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Operator
Hello, and welcome to the Essential Utilities Second Quarter 2023 Earnings Call. My name is George, and I'll be your coordinator for today's event. Please note, this conference is being recorded, and for the duration of the call, utilize the listen-only mode. However, you will have the opportunity to ask questions at the end of the call, and this can be done by pressing star 1 on your telephone keypad to answer per question. If it requires you to send a point, please press star 0, and you will be connected to an operator. And I'd like to hand the call over to host, Mr. Brian Dingerdissen, to begin today's conference. Please go ahead, sir.
George
Thank you, George. Good morning, everyone, and thank you for joining us. I am Brian Dingerdissen, Vice President of 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 in the webcast of this event can also be found on our site. 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. 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 website. We'll begin the call today with Chris Franklin, our chairman and CEO, who will provide an update on the company. So with that, I will turn the call over to Chris Franklin.
George
Hey, thanks, Brian, and good morning, everyone. Thanks for joining us today. As a reminder for those of you who may not be as familiar with our story, Essential Utilities is an industry-leading water, wastewater service, and natural gas utility. The core of the company's 135-year-old nature is that it's the second largest regulated water utility in the United States, with operations in eight states and a proven track record of nearly three decades of growth through acquisition, which, coupled with a substantial capital investment over the same period of time, has led to significant and consistent earnings growth. In addition, Essential Utilities includes the largest gas LDC in Pennsylvania, also with a 135-year history of industry leadership and growth. Together, these utilities form a platform poised to deliver consistent 5% to 7% earnings per share growth. The key component of our long-term rate-based growth is the significant need in both water and gas for investment in core infrastructure, and I'm talking about things like pipe and plants. This is the engine which helps us deliver long-term shareholder value. I want to spend a few minutes with you on this topic today, but first let's talk about the good news of the second quarter. Although we were off to a rough start with warm weather in the first quarter, the second quarter has put us back in a strong position. For the quarter, we reported earnings per share of $0.34. Dan will provide much more detail in a few moments, but I'll note that with this quarter's strong performance, we are even more confident in our ability to achieve this year's guidance despite the lower results in the first quarter associated with the abnormally mild winter weather. We remain on track to invest $1.1 billion in capital projects this year. In fact, this work includes more than 8,000 projects that improve service and reliability for our customers and will add substantial rate base to generate future growth for shareholders. We'll get into that in just a few minutes. So far in 2023, we've closed six acquisitions, which included seven systems. You may recall the village of Frankfurt was both water and wastewater. But those were done across four states in which we have existing water operations. Combined, these acquisitions added over $44.6 million in rate base and more than 11,000 customer equivalents. Additionally, we have four asset purchase agreements signed that are expected to add over 208,000 customers or customer equivalents and nearly $336 million in purchase price. Now, importantly, I'll remind you that at our August board meeting just a week or so ago, the board increased the dividend by 7%, demonstrating confidence in our ability to deliver long-term value to both customers and shareholders. Here in the next slide, before I get into the meat of this slide, I want to remind investors of the importance of our capital investment program. we get far more questions about our acquisition program than our capital program. So I want to remind you that the capital program, which is critical for customer reliability, safety, and quality, is also what generates more than 90% of our growth and earnings per share in any given year. I'll remind you that the municipal acquisition program is important because it gives us the opportunity to improve water and wastewater systems for the future and deepens the pool of capital needs for the future as well. In fact, you could say that most of today's capital projects are taking place in systems that were acquired at some point in our company's history. However, I want to underscore that the most important contribution to earnings per share growth is the execution of the company's capital improvement plan. Over the years, we've demonstrated a core competency in infrastructure rehabilitation and specifically in deploying large amounts of capital over many individual projects each year, as I said, 8,000 this year alone. The first half of 2023 was no exception. We invested $547.6 million in infrastructure improvements as compared to $424.6 million for the same period in 2022. Those of you who have been following us know that we've been increasing our capital investment over the years. In fact, just as I became CEO in 2015, we've invested nearly $5.8 billion, some of that pre-people's and some of it post-people's acquisition. And both our annual capital plans and our rate base have grown by approximately 200% during this period. Now, despite today's discussion on the relative importance of capital plans to earnings generation, I will tell you that our municipal acquisition program is