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Presentation

Operator: Good day and welcome to the Essential Utilities Full-Year 2022 Earnings Call. This meeting is being recorded. At this time, I’d like to hand the call over to Brian Dingerdissen. Please go ahead, sir.

Brian Dingerdissen: Thank you, Serge. Good morning, everyone, and thank you for joining us for Essential Utilities 2022 full-year earnings call. I am Brian Dingerdissen, 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 in the webcast of this event can also be found on our website. 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 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 website. Here is our agenda for the call today. We’ll begin with Chris Franklin, our Chairman and CEO, who will discuss the highlights from 2022 and provide a company update. Next, Dan Schuller, Executive Vice President and CFO will discuss our financial results. Lastly, Chris will provide an update on our acquisition program and conclude the presentation with a summary of our guidance before opening the call up for questions.

With that, I will turn the call over to Chris Franklin.

Chris Franklin: Thank you, Brian, and good morning, everyone. Thanks for joining us. Let’s start out with some highlights from our 2022 year. Our focus on operational efficiency and infrastructure improvement and service-related priorities led us to another strong year, reporting earnings per share of $1.77, which is 6% better than last year and the mid-point of our 2022 guidance. It’s also in-line with our 5% to 7% long-term guidance, despite macro challenges of inflation and rising interest rates, among others you all know about. Importantly, in the context of that, I want to point out that since I became CEO in 2015, my team and I have always met the guidance we provided to the Street. We take pride in our accuracy. In 2022, we invested over $1.06 billion in infrastructure improvements, as compared to 1.02 billion in 2021.

Our commitment to investing in critical infrastructure across our footprint has led to the replacement, retirement, and installation of over 430 miles of pipeline just last year throughout our water, wastewater, and natural gas systems. These investments, along with our municipal acquisitions, led to rate base growth of 7.9%. Our municipal acquisition strategy continues to provide consistent and steady growth opportunities. And in 2022, we closed three adding approximately $120 million of rate base and over 23,000 new customers. These three acquisitions, coupled with strong organic growth led to customer growth of 2.7% and for the regulated water segment. Currently, we have asset purchase agreements signed for nine municipal acquisitions, totaling nearly $380 million in purchase price.

The success of our growth strategy has allowed us to report over $1 billion in revenues from our regulated water segment for the first time last year. I also want to take a moment to thank our employees who have diligently worked through the installation of SAP in our water utility over the last year. You may recall that our gas company already had SAP. We completed the conversion of our financials and expect a clean audit opinion, which if you’re familiar with how this works, the complication of installing SAP is quite an accomplishment. We’re very proud of it. These installations are difficult and time consuming, and we wouldn’t be here if it were not for the efforts of so many patient and hard working at the company. Finally, I think it’s important to mention the work our natural gas teams did during Winter Storm Elliott.

In late December, just before Christmas, our teams worked through extremely cold weather to keep our customers’ natural gas flowing so that their homes would remain warm. Our people worked long hours and right through Christmas Eve doing an unbelievable job for our customers under those extreme conditions, a real tribute to the folks working at our natural gas company. Let’s move on to the next slide and talk a little bit about ESG in 2022. Earlier this year, we reaffirmed our ESG commitments, and I am proud to report that as of year-end 2022, the company made really progress. Extensive gas pipeline replacement, renewable energy purchases, accelerated methane leak detection and repair, and among many other initiatives, have led us substantial reduction of our Scope 1 and Scope 2 greenhouse gas emissions.

As of the end of the year, we are estimating a 23% reduction in emissions from our 2019 baseline and we remain on track toward our commitment of 60% reduction by 2035. In the fall of 2023, we’re going to again publish a fully refreshed ESG report on our website, and it was award winning last time we did it €“ keep an eye out for it, it’s always a good read. We also reaffirmed our industry-leading multiyear plan to ensure that we €“ that our finished water does not exceed 13 parts per trillion of PFOA across all the states served by our regulated water segment. While we continue to wait for the EPA to issue their MCL or maximum contaminant level, it’s worth noting that two of the states in which we have water options have already enacted their own thresholds.

