Good day, and welcome to the Essential Utilities Inc. Q3 2021 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Brian Dingerdissen. Please go ahead, sir..

Thank you, Lauren. Good morning, everyone, and thank you for joining us for Essential Utilities Third Quarter Earnings Call. I am Brian Dingerdissen, Vice President and Head of Investor Relations. If you did not receive a copy of the press release, you can find it by visiting the Investor Relations section of our Web site at essential.co.

The slides that we will be referencing and the webcast of this event can also be found on our Web site.

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.

A reconciliation of these non-GAAP to GAAP financial measures is included at the end of the presentation and also posted in the Investor Relations section of the company's Web site. Here's our agenda for the call today. We will start with Chris Franklin, our Chairman and CEO, who will discuss the third quarter highlights and provide a company update.

Next, Dan Schuller, our CFO, will discuss our financial results. Chris will then provide an update on our growth strategy, the municipal water and wastewater acquisition program and conclude the presentation portion before opening the call for questions. With that, I will turn the call over to Chris Franklin..

Thanks, Brian, and good morning, everyone. Thanks for joining us. Let me start the call today with a thank you. Thank you to many of you who took the time to participate in our recent investor perception study.

We conduct that survey about every other year, and it helps us provide us with another perspective, an overall perspective, if you will, from investors which then supplements what we hear from all of you and our amount of about 300-plus meetings with investors throughout each year.

We really appreciate the strong confidence that you expressed in management and in the work we're doing in that survey and especially around municipal acquisitions. I do want to bring clarity though to one issue where there seems to be some ambiguity in the minds of at least a few investors about how we think about our work in natural gas.

First, we're really proud of the work and the results our natural gas team is achieving. Our careful study of the market indicates that natural gas, especially in our key service area of Pittsburgh, Pennsylvania, will be an important part of the energy mix for probably decades to come.

And in less than 15 years, we will be at least 60% of the way toward our aspirational goal of net zero emissions. So listen, we acknowledge the fact that natural gas utilities are currently achieving suboptimal trading multiples in the public markets.

And this despite the very high private market multiples achieved in recent natural gas company transactions. But with these things in mind, I want to be really crystal clear. Growth through acquisition in natural gas is not in our strategy.

Our strategy in natural gas is to replace the nearly 3,000 miles of gas main to improve safety, reliability and the environment while generating the associated earnings per share. We go one step further, our strategy is keenly focused on growing our water business through acquisition, and we have a very successful track record in doing this already.

Hopefully, you’ll agree. I hope this clears any ambiguity that existed in the market around our growth strategy. All right. With that, let's take a quick look at the third quarter highlights. The water and gas teams have been focused and working hard on infrastructure improvements.

We are on pace to replace about 180 miles of water main this year and about 175 miles of gas main this year. On a combined basis, that's water and natural gas.

We've invested about $676 million in infrastructure improvements throughout our systems in just the first nine months of this year as compared to about $608 million for the same period last year, and we remain on track to spend about $1 billion in capital on infrastructure this year.

Our heavy work on infrastructure improvements generated a busy year for our regulatory people as well. We had rate activity in two of our three natural gas states and seven out of our eight water states, including the filing of our Pennsylvania water rate case back in August.

And Dan is going to give you a little bit more details on that in just a moment. Our municipal acquisition strategy remains strong as we announced the closing of the Village of Bourbon A in Illinois, and we added Beaver Falls, a wastewater system in Pittsburgh to our growing list of pending acquisitions.

In total, we've closed two acquisitions this year and have seven pending acquisitions. These nine acquisitions total over $500 million in purchase price. I'm also pleased to announce that we were celebrated as a champion of Board diversity by The Forum of Executive Women.

While we were also recognized for recently published ESG report with multiple awards, our team did a really nice job. If you haven't had a chance to look at it, it's really worth the look.

This is the third time we've received the Champion of Board diversity honor, which is awarded to the top public companies in our region with 30% or more women on their respective boards. Really important work to us and we're very proud of that. We remain focused on reducing the company's carbon footprint.