very important and remains strong because although acquisitions don't typically add significantly to earnings at closing, over time they are an important part of our growth story and deepen the capital improvement opportunities for the future. I'll update you on our acquisition progress in just a moment. Hopefully, you'll get a sense of the magnitude of our capital improvement program on this slide. We have certainly done our part to improve American infrastructure over the years. This chart shows that we have already replaced over 1,100 miles of pipe in just the last three years, and we expect to replace another 1,300 additional miles between this year and 2025. If you look at the miles of pipe in just these six years, it would be like installing a pipeline from Philadelphia to Sacramento, California. This is the work that all utilities in the United States should be doing, especially because much of the pipe across the country is now over 100 years old. Our pool of capital needs remains strong as we continue to improve plants, address PFAS, remove lead services, and replace aging pipes. We expect our annual capital budgets to continue to exceed a billion dollars for the foreseeable future. And that's why we've developed a focused program to seek low-interest loans for as much of our capital program as possible. Now, shareholders won't necessarily benefit directly from lower interest rates, But customers benefit through lower utility bills, which in turn allows us to continue to make these large, necessary infrastructure improvements. I want to point out that although we have a massive, sustained capital improvement program, our efficiency and safety measures continue to be at optimal levels. In 2015, we committed to a strategy which has remained consistent. maintain operational excellence in the utilities we own and operate, invest capital in needed infrastructure improvements, and target acquisitions in the water and wastewater space. And I've said before, we don't plan to do any more gas acquisitions. Now, infrastructure investment is the low-risk backbone of our guidance of 6% to 7% rate-based growth in water and 8% to 10% rate-based growth in our natural gas business, which results in the 5% to 7% earnings growth guidance, which we have achieved every year since we established that target. All right. Let's talk for a moment about our strong acquisition program. On this slide, you can see that we are having another good year in our growth through acquisition work. So far this year, we've acquired seven systems, adding over 11,000 customer equivalents to our current water and wastewater footprint. You might have noticed that this is a recent uptick in closed acquisitions. As a reminder, Essential has been a pioneer driving consolidation of water and wastewater utilities for over 30 years. In fact, we've done more than 400 utility acquisitions over that same period of time. Just since 2015, we've added nearly 129,000 customer equivalents and over $526 million in rate base to our water and wastewater footprint to a very successful acquisition program. On June 30th, we closed the acquisition of Union Roam Sewer System in Ohio, which serves approximately 5,300 customers. This is the largest municipal acquisition to date in Ohio. We're very proud of that one. And on July 24th, we closed the borough of Shenandoah's municipal authority in Pennsylvania, which serves about 3,000 customers. And in addition to these two systems, we acquired four other systems on July 31st. Southern Oaks in Texas, the village of Frankfort's water and wastewater assets in Illinois, and the village of LaRue in Ohio. Collectively, these four systems added nearly 2,500 customers and $7 million in rate base to the company's footprint. We include the previously announced acquisition of North Heidelberg in Pennsylvania. Some of you may recall that this was the The system where we were appointed receiver, it's a small wastewater system. In Pennsylvania, we were appointed receiver by the PAPUC. If we add that to the mix, then year-to-date, we've acquired seven systems and added more than $44.6 million in rate base and 11,000 customer equivalents. Pretty nice year. All of these acquisitions demonstrate our ability to provide operational expertise and a solution to systems needing substantial capital improvements to ensure customers have high quality, safe and reliable services. All right, let's talk about a recent court decision that's been in the news. You know, in August of 2022, after approval by the PAPUC, we acquired the East Whiteland Wastewater Assets in Pennsylvania. which was subsequently appealed by the consumer advocate in Commonwealth Court. Just last week, the court issued a decision to overturn the PUC order approving our acquisition. We are obviously disappointed with the decision and will work with the PAPUC to defend its order, including evaluating options for appeal in concert with the PUC and East Whiteland Township. We believe that no matter what the ultimate outcome of this decision, there is a path forward to a continued regionalization of water and wastewater systems in Pennsylvania. It will require the continued engagement of all stakeholders so that using fair market value as a regulatory tool benefits all of those impacted by the process. Okay. Shifting now to the dividend, as I mentioned up front, last week the board declared a 7% increase to the quarterly dividend. We have a great and consistent history of delivering what our investors expect. This marks the 33rd increase in 32 years and the 78th consecutive year of quarterly dividend payments. This supports our consistent record of delivering shareholder value. Following the increase, the annualized dividend rate will be nearly $1.23 per share. All right. With that, Dan, let me turn it to you to talk about our financial results.