Pennsylvania, where nearly 50% of our water customers are located, has set limits of 18 parts per trillion for PFAS and 14 parts per trillion for PFOA. And New Jersey has set limits at 14 parts per trillion for PFAS and 13 parts per trillion for PFOA and PFA. Our commitment is at or below each of these. Now, regarding our employee and supplier diversity commitments. We ended 2022 with people of color, representing 16% of our works towards our multiyear target of 17%. We’re also pleased to report that we exceeded our supplier diversity target of 15% in 2022 and continue to work to we are aligned aligning the makeup of our workforce and the spending on goods and services with the makeup of our customer base. I’ll remind you that we’ve been one of the leaders when it comes to connecting these metrics to incentive compensation.

Finally, we received a number of notable ESG awards and recognitions throughout 2022, including being renamed to Newsweek’s America’s Most Responsible Companies list, renamed to 3BL Media’s, Best Corporate Citizens list, and renamed as Champion of Board Diversity by the Forum of Executive Women. We’re recognized as a 3-plus company by 50-50 Women on Boards, highlighting the diversity of our Board, and we were also named Business of the Year by the Delaware County Chamber of Commerce. Now, in addition to these recognitions, we’ve continued to make strong advances in our ESG ratings. Upgrades from MSCI, , CDP, and ISS have placed Essential as an industry leader and at or near the top of our proxy peer group in 2022. Folks, this is work that we are very proud of and plan to continue.

Now with that, let me hand it over to Dan to discuss our financial results. Dan?

Dan Schuller: Thanks, Chris, and good morning, everyone. Let’s take a few minutes to review the fourth quarter highlights before moving into the full-year, where we’ll spend most of our time this morning. We ended the quarter with revenues of $705.4 million, up 31.7%, compared to the fourth quarter of last year. Our regulated water segment contributed 273.1 million and our regulated natural gas segment contributed 411.5 million, with the balance coming from our limited non-regulated operations. Higher natural gas commodity prices continued through the fourth quarter, and therefore, purchased gas costs increased by $109.4 million year-over-year. O&M expenses increased to 184.7 million for the quarter, up from 158.6 million in the fourth quarter of last year.

Its maintenance expenses, recoverable costs related to our natural gas segment customer assistance program, higher water production costs, bad debt and employee-related costs were the main drivers for the quarter. Net income was down year-over-year from 116.5 million to 114.9 million and GAAP EPS was $0.44 for the quarter, in-line with the prior year. Next, we’ll discuss the full-year financial highlights. We ended the year with 2.29 billion in revenue, up 21.8% from last year. For the year, our regulated water segment contributed 1.08 billion and our regulated natural gas segment contributed 1.14 billion. This is the first year that the growth of the company pushed water segment revenue above $1 billion, which really is something to celebrate.

Purchased gas costs increased by 261.7 million or 76.9%, compared to prior year. O&M expenses increased to 613.6 million. Operating income was up 9.7% to 661.2 million, and year-over-year net income increased 33.6 million or 7.8% from 431.6 million to 465.2 million, and GAAP EPS increased 6% to $1.77, which was in the middle of our $1.75 to $1.80 guidance range for the year. Next, let’s walk through the full-year waterfalls beginning with revenue. As you can see, we had a very strong year revenue-wise. In 2022, revenues increased $409.9 million or 21.8% on a GAAP. You’ll notice that the purchased gas was the largest driver, contributing $261.7 million of the overall increase. This was due to a significant increase in natural gas commodity prices, which we’ve been reporting throughout the year.

Fortunately, though, gas prices have eased in recent months. Regulatory recoveries from our regulated water and natural gas segments added a combined $81.1 million. Over $63 million of this is attributed to water given recent rate . The portion related to gas is mostly due to increased surcharges for our customer assistance program, which has a 1:1 offset in our O&M expenses. Increased volumes from our Regulated Natural Gas segment contributed $26 million. And you’ll recall that weather has a very direct impact on gas consumption, which we see in that and €“ so we closely monitor the heating degree days as an indicator. 2022 weather in the Pittsburgh area was 3.9% colder than normal, resulting in 5,648 total heating degree days, compared to 5,139 heating degree days in 2021.

And in 2022, over 80% of the gas was consumed during the heating season, meaning during the first and fourth quarters of the year. Moving on, combined growth and increased volumes on our regulated water segment contributed an additional $36.5 million. And finally, other provided $4.6 million of the overall revenue increase. Next, let’s move on to the O&M expenses. Operations and maintenance expenses were $613.6 million for the year, compared to $550.6 million in 2021. Other items contributed $20 million to the increase, and much of this was related to inflation-related increases and lower capitalization in outside services and material applies, as well as higher insurance expenses, offset by higher capitalization in the gas segment. Employee-related costs added $17.1 million, which included regular merit increases, targeted market adjustments and expense for one-time inflation payments for non-officer level employees, as well as benefits.

