Q4 2024 Essential Utilities Inc Earnings Call
Ellie: Thank you for standing by. My name is Ellie and I will be your conference operator today. At this time, I would like to welcome everyone to the Essential Utilities full year 2024 earnings call.
Ellie: All lines have been placed on mute to prevent any background noise. After the speaker's prepared remarks, there will be a question and answer session.
Speaker Change: If you'd like to ask a question during that time, please press star followed by one on your telephone keypad. If you'd like to redraw your question, please press star one again. Thank you. I'd now like to turn the call over to Dan Schuller. You may now begin.
Dan Schuller: Good morning, everyone, and thank you for joining us for Essential Utilities' fourth quarter and full year 2024 earnings call.
Dan Schuller: This is Dan Schuller, Chief Financial Officer at Essentials. I'm stepping in for Brian Dingerdissen, who welcomed twins this past weekend.
Dan Schuller: If you did not receive a copy of the press release, you can find it by visiting the investor relations section of our website at essential.co.
Dan Schuller: The slides we'll be referencing and the webcast of this event can also be found on our website.
Dan Schuller: I did want to take a moment to introduce our new IR director as you may have seen his photo in the deck that is posted.
Speaker Change: Ed Vallejo, with whom most of you are familiar from his time in the industry, joined our team just last week.
Dan Schuller: Ed, hit the ground running and we fully engage in our IR activities right away. Welcome, Ed.
Let's move to the forward-looking statement.
Speaker Change: 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.
Speaker Change: Please refer to our most recent 10-Q, 10-K, and other SEC filings for a description of such risks and uncertainties.
Speaker Change: During the course of this call, reference may be made to certain non-GAAP financial measures.
Speaker Change: A reconciliation of any non-GAAP-to-GAAP financial measures is posted in the Investor Relations section of the company's website.
Speaker Change: Begin the call today with Chris Franklin, our Chairman and CEO, who will provide an update on the company, and then I'll provide an overview of our financial results before Chris closes the call with our guidance.
Speaker Change: With that, I'll turn the call over to Chris Franklin. Chris? Hey, thanks, Dan. Ed, welcome aboard. Nice to have you with us. And good morning, everyone. Thanks for joining us.
Speaker Change: Hey listen, as I reflect on 2024, I have to tell you I'm really proud of the performance of the company, the team that leads it, and all of those that did the work to make the year so successful.
Speaker Change: Financially, 2024 is another year in a string of years that we have reported earnings per share in line with our five to seven percent guidance.
Speaker Change: In fact, on a GAAP basis, we delivered $2.17 per share. The GAAP earnings, of course, include a gain on sale from the Pittsburgh Energy Projects.
Speaker Change: When you think about repeatable earnings, I'm talking non-GAAP now, we would think about finishing the year at about $1.97 earnings per share. Dan's gonna provide more detail on this in just a few moments.
Speaker Change: Now these outcomes would not be possible without the discipline of our operating teams.
Speaker Change: They held operating expenses this year to only 2% growth year-over-year and completed our 1.3 billion dollar capital plan right on target.
Speaker Change: Our operating expense control is key to keeping rates affordable, and our timely capital investments improve water quality, gas safety, and service reliability, all while building rate base and, of course, earnings for shareholders.
Over the course of the year,
Speaker Change: We responded to investors who wanted to get to know our operating team leaders.
a little bit better.
in both water and natural gas.
And so Colleen Arnold, the head of our water business.
and Mike QR.
the head of our gas business.
Speaker Change: spent time on the road with us in investor meetings throughout 2024. And that'll continue into the future, as I know you enjoyed the interaction with both Mike and Colleen.
Speaker Change: Now when we think about our accomplishments and our consistency, consider that the board raised the dividend by 6% in 2024, and that's consistent with our 30-plus year track record of growing the dividend at a healthy rate. In fact,
Speaker Change: It's sort of amazing to consider that we've grown the dividend to approximately 40% in just five short years, and we've paid a dividend now for 80 straight years.
Speaker Change: Probably the accomplishments that we're most proud of in 2024 are the successful water and natural gas rate cases in Pennsylvania, the state that contains, you know, 75% of our operations.
Both cases were black box settlements.
Speaker Change: But most of you could easily estimate the approximate equity layer and ROE that were granted in those cases.