Brian
Thanks, Chris, and good morning, everyone. I'll start off with the second quarter highlights. We have revenues for the quarter of $436.7 million compared to $448.8 million last year. Our regulated water segment contributed $293.7 million last and our regulated natural gas segment contributed $139 million. The largest contributor to the decrease in revenues for the quarter was the recovery of lower natural gas commodity costs, with purchase gas costs decreasing by $33.2 million in the same period last year. Incremental revenues from regulatory recovery, water and wastewater customer growth, and increased volume in the water segment contributed positively and offset lower purchase gas costs and volumes for the quarter. O&M expenses decreased 1.1% to $133.5 million for the quarter, down from $135 million in the second quarter of last year. Other items and lower recoverable costs related to our natural gas segment customer rider were the primary drivers of the decrease and were offset by higher water production costs and employee-related costs, as well as operating expenses related to acquired systems. Net income was up year-over-year from $82.3 million to $91.3 million, and GAAP VPS was $0.34 for the quarter, a nearly 10% increase from $0.31 during the same quarter last year. Next, we'll walk through the waterfall slide, starting with revenue. In the second quarter of 2023, revenues decreased 12.1 million or 2.7% on a GAAP basis. Starting on the left-hand side of the waterfall, regulatory recoveries added 19.6 million in revenues year over year. This includes impacts of water rate cases in Pennsylvania, Ohio, and North Carolina, among other regulatory proceedings. Next, organic and acquisition growth, as well as increased volumes from our regulated water segment, combined added $4.9 million, and other items provided an additional $1.4 million toward the second quarter revenues. As you may recall, natural gas commodity prices were significantly elevated during much of 2022. They have since declined. Therefore, when compared to the second quarter of 2022, you'll notice the primary driver of the decrease in revenues for the quarter was the recovery of $33.2 million less in purchased gas costs. And lastly, decreased gas volumes of $4.7 million from our regulated natural gas segment also contributed to the 2.7 percent reduction in revenues. Next, let's review the operations and maintenance expenses on the next slide. Operations and maintenance expenses were $133.5 million for the second quarter, a decrease of 1.1% compared to $135 million for the same period in 2022. Increased production costs related specifically to chemicals, purchased water, and purchased power contributed $4.4 million for the quarter. Employee-related costs added another $4.1 million, and operating expenses for newly acquired systems in our regulated water segment added $1 million. These were offset primarily by other items of $8.2 million, mainly related to lower maintenance and insurance expenses. And finally, the gas customer rider, which is recoverable through a revenue surcharge, decreased $2.8 million due to lower commodity prices and decreased volumes in our regulated natural gas segment. Next, we'll spend a minute on the earnings per share waterfall. Beginning on the left side of the slide, GAAP EPS for the second quarter of 2022 was 31 cents. Regulatory recoveries contributed 5.4 cents, and growth and increased volume from our regulated water segment together added a cent. These were offset by other items of 1.8 cents, which include increases in interest, both interest expense and depreciation, offset by lower taxes. 1.3 cents related to decreased volume from our regulated natural gas segment, and 0.2 cents as a result of increased expenses. The result is GAAP earnings per share of 34 cents for the second quarter of 2023, a 9.7 percent increase over last year. We continue to expect to meet our annual earnings per share guidance for the year and remain confident in our ability to deliver on the 5% to 7% earnings growth per share. Moving on to regulatory activity and other matters. So far in 2023, we completed rate cases or surcharge filings in six of our regulated water states with a total annualized revenue increase of $26.4 million and In our regulated natural gas segment, we've completed a surcharge filing in Pennsylvania with a total annualized revenue increase of $20.9 million. Also, we currently have base rate cases or surcharge filings underway in Ohio, Texas, and Virginia for our regulated water segment and a surcharge filing in Kentucky for our regulated natural gas segment. As a reminder, we plan to file a base rate case for a Pennsylvania natural gas utility by the end of the year. This will be the first Pennsylvania natural gas case filed under our ownership, and we expect to ask for weather normalization, a mechanism that our peer companies in Pennsylvania have today. Since our ownership in 2020, we've replaced over 450 miles of pipe in Pennsylvania through our long-term infrastructure improvement plan. Rate-based at Peebles has grown significantly, and we've increased safety for both our employees and our customers, all while avoiding a rate case for nearly five years. I'll also add that just through the year end of 2022, the pipe replacement program at Peebles has resulted in the reduction of nearly 80,000 metric tons of annual CO2 equivalent GHG emissions. Said more plainly, this is the equivalent of permanently removing nearly 18,000 cars from the road. Bear in mind that with every mile of main we replace, we reduce fugitive methane, which is a potent greenhouse gas. As you know, the pipe replacement plan for our natural gas segment is the main driver of the 60% essential company-wide reduction in GHG emissions through 2035. Moving on, in July we released new 2023 equity issuance guidance where we announced that we expect to issue, subject to market conditions, approximately $300 million of common stock in 2023, in addition to the equity raised earlier in the year through our ATM program. This revised equity guidance superseded the $500 million in equity or equity-linked securities that we previously communicated. We are not providing an update to this revised guidance today. In the future, you should assume that all debt and equity needs to support our capital program and our acquisitions are included in our earnings per share guidance. Going forward, we will not provide detailed advance guidance on the timing or amount of debt and equity capital to be raised, but we will most certainly provide details upon execution of each capital raise. And with that, I'll hand it back over to Chris. Chris?
