Essential Utilities Inc (WTRG) 2022 Q3 法說會逐字稿

Hello, and welcome to Essential Utilities Q3 2022 Earnings Call. My name is Sarah, and I will be your coordinator for today's event. Please note this conference is being recorded. (Operator Instructions)

I will now hand you over to your host, Brian Dingerdissen, today's conference. Thank you.

Thanks, Sarah. Good morning, everyone, and thank you for joining us for Essential Utilities third quarter 2022 earnings call. I am Brian Dingerdissen, Vice President of 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 a webcast of that event will also be found there.

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 company's website.

Here's our agenda for the -- call today. We'll start with Chris Franklin, our Chairman and CEO, who will discuss the highlights from the quarter and provide a company update. Next, Dan Schuller, our Executive Vice President and CFO, will discuss our financial results. Lastly, Chris will provide an update on our acquisition program and conclude the presentation with a summary of our guidance before opening the call for questions.

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

Thanks, Brian, and good morning, everyone. Thanks for joining us.

Let's start off with some highlights from the quarter. We continue our focus on the fundamentals of operational efficiency, infrastructure improvement and service-related priorities. And as a result, we had a strong third quarter with earnings per share of $0.26 and year-to-date net income growth of 11.2%. Dan will provide you some details on this in just a few moments.

Our commitment to investing in critical infrastructure has resulted in an investment of $719.7 million through our water, wastewater and natural gas systems in the first 9 months of the year. This compares favorably to $675.8 million from the same period in 2021. We remain on target to achieve our capital plans of approximately $1 billion of capital spending for the year.

Currently, we have asset purchase agreements signed for 7 municipal acquisitions, totaling nearly $365 million in purchase price. This year, 2022, we've closed 2 acquisitions, which added over 19,000 customer equivalents to our footprint. As I'll discuss later, we'll continue -- we continue to have a robust pipeline of opportunities.

Now just this month -- last month in October, the Board appointed Bryan Lewis to our Board. Bryan currently serves as the Chief Investment Officer for U.S. Steel Corporation, which is headquartered in Pittsburgh, Pennsylvania. Bryan is responsible for the company's global investments for both the defined contribution and defined benefit plans as well as other related programs at the company.

Prior to his appointment at U.S. Steel, Bryan managed a $30 billion pension fund for the Pennsylvania State Employees' Retirement System. And before that, served as Executive Director of the $20 billion Illinois State Universities Retirement System.

Now in addition to Bryan's professional career, he's dedicated to increasing the financial literacy and leadership presence in underrepresented populations and serves on several nonprofit boards. At the Essential Board, Bryan will serve on our Audit Committee as well as our Risk Mitigation Committee, great addition to our Board. We welcome Bryan filling an open seat.

Now I wanted to take a moment to update you on a few other salient issues. Last week, we were informed for the second consecutive year that MSCI has upgraded our ESG rating. And it's now AA. In their upgrade, MSCI noted that Essential is a global leader in governance that we are stronger than the industry average in the environmental and social areas as well. We are really pleased with this outcome. A lot of hard work went into this and really pleased with that result.

Now staying with the ESG theme, we recently announced a hydrogen pilot with the University of Pittsburgh. The partnership will study the potential of safety and -- safely and securely transporting hydrogen through natural gas systems. Now together, Peoples and Pit will conduct some in-depth research related to the technical issues involved with using natural gas pipelines to transport a blend of hydrogen and natural gas.

Following our research phase, the organization is expect to work together on a pilot project to test the impacts of hydrogen on Peoples natural gas distribution infrastructure. In addition, we're now a member of a consortium that is applying for federal funds to create one of the hydrogen hubs in the country.

This one would be based in the Appalachian region, 44 entities, including businesses, state governments and other organizations, have all signed on to this consortium. It will be exciting part of this to see what these hydrogen hubs around the country can do to advance hydrogen as a component of clean energy.