Speaker Change: We believe these strong regulatory outcomes, combined with the recent changes at the Office of the Consumer Advocate, are reminders that Pennsylvania continues to be a constructive regulatory state.
Speaker Change: We also believe that our strong regulatory reputation of doing the right thing should continue to facilitate positive regulatory outcomes that are both good for customers and shareholders.
Speaker Change: In fact, since the recent change in leadership at the OCA, the agency has withdrawn its protest of the people's rape case, a really good sign that a more moderate approach to regulatory relations may be coming to that agency.
Speaker Change: One of the key accomplishments in the people's rate case was the establishment of weather normalization.
Speaker Change: This regulatory solution has already proven to be beneficial to both shareholders and customers.
Speaker Change: January of 2025, just last month, because of abnormally cold weather, the company will give back about 8.2 million dollars to customers, but shareholders will also reap some benefit from this cold stretch.
Speaker Change: Bottom line is that in that short time since October when the weather normalization was first put in place, the smoothing of weather volatility and the associated revenue is working exactly as designed.
Speaker Change: Now, while we're talking about regulatory accomplishments, I wanna mention that in 2024, there was some reform of the Fair Market Value Statute that was passed by the PA Public Utility Commission.
Speaker Change: As I think you already know, we were actively engaged in that solution with the PUC.
Speaker Change: We believe that this reform will bring greater certainty to the process and should also help keep rates at affordable levels.
Speaker Change: Alrighty, we're seeing increased activity for municipals that are interested in selling their utilities.
Speaker Change: All right, when we think about 2024, I have to mention the progress that we've made in PFAS mitigation.
Speaker Change: We spent about $27 million in capital and completed the mitigation work in 13 plants.
Speaker Change: This is toward our four-year goal to mitigate approximately 300 plants at an overall estimated capital spend of $450 million.
Speaker Change: The solution we're applying to most of our plants is a patent pending approach that we're also marketing to other utilities as a solution to their PFAS issues.
Speaker Change: Now it's too early to predict whether our solution will be additive to earnings or not, but I'm proud of the team for engineering the solution and for the pace of our installations.
Speaker Change: One of our top priorities in the natural gas business will always be risk reduction. In fact, in 2024, we focused on several key risks.
Speaker Change: First, we installed 30,000 Intellus meters. These are the meters made by ITRON. We believe that these meters are literally a game changer for safety.
The meters are a lighter weight.
Speaker Change: slightly smaller and more accurate, but most importantly, they prevent overpressurization.
Speaker Change: When you consider the catastrophic incidents that have occurred within the gas industry just over the past decade, if these meters had been installed, they hadn't been invented when those incidents happened, but had they been installed, many of these fires could have been prevented.
Speaker Change: Now we'll install at least 60,000 more of these meters in 2025 as we ramp up this new potentially life-saving technology.
Speaker Change: When we think about risk, in the gas business particularly, we also think about underground storage wells.
Speaker Change: That's why we reconditioned some of our older wells and abandoned some others. Overall, the work we did on underground storage wells in 2024 reduced our risk scores by 50 percent, a significant accomplishment.
Speaker Change: As part of our capital plan in 2024, we replaced more than 370 miles of water and natural gas mains, which is key to the continued reduction in our carbon footprint.
Speaker Change: Our expectation remains that we will spend nearly $7.8 billion in capital over the next five years. So in preparation for that work, we continue to deepen our bench of talent by creating development opportunities for members of the team.
so we can continue the long-term consistency of results.
that has been our reputation.
Speaker Change: Now, we had our challenges in 2024 as well. In Pennsylvania alone, we were named receiver for 10 water and wastewater systems.
Speaker Change: These are systems that the former owners neglected and they were undercapitalized.
Speaker Change: We responded quickly when the Pennsylvania Public Utility Commission asked us to operate these systems.
We invested capital and made improvements.
Speaker Change: But I've got to tell you that receiverships are not the best solution.
Speaker Change: We will be in all of our states with the environmental agencies to push the improved enforcement.
Speaker Change: This deferral of investment and ultimate dilapidation did not occur overnight, and we'll use this example to encourage environmental agencies to enforce earlier, which could provide us an opportunity to rescue these systems before they reach a critical stage.
Speaker Change: The other macro challenge that we face in the water industry is stock performance. Now, we're no exception, and I'll say that we were pleased to be the strongest performing water stock in 2024, but still disappointed in not seeing our successes reflected in our overall current valuation.
