Earnings Call Transcript
Essential Utilities, Inc. (WTRG)
Earnings Call Transcript - WTRG Q2 2023
Operator, Operator
Hello, and welcome to the Essential Utilities Second Quarter 2023 Earnings Call. My name is George, and I will be your coordinator for today's event. This conference is being recorded. I would now like to hand the call over to our host, Mr. Brian Dingerdissen, to start the conference. Please proceed, sir.
Brian Dingerdissen, Vice President, Investor Relations and Treasurer
Thank you, George. Good morning, everyone, and thank you for joining us. 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 and 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 risks, uncertainties and other factors that may cause the actual results to be materially different from any future results expressed or implied by such forward-looking statements. Please refer to our most recent 10-Q, 10-K and other SEC filings for a description of such risks and uncertainties. During the course of this call, reference may be made to certain non-GAAP financial measures. A reconciliation of these non-GAAP to GAAP financial measures is included at the end of the presentation and also posted in the Investor Relations section of the 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.
Christopher Franklin, Chairman and CEO
Thanks, Brian, and good morning, everyone. Thank you for being here today. For those who may not be as familiar with us, Essential Utilities is a leading provider of water, wastewater, and natural gas services. With a history of 135 years, we are the second largest regulated water utility in the United States, operating in eight states and achieving nearly three decades of growth through acquisitions, combined with significant capital investments during that time, which has resulted in steady earnings growth. Essential Utilities also includes the largest local gas distribution company in Pennsylvania, which also boasts a 135-year history of industry leadership and growth. Together, our utilities create a solid foundation for consistent earnings per share growth of 5% to 7%. A crucial factor in our long-term growth is the substantial investment needed in water and gas infrastructure, including pipelines and plants. This investment is essential for delivering long-term value to shareholders. I want to discuss this topic with you today, but first, let's review the positive developments from the second quarter. Although the first quarter was challenging due to warm weather, the second quarter positioned us strongly. We reported earnings per share of $0.34 for the quarter. Dan will provide more details shortly, but this strong quarter bolsters our confidence in meeting this year’s guidance, despite the lower results in the first quarter linked to the unusually mild winter. We are on track to invest $1.1 billion in capital projects this year, which will encompass over 8,000 projects aimed at enhancing service and reliability for our customers while substantially increasing our rate base for future shareholder growth. So far in 2023, we have completed six acquisitions involving seven systems. Notably, the village of Frankfurt included both water and wastewater services, and these projects span four states where we already operate. These acquisitions have added more than $44.6 million to our rate base and over 11,000 customer equivalents. Additionally, we have four asset purchase agreements signed that are expected to bring in over 208,000 customers and nearly $336 million in purchase price. Importantly, I want to highlight that at our recent Board meeting, the Board approved a 7% dividend increase, reflecting confidence in our ability to deliver lasting value to both customers and shareholders. Before I delve deeper into our capital projects, I want to emphasize the importance of the quality of our capital investments, which generates over 90% of our annual earnings per share growth. Our municipal acquisition program is crucial as it enables us to enhance water and wastewater systems while deepening the future capital needs pool. Many of our current projects are focused on systems acquired throughout our history. Nonetheless, I want to stress that the execution of our capital improvement plan is the most significant contributor to earnings per share growth. We have consistently excelled in infrastructure rehabilitation and deploying substantial capital across numerous projects each year, with 8,000 planned for this year alone. In the first half of 2023, we invested $547.6 million in infrastructure improvements, compared to $424.6 million in the same period last year. As you may know, we've been increasing our capital investments over the years. Since I became CEO in 2015, we have invested nearly $5.8 billion, with both our annual capital plans and rate base increasing by approximately 200% during this time. I want to reiterate that while capital plans are vital for earnings generation, our municipal acquisition program remains robust, contributing to our growth story and enhancing our future capital improvement opportunities. I will update you on our acquisition progress shortly, but I hope you understand the scale of our capital improvement initiatives. We have replaced over 1,100 miles of pipe in the past three years and expect to replace another 1,300 miles between now and 2025, essentially creating a pipeline from Philadelphia to Sacramento, California. This is work that all utilities across the U.S. should be undertaking, especially given that much of the infrastructure is over 100 years old. Our capital needs are strong as we continue to improve plants, address PFAS concerns, remove lead services, and replace aging pipes. We anticipate our annual capital budgets will exceed $1 billion for the foreseeable future, which is why we’ve initiated a focused program to secure low-interest loans for as much of our capital expenditures as possible. While shareholders may not see direct benefits from lower interest rates, customers will enjoy reduced utility bills, allowing us to maintain necessary infrastructure improvements. I want to assure you that even with our extensive