Essential Utilities Inc (WTRG) 2017 Q3 法說會逐字稿

Good day, and welcome to the Aqua America Q3 2017 Earnings Call.

Today's conference is being recorded.

At this time, I'd like to turn the conference over to Brian Dingerdissen.

Please go ahead.

Thank you, Tiffany.

Good morning, everyone, and thank you for joining us for Aqua America's Third Quarter 2017 Earnings Conference Call.

If you did not receive a copy of the press release, you could find it by visiting the Investor Relations section of our website at aquaamerica.com.

The slides that we will be referencing can be found on our website.

There will also be a webcast of this event available on our site.

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 10-Q, 10-K and other SEC filings for a description of such risk and uncertainties.

During the course of this call, reference may be made to certain non-GAAP financial measures.

A reconciliation of these non-GAAP to GAAP financial measures is posted in the Investor Relations section of the company's website.

Presenting today is Chris Franklin, Aqua America's Chief Executive Officer; Dave Smeltzer, the Company's Chief Financial Officer; Rick Fox, the Company's Chief Operations Officer; and Dan Schuller, the Executive Vice President of Strategy and Corporate Development.

After the presentation, we will open the call for questions.

At this time, I like to pass the call over to Chris Franklin.

Thanks, Brian.

Good morning, everyone.

Thanks for joining us.

Let's just take a quick look at the agenda for the morning.

First, we'll talk a little bit about some recent operational issues, and Rick Fox will address those.

Then I'll provide some quick highlights from the third quarter, followed by Dave.

Dave will talk about the company's financial results and rate activity.

Then after that, Dan will take us through a brief update on the work we're doing to grow the company.

And we'll conclude the formal portion of the presentation by recapping our guidance for the year, and then we'll take some questions.

Let me just start by saying that the third quarter was another solid quarter, and the weather was not particularly helpful to our cause.

But thanks to Rick Fox and his team, operating expenses were down and well in control, which helped us with for the quarter.

In terms of growth, we continue to execute on our 3-pronged growth strategy.

The bulk of our activity, of course, being spent on the municipal strategy, given the level of opportunity, and frankly, the interest we continue to experience in the municipal market.

This quarter, we signed our sixth municipal agreement since the beginning of 2016, which is important.

In fact, when you consider the acquisitions we have either closed or plan to close between the beginning of last year 2016 and the end of 2018, the 3 year period.

We're going to average about $15 million a year in additional rate base associated with our growth.

When you compare that to our history, we were running in the range of about $14 million a year outside of major transactions.

And so that's a very significant increase in our level of success in our growth.

So I think it's fair to say that our focused efforts in the municipal market are really working, and we continue to be very optimistic about our continued ability to be a solution for municipalities, who really have decided to work with us or need to work with us.

I also mentioned, because I know a lot of you follow Pennsylvania that I'm told by a very good source that the new -- the name of the new public utility commissioner has been sent over by the governor or will be sent over imminently.

The name is Norm Kennard, who many of you may know.

Norm will be sent over from the Governor's office to the Senate for approval and Norm has been a lawyer for Commissioner Rob Poulsen, while he was in Pennsylvania and long-term experience in the industry, well known in Pennsylvania, and I would expect to be a very constructive public utility commissioner, assuming he is approved by the Pennsylvania Senate.

With that, let me turn it over to Rick Fox, who's going to give us an important operations updates on some of the issues we dealt with over the quarter.

Rick?

Thanks, Chris.

We thought it would be helpful to provide an update on our response to Hurricane Harvey, which many of you have asked about in the past couple of months.

As you know, in late August and early September, one of the most destructive storms in U.S. history hit Southeast Texas.

On Wednesday August 23, it was predicted to be a rain event, but by Monday, the 28th, it was recognized as a major disaster, it dominated the national news and was being called a 1,000-year flood.

So most of our employees were unable to travel to work on Monday and Tuesday of that week because they were flooded into their homes, and 3 employees had to evacuate their homes.

The pictures on the slide show the Aqua Texas Southeast employees and selected photos of damaged plants.

You will notice that most of the damage was caused by flooding, not wind.