George
Great. Thanks, Dan. Before I talk about our acquisition work, I want to make all of you aware of one of the key factors that we believe could spur further and more rapid consolidation of water systems in the coming years. PFAS is now widely written about, and most Americans have heard about this forever chemical. As a reminder, in 2020, we set an industry-leading commitment to ensure that all finished water across the entire footprint at ACWA would not exceed 13 parts per trillion for multiple PFAS chemicals, which was much more stringent, as I'm sure you recall, than the EPA health advisory level of 70 parts per trillion for the PFAS chemicals at the same time. We were and still are the only multi-state company that I'm aware of that made such a commitment. Our own estimates to remediate PFAS at ACWA systems across our eight states would suggest that the capital and operating expenses currently estimated by the US EPA are far below what will be needed for remediation across the United States. Based on preliminary estimates, we believe that ACWA's capital investment will be at least $350 million. At this point, We're not predicting that PFAS-related capital will have any impact on the existing rate-based growth guidance. Protecting the health of our customers and the communities we serve is our priority, and given the investments needed, we will continue to legally advocate that the polluters bear the burden of the cleanup costs. Neither our company nor our customers should bear the cost of this cleanup. We have initiated litigation against the polluters and have applied for federal and state grants and loans where available. Longer term though, we do see PFAS regulation being a catalyst to drive further consolidation. Finally, we believe that the strength and expertise of our company will be an important part of our value proposition to municipal leaders who are struggling with PFAS issues. We've been a pioneer in this issue and have developed deep expertise, and we are committed to remaining a leader in this important work. All right. Let's take a minute to address the pending transactions in our acquisition pipeline. As of this call, we have four signed asset purchase agreements in two states where we have existing water operations. Collectively, these acquisitions are expected to have had over 208,000 customers or customer equivalents, and total nearly $336 million in purchase price. All right, during our Q1 earnings call, we discussed our intent to sell three unregulated energy projects owned by Peoples in Pittsburgh. This includes the innovative Pittsburgh Airport microgrid, a combined heat and power project at a large hospital, and a district energy project providing steam and hot water to multiple buildings in downtown Pittsburgh. We conducted a thorough sale process, and I can report that the process is nearing a successful conclusion, and we expect to announce the result in the coming weeks. Further on a separate topic piece of news here, a quick update on the sale of our small gas utility in West Virginia. We have reached a joint stipulation and agreement for settlement with the parties in West Virginia and are awaiting a decision by the West Virginia Public Service Commission in what could be the coming days or weeks. As many of you know, progress on the Del Cora regulatory process continues to be under a stay by the Federal Bankruptcy Court, which is handling the bankruptcy of the City of Chester. We continue to remain confident that we will ultimately close the Del Cora transaction because our asset purchase agreement outlasts all litigation. We also believe that customer rates over time will be lower under our ownership when compared to Del Cora remaining independent. But given the delay and the lack of a clear timeline in the process, We have, and this is new news, we have completely removed Delcorra from our 2023 and 2024 financial plans and have removed any impact from Delcorra prior to the second half of 2025. Importantly, and I want to reiterate, that we remain confident in our current year and long-term earnings guidance. While Delcorra could still close earlier than we have in our financial plans, We think this is a key point for those of you who have been concerned about the financial impact of delays related to Del Cora. Turning to the next slide, we continue to see a strong and healthy pipeline of opportunities for growth in addition to the signed municipal transactions on the previous slide. We're currently engaged in active discussions with municipalities and pursuing over 400,000 potential water and wastewater customers. As a reminder, our in-state teams in all eight states where we have water operations focus on potential acquisitions that have at least 2,500 to 25,000 customers. As you know, we often evaluate even larger opportunities and we'll continue to do that. We are excited about the momentum we are seeing in each of our eight states and we believe our value proposition remains compelling. With that, I'll wrap up with a reminder of the 2023 guidance we've previously published. We continue to meet guidance for the year. We expect to continue to meet guidance for the year. We continue to expect earnings to be between $1.85 and $1.90 per share. We expect that our three-year earnings per share growth will be 5% to 7% through 2025. And to be clear, We believe that we will achieve these targets even if there happens to be further delays in closing Delcoura. Our capital plans remain on track as we expect to invest about $1.1 billion annually through 2025. Rate-based growth is expected to be between 6% and 7% for water and 8% and 10% for natural gas, with customer growth between 2% and 3% on average for water and stable for natural gas. Finally, we remain committed to our ESG targets, commitments, and initiatives, and you should see a new ESG report published early this fall, which will document what we believe are, again, industry-leading ESG efforts. And by the way, we were just named to Newsweek's Most Responsible Companies list for the second year in a row. And on that note, I'll conclude my formal remarks and look forward to your questions. George?