capital improvement program, our efficiency and safety standards remain high. Since 2015, we have consistently adhered to a strategy that emphasizes operational excellence in our utility operations, investing in necessary infrastructure improvements, and targeting acquisitions in the water and wastewater sectors. As I’ve mentioned before, we do not plan on any further gas acquisitions. Our infrastructure investments underpin our guidance of 6% to 7% rate base growth for water and 8% to 10% for our natural gas sector, contributing to the consistent 5% to 7% earnings growth we have achieved annually since setting that target. Now, let’s turn our attention to our active acquisition program. This year, we’ve completed seven acquisitions, adding over 11,000 customer equivalents to our water and wastewater operations. This uptick in closed acquisitions is a reminder that Essential has led the consolidation of water and wastewater utilities for over 30 years, completing more than 400 utility acquisitions in that time frame. Since 2015, we’ve added nearly 129,000 customer equivalents and over $526 million to our rate base through our successful acquisition strategy. Notably, on June 30, we completed the acquisition of the Union Rome Sewer system in Ohio, serving around 5,300 customers, marking the largest municipal acquisition in Ohio to date. We are very proud of that achievement. On July 24, we secured the Borough of Shenandoah’s municipal authority in Pennsylvania, serving about 3,000 customers. Alongside these, we acquired four additional systems on July 31, including Southern Oaks in Texas, the Village of Frankfurt's water and wastewater assets in Illinois, and the Village of La Rue in Ohio, which collectively added nearly 2,500 customers and $7 million to our rate base. In addition, we have the already announced acquisition of North Heidelberg in Pennsylvania, a small wastewater system where we served as the receiver. Adding that in, we have successfully acquired seven systems, generating over $44.6 million in rate base and 11,000 customer equivalents this year, which is a strong performance. All these acquisitions indicate our capacity to provide operational expertise and solutions for systems needing substantial capital improvements to ensure high-quality, safe, and reliable services for customers. Let’s address a recent court decision that has made headlines. In August 2022, following approval from the Pennsylvania Public Utility Commission, we acquired East Whiteland's wastewater assets, which was later challenged by the consumer advocate in Commonwealth Court. Last week, the court overturned the PUC's order approving our acquisition. We are disappointed by this ruling and will collaborate with the PA PUC to defend its order, including exploring options for appeal alongside both the PUC and East Whiteland Township. We believe there is still a route for continuing the regionalization of water and wastewater systems in Pennsylvania, which will require ongoing engagement from all stakeholders to ensure fair market value serves as a regulatory mechanism benefiting all parties involved. Now, moving on to the dividend. As mentioned earlier, last week the Board approved a 7% increase to the quarterly dividend. We have a strong and consistent history of meeting our investors' expectations. This marks the 33rd dividend increase in 32 years and the 78th consecutive year of quarterly dividend payments, supporting our record of providing value to shareholders. Following this increase, the annualized dividend will be nearly $1.23 per share. With that, Dan, I’ll hand it over to you to discuss our financial results.
Daniel Schuller, CFO
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 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 purchased gas costs decreasing by $33.2 million from the same period last year. Incremental revenues from regulatory recoveries, water and wastewater customer growth, and increased volume in the water segment contributed positively and offset lower purchased gas costs and volumes for the quarter. Operations and maintenance 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 EPS 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 the impact 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 March of 2022. They have since declined. Therefore, when compared to the second quarter of 2022, we notice the primary driver of the decrease in revenues for the quarter was a 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% reduction in revenues. Next, let's through 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 from 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 $0.31. Regulatory recoveries contributed $5.4 million, and growth and increased volume from our regulated water segment together added $0.01. These were offset by other items of $1.8 million, which include increases in both interest expense and depreciation, offset by lower taxes, $1.3 million, related to decreased volume from our Regulated Natural Gas segment, and $0.2 million as a result of increased expenses. The result is GAAP earnings per share of $0.34 for the second quarter of 2023, a 9.7% 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 have 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 our 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 replaced over 450 miles of pipe in Pennsylvania through our long-term infrastructure improvement plan. Rate base at People's has grown significantly, 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 People's has resulted in the reduction of nearly 80,000 metric tons of annual CO2 equivalent greenhouse gas emissions. Said more plainly, this is the equivalent of permanently removing nearly 18,000 cars from the road. Bear in mind that every mile of pipe replaced reduces 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 supersedes 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 advanced guidance on the timing or amount of debt and equity capital to be raised, but we will most certainly provide details upon the execution of each capital raise. And with that, I'll hand it back over to Chris. Chris?
