Essential Utilities, Inc. (NYSE:WTRG) Q4 2024 Earnings Call Transcript

Essential Utilities, Inc. (NYSE:WTRG) Q4 2024 Earnings Call Transcript February 27, 2025

Operator: Thank you for standing by. My name is Elina. 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. All lines have been placed on mute to prevent any background noise. After the speakers’ prepared remarks, there will be a question and answer session. 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 withdraw your question, please press star one again. Thank you. I’d now like to turn the call over to Daniel Schuller. You may now begin.

Daniel Schuller: Good morning, everyone, and thank you for joining us for Essential Utilities’ fourth quarter and full year 2024 earnings call. This is Daniel Schuller, Chief Financial Officer at Essential. I’m stepping in for Brian Dingerdissen who welcomed twins this past weekend. 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. The slides we’ll be referencing and the webcast of this event can also be found on our website. 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. Ed Vallejo, with whom most of you are familiar from his time in the industry, joined our team just last week.

He hit the ground running, and we fully engaged in our IR activities right away. Welcome, Ed. Let’s move to the forward-looking statement. As a reminder, some of the matters discussed during this call may include forward-looking statements that involve risks, 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. Please refer to our most recent 10-Q, 10-K, and other SEC filings for a description of such risks and uncertainties. During the course of this call, reference may be made to certain non-GAAP financial measures.

Operator: A reconciliation of any non-GAAP to GAAP

Daniel Schuller: financial measures is posted in the Investor Relations section of the company’s website. We will begin the call today with Christopher 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. With that, I’ll turn the call over to Christopher Franklin. Chris?

Christopher Franklin: Hey. Thanks, Dan. Ed, welcome aboard. Nice to have you with us. And good morning, everyone. Thanks for joining us. 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. Financially, 2024 is another year in a string of years we have reported earnings per share in line with our 5% to 7% guidance. 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. 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. Now these outcomes would not be possible without the discipline of our operating teams. They held operating expenses this year to only 2% growth year over year and completed our $1.3 billion capital plan right on target. 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, we responded to investors who wanted them to get to know our operating team leaders a little bit better in both water and natural gas. And so Colleen Arnold, head of our water business, and Mike Huwar, the head of our gas business, 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. 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, it’s sort of amazing to consider that we’ve grown the dividend price in just five short years and we’ve paid a dividend now for 80 straight years. 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 75% of our operations. Both cases were black box settlements but most of you could easily estimate the approximate equity layer and ROE that were granted in those cases.

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. 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. In fact, since the recent change in leadership at the OCA, the agency has withdrawn its protest of the people’s rate case. A really good sign that a more moderate approach to regulatory relations may be coming to that agency. One of the key accomplishments in the people’s rate case was the establishment of weather normalization. This regulatory solution has already proven to be beneficial for both shareholders and customers.

In January of 2025, just last month, because of abnormally cold weather, the company will give back about $8.2 million to customers but shareholders will also reap some benefit from this cold stretch. The bottom line is that weather normalization was first put in place, the smoothing of weather volatility and the associated revenue is working exactly as designed. Now while we’re talking about regulatory accomplishments, I want to mention that in 2024, there was some reform of the fair market value statute that was passed by the PA Public Utility Commission. As I think you already know, we were actively engaged in that solution with the PUC. We believe that this reform will bring greater certainty to the process and should also help keep rates at affordable levels.

Already, we’re seeing increased activity from municipals that are interested in selling their utilities. Alright. But when we think about 2024, I have to mention the progress that we’ve made in PFAS mitigation. We spent about $27 million in capital and completed the mitigation work in 13 plants. This is toward our four-year goal to mitigate approximately 300 plants at an overall estimated capital spend of $450 million. The solution we’re applying to most of our plants is a patent-pending approach that we are also marketing to other utilities as a solution to their PFAS issues. 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.

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. 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 lighter weight, slightly smaller, and more accurate but most importantly, they prevent over-pressurization. When you consider the catastrophic events that have occurred within the gas industry over the past decade, 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. Now we’ll install at least 60,000 as we ramp up this new potentially life-saving technology.

We think about risk in the gas business particularly. We also think about underground storage wells. 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%, a significant accomplishment. And 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. 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.