This team persevered through difficult weather and personal loss and worry to serve our customers during this historic storm.

Mentioning customers, during the peak of the event, we had approximately 80% of our customers on a Boil Water Notice.

Many of them precautionary, simply because we were not able to visit the water facilities and confirm that the plants had not been compromised by the floodwater.

Aqua Texas has received high marks for how we managed through this storm in a professional manner.

And most importantly, during the storm, we experienced 0 workplace injuries and 0 vehicle accidents.

Lastly, while an estimated 0.5 million vehicles in total were damaged in Texas during Hurricane Harvey, Aqua employees took care to park and operate their vehicles in safe places so that 0 Aqua vehicles were damaged.

Now while all of this was going on, we got a call from Beaumont, Texas.

Keep in mind, we don't serve Beaumont.

However, their river water intakes were overwhelmed by the flooding, and this caused 120,000 people to be without any water at all.

We were notified on August 31, and by 5:30 the next morning, we had 2 tankers, full of treated water in Beaumont.

I know this sounds simple, but it turned into a 13-hour drive for 2, 18-wheel tankers to make the 475-mile trip because the only road open was through Louisiana.

We figured we would set up at a Wal-mart parking lot or a church and distribute water to residents directly and in small quantities.

However, when the crews arrives, they were immediately dispatched to the Jefferson County Courthouse, where we became the only source of water for the Emergency Operations Center.

The EOC served as the command post for 300 local, state and federal government officials and first responders, including FEMA, the Coast Guard, the Jefferson County Sheriff and the Texas National Guard, just to name a few.

The EOC also served as the mess hall for 900 first responders to get their meals.

All of this was with water supplied by Aqua.

One tanker truck remained at the Courthouse for the 10 day duration.

The other tanker was able to provide water to local churches, a dialysis center and a mobile military hospital.

Lastly, for years, you've been hearing us talk about 7 to 1 projects, where we invest capital to reduce O&M in a win-win situation for our customers and our shareholders.

I wanted to take this opportunity to provide an update on one of our larger such projects in recent times.

We previously purchased a substantial amount of water from a nearby County in South Eastern Pennsylvania.

But by developing additional internal capacity at our plants and booster stations, we have been able to reduce the purchased water expense, reduced our customers' costs and improve the bottom line.

This is responsible for some of the savings you'll hear Dave talk about later on.

Chris?

Thanks, Rick.

Nice Job.

Let's shift gears a little bit and talk about highlights from the quarter.

Year-to-date, we've seen some strong organic growth between the couple of small acquisitions we've done in organic growth.

Together, we've added about 8,120 customer connections, which accounts for just over 1% in customer growth.

As mentioned few minutes ago, we have 6 municipal deals, these are both water and wastewater systems, either under agreement or closed since the beginning of last year.

These 6 municipals represent over $150 million in purchase price and will bring us more than 15,000 new customers.

Our sixth municipal acquisition, just under contract in September, is in Illinois and we expect to close it sometime in 2018, and Dan will talk a little bit more about our growth in just a minute here.

Our operating revenues decreased by $11.5 million, largely due to a decrease in water consumption, and most of that was along the East Coast plus Ohio and Texas, were all down year-over-year.

Our O&M expenses for the third quarter fell by $11.8 million compared to the same quarter last year.

And given the magnitude of that difference, Dave's going to spend a couple of minutes, walking you through those details in our waterfall slides.

And to wrap up this slide, we just mentioned that earnings per share for the third quarter rose about 4.9% to $0.43 compared to last year's third quarter earnings at $0.41.

Dave, do you want to take us through the detail of the quarter?

Sure, thanks, Chris, and good morning, everyone.

Today, I'll review the financial results for the quarter, discuss some of the driving factors that impacted the company's performance and to try to provide a look at our 2017 rate activity.

So in the third quarter, we reported revenues of $215 million for the quarter.

Our regulated segment reported revenues were $214 million, down about 3.7% compared to the $222 million in 2016.

Really, 2 components of the change, revenues decreased due to lower water consumption as well as a decrease in market-based activities through the sale of business unit.

And of course, these were partially offset by new rates and acquisition revenue.