The gas customer systems program expenses, which are recoverable through our revenue surcharge, increased to $12.8 million. And expenses related to newly acquired water and wastewater customers added $6.9 million and increased production costs in our regulated water segment at an additional . We continue to see year-on-year increases in production costs with the largest inflation-related increases for chemicals and sludge handling and hauling. Next, we’ll spend a minute on the earnings per share waterfall. Beginning on the left side of the slide, with 2021 GAAP EPS of $1.67, recoveries contributed nearly $0.22 and increased volume from our regulated natural gas segment added $0.07. Combined, the increased volume and growth from our regulated water segment added another $0.08.

These were offset by $0.14 of other items, which included increased depreciation, interest, and taxes other than income taxes, as well as of expenses. The result is a GAAP EPS of $1.77 for the year. Moving on to regulatory activity and other matters. In 2022, we completed rate cases or surcharge filings in our regulated water segment in , North Carolina, Ohio, and Pennsylvania, and we completed a rate case in our regulated natural gas segment in Kentucky, for a combined total annualized revenue increase of approximately $88.8 million. So far in 2023, we completed rate cases or surcharge filings in three of our regulated water states with total annualized revenue increase of . Also, we currently have base rate cases or surcharge filings underway in North Carolina, Ohio, Texas, and Virginia for our regulated water segment and in Kentucky for our regulated natural gas segment.

Finally, I wanted to provide an update on the equity ATM program established in October. This program gives us a mechanism to issue equity over time as we continue to deploy a significant amount of capital to grow the business through both supply acquisitions and capital expenditures. As of December 31, 2022, we had issued approximately 1.32 million shares. And in January, we issued an additional 399,000 shares for a total of $82.3 million net of expenses. As we indicated in the slide deck when we announced guidance in January, we expect to raise approximately $400 million to $500 million in equity or equity-linked securities over the next 18 months to maintain our credit metrics, while we invest capital and close municipal acquisitions. We continue to evaluate how to most efficiently execute this capital raise, and the exact amount and timing is dependent on acquisition closings and other factors.

And with that, I’ll hand it back over to Chris to discuss acquisition growth and our 2023 guidance.

Chris Franklin: Great. Thanks, Dan. And let’s talk a little bit about the municipal activity first. You’ll notice on the left-hand side of this slide that municipal growth through acquisition has been a long and successful base component of our growth through acquisition strategy, which complements our continued investment in infrastructure in our existing business. Just since 2015, we’ve added nearly 118,000 customer equivalents and nearly $0.5 billion in rate base to our water footprint through acquisitions. Most recently, we announced the closing of the Oak Brook water system acquisition in Illinois, which serves approximately 4,000 customer equivalents. Including Oak brook, we closed three acquisitions in 2022, which added over 23,000 customer equivalents and approximately $100 million in rate base to our company.

Combined with organic growth, the company increased its regulated water customer base by 2.7%. On the next slide here. As of this call, we have eight signed asset purchase agreements for nine systems across four states. All of these are in states where we currently do business, these acquisitions will add nearly 219,000 customers or customer equivalents and totaled nearly $380 million in purchase price. Now, let’s take a minute and talk about the status of DELCORA. On our last call, you will recall that we provided the PUC procedural schedule and our expectations of closing this acquisition in the first of 2023. Based on the most recent legal and regulatory actions a mid-year closing is now unlikely. We now expect to close toward the end of this year, and we continue to be confident that we will close the DELCORA transaction, and also continue to believe that there is a path forward in settlement that works for all the parties.

All right. On the next slide, in addition to the signed municipal transactions on the previous slide, our pipeline of opportunities for growth remain and healthy. Currently, we’re engaged in active discussions with municipalities and pursuing over 400,000 potential water and wastewater customers as illustrated on this slide. Our in-state teams continue to focus on potential acquisitions that have at least 2,500 to 25,000 customers . We believe our strong value proposition, including our ability to pay a competitive purchase price, our technical, and operational expertise, our commitment to spend the capital to make improvements and our long-term commitment to the communities we serve, altogether make a compelling case to municipal governments who are considering their options.