Operator
Thank you very much, Mr. Franklin. Ladies and gentlemen, once again, if you wish to ask a question, please press star 1 on your telephone keypad and just make sure your mute function is not activated in order to let you see the reach equipment. So star 1 for questions. Our first question is coming from Durgesh Chopra calling from Evercore. Please go ahead. Your line is open.
George
Hey, Durgesh.
spk03
Good morning, Durgesh. Hey, Chris and Dan. Good morning. Thank you for giving me time. I have a couple housekeeping questions and I just want to go back to the the municipal M&A water strategy in light of the East Whiteland decision. Just a couple of housekeeping first. Dan, can you remind us what weather was in terms of unfavorable impact in the first quarter? And then how did that turn in the second quarter?
Brian
Yeah, we were in the first quarter, given the warmer weather, If we look at net revenue, our net revenue impact was about $30 million. We're about $30 million short of net revenue from the gas business in the first quarter. And then with warmer, I should say continued cold weather early into the second quarter, we sold additional gas. And so we think of this, I should say too, we should think of this relative to budget. So relative to budget, that was that $30 million shortfall I mentioned a minute ago. That gap was closed a bit in the second quarter, so we think of that gap as ending the second quarter with about a $26 million shortfall. But again, that's budget to budget for us.
spk03
So it was $30 million, and then you made up $4 million in the second quarter?
Brian
That's correct, Ragesh.
spk03
Okay, thank you. And then I know you said no color on equity guidance in the future, but can you just tell us how much have you issued year-to-date?
Brian
Year-to-date on the ATM, it was just about $20 million.
spk03
Okay, and then the guidance for the balance of the year is about $300 million, right?
Brian
Correct, $300 in addition to what we've already done.
spk03
Okay, thank you. Those were my housekeeping questions. And then maybe just big, big check, Chris. the decision that you mentioned on East white white land, you know, as I was reading through it a couple of days ago, they mentioned public benefits. So just curious, what are your thoughts there? I guess that was the, that was the kind of the, the rationale for, uh, you know, denying that, uh, PUC decision, but just what are you thinking through as read throughs, if any, through your other pending MNA transactions there in future, uh, MNA outlook in the state?
George
Yeah, it was a little bit curious, and that's why I'm fairly certain that you'll see the Public Utility Commission defend their order by taking it back to Commonwealth Court again. But I think one of the reasons it's curious is because the fair market value legislation itself does not require an affirmative benefit. And so there was a little bit of a disconnect at the Commonwealth Court. Let's face it, I think the active point here is that there is a concern, a general concern, about customer rates. And we share that concern, frankly. But we also believe that even if this court decision were to stand, and we think we're a long way before conceding that, But even it were, we do see a path forward to working with the parties, all stakeholders for that matter, to continue a strong acquisition program in Pennsylvania. So we do think there is some ability to find common ground here and have continued the program. So I don't – I mean, while it's a significant marker, it's still not done, and I think there are multiple paths to continue to consolidate.
spk03
Got it. Okay. Thank you for that. I appreciate the call. I'll jump back in the queue. Thanks, guys.
Operator
You bet. Take care. Thanks for your question. Thank you, sir. Ladies and gentlemen, if your question has been answered, you may remove yourself from the queue by pressing star 2. Next question is from Travis Miller calling from Morningstar. Please go ahead. Hey, Travis.
Travis Miller
Good morning, Travis. Thank you. Hi, everyone. Chris, going back to, at a high level, your opening comments on the CapEx issue, Is this more of a near-term type of strategy where you're just seeing a lot of opportunities, especially on the gas side and the pipe side? Or is this kind of a shift in thinking that you're trying to convey to investors over the longer term that we should look for more relative growth organically versus historically the water acquisition?
