. The settlement is designed to provide an annualized revenue increase of $73 million on the water and wastewater operation.
Chris Franklin: It's important to note that the East Whiteland Wastewater System is excluded from this settlement and thus is being addressed separately, but we'll conclude with the rate case outcome in February.
Chris Franklin: Moving on to the next slide, in 2024, a regulated water segment received rate orders
Chris Franklin: for infrastructure surcharges in several states, including Illinois, New Jersey, Ohio, North Carolina, Texas, Virginia, and Pennsylvania, totaling $51 million. This does not include the settled rate amount for the Aqua Pennsylvania case that we discussed a moment ago.
Chris Franklin: Our regulated natural gas segment also received infrastructure surcharges in Kentucky and Pennsylvania totaling approximately $22 million.
Chris Franklin: In addition to the $93 million that we just discussed, for a total of approximately $115 million in increased annualized revenue.
Chris Franklin: Looking ahead, we currently have rate cases or infrastructure surcharges pending in Illinois and Ohio and the pending Aqua Pennsylvania rate case settlement.
Chris Franklin: for our regulated water segment.
Chris Franklin: Combined, the revenue request in these cases is $149.2 million.
Chris Franklin: We also have an infrastructure surcharge pending in Kentucky in the amount of $465,000 for a regulated gas segment.
Speaker Change: And with that, I'll hand the mic back to Chris.
Chris Franklin: Thanks, Dan. Let me talk a little bit about growth. As of this call, we have seven signed asset purchase agreements across three states, Pennsylvania, Texas, and Ohio, in which we already have existing water and wastewater operations.
Speaker Change: These agreements are projected to add over 213,000 customers or customer equivalents
Chris Franklin: in total approximately $360 million in purchase price.
Chris Franklin: It's just a reminder that the federal bankruptcy court judge in the bankruptcy of the city of Chester continues to have a stay on all proceedings related to Del Cora, but also remind you that
Chris Franklin: We've said a couple of times, we've removed all financial impacts from Delcor in our new EPS guidance.
Chris Franklin: Now, you'll notice that we recently signed a deal with Integra Water to acquire the wastewater system in Los Milagros, Texas. This system is expected to add about 1,100 customers to our network and comes with a purchase price of about $4.4 million.
Chris Franklin: We've also entered into an agreement with the Village of Midvale to acquire their water system in Midvale, Ohio. This system is expected to add about 900 customers to our network and has a purchase price of $3 million.
Chris Franklin: Now, although a couple of these most recent systems are on the small side, we continue to have a robust pipeline of potential water and wastewater municipal acquisitions that we are actively pursuing.
Chris Franklin: These potential acquisitions continue to represent
Chris Franklin: nearly 400,000 total customers.
Chris Franklin: and result in a significant expansion of our current customer base.
Chris Franklin: assuming we get them completed.
Chris Franklin: Now, since 2015, our growth by acquisition strategy has allowed us to add over $500 million in rate base and more than 129,000 new customers or customer equivalents to our footprint.
Chris Franklin: In addition to municipal growth activity, we're seeing great developer opportunities in several of our states, especially in Texas and North Carolina, really worth mentioning.
Chris Franklin: In the past three years, we've negotiated deals with Texas developers to be the water and or wastewater utility operator and owner for communities that are expected to build over 30,000 homes.
Chris Franklin: A growth like this is as valuable as any acquisition we would do.
Chris Franklin: Texas has been growing significantly over the last 20 years and you've probably seen the numbers adding roughly a million people every two years.
Chris Franklin: So also of note is that our service territory is within what they call the Texas Triangle. This is the most rapidly growing areas of Texas including Austin, San Antonio, Houston, and the Dallas-Fort Worth Metroplex.
Chris Franklin: In closing, let me share with you our multi-year financial and growth guidance.
Chris Franklin: You've heard some of it already. We are re-establishing guidance as promised and we believe it will give you a clear line of sight to the opportunities in front of us.
Chris Franklin: In 2025, we expect earnings per share to be between $2.07 and $2.11.
Chris Franklin: Importantly, now that we have a weather normalization mechanism in place, the volatility in earnings associated with unusual weather should be dramatically reduced.