We've already made a significant progress toward our goal by replacing hundreds of miles of leak prone gas pipe and by significantly increasing our use of renewable energy for our power needs.

You've heard this before but our public commitment to reduce our greenhouse gas emissions by 60% before 2035 from a 2019 baseline has already produced 5% reduction in the first year of our commitment. Under our ESG banner, we are evaluating initiatives in renewable natural gas or RNG, responsibly sourced gas or RSG and hydrogen.

We currently procure RNG from about six landfills and are looking for other opportunities to take RNG, including into our distribution system for our utility customers.

We're also working with an engineering firm to evaluate RNG facilities at some of our wastewater treatment plants, allowing synergies to be realized between our water and our gas businesses.

As part of our increased focus on RNG, we recently joined the RNG coalition, which is an industry organization that advocates and educates for the sustainable development, deployment and utilization of RNG.

And finally, we're having discussions with several potential partners regarding hydrogen pilots and hope to provide more details on a future earnings call as those concepts develop.

I encourage all of you to review our again award winning Essential 2020 ESG report, which highlights some of these environmental initiatives, along with several other initiatives. All right. Let's turn to a key operational challenge we faced, resulting from Hurricane Ida.

Just before Labor Day weekend, Hurricane Ida made its way through Southeastern Pennsylvania and poured nearly 8 inches of rain in six hours on two of our key surface water treatment plants. To put that storm event in perspective, that's 20% of the annual rainfall we would normally expect in this region fell in six hours.

This sustained and heavy rainfall in the Pickering and are only Creek watersheds resulted in record flooding in the Philadelphia region, which made national news. The picture you see here is an aerial view of our Pickering West water treatment facility sub-emerged from the storm. This is the largest plant in our fleet.

At the height of the storm, we had to shut down the power and abandon this plant. If our team had stayed, they might have drowned in the 8 feet of water that filled their offices.

But immediately after the storm subsided, a cross functional team of managers, employees and contractors work around the clock to optimize our other plants, because we need to bring water into this area, restore the damage plants and also communicate with our customers.

Our Ford County interconnected system allowed us to adjust our water distribution system to compensate for the loss of approximately 40% of our drinking water supply, which normally comes from the plant you see under water here.

Without the redundancy of our system, maintaining service to our customers would have been impossible and that's where our long term planning really showed. We were pleased to maintain service for all of our customers with only a few isolated low pressure issues.

Now storm like Ida raises some important issues and questions for us and for other utilities for that matter. Questions like how would a smaller water utility respond to an event of this magnitude, especially a utility that does not have the level of resources or expertise that we have.

Another question is, will events like this cause even more smaller water and wastewater utility to consider exiting the business just because of the capital costs and other constraints to overcome these type of issues. Should we expect more extreme weather like this with climate change, big question for all utilities.

And finally, how much capital will we need to address issues like this one at our Aqua and at other utilities across the country. These are important questions that we'll have to grapple with. Now on the next slide, I just want to point out the pictures here, you can see the damage and the team.

And I'd be remiss if I didn't point out that it was the efforts of our workforce and their dedication to our customers that got our plants back online and allowed us to maintain service throughout that challenging time. I am really proud and honored to be part of such a resilient team.

And to say they did a great job, would simply be an understatement. We have a long list of lessons learned from this incident and are well into the planning necessary to overcome these challenges in the future. All right. Let's shift gears into the financials, and I'm going to pass the call along to Dan.

Dan?.

Thanks, Chris, and good morning, everyone. Before I move into our results, knowing the question is likely coming, please keep in mind that we have insurance to help mitigate impacts of a storm event like Ida. And while not certain, we'll also seek to recover any storm related costs not covered by insurance.

That said, however, the results we'll describe next include the revenue impact of voluntary conservation efforts and the increased expenses associated with Ida. Furthermore, we'd expect any major changes in the Pickering treatment plan configuration to be included in future capital plans. Let's start with the third quarter financial highlights.