Christopher Franklin, Chairman and CEO
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 Aqua would not exceed 13 parts per trillion for multiple PFAS chemicals, which is 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 multistate company that I'm aware of that made such a commitment. Our own estimates to remediate PFAS at Aqua systems across our eight states suggest that the capital and operating expenses currently estimated by the U.S. EPA are far below what will be needed for remediation across the United States. Based on preliminary estimates, we believe that Aqua'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 base 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 add over 208,000 customers or customer equivalents and totaled nearly $336 million in purchase price. 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. Furthermore, on a separate topic, 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 DELCORA regulatory process continues to be under 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 DELCORA transaction because our asset purchase agreement outlasts all litigation. We continue to also believe that customer rates over time will be lower under our ownership when compared to DELCORA 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 DELCORA from our 2023 and 2024 financial plans and have removed any impact from DELCORA prior to the second half of 2025. Importantly, I want to reiterate that we remain confident in our current year and long-term earnings guidance. While DELCORA 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 DELCORA. 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 and 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 DELCORA. Our capital plans remain on track, as we expect to invest about $1.1 billion annually through 2025. Rate base 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, Operator
Thank you very much, Mr. Franklin. Our first question is from Durgesh Chopra at Evercore. Please go ahead, your line is open.
Christopher Franklin, Chairman and CEO
Hey, Durgesh.
Daniel Schuller, CFO
Good morning, Durgesh.
Durgesh Chopra, Analyst
Hey, Chris and Dan, good morning. Thank you for giving me time. I have a couple of housekeeping questions, and I just want to go back to 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 the weather was in terms of unfavorable impact in the first quarter? And then how did that turn in the second quarter?
Daniel Schuller, CFO
In the first quarter, due to warmer weather, our net revenue impact was about $30 million, which left us $30 million short from the gas business. As we moved into the second quarter, with continued colder weather, we sold additional gas. Regarding our budget, that $30 million shortfall did close a bit in the second quarter, leaving us with approximately a $26 million shortfall by the end of that quarter. This is based on our budget-to-budget comparison.
Durgesh Chopra, Analyst
So it was $30 million, and then you made up $4 million in the second quarter?
Daniel Schuller, CFO
That's correct, Durgesh.
Durgesh Chopra, Analyst
Okay. 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?
Daniel Schuller, CFO
Year-to-date, on the ATM, it was just about $20 million.
Durgesh Chopra, Analyst
Okay. And then the guidance for the balance of the year is about $300 million, right?
Daniel Schuller, CFO
Correct. $300 million in addition to what we've already done.
Durgesh Chopra, Analyst
Okay. Thank you. Those were my housekeeping questions. And then maybe just big picture, Chris. The decision that you mentioned on East Whiteland, 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 kind of the rationale for denying that PUC decision. But just what are you thinking through as read-throughs, if any, through your other pending M&A transactions that in future M&A outlook in the state?
Christopher Franklin, Chairman and CEO
It was a bit puzzling, and I'm quite certain the Public Utility Commission will defend their decision by bringing it back to Commonwealth Court. The curiosity arises because the fair market value legislation does not mandate a clear benefit. There appeared to be a disconnect at the Commonwealth Court. The main issue here is the general concern about customer rates, which we share. However, we believe that even if the court's decision were to remain unchanged - which we are far from accepting - we see opportunities to collaborate with all parties involved to maintain a strong acquisition program in Pennsylvania. We think there is a chance to find common ground and complete the program. While it's an important development, it's not finalized, and we see several ways to continue consolidating.
Durgesh Chopra, Analyst
Got it, okay. Thank you for that. I appreciate the color. I'll jump back in the queue. Thanks, guys.
Christopher Franklin, Chairman and CEO
You bet. Thanks, Durgesh.
Operator, Operator
Thank you, sir. Next question is from Travis Miller calling from Morningstar. Please go ahead.
Christopher Franklin, Chairman and CEO
Hey, Travis.
Daniel Schuller, CFO
Good morning, Travis.
Travis Miller, Analyst
Thank you. Hi, everyone. Chris, could you elaborate on your initial comments regarding the capital expenditures? Are these investments primarily a short-term strategy driven by numerous opportunities in gas and pipeline sectors? Or are you indicating a longer-term shift in perspective that suggests we should expect more organic growth compared to the historical focus on water acquisitions?