Chris Franklin: We're guiding longer-term EPS at a compounded annual growth rate of 5 to 7 percent.
Chris Franklin: and that is for the three-year period through 2027. Once again, this does not include Del Coro.
Chris Franklin: As we look to the next five years through 2029, we plan to make regulated infrastructure investment of about $7.8 billion.
Chris Franklin: We expect our 2025 capital spending on infrastructure to be approximately $1.4 to $1.5 billion.
Chris Franklin: Through 2029, we expect the regulated water segment rate-based growth at a compound annual growth rate of about 6%.
Chris Franklin: This projection only includes the acquisitions listed in the previous slide and are scheduled to close in 2025 and excludes Delcoura. This projection does include the crucial work that we're doing to remediate PFAS across the systems we currently own and operate.
Chris Franklin: For our regulated natural gas segment, we expect the rate base to grow at a compound annual growth rate of approximately 11% through 2029.
Chris Franklin: I'll tell you, the team at Peoples continues to amaze us with their ability to execute on their capital plans. And we have the opportunity to continue the important work of replacing aging natural gas pipes well past the next decade.
Chris Franklin: On a combined basis, that's water and gas, we project rate-based growth at a compound annual growth rate of over 8% through 2029. This growth will be driven by our ongoing investments in infrastructure and our commitment to operational excellence.
Chris Franklin: I would expect that when we look back in five years on what we've done, we will have completed even more given the acquisition pipeline that is not factored into our rate-based growth projections.
Chris Franklin: We believe that the growth we're describing can be accomplished while we keep customer rates at affordable levels.
Chris Franklin: We anticipate that our water customer base will continue to grow at an average annual growth rate of between 2 and 3 percent over the long term.
Chris Franklin: because of the continued consolidation opportunity in water, wastewater, and strong organic customer growth, especially in Texas and North Carolina.
Chris Franklin: We expect our regulated natural gas customer base to remain stable.
Chris Franklin: Now, to support our growth and meet our credit metrics, we plan to raise equity through our multi-year ATM program through 2027.
Chris Franklin: Specifically, between 2024 and 2025,
Chris Franklin: We expect to issue approximately $350 million in equity through the ATM.
Chris Franklin: That's probably...
Chris Franklin: smaller than some of you expected but we believe our strong regulatory outcomes allow us now to do about 350 million between the two years and we believe that will satisfy our capital needs.
Chris Franklin: fund our growth initiatives and maintain a strong balance sheet and credit profile.
Chris Franklin: I'll tell you we remain committed to our sustainability goals as we outlined in our annual sustainability report.
Chris Franklin: And we're just very, very excited about providing all this guidance to you today. We are very optimistic about the future of our company and the opportunities that lie ahead.
Chris Franklin: And so with that, I look forward to your questions and operator, please open the line for questions.
Speaker Change: Thank you. We are now opening the floor for question and answer session. If you'd like to ask a question, please press star and number one on your telephone keypad. Your first question comes from Julianne Dumoulin-Smith from Jeffries. Your line is now open.
Julianne Dumoulin-Smith: Hey, good morning team. Chris, Dan, the whole team here, guys. Really incredible outcome here. Really nicely done to get back on that EPS keg or horse, so kudos on that pivot. With that said, guys, a lot of comments here. I want to come back to a couple of them. On the equity financing expectations, just want to understand, am I seeing a little bit of a shift here? I mean,
Julianne Dumoulin-Smith: you know, in terms of 24 and pushing into 25 a little bit with this 350 between 24 and 25? And how do you think about that fitting with the rating agencies out there? I just want to speak that, you know, having reviewed the new plan with Moody's potentially, how are they reacting? How are you thinking about your equity timing with with their outlook as it stands?
Speaker Change: We stood up the ATM back in in August. We've raised some equity on that already, and then it gives us the opportunity to be to pick the advantageous times between now and the end of 2025 to raise the 350 that we noted.
Speaker Change: We feel confident that Moody's feels good about our plan. Correct.
Julianne Dumoulin-Smith: Thanks, Chris.
Speaker Change: Got it. Is that any kind of subtle shift from your earlier billion dollar multi-year equity, just to dig at that a second further?