George
No, I would put it in the category of a reminder. As I said in the opening remarks, we get so many questions on the M&A component of the work we do, but really the earnings are generated from the CapEx. And I tried to say it a couple of different ways, but The beauty of the M&A work we do is it fixes problems for customers, but it deepens the pool of capital for the future. And so, you know, there is a blending of this, right? An acquisition today may not add that much to earnings per share given what the rates are when they join us. Once we fix it, over time it goes into that CapEx pool and generates those earnings for the long term. And so it's more of a reminder that this is how we've generated earnings for a very long time and that we have a deep pool as we look forward to continue to do that. And then the enhancement of that program is really buying new utilities that need to be fixed up so that we can fix them and put them in the capital pool. Does that make sense?
Travis Miller
Sure, yeah. No, that definitely makes sense. Thanks. And then the 400,000 active municipal opportunities, you've been talking about that for several quarters. Now, at least, and just wondering what's the timing cadence? Has that changed from several quarters ago? Is it still something that's imminent? Just wondering thoughts around that number since it's been roughly the same for quite a while.
George
Yeah, I would think of that more like a pool that fills and drains. So, you know, we're constantly tilling the soil and then talking to new municipalities, and the drain of that pool is some we close, like we did just this quarter, and some fall away because they either lose interest or, for whatever reason, lack the ability to close. And so... So what we try to give you a sense of is what's the total pool of customer bases that we're talking to, but there's movement in that pool all the time. Okay. Got it. No, I appreciate the thoughts to those questions. You bet.
Operator
Thank you, Mr. Miller. Our next question is coming from Paul Zimbardo, Clyde from Bank of America. Please go ahead, sir. Hey, Paul. Good morning, Paul.
Miller
Hi. Good morning. Thank you for all the details. And just to clean up, I noticed that the rate-based disclosures changed a little bit for 23-24. Is that just relating to the Delcor comment you mentioned on removing it from the outlook?
Brian
Yes, Paul, that's correct. So otherwise, we're not changing our rate-based guidance at this point in time. It's really just removal of Delcor. And Delcor, I think, was always footnoted before.
Miller
Okay, great. No, that's what I thought there. And then one other, just what was the kind of the effective tax rate that you had in full year 2023 guidance? Because it looks like a decent size benefit in the first half of the year.
Brian
We've had a strong benefit. We continue to have a benefit through the rest of the year. So think about effective tax rate for the full year. I would think a benefit as opposed to an expense and think still single digits. Pennsylvania and company wide copyright.
Miller
Yes, yes, it is. Thank you. And then just quickly curious on the the decision to change prospectively. So I heard it right. Don't plan to give equity or debt guidance beyond 24. Just kind of what's caused that change in thought process there?
Brian
Well, it's a good question, Paul. I think, you know, simply put, speaking too much about equity needs seems to have caused some of our investors to wait for a block trade rather than just investing even when our price was attractive. And so that's not necessarily been helpful for our stock performance lately. You know, plus, whenever we provide earnings per share guidance or earnings per share growth guidance, we've already incorporated the dilutive impact of any equity needs, any equity issuances into that. And we do think this is consistent with what we're seeing at other utilities as well.
Miller
Okay, great. Thank you, Tim.
Travis Miller
Thank you. Thank you.
Operator
Thank you, sir. Our next question is coming from Ryan Connors of North Coast Research. Please go ahead. Hey, Ryan.
Ryan
Hey, Ryan. Hey, good morning. Thanks for taking my question. So first one for you, Dan, on your financial comments there, it seems like the water business had some really exceptional kind of leverage in the quarter. You've got almost double-digit top-line growth, and O&M was basically flat, and it seemed like you kind of called out lower maintenance and insurance as kind of the big drivers of that on the cost side. Can you elaborate on that a little bit? I mean, was that something you were comping from a year ago in maintenance that was that was where that was lower? What was going on there?
Brian
It's probably a few things to talk about. There are some, when you think about comparisons to last year, we were favorable because there were some higher costs that I would say occurred in the second quarter last year. So on a comparative basis, we're better off. I would say, too, we also made it a focused initiative this year to to really work with our subsidiaries on their operating expenses. So, you know, one thing that falls into that category is outside services-type costs, and we've been very cognizant of those expenses and work closely with the state presidents and state controllers and their organizations to focus there. So I agree, though, you know, nice quarter in terms of top-line growth and cost control for the water business.