O&M expenses were down nearly 15% to $68 million for the third quarter of '17 compared to $79.8 million in the same period of '16 as a result of expenses that were associated with our former market-based businesses and nonrecurring corporate costs from '16.

In our regulated segment, operations and maintenance expense decreased by 3.1% to $70.8 million compared to $73.1 million last year.

Power and chemicals were important reductions along with purchase water savings, as Rick explained.

We reported net income of $76.2 million or $0.43 per share compared to $73 million or $0.41 a share last year.

On our year-to-date, revenues decreased to $606 million from $623.1 million last year.

Most of that was in MBA reduction, as regulated revenues were down only about 0.7% to $602.3 million, which reflects lower water consumption for the year-to-date.

Operations and maintenance expenses were down 8.5% to $208 million for the year-to-date compared with $227 million in the same time period of 2016, largely due to lower retirement and lower production expenses, along with reduced market-based cost.

Regulated operations and maintenance expense increased 0.4%.

Also, for the year-to-date, net income was $186 million compared to $184.5 million in 2016.

Earnings per share was $1.05 compared to $1.04 last year, and the year-to-date waterfall charts on EPS in the appendix will give more color on this as well.

Looking at the different components of the 5.1% revenue decrease.

You can see lower consumption was a main driver in the decreased operating revenues, accounting for an $11.6 million decrease with market-based revenue decline of $3.4 million making up the rest of the decline.

Rates and surcharges, customer growth in our regulated operations and other smaller items increased revenues by approximately $3.4 million.

Moving on to O&M expense.

Operations and maintenance expenses were $68 million for the third quarter compared to $79.8 million in 2016.

Reduced market-based activities expenses, lower production costs and lower employee-related costs offset the aforementioned increase by $12.1 million for a net decrease in O&M expenses of approximately $11.8 million year-over-year for the quarter.

Expenses related to regulated acquisitions in the quarter increased O&M by about $0.25 million.

Looking at EPS for the quarter, starting with the $0.41 we reported this time last year, reductions in expenses, tax repair benefits, rates and regulated growth increased our earnings per share by over $0.05 in Q3.

The reduced consumption this quarter decreased EPS by almost $0.04.

That was, of course, partially mitigated by some expense savings.

Net for the quarter, we reported earnings of $0.43 per share.

Moving on to rate activity.

So far in 2017, we completed rate cases or surcharges in 6 states, resulting in over $20 million in additional annualized revenue.

We also have rate cases or infrastructure surcharge filings pending in Illinois, North Carolina and Virginia, where we are requesting an additional $14.1 million in revenue.

Lastly, I like to provide an update on our plans to file for rate relief in Pennsylvania.

As you may recall, we've not raised customer rates in Pennsylvania since the conclusion of our 2011 rate case.

Aqua PA has filed its water DISC, effective October 1, 2017 at 2.5%.

And we expect 2 more DISC filings prior to what would then be a full PA rate case sometime in 2018, which would conclude in 2019.

Additional rate information can be found in the appendix of this presentation.

And that's it from me.

So I'll turn it back over to Chris.

Chris?

Thanks, Dave.

Hopefully, those variances were clear, but clearly we'll be here for questions if you have further clarifications on some of those variances at the end of the call.

Before I turn it over to Dan, I'd just mention one of the reasons, Dan is with us, as we've got lot of promising activity in the municipal sector.

I know that's often where the bulk of your questions come.

So I thought it was important that Dan join us and take you through what's happening on our acquisition front.

So Dan?

Great.

Thanks, Chris.

Just couple of slides here.

This first slide summarizes the acquisitions that we've completed year-to-date.

We acquired a couple of small investor-owned utilities in Indiana in the first quarter.

And in the second quarter, we added Tobyhanna, a 740 customer municipal wastewater system in Northeast Pennsylvania.

Plus, we've added over a 1,000 new connections via acquisitions in Pennsylvania and Indiana so far in 2017.

Combined with organic growth, our customer base has grown by 0.8% since the first of the year.

Next, we wanted to provide an update on our municipal activity.

You've seen this slide in prior earnings call presentation.

As you know, we add to the signed deals and unmask the closed transactions.