Speaker Change: Well, when we put that, when we talked about the billion dollars and we put the billion-dollar ATEM in place, what we said was that we would use that over an approximately three-year period of time, you know, depending on acquisitions and other factors.
Julianne Dumoulin-Smith: I don't really see it as a pivot at all or a change from what we had indicated before. And we hope if we're raising that kind of equity, we're doing some really nice acquisitions. So, you know, it gives us some optionality, Julian.
Speaker Change: Yeah, absolutely. In fact, did you want to speak to that a little bit because I've heard you comment about that a bit.
Speaker Change: the equity expectations under the base.
Julianne Dumoulin-Smith: versus you're updated thinking about Delcor or some of these acquisitions, right? I mean, what is sort of that XM&A dynamic on equity versus inclusive? And then, you know, I know you mentioned Delcor here as being kind of incremental and the cherry on top, if you will. Is there a sense that, you know, as far as you're concerned, that you can get this done in, you know, a given time, or are you going to hold off from providing any more prescriptive timeline at this point?
Speaker Change: Yeah, the way I think about it is, you know, we have a very strong asset purchase agreement as you know
Speaker Change: and it's been declared by several levels of courts to be valid and enforceable.
Chris Franklin: The frustrating part is this Federal Bankruptcy Court judge, not even on Del Coro, obviously it's on the city of Chester.
Chris Franklin: And so we have no control over that. Now there is a hearing later this week, and we do believe that the stay will be lifted on the Supreme Court's ability to determine who is the owner of the Chester Water Authority.
Chris Franklin: So that's helpful.
Chris Franklin: We need to get to stay lifted on PUC proceedings on Del Cora, but given the fact that we're not in control It's difficult for us to have that influence and so
Chris Franklin: We backed that out of our numbers for that reason. But most certainly, if we can get that stay lifted and get it moving at the Public Utility Commission, we feel confident that it'll go. Remember, it's a one-time rate base case so that new RRR won't really have any influence.
Chris Franklin: and who this should fit nicely with it.
Chris Franklin: And if we were to do that, if we could move it forward, call that in.
Chris Franklin: Late 25, 26.
Chris Franklin: then most certainly we need equity and we'd want to be able to have access to ways to raise that equity.
Chris Franklin: But, you know, as I said, it gives us optionality. I mean, when we put that ATM in place at that size, we really thought about how do we do this efficiently? How do we save legal costs? And how do we set these things up in a manner where we had access to it, even if we didn't need to use the entirety of it?
Chris Franklin: And I guess, Julie, what I would add is, you know, when we put that out there, we talked about the three years, so it's a multi-year program.
Chris Franklin: But, you know, it did contemplate at the time that we would have acquisitions in there. So what I wouldn't do if I were you is say, all right, you had a billion. Now you're allocating $350 to $24 and $25, so that means
Chris Franklin: 650 in 2026. I would not go down, you know, sort of on that direction.
Chris Franklin: As we've said, it's a multi-year program and it contemplates having some room for acquisitions as well.
Speaker Change: Got it. And last clarification here, as you think, yeah, no, it's great. Last clarification, as you pivot out of Delcor, is that kind of the bulk of the delta here? I know you have the segment rate-based keggers of, you move from the 8 to 10 to the 6 and 11 respectively for water and gas. Is that kind of reflected principally as a function of pulling Delcor out there in terms of the composition mix?
Speaker Change: Yes, that is Julian. So we don't have Del Cora, and thus we don't have a follow-on capital related to Del Cora either. You know, as Chris said, we remain extremely confident that we will ultimately close Del Cora and have it in our future, but it's not in the plan.
Speaker Change: Got it. Excellent. Thank you guys. Appreciate it.
Speaker Change: Thank you.
Speaker Change: Your next question comes from Durgesh Chopra from Evercore ISI. Your line is now open.
Durgesh Chopra: Hey, Durgash. Good morning, Durgash. Hey. Hey, Chris and Dan. Good morning. Congrats on the settlement and the water rate case. Well done. Just maybe on equity, Dan, can you clarify, so what have you issued year-to-date, and is that $350 million that you're buying?
