Essential Utilities Q1 2025 Earnings Report

Essential Utilities EPS Results

• Actual EPS: $1.03
• Consensus EPS: $0.80
• Beat/Miss: Beat by +$0.23
• One Year Ago EPS: $0.97

Essential Utilities Revenue Results

• Actual Revenue: $783.63 million
• Expected Revenue: $713.80 million
• Beat/Miss: Beat by +$69.83 million
• YoY Revenue Growth: +28.00%

Essential Utilities Announcement Details

• Quarter: Q1 2025
• Date: 5/12/2025
• Time: Before Market Opens
• Conference Call Date: Monday, May 12, 2025
• Conference Call Time: 11:00AM ET

Essential Utilities (NYSE:WTRG), through its subsidiaries, operates regulated utilities that provide water, wastewater, or natural gas services in the United States. The company operates through Regulated Water and Regulated Natural Gas segments. It offers water services through operating and maintenance contract with municipal authorities and other parties. In addition, the company provides utility service line protection solutions and repair services to households. It serves approximately 5.5 million residential water, commercial water, fire protection, industrial water, wastewater, and other water and utility customers in Pennsylvania, Ohio, Texas, Illinois, North Carolina, New Jersey, Indiana, Virginia, and Kentucky under the Aqua and Peoples brands. The company was formerly known as Aqua America, Inc. and changed its name to Essential Utilities, Inc. in February 2020. Essential Utilities, Inc. was founded in 1886 and is headquartered in Bryn Mawr, Pennsylvania.

Essential Utilities Q1 2025 Earnings Call Transcript

Key Takeaways

• Essential posted GAAP EPS of $1.30 in Q1, a 6% increase year-over-year and reaffirmed its full-year 2025 guidance of $2.07–$2.11 per share.
• The company plans $1.4–$1.5 billion of 2025 infrastructure investments, has already invested $270.5 million, and has raised $210 million of equity through its ATM program.
• Water operations achieved a 99.8% compliance rate, remain on track to meet the PFAS MCL by 2028 with a $450 million capital program, and expect ~$100 million in polluter settlements plus ~$69 million in low-interest loans/grants in Pennsylvania.
• The gas business is transitioning to Intellis solid-state meters for all residential and small commercial customers (~700,000 meters) and is managing weather volatility via a new weather normalization adjustment.
• Essential is pursuing 5 GW of power generation support for data centers in its Pennsylvania footprint, expects ~8% annual rate base growth, and reaffirmed 5%–7% multi-year EPS growth through 2027.

Presentation

[Operator]

Thank you for standing by, and welcome to the Essential Utilities First Quarter twenty twenty five Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After today's presentation, there will be an opportunity to ask a question. It is my pleasure to turn the call over to Mr. Brian Dingardison.

[Operator]

You may begin.

[Brian Dingerdissen, Vice President of Investor Relations & Treasurer at Essential Utilities]

Thank you. Good morning, everyone, and thank you for joining us for our first quarter twenty twenty five earnings call. If you did not receive a copy of the press release, you can find it on our Investor Relations website. The slides will also be found there as will be a webcast of the event. 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.

[Brian Dingerdissen, Vice President of Investor Relations & Treasurer at Essential Utilities]

Please refer to our most recent 10 Q, 10 ks 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. Reconciliation of any non GAAP to GAAP financial measures is posted on the website. We will begin the call with Chris Franklin, our Chairman and CEO, who will provide an update on the company. Then Mike Heuer, the President of our Gas business, will provide an update on the gas business.

[Brian Dingerdissen, Vice President of Investor Relations & Treasurer at Essential Utilities]

And then Dan Schuller, our Chief Financial Officer, will provide an overview of the financial results before Chris closes the call and opens it up for questions. With that, I will turn it over to Chris Franklin.

[Christopher Franklin, Chairman & CEO at Essential Utilities]

Hey, thanks, Brian, and good morning, everyone. Thanks for joining us today, and let's begin on slide five with some highlights. First, we posted strong results this quarter, 1.3 GAAP earnings per share, a 6% increase over last year's quarter results. Both our Water and Gas businesses performed well as expected. You'll hear more about our Gas business from Mike Keuer in just a few moments as Brian mentioned.

[Christopher Franklin, Chairman & CEO at Essential Utilities]

With those first quarter results, we are reaffirming our 2025 earnings per share guidance range of $2.07 to $2.11 versus last year's earnings of $1.97 per share on a non GAAP basis. Dan will provide a quarter by quarter view of our 2025 earnings expectations in just a few moments. We are also reaffirming our plans to invest between 1,400,000,000.0 and $1,500,000,000 in infrastructure investments in 2025. Through March 31, we've already invested $270,500,000 in infrastructure improvements across our footprint. Now, we previously announced to support our growth and meet our credit metrics, we have begun to raise equity through our ATM program.