I shall also mention that legislation was just approved in Pennsylvania, which included $50 million in annual tax credits to incentivize hydrogen production, certainly a developing area for us to be involved in.

So now let's move on to some organizational announcements. You may have read that Rick Fox, our Executive Vice President and Chief Operating Officer, is retiring next month, actually, at the end of this month. I want to thank Rick for his dedication to the company and his contributions over the last 20 years. He has served as Chief Operating Officer since 2015 when I became CEO, and prior to his COO, Rick had multiple leadership roles, including Regional President and Vice President of Customer Operations.

Over his career, Rick has led important change at the company, including the standardization of our customer service across all states, implementing best practices and leading some of our key acquisitions and divestitures. He is also responsible for the execution of our first ever $1 billion capital budget in 2021.

Also, Rick's work in safety, allowed our company to experience dramatic reductions in workplace injuries. His contributions are really too numerous for us to mention today.

When we experience key retirements like Rick's, it often triggers some level of reflection. And most of our management team now has been together since 2015. And so we look at a few measures that demonstrate the good work we've done together over that time.

And in addition to delivering annual earnings growth in line with our guidance and raising our annualized dividend, Slide 8 here demonstrates that we've grown the rate base and customer base of the company from nearly $3.5 billion and 958,000 customers to approximately $9.5 billion and 1.8 million customers over that time.

During this time, the market cap of the company has grown from $4.5 billion to $10 billion -- and over $10 billion today. So nice, really nice outcome. This performance would not have been made possible without people like Rick Fox on the leadership team. Rick, I'd like to congratulate you on a great career, and I am happy to call you, my friend. We wish you and [Allen] great happiness in your retirement.

And now as we look to the future, we've been working diligently on our succession planning, and I'm happy to report that we have 2 strong executives that will now report directly to me, when Rick retires. Colleen Arnold, President of Aqua and Mike Huwar, President of Peoples.

Colleen has been the President of our 8 state water and wastewater utility operations since 2020, prior to becoming the first female president in the company's history. Colleen was the Deputy Chief Operating Officer reporting to Rick. Colleen joined the company in 2007 and is active in the American Water Works Association and the National Association of Water Companies.

And Mike have been the President of our 3 State Natural Gas Utility Operations since 2020. Prior to becoming -- to the company, Mike had a 34-year career with Columbia Gas, where he was President and COO of Columbia's Pennsylvania and Maryland Operations since 2017.

Now here on the next slide, you may have seen this that Whitney Kellett was recognized as the 2022 Philadelphia CIO of the Year. This is the annual ORBIE Award, one of the most prestigious awards for CIOs. Whitney was recently promoted to Senior Vice President of Business Transformation and is responsible for the company's technology strategies, decisions and policies in areas like cybersecurity and the protection of our customer information.

Whitney will also be the company's Chief Administrative Officer in 2023, when our current CIO retires. As part of our succession plan, we hired Sumit Nair to replace Whitney as the new Vice President and Chief Information Officer. Sumit will oversee our internal group of 130 IT professionals and will execute the strategic and operational imperatives that are so important to the company's operations and growth. Sumit comes with a wealth of technology experience from companies like Independence Blue Cross, De Lage Landen and IKON.

Lastly, I want to recognize Jean Russo, who joined the company early this fall as Vice President of Communications. In this newly elevated aided role, Jean will report directly to me and will oversee all internal and external communications across the enterprise. With growing public interest in our acquisition initiatives, Jean will bring important and focused communications council to our work. She also brings a wealth of experience, having worked on top global brands across several industries. We're really excited to have Jean, and these other executives take their new roles.

Hopefully, this brief update on our organization gives you some sense of the depth of our team, but also the new young leadership that is stepping up in the organization.

So with that, let me hand it over to Dan to discuss our financial results for the quarter. Dan?

Thanks, Chris, and good morning, everyone.