Ryan
Yep. So it sounds like that lower maintenance, I mean, if that's a structural initiative you're on, that should be something that continues to be good going forward.
Brian
We will certainly, I guess what I'd say, Ryan, is we'll certainly continue to focus on that.
Ryan
Okay. And, yeah, just a couple questions on East Whiteland. I mean, the first one is more housekeeping, I guess. I mean, presumably these assets have been transferred. It's in the financials. And now we're obviously, you know, potentially, it sounds like you're going to work through the appeal process. But what happens in that time frame? I mean, it wasn't a tiny deal. It wasn't a huge deal, but $55 million is certainly not immaterial. So is there any kind of assessment of the goodwill there or anything, Dan, that has to take place? I mean, what exactly are the mechanics now that you've got that kind of a decision hanging over that asset that's in the barn, so to speak?
Brian
So at this point, since there still are a number of avenues for appeal and we think there's an opportunity here to really work with all the stakeholders to ensure a positive outcome and a continued strong process for these acquisitions in Pennsylvania, there's really no accounting to do at this point in time.
George
Okay. Ryan, just think about it, too. You know, West Whiteland doesn't want their wastewater utility, right? They sold it. And so we think there's a path forward there that can be worked through.
Ryan
Yeah, right. It would be pretty crazy to force them to buy it back. Now, but in terms of the bigger picture, Chris, going back to the prior question on the pipeline, I mean, until you get this thing kind of resolved and hopefully – you know, the appeal, your appeal would be successful. I mean, what effect does that have on the pipeline in terms of, obviously the detractors to privatization are going to run around with this as, you know, here's why you shouldn't sell because it's going to be, the PEC is being overruled and they're going to make a lot of noise about that. I mean, how does that affect the pipeline, you know, the willingness of people to step to the table and sign APAs with that going on?
George
Yeah, I'll tell you what I think it does. I think it's going to underscore rates. My hope is that we see some sellers thinking even more reasonably about sale prices, right? I think we'd all agree that some of the sale prices we're seeing are pretty high. And to the degree that those can get back to areas where the outcome is not only high proceeds for the seller, but also outcome is very good rates for the customers of the system that's being acquired, I think that's actually a positive outcome. So I would see probably... Maybe a bit of more reasonableness on purchase prices. Time will tell the story. But many may also be looking at this and say, okay, well, what's the outcome of the appeal? I think most would probably pause to say this is probably not the end of the road here for the court decision itself. So I think the story is yet to be written. But if anything, the impact probably will be a focus on customer rates.
Ryan
Got it. Okay. Thanks for your time.
George
You bet. Take care.
Operator
Thank you, sir. We'll now move to Greg Orrell calling from UBS. Please go ahead, sir. Hey, Greg. Good morning, Greg.
Travis Miller
Yeah, thank you. Good morning. So, Chris, just to clarify with regard to East Whiteland, is the reaction for the company to appeal it or is that – not your place or what's the path here?
George
It's a good question. So it's really the PUC's order. So they have a decision as to whether or not they'll defend their own order. Typically, and I would say, you know, with some level of certainty, that's where they've been in the past. So I have no reason to believe that they will do anything different here. There is a clock. They do need to respond. I believe it's this week. and make that determination. And then we would certainly support their appeal or their request for reconsideration. So there's a couple of ways to go here. One would be an appeal to the Supreme Court. The other one would be a reconsideration at the state court, which, you know, this was heard by a three-court, a three-judge panel. If it was reconsidered, it would go to seven judges. So I think the PUC has some decisions to make in terms of how they'll frame their reconsideration or appeal. But we will most certainly be in support of that. I would expect the industry to be in support of that as well as others.
Travis Miller
Thank you. And with regard to the PFAS estimate of $350 million, do you have any – detail around that that you could provide in terms of how you're looking to comply in terms of method?
George
Sure. Most of it is GAC, activated carbon, is the solution for much of it, although there are multiple solutions we could deploy. If we think about it, it's largely filtration. We know how to treat PFAS. And so I guess as you drill down in a little bit more detail, it's really centered in several of our states. If you look at some of what's on the Internet with PFAS, it's concentrated in states like New Jersey, some in Pennsylvania, heavily in North Carolina. And that's where we're seeing the major work that needs to be done. in some of those states. And so it's not like we can spread this cost over our entire customer base. It will be centered on the areas that are impacted. And so the treatment itself is fairly straightforward. What we get to in areas like North Carolina is, you know, some of these systems are fed by small well systems, you know, and they don't have big footprints. And so there we have to get a little bit more creative in the treatment process. But these are things we know how to do, but it will be expensive, and we think that cost should be borne by the polluters.