We invented a fifth municipal system, System F, in addition to the 4 previously announced as being under contract.

This wastewater system has approximately 3,800 customers, and is expected to close in 2018.

We're especially excited about this transaction because this system is in a community where we have provided the water for many years.

As you'd imagine, we gain economies of scale when we provide both water and wastewater to the same customers.

These 6 transactions represent a purchase price of approximately $150 million and nearly 15,700 new customers for Aqua.

Given our pipeline and anticipated regulatory approval schedule, we're still targeting the 1.5% to 2% full year growth that we discussed as part of our guidance call in January.

As we've mentioned previously, our acquisition strategy provides an opportunity to increase shareholder value and to provide a solution to a small portion of the nation's water infrastructure problem.

These acquisitions allow us to grow our rate base and bring our technical and operational expertise and outstanding customer service to small and midsized municipalities across our footprint.

With that, I'll turn it back to Chris to review our 2017 guidance.

Thanks, Dan.

Appreciate the update.

And I know in my conversation with many of you, I continue to say that, we've not seen the level of interest of this municipal -- at least, municipal interest in the time I've been at the company over 25 years.

It continues to happen our investment committee remains very busy evaluating various options.

Let me conclude the call before questions, that is, by quickly reviewing our 2017 guidance on our last slide.

We expect full year earnings per diluted share to be in our range, we've discussed all year long of a $1.34 to $1.39.

As always, we expect laser focus on our O&M expenses.

And we discussed we're in good shape there.

We expect our year-over-year increase to be less than 2%.

We expect to invest more than $450 million in infrastructure this year 2017 and probably closer to $500 million.

That'll be a record amount for us this year, and we'll spend more than $1.2 billion of CapEx over the next 3 years, that's through 2019.

And so continue to improve and strengthen our infrastructure for existing customers and systems we currently own.

It's these improvements that allow us to provide the high level of service that we continue to provide to our customers.

Now we expect to spend additional capital beyond those, beyond that budget to improve our newly acquired systems.

Again, this is not capturing that $1.2 billion budget, it will be additional CapEx on top of the $1.2 billion.

Finally, year-over-year, we're expecting a total customer growth to be in the range of 1.5% to 2%.

With that, let me wrap up the formal part of the call, and turn it back for any questions that you might have.

(Operator Instructions) We'll go first to Ryan Connors of Boenning and Scattergood.

So I had a couple of kind of housekeeping questions, then a bigger picture question for you.

First off, Dave, a couple of quarters ago, you mentioned that we should expect the tax rate to start to drift higher and then we got a real kind of step change down here.

So can you just kind of walk us through exactly what happened there?

Well, that the tax rate, to the large extent, is a function of our completion of repair tax projects.

So we can project it, but in the end, those projects come and go and sometimes they might not get done in the year, they might fall over to the next year.

So we're continually looking at the projects, estimating what's going to get completed in the year and revising our estimates.

So it's very straightforward that, that can change over time.

I expect where it will change most significantly will likely be in the -- during the period of the fully projected future test year for our next rate case.

So I wouldn't see a significant change in the near term, but perhaps, a change when we get into that period.

Then my other housekeeping was, it looked like that JV line showed a positive contribution for the first time in a while.

I'm assuming that's because improved oil and gas environment or maybe I'm wrong on that.

But can you just tell us what's happening on that line?

Yes, this is Dan, Ryan.

Happy to do so.

So we've actually had a couple of customers come online in that line.

We had a customer that initially asked for about 30 million gallons of water over a 2 month period of time.

And in the end, he would call it, 52 million or 53 million gallon.

And we had another customer that required some water as well, much smaller amount.

But we are starting to see some activity there and we're in conversations for more activity in 2018 and into '19.

So we have a nice change there in terms of volume through the pipe.

Now my big picture question was on the acquisition, municipal acquisition front.

Chris, you've reiterated several times on this call as you have before that the activity levels are as high as you've ever seen them.

And is now, I know that a lot of that's due to the fair market value type legislation.

But now I think we've got this new regulation coming in this Water Quality Accountability Act in New Jersey, I think there's a similar law impending in Pennsylvania, which I understand kind of normalizes the playing field for these municipal utilities with yourselves in terms of environmental compliance spending.