Speaker Change: Now moving to 2025, I already mentioned the successful Pennsylvania rate case. It did receive final approval on February 6th by a unanimous vote of the Public Utility Commissioners in Pennsylvania.
Speaker Change: We look forward, our theme this year is Leading Today, Shaping Tomorrow, which captures our dual focus.
Speaker Change: solving today's issues with urgency while building a foundation for tomorrow through a focus on sustainable business practices.
Speaker Change: Now to facilitate this work, a key theme in 2025 will be a focus on lean practices across our footprint and throughout our corporate functions. Operational excellence has always been a cornerstone of our company and we're going to lean into that even further beginning this year.
Speaker Change: Some of the best-performing utilities across the country have adopted lean practices, and we believe that Essential will benefit from this approach in the coming years.
Speaker Change: The last issue I'll mention is probably the hottest topic in the utility industry right now.
Load growth generated by data centers.
This creates a challenge and an opportunity.
Speaker Change: See, some investors see greater growth in the electric utility industry compared to the stability and more measured growth of water and natural gas.
Speaker Change: However, our company and investors are uniquely positioned to benefit from both growth and stability.
Speaker Change: Our investors have the stability and growth of the second largest investor-owned water utility in the United States, while also benefiting from the potential low growth from data center construction within our natural gas service territory.
Speaker Change: This is important. As of today, we are in discussions with data center developers that represent up to five gigawatts of needed power generation in the Pittsburgh region if the data centers are built.
Speaker Change: Well, all of that may not be built, and the exact financial implications for us aren't known. It is exciting to see the state of Pennsylvania is engaged in these opportunities.
Speaker Change: And we would welcome both the increased throughput and any capital improvements that would be associated with that growth because of the potential benefit to customers and to shareholders.
So listen...
Speaker Change: We were really pleased to reinitiate long-term growth guidance in November with expected annual EPS growth of between 5% and 7% through 2027 off of the $1.97 non-GAAP base we earned in 2024.
Speaker Change: This does not include any potential earnings associated with the pending acquisition of Delcoura. Additionally, we'll spend between $1.4 and $1.5 billion in capital in 2025.
Speaker Change: and will invest nearly $8 billion in infrastructure improvements over the next five years.
Speaker Change: That will lead to 8 plus percent annual rate-based growth before accounting for any acquisitions.
Speaker Change: All right. With that, let me pass it to Dan to get into the financials for 2024.
Speaker Change: This first slide, let's talk high level on full year 2024, and then we'll get into the details on the waterfalls.
Speaker Change: During the year, we had exceptional execution on two large rate cases, Pennsylvania Gas and Pennsylvania Water, which actually just concluded earlier this month.
and Daniel Schuller.
Speaker Change: We continue to see the merits of our long-term strategy of providing outstanding service to our customers.
investing in needed capital improvements.
Speaker Change: managing our day-to-day O&M expenses and maintaining our disciplined regulatory practices to deliver long-term shareholder value.
Speaker Change: Operating revenues were up due to rates and surcharges and increased water volume.
Speaker Change: This was offset by the decline in natural gas commodity prices year over year, which positively impacted our customers' bills, and due to weather, which was warmer than normal for the gas business as compared to the prior year.
Speaker Change: Importantly, as a reminder, we now have the weather normalization mechanism that provides customers better certainty and alleviates the volatility associated with extreme weather.
Speaker Change: While we continue our focus on managing O&M expenses, the full year O&M shows only a slight increase, reflecting our long-term focus on operating efficiently and the sale of our West Virginia and Energy Project assets.
Speaker Change: As Chris mentioned, on a gap basis, we achieved EPS of $2.17 for the year, which is up from $1.86 in 2023.
Speaker Change: These results include the gain on sale, plus the impact of warmer than normal weather in the first half of 2024 for the gas business.
Speaker Change: and drier-than-normal weather in the Mid-Atlantic and Ohio for the second half.
Speaker Change: If you adjust for these factors, you'd be squarely in the 2024 guidance range of $1.96 to $2.
Next, let's walk through the full-year waterfalls.
Speaker Change: On slide 11, we have the revenue waterfall for the year.