Now we had our challenges in 2024 as well. In Pennsylvania alone, we were named receiver for ten water and wastewater systems. These are systems that the former owners neglected and they were undercapitalized. We responded quickly when the Pennsylvania Public Utility Commission asked us to operate these systems. We invested capital and made improvements. But I gotta tell you that receiverships are not the best solution. We will be in all of our states with the environmental agencies to push the improved enforcement. 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.

The other macro challenge that we face in the water industry is stock performance. No. 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. Now moving to 2025, I already mentioned the successful Pennsylvania rate case. It did receive final approval on February 6th, by unanimous vote of the public utility commissioners in Pennsylvania. We look forward. Our theme this year is leading today shaping tomorrow. Which captures our dual focus, solving today’s issues with urgency while building a foundation for tomorrow. We’ll focus on sustainable business practices. 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. 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. The last issue I’ll mention is probably the hottest topic in the utility industry right now, low growth generated by data centers. This creates a challenge and an opportunity. See some investors see greater growth in the electric utility industry compared to the stability and more measured growth of water and natural gas. However, our company and investors are uniquely positioned to benefit from both growth and stability. 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 load growth from data center construction within our natural gas service territory.

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. 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. 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. We were really pleased to reinitiate long-term growth guidance in November with 5% and 7%, through 2027 off of the $1.97 non-GAAP base we earned in 2024. This does not include any potential earnings associated with the pending acquisition of Delcora.

Additionally, we’ll spend between $1.4 billion and $1.5 billion in capital in 2025, and we’ll invest nearly $8 billion in infrastructure improvements over the next five years. That will lead to 8% plus annual rate base growth before accounting for any acquisitions. Alright. With that, let me pass it to Dan to get into the financials for 2024.

Daniel Schuller: Thanks, Chris, and good morning again, everyone. This first slide, let’s talk high level on full year 2024. And then we’ll get into the details on the waterfalls. 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 we reached a great outcome with the sale of our non-core Pittsburgh area energy which allowed us to reduce our financing needs in 2024. We continue to see the merits of our long-term strategy of providing outstanding service to our customers investing in needed capital improvements managing our day-to-day O and M expenses, and maintaining our disciplined regulatory practices to deliver long-term shareholder value.

Operating revenues were up due to rates and surcharges and increased water volume. 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. Importantly, as a reminder, we now have the weather normalization mechanism that provides customers better certainty and alleviates the volatility associated with extreme weather. While we continue our focus on managing O and M expenses, the full year O and 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. As Chris mentioned, on a GAAP basis, we achieved EPS of $2.17 for the year, which is up from $1.86 in 2023.

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 and drier than normal weather in the mid-Atlantic and Ohio for the second half. If you adjust for these factors, you’d be squarely in the 2024 guidance range of $1.96 to $2.00. Next, let’s walk through the full year waterfalls. On slide eleven, we have the revenue waterfall for the year. 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. And then other, which is mainly the weather normalization adjustment and the gas customer assistance program rider. Offset by the loss of revenue from both the West Virginia utility assets and the energy projects.

Of $8.4 million 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. 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. Through June, each of the months of 2024 was warmer than normal this had a significant impact on our financial results. This is exactly why we asked for the weather normalization adjustment. 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 and M on slide twelve.

O and M increased just 2% or under $12 million year over year in 2024. Increase included additional costs from the gas segment universe services rider, which is recoverable through a revenue surcharge, as well as employee-related expenses, 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. 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 project. So, overall, a good story on O and M. Consistent with our long-term efforts. Next, let’s look at the EPS waterfall on slide thirteen. Turning to the left side of the waterfall with GAAP earnings per share of $1.86 from last year.

The next thing we see is the nearly $0.22 increase from regulatory recoveries. $0.05 from other, which includes the approximately $0.25 gain on sale of assets and related transaction activities, plus weather normalization adjustment revenue offset by increased depreciation, interest, and taxes other than income. As well as lower income tax benefits. Then we see the $0.03 gain from water volume. And nearly $0.015 gained from water growth. Which were then offset slightly by higher expenses and lower gas volumes. That gets us to the $2.17 of GAAP EPS for 2024. We thought it was important to clarify that $2.17 includes $0.25 of gain on sale of assets which includes the energy project, and a true-up for post-acquisition activities on the previously closed West Virginia Gas utility assets, and then if we normalize the weather impact of $0.05 of EPS for the year, we get to $1.97 of adjusted earnings per share.