Speaker Change: Sorry, it was a little garbled there at the end. You know, we've issued a relatively modest amount of equity between August and now.
Chris Franklin: just given blackout periods and some stock price volatility. So, you know, we've taken some off of that 350, but it's
Chris Franklin: It's not a tromosomal.
Durgesh Chopra: Okay, got it. That's all I wanted to ask. Thank you. And then just the five to seven percent EPS growth, Kegar, the starting point is just to confirm, is it the 2024 guidance midpoint affair?
Speaker Change: Yeah, I guess the way I would think about that, you know, we haven't finished 2024 yet so we don't yet have the final EPS and of course, as we've said, it's going to be a number that is above our guidance range because of the sale of the
Durgesh Chopra: job.
Durgesh Chopra: Energy Project Assets.
Durgesh Chopra: So we don't know the final EPS, but if you think about it this way, if you think you start with the 2025 EPS guidance range that Chris talked about, the 207 to 211,
Durgesh Chopra: and then you use the 5-7% growth, you can back calculate a 2024 EPS of $1.97, or you can go back farther another year and you'd get to $1.86, which was our actual result for 2023.
Durgesh Chopra: So that should provide you with some insights into how we're thinking about it.
Speaker Change: Got it. Okay, that's helpful. Essentially, it's close to the 2024 EPS kind of midpoint that we just described. Okay. That's helpful. And finally, just...
Speaker Change: Thank you for explaining. I was just going to ask you on the water rate based delta. It looks like it's just not Delcora, but Delcora plus.
Speaker Change: Future Investments in Delcora that's driving that rate-based Delta. Just one last question for me is just on the Moody's metric basis, Dan. So where do you expect to shake out? I know that they had a negative outlook.
Durgesh Chopra: early in the year and you have this equity plan, where are you expecting to shake our use base? Are you expecting to be at a 10% non-grade threshold as we think about 2025, if you could just clarify that for us?
Dan Schuller: Yeah, no, it's a great question. So, yes, in 2025, when we've got the additional cash flow created by the PNG and Pennsylvania rate cases and some other things, we'd expect to see FFOs to debt that are above 12%.
Dan Schuller: And then we'd expect ultimately to have the negative outlook resolved probably, you know, into 2026 at some point.
Speaker Change: Pulling out our current level, correct.
Speaker Change: Excellent. Well, thank you and congrats again on this solid regulatory process in PA.
Durgesh Chopra: Thanks, Rakesh. Take care.
Speaker Change: Your next question comes from Travis Miller from Morningstar. Your line is now open.
Durgesh Chopra: Hey Travis. Hi, good morning. Thank you.
Travis Miller: You answer most of my questions, appreciate all the information, the guidance and such. High level question, timely here. PFAS, if there were to be a Republican administration...
Travis Miller: What are your thoughts, not necessarily in terms of the limits being reconsidered, but implementation timeline and some of the maybe federal aid that would come your way to help with that?
Speaker Change: Yeah, I would say If anything, we would not expect a backing off on the on the limit so that the four parts per trillion
Travis Miller: probably stays in place.
Durgesh Chopra: leads to our...
Durgesh Chopra: Best estimate.
Durgesh Chopra: But even if there was a slowing in the compliance period, we would expect to continue to meet the current pace. We've talked to our regulators in the States that are particularly impacted by this and regulators both on the environmental side and on the economic side.
Durgesh Chopra: have suggested that we stay the course.
Durgesh Chopra: and complete the work and then get it recovered. In the meantime, as you know, we have been in for low interest loans and grants and also sued the polluters and we'll continue to pursue all of the above.
Durgesh Chopra: In terms of federal money, as you probably know, that flows down through the agencies, the SRFs, or State Revolving Loan Funds.
Durgesh Chopra: We don't see a big change there in terms of the federal money.
Durgesh Chopra: flowing through the states, so I guess no matter who's elected today, we don't expect a big change and we fully expect to still invest that, call it roughly $450 million to overcome.
Durgesh Chopra: the PFAS issue, and again, that will be funded a number of different ways here as I just suggested.
Speaker Change: Okay, that's helpful. And then one more kind of bigger picture also on acquisitions, your big peer kind of is...
