Essential Utilities, Inc.

Good day and welcome to the Essential Utilities Incorporates Quarter 2 2022 earnings call. Today's conference is being recorded. At this time, I would like to turn the conference over to Brian. Please go ahead, sir.

Good morning, everyone, and thank you for joining us for today's conference call. I am Brian Dingardus, Vice President, Investor Relations and Treasurer at Essential. 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 that we will be referencing and the webcast of this event can also be found at that website. Here is our forward-looking statement. As a reminder, some of the matters discussed during this call may include forward-looking statements that involve risk, 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 10Q, 10K, and other SEC filings for a description of such risk 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 in the presentation and also posted in the Investor Relations section of the company's website. Here is our agenda for today. We'll start with Chris Franklin, our Chairman and CEO, who will discuss the highlights from the quarter and provide a company update. Next, Dan Shuler, our CFO, will discuss our financial results. Following Dan, Matt Rhodes, our EVP of strategy and corporate development, will provide an update on our acquisition program. Lastly, Chris will conclude the presentation with a summary of our guidance before opening the call up for questions. With that, I would like to turn the call over to Chris Franklin.

Hey, thanks, Brian, and good morning, everyone. Thanks for joining us. As Brian said, let's start off with some highlights of the quarter. First, we reported year-to-date net income growth of 6.5%. and our quarterly earnings per share were in line with expectations. And Dan will take you through that in a little bit more detail in a moment. We continue to enhance shareholder value as the board approved the 7% increase in the quarterly dividend this week, marking the 31st consecutive year of dividend increases, something we're very proud of. We currently have asset purchase agreements signed for seven municipal acquisitions, totaling more than $418 million in purchase price. And each of those continue toward regulatory approval and closing. Now we shared some pretty exciting news just a couple of weeks ago, that after a lengthy bid process by the Bucks County Water and Sewer Authority, we were selected by the authority board to engage in exclusive negotiations to purchase their substantial wastewater assets. And Matt's going to take you through that in a little more detail as well in just a few moments. Now, as part of the company's ongoing commitment to the renewal of critical infrastructure, we invested approximately $424 million, $424.6 million to be exact, throughout our water, wastewater, and natural gas systems in the first half of the year. This compared to $404.6 million from the same period last year. And I'm going to give you a little sense of those projects that we undertook in the quarter in just a few minutes. Now lastly, we remain on track to achieve our ESG targets and our commitments to ESG as well. You can read more about our progress in our 2021 ESG reporting update that was just posted this week. For those of you who follow ESG metrics closely, those updates can be found on our ESG microsite. Now, when we talk about investing a billion dollars in infrastructure each year, it often goes unrecognized that to achieve this level of spending, we have to plan, execute, and account for thousands of projects each year. And this is different from a lot of large utilities. You know, think about the electric utility industry, where they have a very few but very large high-dollar projects that make up their capital budget. So I want to provide a few examples of the work that our operations team has accomplished already this year. Execution of a vast number of projects in a large capital plan has become one of our core competencies at the company. Investing in our infrastructure is key not only to our company's growth, but critical to protecting our environment and ensuring reliability of service. Now, starting on the water side, in Pennsylvania, we're working on the Valley Forge National Park Transmission Main Replacement Project. This consists of installing a large, 9,100 linear feet, 30-inch transmission main to replace an existing 98-year-old cast iron main. This main helps convey water from one of our largest plants, the Pickering Water Treatment Plant, to roughly 670,000 people. And it's being completed in coordination with all of the services you might imagine, the National Park Service, the Pennsylvania Department of Transportation, local townships, and other utilities. all to ensure that we have minimal disturbance to this really historic area for our country. This $4.4 million project is expected to be completed in 2023. Now in Ohio, we completed the Ashtabula Water Treatment Plant upgrades. which includes the first plate settler water treatment plant process in our Ohio fleet. This allows us to use a smaller footprint to process even more water, obviously making it much more efficient. We also added new flocculation and renovation improvements to our existing conventional filters. Our filter improvements include automation of valves, which is also much more efficient. This $14 million project has yielded improved settled water quality at the front end of the plant, which ultimately yields in savings in power and chemicals, along with improved water quality, just bringing overall efficiency through reduction in O&M costs. A really good, strong project. And finally, in Illinois, We're making significant upgrades to our Kankakee water treatment plant. These are largely compliance-driven