We will continue to focus on growth in all eight states where we have water utilities and fair market value statutes are in place. On 2022, we, like so many other companies were faced with rising interest rates, inflation, supply chain challenges. However, the ability of our people to overcome these challenges and focus on integration, growth, and operational excellence provided us the opportunity to report such strong results for the year. As we look at 2023, we remain committed to the pillars and priorities that ensure the safety, quality, and reliability our customers, employees and shareholders have come to expect. Now, for those of you who have followed us, you know that throughout our history, we have continuously reviewed our portfolio and their contributions.

As a result of our most recent review, last year, we decided to sell our West Virginia natural gas assets, and we announced that sale early last month. We believe that this decision will be beneficial to the 13,000 West Virginia customers because it will provide rate stability for rate stability and an opportunity for them to benefit from economies of scale in West Virginia. We were very small there, as you know. The completion of this transaction will also eliminate the outsized or oversized draw of management attention that our West Virginia operations required. All right. Now before we walk through our 2023 guidance, I want to provide clarity on how we’re thinking about the impacts of both weather and our acquisition program on the guidance we provided you last month.

Dan mentioned earlier in the call, the colder-than-normal weather in 2022 had a favorable impact on revenues. And while it’s very early in the year, and we still have another month left in the first quarter, year-to-date 2023 weather for the region where our natural gas segment is located, has been approximately 20% warmer than normal. This will likely be a topic for our next earnings call for first quarter. But as a reminder, the fourth quarter has a significant impact of usage as well. So, it’s far too early to determine the weather impact on our results for the year. Regarding our acquisition program, you may recall that DELCORA was included in the guidance we provided for 2023, but I want to point out that we do not believe that a delay in the closing of DELCORA alone would cause us to fall outside our existing EPS guidance range for 2023.

So, we’ll continue to monitor the impacts of weather and acquisitions, but we remain confident in 2023 guidance we released last month. So, I’ll wrap up the call by reviewing that guidance. We expect earnings to be between $1.85 and $1.90 per share. We’re confident in the three-year earnings per share growth of 5% to 7% through 2025, and we’ll be investing approximately on regulated infrastructure, which is an increase of about $100 million annually over last year’s plan. We continue to expect rate base growth will be between 6% and 7% for water and between 8% and 10% for natural gas. And growth will be between 2% and 3% for water and stable for natural gas other than obviously the sale of our West Virginia properties as I just mentioned.

So, in closing, I want to mention that I believe the management team at Essential Utilities is among the best in the industry. Our team continues to on an already industry-leading operational excellence, while continuously integrating acquired customers nearly seamlessly and all despite the numerous challenges once in lifetime pandemic, unprecedented inflation, soaring interest rates, and the installation of a major system, SAP. This team led all of this while meeting or exceeding the standards that our stakeholders expect. And I would say it’s truly amazing 2022. It’s incredible to reflect on the dramatic growth the company has experienced over the past 7.5 years. In 2015, when the current leadership team came together, our revenues were about $814 million.

And now in 2022, just our Regulated Water segment revenue was over $1 billion for the first time. Our annual CapEx has grown from nearly $365 million to now over $1 billion a year in that same time. All of this could not have been possible without the dedicated team of over 3,200 professionals that I am really incredibly proud to work with every day. So, on that note, I want to conclude our formal remarks and open the call up for questions. Operator?

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Operator: Thank you. The first question comes from Ryan Connors from North Coast Research. Please go ahead.

Ryan Connors: Question. A couple of housekeeping on the financials and then a big picture question for Chris. But Dan, in the waterfall, you mentioned the 17 million headwind from employee-related costs, I mean, obviously, that’s not shocking given inflation and so forth. But do you expect that run rate of increase to, kind of moderate from 2023 and 2024? Is that kind of a onetime jump or should we continue to expect elevated inflation at that level?

Dan Schuller: So Ryan, I think that will moderate in 2023 and 2024. There are a few things in there like, one that I noted in the script was that we did in 2022, an inflation-related payment for our broad employee base, so I think non-officer level. So that was something we did in 2022, which we would not expect to do in 2023. We also did some select market adjustments compensation wise that I think at this point you feel we’ve got those market adjustments behind us. So, we would expect that to moderate to more normal, sort of merit increases and increases in benefit costs going forward.

Ryan Connors: Okay. And did you give us €“ are you able to disclose a specific amount on that one-time, kind of inflation payment or no?