We ended the third quarter with revenues of $361.9 million, up about 3.8% from last year. Our regulated water segment contributed $259.9 million and our regulated natural gas segment contributed $94.8 million. O&M expenses increased 2.3% to $139.4 million in the third quarter, up from $136.2 million in the third quarter of last year.

Net income was down year-over-year from $55.7 million to $50.5 million and GAAP earnings per share decreased from $0.22 to $0.19. Next, we'll walk through the waterfall slides, starting with revenue.

As we walk through the $13.2 million revenue increase in the third quarter of 2021, you'll notice the main drivers were purchased gas, adding $8.7 million and rates and surcharges contributing $8.2 million. Q3 2020 rate credit growth from our regulated water segment and other provided an additional $6.9 million towards the revenue increase.

These revenue increases were offset by decreased volume resulting in $9.6 million decline in our water segment and an approximately $1 million reduction in our gas segment.

As a result of the weather conditions, the return to post COVID normalcy and Ida related conservation in Pennsylvania, we experienced water consumption reduction in seven of our eight water states. I'd like to pause here for a moment and discuss the impact of the increase in natural gas prices.

While heating degree days in the third quarter were down when compared to the same period in 2020, gas prices have significantly increased year-over-year as you've read in the news.

Due to increased gas commodity costs, we anticipate that our average customer bill for the 2021, 2022 winter heating season will be approximately 25% higher than last winter. However, there's some important things to note.

Prior to the recent run-up in gas commodity costs, the commodity itself only represented about 20% of the typical Peoples’ customers’ bill. Even with these increased gas commodity costs, the anticipated 1,130 bill is far short of the record highs from 2008 when the average annual bill was approximately $1,800.

Also, we have approximately 47% of our winter gas needs already in storage, much of which was purchased at significantly lower prices than today's spot prices, which helps to dampen the impact of the commodity price increase.

And lastly, I'd point out that the prices that Peoples paid for natural gas are consistently discounted compared to the NYMEX due to the basis differential that exists between NYMEX and the Marcellus Basin pricing. This is a real advantage of procuring and providing locally sourced natural gas.

With that, let's take a more detailed look at water consumption by customer class. We wanted to take the opportunity to update you on water usage trends as more of the population returns to pre-COVID lifestyle. For the third quarter, water usage declined by 5.2% from last year, returning to the 2019 level of approximately 19 billion gallons.

The continued trend of businesses reopening and our customers returning to their workplaces, along with weather impacts and conservation efforts in Pennsylvania due to Hurricane Ida, resulted in a residential usage decrease of 8.1% and a commercial usage increase of 2.8% when compared to the same period in 2020.

As a reminder, historically, in the water business, we see a natural decline of about 1% annually as customers change out older appliances and fixtures. Operations and maintenance expenses were $139.4 million for the third quarter, up 2.3% compared to $136.2 million in the third quarter of 2020.

The main driver was employee related costs of $6.8 million for the quarter, which included $1.7 million of increased medical costs, plus pension expenses and normal employee expenses.

Similar to last quarter, the increase in metalical expenses over 2020 was expected as many people that had delayed non-emergency medical visits have begun to catch up on physicals and other medical appointments.

Other items, including Hurricane it repair expenses added $3.8 million and growth in production costs for the Regulated Water segment added another $1.9 million However, these increases were offset by almost $9.4 million in COVID-19 costs when compared to Q3 2020.

And you'll recall, though, that was really bad debt and some sort of onetime bonuses we did last year for non-management employees. We're starting to experience some inflation related increases, specifically in the areas of fuel, chemicals and insurance and we're reflecting those in our 2022 budget.

And next, we'll review the earnings per share waterfall. GAAP EPS for the third quarter decreased by $0.03 from $0.22 in 2020 to $0.19 this year. As we mentioned on the last call, we expected this quarter to be at the lower end of the range we provided for Q3 early in the year. Rates and surcharges added $0.022.

The Q3 2020 rate credits contributed $0.011 and growth from our regulated water segment, another $0.04.