Speaker Change: Moving left to right, we have rate increases and surcharges of nearly $83 million, with about $51 million of that coming from water and $32 million from gas.
increases in water volume of 11.6 million
Speaker Change: plus acquisitions and organic growth in the water business of $8.2 million, offset by lower gas consumption as well as the impact of the lower purchase gas costs of approximately $75 million.
Speaker Change: As a reminder, we experienced dry, warm weather over the summer and into the fall in Pennsylvania, New Jersey, and Ohio, which led to increased water usage.
Let's talk about the natural gas business for a moment.
Speaker Change: Through June, each of the months of 2024 was warmer than normal, and this had a significant impact on our financial results.
Speaker Change: This is exactly why we ask for the weather normalization adjustment in our people's rate case.
Speaker Change: Now, we've already seen the benefit of weather norm both for the company in the fourth quarter and for customers in early 2025.
Next, let's look at the O&M on slide 12.
Speaker Change: O&M increased just 2% or under $12 million year-over-year in 2024.
Speaker Change: Increase included additional costs from the gas segment universal services rider, which is recoverable through a revenue surcharge, as well as employee related expenses.
Speaker Change: Increased water production costs, so mainly purchased wastewater, power, and purchased water, offset by lower chemicals.
and expenses related to serving acquired water and wastewater systems.
Speaker Change: Those increases were offset by lower bad debt costs and lower expenses due mainly to the sale of the West Virginia utility assets and the energy projects.
Speaker Change: So, overall, a good story on O&M, consistent with our long-term efforts.
Next, let's look at the EPS waterfall on slide 13.
Speaker Change: Turning the left side of the waterfall with gap earnings per share of $1.86 from last year, the next thing we see is the nearly 22 cent increase from regulatory recoveries.
Speaker Change: 5 cents from other which includes the approximately 25 cent gain on sale of assets and related transaction activities.
Speaker Change: plus weather normalization adjustment revenue offset by increased depreciation, interest, and taxes other than income, as well as lower income tax benefits.
Speaker Change: Then we see the 3 cent gain from water volume and nearly 1.5 cents gained from water growth.
Speaker Change: which were then offset slightly by higher expenses and lower gas volumes.
Speaker Change: That gets us to the $2.17 of GAAP EPS for 2024.
Speaker Change: We thought it was important to clarify that the $2.17 includes $0.25 of gain on sale of assets.
Speaker Change: which includes the energy project and a trip for post-acquisition activities on the previously closed West Virginia gas utility assets.
Speaker Change: And then if we normalize the weather impact of 5 cents of EPS for the year, we get to $1.97 of adjusted earnings per share, which is a non-GAAP measure.
Speaker Change: and that $1.97 is our weather normalized results without the asset sale impact.
Speaker Change: Notably, the five-cent weather impact incorporates both the positive impact of the dry summer and fall on our water segment sales and the larger unfavorable weather impact you may recall from the first half on our gas segment.
Speaker Change: As you may be aware, we're currently experiencing drought conditions in the Mid-Atlantic that we've not seen in about 20 years.
Speaker Change: Given our water supplies and the resiliency of our systems, this is not having much of an effect on us now, but we'll keep you posted as the year progresses.
Next, let's move to the slide on rate activity.
Speaker Change: This slide highlights our regulatory activity during the past year and into 2025.
Speaker Change: We continue to manage our regulatory activity to maintain safe and reliable service, earn a fair return on capital that we invest, and minimize regulatory lag, while always considering affordability for our customers.
Speaker Change: As you can see on the slide, 2024 was a significant year for regulatory activity.
Speaker Change: We completed rate cases or surcharges in many of the water states to raise annualized revenue by nearly 54 million dollars.
Speaker Change: This included the late 2024 settlement in Illinois, and as we previously discussed, in September we completed the first rate case since the merger at Peoples Gas, which included a $93 million revenue increase and the weather norm adjustment we mentioned earlier.
Speaker Change: In total, we had annualized rate or surcharge increases of about $148 million in 2024, which I believe is the most significant year on record.
Speaker Change: Earlier this month, the PAPUC voted 5-0 to approve the settlement previously announced for the Aqua Pennsylvania rate case.
increasing revenues by 73 million dollars on an annualized basis.
Speaker Change: In total, so far in 2025, we've received rate cases or surcharges to increase annualized revenues by $86.5 million in the water business.
Speaker Change: Additionally, we have pending rate cases or surcharges totaling approximately $16 million across the company today, with the majority of that being an ongoing rate case in our Kentucky gas business.