Speaker Change: going on fundamentally.
Speaker Change: Over the last year or two in the water business, where...
Speaker Change: Any acquisitions are now reaching a new level, low level, or, I don't know, if you could just characterize kind of what we're hearing from some of the big water utilities on that side.
Speaker Change: Yeah, I think in Pennsylvania most certainly that is the case as people figure out how the new regulation
Speaker Change: will impact them. The new, they call it RRR in Pennsylvania, which is essentially a cap, it's not formally a cap, but it's essentially a cap. I think the transactions that were already in place
Durgesh Chopra: are being figured out. Can they come across as troubled? Do they have to be renegotiated? So that's a little bit of effort for everybody. And then new...
Durgesh Chopra: those who are considering selling their systems, thinking about, okay, what's my DOC and what's 1.68 times that DOC? And then, you know, is that enough for me to sell?
Durgesh Chopra: So, I think it's a temporary lull.
Speaker Change: and I think our ongoing discussions, not only in Pennsylvania, but the other states.
Speaker Change: would indicate that. We see some really positive things in Ohio, Illinois, even down south that hopefully will materialize, you know, in the coming year here.
Speaker Change: Okay, so yeah, I understand that's structural in PA, but nothing structural in those other states like you said that would indicate.
Speaker Change: Yeah, I feel good about it Travis. I think we're in a little bit of a lull here, but I do think that it will recover nicely.
Travis Miller: Okay, great. Appreciate the thoughts.
Travis Miller: You bet.
Speaker Change: Your next question comes from Davis Sunderland from Baird. Your line is now open.
David Sunderland: Hey, David. Hey, good morning, guys. Thank you for the time, and congrats on a very strong quarter and getting the long-term guidance back out there. Just one from me. I was wondering if you guys could talk maybe a bit about how the PUC is handling the separated estimated costs for PFAS.
Maybe just any thoughts on if these will go through a similar rate-based process and eventually be folded into the rate-based Or just how we think about those costs could be recovered if there were different mechanism anything there
Speaker Change: Yeah, listen, I guess let's start with we're sure that we will get recovery in each of the states where we've made the investments.
Speaker Change: and I think there's a couple of considerations here. One, how will
David Sunderland: The proceeds from the lawsuits, which we expect to be in the $100 million range, how will those be treated when those dollars actually come across? We know generally how they'll be allocated, but will the commissions want that applied to...
Speaker Change: an offset to rate base, or will it be an offset to O&M?
Speaker Change: and I don't think that's been fully determined at this point.
Speaker Change: but in terms of our actual capital investment in that mitigation.
Speaker Change: We would either stall depreciation, not start depreciation, or we'd depreciate into this.
Speaker Change: regulatory asset for recovery later. So that's the typical approach is to look for deferred accounting.
Speaker Change: That's super helpful. Yeah, that's all for me. Thank you so much, guys. Appreciate it. You bet.
Speaker Change: Your next question comes from Greg Orrell from UBS. Your line is now open.
Greg Orrell: Good morning, Greg. Hi, yeah, thank you.
Greg Orrell: Could you...
Greg Orrell: Talk about the process or timeline around the People's Gas Appeal.
Speaker Change: Yeah, that's an unusual one.
Speaker Change: And so, you know, it's an appeal to the to the commonwealth court and and I'll tell you
Speaker Change: any time.
Speaker Change: These things come up, you know, you don't like to see them, but it is certainly not a paramount concern to us.
Speaker Change: It would probably play out over a year, but there's some moving parts to it as well. Today, being election day, there's a race for attorney general here in Pennsylvania.
Speaker Change: and the two people running for Attorney General, the Democrat and the Republican, would both be a new Attorney General. In other words, the existing Attorney General is not running again.
Speaker Change: The one who is appealing this is the consumer advocate who is hired by the Attorney General.
Speaker Change: So, that's another moving part, like this consumer advocate.
Speaker Change: not be in place after the two new Attorney General candidates, one of them would be elected and then sworn in. So I think that's another factor in here but it would probably play out over a year period. I think probably the most important takeaway
Speaker Change: is that the high probability, even the request of the OCA in this situation, is a remand back to the PUC. And they had a 5-0 very strong decision. So I think, you know, in all likelihood, there would be some, maybe
Speaker Change: you know, more.