Operator
Okay, I appreciate it.
George
You got it.
Operator
Thank you, sir. We'll now move to David Sunderland of Baird. Please go ahead, sir.
David Sunderland
Hey, good morning, guys. Thanks for the updates, and thanks for taking my question. Good morning. Greg actually took my question about the 350 for CapEx outlays for PFAS, and I was just going to add to that maybe any assumptions as far as timeline of these deployments or anything like that, or if we should think of those over a two, four, five, however many year timeline. And then my second to that would just be any estimates or predictions as far as the upcoming case for PFAS, as far as potential recoveries and timeline and total decision there.
George
Yeah, I think the first one on timeline, as it currently stands, and I think you're all aware that the federal government is still going through their regulatory process. And so we should have final determinations on some of these things in the first quarter of next year. But as it stands, most of this work needs to be done between now and 2027. And then there is some opportunity for, I think, two-year extensions. which we may need to get some of the systems into compliance because we have many of them. But we will comply, whatever the final determination is. The work is heavily underway, and it's our intention to comply with whatever those requirements are. So I would say it's relatively short-term if we think about between now and 2027 or maybe some spread beyond that for two more years. But that's probably the compliance period.
David Sunderland
That's helpful. Thank you.
Operator
Thank you very much, David. We'll now go to Jonathan Reeder calling from Wells Fargo. Please go ahead, sir.
David
Good morning, Jonathan. Good morning, gentlemen. So a lot of my questions have already been addressed. Dan, just hoping you can... Maybe give a little more detail on what gives you the increased confidence in delivering on 23. I know you mentioned that Q2 weather helped a tad, but is it more just delivering, you know, these lower other operating expenses as well as the expected proceeds from the sale of three people's projects? Or has July weather, you know, been beneficial on the water side too?
Brian
Yeah, Jonathan, a few things to touch on there. So I would say we've managed our expenses well, and fortunately a few other things have broken in our favor. So as we mentioned, we did have that colder than budgeted weather for the early part of the second quarter, which provided for higher natural gas consumption. And then we had warmer than budgeted weather later in the second quarter, leading to higher water consumption, so that weather outcome that you just mentioned. And then the IRS put out their safe harbor for gas. Those long-awaited gas regs came out in April. That actually provided a pickup in the repair benefit due to increased eligibility of our pipeline replacement program. So a little bit of a pickup there, and then we had a little bit of a benefit from a purchased water pass-through in Texas that we're now receiving. a number of things that are moving there to try to really bring us back to the range.
David
Okay, great. I appreciate that. And then, Chris, just to confirm, I guess nothing particular transpired, I guess, in the last few months regarding the Delcor deal that caused you to move the assumed financial close back to the second half of 2025. You just made the move to give investors confidence in the near term, I guess, EPS growth plan, you know, that it's dependent on Delcor?
George
I think that's well said. I mean, there's always minor developments here and there, but nothing of substance, I would say, has occurred that would trigger this. We just, you know, felt like it was a constant concern from many investors, and we wanted to address it and let people know that our plan in the next couple of years really doesn't require Delcor, and we want to just make that crystal clear to people.
David
Okay. Any, I mean, with the stay out there, is there any near term or, you know, kind of date where there could be some more movement on Del Cora or it's really just a wait and see?
George
Yeah, unfortunately, a federal bankruptcy judge is on no timeline. And so, as you know, that was a twist that we never saw coming. And, you know, it's only tangentially, you know, involved with Delcor. It's really the bankruptcy of the city of Chester and the Chester Water Authority. So we didn't expect to be swept up in that. So, you know, that stay can't stay forever, as we all know. Whether it's lifted next week, next month, or, you know, in several months, we just don't know. So we continue to, you know, be involved. And obviously, you know, there are certain court filings that we continue to work on, but no real activity at this point to report.
David
Okay, great. Thanks for taking my question today.
Operator
You bet.
David
Thanks. Take care.
Operator
Thank you very much, sir. At this time, we don't have any further questions, so I'm going to turn the call back over to Mr. Chris Franklin for any additional or closing remarks. Thank you.
George
Thanks, everyone, for joining, and obviously the team is ready for follow-ups if you have them. Thanks again for joining us today.
Operator
Thank you very much. Ladies and gentlemen, that will conclude today's conference. Thank you, Terrence. We now disconnect.
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