Dan Schuller: Yes. And so what we did there, Ryan, is, it’s, call it, $3 million, kind of $1,000 across an employee base of 3,000 people. So that’s the rough number on that. And it was just that, Ryan, as we thought about what employees were paying for groceries to grocery store, gas to gas pump last year. We just thought this was something that the company was able to do to help our employees out help ease that burden a little bit.

Ryan Connors: Got it. Okay. The other one was on interest expense. Obviously, it was a jump, which isn’t surprising given where rates have been in our headed. But anything we should be aware of there in terms of variable rate aspects going forward? And also, is that all kind of pass-through or are there certain parent company things related to people or otherwise that maybe aren’t as quick of a pass-through?

Dan Schuller: Yes. The way I would think of that, Ryan, is the only place we have variable rate debt really is our revolving credit facilities. And so we’ve got the , and we’ve got revolvers at the bigger subsidiaries. Gas side, we use it for gas purchase costs. But that’s where we’re seeing a pickup in financing cost. If you think of a year ago, we were LIBOR-based and LIBOR was €“ we can pick a number, 25 basis points or something quite low. And this year, it’s sulfur-based only because of the change, but think of that as above 4%. So significant increase in the borrowing cost for anything that sits on that revolving credit facility. So that leads us to think about how do we think about terming that facility out, right, in 2023, just like we tend to do every year. The rest of our debt tends to be long-range fixed rate debt, classic sort of utility financing.

Ryan Connors: Got it. Okay. And then just my bigger picture question was, we’ve heard so much about affordability and becoming a bigger issue, especially on the water side, we passed and one of the things, I guess, that seems to be emerging is the staggered multiyear rate increases instead of getting the rate increase all in right away €“ get it over several years. It looks like that’s the way your request in North Carolina is, in fact, structured, is that something you expect €“ we should expect to start seeing more across the board? Or is that North Carolina more of a one-off?

Dan Schuller: So, North Carolina, there was a change a couple of years ago that allows for this multiyear rate making. And so this is the first time that we’re in we’re taking advantage of that new construct. Pennsylvania allows for an alternative ratemaking, which one could €“ a company could propose a multiyear. It hasn’t been used any great. We saw one water case where that was proposed, but I think by and large, all of our other states are effectively one increase based either on a historic test year or future or fully projected future test years, but those are the only two places. I would say, we have any ability to think multiyear at this point.

Chris Franklin: Ryan, I would say though, that you’re right to ask about affordability. It’s currently a theme not only across the utility space at and everything else. But it’s even a theme in our boardroom. We’re very focused on affordability for our customers. And that’s why we were the first to get out there with our universal service program in Pennsylvania. That’s why we continue to focus on affordability in all of our states. We think about grants for some of our PFOS, PFOA mitigation work we’re doing, which obviously then is passed directly on to only rate payers, customers, not shareholders. So, big focus on affordability in the industry. And I think that will remain true. These are tough economic times generally. And I think, especially for those that maybe had a little less.

This is an important topic. So, you’ll see regulatory themes and probably different schemes, I should say, that companies will try all at the attempt of being continually more affordable.

Ryan Connors: Got it. Thanks for your time.

Operator: And our next question comes from Travis Miller from Morningstar. Please go ahead.

Travis Miller: Good morning. Thank you. Quick question in terms of, I think, a follow-up really to what you just add to €“ when you take the charge and annual rate adjustments versus base rate cases, how do you think about that balance currently? And what do you think about in terms of the cadence for the base rate cases? Does that make sense to get an idea of annual versus, kind of whatever your run rate, I think, on the base case.

Chris Franklin: The recoverability varies a little bit state-by-state, but the mix in states like Pennsylvania is pretty good. Dan, you know the mix.

Dan Schuller: Yes. I mean we €“ as we think about it, we probably €“ it depends state by state. We have different DSIC or structures. Pennsylvania for water increased rates up to 7.5% between rate cases based on the DSIC. I think the Illinois models 4.5% in any sort of two-year period.

Chris Franklin: North Carolina has one.

Dan Schuller: North Carolina has one. But I think, Travis, maybe to get to, kind of what your question is here. As we think about, say, Pennsylvania, between what we have in the DSIC and what we proposed in a rate case and expect to achieve in that rate case, we’re thinking on the order of 5% per year, but that’s a combination. And what that could mean is, we run a rate case every three years or we could shorten that cadence a little bit to something shorter. But I think in terms of that 5% per year in total, over a rate case period.