Speaker Change: Support for that decision from the PUC.
Speaker Change: Yeah, we'll give them an opportunity to document their support.
Speaker Change: of the Order, respectively.
Speaker Change: Makes sense.
Speaker Change: If you'd like to ask a question, please press star and number one on your telephone keypad. Your next question comes from Jonathan Reeder from Wells Fargo, your line is now open.
Speaker Change: Hey, Jonathan. Good morning. Hey, good morning. Thanks for taking my questions. First off, is the entire $73 million water and wastewater base rate increase for the settlement to be effective in late February, or is it perhaps phased in at all?
Speaker Change: No, that would be that would be implemented at one time in February. I think it's February.
Speaker Change: 20th
Speaker Change: 20th, February 20th.
Speaker Change: Okay, so I guess just with the new PA rates, you know, in 2025 for both electric and gas, I'm a little surprised that the 25 guidance wasn't a little higher, you know, so maybe can you talk about, you know, what the 25 headwinds are to EPS growth that we should be thinking about off of, you know,
Speaker Change: call it the original 24 guidance range midpoint of $1.98.
Speaker Change: Yeah, I guess I'd just touch on maybe one area, Jonathan. You know, we're still in the process of finalizing our budget for 2025, but one thing we are seeing is
Speaker Change: in our PJM states for purchased power. That agreement comes to an end here and we'll have we have a new contract going into effect and as you as you know purchase power prices have increased and so you know we're facing that headwind as we go into 2025.
Speaker Change: And then we're seeing things like, another example is chemicals, just some new costs. So we haven't historically had PFAS-related chemicals.
Speaker Change: we're going to see some costs at our large surface water plants in 2025 to feed powder-activated carbon as an O&M expense to reduce PFAS in the water. So that's two areas. And then probably you've
Speaker Change: followed some of the news, insurance costs have continued to increase. And so those are a few of the headwinds that, you know, I would say help to explain our guidance range of the $2.07 to $2.11 for 2025.
Speaker Change: Okay, great. That's helpful. I was wondering, too, if you could give a breakdown of the five-year, you know, $7.8 billion cap that's budget between water and gas.
Speaker Change: Yeah, so one thing to note is that 7.8 CapEx only includes a few signed acquisitions, and of course we've taken Delcora out of that, so any follow-on CapEx for Delcora is not included.
Speaker Change: And I'd say it's relatively close to 50-50, biased a bit toward water, but we would expect with acquisitions it biases even more toward water over time, but that's not in our plan at this moment.
Speaker Change: Okay, great. And then last question, I just I saw the parts of Pennsylvania just issued a drought watch. You know, how much of a concern is this to you guys right now? I mean, I know discretionary water use is getting lower this time of year.
Speaker Change: But how should we be thinking about that?
Speaker Change: Not a great concern to us. I mean, listen, we're conservationists at heart. You know, we're an environmental company and we always...
Speaker Change: We're guarded against any problems that would happen, but this is unusual weather. It really is unusual to us. And so we have put some warnings out on our own to our customers.
Speaker Change: But we're in good state. There's not a major concern that we would run low on water or anything like that. That's not an issue here.
Speaker Change: Pennsylvania for us, but certainly we'll comply with the with the warnings and support the warnings and But as you just indicated, this is not a high consumption period for us either. So we don't we don't anticipate
Speaker Change: Thank you for your impact.
Speaker Change: Okay, not just the supply side, but also on the revenue side. Shouldn't be too major. Yeah, that's correct. We don't expect a financial impact to speak of.
Speaker Change: Okay, great. Thanks so much for taking my questions.
Speaker Change: Thanks, Johnson. Take care.
Speaker Change: I'd now like to hand back over to Chris Franklin for closing remarks.
Chris Franklin: Thank you and thank you all for joining us as we're always available for follow-up calls, Brian, Haley, Dan and I, anytime. So thanks for joining us and take care.
Speaker Change: Thank you for attending today's call. You may now disconnect. Have a wonderful day.