Which is a non-GAAP measure, and that $1.97 is our weather normalized results without the asset sale impact. That $1.97 is nicely in the original $1.96 to $2.00 guidance range for the year, and above the current full year 2024 consensus of $1.95. Notably, the $0.05 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. As you may be aware, we’re currently experiencing drought conditions in the mid-Atlantic that we’ve not seen in about 20 years. 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. This slide highlights our regulatory activity during the year. 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. I’ll always consider affordability for our customers. As you can see on the slide, 2024 is a significant year for regulatory activity. We completed rate cases or surcharges in many of the water states to raise annualized revenue by nearly $54 million. 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 People’s Gas which included a $93 million revenue increase and the weather norm adjustment we mentioned earlier.

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. Earlier this month, the PAP voted 5-0 to approve the settlement previously announced for the ACWA Pennsylvania rate case. Increasing revenues by $73 million on an annualized basis. In total, so far in 2025, we received rate cases or surcharges to increase annualized revenues by $86.5 million in the water business. 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. And later in 2025, we expect to file rate cases in Texas, North Carolina, Ohio, and Virginia.

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.

Christopher Franklin: Alright. Thanks, Dan. Let’s touch briefly on our acquisition program. 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. 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. These acquisitions will add over 210,000 customer equivalents and total approximately $344 million in purchase price. I should note that nearly $70 million of that rate base are deals other than Delcora. Now we continue to see a strong and healthy pipeline of opportunities for additional growth. We currently have activities and engaged discussions with municipalities that have over 400,000 potential water and wastewater customers.

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. Lastly, and in closing, we were pleased to share our new multiyear financial guidance and growth guidance back in November. This guidance provides a clear line of sight to the opportunities in front of the company. 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. 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%, and this does not include Delcora.

And is based off of the $1.97 non-GAAP 2024 EPS that Dan referenced. As we look to the next five years through 2029, we plan to make regulated infrastructure investments of about $7.8 billion and notably does not include unsigned acquisitions or associated follow-on capital from those acquisitions. We expect our 2025 capital expenditures on infrastructure to be approximately $1.4 to $1.5 billion. And through 2029, we anticipate that the regulated water segment rate base will grow at a compounded annual growth rate of approximately 6%. This projection only includes the acquisitions listed on the previous slide which are scheduled to close in 2025 and in 2026, and, again, excludes Delcora. This projection does include the crucial work that we are doing to remediate PFAS across the systems we currently own and operate.

Now for our regulated natural gas segment, we expect the rate base growth at a compound annual growth rate of approximately 11% through 2029. We plan to continue replacing aging natural gas pipes well past the next decade. On a combined basis, water and gas, we project rate base growth at a compounded 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. 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 base growth projections. We believe that the rate base and earnings growth we’ve described could be accomplished while we keep customer rates at affordable levels.

We anticipate that our water customer base will grow at an average annual growth rate of between 2% and 3% 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. To support our growth, and meet our credit metrics, we plan to raise equity via our multiyear ATM program through 2027. Specifically, in 2025, we expect to issue approximately $315 million in equity through the ATM. And that’s after raising about $36 million previously, that we guided in 2024. We believe that $315 million will satisfy our capital needs, fund our growth initiatives, and maintain a strong balance sheet for our credit profile. 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.

Q&A Session

Operator: Your first question comes from Julian Dumoulin-Smith from Jefferies. Your line is now open.

Daniel Schuller: Hey, Juliet. Twenty-four, Juliet. Morning, team. This is part-time for Julian.

Julian 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 net long Delcora or are there some new factors now driving it?

Daniel Schuller: Yeah. It’s a good question, Paul. I mean, as what we indicated on this call is very consistent with what we said in the last call, which in the last call, we had said $350 million between 2024 and 2025. We raised about $36 million in 2024. So that leaves us with that $315 million that Chris mentioned. So obviously is for 2024, so 2025, I should say. So you know, at this point, we know Delcora 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. But when we think about the program that we have, we have said that the billion-dollar program would likely last us something like three years. Right. 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 was some flexibility there depending on how the acquisition program develops. And as you know, if that acquisition program accelerates, that’ll be a good problem to have.

Julian Dumoulin-Smith: Got it. Appreciate the color. I will jump back to the queue.