Speaker Change: And later in 2025, we expect to file rate cases in Texas, North Carolina, Ohio, and Virginia.
Speaker Change: And as a reminder, we expect to file a people's rate case early next year.
And with that, I'll turn it back to Chris.
Chris Franklin: All right, thanks, Dan. Let's touch briefly on our acquisition program.
Chris Franklin: I want to point out the recently closed Greenville Wastewater Acquisition in Pennsylvania. This is the first municipal acquisition we closed since the PAPUC's C-Motion was published.
Chris Franklin: It's a pretty important milestone for us. As of this call, we have six signed asset purchase agreements in three states in which we already have existing operations.
Chris Franklin: These acquisitions will add over 210,000 customer equivalents and total approximately $344 million in purchase price.
Chris Franklin: I should note that nearly 70 million of that rate base are deals other than Delcoura.
Chris Franklin: Now we continue to see a strong and healthy pipeline of opportunities for additional growth and we currently have activities and engaged the discussions with municipalities that have over 400,000 potential water and wastewater customers.
Chris Franklin: At our board meeting just this past week, we spoke about several potential transactions where we have submitted bids. And while we don't know that we'll get all those deals, we are seeing increased levels of activity.
Chris Franklin: Lastly, and in closing, we were pleased to share our new multi-year financial guidance and growth guidance back in November. This guidance provides a clear line of sight to the opportunities in front of the company.
Chris Franklin: In 2025, we expect earnings per share to be between $2.07 and $2.11. Importantly, now that we have a weather normalization mechanism in place, the volatility of earnings associated with unusual weather should be dramatically reduced.
Speaker Change: And for the three-year period through 2027, we're guiding to a compounded annual growth of EPS at a rate of 5 to 7 percent. And this does not include Delcoura and is based off of the $1.97 non-GAAP 2024 EPS that Dan referenced.
We plan to make regulated infrastructure investments.
of about $7.8 billion.
Speaker Change: and notably does not include unsigned acquisitions or associated follow-on capital from those acquisitions.
Speaker Change: We expect our 2025 capital expenditures on infrastructure to be approximately 1.4 to 1.5 billion dollars.
Speaker Change: and through 2029 we anticipate that the regulated water segment rate base will grow at a compounded annual growth rate of approximately six percent.
Speaker Change: This projection only includes the acquisitions listed on the previous slide, which are scheduled to close in 2025 and in 2026. And again, excludes Del Cora.
Speaker Change: This projection does include the crucial work that we are doing to remediate PFAS across the systems we currently own and operate.
Speaker Change: Now, for our regulated natural gas segment, we expect a rate-based growth at compounded annual growth rate of approximately 11% through 2029.
Speaker Change: We plan to continue replacing aging natural gas pipes well past the next decade.
Speaker Change: This growth will be driven by our ongoing investments in infrastructure and our commitment to operational excellence.
Speaker Change: I'd expect that when we look back on these five years, we will have done even more given the acquisition pipeline that is not factored into our rate-based growth projections.
Speaker Change: We believe that the rate base and earnings growth we've described can be accomplished while we keep customer rates at affordable levels.
Speaker Change: We anticipate that our water customer base will grow at an average annual growth rate of between 2 and 3 percent over the long term, largely because of the continued consolidation opportunity in water and wastewater, and the strong organic customer growth, especially in Texas and North Carolina.
Speaker Change: To support our growth and meet our credit metrics, we plan to raise equity via our multi-year ATM program through 2027.
Speaker Change: Specifically, in 2025 we expect to issue approximately 315 million dollars in equity through the ATM and that's after raising about 36 million previously that we guided to in 2024.
Speaker Change: We believe that $315 million will satisfy our capital needs, fund our growth initiatives, and maintain a strong balance sheet for our credit profile.
Speaker Change: Now, that concludes our formal remarks for the day, and we look forward to answering any of your questions. Operator, if you'll please open the line for any questions.
Speaker Change: We are now opening the floor for question and answer session. If you'd like to ask a question, please press star, followed by one on your telephone keypad. Your first question comes from Julianne Dumoulin-Smith from Jefferies. Your line is now open.
Morning, team. This is Sparkon for Juliann.