These were offset by O&M of $0.028 and lower volume from both our regulated water segment and our regulated natural gas segment of $0.029 combined and another $0.05 from other items, which brought us to GAAP EPS of $0.19 for the third quarter of 2021.

For the full year, presuming normal weather, our earnings per share results should be around the midpoint of our stated guidance range of $1.64 to $1.69. Moving on to rate activity and other matters. So far in 2021, we've completed rate cases or surcharges in seven of our eight water states with total annualized revenue of $31 million.

In our regulated natural gas segment, we've completed rate case or surcharge filings in Pennsylvania and Kentucky, with total annualized revenue of $1.3 million.

We currently have base rate cases underway for our regulated water segment subsidiaries in Ohio and Pennsylvania, as well as for one of our regulated natural gas subsidiaries, the one in Kentucky, known as Delta Natural Gas.

As many of you know, we filed the rate case of our Aqua Pennsylvania subsidiary in August in line with the three year rate case cadence we had outlined previously. The primary driver of the rate case filing is the $1.1 billion in capital investments since the last case.

These expenditures funded the replacement of more than 400 miles of aging water mains and associated valve services and hydrants throughout Aqua Pennsylvania’s approximately 5,800 miles distribution system, plus wastewater treatment plant upgrades, PFAS, PFOA filters and our new [Pinar] laboratory.

These types of investments in the communities that we serve allow us to continue our long history of consistently providing safe drinking water to our customers and returning clean treated wastewater to the environment. Now one unique aspect of this filing is the request for the first water focused universal services program in Pennsylvania.

We were asked to file this as part of our Peoples acquisition settlement and we're looking forward to having universal services program as an important way of helping our low income water and wastewater customers.

While we're often viewed as having a suburban customer base, in fact, approximately 10% of our water and wastewater customers here in Pennsylvania are living below the federal poverty line. In terms of the schedule, direct testimony is due on November 10th and evidentiary hearings are scheduled before the holidays.

We anticipate having new rates effective in May of 2022. And with that, I'll hand it back over to Chris..

Great. Thanks, Dan. Let's talk a little bit about our status of municipal transactions. And you can see on this slide that during the quarter, we announced the closing of the Village of Bourbon A. This wastewater system serves about 6,500 customers in Kankakee County, Illinois.

And then in October, we announced the signing of an asset purchase agreement with Beaver Falls, and this was a wastewater system in the Pittsburgh area, which serves about 7,600 customer equivalents. And this one is important because it gives us a water foothold in Western Pennsylvania in addition to our already strong gas platform in that same area.

So it's an important one for us. Now as of this call, we've signed seven asset purchase agreements and they're all pending, which will add over 234,000 customers or customer equivalents and a total of $468 million in purchase price.

These seven pending transactions, plus the two closed transactions, will add over 241,000 customers or customer equivalents, again, and a total of over $500 million in combined purchase price.

We remain confident that we will close the DELCORA transaction, the litigation with Delaware County regarding the enforceability of our asset purchase agreement with DELCORA was heard by a three judge panel in Pennsylvania, the Commonwealth Court, back on October 18th of this year, just a couple of weeks ago.

And a decision is expected in the first half of next year. We're also still hopeful that we can reach a settlement with the county, which would help accelerate the closing of this transaction. I'm sure I'll answer questions when you have them in a few moments.

In addition to the signed municipal transactions we just discussed, our pipeline of municipal opportunities remained healthy and strong.

Key contributors to the strength of our pipeline include fair market value legislation in all of our states, the fair regulatory environments where we operate now and where we operate the strong offering of solutions we bring to municipalities, including low cost capital, our expertise and long term rate stability.

Now this table includes acquisition opportunities where we are engaged in active discussions with municipalities. As the slide demonstrates, we are actively pursuing about 400,000 potential water and wastewater customers. So a very healthy pipeline. Many of you have asked about the Chester Water Authority. It's in the news all the time.

You'll recall that this is a water utility with about 44,000 customers that serves in two counties in Southeastern Pennsylvania, along with the City of Chester. On September 16, the Pennsylvania Commonwealth Court ruled in a 5, 2 decision that the City of Chester is the rightful owner of the Chester Water Authority.