Moving to Slide 13. Looking at the third quarter highlights, we ended the quarter with revenues of $434.6 million, up about 20% from last year. Our Regulated Water segment contributed $301.3 million, and our Regulated Natural Gas segment contributed $119 million, with the balance coming from our limited nonregulated operations. We continue to see higher natural gas commodity prices, and therefore, purchased gas costs increased by $26.6 million year-over-year, and gross margin increased by $46.2 million.

The largest contributors to the increase in gross margin for the quarter were additional revenues from regulatory recoveries, increased volumes and organic and acquisition-related customer growth from our Water segment.

O&M expenses increased to $151.4 million for the quarter, up from $139.4 million in the third quarter of last year. Employee-related costs, higher water production costs, recoverable costs related to our Natural Gas segment, Customer Assistance Program and other expenses were the main drivers for the quarter.

Net income was up year-over-year from $50.5 million to $68.6 million and GAAP earnings per share increased from $0.19 to $0.26 for the quarter.

Next, we'll walk through the waterfall slide, starting with revenue. As we look at the third quarter for 2022, regulatory -- revenues increased $72.8 million or approximately 20% on a GAAP basis. Regulatory recoveries were the largest driver of increased revenues since the third quarter was the first full quarter to include the new rates from the Pennsylvania water rate case.

Next, you'll notice the recovery of higher purchased gas cost of $26.6 million due to the significant increase in natural gas commodity prices, which we've been reporting throughout the year so far.

Increased volumes and growth from our Regulated Water segment contributed an additional $15.7 million, and other provided $3.4 million towards the revenue increase, which was offset slightly by reduced volumes from our Regulated Natural Gas segment.

Next, let's take a look at our operations and maintenance expenses. Looking at the operations and maintenance waterfall, expenses for the third quarter increased to $151.4 million compared to $139.4 million for the same period in 2021.

Employee-related costs added $5.2 million for the quarter and increased production costs in our Regulated Water segment added an additional $2.8 million. We continue to see year-on-year increases in production costs with the largest inflation-related expenses being in the areas of chemicals and sludge.

The increased employee-related expenses included an accrual for onetime incentive compensation for non-officer level employees. Other items contributed $1.6 million to the increase, and much of this is the O&M expenses related to our acquired systems. The gas customer assistance program expenses, which are fully recoverable through a revenue surcharge, increased $1.4 million, and finally, bad debt increased by about $1 million.

So end to end, we have an increase of about $12 million year-over-year. If we subtract off the onetime incentive compensation that I mentioned, as well as the O&M costs related to growth, and the increase in the customer assistance program costs, we get to about $6 million or just over a 4% increase year-on-year. That roughly 4% increase makes sense given increased production, which added about $9.5 million in revenue, plus above average inflation in the areas of chemicals, sludge hauling and other expenses.

Next, we'll spend a minute on the earnings per share waterfall. Beginning on the left side of the slide, GAAP EPS for the third quarter of 2021 was $0.19, rates and surcharges contributed $0.074 and increased volume and growth from our Regulated Water segment combined added another $0.04. These were offset by $0.03 from other items, which include increased depreciation, interest and taxes as well as $0.014 of expenses.

The result is a GAAP EPS of $0.26 for the third quarter of 2022. We remain confident in our full year guidance and our ability to deliver on the 5% to 7% earnings growth per share expectation that we set at the beginning of the year. And presuming that we have fairly normal weather for the fourth quarter, we expect to land in the middle of our EPS guidance range of $1.75 to $1.80 for 2022.

As always, we're watching the weather in Western Pennsylvania closely. And so far, the temperatures are a bit warmer in November following a colder than normal October.

Moving on to rate activity and other regulatory matters. So far in 2022, we completed rate cases or surcharge filings in our Regulated Water segment in Illinois, North Carolina, Ohio and Pennsylvania, and we completed a rate case in our Regulated Natural Gas segment in Kentucky. The combined total annualized revenue increase is approximately $88.8 million.

