Essential Utilities Inc (WTRG) 2018 Q3 法說會逐字稿

Good day, and welcome to the Aqua America's Q3 2018 Earnings Call.

Today's conference is being recorded.

At this time, I would like to turn the conference over to Mr. Brian Dingerdissen.

Please go ahead, sir.

Thanks, Brad.

Good morning, everyone, and thank you for joining us for Aqua America's Q3 2018 earnings call.

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 aquaamerica.com.

The slides we will be referencing today and a 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 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 posted in the Investor Relations section of the company's website.

Presenting today are Chris Franklin, Aqua America's Chairman and Chief Executive Officer; Dan Schuller, Executive Vice President and Chief Financial Officer; and Matt Rhodes, Executive Vice President of Strategy and Corporate Development.

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

At this time, I'd like to pass it over to Chris Franklin.

Thanks, Brian.

And thanks, everyone, for joining us this morning.

As I'm sure you know by now, we announced about 2 weeks ago our agreement to acquire Peoples, which is the largest natural gas provider in Pennsylvania.

They have more than 740,000 customers spread over 3 states.

This is a very clearly transformative acquisition for us, and we're already making substantial headway on the various work streams it takes to complete integrate a transaction of this size.

Matt will give you a little more detail on that in just a few minutes in the call here.

Now for the quarter, our financial results were solid with revenue up 5.2%, earnings per share up 2.3%.

We're also narrowing our guidance range to the upper end of our previous range.

That previous range was $1.37 to $1.42 and our revised guidance is $1.40 to $1.42, not including, of course, the transaction cost that will come along associated with the Peoples deal.

Now on Slide 5, you can see some of the highlights from our Peoples transaction.

You'll recall we announced the purchase at $4.275 billion and that was including the assumption of about $1.3 billion of debt.

The combination creates a unique company in the market, a company that will be almost entirely regulated and will stand with a mix of 70% water and 30% natural gas.

Our combined water and natural gas infrastructure company will have the vast majority of its operations in Pennsylvania, always ranked as one of the most constructive regulatory states in the country.

The acquisition of Peoples is in line with our growth strategy that we've been pursuing since I've been CEO in -- I became CEO in 2015.

And as such, I want to stress that this is not a departure from water by any means.

It's the adding of a new growth platform that will capitalize on those 3 core competencies that we always discuss with you: our strong ability to efficiently install infrastructure; our regulatory credibility and expertise; and our team's demonstrated operational excellence.

When the transaction closes, Peoples will increase the rate base of our company by nearly 50%, and it'll grow faster than the water rate base.

We expect the acquisition to provide earnings accretion in the first full year and over the long term.

Rate base in the combined company will grow at an annual rate of 7% in water and about 8% to 10% in natural gas.

The transaction will be structured and financed in order to maintain solid balance sheet and strong investment-grade credit ratings.

It's important to mention that we will continue to be devoted to serving the communities that both companies already serve, and this acquisition will provide substantial benefits to all of our stakeholders.

And shortly after the acquisition was announced, I went out to Pittsburgh and spent some time with the Peoples' management team and employees.

I walked around the offices and held town hall meetings, and I got to know the people of the company even better.

I was continually impressed by how the employees at all levels at the company were passionate about their company's mission and the employees were genuinely excited about the future of our combined company.

Additionally over the last couple of weeks, I've spoken to a number of key stakeholders in government and regulatory agencies, the investment community and within our set of customers.

All of those conversations have been important and they've all been constructive.

As I said, this is a transformative time in our company's history and we're excited about the opportunities that this combination will provide.

And as I said, Matt will give you a little bit more detail in a few moments.

Let's turn to Slide 6. While some of our management team have been working on the Peoples transaction, a separate and very capable team at Aqua, largely based inside each of our state operations, continue to build momentum in our work to grow in the municipal market.

So in October, we closed the acquisition of Peotone, Illinois.

This was a water and wastewater system.

With the Peotone announcement, we reached a significant milestone, 1 million water and wastewater customer connections.

This was the third municipal deal that we closed thus far in 2018.

