Essential Utilities, Inc. Q2 FY2024 earnings call

Highlights

• Posted GAAP earnings of $0.28 per share despite warmer weather in Pittsburgh. Board increased dividend by 6%.
• Regulatory developments in Pennsylvania: PUC approved C-motion reforming fair market value statute; reached non-unanimous settlement on Peoples rate case with weather normalization; Pennsylvania water rate case filed, seeking $126.7M increase.
• Operations: Handled Hurricane Beryl, restored service quickly; on track to invest $1.3-$1.4B in infrastructure; received low interest loans/grants for projects like PFOS mitigation; recognized as America's Climate Leader; announced hydrogen partnership with H Quest, etc.

Regulatory Activity

• Received authorization to increase water segment revenues in multiple states; significant water segment rate cases/surcharges pending; PNG rate case expected on PUC agenda in September with rates effective Sept 27th, including weather normalization.

Municipal Acquisition Program

• Six signed asset purchase agreements in two states, adding over 215,000 customer equivalents; pipeline of over 400,000 potential water/wastewater customers.

Operating revenues were down due to decline in natural gas commodity prices and warmer weather (Pittsburgh was 45% warmer than normal, affecting gas usage). Water consumption was lower in some areas. Absolute terms: GAAP earnings were $0.28 per share; operating revenues impacted by lower volumes in water and gas, and purchased gas cost. Revenue waterfall showed rate increases/surcharges, acquisitions/organic growth, and decreases due to lower volumes.

• 2024 EPS guidance $1.96 to $2 excluding energy project gain, with weather normalization impact considered. Intend to issue $250M of equity via ATM program.
• Plan to invest $1.3-$1.4B in infrastructure in 2024; rate base expected to grow at ~8% CAGR for water and ~10% CAGR for natural gas through 2028.
• Committed to reducing Scope 1 and 2 greenhouse gases by 60% by 2035 from 2019 baseline.

• Weather volatility impacting gas and water revenues.
• Regulatory uncertainties, including potential legislative actions affecting regulations.
• Costs associated with PFOS mitigation and potential challenges in recovering these costs.

Q: Regarding PUC reform on Act 12 and legislative action, Chris Franklin said C-motion progress but no immediate repeal of Act 12 likely, with opportunity for compromise bill.

A: Chris Franklin stated there's not enough Senate votes to repeal Act 12, but potential for compromise bill with codified C-motion elements.

Q: On Pennsylvania rate case public input hearings, Chris Franklin said no surprising concerns, empathy for customers on bills, but no major issues noted.

A: Chris Franklin said no surprising feedback, focusing on affordability and customer service.

Q: On PFOS program and Supreme Court decision, Chris Franklin said full speed ahead with mitigation, regulators supportive for recovery.

A: Chris Franklin said commissions supportive, full speed on $450M PFOS mitigation for 280 systems.

Q: On equity issuance and weather impact, Dan Schuller said starting ATM program soon to issue ~$250M, Q3 expected weather benefit in Pennsylvania.

A: Dan Schuller said starting equity issuance next week, Q3 weather positive for Pennsylvania.

Q: On DELCORA and M&A pipeline, Chris Franklin said ongoing conversations with county, waiting on Federal Bankruptcy Court, M&A pipeline to increase post-RRR issuance.

A: Chris Franklin said ongoing DELCORA discussions, M&A pipeline to ramp up post-RRR issuance.

Q: On earnings cadence and M&A valuations, Dan Schuller and Chris Franklin discussed Q3/Q4 earnings expectations and M&A valuation softening thoughts.

A: Dan Schuller and Chris Franklin provided insights on Q3/Q4 earnings and M&A valuation considerations.