[Christopher Franklin, Chairman & CEO at Essential Utilities]

So far this year, we've issued approximately $210,000,000 And throughout the year, we'll look at the market conditions and our share price for opportunities to continue using our ATM. It's always important to mention that our achievements go far beyond the financial results. Some of the things of which we are most proud are our operational achievements. Our water quality compliance results continue to be industry leading at a 99.8% compliance rate, meeting state and federal regulations over the last twelve months. Our PFAS work continues to be on time and on budget.

[Christopher Franklin, Chairman & CEO at Essential Utilities]

We will be fully compliant with the four parts per trillion MCL by 2028 and we remain on target to meet the $450,000,000 in capital spend rate to achieve that compliance. Now importantly for our customers, we expect to receive approximately $100,000,000 in proceeds from the settlements from the polluters and for Aqua Pennsylvania, we've already received approximately $10,000,000 in low interest loans and grants from the government and are also on track in Pennsylvania to receive approximately $59,000,000 in grants or loans after all the applications have been approved. We also continue to see strong operating results in the natural gas company and Mike will fill us in, in a few moments on that work. Environmental stewardship is a key element of our work and it's why we were so proud to learn that for the third year in a row, we were named to USA TODAY's list of climate leaders, a great honor for us and a nice recognition of our continued commitment to protecting and providing essential resources for life. As we think about our successes, I have to mention that our work in the Texas legislature to pass future test year legislation is showing positive signs.

[Christopher Franklin, Chairman & CEO at Essential Utilities]

And just last week, the Texas House of Representatives overwhelmingly passed the future test year bill, and now it's off to the Senate for consideration in that chamber. We'll keep you posted as developments occur. You may recall that our rate cases in Ohio have been taking an extended period of time over the last few cycles at the PUCO. In the last couple of weeks though, legislation was passed by both the House and Senate in Ohio that sets deadlines for rate cases. After the governor signs the legislation, there will be new statutory timelines associated with rate cases in Ohio.

[Christopher Franklin, Chairman & CEO at Essential Utilities]

We see this as a really positive development. Also in Virginia, legislation was passed to expand the water and wastewater infrastructure surcharge. We are really proud of our work with both regulators and legislators to find opportunities to make vital and sizable capital investments and quickly and efficiently recover that capital so we can put it back to work again. Now Slide six, hopefully you recognize our consistent year after year growth in earnings and dividends. 2025 is shaping up to be another strong year in this string of success.

[Christopher Franklin, Chairman & CEO at Essential Utilities]

For many years now, our team has been able to consistently deliver on the guidance that we provided you. Our earnings per share is consistently within a 5% to 7% annual growth rate. And since we started providing annual guidance back in 2016, we have consistently met or exceeded market expectations. That consistent earnings growth has allowed us to continue to build on our over thirty year history of growing our dividend. That dividend growth has averaged about 7% since I became CEO in 2015.

[Christopher Franklin, Chairman & CEO at Essential Utilities]

Lastly, our financial results are made possible by the excellent execution of our operating team and their commitment to the communities where we serve. Since 2015, we've invested nearly $8,000,000,000 in capital improvements and have grown rate base at a 15% compounded annual growth rate if you include the purchase of Peoples. I continue to be impressed by what the team has achieved And our team is incredibly honored to be the current stewards of this great company with its one hundred and forty year history. Many of you have told me you enjoy hearing from our segment presidents. So today, our Gas segment president, Mike Huer is joining us.

[Christopher Franklin, Chairman & CEO at Essential Utilities]

Mike is going to talk a little bit about some of our achievements and some of our ongoing initiatives. And we'll touch a little bit on the data center activity happening in the region where we serve. Mike?

[Michael Huwar, President of Peoples Natural Gas at Essential Utilities]

Thanks, Chris. I'm happy to be here today and appreciate the opportunity to highlight the significant and important work that the team of Peoples Gas are doing. As noted on Slide eight, Peoples is the largest natural gas LDC in Pennsylvania with over 700,000 customers and over $4,000,000,000 of rate base as of the end of twenty twenty four. Additionally, our gas segment includes our operations in Kentucky, serving over 40,000 customers. Since the acquisition by Essential, the clear focus of our gas segment has been the increased safety and reliability of our 15,000 mile distribution system as we work to reduce risk and achieve constructive regulatory outcomes.

[Michael Huwar, President of Peoples Natural Gas at Essential Utilities]

Next, on Slide nine, I wanted to turn to an operational highlight with the Intelis meter program. In Q3 of twenty twenty four, Essential implemented a pilot program with the gas division to install and assess the Intellis solid state gas meter. The Intellis meters provide added safety features and increased protection of customers in the communities we serve. The pilot concluded with the installation of over 30,000 Intellis meters in 2024 and in q one of this year, '20 '20 '5. We have moved from the pilot stage to a full implementation plan to install these new meters in all residential and small commercial properties within our service area.