Travis Miller: Okay. Yes, that makes sense. No, that’s what I was asking. So, okay. Great. And then a higher-level question. Municipal growth. It seems like when you have the puts and takes over the last few quarters, you’ve been excluding DELCORA somewhere in the 100,000 and correct me if I’m wrong, the number is wrong, but 100,000 or so run rate of pipeline, what’s the macro environment look like? Is there something that’s either holding back the pipeline over the last few quarters and then it could accelerate? Or is this kind of a run rate pipeline that you’d expect?

Chris Franklin: Yes. I think the pipeline is strong. We talked about 400,000 customers in our pipeline. So that piece of it is strong, but it’s chunky, and it always has been chunky. In other words, we’ll have a big year than a little slower one at all. There are so many factors, Travis that go into it, everything from local politics to macroeconomics, interest rates, and other drivers. But I would say, the activity, the discussions that we’re having currently are really encouraging, and we’re generally very optimistic about not only the near-term, but the long-term in terms of municipal privatization.

Travis Miller: Okay. Great. Thanks so much. I appreciate the thought.

Operator: The next question comes from Gregg Orrill from UBS. Please go ahead.

Gregg Orrill: Good morning. Thank you. I was just wondering if you could, sort of speak to the stay order on DELCORA review in Pennsylvania, just what’s the process and outlook there? Thanks.

Chris Franklin: Yes. Sure. So, just for clarity, there are two stays that we talk about that are in play here. The one stay is really between, is really regarding the Chester City bankruptcy. Remember, DELCORA serves, the city of Chester. And so in 1973, Chester City basically contributed or sold their assets to DELCORA. And they have reversionary, right? So the €“ currently, the bankruptcy has an automatic stay on the DELCORA proceeding. Now, today, we’re in court with the bankruptcy court, trying to get relief from that automatic stay. So, that’s one stay. Hopefully, we’ll see some reaction from the judge. Usually bankruptcy courts moved pretty quickly. So, who knows that may be a fairly quick answer from the judge there.

The second stay is from the administrative law judge at the Public Utility Commission. And so that stay is based on what the county has €“ the DELCORA has filed in terms of a municipal court case in Delaware County for seeking clarification on two items. Now, at the ALJ stay, we have the ability to file an interlocutory action, which basically asks the five commissioners then to vote to uphold the stay or relieve the stay. And so, we are currently thinking about our options. Clearly, we want to see first how the bankruptcy court goes today, and then we’ll look from there. But those are the two stays that are in place. And I know it’s €“ there’s a lot of moving parts, but that’s hopefully clear to you.

Gregg Orrill: Appreciate it. Thank you.

Operator: And our next question comes from Davis Sunderland from Baird. Please go ahead.

Davis Sunderland: Hey guys. Congrats on a good quarter and thanks for taking my question. Just wanted to ask quickly about your guidance for capital investments increase of an extra $100 million per year. Do we think about this as an acceleration to your previous growth plan or part of it being related to inflationary pressures? And then I guess a follow-up to that would just be anything you’re seeing on supply chain difficulties with investment? Thank you.

Chris Franklin: Do you want to take the supply chain one first, Dan?

Dan Schuller: Sure. Yes. I mean in terms of the supply chain, I would say that throughout the, kind of pandemic and post pending where there have been supply chain constraints, we’ve generally been able to obtain things that we need. Some items, large diameter things, large diameter pipes, larger diameter valves and fittings and such have been more delayed. And so, we’ve had to plan ahead on projects like that. The one place we continue to see some delays is things that are related where we have Microchip so specifically with related to our meters that we’ve got some supply chain constraints there. we’re starting to see that open up a bit. But there have been some challenges, but nothing that we’ve not been able to work through during these last couple of years there.

And then I guess, we think about the change from, kind of $1 billion a year to $1.1 billion a year on average, you’re seeing the opportunity to continue to invest capital and thus increase that rate a bit, but to your point, capital costs are up. So, that’s factored into that total dollar objective as well.