Also, we currently have base rate cases or surcharge filings underway in North Carolina, New Jersey, Texas and Virginia for our Regulated Water Segment, and a surcharge filing in Kentucky for our Regulated Natural Gas segment.

Now many of you have asked about the status of the Pennsylvania PUC on previous calls, so it's certainly worth noting that the 3 nominees have now been approved and the commission is back to full staff. We certainly see this as a positive development.

While we won't provide guidance until early next year, the budget and plan that we're currently finalizing result in continued strong EPS growth and improvement of our credit metrics.

While we're on the topic of credit metrics, we did establish an equity ATM program for up to $500 million in October. This gives us a mechanism to issue equity as needed as we continue to deploy a significant amount of capital to build rate base from both municipal acquisitions and capital expenditures.

And with that, I'll hand it back over to Chris. Chris?

All right. Thanks, Dan. Appreciate it. Let's move on to our municipal transaction activity, which, along with investing in infrastructure in our existing business, is the core of our growth strategy.

So in August, we announced the closing of East Whiteland Township wastewater system. This system serves nearly 8,200 customer equivalents, including residential and commercial connections in Chester County, Pennsylvania. Now to connect the dots for you, this is one of the systems served by the Tredyffrin Township trunk line we purchased in December of 2018.

You may recall, this is the 9-mile pipeline that passes waste to the large Valley Forge sewer authority for treatment, the plant that they have, and we've already identified $17 million in infrastructure improvements in that East Whiteland area expected to be completed over the next decade.

We look forward to having a positive impact on this community and continuing to provide excellent service in an area where we already provide the water service. We also think there's a lot more opportunity as a result of that trunk line.

As of this call, we have 7 signed asset purchase agreements pending, which together will add over 217,000 customers or customer equivalents and total nearly $365 million in purchase price. We are pleased to report that we received approval from the Illinois Commerce Commission to close the Oak Brook, Illinois, water transaction and anticipate closing this year.

Now on Slide 21, we'll take a minute to talk about DELCORA. On our last call, we indicated our optimism on this transaction based on the PUC restarting the process and the ALJ -- with the ALJ and the strong legal outcomes in our favor. And even since that time, the Delaware County Court [determined pleased] just on November 2, this month, once again found in our favor.

The court determined that its previous order of September 8, 2022, are already constituted a final order that addressed the claims of all parties and thereby disposing of all the claims -- the recent claims, and we view this latest court order as a significant development in bringing this litigation closer to an end, basically saying that the agreement with DELCORA is valid and enforceable.

We also continue to be confident that we will close DELCORA. However, given the recently released PUC procedural schedule, we now expect to close DELCORA around midyear 2023. We also continue to hold out some hope that there's a path towards settlement. As you know, we've been at that for some time.

In the guidance we provided you at the beginning of this year, DELCORA was included in the 2023 earnings per share guidance, but we didn't indicate its level of contribution. Despite DELCORA's delay, we remain confident in our ability to achieve investor expectations in 2023.

Importantly, I want to remind you that there is continued capital spending expected even after closing of DELCORA because of their requirement to upgrade the large sewer plant by 2028. We expect to provide our annual roll forward of guidance in early 2023, and details on the exact timing of the guidance will be forthcoming. I remain confident that we will be able to provide and deliver guidance in line with our historical performance based on the current draft of our multiyear financial plan.

Now in addition to the signed municipal transactions just discussed, our pipeline of opportunities for growth remains strong and healthy. Currently, we're engaged in active discussions with municipalities and pursuing approximately 430,000 potential water and wastewater customers, as you can see on this slide.

While we were disappointed in the outcome of the discussion with Bucks County, we remain confident that -- and committed to our strategy and have a strong pipeline. We have professionals in each of our states that are focused on the blocking and tackling of our growth strategy, focusing on 2,500 to 25,000 customer sized acquisitions, and this has not wavered.

