Release Date: May 03, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Essential Utilities Inc (WTRG, Financial) reported GAAP earnings of $0.97 per share, including significant gains from the sale of energy projects.
- The company has made substantial progress in its acquisition program, particularly with the C-motion, expecting a vote from the PUC soon.
- Essential Utilities Inc (WTRG) continues its significant infrastructure investment program, with $253 million invested through March 31, and plans to invest between $1.3 billion and $1.4 billion for the year.
- The company is well-positioned to comply with new EPA limits on PFAS, having tested all water sources and implemented mitigation solutions ahead of many utilities.
- Essential Utilities Inc (WTRG) has a strong focus on corporate governance, with recent board additions and leadership contracts reinforcing its commitment.
Negative Points
- The unusually warm start to the year has impacted the Gas utility, highlighting the need for weather normalization.
- Operating revenues were down due to the decline in natural gas commodity prices year-over-year.
- The company faces potential supply chain pressures, particularly in securing necessary materials for PFAS mitigation within the new EPA compliance timelines.
- Despite strong earnings, there are concerns about the impact of weather on natural gas sales, with weather-related sales net of purchase gas costs about $20 million below projections.
- Regulatory challenges and uncertainties persist, especially with ongoing rate cases and the need for settlements to avoid litigation.
Q & A Highlights
Q: Can you provide any updates on the gas rate case in Pennsylvania, especially in light of the ongoing water case?
A: Christopher H. Franklin, Chairman, President & CEO of Essential Utilities, noted that the situations are quite different ("apples to oranges"). He expressed confidence in the strong case they have presented and mentioned that they are in a period conducive to settlement discussions, although they are prepared to see the case through to the end.
Q: Have there been any lawsuits filed by residents against the utility related to PFOS/PFAS in your service territories?
A: Christopher H. Franklin explained that Essential Utilities has not faced such lawsuits, likely due to their proactive approach in addressing PFAS issues early and maintaining strong public disclosures.
Q: Does the PFAS guidance for the $450 million in capital include pending municipal transactions?
A: Christopher H. Franklin clarified that the $450 million estimate for PFAS mitigation does not include capital for acquisitions until those transactions are closed. Daniel J. Schuller, Executive VP & CFO, added that the pending acquisitions are more biased towards wastewater rather than water, and they do not anticipate a material change in the PFAS mitigation costs due to these acquisitions.
Q: What would the impact have been this past quarter if the weather normalization clause you've applied for in the pending gas case had been granted?
A: Daniel J. Schuller estimated that the $20 million net revenue shortfall due to warmer weather would have been reduced to about a $5 million impact if weather normalization had been in place, significantly reducing volatility.
Q: Can you discuss the potential constraints in the supply chain for PFAS mitigation, particularly regarding equipment and materials?
A: Christopher H. Franklin mentioned concerns about potential constraints on tanks and carbon materials needed for PFAS mitigation, especially if all utilities were required to comply within a short timeframe. He noted that spreading compliance over five years as per the new EPA rule should help manage these potential pressures.
Q: Are there any commercial opportunities for your testing facilities given the new PFAS regulations?
A: Christopher H. Franklin acknowledged the potential for commercial opportunities in PFAS testing, given that Essential Utilities operates the only state-certified utility lab for PFAS in Pennsylvania. However, he emphasized that the company's current focus is on ensuring full compliance with PFAS regulations for their own operations before exploring further opportunities.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