In addition, we continue to sign more agreements with municipalities.

Yesterday, we announced the acquisition of East Norriton, Pennsylvania, which will add nearly 5,000 wastewater customers.

We expect to close that transaction some point next year.

This gives us nearly 21,000 customers currently under agreement.

I'll tell you the volume of municipal opportunities continues to be unprecedented.

As an example, the combined rate base we acquired between 2015 and 2017 was $46 million from municipal transactions.

But since we closed those deals, we've signed and/or closed additional deals that total rate base in the $200 million range from municipal transactions.

That's how significant this is.

The momentum is real and it's the result of the passage of fair market value legislation combined with the skills and talents and dedication of our teams inside.

Now on Slide 7, let's talk about capital.

Year-to-date, we've spent just over $343 million in capital, and we're on pace for another record spend of approximately $500 million in infrastructure spending this year.

Similar to my comments on the municipal programs, our engineers and our operations teams continue to be sharply focused on the rehabilitation of water and wastewater infrastructure.

Replacing infrastructure pipe and plant is one of our core competencies, and this year we're on target to install approximately 170 miles of water main.

Speaking of operating teams, I have to mention that our employees in North Carolina and Virginia did an exemplary job during 2 devastating hurricanes, both Florence and Michael affected thousands of customers in our service areas.

But I have to say, our courageous and committed employees pulled together to go above and beyond and to continue to serve people and businesses in the communities throughout our service areas.

These employees overcame the challenging weather and its aftermath by quickly restoring service and doing it with their own safety and the safety of our customers as the first priority.

On the next slide, I want to point out 2 important pieces of work.

We recently released our inaugural corporate social responsibility report.

Our CSR report points out the removal of an estimated 8,148 metric tons of suspended solids last year and another 8,000-plus metric tons of organic material from wastewater through our treatment process.

This is the equivalent of keeping approximately 340 large dump trucks of waste material from entering streams and rivers.

As part of this process, we also completed our -- the Carbon Disclosure Project survey for the first time.

This was a substantial cross-functional corporate initiative.

Most importantly, we invested more than $2 billion since 2012 to renew and improve aging water and wastewater infrastructure across the communities we serve.

As I've said to many of you before, we've always viewed ourselves as one of the original environmental companies.

And now, let me hand the call over to Dan, who will take you through the financial results.

And I should mention this is an important milestone for Dan as this is his first earnings call as Chief Financial Officer.

Dan?

Great.

Thanks, Chris.

As Chris said, this is another solid quarter for Aqua America, which you can see on Slide 10.

We reported revenues of $226.1 million for the quarter, up 5.2% compared to the $215 million in the third quarter of 2017.

Operations and maintenance expenses were $68.6 million for the third quarter of 2018 compared to $66.7 million last year.

We reported net income of $78.2 million compared to $76.2 million in the third quarter of 2017, which is an increase of over 2.6%.

Earnings per share were $0.44, up from $0.43 last year, an increase of 2.3% from the third quarter of 2017.

With that, let's move on to the next slide for the year-to-date results.

On Slide 11, year-to-date we continue to see strong growth in both the top and bottom line.

Revenue is up 4.3% and EPS rose 4.8% in the first 3 quarters of the year.

We've seen an increase in O&M, which we explained last quarter was largely the result of nonrecurring items in previous quarters, but O&M growth has returned to our normal range in the third quarter.

Net income per share year-to-date is up 4.8%.

Now, let's move on to Slide 12 for more details on revenue.

Breaking down the different components of the 5.2% revenue increase, we see that rate activity is the biggest contributor at $6.2 million.

This was primarily driven by the Pennsylvania DISC and new rates that became effective in Illinois in the springtime.

Consumption contributed $3.1 million in the quarter compared to last year's third quarter with Texas and Illinois as the biggest contributors.

Regulated growth from both acquisitions and organic growth added $1.8 million to revenue.

Other items added $248,000 and market-based activities accounted for a decrease of approximately $200,000 in revenue, given a reduction in nonregulated activities.