Pending approval from the state appointed receiver, city is in a bankruptcy proceeding. So the state appointed receiver. The city now plans to sign an asset purchase agreement with Aqua to sell the asset.

In fact, just after the court decision was released, the Chester City Council unanimously passed the public ordinance declaring Aqua the winner of its request for proposal process and requesting that the receiver expeditiously provide approval to sell the Chester Water Authority to Aqua. All right.

Let me wrap up the formal remarks today by reaffirming our 2021 guidance as we continue to expect earnings to be between $1.64 to $1.69 per share. Our capital plan continues to remain on track as we anticipate spending about $1 billion this year on regulated infrastructure and about $3 billion across our essential platform by 2023.

As we indicated last quarter, the final mix of our 2021 capital spending will be weighted toward the regulated water segment. Customer growth is expected to be between 2% and 3% on average for our regulated water segment.

And even as DELCORA transaction has been pushed out in time, we remain confident in our ability to achieve this 5% to 7% earnings growth over the three year period ending in 2023. This is our current guidance period.

And finally, our commitment and our continued progress on environmental stewardship, sustainable business practices, employee safety, diversity and inclusion, customer experience and community engagement, allows us to demonstrate our leadership on ESG related issues in the industry.

And with that, let me conclude my formal remarks and turn it over to you, Lauren, to open the call for questions..

We'll take our first question from Insoo Kim with Goldman Sachs..

First question related to Ida, could you just tell us what the total costs associated with that was in terms of maybe capital and operating expense.

And did any of the operating costs get deferred at all or what we're seeing in the results all reflecting the OpEx?.

And so let me just walk through this. In terms of expense, the expenses and they are reflected in the results are $2.1 million, and we don't expect to have trailing expenses into the fourth quarter from Ida. In terms of capital so far, about $1.7 million.

Now capital, there will be future capital associated with that Pickering plant that Chris talked about earlier. And then the conservation related consumption there, we estimate that to be about $2 million, but that's hard to pin down exactly.

And Insoo, it's important to note that, as Dan kind of alluded to, we have some questions to answer for ourselves at that plant and follow on capital. One, obviously, we need to get the plant to a point where it produces the level of quality water that it did before. It's producing quality water but we need to continue to increase its capacity.

But the question is, do we rebuild on site hire walls and waterproof doors, all that sort of thing, or do we move some of these things to higher ground on that same property, which could obviously be increased cost -- capital cost.

So those are things that we're still wrestling with and I think that's what Dan is alluding to in terms of how we think about future capital..

And just to address the other part of your question there, Insoo. As I noted earlier in the kind of prepared remarks, we will seek insurance recovery and we'll also seek recovery from -- through the regular regulatory process for those expenses that I mentioned..

Maybe just as a follow-up to this one, in terms of the treatment plans that were affected.

Are they all fully functioning? So when we think about just operating costs going forward and delivering the treated water, we're kind of back to normal versus maybe in the next quarter or two still having to utilize the other plants that could maybe increase the cost profile a little bit?.

I would say, for all intents and purposes, it's back to normal. We do have what we call clear well, this is where the finished water sits that was collapsed under that. So we can't store as much finished water there but the plants themselves are operating well. We have some tweaks yet to do.

But I would not expect the current situation to result in added expense..

My last question is on your growth rate. You reiterated the 5% to 7%. Correct me if I'm wrong, but I think when we had prior discussions, when we just think about the longer term, maybe beyond that '21 to '23 period. I think you've mentioned that there could be potential incremental upside opportunities on a longer term basis.

So as we look forward to conclude this year and look at a new multiyear growth rate. Any latest thoughts on achieving maybe something more robust given the potential outcomes in the PA rate case or DELCORA timing among others..

I think I'll reserve comment as we give next year's guidance. We typically haven't gone out beyond that three year window we provided. So why don't we chat about that when we come to our guidance call..