Daniel Schuller: Thanks, Mark. Take care.

Operator: Thanks. Your next question comes from Ryan Connors from North Coast Research. Your line is now open.

Ryan Connors: Hey. Good morning, Justin. And good morning. Yeah. Thanks. And welcome back to the water space there at Good good good to see that. Wanted to ask on update. Chris, you kind of gave a little bit of color on the OCA.

Christopher Franklin: 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. Do they have the same powers legally that the permanent person does or are there other things that they can and cannot do in terms of you know, on East Whiteland, for example. I know that’s a kind of a pending matter out there. So just kinda looking for some color on when we get a permanent nomination your view and and what happens in the meantime. We’re kinda in limbo here.

Christopher Franklin: Yeah. Good question, Ryan, and really important question. For the utility space in Pennsylvania. Tanya McCloskey, who is a terrific consumer advocate, was never confirmed by the senate. She sat in that seat for many, many years not being confirmed. So yeah, the power of the consumer advocate you know, I think largely the same power as a fully approved. So listen. The acting consumer advocate, Daryl, terrific guy. There twenty-five 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, that’s Sonny Palsky. You know, the timeline is sort of undetermined. I think the attorney general has a lot of things to set up in this space of attorney general.

And then to look at this sort of niche regulatory aspect of his role, I think he’s gotta 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.

Ryan Connors: Yep. And then as a follow on to that, I mean, you talked about this sort of potential reacceleration of fair market value transactions in Pennsylvania now that the C motion’s 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 gonna kinda wait around and see who that permanent person is, or do you think that could kinda open up right away?

Christopher Franklin: Well, listen. I hate to read 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 handled well. So listen. I think these transactions have greater certainty since the C motion was passed. I think they have even, like, not stopped in certainty with the change at the OCA. No. Listen. There’s plenty of opportunity to between utilities and the various advocates to argue over issues, but I think what we need to guard against is an overly litigious atmosphere. I think that’s what we had. I think we’re moving away from that, fortunately, into something where compromise is more part of the solution. And I think that’s where the consumers are best served.

Ryan Connors: Yep. Yep. And then one more if I could just sneak in. You know, the data center comments you made, very exciting there. And I’m but I wonder if you could just explain kind of the fundamental nature of those deals. We’ve done a little bit of reading on that, and 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?

Christopher Franklin: Yeah. And, Ryan, I think you probably would think about this. Like, we would not that’s these could take many shapes and forms. And so it’s hard to know. But listen, I think if we just got the throughput, you know, increased use of natural gas, to help to our customers. Right? It keeps rates down. 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 facilitate obviously, that builds rate base, 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. And that would be, you know, forms that I think largely in the non-regulator, unregulated space.

So, you know, it could be a lot of different things. What we look at here and, you know, I think about, generally in the electric industry is 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 out there. But we think, just given the volume of the interest, in Pennsylvania, Western Pennsylvania where we are. That it’s a really interesting opportunity potentially for us. And just sort of undefined at this point.

Ryan Connors: Well, hey. Thanks for your time. You bet. Take care, Rudy.

Operator: Your next question comes from Durgesh Chopra from Evercore ISI. Your line is now open.

Durgesh Chopra: Hey, Gersh. Good morning, Gersh. Hey.

Christopher Franklin: Hey. Good morning, Chris and Dan. Congrats to Brian, and then also congrats on getting Ed onboard to the team. Double congratulations.

Durgesh Chopra: Absolutely. Just one question. For me. On this PFAS stuff, actually, two more questions. First, are you seeing any you know, with all the noise coming from DC, any change in your strategy, any kind of change in your capital plans on the investment? I believe you said $450 million is in the plan. Just wondering if any of that is at risk. So that’s part one of the question. Part two, Chris, I think you mentioned some you know, the patent then the technology that might be earnings accretive. Let me just a little bit more color on that. How what are you thinking there?

Christopher Franklin: Sure. Yeah. Let me get PFAS for you. Maybe I don’t. Because I just came back from Washington, spoke on a panel as did Colleen Arnold, 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. And what they really wanted to know is how we were seeing what we were hearing from the federal government on PFAS. Listen, the way we think about it today is, it’s a health issue. And so MCL. Right? And so at four parts per trillion, we don’t see a rollback. We’re not hearing about a rollback in that MCL. Might there be some easing of the time to comply? Maybe. We haven’t actually even seen that yet. So I think I’ve mentioned on the calls before, but just let me remind you that we met with the chief environmental regulator and the chief economic regulator, the PUC, in each state where we’re putting these units in.