updates to meet federal requirements, specifically the cryptosporidium compliance. Ultraviolet disinfection was our selected method. and we believe that's the optimal treatment process for this situation. The design includes three parallel UV reactor trains with a capacity of 24 million gallons a day. We also made accommodations for future upgrades that could actually increase our plant to about 36 million gallons a day. The project includes four intermediate pumps to accommodate the hydraulic profile requirements of this new UV treatment process. Construction is already underway, and upgrades are planned to be online by December of this year. Additional water treatment plant improvements also include filter upgrades and some upgrades to our backwash pump, but this is also a really strong upgrade to our plant there in Illinois. Now these details might not necessarily be important to you, but this is really important work that our people are executing, and it continues to build the reputation that's so important as we talk to municipalities who are considering a sale of their assets. Because we know that our expertise, our compliance record, and our overall execution act as our resume as we continue to work to grow our company. So now on the gas side, there are a couple of examples that I'd like to highlight as well in the Pittsburgh area. Now the Fern Hollow Bridge project in the Squirrel Hill area of the city is a $5.5 million project that not only includes replacing the pipeline that was severed, and you may remember this from the last winter, when the bridge collapsed in January. but also includes replacing an additional 3,800 feet of 1927 vintage cast iron pipe on each side of the bridge. You might recall this was national news. President Biden was visiting the collapse shortly after it happened. He just happened to be in Pittsburgh that day. And the project is expected to be completed in the fourth quarter of this year, which is a pretty big, pretty fast timeline given what we experienced out there. Now, another project, the Fort Pitt Boulevard project in downtown Pittsburgh, and for those of you who know Pittsburgh, this would be in the Golden Triangle area. This is a $3.5 million project installing about 2,210 feet of 16-inch coated steel pipe replacing 1936 and 1939 vintage 16-inch bare steel pipe. This project will also be completed this calendar year. Now, these projects improve the reliability of service, they reduce risk, and they reduce emissions to the environment and obviously support our ESG commitments as well. Now, let's talk about ESG for a moment. We recognize that transparent and detailed ESG reporting is important to many of our constituencies, including many of you who are on the line today. On August 1st, we published our 2021 ESG reporting update to our microsite. For those of you who know it, it's at esg.essential.co. You'll recall last summer, we refreshed our microsite and published an expanded 2020 ESG report alongside supplemental reports that summarize key metrics. Now this year, we're updating just the supplemental reports. Then next year, we'll look to publish a new version of our full ESG report. We arrived at this reporting cadence after dialogue with many of our stakeholders, including some of you. Now, through June of this year, we're reporting strong progress on each of our major ESG announcements. These were initially announced in 2021, and it includes large jump to 14% Scope 1 and Scope 2 emissions reduction. Now this is driven in large part by our January 1st switch to nearly 100% renewable electric power for our water segment operations in Pennsylvania, Ohio, Illinois, and New Jersey. We expect this figure to continue to rise in the right direction as the remaining six months of the year actualize. We also continue to replace aging gas main, as I just was describing, each year, which is the greatest contributor toward our targeted 60% reduction by 2035. Now, lastly, it's not on this slide, but I did want to briefly revisit what I call our industry-leading PFAS commitment, given the recent federal proposed health advisory limit. We consider our 2020 commitment a great example of strong ESG in practice. We were the first and the only multi-state utility to set its own company-wide PFAS standard And I think we're uniquely positioned to address PFAS because of our experience and our capabilities with analytical testing and building and operating treatment systems, spending nearly $40 million to meet the company-wide standard of 13 parts per trillion. You know, the EPA's recent announcement about its revised, you know, the non-enforceable health advisory limit recommends that utilities considering addressing PFOA at a level over .004 parts per trillion, which is more than 1,000 times lower than the previous advisory limit set in 2016. It's also 1,000 times lower than the technical capability to detect this contaminant, which is currently at 4 parts per trillion. So, largely, we see this as a political action by the federal EPA and not necessarily based in science. So I think we all know at this point that the EPA will be proposing a true PFAS enforceable limit in the fall of this year, which is based on the legal process and requires a cost-benefit analysis. We believe that the MCL, or maximum contaminant level, that will be issued this fall will require a much higher concentration than the health advisory level they recently announced. We have our key people from the company who are involved in organizations that we'll be reviewing and discussing this proposal with the EPA up and through the fall. So I think we're well positioned to have adequate input into this decision that the EPA will make. And with that, Dan, let me turn it over to you for the financials.