Is that going to be early next year as typical, sometime in the January period?.

It will be early next year, it could be January -- January, February time frame. Yes, we haven't locked down exactly the date. We also want to take a look at what's happening with some of the growth projects we're working on so that we align that timing when we can maybe have some good news..

Next question comes from Ryan Greenwald with Bank of America..

Maybe to start, it seems like the EPA is taking a bit more active role just in terms of PFAS and emerging contaminants with the road map that they recently announced.

Any initial thoughts around how this is going to impact the municipal pipeline and acquisition opportunities?.

I think generally and a lot of the specifics are yet to come from the EPA, but especially as we talk about maximum contaminant levels and that sort of thing.

I think we are generally of the opinion that the more stringent it becomes, the more difficult it is for smaller or midsized utilities who don't have our level of expertise to meet those compliance levels. And so it should put more utilities in a position where they're struggling and they're looking for solutions like we can bring.

So again, generally, given there's no -- not a whole lot of specifics out there yet, I would say it would help in our municipal acquisition program..

And then maybe on a similar note, just in terms of the infrastructure bill and the latest from the house here around reconciliation.

Any updated thoughts in terms of how you guys are thinking about potential impact there?.

Well, the way we think about this, in the scheme of the needs in water and wastewater across the country infrastructure that is, even though it seems like it's a decent size.

When you consider the needs, particularly in larger cities and some of the needs around storm water, it's a drop in the bucket and we don't see it as an impact to our growth plans.

We hope that if we have access or the utilities have access to low-cost money or no cost money, we would actively look at that as well to keep rates down for our customers. But generally, we don't see it having an impact on our acquisition program..

And then maybe just one more, if I may. In terms of the competitive landscape, NextEra was pretty vocal around kind of expanded water efforts here with their latest update.

Anything in terms of what you guys are seeing as you go into the bids here in terms of changes to how competitive it is out there any states in particular where you're seeing more competition in tuck in pursuits?.

Well, we have seen NextEra in a couple of situations in Pennsylvania and in Texas. Certainly, we've seen their comments in the market. And frankly, we've been fairly welcoming to the electric utilities as they come into our space and bring more cloud to regulated water.

And so listen, as we think about this privatization trend, the more that that occurs successfully, the better it is. We think about this as a pretty big market. We've certainly been successful in our market share and we think we can continue to do that. As electrics enter the business, they've got to build their water expertise.

So I think the offerings -- and remember that despite their large customer base, existing customer base and rate base, they can't spread their water costs on their electric customers. So they've still got to confine any rate increases for acquisitions on those customers they have.

So we bring, I think, a pretty competitive position in any time we're competing with electrics or those new entries to the market, given our size, our scale, our capabilities. So not too worried about it..

Our next question comes from Travis Miller with Morningstar..

I was wondering as you look at perhaps your regulatory team, any other states you're seeing or even federal but stick to the states where fair market value legislation or regulation is working its way through various sales of government?.

I mean, I know it's taken -- we haven't in all of our states where we do business now. And so where some form of it, right, it's not always called fair market value. So we're really comfortable in the states where we are.

I can't tell you exactly where outside of our footprint it may be moving through, but it seems to be taking hold in a lot of different places beyond our states as well..

And then when you think about the capacity you guys have internally for doing acquisitions, water acquisitions.

Are you at -- give me a sense for how much capacity you have to do those acquisitions? When you think about -- currently, you talked about $500 million or so of rate base, even if you take out DELCORA somewhere in the 250 or so pending deals.

Can you go much above that just in terms of executing and closing the deals, soliciting more deals, stuff like that?.

Yes, I think we can and here's why. We have a combination of things we use for our workforce in the various states. So we have a state president and a state business development person in every state. Both of whom have responsibility for growth.

And then we supplement that with others, both inside the business and outside the business to help us accelerate growth. And those could be consultant. They could be former political people, that sort of thing that help us with these municipal acquisitions. A lot of these acquisitions take a lot of time, as you know.