When larger opportunities come along, we will always pursue them, but they don't distract from the in-state teams from the more typically sized acquisitions. So they remain on track.

Our technical and operational expertise, our commitment to capital investment, along with long-term rate stability continue to demonstrate our value proposition to these municipal systems we're talking to.

We will continue to focus on growth in all 8 states where we have water utilities and fair market value statutes are in place. With that, let me wrap up the formal remarks by reaffirming our 2022 guidance.

Despite the current economic conditions, we are pleased to be on track to meet the 5% to 7% earnings guidance we set for the year. And as Dan mentioned, we believe we're on track for the middle of our $1.75 to $1.80 per share guidance range. We remain confident that our 3-year earnings per share growth will be 5% to 7% through 2024.

Our capital plans remain on track as we anticipate investing approximately $1 billion on regulated infrastructure this year to rehabilitate and strengthen water, wastewater and natural gas systems, and nearly $3 billion across the platform by 2024.

We continue to expect rate base growth to be between 6% to 7% for water and between 8% to 10% for natural gas, and customer growth to be between 2% and 3% on average for water and stable in natural gas.

We also remain committed to our ESG targets, having reported strong progress on our second quarter call, including an estimated 14% greenhouse gas emissions reduction towards our goal of 60%, diverse supplier spend of 13% against our target of 15%, and 16% employees of color with our ultimate target of 17%. We expect to report on our continued progress again after the end of the year.

We are confident in our guidance because of the strong foundation that we have. And despite the various headwinds that all companies are facing in today's economic environment, we believe we have a solid and achievable plan to continue to deliver long-term shareholder value.

Finally, in line with past practice, we expect to present the roll forward of our guidance in early 2023. We're finalizing those plans now, and we recently presented the Board with a draft of our forward-looking financial plan. We believe that you will be pleased with the guidance that we'll provide based on that plan.

That concludes our formal remarks. And with that, let me turn back to you or the operator for questions.

(Operator Instructions) The first question comes from the line of Travis Miller from Morningstar.

You made a couple of comments there at the end, Chris. But on the muni M&A, just wondering, obviously, you've been a big shift in cost of capital here over the last, call it, 3 to even just the last month, right, but I called even the last 3 months.

How is that impacting the financing side? I understand kind of the fundamental side on the muni, wonder you have more thoughts in terms of just financing those and making them accretive relative to what you've had in the past?

Yes. And I think, listen, long-term, as you know, we finance these things accordingly with our capital structure at roughly 50-50. What it really does, I think, Travis, is it makes us think about our hurdle in order to do the transactions, we look at these and we've got hurdles. As we think about these as multiyear, often, almost always, we bring these municipal transactions in at less than full earnings power, right? They need capital investment, and they need rates.

And so therefore, we look at a multiyear look at a hurdle, and it probably nudges that hurdle a little bit further north as we think about what we need to do to do these deals. I don't think it slows our interest.

In fact, as I look at it, some of the financing challenges are not only on our side, but also on the municipal side and could actually trigger a little bit more activity. I just don't see there's just not enough federal dollars to bail these things out. And I just think there's continued opportunity for us.

Dan, do you have anything to add to that?

Yes. Chris, what I might add, Travis, is just that, obviously, on the debt side, we tend to finance these initially on our revolving credit facility and then with long-term debt that we put in place. And of course, we are seeing higher costs as -- if you look at LIBOR over the past year, which is really the marker for our revolving credit facility, it's up nearly 400 basis points.

So what that does is it creates a higher initial cost of borrowing than we finance long-term, that's a higher cost than we would have had a year, 1.5 years ago. And so it just really creates some additional lag between now and when that new acquisition comes into full earnings with a rate case.

So period from closing the transaction to new rates, we'll see a bit more of a lag, and we model that in as we look at our pro formas and have the conversations with the investment community to decide what we're willing to accept in terms of that lag.