Christopher Franklin, Chairman and CEO
No. I would categorize it as a reminder. As I mentioned in my opening remarks, we receive numerous questions regarding the M&A aspect of our work. However, the earnings primarily stem from our capital expenditures. I have tried to express this in different ways, but the advantage of our M&A activities lies in resolving customer issues while also expanding our capital resources for the future. There is a merging of these elements. An acquisition today may not significantly impact earnings per share based on the current rates when it occurs. Once we address the issues over time, those improvements contribute to our capital pool and generate long-term earnings. Thus, it's a reminder of how we've consistently achieved earnings throughout the years. We have a strong capital pool moving forward to maintain this trend. Additionally, part of enhancing this strategy involves acquiring new utilities that require improvements so we can repair and integrate them into our capital pool. Does that make sense?
Travis Miller, Analyst
Sure. Yeah. No, that definitely makes sense. Thanks. And then the 400,000 active municipal opportunities, I'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 this still something that's imminent? Just wondering thoughts around that number since it's been roughly the same for quite a while.
Christopher Franklin, Chairman and CEO
Yeah. I would think of that more like a pool that fills and drains. So 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, like the ability to close. And 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.
Travis Miller, Analyst
Okay, got it. And I appreciate the thoughts for those questions.
Christopher Franklin, Chairman and CEO
You bet.
Operator, Operator
Thank you, Mr. Miller. Our next question is coming from Paul Zimbardo calling from Bank of America. Please go ahead, sir.
Christopher Franklin, Chairman and CEO
Hey, Paul.
Daniel Schuller, CFO
Good morning, Paul.
Paul Zimbardo, Analyst
Hi, good morning. Thank you for all the details. And just to clean up, I noticed that the rate base disclosures changed a little bit for '23- '24. Is that just relating to the DELCORA comment you mentioned on removing it from the outlook?
Daniel Schuller, CFO
Yes, Paul, that's correct. We are not changing our rate base guidance at this time; it's mainly just the removal of DELCORA, which has always been noted before.
Paul Zimbardo, Analyst
Okay. Great. No, that's right out there. And then one other cleanup, just what was the kind of the effective tax rate that you had in full-year 2023 guidance? Because it looks like a decent sized benefit in the first half of the year.
Daniel Schuller, CFO
We've had a strong benefit and 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 benefit as opposed to an expense and think still single digits company-wide.
Christopher Franklin, Chairman and CEO
Pennsylvania.
Daniel Schuller, CFO
Does that help you, Paul?
Paul Zimbardo, Analyst
Yes. Yes, it is. Thank you. And then just quickly, curious on 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?
Daniel Schuller, CFO
Well, it's a good question, Paul. I think 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. 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 in other utilities as well.
Paul Zimbardo, Analyst
Okay, great. Thank you, team.
Daniel Schuller, CFO
Thank you.
Christopher Franklin, Chairman and CEO
Thank you.
Operator, Operator
Thank you, sir. Our next question is coming from Ryan Connors of Northcoast Research. Please go ahead, sir.
Christopher Franklin, Chairman and CEO
Hey, Ryan.
Daniel Schuller, CFO
Hey, Ryan.
Ryan Connors, Analyst
Thank you, good morning. I appreciate you taking my question. Dan, regarding your financial comments, it appears that the water business experienced significant leverage this quarter. With nearly double-digit top-line growth and operating and maintenance costs remaining flat, you noted that lower maintenance and insurance were key factors on the cost side. Could you please provide more details on that? Was this a comparison to last year where maintenance costs were lower? What was happening in that area?
Daniel Schuller, CFO
There are a few points to discuss. First, when comparing to last year, we benefited from some higher costs that were present in the second quarter last year, so we are in a better position this year. Additionally, we have made a significant effort this year to work with our subsidiaries on managing their operating expenses. This includes being very mindful of costs associated with outside services and collaborating closely with state presidents and controllers to focus on this area. Overall, it was a strong quarter for top-line growth and cost control in the water business.
Ryan Connors, Analyst
Yeah. 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.
Daniel Schuller, CFO
We will certainly continue to focus on that.
Ryan Connors, Analyst
Okay. I have a couple of questions about East Whiteland. First, I want to clarify that these assets have been transferred and are reflected in the financials. It seems like you will be going through the appeal process. What happens during that timeframe? This wasn’t a small deal; at $55 million, it’s significant. Is there an assessment of the goodwill that needs to occur, or what are the next steps now that a decision affecting that asset is pending?
Daniel Schuller, CFO
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.
Christopher Franklin, Chairman and CEO
Ryan, just to think about it, too. 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 Connors, Analyst
It would be quite unusual to compel them to repurchase it. In terms of the broader context, Chris, returning to the previous question regarding the pipeline, until we resolve this issue and hopefully succeed in the appeal, what impact does that have on the pipeline? Clearly, those opposed to privatization will use this situation to argue against it, claiming that the PUCs are being overridden. They will certainly raise concerns about that. How does this influence the pipeline and the readiness of potential buyers to engage and sign asset purchase agreements amidst these issues?