Next, let's review the O&M waterfall on Slide 13.

Operations and maintenance expenses were $68.6 million for the third quarter of 2018 compared to $66.7 million in the third quarter of 2017.

Other items reduced O&M by $2.4 million.

This was largely driven by a $3.9 million favorable reduction to a regulatory liability.

Walking through the other drivers, employee-related costs increased by $2.4 million, reflecting regular merit increases and the impact of market-based adjustments for non-officer level employees.

Production costs contributed $1.2 million.

Regulated acquisitions added about $600,000.

And expenses from MBAs increased by about $129,000 due mainly to higher flows in the JV pipeline.

Overall, for the full year, we expect O&M growth to be around 2% to 2.5%, in line with our historic levels, excluding transaction expenses associated with the Peoples acquisition.

Next, let's review the drivers of EPS on Slide 14.

In walking through the EPS waterfall from left to right, you can see that increased rates, consumption and regulated growth drove the increase, while income tax and other items were the negative drivers.

Income tax matters primarily represent a lower benefit derived from the repair tax deduction in Pennsylvania due to the 14% corporate tax rate reduction from the Tax Cuts and Jobs Act.

Other includes increased depreciation expense and higher interest costs, both driven by our capital program.

Together, this led to a growth and EPS for the quarter from $0.43 to $0.44, an increase of 2.3%.

With that, let's discuss our rate activity on Slide 15.

Thus far in 2018, we completed rate cases or surcharge filings in all of our 8 states, resulting in $20 million in additional annualized revenue.

We also have rate cases or surcharges pending in Indiana, North Carolina, Ohio and Pennsylvania, where we're requesting an additional $78.7 million in revenue.

For further detail on rate activity, please refer to the slides in the appendix.

In mid-August, we filed our long-awaited Pennsylvania rate case, our first in 7 years.

As we noted last quarter, this rate case is the first combined water and wastewater and the first to include the fully projected future test year.

It also includes more than $2 billion in capital investments and over 20 acquisitions.

We expect the case to be concluded in the second quarter of 2019.

And now I'd like to turn the call over to Matt to provide an update on municipal acquisitions and additional commentary on Peoples gas.

Thanks, Dan.

I'll start on Slide 17.

As Chris mentioned, the acquisition of Peoples will truly be transformative for our company's future.

However, the transaction was structured in a way that will enable us to continue our municipal growth strategy at a robust rate similar to the last several years.

As we discussed on our last earnings call, in July, we closed acquisitions of the wastewater systems of Limerick in Pennsylvania and Manteno in Illinois, which totaled more than 9,000 customers.

Then, in early October, we completed the acquisition of Peotone, Illinois' water and wastewater systems with nearly 3,000 customers.

And with that, we reached 1 million total customer connections, which is a big milestone.

With the close of these systems, we've added more than 12,000 new customer connections and over $100 million of rate base from municipal acquisitions this year.

When you add this to our small private acquisitions and organic growth, this totals 2% overall customer growth year-to-date.

On Slide 18, you can see that we continue to see strong interest from municipalities, particularly in states where there is fair market value legislation, which effectively allows us to earn a return on the purchase price paid.

We recently added 2 systems to our list of signed acquisition agreements.

These are East Norriton in Pennsylvania, with nearly 5,000 wastewater connections, and System I in Illinois with 752 water and wastewater connections.

This gives us 7 signed agreements with municipalities, representing over 20,000 customers and approximately $100 million of rate base.

Together, our closed and signed municipal acquisitions total nearly 33,000 customers with most of these signed transactions to be completed in 2019.

As Chris said, this is an unprecedented amount of volume.

In addition to these signed agreements on this page, there's also a strong pipeline of other opportunities to drive future rate base and customer growth.

The most promising of these opportunities would add approximately 250,000 new customers to the Aqua family.

As a 130-year-old company, these are important deals and provide future infrastructure investment needs and long terms -- long-term earnings growth.

As we've discussed before, these municipal deals may not contribute full earnings power initially, but will over the long term.