Okay. Yes. No, that's great. I appreciate that. And then one follow-up. Anything in terms of the election or new people who might come into offices in terms of fair market value, anything along those lines in other states?

Well, I think we always focus initially on our largest state, Pennsylvania. The expectation here is that on the state level, which is what most impactful for our business, that it will be a Democrat for governor. It looks like Josh Shapiro was solidly ahead in the polls. And then it looks like the Republican legislature, both House and Senate, remain firmly in place. And that's probably a pretty nice outcome here in Pennsylvania.

The -- probably the impact that we will see most immediately, the Chairman of the Public Utility Commission, Gladys Dutrieuille is up for renewal or retirement, whichever she decides in the first quarter of next year, so the new governor and the Senate will have a say on who that is. It will be a Democrat, whether it's Gladys or replacement. So that's probably the first major impact of the newly elected officials. But I -- while we're hearing some noise about fair market value. At this point, all indications would be that those statutes will stay in place without too much trouble.

Okay. Any states where you think the legislature or governor or whoever is in charge of doing that might institute it?

Well, it's a good question. Beyond our states, in all 8 of our water states, we have 1 statute. It's not always call it fair market value, but we've got the ability to use a tool like fair market value. But beyond our states, there might be others. I'm just not -- I'm not familiar with where that might be added.

The next question comes from the line of Ryan Connors from Northcoast Research.

So yes, I think I wanted to ask you about the interest rate environment from a different perspective in terms of returns on equity and the outlook in some of your rate proceedings and whether there's any appetite among these commissions, especially with the larger cases in North Carolina and Texas, but I guess also your early read in Pennsylvania, too?

Is there any appetite to move ROEs up as interest rates go up? I know they held up pretty well when interest rates went down. But what's your outlook there for what will happen with ROEs going forward?

It's a good question, Ryan. I think that, to your point, ROEs were sticky on the way down as interest rates fell, they're likely to be somewhat sticky on the way back up. Now if we saw a consistent period with high interest rates and thus a higher cost of equity capital when you calculate that, we would obviously be making the -- making the case for higher ROEs.

I don't think -- and we think that's a justifiable case if that is the economic situation at the time. I think the other thing that's important for all of us, as utilities to think about is, as we talk to our commissions, is that the utility industry is not immune from the inflation that everyone else is experiencing. And so you'll see that those conversations need to be had with regulators as well as utilities file cases going forward.

Yes, I think to add to that, hopefully, what we continue to see is additional regulatory mechanisms put in place that address lag because if you don't have future test years, what they're going to find is just an inundation with rate cases in all these commissions. And so we need to continue to focus on how do we address inflation, reduce lag so that the case load isn't overwhelming to these commissions.

Got it. Okay. And then kind of a follow-up to the prior question there by Travis.

On the electoral scene, specifically to Pennsylvania, the Water Quality Accountability Act there, the SB 597, that seems like it had some momentum. It seems like it's kind of stalled. I don't know that it's actually come the floor. And is that something that -- is there any key leaves here suggesting that might move forward based upon the early read on the election here?

Yes, it's a good question, Ryan. I think probably that, bill, as passed out of the Senate, which now sits in the house, probably needs some amendment to it to get advanced further.

I think we'll have to see what the committee chairmanships look like in the reformed house. But I think that bill is going to take some amendment. We've got some thoughts, and we are still hopeful we can get it passed both the House and the Senate next year.

Got it. Okay. And then one last one. Look, I apologize. I know you don't want to focus on Bucks County. But if you could just kind of give us your perspective, Chris, on when it didn't go your way, you mentioned there's lots of smaller and midsized deals. So it's certainly not the end of the world, but what is your quick postmortem there?

I mean, is there anything that the company learned from that process, things you may not have done differently, and things that might have changed the outcome there? Just kind of curious what your sort of thoughts are now that, that's in the rearview mirror?