Julianne Dumoulin-Smith: First off, congrats on closing your first fair market value acquisition in Pennsylvania. You know, with M&A activity picking up, how do you think about the cadence of your $1 billion long-term equity plan? Is it still closely tied to wrapping up Delcora, or there are some new factors now driving it?
Yeah, it's a good question, Paul. I mean, it's, as...
Julianne Dumoulin-Smith: What we indicated on this call is very consistent with what we said on the last call which
Julianne Dumoulin-Smith: I think last call we had said $350 million between 2024 and 2025.
Julianne Dumoulin-Smith: We raised about $36 million in 2024, so that leaves us with that $315 million that Chris mentioned. So, that obviously is for 2024, so 2025 we should say. So, you know, at this point we...
Julianne Dumoulin-Smith: You know, CORE is not expected to close this year, and as we've told you, we've taken it out of our five-year plan. We certainly are committed to it, and we believe it will close.
The
Julianne Dumoulin-Smith: When we think about the program that we have, we've said that the billion-dollar program would likely last us something like three years.
Julianne Dumoulin-Smith: If we have an accelerated acquisition program and Delcora comes into that, then we could exhaust that billion-dollar program inside of that three years that we mentioned. It wasn't set in stone when we said it initially, so there's some flexibility there depending on how the acquisition program develops.
Julianne Dumoulin-Smith: And as you know, if the acquisition program accelerates, that'll be a good problem to have.
Speaker Change: Got it. Appreciate the color. I will jump back to the queue.
Thanks, Mark. Take care.
Ryan Connors: Your next question comes from Ryan Connors from North Coast Research. Your line is now open.
Good morning. Welcome back to the water space there.
Ryan Connors: Good to see that. I wanted to ask on update, Chris, you kind of gave a little bit of color on the OCA.
Ryan Connors: consumer advocate situation in Pennsylvania. I wonder if you can expand on that just in terms of the, you know, what kind of timeline are we looking at to a permanent nomination? I know we've got it sort of an acting or an interim.
person there.
Ryan Connors: Do they have the same powers legally that the permanent person does, or are there things that they cannot do in terms of...
Ryan Connors: on East Whiteland, for example. I know that's a kind of a pending matter out there. So just kind of looking for some color on when we get a permanent nomination in your view and what happens in the meantime.
We're in a kind of limbo here.
Speaker Change: Good question, Ryan, and a really important question for the utility space in Pennsylvania.
Ryan Connors: You know, Tanya Milkovsky, who is a terrific consumer advocate, was never confirmed by the Senate. She sat in that seat for many, many years.
Ryan Connors: not being confirmed. So, yeah, the power of the consumer advocate, even on an acting basis, is still very, very strong.
Ryan Connors: have, you know, I think largely the same power as a fully approved.
Ryan Connors: So, listen, the acting consumer advocate, Daryl, terrific guy, been there 25 years, we've worked with him for many, many years, so we enjoy a relationship much like we did with Tanya and Tanya's predecessor before that, Sonny Kopowski.
Ryan Connors: You know, the timeline is sort of undetermined. I think the attorney general has a lot of things to set up in the space of attorney general. And then to look at this.
sort of niche regulatory aspect of his role.
Ryan Connors: I think he's going to take his time, and that's what he's indicated, and make up his mind. I know he's doing interviews over the next couple of weeks, and we'll see what he comes up with in terms of his ultimate pick for a consumer advocate, but obviously we're watching very, very closely.
Speaker Change: re-acceleration of fair market value transactions in Pennsylvania now that the C-Motion is complete and the Consumer Advocate change, at least to the interim, has been made. I mean, is that something where, if you're a buyer or even a seller, are people still going to kind of wait around and see who that permanent,
Speaker Change: person is or do you think that could kind of open up right away?
Well, listen, I hate to read, um...
Speaker Change: signals, so I think probably if you're a seller, you may say, okay, let's see what the first one through is. Now, Greenville's through already, and so that was very positive, and, you know, I felt like that was, you know, handled well. So listen, I think these transactions have greater certainty since the C motion was passed, and I think they have even notched up in certainty with the change at the OCA.
Speaker Change: Listen, there's plenty of opportunity between utilities and the various advocates to argue over issues.
Speaker Change: But I think what we need to guard against is an overly litigious atmosphere. I think that's what we've had. I think we're moving away from that, fortunately, into something where compromise is more part of the solution. I think that's where the consumers are best served.