As an example of the power that our acquisition program can have on future results, we currently have close to $10 million of future earnings power tied to the municipal systems on Slide 17 and 18.

And now I'd like to provide an update on the Peoples acquisition and discuss some of the key features of its growth and infrastructure investment opportunities as well as our financing plans and the key milestones needed to close the acquisition.

Starting on Slide 20, I'll provide an overview of Peoples, including why we found the opportunity so unique and compelling.

As we said, Peoples has over 740,000 customers, the vast majority of which are in Pennsylvania.

The company has a smaller footprint in Kentucky and West Virginia.

Peoples' focus on Pennsylvania is significant for several reasons.

At Aqua, we're very familiar with the Pennsylvania regulatory environment and we believe it will continue to be one of the most constructive regulatory climates in the U.S. Pennsylvania has mechanisms like DISC, which ensures timely recovery and return of capital investment, as well as fair market value legislation, which will be a catalyst for municipal acquisitions.

Peoples' service area also spans a region of Pennsylvania, which sits on top of the Marcellus Shale, one of the largest natural gas deposits in the world.

While Peoples is not involved in the drilling and production of natural gas, by sourcing gas locally, Peoples does not have to transport gas from long distances away, in turn, saving that and saving money that translates into lower bills for customers.

Natural gas, unlike oil, is a regional commodity and prices can vary widely from region to region.

These benefits of low-cost natural gas also extend to the whole company's regions -- to the whole region's economy.

Peoples is a founding partner of Force of the Future, a project initiative by Pennsylvania businesses to unlock the economic potential of the state's gas reserves and advance an energy-enabled economy.

Another key strength of Peoples is its strong history of acquisitions.

Peoples has successfully integrated 3 major acquisitions since 2011.

In addition to acquiring other companies, Peoples has the opportunity to grow into rural areas of Pennsylvania, where customers are currently served by more expensive energy sources such as oil, propane or electricity.

Peoples is targeting approximately 370,000 potential customer conversions over time.

According to the American Gas Association, households that use natural gas save an average of $874 per year compared to electricity.

Not only is natural gas an abundant, low cost of energy, but is also cleaner than oil, coal, propane and diesel.

Natural gas will continue to benefit our nation as states move to further reduce carbon dioxide emissions created in electric power generation.

Compared with diesel and gasoline, natural gas can reduce greenhouse gas emissions by 20% to 30%.

Also natural gas emits 45% less CO2 than coal and 27% less than oil.

A further attractive feature of Peoples is the overwhelming majority of its business, roughly 98%, is in the regulated local distribution of natural gas.

This is distinct from many of its peers, which have more extensive operations in nonutility business -- businesses such as gas trading, midstream pipelines or gas production.

Peoples is truly one of the purest natural gas LDCs in the country.

With their expertise in distribution, Peoples has a strong safety record and high standards of risk management.

Peoples manages multiple pipeline integrity manager programs and all pipes operate at closely monitored pressures within the parameters established by the U.S. Department of Transportation.

Peoples monitors the system 7 days a week, 24 hours a day, so that any changes in the system may be dealt with in a prompt fashion.

Overall safety metrics are a key part of Peoples annual corporate goals, specifically to be in the top quartile of AGA peer companies on various different metrics.

From a financial perspective, Peoples' recent earned ROE of approximately 10% is in line with the company's consolidated allowed ROE.

Its last PA rate case was in 2011 and that it spent close to $1 billion of CapEx since then.

We expect rate base for Peoples in '19 -- 2019 to be $2.2 billion and the combined company rate base to be $7.2 billion.

Now on to Slide 21, we take a deeper look at Peoples infrastructure needs and spending.

We've talked a lot about the pipeline replacement opportunities that Peoples has and this slide illustrates more specifically what that looks like.

Peoples has identified over 3,000 miles of at-risk mains to be replaced under the LTIIP program by 2034 in Pennsylvania alone.

As we discussed previously, the majority of this capital is eligible for DISC or DISC-like mechanisms.

The capital expenditure chart on the bottom left demonstrates the sharp increase planned in overall CapEx in the coming years from 2016 levels.