[Michael Huwar, President of Peoples Natural Gas at Essential Utilities]

The added safety measures associated with these meters include an automatic shutoff if the system were over pressurized or if there was an uncontrolled flow of natural gas. Additionally, in the event of a fire, the meter has the functionality to shut down automatically. As of now, we are assessing a comprehensive program to install the Entellus meters at nearly 700,000 customer counts in the coming years. We are extremely bullish on this effort as we work to be among the safest gas utilities in The United States. Moving along to Slide 10.

[Michael Huwar, President of Peoples Natural Gas at Essential Utilities]

Let me now mention a couple updates to our gas business, starting with the weather normalization adjustment, which is a mechanism we received in our last Peoples rate case. As with other utilities across the nation, Peoples Gas also experiences volatility in weather patterns and subsequently impact distribution revenues beginning 10/01/2024. Peoples received authority to implement a weather normalization adjustment or WNA mechanism to combat volatility and stabilize bills for customers and the company. Since the inception of the WNA mechanism, actual weather has varied in billing months from greater than 17% colder than normal in January of twenty twenty five to almost 30% warmer than normal in March of twenty twenty five. Given the weather volatility, this type of alternative rate making mechanism has proven to be valuable for the company and our customers.

[Michael Huwar, President of Peoples Natural Gas at Essential Utilities]

The mechanism requires the company to track weather, heating degree days during the billing cycle of each customer. When the weather is 3% colder than normal or 3% warmer than normal, an adjustment is reflected on the bill. The primary driver of the mechanism has been to moderate the financial impact of volatile weather for customers and the company. We believe the WNA mechanism is working as intended for all stakeholders. Finally, throughout the nation, there is a great deal of attention focused on the development of data centers and the associated need for electric power.

[Michael Huwar, President of Peoples Natural Gas at Essential Utilities]

We continue to field inquiries related to on-site power generation and data center development to support artificial intelligence, AI. 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. It's no secret that the vast natural gas resources within the Marcellus and Utica Shale formations presents an opportunity of robust and lower cost power generation within the Peoples Gas footprint and across Pennsylvania. The key message is that our company will support these activities in every way possible as they present new and unique economic development opportunities. Given the projected shortfall of available power generation within PJM, our regional transmission organization, the company is working with individual customers, data center developers, energy producers and natural gas pipelines to support these important development efforts.

[Michael Huwar, President of Peoples Natural Gas at Essential Utilities]

While it's certainly too early to predict the exact investment needed to develop these projects, there are clear benefits to the region in what has been described as a very, very fluid environment surrounding data centers and energy usage. For Peoples and Essential Utilities, the potential increased load could increase the utilization factor of the distribution system that would help to keep natural gas service affordable for our customers. And with that, I will turn it to Dan for a review of the financials.

[Daniel Schuller, Executive VP & CFO at Essential Utilities]

Thanks, Mike, and good morning, everyone. Let's begin on Slide 12 with a high level view of the first quarter results, and then we'll get into the details on the waterfalls. Our quarterly performance was strong with revenues up 28%, O and M flat and earnings per share up 6.2%. You'll recall that last year's first quarter earnings per share included a $0.24 gain from the sale of the Pittsburgh area energy project. Let's dive into the waterfall slides to further review the drivers of the strong quarter and the comparison to last year.

[Daniel Schuller, Executive VP & CFO at Essential Utilities]

On Slide 13, we have the revenue waterfall for the first quarter. Revenues increased 28% from $612,100,000 a year ago to $783,600,000 this year. Additional revenues from regulatory recoveries, higher purchased gas costs, and higher regulated natural gas segment volumes were the primary revenue drivers. Of the roughly $67,000,000 increase in regulatory recoveries, two thirds is from gas and one third is from water. Of the higher purchased gas costs, about half is due to volume and half is due to higher commodity prices.

[Daniel Schuller, Executive VP & CFO at Essential Utilities]

The higher gas segment volumes reflect normal weather in this year's first quarter compared to significantly warmer than normal weather in the Pittsburgh area last year. The other category includes an $8,500,000 increase in our customer assistance surcharge cost, which has a direct offset in O and M. It also reflects a lower tax repair related credit to customers as a result of the P and G rate case and $2,000,000 of weather normalization credits back to our Pennsylvania customers. Next, on slide 14, the O and M slide, we see flat O and M expenses year over year, but there are a few things going on that we should discuss. The main drivers for O and M were increases in customer assistance surcharge costs, which have an equivalent offsetting amount in revenue, increases in employee related costs and water production expenses.