And that -- can you just tell us if, if that goes forward, what does that do to the activity level?

Does that create another step change upward and things get really frantic.

Because it seems like that would exacerbate some of the issues that the municipal targets might be having.

Yes, so let me kick it off and then I'll shoot it over to Dan, Ryan.

But I think these things are, obviously, hard to predict.

So the activity we see already is intense.

And really, the good news is, as I believe, this is really us being a solution.

It's not -- there's no forced activity here, it's really us being a solution to municipal that need our help.

So what becomes more obvious, I think, with the New Jersey legislation is, is you start to see what the -- what's happening internally in some of these municipals, deferred maintenance, compliance type issues.

They become more in the light.

You have a mayor that now has to sign off on some of these things in New Jersey.

So it becomes more of public record.

And therefore, I think one of 2 things begins to happen and both are positive for the customer: One, the municipalities start to step up and make the improvements that are needed to make compliance or cycle time on their infrastructure investment, it really step it up; or they look at options which could be a sale to a regulated utility like ours.

Both of those are positive for the customer, and obviously, we like the potential step up in opportunity for us.

Dan, you may have more to add to that?

Yes, Chris, I think you're right on it.

And Ryan, you've been through the legislations, you know what it's asking for, right?

The municipal leader needs to basically attest that.

They've got an asset management program in place and a valve flushing program and they're doing all their water quality testing and they've got a cybersecurity plan.

And they think of it as some municipalities look at that, they may decide that this isn't the business we need to be in, maybe we should look for that solution, as Chris mentioned, and consider that a sale to a regulated utility.

Now in terms of fair market value.

Is there a chance that, that actual fair market value calculations could go up.

Dan, in that kind of environment if there is -- if that increases the potential value of an asset where you've got more capital to put in post-closing?

Could that actually impact the valuations?

Or is it more just a matter of activity levels?

I sense it would be more a matter of activity level rather than an impact to the value itself.

Okay.

And then last one from me on that topic, and I'll jump out, but, Chris, you mentioned you've got the CapEx coming up, which is significant just on your base business.

You've got the additional CapEx coming for these post-closing for some of these acquisitions on the municipal side in particular.

Then you got the spending for the acquisitions themselves.

I mean, is there -- it's been a long time since Aqua was out in the market actually raising capital at least on the equity side.

Is there an area here where things get so active that Aqua is back in the market sometime over the next few years?

Ryan from your lips to god's ears.

Essentially, that would be a very positive thing for us, we needed to go to get equity.

But I think the reality is, and Dave can talk in more detail, but the reality is the balance sheet is still very strong.

We still have ability to use such a low-cost debt for some of these things.

And so for the near term, unless we start really moving to some larger opportunities.

And believe me, there are some of those out there, then we may need to go get equity, but I think short-term, we're in pretty good shape.

Dave, you may want to add?

Yes, you're exactly right.

But you do remember, we hit a high in our equity ratio couple of years ago.

And so it has definitely been on the decline with the municipal activity along with the size of our capital budget.

So should that continue or particularly should that escalate.

We could see a time in the future where we'd be interested in some capital.

So we just have to, hope that's the case, because that means we're providing more solutions to communities around the country.

We'll go next to Michael Gaugler with Janney Montgomery.

Two questions.

First, kind of housekeeping.

You had mentioned earlier in the call some future DISC filings.

Should we assume pretty much the same level, like you did 2.5% in October.

So should we be looking for maybe 2.5% in January and maybe 2.5% 3 months after that to get you in front of the rate case for summer filing?

Yes, that's certainly what we're thinking, Mike.

We've spent about $1 billion since the last rate case.

So we certainly qualify to go to the entire 7.5%.

But we thought it was appropriate and we talked to the PA/PUC about feathering it in over a period of quarters.

So that's our thinking, 2.5% each quarter for 3 quarters, and then prepare ourselves for the rate filing thereafter.

Okay.

That's helpful.

And then Chris, kind of the big picture question, I know you've been out a lot lately recently at NAWC and down to DC.