Even at this elevated level of CapEx, there's approximately 20 years of capital to spend in Pennsylvania, assuming 150 miles of pipe is replaced each year.

Moving on to Slide 22, we have provided some updates to give you more detail on our expected permanent financing plan.

To finance the transaction, we will issue mostly equity and a smaller amount of debt.

For the equity financing, we plan to use 30% to 40% equity-linked securities with the rest in common equity.

As previously discussed, we expect to maintain strong investment-grade credit ratings and strong credit metrics after the transaction.

For the debt associated with the acquisition, we expect to issue index-eligible public debt in a mixture of 10-year and 30-year tenures, and we have also executed an interest rate hedge to mitigate the economic potential impact of higher treasury rates.

Now I'd like to review some of the key milestones needed to complete the acquisition on Slide 23.

In just 2 weeks since the announcement, the integration process is already well underway.

Bridge financing has already been secured and as I mentioned, we're evaluating various options for permanent equity and debt financing, which we will continue to review as we progress on the regulatory approval process.

As many of you know, and as Chris mentioned, we have and will continue to be very active in meeting with the investor community.

We will need regulatory approval in Pennsylvania, Kentucky and West Virginia, and expect to make the required regulatory filings very soon.

The acquisition is expected to close in mid-2019.

And now, I'll turn the call back over to Chris.

Thank you, Matt, appreciate it.

Let's take a look at our 2018 guidance, I'll just update you there.

For the full year, earnings per diluted share, we -- as I mentioned at the beginning of the call, we've narrowed our guidance.

The new guidance is $1.40 to $1.42.

This compares to previous range of $1.37 to $1.42.

Of course, this excludes transaction expenses.

We also expect to invest nearly $0.5 billion in infrastructure in 2018 again a record amount for us, and we'll invest about $1.4 billion of CapEx over the next 3 years, that's through 2020.

It's important to note that this CapEx does not include investment in additional systems that we acquire.

So the full CapEx amount, when we look back at this time from 2021, we will expect to be -- see a higher number.

Aqua's water and wastewater rate base growth is expected to be at 7% over the period and we recently extended that out to 2021.

We filed our water wastewater rate case in Pennsylvania, as we mentioned resolution in mid-2019, and year-over-year we're expecting customer growth to be between 2% and 3%, and as Matt said, we've already hit the 2% and we've got more in the pipeline.

We recently announced that we do not plan to provide earnings guidance for 2019 due to the ongoing Pennsylvania rate case.

However, we will continue to provide guidance on things like capital and operating expenses, rate base, customer growth and that sort of -- those sort of metrics.

At the conclusion of the rate case, of course, we'll go back to providing our normal guidance on the normal cycle.

So finally, in summary last slide, let me quickly summarize some of the news we gave you today.

One, we're experiencing strong momentum in our municipal acquisition program, largely due to fair market value legislation, and we're on track to continue to pass legislation throughout all of our states.

We will have approximately 33,000 new customers added from closed or signed acquisitions this year.

And we have capital investment on track, as I just mentioned, toward $500 million this year, and we'll focus on sustainability -- and our transparency has never been stronger, as evidenced by our inaugural CSR report.

The first Pennsylvania rate case, as I mentioned, is filed and it has 20 acquisitions and $2 billion of investment in it.

And importantly for the future of our company, we announced the agreement to acquire Peoples, the local gas distribution company.

And finally, once again, we narrowed our guidance range to $1.40 to $1.42.

And with that, I'll open it up for questions.

Operator?

(Operator Instructions) And our first question comes from Ryan Connors with Boenning and Scattergood.

I had a question -- a couple of questions on the M&A environment.

First, just on the water side before one on Peoples as well, but in terms of the pipeline of municipal deals, there is this tentative, I guess, supplementation -- supplemental order in Pennsylvania, where they're going to change around the fair market value somehow, I guess, related to the valuation or whatnot.

Is that -- how does that impact the near-term deal pipeline specifically in Pennsylvania?