[Daniel Schuller, Executive VP & CFO at Essential Utilities]

These increases were offset by a decrease in bad debt expense and other expenses. The decrease in bad debt primarily reflects the rate recovery of a regulatory asset tied to increased bad debt during COVID, and the other category reflects lower outside services costs and insurance expenses. On the EPS waterfall on slide 15, we see a $0.17 positive impact from rates and surcharges, an $08 increase due to higher volumes of gas, reflecting normal weather this year, and a $02 pickup due to lower expenses. These increases were offset by lower water volume and other. For the quarter, other includes the prior year $0.24 gain on sale from the Pittsburgh area energy project, tax related impacts and other items.

[Daniel Schuller, Executive VP & CFO at Essential Utilities]

Turning to slide 16. This is something we've shown occasionally in the past to provide more insights on how our annual earnings per share breaks out by quarter. We thought it was important to bring this back for those of you that run quarterly models, and we've modified it to more accurately reflect how we expect 2025 to look. In the past, we would have said that the first quarter could move our earnings materially higher or lower depending on the weather. Now that we have a revenue normalization mechanism in Pennsylvania, that volatility will be more muted.

[Daniel Schuller, Executive VP & CFO at Essential Utilities]

For this year, we see that the first quarter actual result was at the high end of the 40% to 50% of annual EPS expected in the first quarter. The recovery of the regulatory asset I mentioned earlier was a portion of this outperformance. In the two middle quarters of the year, heating related gas sales are normally light due to warm summer temperatures. Thus, we expect 10% to 20% of our annual earnings in each of these two quarters. And as you will recall, the third quarter EPS is generally the lowest of the year.

[Daniel Schuller, Executive VP & CFO at Essential Utilities]

And the fourth quarter should be between 2030% of our earnings as the Gas business picks up going into winter. We remain confident in our ability to meet our full year earnings per share guidance range of $2.07 to $2.11 While we're here, I do want to reiterate what Chris said about the equity needs for the year. We're pleased to report that we've already completed approximately two thirds of our 2025 equity needs. We see this as a significant accomplishment, considering the general market volatility that we've experienced so far this year. Next, let's move to Slide 17 to provide an update on regulatory activity.

[Daniel Schuller, Executive VP & CFO at Essential Utilities]

We continue to manage our regulatory activity to maintain safe and reliable service, earn an appropriate return on the capital that we invest and minimize regulatory lag while always considering affordability for our customers. New rates went into effect on February 22 for Aqua Pennsylvania following the Pennsylvania PUC approval of the recent rate case. The rate order allowed a base rate increase designed to increase total annual revenues by $73,000,000 During the first three months of twenty twenty five, we implemented rate increases in Ohio and North Carolina designed to increase total revenues on an annual basis by 5,800,000.0. Also, during the first three months of twenty twenty five, we implemented infrastructure rehabilitation surcharges designed to increase total revenues on an annual basis by 10,800,000.0 in our water and wastewater divisions in Pennsylvania and Ohio and by approximately half a million dollars in our natural gas subsidiary in Kentucky. On 04/30/2025, the company's regulated water and wastewater subsidiary in North Carolina, Aqua North Carolina, followed an application with the North Carolina Utilities Commission designed to increase rates by $32,900,000 in the first year of implementation and then by two incremental approximately $6,000,000 increases in the second and third years, respectively.

[Daniel Schuller, Executive VP & CFO at Essential Utilities]

As a reminder, we began using a multiyear approach in North Carolina three years ago, We find that that works well for all of the stakeholders. And with that, I'll turn it back over to Chris. Chris?

[Christopher Franklin, Chairman & CEO at Essential Utilities]

All right. Thanks, Dan. Let's move to slide 19 now. We'll touch briefly on our long term growth or acquisition strategy that, as you know focuses on water and wastewater utility acquisitions. In fact, since 2015, we've acquired over $518,000,000 in rate base and more than 129,000 new customers or customer equivalents.

[Christopher Franklin, Chairman & CEO at Essential Utilities]

Last month, we closed on the acquisition of the Village of Midvale Water System in Ohio, which serves approximately 1,000 customers. We paid approximately $3,000,000 for this relatively small system. And as a reminder, Ohio is our second largest water operation with over 150,000 customers and we continue to see strong opportunities for regionalization in that state. Now in January, we closed the acquisition of the Greenville wastewater utility assets, which serves approximately 2,300 customers in Greenville, Pennsylvania. We paid approximately $18,000,000 for this system.

[Christopher Franklin, Chairman & CEO at Essential Utilities]

And just recently we filed an application with the Pennsylvania Public Utility Commission for the acquisition of the Greenville Water system, which we hope to close later this year. Now including Greenville Water, as of today, we have five signed purchase agreements for the acquisition of water and wastewater systems in Pennsylvania and Texas that are pending closing and are expected to serve over 210,000 customers or customer equivalents and total approximately $340,000,000 in purchase price. Our $276,500,000 agreement to acquire DELCORA, a Pennsylvania sewer authority that serves approximately 198,000 customer equivalents in the Philadelphia suburbs is included among these signed purchase agreements, but as you know is not included in our current guidance numbers. And finally, on Slide 20, as usual, we'll close the call by sharing some of our goals and aspirations both short term and long term. We continue to see a healthy pipeline of opportunities for additional growth both on the water side as well as the gas business.