Speaker Change: Yeah, and then one more if I could just sneak in, you know, the data center comments you made very exciting there, but I wonder if you could just explain
Speaker Change: kind of the fundamental nature of those deals. We've done a little bit of reading on that and
Speaker Change: My understanding was it was more, I guess, with these so-called behind-the-meter deals which are with more upstream from an LDC. So, can you just kind of give us some general characterization of what those look like for a company like Peoples?
Speaker Change: Yeah, and Ryan, I think you probably would think about this like we would. These could take many shapes and forms.
and so it's hard to know but listen
Speaker Change: I think if we just got the throughput, you know, increased use of natural gas, that's a help to our customers, right? It keeps rates down.
Speaker Change: And so that's great. If there was an opportunity for us to do something where we would build some extension of lines, a capital project that could
that could facilitate Obbie's step build rake base.
Speaker Change: And then finally, if we were to look at opportunities like we did at the airport and some hospitals out there to build some kind of on-site generation, that would be largely in the non-regulated or unregulated space. So, you know, it could be a lot of different forms.
Speaker Change: What we look at here and you know, I think about generally in the electric industry is
Speaker Change: These developers, if you will, are talking to multiple cities at the same time, so it's hard to know if there's a lot of double-counting going on out there, but we think, just given the volume of the interest,
Speaker Change: in Pennsylvania, Western Pennsylvania, where we are, that it's a really interesting opportunity potentially for us and it's sort of undefined at this point.
Great. Well, hey, thanks for your time.
You bet.
Speaker Change: Your next question comes from Digresh Chopra from Evercore ISI. Your line is now open.
Digresh Chopra: Hey, Ragesh. Good morning, Ragesh. Hey. Hey, good morning, Chris and Dan. Congrats to Brian, and then also congrats on getting Ed on board to the team.
Double congratulations. Okay. Thank you.
Digresh Chopra: Absolutely. Just one question from me. On the speed test stuff, actually two-part question. First, are you seeing any, you know, with all the noise,
Speaker Change: coming from DC. Any change in your strategy, you know, any kind of change in your capital plans on this investment? I believe you said $450 million is in the plan. Just wondering if any of that is at risk?
Speaker Change: So that's part one of the question. Part two, Chris, I think you mentioned some, you know, the patent and the technology that might be earnings accretive. Maybe just a little bit more color on that. What are you thinking there? Thank you.
Thank you. Thank you.
Speaker Change: Let me hit PFAS first, because I just came back from Washington, spoke on a panel as did Colleen Arnold.
Speaker Change: our segment president for water on this issue of PFAS. And I think what regulators, this was largely PUC commissioners from all over the country.
Speaker Change: And what they really wanted to know is how we were seeing, what we were hearing from the federal government on PFAS.
Speaker Change: Listen, the way we think about it today is it's a health MCL, right, and so at four parts per trillion.
Speaker Change: We don't see a rollback. We're not hearing about a rollback in that MCO.
Might there be some easing of the time to comply?
Maybe, we haven't actually even seen that yet.
So...
Speaker Change: and Chief Environmental Regulator and the Chief Economic Regulator, the PUC, in each state where we're putting these units in.
Speaker Change: and what they've told us is full speed ahead. And so, number one, we don't anticipate any slowdown in our installation. Number two, we don't expect any challenges in the recovery of or on those investments.
Speaker Change: But I'll remind you we continue to focus on the lawsuits. We still think we're going to get about a little over a hundred million dollars
Speaker Change: to offset some of our capital costs. And we're very aggressive. As a matter of fact, we received a number of compliments from public utility commissioners in Washington this week for our aggressive nature on getting state and federal funds to offset the cost of the PFAS mitigation.
Speaker Change: And I'm really proud of the patent-pending solution we're putting out there. What Colleen's team continues to do is drive down the per-unit cost of these. So while we're still guiding to about $450 million spend, the hope is between
Speaker Change: the proceeds from the lawsuits, the proceeds from, you know, any, you know, loan funds or grants and the driving down of the overall cost that we can come in less than that. But, you know, at this point, we're comfortable with those estimations.