I mean, could we see some bit of an air pocket while until that gets finalized and everyone knows what the playing field look like?

Or what's the view there?

Yes, Ryan.

I guess, the short view is we're going to continue to push ahead.

Timing on deals is always difficult to hold back.

So we would see pressing forward.

I do think though and we've all seen the commission's order -- draft order, I do think though that greater clarity that it brings to the process will be good for not only the selling municipals but also for the companies participating.

And so we think that process will wrap-up on a fairly tight time schedule and will have, I'll say, call it, a new set of guide rails.

And Ryan, I don't -- we certainly haven't seen that air pocket that you mentioned yet.

As we see it, the pipeline remains very strong.

Okay.

And then as it relates to other states, it seems like Pennsylvania and, I guess, to some extent, Illinois have really been, kind of, the key drivers, where things have really been crossing the goal line.

Any other states where -- I guess, we've got 7 or 8 of these fair market value states now.

Any of those others that you think will, kind of, perk up going forward?

Yes, so we redeployed internal assets to North Carolina now that we have legislation in North Carolina, of course, that's brand new.

We expect passage in Ohio.

We're hopeful that, that happens in the next month or so here after the election.

It's already passed the House of Representatives in the Senate in Ohio, and we've -- [deployed] new assets in Texas.

So we're confident that we're moving our assets, where we think we can develop markets or see more activity.

And so I think Illinois and Pennsylvania are really just the beginning of this process.

Got it.

Now as regards to Peoples, you've made a really compelling case for why bringing the Pennsylvania assets of Aqua and Peoples together makes strategic sense, but I wonder if you could speak to the smaller Peoples states, Kentucky, West Virginia.

Those are states where Aqua does not operate today.

So what's the strategic vision there?

I mean, will those be run as stand-alones?

Will those be platforms for growth?

Would you contemplate any divestitures?

I mean, what's the view on that front?

Yes, so let's just say right upfront, we're not contemplating at this point any divestitures, but we -- I think when we think about growth in those states, we're doing the analysis now.

Matt has a team on that to look at what are our options in those 2 states.

But listen, we think the atmosphere is constructive on the regulatory side and so we're going to continue to evaluate opportunities in both of those states, both gas and water and wastewater.

Got it.

And then just a couple of housekeeping items.

Number one, I apologize if I missed this, but JV line actually dropped off a bit in the quarter.

What's going on there?

Any modeling help would be good.

Yes, so the JV pipeline -- did go through a little bit of time there where one driller, had kind of, finished pumping another driller was just starting.

We had been flowing water through that JV pipeline.

It should be flowing today and we'd expect a little bit more flow through the line this year.

So we're feeling good about it, and we've got a program with these same drillers where they've given us some projected volumes for next year to continue to hold the volumes in that line at a relatively nice level.

Got it.

And then last one for me.

I know you mentioned you're not going to be providing any '19 guidance for now and I totally understand if the answer is no comment, but any help you can give us on tax rate for '19.

It's been a really tough item to model.

Yes, that's -- it's probably a bit early for us to do that.

We haven't commented specifically on these things before, so let's take that one under advisement, Ryan.

Our next question comes from Angie Storozynski with Macquarie.

Okay, so I have one of a bigger picture question.

So you announced this acquisition ahead of the resolution of your rate case, which we've all been expecting, but we're all, kind of, cautious about.

You have all kinds of assumptions regarding your rate base growth projections, which are somewhat dependent on the outcome of the rate case.

And on top of that, you're telling us you need to issue at least $1.5 billion of traditional equity, while you have to do this rate case overhang.

I mean, is this just that I'm not seeing the underlying appeal of the situation?

Or is it that this deal happened somewhat because now it's available and hence there is no link to the pending rate case?

Angie, good questions.

Clearly, if we could time our lives and all our business transactions perfectly, we -- this timing wouldn't probably have laid out as it has.

However, having said that, listen, transactions come long, this was a great fit.

As Matt mentioned, it meets all of our qualifications and our strategy and so the timing was now.