[Christopher Franklin, Chairman & CEO at Essential Utilities]

We expect our combined utility rate base will grow at a compounded annual growth rate of 8%. Breaking this down a little bit further, we anticipate our regulated water segment rate base growth at about 6% and our regulated natural gas segment rate base growth to be at about 11%. Importantly, we are reaffirming our 5% to 7% multi year earnings per share guidance through 2027. As I've said before, this guidance does include acquisitions, which are expected to close in 2025 and 2026 and excludes DELCORA. Of course, this projection includes the crucial work that we're doing to remediate PFAS across our water systems as well as our work to replace aging natural gas pipes.

[Christopher Franklin, Chairman & CEO at Essential Utilities]

By the way, our gas pipeline replacement work is expected to continue well beyond the next ten years. Now we will continue to maintain a strong balance sheet with a focus on continued improvement in our debt metrics, while we grow the dividend and we'll keep the payout ratio at the same time at 60% to 65%. So all in all, we see a bright future for the company as we continue to invest in our nation's infrastructure and build value for shareholders. Very excited about the future of this company. With that, I'm going to conclude my formal remarks for the day and we'll open up for questions.

[Christopher Franklin, Chairman & CEO at Essential Utilities]

Send it back to the operator.

[Operator]

Our first question comes from the line of Julien Dumoulin Smith from Jefferies. Please go ahead.

[Analyst]

This is on for Julien. This is Mark. Congrats on a nice quarter.

[Daniel Schuller, Executive VP & CFO at Essential Utilities]

Thank you. Good morning.

[Analyst]

Morning. My first question is on equity issuance. We know two thirds of the equity needs have been completed so far. Just given recent share price strengths, are you considering completing the remaining roughly $100,000,000 equity ahead of second quarter? And maybe any thoughts on perhaps pulling forward a portion of 02/26 equity needs?

[Analyst]

Thank you.

[Daniel Schuller, Executive VP & CFO at Essential Utilities]

Yeah. I appreciate the question. And I think for the time being, focus is really getting the $315,000,000 in equity raised here in 2025 rather than really thinking about the 2026 equity. But, as you know, we've got a relatively strong share price. So when we can, we'll be in the market issuing shares in a way that that doesn't dramatically impact the share price.

[Analyst]

Got it. That's very clear. And maybe if I can just pivot a little bit, on the Texas rate case, I know as you're gearing up for your first Texas filings in roughly twenty years and just what level of revenue increase ROE and equity ratio are you targeting? I guess, how should we set expectations around the case and outcome? I know you mentioned some positive dynamics earlier in terms of future rate case, future test year.

[Analyst]

Just any color on that front would be helpful. Thank you.

[Daniel Schuller, Executive VP & CFO at Essential Utilities]

Yes. So that rate case, we haven't filed it yet. We were looking to file it at the end of this month. That's our target at this point. You'll see when we file that, you'll see what that revenue ask is and also equity layer and ROE.

[Daniel Schuller, Executive VP & CFO at Essential Utilities]

But I'd say on equity layer and ROE, expect to see something consistent with what we ask for in our other states.

[Christopher Franklin, Chairman & CEO at Essential Utilities]

And I would say just to add to that, we work very hard to build a reputation in all the states where we operate with strong operating results, try to be very, very accommodating to regulators when they need us to do things. We've done the same thing in Texas. Now anytime you come in for rates after twenty years of being out, you know, there's gonna be some some some things to get over and and and figure out, because, we haven't been in for so long. And so I would just say, you know, we'll work really closely with Texas regulators to adjudicate that case. But certainly, may be some things in that case that we'll figure out as we go.

[Analyst]

Got it. That's very clear. And congrats again. Thank you.

[Daniel Schuller, Executive VP & CFO at Essential Utilities]

Yes. Thank you.

[Operator]

You. Our next question comes from the line of Durgesh Chopra from Evercore ISI. Please go ahead.

[Durgesh Chopra, Managing Director at Evercore ISI]

Morning, Durgesh. Good morning, Chris and thank you for giving me hey. Just a little bit more color, and I I'm just looking for some reaffirmation here. Looks like you started the year really strong in terms of EPS. And when I sort of do some high level math and take the midpoints of the ranges you have highlighted in terms of earnings contribution for quarter second, third, and fourth, that will put you ahead of your top end of the guidance range.

