Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Essential Utilities Inc (WTRG, Financial) posted GAAP earnings of $0.28 per share despite warmer-than-normal weather impacting gas usage.
- The Board voted to increase the dividend by 6%, continuing a 33-year track record of annual increases.
- The Pennsylvania Public Utility Commission approved reforms to the fair market value statute, which should moderate purchase prices and rate impacts associated with municipal acquisitions.
- The company is on track to invest $1.3 billion to $1.4 billion this year to improve critical infrastructure across its water and natural gas platforms.
- Essential Utilities Inc (WTRG) received recognition on USA Today's list of America's climate leaders for substantial reductions in greenhouse gas emissions.
Negative Points
- Operating revenues were down due to a decline in natural gas commodity prices and warmer-than-normal weather.
- Lower water consumption was experienced in the second quarter compared to last year.
- O&M expenses increased due to several one-time factors, impacting quarterly results.
- The company faced unfavorable weather-related impacts for both water and gas, affecting financial results.
- The dividend increase was only 6%, breaking a streak of 7% increases since 2017, due to a rising dividend payout ratio.
Q & A Highlights
Essential Utilities Inc (WTRG) Q2 2024 Earnings Call Highlights
Q: Chris, you mentioned the motion and the PUC reform on Act 12. On a separate parallel track of that, which I know there's some legislation out there that would actually make some legislative change, including, I guess, there's talk of even a repeal of Act 12, does the PUC reform process kind of stall that and for now? Or are those things still -- are those efforts still ongoing legislatively?
A: Yes, Ryan, it's a great question. And I think we've made tremendous progress with the C-motion. Chairman DeFrank really showed real leadership in the commission in getting that through. But I don't think it deters the legislative action. Given the schedule in Pennsylvania, the election and the short schedule in the fall, I'm not overly optimistic that something could pass this fall. What I would say is there's not an appetite when you look at the full House and Senate to pass a repeal of Act 12. And so I would say there's probably opportunity to get a compromise bill that has some of the things that you see in the C motion codified and maybe a couple of other things. When I think about opportunities, I think about a greater definition or guardrails around affirmative public benefit. And I think if we get some of those things, done with some of the folks that want reform, I think there's an opportunity to get real progress accomplished. But I remain confident that we don't have the votes in the -- particularly in the Senate to repeal Act 12 at this point in time.
Q: On the Pennsylvania rate case, I know that not a whole lot you can say. It's a pending matter. But in other recent cases in Pennsylvania, we've seen where very significant turnout and so forth that some of these public hearings has been kind of an early indicator of some issues in some cases. Any early read from your team about what's coming out of those public input hearings? Any surprises, anything that would give you any concern as it relates to the public feedback?
A: Yes, so far, we've not seen anything that would surprise us or particularly come to concern. Listen, I'm always empathetic to customers who are concerned about rising bills. It's continuous discussion internally here on affordability. And so I have a great empathy for folks, and we're going to do everything we can to try to accomplish the mission and do it at the most affordable levels. And I know I told you at one of the hearings too, Ryan, I try to get out personally. I want to hear from people personally, so I sat in the back of the room yesterday and listened to some of the comments. But the good news is there really wasn't anything about service or reliability or the core capabilities that we provide to our customers in terms of water and wastewater services in this instance. So listen, we'll continue to listen and react appropriately, but nothing has been surprising to this point.
Q: Just Chris, I wanted to get your thoughts on the PFOS program that you have in place. Just the Supreme Court decision since the last time we spoke, how does that change things, if any?
A: Yes, we -- it's a good question, Durgesh. So we've been in communication with the commissions that oversee the states where we have the majority of the work to do. And what we're hearing from our regulators is they'll get this thing done and focus on a PFOS mitigation, focused on the current levels, and that's exactly what we're doing. So we're full speed ahead. We remain with an estimate of about $450 million to do our work on 280 systems, as I said in the formal remarks but I think importantly, when we're getting the right signals from leadership at the commissions, then we have high confidence that not only will we accomplish the task of mitigation, but that we'll get recovery in the appropriate level in rates once the work is done. So we're full speed ahead.
Q: Dan, can you remind us or tell us if you have issued any equity so far versus the $250 million target? And then just second, as we think about balance of the year, I think you mentioned that we'll see some weather benefit in Q3 in Pennsylvania, but then you said other states were lower relative to -- in terms of sales -- or weather-wise relative to last year. Can you just sort of talk in terms of guidance? Q3 so far, is it positive from a weather standpoint relative to guidance relative to normal? Or is that still a headwind?
A: Yes, certainly. Let's start with the weather first, Durgesh. So we are seeing in July or July numbers, not fully baked yet, but we are seeing some positive benefits from weather as we anticipated for July. Now first portion of the year, we were behind a little bit on weather. So this helps us catch up, if not, get a little bit ahead. And then in terms of your question regarding equity, so we're just in the process now. We'll stand up that ATM next week. You might have looked and not seen a filing for that yet. And just given the fact that we didn't immediately need the cash and for much of the time between our last earnings call and this earnings call, our stock was kind of at a depressed price, we weren't really in a hurry to issue equity. But we will get started on that shortly here and still look to issue, as I said in the prepared remarks, about $250 million through the balance of the year.
Q: Let's start on DELCORA. Some good news there, obviously. Just wondering what the next steps for you, if any, might be? Or are we kind of still in just a waiting mode?
A: Well, we continue to have ongoing conversations at the county. And I think we're all watching carefully to see what it looks like there in terms of their budget this year. As you might recall, last year, they had raised taxes about 5%. There is some public discussion about having to raise taxes again this year. We think we should be part of that conversation because certainly, the sale of DELCORA would raise them more than they would need coming from tax increases. And our modeling continues to show that even despite some reduced capital spending, the plan, we would still have lower rates. And in our model, we're showing a 2% annual increase over a decade. And so really strong outcomes for the county. So we still think we have a pretty compelling case, and maybe even more compelling as they come into budget season here in the next six weeks. So you have that aspect, so that conversation is going on. And then we still have the Federal Bankruptcy Court judge, who is dealing with the bankruptcy of the city of Chester, who has to stay on all progress at this point. So we continue to wait for an appeal there. And we're hopeful that, that stay is lifted some time in the relatively near future. And then if that were to occur, it would immediately then
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
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