Now having said that, listen, the commissions in each state do a thorough examination of the capital we spend before they turn it into rate base for the company, but we have been very, very prudent in our investments.

And so therefore, we don't have a history of having our capital investments not go into rate base.

In other words, the commissions have looked favorably on the work we've done traditionally.

And we wouldn't see any reason why that wouldn't continue.

Now in terms of the exact timing, listen, we would expect to close this deal sometime in the midyear '19 and the rate case could conclude roughly in the same area of the year, call it, second quarter, midyear.

And so that's just the way it lays out, Angie, and we think that we've got the bandwidth and the experience to navigate both those.

I understand.

My underlying concern here is that the transaction that you're pursuing is an attempt to basically boost your earnings power, which will be potentially diminished on the back of that rate case.

And I don't know if that's the case, so hence my question.

Well, we would not expect earnings power to be diminished as a result of the rate case.

We spent substantial capital, and we would expect a fair treatment of that capital investment by the regulatory commission.

Okay.

So something unrelated.

So in, I think, July or August, Peoples approached Pittsburgh Water and Sewer Authority to potentially create some sort of a joint venture on the water side.

I think nothing came out of it at least until now.

Do you think that your acquisition of Peoples could actually facilitate some, sort of, either eventual acquisition of the system or some sort of joint venture with Pittsburgh Water and Sewer?

Yes, it's a great question, and one that has received a fair amount of press and attention, particularly in the Pittsburgh area.

Let's just state the facts, right?

Number one, there is an acute issue in the city of Pittsburgh with their water system.

That is a fact.

It is well covered in the press.

I'm sure there are a lot of very fine people who are working to address that issue.

However, for years now, they've not been able to solve the problem.

That, frankly, Angie, is what we do, right?

This company, for 130 years, has been solving issues with water, and most recently, as we've become a much larger entity and resources are deeper, we can solve problems like the one in the city of Pittsburgh.

Immediately when we announced this deal, I personally went to Pittsburgh.

I met with the mayor's office, I met with the city council members and other members of the community, indicating that we could support, we could advise, we could invest, we could be part of the solution in Pittsburgh and the Pittsburgh water system.

And the Peoples option that they put out there, they have one alternative, I think, is an interesting one.

At this point, what we have said, Aqua, is that we can be part of the solution, we can be the solution, but we don't have all the answers at this point, and we're not supporting a single solution at this point.

We're open to the engagement, but we are waiting for the mayor and the city council to engage with us and invite us in.

Our next question comes from Durgesh Chopra with Evercore ISI.

Two questions for me.

First, just any more color on the timing of the regulatory filings for the Peoples' acquisition?

When would you file -- should we expect you to file before year-end?

Yes, yes, we'll be in before -- well before year-end.

We would expect to be in, in the next 2 weeks.

Got it.

And I guess the financing plan -- the timing of the financing plan is, kind of, linked to, I guess, the timing of your regulatory filings in a way, right?

That's right.

Okay.

And then just looks like mid '19, you will have your -- by mid-'19 you'll have the rate case, hopefully, resolved in Pennsylvania, this deal closed.

So just big picture question is, at that point would you consider providing not just like -- you said '19 guidance not until then, but like long-term earnings growth guidance after you've resolved those, I guess, kind of, the 2 big items for you at least in the near term?

Yes, I think, Durgesh, we give longer-term guidance obviously on some items.

I guess, you're asking for longer-term guidance on earnings per share growth.

So obviously, we give longer-term guidance on rate base and things like that.

But listen, at the end when we close this, we will, at the very minimum, continue our policy of 1-year guidance on earnings per share and longer-term guidance on other items, but we most certainly consider giving longer-term guidance.

But I would say, let us consider that when we conclude this transaction and the rate case.

Perfect.

And Dan, you did a fine job on your first earnings call as CFO, so congratulations.

Yes, thanks, Durgesh.

Appreciate it.

(Operator Instructions) Our next question comes from Jonathan Reeder with Wells Fargo.

Question, did you guys increase Peoples' CapEx since the deal was announced?

I thought it was said it was kind of $300 million to $350 million, and I noticed '20 and '21 show numbers north of $350 million.