Christopher Franklin, Chairman and CEO
Yeah. I'll tell you what I think it does. I think it's going to underscore rates. And my hope is that we see some sellers thinking even more regionally about sale prices, right? I think we 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 wouldn't 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 Connors, Analyst
Got it, okay. Thanks for your time.
Christopher Franklin, Chairman and CEO
You bet.
Daniel Schuller, CFO
Take care.
Operator, Operator
Thank you, sir. We'll now move to Gregg Orrill calling from UBS. Please go ahead, sir.
Christopher Franklin, Chairman and CEO
Hey, Gregg.
Gregg Orrill, Analyst
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?
Christopher Franklin, Chairman and CEO
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 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 the 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 this was heard by 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 the support of that; I would expect the industry to be in support of that as well as others.
Gregg Orrill, Analyst
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?
Christopher Franklin, Chairman and CEO
Sure. GAC-activated carbon is a key solution for addressing PFAS, although there are various solutions we could implement. Primarily, this involves filtration. We have established methods for treating PFAS. If we look at specific details, the challenges are concentrated in several states, notably New Jersey, parts of Pennsylvania, and significantly in North Carolina, where we are focusing our major efforts. Consequently, we cannot distribute these costs across our entire customer base; instead, we will target the affected areas. The treatment process itself is quite straightforward, but in regions like North Carolina, where some systems rely on smaller well systems with limited capacity, we need to adopt more creative approaches. We are well-equipped to handle these challenges, but it will be costly, and we believe that the financial responsibilities should fall on those who are polluting.
Gregg Orrill, Analyst
Yeah. Appreciate it.
Christopher Franklin, Chairman and CEO
You got it.
Operator, Operator
Thank you, sir. We'll now move to Davis Sunderland of Baird. Please go ahead, sir.
Davis Sunderland, Analyst
Hey, good morning, guys. Thanks for the updates and thanks for taking my question.
Christopher Franklin, Chairman and CEO
Good morning.
Daniel Schuller, CFO
Good morning.
Davis Sunderland, Analyst
Gregg actually took my question about the $350 million 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?
Christopher Franklin, Chairman and CEO
Yeah. I'll take the first one on timeline. As it currently stands, and I think you're all aware that the federal government is still coming, 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. And so we may need to get some of the systems into compliance because we have many of them. But we will comply with 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.
Davis Sunderland, Analyst
That's helpful. Thank you.
Operator, Operator
Bon jour Davis. We'll now go to Jonathan Reader calling from Wells Fargo. Please go ahead, sir.
Christopher Franklin, Chairman and CEO
Good morning, Jonathan.
Jonathan Reeder, Analyst
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 these lower other operating expenses, as well as the expense proceeds from the sale of three Peoples projects? Or has July weather been beneficial on the water side, too?
Daniel Schuller, CFO
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 rigs came out in April that actually provided a pickup and the repair benefit due to increased eligibility of our pipeline replacement program. So a little bit of a pickup there. And then maybe a little bit of a benefit from a purchased water pass-through in Texas that we're now receiving. So a number of things that are moving there to try to really bring us back to the range.
Jonathan Reeder, Analyst
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 DELCORA 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 that is dependent on DELCORA?
Christopher Franklin, Chairman and CEO
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 felt like it was a constant concern for 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 DELCORA. And we want to just make that crystal clear to people.
Jonathan Reeder, Analyst
Okay. Is there any timeframe for potential movement on DELCORA, or is it mainly a wait-and-see approach?
Christopher Franklin, Chairman and CEO
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 it's only tangentially involved with DELCORA. 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 that stay can't stay forever, as we all know. Whether it's lifted next week, next month, or in several months, we just don't know. So we continue to be involved. And obviously, there are certain court filings that we continue to work on, but no real activity at this point to report.
Jonathan Reeder, Analyst
Okay, great. Thanks for taking my questions today.
Christopher Franklin, Chairman and CEO
You bet.
Daniel Schuller, CFO
Thanks, take care.
Operator, Operator
Thank you very much, sir. At this time, we don't have any further questions. I'd like to turn the call back over to Mr. Chris Franklin for any additional or closing remarks. Thank you.
Christopher Franklin, Chairman and CEO
Thank you all for being here today. The team is available for any follow-up questions you may have. Thanks once again for joining us.
Operator, Operator
Thank you very much. Ladies and gentlemen, that will conclude today's conference. Thank you for your attendance. You may now disconnect.