I mean, I know there's frustration around how long it's taken with DELCORA, in particular. But given the amount of time they take in terms of getting to APA and sometimes ultimately getting to closing, there's time to fill in around the edges to keep a lot of them in the air.

And then in addition to those state teams I described, you’ve all met Matt Rhodes, Matt and his team here at headquarters, which helped facilitate that as well. And then now we've plugged some people out in our Western area at Peoples, who are notable people in that region to help us with some of the water projects as well.

So I think we have deep capabilities to continue to build our municipal program..

Our next question comes from Ryan Connors with Boenning & Scattergood..

So a couple of big picture questions. First, I wanted to go back to the talk you had there with your first question regarding Ida. And Chris, you mentioned still sort of formulating your thoughts about whether to build back in kind or to build back with a more robust flood proofing.

And obviously, a lot of that will be dictated by what the commission thinks about rate recovery and things like that. So is there any early read or color? Obviously, you probably had some some discussions in formal and otherwise.

Any idea how they're looking at things like that in terms of cost benefit, would they rather you spend the rate base and build against that rare flood or would they just say, what you guys seem to handle it pretty quick, got it back up and running pretty quick, let's just let it ride.

What's their thinking?.

I thought for a second there, you're going to ask me if I was going to build back better, Ryan -- you stayed away from that. Yes, I think you raised an important question and one that one that we're spending a lot of time on.

So what we've done is we said, okay, what's the probability that a storm of this magnitude would hit our plant and then what are the various improvements we could make to the plant. It's almost like I'll use a slang term here, a submarine door, right, on our doors to the plant.

What could we do to reinforce that plant so that it wouldn't take on water at the same level again. And then we're saying, okay, let's think about the probability of a storm like that and then the reinforcement we could do to keep it from getting the level of damage it did this time versus moving at least aspects of that plant to higher ground.

We have a pretty good size property there, and then what are those costs, and then how do we think about that from a timing standpoint? In other words, could they be spread out over a period of years and therefore, cost impact be mitigated to customers? So the questions you raised are good ones that we are grappling with ourselves.

I don't have final solutions. But rest assured that, that will be a conversation with the regulators as well to make sure that we're all aligned and whatever we do, we get the proper regulatory treatment..

So still up in the air. Now I wanted to actually probe your initial comment I thought was interesting in your prepared remarks about your Investor Relations survey and the comments you made about gas and M&A.

I mean what scenario, if any, could you envision yourself diverging from that intention not to pursue M&A in gas? For example, the PUC in Pennsylvania, or Kentucky, or West Virgin, you were to tap you on the shoulder and say, look, we have a troubled asset here. Can you help us out? Those types of situations.

Is there any situation where you could envision yourself being receptive to something like that or is it just sort of real black and white on that?.

Yes, I think it's real black and white, Ryan, at this point. I just think as a public company and looking at the current multiples, it's just difficult to see a path where you'd want to add additional natural gas. That's not to say that we in any way are thinking less of our gas utility contribution.

I mean, listen, this is a utility that the acquisition went well. It's exceeding all of our expectations and our targets we set for ourselves; safety, financial contribution, capital plan. It's exceeding all of our targets very, very nicely.

And so it's a great addition to our company and operating extremely well, but hard to say that it would be good sense to add to that today. And so we are entirely focused on growing the water utility.

And then our -- keen focus of our management team in Pittsburgh and on the gas utility is focused on the things I talked about replacing that pipe, making it more secure, safe, reliable and environmentally sound. And so I think it's a solid strategy at this point on the gas side.

But it's solely focused on the capital program and those aspects I just mentioned, we're not going to grow in gas through acquisition..

And then my last one quickly. You've been a good source of keeping us up to date on the Pennsylvania sort of the soap opera with the commission and the vacancies there, and some of the gamesmanship with the governor around appointments and things like that.

Can you just give us the latest on where that stands with the commissioner’s situation in Pennsylvania?.

two Republicans and one Democrat despite the fact that the governor is a Democrat. So the Chairman appointed by the governor is the only Democrat on the commission. And then we would not expect, given the governor's continued strong position on the regional greenhouse gas initiative, RGGI.