And what they’ve told us is 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. But I’ll remind you we continue to focus on the lawsuits. We still think we’re gonna get about a little over $100 million to offset some of our capital cost, and we’re very aggressive. 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 these of the PFAS mitigation. 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 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 we can come in less than that. You know, at this point, we’re comfortable with those estimations.

Daniel Schuller: You wanna think Yeah. I guess so. I just add that 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, you know, initially, what we’re doing here is we’re rolling these out across about all of our small systems. So basically accounts for all of those systems that we have in North Carolina. They’re kind of in the right size. For 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 they something they’re interested in, you know, we certainly would like to have those discussions.

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 Pellegrino and their team have spent a lot of time perfecting.

Durgesh Chopra: Awesome. Okay. That’s all I had. Thank you.

Daniel Schuller: Yep. Thank you.

Operator: Again, if you question comes from Travis Miller from Morningstar. Your line is now open.

Travis Miller: Hello, Ruben. Thank you. Hey there. Yeah. Good morning, Travis. You nearly answered my PFAS question. So I’ll ask this and see. Just clarification wise. 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 million plus $100 million of lawsuits and other grants in terms of total cost. Does that make sense?

Daniel Schuller: Yeah. No. That does make sense. We’ve thought of the $450 million as being net of the proceeds that we received from the lawsuits and low-income loans and grants that we’re getting. And really interesting 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 net investment that we’ll make. Of course. Yep. We’re doing everything we can to help moderate the impact for our customers. So as if we can get more in terms of lower-cost financing or grants, we’ll do that in order to help our customer affordability.

Christopher Franklin: We find new I would think about this too as we continue to test our systems wells that need to be treated. And so it’s a little bit of a moving target over a period of years. We try to drive costs down and get loans and grants. Same time, the number of systems tends to trend up. And so that’s why we’re pretty confident in guiding to that $450 million.

Travis Miller: Okay. So that’s a true kind of rate base, incremental rate base type of number.

Daniel Schuller: That’s how we’ll be thinking about it. We’ll continue to guide you know, each year as it as we adjust.

Christopher Franklin: Yeah. That’s our projection of that at this time, Travis.

Travis Miller: Okay. Yep. That makes sense. And then and 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 in the 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? Yeah.

Daniel Schuller: We have looked having conversations with our regulators around deferred accounting related to these types of systems. I could give you an example. Like, in North Carolina where we have a three-year forward-looking rate case, in this first one, we’ve had discussions around deferred accounting. We filed this next rate case, this spring for the next three years, we’ll have our PFAS investments in each of those three years. So they’re trying to cover as much of this in rates on an ongoing basis as we can.

Travis Miller: Okay. Great. Great. Makes sense. And then one other you since you brought up the data center, probably appreciate the other details you gave there. Just another clarification or follow on. From that. So would you potentially anticipate doing an on-site type I hate to say collocated, but 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 earlier comments.

Christopher Franklin: Also, I would you to you know, we’ve got a little history of building CHPs. So you know, we and we obviously partner with entities that do that work. So I would say 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, as you know from covering across the country, looking for lowest rates. So, you know, I think the solution would be how can we get them the lowest cost power?

Daniel Schuller: It’s certainly a region like we serve in Western Pennsylvania. We’ve got access to gas from the Marcellus and the Utica.

Christopher Franklin: Yep. That natural gas does tend to be priced lower than what you see on NYMEX. I call it a dollar a decoderm on an ongoing basis.

Daniel Schuller: Yeah. It would just be like going to the electric utility. Right? They want to come to one place for the solution. How we would think about it as we did with CHPs. We would come up with a solution that works for them.

Travis Miller: Okay. Sure. No. That makes sense. That’s all I had. Appreciate it.

Daniel Schuller: You got it. Thanks, Travis. Take care.

Operator: We have reached the end of our Q and A session. I’d now like to hand back over to Christopher Franklin for final remarks.

Christopher Franklin: 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.

Operator: Thank you for attending today’s call. You may now disconnect. Goodbye.