And I'm wondering what you're seeing across the political spectrum in terms of infrastructure?

Is there a pecking order of priorities with regulators and politicians across the electric gas and water industries?

It's a great question.

I think the clarity out of Washington is murky.

If that makes sense?

I just -- it's very difficult to see, Mike, and I think it's one of the reasons why you see a lot of our activity, at least, legislative and regulatory-wise occurring at the state-by-state level.

We've been very successful working with state and local government to provide solutions, and I think you'll see continued activity at that level.

I think on the big picture, whether the administration and the Congress comes out with an infrastructure package or not, I would hope something would come out.

But as our pitch has been, and you know, we testified in front of the House, Transportation and Infrastructure committee not so long ago.

And our pitch is basically, keep the dollar flowing, at least, grant money flowing to roads, bridges, storm water solutions, but not to water and wastewater solutions.

We believe that low-interest loans are appropriate.

But we think and I think many of you would agree that there is just a great deal of private capital waiting to be applied and could be the great solution here to a lot of this infrastructure challenge across the country.

So that's the way we'd hope it goes, and that's the way we're advocating, Mike.

But hard to know exactly what the administration and the Congress will end up doing.

We'll go next to Tyler Frank with Baird.

As you look out at the potential M&A environment.

Can you discuss what are you seeing from a competition standpoint?

And looking forward, given your current pipeline, do you think that you might see a faster customer growth than the 1.5% to 2% in 2018 or 2019, given the opportunity set out there?

Yes, Dan, I can tag team this, too.

And I think hard to predict customer growth rate, and these are lumpy.

And as you know, Tyler, the gestation period for these municipals is long, and maybe more recently, a little shorter than it had been.

But there are gestation periods that take time.

So difficult to exactly know what the growth rate will be.

But I think we'll provide you some guidance as to what we see coming in the new year in the next couple of months.

Yes, and I think from a competition perspective, we generally see a 1 or 2 other regulated utilities interested when we're seeking opportunities in our states.

And that such that -- that competitive set, may differ a little bit state-to-state.

And then in certain places, we'll see some interest on the part of larger municipal authorities, who are interested in growth as well.

I think one of the reasons why we've chosen this, call it, 2,500 to 25,000 customers is, that really doesn't move the needle for private equity or funds, may be Canadian pension funds.

It's really -- it moves the needle for companies like ours.

But on a broader sense, there's more limited competition.

And Dan said, there are always a couple of strategic playing now.

There are some states where we don't have other strategics in the state.

And so there, it's a little bit different in terms of competition.

Every once in a while, we'll see a local municipal who wants to grow, but it's relatively rare.

We'll go next to Spencer Joyce of Hilliard Lyons.

Dave, maybe start with you, I have a couple of admittedly kind of minutia questions here.

The total firm O&M was a little under $68 million, while the regulated segment, itself, was almost $71 million.

I'm wondering if you could square that up for me?

I guess that would imply a negative O&M contribution from either the non-reg piece or certain corporate level functions.

I mean, was there a special item there?

Yes, that's exactly what it was.

We had some savings, negative expenses in the nonregulated unit, largely related to employee costs.

Okay, so a negative -- not simply year-over-year growth, but you're saying you actually had some sort of gain there in an absolute...?

Yes.

That's exactly right.

Yes.

Okay.

I mean, can -- just a little granularity on that.

What that might have been?

Well, yes.

One of it was our medical plan.

We had a very good result in our medical plan.

And we actually got to bring money back from insurance proceeds that we got.

So it was mainly those 2 categories that created the gain.

Okay.

That's very helpful.

So as we project forward, maybe Q3 of '18.

Is the run rate that we see for O&M here, is that a fair base case or I mean, should we perhaps back out the -- some of the medical and insurance proceeds?

Well, yes.

I think it's reasonable.

I think some of those are kind of one-timers and will go away plus we had savings, particularly, this quarter just because sales were down so much.

So I think if you normalize for those kinds of things, you get a better idea of how we might proceed forward.

Okay.

That's very helpful.

I know you all mentioned the revenue downside from, I guess, predominantly, Hurricane Harvey, but across some of the regions of the Midwest.

