Essential Utilities Inc. reported results for the first quarter ended March 31, 2022.
“We delivered strong financial results for the first quarter of the year and will continue to make significant investments in infrastructure throughout the year, while remaining dedicated to providing high quality, essential utility services for our customers,” said Essential Chairman and Chief Executive Officer Christopher Franklin. “I am especially proud of our entire team for operating the company with excellence while adhering to industry leading ESG standards throughout our company’s footprint. Beyond operating the company efficiently, we will remain focused on our commitments to environmental stewardship, sustainable business practices, employee safety, diversity and inclusion, enhanced customer experience and community engagement.”
Essential reported net income of $199.4 million for the first quarter of 2022, compared to $183.7 million reported for the same quarter in 2021. Earnings per share were $0.76 for the quarter, an increase of 5.6% compared to $0.72 in the first quarter of 2021. Regulated water segment rates and surcharges, increased volume from the regulated natural gas segment, customer growth from the regulated water segment, and other items were the largest contributors to the increase for the quarter, which were offset by increased expenses.
Revenues for the quarter were $699.3 million, an increase of 19.8% compared to $583.6 million in the first quarter of 2021. Recovery of higher purchased gas costs, and additional revenues from rates and surcharges, customer growth and volume from the regulated natural gas segment were the largest contributors to the increase in revenues for the quarter. Operations and maintenance expenses increased to $142.6 million for the first quarter of 2022 compared to $125.1 million in the first quarter of 2021. The increase in operations and maintenance expenses was primarily a result of increased employee-related costs, increased customer assistance program expenses (which are recovered through a revenue surcharge), inflationary cost increases, increased insurance expense (compared to non-recurring, prior year favorable adjustments), and higher transportation costs.
The regulated water segment reported revenues for the quarter of $239.2 million, an increase of 4.7% compared to $228.4 million in the first quarter of 2021. Rates and surcharges and growth were the largest contributors to the increase in revenues for the period. Operations and maintenance expenses for Essential’s regulated water segment increased to $86.1 million for the first quarter of 2022 compared to $78.3 million in the first quarter of 2021.
The regulated natural gas segment reported revenues for the first quarter of 2022 of $445.2 million, an increase of 29.7% compared to $343.1 million in the first quarter of 2021. Purchased gas costs were $217.3 million for the quarter as compared to $122.9 million for the same quarter in 2021. As a result, the recovery of higher purchased gas costs was the largest driver in the increase of revenues. Operations and maintenance for the same period for Essential’s regulated natural gas segment increased to $59.5 million, from $51.3 million in the first quarter of 2021.
On March 21, 2022, Essential’s board of directors declared a quarterly cash dividend of $0.2682 per share of common stock. This dividend will be payable on June 1, 2022 to shareholders of record on May 13, 2022. The company has paid a consecutive quarterly cash dividend for more than 77 years.
Water Utility Acquisition Growth
Essential’s continued acquisition growth allows the company to provide safe and reliable water and wastewater service to an even larger customer base. On March 4, 2022, the company’s regulated water segment subsidiary, Aqua Pennsylvania, closed its acquisition of the Lower Makefield Township wastewater system, adding $53.0 million in rate base and approximately 11,000 customer connections.
The company currently has seven signed purchase agreements to acquire additional water and wastewater systems that are expected to serve approximately 224,000 equivalent retail customers or equivalent dwelling units and add approximately $418 million in rate base in three of our existing states. This includes the company’s agreement to acquire the Delaware County Regional Water Quality Control Authority (DELCORA), a Pennsylvania sewer authority, for $276.5 million that serves approximately 198,000 equivalent dwelling units in the Philadelphia suburbs.
The pipeline of potential water and wastewater municipal acquisitions the company is actively pursuing represents approximately 415,000 total customers or equivalent dwelling units. On average, the company remains on track to annually increase customers between 2 and 3% through acquisitions and organic customer growth.
Essential invested approximately $183.3 million in the first three months of the year to improve its regulated water and natural gas infrastructure systems and to enhance its customer service across its operations. The company remains on track to invest approximately $1 billion in 2022 to replace and expand its water and wastewater utility infrastructure and to replace and upgrade its natural gas utility infrastructure, with the latter leading to significant reductions in methane emissions that occur in aged gas pipes. In total, infrastructure investments of approximately $3 billion are expected through 2024 to improve water and natural gas systems and better serve customers through improved information technology. The capital investments made to rehabilitate and expand the infrastructure of the communities’ Essential serves are critical to its mission of safely and reliably delivering Earth’s most essential resources.
To date in 2022, the company’s regulated water segment received rate awards or infrastructure surcharges in Illinois, North Carolina, Ohio, and Pennsylvania of $8.2 million, and the company’s regulated natural gas segment received a rate award in Kentucky of $5.2 million. The company currently has rate proceedings for base rates pending in Pennsylvania and Ohio for its regulated water segment, which would add an estimated $106.4 million in incremental revenue.
Reaffirms 2022 Essential Guidance
This guidance is based on the inclusion of signed water and wastewater acquisitions but does not factor in the impact of the expected continuation of significant water and wastewater customer growth from acquisitions.
The following is the company’s 2022 full-year guidance:
- Net income per diluted common share of $1.75 to $1.80
- Continuation of the company’s stated long-term earnings per share growth CAGR of 5 to 7% for the three-year period 2021 through 2024. The company expects to reaffirm the long-term earnings per share growth guidance after the completion of significant regulatory processes
- Regulated infrastructure investments of approximately $1 billion annually through 2024, weighted towards the regulated water segment
- Regulated water segment rate base compound annual growth rate of 6 to 7% through 2024
- Regulated natural gas segment rate base compound annual growth rate of 8 to 10% through 2024
- Average annual regulated water segment customer (or equivalent dwelling units) growth of between 2 and 3% from acquisitions and organic customer growth
- Gas customer count stable for 2022
ESG Guidance and Commitments
- Reduction of Scope 1 and Scope 2 greenhouse gas emissions by 60% by 2035 from our 2019 baseline
- Multi-year plan to increase diverse supplier spend to 15%
- Multi-year plan to reach 17% employees of color
- Multi-year plan to ensure that finished water does not exceed 13 parts per trillion (ppt) of PFOA, PFOS, and PFNA compounds
- Essential Utilities does not guarantee future results of any kind. Guidance is subject to risks and uncertainties, including, without limitation, those factors outlined in the “Forward Looking Statements” of this release and the “Risk Factors” section of the company’s annual and quarterly reports filed with the Securities and Exchange Commission.