[Durgesh Chopra, Managing Director at Evercore ISI]

So maybe just maybe just talk to that. Is that you've started strong, but there's a long year to go, so you're kind of, you know, not raising guidance here, but but you're starting start strong? Or the strategy is to move costs from '26 into 2025 and and derisk '26? Maybe just maybe just talk to that as to how you are seeing that play out.

[Daniel Schuller, Executive VP & CFO at Essential Utilities]

Yeah. Yeah. Great great question, Durgesh. I think, you know, you you you that first point you made, right, that, we're four months into the year here and the financials really only reflect the three months. So it seems premature to do much in terms of adjustment of our guidance range.

[Daniel Schuller, Executive VP & CFO at Essential Utilities]

You know, and I'll acknowledge we did have some nice tailwinds in the first quarter, but we've got three more quarters to go, and and we may have some headwinds there that, that we encounter. So our thought was really just to to wait and provide clarity really as the year goes on.

[Durgesh Chopra, Managing Director at Evercore ISI]

Got it. Okay. I appreciate that commentary. And then just, kinda wanted to ask you on the EPA announcement here late late April on PFAS. You know, they they were kind of announced specific targeted actions.

[Durgesh Chopra, Managing Director at Evercore ISI]

Just wondering how that impacts your operational strategy in in tackling that forever chemical, and then any implications for the capital that you have in the five year plan, please? Thank you.

[Christopher Franklin, Chairman & CEO at Essential Utilities]

Durgesh, we're we're full speed ahead. I I I've mentioned on previous calls that we've sat with regulators, economic and environmental regulators in our key states. And the orders, what we've received from them is full speed ahead, mitigate this, meet the timelines. So we're still on our projected budget of $450,000,000 will be complete by 2028. And there is no hesitation here at all.

[Christopher Franklin, Chairman & CEO at Essential Utilities]

We're going to spend it and we're going to mitigate the affected wells and sources. We continue to test our system. So there are occasions where that could grow a little bit as we continue to test the various locations around the company's footprint. But there is no we've seen nothing from EPA or this administration that would suggest that we should slow in any way. So we're full speed ahead.

[Durgesh Chopra, Managing Director at Evercore ISI]

Got it. Thank you.

[Christopher Franklin, Chairman & CEO at Essential Utilities]

Thank you.

[Operator]

Thank you. Our next question comes from the line of Travis Miller from Morningstar. Please go ahead.

[Travis Miller, Analyst at Morningstar]

Hey, Good morning, everyone. Thank you. Just a little follow-up there on PFAS discussion. In terms of the financing, got those numbers that you were talking about. For Pennsylvania specifically, you had some success there, how much is left would you say of the four fifty million that's allocated to Pennsylvania then net those low interest loans to the $55,000,000 if you get that?

[Christopher Franklin, Chairman & CEO at Essential Utilities]

Well, I would say that the spend in Pennsylvania is still largely to come. We have not spent much because in Pennsylvania, we have some larger plants that need mitigation, and so that takes much more planning, permitting and testing. So Travis, most of that spend is yet to come. We continue to look at the low interest loans and grants in Pennsylvania, and we're hopeful that we can get more. We've already been, as you said, successful, but we've got we've got applications in for for additional dollars to offset what our customers need to pay.

[Christopher Franklin, Chairman & CEO at Essential Utilities]

I I don't have exact numbers on on the applications that are in right now, but but we're happy to take that offline and get you some more numbers.

[Travis Miller, Analyst at Morningstar]

Okay. And that'd be incremental to the $69,000,000 the $10,000,000 and the 59,000,000

[Travis Miller, Analyst at Morningstar]

Great.

[Christopher Franklin, Chairman & CEO at Essential Utilities]

Of what we've already received.

[Travis Miller, Analyst at Morningstar]

Okay. Okay. And then a question for Mike. Data centers, I'm sure you weren't surprised that there would be a question on data centers. When you talk about the opportunity there, is that just simply more gas flowing through the distribution center?

[Travis Miller, Analyst at Morningstar]

Or are you thinking more direct contracts to, say, on-site generation? I would've heard a couple of gas companies talking about projects essentially behind the meter. Is that a supply source that you'd think about? Or are we just talking about more distribution volume?

[Michael Huwar, President of Peoples Natural Gas at Essential Utilities]

Thank you for the question. I mean, think it's a variety of things. I think Team Pennsylvania, the economic development entity of Pennsylvania has indicated there's somewhere around 72 projects in various forms of development. What I'm describing is some form or fashion of all the things that you talked about. We believe in behind the meter generation, only for data centers, but large volume customers as well.