And my question here is, again, on the O&M side, is there a slice of O&M upside from either over time or increased monitoring costs that was baked into the third quarter, just based on what you had to deal with there in Texas?

Or is that really an immaterial amount?

Yes, I would say, it's immaterial relative to the substantial savings we had in purchased water and other costs because of the decline in consumption.

So some of that stuff will normalize itself back as we return to normal sales.

But yes, not a significant impact from the Texas events.

Okay.

One last one from me.

Maybe, Chris, back to you, stepping back a little bit.

As we move into what I'd consider a more normalized growth environment, you have relatively full M&A pipeline, you're progressing towards a day rate case.

I'm wondering if you all have had any more discussions about potentially giving us some sort of stretch guidance kind of 3- to 4-year EPS CAGR or some longer-term guidepost there?

Yes, I'll tell you, we'll continue to consider that, Spencer.

But at this point, we're coming into our first PA rate case in many years.

Let's see how we make out in the regulatory filings and we'll see where we're going at.

It's a little difficult to predict on these -- the acquisitions.

We're just getting into the swing of it.

We've been a couple or couple of years into it.

I hear you.

And -- but, I think, at this point, for next year, we're just thinking about single year.

(Operator Instructions) We'll go next to Angie Storozynski with Macquarie.

I wanted to talk about the municipal acquisitions and the fair value legislation in Pennsylvania.

So I've been following the Limerick acquisition and the approval processes associated with it.

And I see those suggestions from the consumer advocates to include their assessment of the value of the system.

So how -- I mean, it's a very big transaction.

How should I think about it?

I mean, it seems like an interference into what the bill, the law says, and if you could give us any color on how do you see that proceeding?

It's a good question, Angie, and a one that we're still moving through.

Clearly, there is a regulatory proceeding still happening here.

I think we believe that the law is crystal clear, that the appraised value is rate base.

And that's how we read the law, I think that was the spirit of the law as it was passed by the legislature.

Clearly, the commission has to consider all the points of view and make a decision.

As you point out, there is an administrative law judge opinion that is different than ours.

Having said that, we're still waiting for the commission to make their decision known on what -- how they'll -- how they think about rate base and what they believe the other opinions can -- how that'll be reflected in the ultimate rate base determination.

So that's a pretty big decision coming up.

It's slated currently for November, assuming it stays on its current track.

And but we're optimistic that the commission will follow the law and we'll see.

Dan, I don't know if you have additional (inaudible) to add to that?

No, I think you covered it, Chris.

And again, I mean, obviously -- I've obviously read the law and I understand your position.

But just looking at the arguments that the consumer advocate has been mentioning.

I mean, in a way of the assessment of the value of the assets, that the higher the assessment, the better it is to both the municipality and you guys if the entire amount goes into your rate base, right?

So it is a plausible argument to be had that there needs to be some sort of reality check because otherwise, as I said, you would be incentivized to significantly inflate the amount of you pay for these acquisitions now?

No, that's not entirely accurate.

Remember, the acquisition is reflected in rates as well.

Those officials were elected to represent the people and represent their interest.

And so once you think about the proceeds, yes, go to the municipality, ultimately, back to serve the people that elected those officials, making the decision.

And clearly, there is a -- an impact on rates depending on purchase price.

And so there is a balance that comes to play here.

We believe as this law becomes used more frequently, that balance -- counterbalance between rates and purchase price will be a key component of the discussion with any of the set of elected officials on these deals.

So now we think there is a natural balance.

And let's remember that, these only -- this law only applies to municipals.

So potentially municipals are making decisions here, too.

Should I or could I raise rates to raise certain proceeds or alternatively, should I raise taxes to come up with the same level of needs to cover needs of -- in the community.

And so we believe the rate offset and the rate impact will ultimately be a good counterbalance.

There's no further questions, thank you.

I would like to turn the call back to Chris Franklin for any additional or closing remarks.

Thank you, all for the time you spent with us today.

And as always, we're always available for follow-ups if you think of anything.

And again, we're pleased you could join us for the day.

Thank you very much.

This concludes today's call.

Thank you for your participation.

You may now disconnect.