Yes.

So we've looked at different opportunities and as we said, we think there's a lot of capital that can be spent at Peoples.

They have a lot of pipe to replace and so we have looked at opportunities to potentially increase the spending slightly, but we're still, obviously, looking at those numbers and refining that, but still feel confident that we can spend in the $350 million range as you look out a couple of years.

Jon, that's frankly one of the skill sets we think we bring to the table here, our ability to ramp-up that CapEx program as we've done at Aqua.

We think we can bring some of that skill set.

And frankly, potentially some of the same contractors through the Peoples' effort to ramp-up their CapEx and miles of main per year.

Okay.

And then, how do you look at ongoing equity needs following the deal's closure?

Is it fair to say that you're going to need regular equity to support the CapEx at both the water and the gas regulated businesses plus the muni M&A strategy?

So I guess, it's really the last clause you added there that's the question mark.

So on an ongoing basis, we wouldn't expect significant equity needs, but in the event that the municipal transaction program continues to accelerate, of course, there would be a point there where if you're doing enough municipal transactions, you need additional equity to help fund those transactions, Jonathan.

Okay, so minimal equity, I guess, to fund the ongoing businesses and then if M&A kind of accelerates and that could exacerbate a little bit, but that's not a bad thing.

Yes, so at this point, I -- to clarify -- kind of on a normalized basis, we wouldn't expect an equity raise in the foreseeable future, but if that CapEx -- I should say, if that municipal acquisition program really accelerates, then, of course, we'd be evaluating it.

Okay, and then any updates -- I might have missed what you, kind of, said to Durgesh, but the timing of the near-term equity offering, there doesn't be -- there is not a lot of huge obstacles in the way of getting the deal approval, so given the volatile market and recent (inaudible) you might want to lock it in sooner rather than later in terms of pricing or the current pricing environment more challenging to make the numbers work on the deal?

Yes, no, we definitely hear you on that.

I think as we evaluate, kind of, what's required in order to raise debt and equity capital overlays that with blackout periods that exist and think about getting towards line of sight to the regulatory approvals.

All these things, kind of, play into the likely timing of that.

But I'll tell you, Jonathan, we continue to evaluate every day how that might come together and when the windows might be.

I mean, is your preference sooner rather than closer to the close?

Is that fair?

Just not sure, it's possible.

So we may need a little bit of a time to get some things lined up first.

But you're hitting on all the things that we're considering as we evaluate this.

Okay.

And then lastly, the '18 guidance update.

What's kind of driving that?

Is it single items?

Or kind of, some of the less predictable things, whether it's Q3 weather benefit, the earnings from the JV pipeline that weren't originally anticipated?

Yes, a little bit, as you know, if there's some things that are positive, JV pipeline is positive.

We've seen some consumption of its better as we noted today on the call, but it's just as the year goes on and we continue to roll forward our forecast to just have a better view as to where you're truly going to land.

And throughout the course of the year there are always some ups and some downs, but at this point in the year we're comfortable, kind of, narrowing that range to, call it, the top half of our range, $1.40 to $1.42.

And then thinking about growth off of that range, I mean, we should be thinking off of that narrowed range?

Well, and as we said, you can think about narrow range gives you a landing zone here.

2019, as we said, we're not going to provide guidance for 2019 just given where we are with Pennsylvania rate case, but also as you can imagine 2019 and you'll start to see this in the fourth quarter, we'll start to have some -- show non-GAAP earnings as we start to strip our transaction costs and start to see transaction costs and you'll see some of that messiness, kind of, continue on a non-GAAP basis through fourth quarter and into 2019 as we work to close the transaction.

So just a way of saying, it's going to be a little bit more difficult, given some of these things.

And we have no further questioners in the queue at this time.

I would like to turn the conference back over to Mr. Chris Franklin for closing remarks.

Great.

Thank you all for joining us.

I appreciate it.

Obviously, we're always available post-call.

Thank you.

Ladies and gentlemen, this concludes today's conference.

You may now disconnect.