[Michael Huwar, President of Peoples Natural Gas at Essential Utilities]

But it's very fluid at this particular time. And of the projects that we're currently in discussions with, it's, it's very clear that there are different approaches to how this might happen. It's also very clear that the PJM grid does not have the adequate generation as you look out into 2030 and beyond to support virtually many of these projects. So natural gas will play a huge part in that. There's certainly latency within our system, load factor that can be extrapolated to the benefit of customers, not only new customers, but our existing customers.

[Michael Huwar, President of Peoples Natural Gas at Essential Utilities]

And there's also potential investment that we might look at with potential partners. So we have a team that's been working on this for quite some time. We're thinking about it every day and and how we can support these efforts not only to the benefit of the region, but to our customers and specifically Peoples and Essential.

[Travis Miller, Analyst at Morningstar]

Okay. Great. I appreciate all the details. That's all I had. Thanks.

[Michael Huwar, President of Peoples Natural Gas at Essential Utilities]

Thank you, Travis.

[Operator]

Thank you. Our next question comes from the line of Greg Oro from UBS. Please go ahead.

[Daniel Schuller, Executive VP & CFO at Essential Utilities]

Hey, Greg. Good morning, Greg.

[Gregg Orrill, Analyst at UBS Group]

Hey, good morning. Congratulations. Just maybe a follow-up there with regard to the discussions that you're having with business opportunities on the gas side with data center customers, how

[Gregg Orrill, Analyst at UBS Group]

do

[Gregg Orrill, Analyst at UBS Group]

you see that evolving? When do you think those discussions would reach terms of agreements? What sort of updates should we be looking for as the year progresses?

[Michael Huwar, President of Peoples Natural Gas at Essential Utilities]

So, again, I appreciate that question. You know, as mentioned, with the vast number of projects that are currently in play, it's really hard to say specifically what the timing of any announcements would be. You've seen fairly large data center campuses that have already been announced. Those are not anything that we have portrayed in any of our analysis. I would also say that the state of Pennsylvania and any economic development packages they would put together, those are gonna have tremendous influence on who locates here.

[Michael Huwar, President of Peoples Natural Gas at Essential Utilities]

The unique potential of where individuals would locate data centers is something that we continue to look at, a really strong robust delivery system. So I I would hesitate to present the timing of when we would announce any type of deal. And, as I mentioned, of the ones that we're looking at, they all come in various forms, shapes, and sizes. So what we do know is that the speed to market influence is gonna be really important for these developers. So I would suggest that as we develop deals and sign deals, we would come to the table with those immediately.

[Christopher Franklin, Chairman & CEO at Essential Utilities]

There's so many contributing factors to state government here in Pennsylvania. It's really gotta play a major role as well. We think about, site location, site readiness in in addition to everything that the company is doing to, to provide, you know, the the adequate supply. Mike, I think the one you mentioned, that that got complete already is Bedford. Right?

[Christopher Franklin, Chairman & CEO at Essential Utilities]

Homer City is Homer City. I'm sorry. Homer City was Yep. Yep. And so we have had some successes here in Pennsylvania.

[Christopher Franklin, Chairman & CEO at Essential Utilities]

That one was not in our service area, but we're hopeful to see more of those, whether it's throughput or combinations. Sort of like we've done, Greg, with the energy products that we sold last year. Those are always a possibility. But it's hard to say what form these ultimately will take, let alone timing.

[Gregg Orrill, Analyst at UBS Group]

Okay. Thanks.

[Operator]

Thank you. Our last question comes from the line of Ryan Connors from Northcoast Research. Please go ahead.

[Daniel Schuller, Executive VP & CFO at Essential Utilities]

Hey, Ryan. Good morning. Good morning.

[Ryan Connors, Senior Managing Director and Research Analyst at Northcoast Research Partners LLC]

Good morning. Yes. So, Dan, one for you, Dan. On the O and M expenses, it seemed like that was a big surprise for us. And you mentioned the bad debt you know, kind of a good guy there.

[Ryan Connors, Senior Managing Director and Research Analyst at Northcoast Research Partners LLC]

Can you kind of give us frame a little bit for us what the core growth rate was and kind of, core O and M and where we should be thinking about that over the balance of the year? Is that bad debt benefit going to continue? Or is that, will that tail off?

[Daniel Schuller, Executive VP & CFO at Essential Utilities]

It's that bad sorry, bad debt benefit that I mentioned, that will continue, meaning it doesn't get any better. It was sort of a onetime nonrecurring item that's coming through the balance sheet here as a result of the conclusion of the Aqua Pennsylvania rate case. But if we look and we had the same question. So we look end to end here and say, well, if we didn't have some of these one time ish effect, including the the customer assistance rider, that 8 and a half million dollar bar that you see at the beginning of the waterfall, If you kinda normalize this from last year and this year, you'll come to about two call it two point, between two and a half and and and 3%. Think our quick math gave us 2.8% or so there.