And the Senate -- the State Senate’s opposition to his position, frankly, that he could enter that position without their approval or consent. So the Senate is not going to move on his appointments. And so we don't see any change in that unless the governor were to change his policy, the Senate says they're going to hold firm.

So it could go through the whole year next year with the commission remaining in much of the status that it is today..

And our next question comes from Jonathan Reeder with Wells Fargo..

Most of my questions have been answered, I got two left for you though.

Any word from the Pennsylvania Supreme Court regarding whether it's going to take up the appeal of the lower cords order by the CWA?.

No word from the Supreme Court yet. It could take them a few months to give an answer on that, whether they decide to take it up or not..

So it still could be a few months before we even hear if you're taking it up. And then if they do, you have another, what is it, is it nine months to a year for an order or….

I mean I think that's a fair estimate, hopefully not that long, but I think it would be fair to say it could be that long..

And then I know you mentioned Chester City counsel voted to move forward and signed the APA and they add the [receiver] to give his blessing to it.

What's kind of the process and time line for the receiver to act?.

There's not a public time line for the receiver at this point. I think that's one of the things that the city is pressing for today -- the receiver has some important work to do. Obviously, balancing the city's finances. But in the meantime, it is literally running out of money on the pensions. They're almost out of cash.

And so it's very difficult to not do anything. So there are some impending, let's just say, burning platforms that need to be addressed. So while the city is pressing the receiver, its next step would probably be to go to the Commonwealth Court that oversees the receiver and ask for the receiver or the court for a defined time line.

We understand that that's where they may go but that's entirely up to the city and in terms of the next step..

No, I thought I had read something about that pension issue and yes, they were just kind of a few months left. So I guess it would be your expectation that you could at least get something from the receiver prior to that, and then your bid has that upfront payment and that allows kind of Chester to stay afloat..

Yes, that's exactly right..

Our next question comes from Verity Mitchell with HSBC..

I've got a question. I'm very interested in your opening remarks about RSG and capture from wastewater treatment plants. Just quite a simple question, I'm sure you'd like to unpack it a bit.

Is that -- would that be something that would be added to rate base if it was initiated? I mean, how do you recover the investment on capturing RSG from waterwall treatment plants?.

I'm not sure we've fully come to terms with whether that's rate base or not. And I guess as you think about Verity, let's step back one step first. Most of our plants, and we have over 200 wastewater plants in the fleet now, most of our plants are too small to consider an operation like this.

So as we acquire a larger plant or as we build them, i.e., DELCORA would be -- maybe an example, are there opportunities to then create some energy. And I think when it comes down to whether it would be rate base or not, a lot of that question comes to what is the impact ultimately to the rate payer.

And so as we think about -- there's a lot of moving parts to this, do we keep or sell any credits that we might gain and obviously, keeping the credit is good for our ESG. Selling the credit might be good for customers. And I'm getting a little bit ahead of myself here because we don't even have a project like this yet.

These are the things we're strongly considering as we start to acquire larger and larger facilities. But I think the end of the story is probably more to come on this. And Dan, I don't know if you have anything you want to comment in addition..

No, not really. I mean you can -- what we've seen in the past in certain situations, if someone has an NRO with digester and they generate RSG or are achieving their own wastewater treatment plant, they would use that on site, potentially, that could be included in rate base.

But there have been an offset in expense because there would be less in terms of purchased energy that would go to the customer. So that's another way to think about it. And sort of the next is here between the water wastewater business and the gas business, how that RSG is used or RNG is used, still to be determined here.

But as Chris said, Verity, I think more to come on this one from us..

And we have no further questions at this time. I'd like to turn the conference back to Chris Franklin for any additional or closing remarks..

Thank you, Lauren, and thank you all for joining us today. Obviously, Dan, Brian, myself, are all available for follow-up questions if you have them. Thanks for joining us, and have a great day..

And that does conclude today's conference. We thank you for your participation. You may now disconnect..