Yeah, I guess I just add that
Speaker Change: This patent pending approach we have, it's really a modular approach that we can implement in small systems. These are cost effective both to install and then to maintain as you think about changing the media in the future. So initially what we're doing here is we're rolling these out across all of our small systems. So basically it accounts for
Speaker Change: all of those systems that we have in North Carolina. They're kind of in the right size to move our systems in Virginia and Pennsylvania as well. And then as Chris noted on the call, you know, we're talking to other utilities about these if it's something they're interested in. You know, we certainly would like to have those discussions.
Speaker Change: We do think these systems could be helpful in a lot of applications, and so that could become a revenue generator for us, but happy to have conversations about the technology that we've developed that Eileen and her team have really spent a lot of time perfecting.
Awesome. Okay. That's all I had. Thank you.
Yes, thank you.
Speaker Change: Again, if you'd like to ask a question, please press star, followed by one on your telephone keypad. That's star, followed by one on your telephone keypad. Your next question comes from Travis Miller from Morningstar. Your line is now open.
Hello, everyone. Thank you. Good morning, Travis.
Travis Miller: You nearly answered my PFAS question, so I'll ask this and see, just clarification-wise.
Speaker Change: That $450 million, does that include, so would you deduct then in terms of your cash outlay, the $100 million lawsuits and any grants, or is it $450 plus?
Low-income loans and grants that we're getting and really interesting
Speaker Change: grants because if it's a loan, we obviously still get the rate base. It's just that a portion is supported by lower cost debt. So think of that as a net investment that we'll make.
and of course...
Speaker Change: You know, we're doing everything we can to help moderate the impact for our customers. So if we can get more in terms of lower cost financing or grants, we'll do that in order to help our customer affordability.
Speaker Change: I would think about this too, as we continue to test our systems.
Speaker Change: We find new wells that need to be treated, and so it's a little bit of a moving target over a period of years.
Speaker Change: We're trying to drive costs down and get loans and grants. At the same time, the number of systems tends to trend up, and so that's why we're pretty confident in guiding to that $450,000.
Speaker Change: Okay, so that's a true kind of rate-based, incremental rate-based type of number.
Travis Miller: That's how we'll think about it. We'll continue to guide, you know, each year as we adjust. Yeah, that's our best projection of that at this time, Travis.
Travis Miller: Okay, yep, that makes sense. And then I think in the past you've talked about some maybe some more creative ways rather than just traditional base rate cases to get that number into rates, get the return on, return off. Any updates there in terms of you know riders or something else?
that might be more creative than just simply...
general rate case for that treatment PFAS specific
Travis Miller: these types of systems. I could give you the example like in North Carolina where we have a three-year forward-looking rate case.
Travis Miller: In this first one, we've had discussions around deferred accounting, and we filed this next
Travis Miller: rate case this spring for the next three years. We'll have our PFAS investment in each of those three years, so we're trying to cover as much of this in rates on a on an ongoing basis as we can.
Okay, great.
Speaker Change: Since you brought up the data center topic, I appreciate the other details you gave there. Just another clarification or follow-on from that. Would you potentially anticipate
Travis Miller: doing an on-site type, I hate to say co-located, that sort of thing.
Great word of the year, but...
something along those lines like a
water and gas type facility.
that would ultimately serve power, is that...
the way I'm interpreting your...
Are there any further comments?
Speaker Change: I would point you to, you know, we've got a little history of building CHPs, and so
And we obviously partner with entities that do that work.
So, I would say that...
Speaker Change: The possibilities are open, and we just, at this point, we need to see what those developers are specifically looking for. And then, you know,
Speaker Change: As you know from covering it across the country, they're looking for lowest rates. So, you know, I think the solution would be, you know, how can we get them the lowest cost power?
Speaker Change: It's certainly a region like that we serve in western Pennsylvania We've got access to gas from the Marcellus and the Utica, you know, that natural gas does tend to
Speaker Change: be priced lower than what you see on NYMEX. I call it a dollar a decatherm on an ongoing basis. Yeah, it'd just be like going to the electric utility, right? They want to come to one place for the solution. That's how we would think about it, as we did with CHPs. You know, we would come up with a solution that works for them.
Speaker Change: Okay, sure. That makes sense. That's all I had. Appreciate it.
You got it. Thanks Travis. Take care
Speaker Change: We have reached the end of our Q&A session. I'd now like to hand back over to Chris Franklin for final remarks.
Speaker Change: Thanks for joining us today folks. We, as always, are available for questions afterwards. Please feel free to reach out to Brian, Ed, and the rest of the team. Thanks so much.