[Daniel Schuller, Executive VP & CFO at Essential Utilities]

That's

[Ryan Connors, Senior Managing Director and Research Analyst at Northcoast Research Partners LLC]

Got it. Okay.

[Daniel Schuller, Executive VP & CFO at Essential Utilities]

When we

[Daniel Schuller, Executive VP & CFO at Essential Utilities]

think about O and M expenses and and as know, we spent a lot of time really focused on keeping our O and M expenses under control, you know, of remaining below 3% or closer to two two and a half percent is is really our objective.

[Christopher Franklin, Chairman & CEO at Essential Utilities]

Yeah. Dan, the work that, you know, we're we're just beginning here at the company much like other utilities around lean, should should bear fruit over the next few years. Although, you know, we're in the investment stage of that at this point, just getting our people trained up and getting people focused on that kind of an approach to but that's next level, Ryan, for us is really focusing on that lean approach and then seeing results over the next few years.

[Daniel Schuller, Executive VP & CFO at Essential Utilities]

Yeah. So I think as we

[Daniel Schuller, Executive VP & CFO at Essential Utilities]

think about that kind

[Daniel Schuller, Executive VP & CFO at Essential Utilities]

of probably this year and first part of next year, Ryan, we'll be investing in that program and and spending some money in order to get people trained up. And then beyond that, we'd look for some efficiencies to come out of that as really you've got the whole of the employee base looking at doing things efficiently, eliminating waste and and and taking action on those items. So we're really excited about Got

[Ryan Connors, Senior Managing Director and Research Analyst at Northcoast Research Partners LLC]

it. Now, Mike, one for you on has the company disclosed a rate based dollar value associated with that Intelis meter rollout?

[Michael Huwar, President of Peoples Natural Gas at Essential Utilities]

No. We have not at this point. No.

[Ryan Connors, Senior Managing Director and Research Analyst at Northcoast Research Partners LLC]

No. Okay. Got it. Okay. And then lastly, Chris, I wanna just get your take on on the Beaver Falls.

[Ryan Connors, Senior Managing Director and Research Analyst at Northcoast Research Partners LLC]

I know it's not a massive deal, but interesting sequence of events there. I mean, you you reached a settlement, OCA was on board, and then you get an adverse recommendation from the ALJ. So just curious what you can give us your take on that. Why why we seem to continue to see these ALJ decisions go sometimes the wrong way? And then also, when do you think we could expect to see Beaver Falls actually come before the PUC?

[Ryan Connors, Senior Managing Director and Research Analyst at Northcoast Research Partners LLC]

Could it be as soon as this month, or would it be further out than that?

[Christopher Franklin, Chairman & CEO at Essential Utilities]

Yeah. All good questions, Ryan. I wish I had a good answer for you as to why the ALJs in Pennsylvania continue to put the commissioners in a place where they need to overturn it. I'm hopeful that there is a philosophy emerging here that will make this a little bit easier of a process. Because I think in some cases that's what it is.

[Christopher Franklin, Chairman & CEO at Essential Utilities]

It's a philosophy. Now I do think given the settlement negotiated, I do think we have a favorable chance at the commission level. We expect this to be on an agenda in in June this year, so about a month away maybe. And, you know, we're listen. We're hopeful we're gonna do all the work, and and we've done all of our filings and everything to support this case.

[Christopher Franklin, Chairman & CEO at Essential Utilities]

This is one this is a primary example of a troubled system that needs assistance. The mayor came back, lowered her price. We're taking a little bit of goodwill. The OCA got comfortable with it. This is one that should get done.

[Christopher Franklin, Chairman & CEO at Essential Utilities]

This is we need to make sure that deals like this get done in Pennsylvania for the water supply in this state.

[Ryan Connors, Senior Managing Director and Research Analyst at Northcoast Research Partners LLC]

Got it. Thanks for the help. We'll definitely keep an eye on it. Thanks for your time.

[Christopher Franklin, Chairman & CEO at Essential Utilities]

You got it. Thank you.

[Operator]

This concludes our question and answer session. I will now turn the call over back to Mr. Chris for closing remarks.

[Christopher Franklin, Chairman & CEO at Essential Utilities]

Thanks everyone for joining us this morning. And as always, we stand ready to answer any of your follow-up questions. Look forward to hearing from you, and have a great day.

[Operator]

Thank you for joining today. You may now disconnect.

Participants

Executives

• Brian Dingerdissen, Vice President of Investor Relations & Treasurer
• Christopher Franklin, Chairman & CEO
• Michael Huwar, President of Peoples Natural Gas
• Daniel Schuller, Executive VP & CFO

Analysts

• Analyst
• Durgesh Chopra, Managing Director at Evercore ISI
• Travis Miller, Analyst at Morningstar
• Gregg Orrill, Analyst at UBS Group
• Ryan Connors, Senior Managing Director and Research Analyst at Northcoast Research Partners LLC