Chris Franklin: I’d just add that even the cost of pipe is almost double over the last year or so. And so, conceptually, you get less done. We’re trying to be as efficient as we possibly can, but you get less done for the same dollar. And so, I would not consider this in the category of an acceleration, but more as we continue to identify capital opportunities, we’re working through those. And then, of course, we’re trying to stay pace with the needs of the infrastructure needs, especially our pipe replacement needs, both in water and in natural gas. And those don’t go away despite the price increases.

Davis Sunderland: Thanks so much.

Operator: Our next question comes from Jonathan Reeder from Wells Fargo. Please go ahead.

Jonathan Reeder: I appreciate the on DELCORA. Can you just indicate whether your expectations for close now towards year-end? Do those rely on the ability to reach this potential settlement or is that schedule, kind of more based on the latest legal challenges playing out to say getting addressed in a fully litigated process resuming at the Public Utilities Commission.

Chris Franklin: Yes. I would say probably a combination, Jonathan. I mean, here’s how we think about it. We’re still going to have to go through a full PUC process, right? We were expected to have evidentiary hearings in February, the 14 and 15, I think, were the original dates. Those are now pushed off. We’ll still need to go through those once the stay is lifted. And so, while €“ whether you call it a fully litigated or €“ but I would say it will be €“ continue to be a full process. Certainly, a settlement, if we could reach one then relieves the €“ any opportunity for additional delays and appeals. And so, that’s why I think about a settlement is optimal for closing this year. I don’t want to mischaracterize those discussions, but I would say they’re constructive conversations and ongoing conversations, and I remain optimistic about a settlement.

Jonathan Reeder: Okay. So, conversations are still occurring. You think they are constructive and still hopeful to get there. Okay.

Chris Franklin: Yes.

Jonathan Reeder: Okay. And then second question, you opened the call noting how the team has always delivered on the guidance ranges and made the comments later with respect to the year-to-date weather headwind and obviously, the delay in DELCORA, do you have other levers that you can pull and perhaps plan to pull if needed to offset the weather impact? I mean I know essentially as a reputation of running a pretty lean ship already, but might there be some temporary cost offsets that you could implement later in 2023, if needed?

Chris Franklin: I think the short answer is, yes.

Dan Schuller: Yes. Probably some things, Ryan, is that we’re evaluating now €“ I mean €“ Jonathan, sorry. So, we’re evaluating now that we may be able to say more about it progresses here, but certainly, we’ve always, to your point, had a strong cost culture, and we’re really encouraging that today as people look at expenses, sort of the idea of think before you spend. Do I need this? What is the quantity I really need? What do I have the optimal price, et cetera? So, ensuring that, that remains a strong part of our culture really is critical here in 2023.

Jonathan Reeder: Right. Okay. Great. No. I mean it’s hard to control the weather. So, good luck offsetting that if need be and looking forward to, hopefully, DELCORA can move forward. So, thanks for taking my questions.

Dan Schuller: Take care, Jonathan.

Operator: Thank you. And we have a follow-up question from Ryan for Northcoast Research. Please go ahead. Your line is open.

Ryan Connors: Just a quick follow-up, if I could. Yes, thanks Chris. Just on €“ thanks for all the updates on DELCORA, but given that we’re talking about it in the context of the bankruptcy itself €“ any €“ can you update us how we should think about Chester Water Authority and how that’s €“ whether the chance of that reemerges as we move through the bankruptcy proceeding and then how they choose to solve their fiscal issues?

Chris Franklin: Yes. Listen, it would all just be speculation at this point, Ryan. But my two sense is that there’s no other option. They don’t have another asset. The debt is deep €“ short of a massive bail-out from the state or federal government. The only option they have, including restructuring, is to sell that asset. Now it’s still tied up. Remember, even if the receiver says sell that asset, there’s still a Supreme Court decision that then would have to be moved ahead, and the final determination that the city, in fact, owns that asset. So, I would say that, that is not a front-burner issue for today for us. We see some other exciting things. But we’ll continue to be engaged there. And certainly, as DELCORA progresses and we become utility in the city, we’ll be €“ have great interest in making that all work together and improving the inside the city.

Ryan Connors: That’s helpful color. Thanks again.

Operator: Thank you. As there are no further questions in the queue. I’d like to hand the call back over to Christopher Franklin for his remarks. Over to your Chris.

Chris Franklin: Thank you all for your time and for joining us today. Obviously, we’re always available for follow-up questions. Brian, Dan, and I are available anytime. Thank you again for joining us.

Operator: Thank you. This concludes today’s conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.