Yes. But I think -- I'm not sure there is anything that the company could have done differently. As you know, at the end, release came from the commissioners basically saying that the timing wasn't appropriate. So whether something happens in the future or not is going to be up to the like of officials. But I think 2 takeaways, and I would say this holds true for most of these municipal acquisitions.

Upfront, the seller has to identify clearly why are they selling the assets and what are they doing with the proceeds? And I do think the lack of clarity in Bucks County did hurt the prospect of ultimately completing the transaction.

The Bucks County has a structural deficit. They need the money. And so it would have been ideal had they said, listen, we're selling because we've got a structural deficit and we're going to hold rate for the next decade through a fund, which was the plan and that we're going to delete or pay off all county debt.

I think those would have been powerful statements. And they just weren't made and articulated. So I would say for all the transactions that we're working through, those 2 aspects have to be clear from the seller. Why am I selling and what am I doing with the proceeds? I see time and time again where those aren't clearly articulated, and it just hurts the transaction.

Okay. And that was -- so that was -- these are were the 2, was that the first or -- those are the 2?

Those are the 2, yes.

Listen, I think politics in Bucks County, it was pretty nicely aligned. I think the Republic and Democrats get along fairly well in Bucks County in terms of the economic conditions of accounting. So I really felt pretty good about that. And certainly, the people who were against the transaction, Ryan, you attended some of those hearings, a lot of the same people that continue to attend.

One of the disappointments that I think we have is that so much misinformation was repeated at those public hearings. People were just not well informed and/or chose not to be well informed either way, but so much misinformation.

(Operator Instructions) The next question comes from the line of Julien Dumoulin Smith from Bank of America.

And congratulations to everyone on the various tenants here. Just maybe if I can kick it off here.

Just coming back to '23 and expectations, you talked about the quarter and obviously, the timing is shifting there a little bit. You've got this ATM, that's certainly fluid. And you talked about some cost pressures in the quarter. Can you give us a little bit of an update? I know you reaffirm 5% to 7% and midpoint here for '22. But how are you thinking about it over the longer term? Where do some of these shifts position you as you think about '23? Anything that just flag?

I get that you haven't launched your formal '23 process yet. But maybe early indications, how are you thinking about some of the offsets here? Maybe some additional capital spending to offset the impact of the timing for DELCORA, and the associated spend that you would have done at DELCORA as well?

I think we're looking at our budgeting now. And we're -- obviously, our 2023 budget will be approved by the Board in December. But as things look right now, and I said it in my comments, despite the continued delay in DELCORA, we remain confident in our previously discussed guidance. And so we'll have an update for you all in another month or so here. But at this point, we remain confident that we can achieve our long-term guidance that we've communicated already. Dan, anything to add.

No, I think you covered it, Chris.

Can you guys talk about some of the offsets maybe just as you think about it? I know it's in flux, so maybe just speak through some of them -- in terms of the ability to raise and adjust CapEx and/or the timing of the dilution itself as you think about clearly, some of that capital raise would have been in tandem with DELCORA itself?

Yes. Yes, I think you're thinking about it the right way. As we think about our capital spend, we do have some flexibility and obviously weather and our ability to execute against the capital budget gives us some flexibility there, not a ton, but there are levers we can pull there. And yes, listen, Dan, I think, discussed pretty well our equity needs. I think we covered that.

Yes. And I would just add too, as you think about offsets and achieving objectives, we're constantly working with our state teams to look at their controllable expenses and make sure that we're rebidding things, and we're getting the best contract with the best price.

And all of our state team management teams have -- they all have incentives in place that really rely on them achieving their cost metrics. So they're incentivized to help drive costs down as well.

Got it. Excellent. And you'll roll forward your outlook with the next update too?

Yes. We'll -- right now, our plan is to share all of our guidance just after the first of the year. And at this point, we would anticipate that, that looks like guidance we've provided in the past meeting. EPS guidance for 2023, EPS growth rate guidance, capital guidance and then the other ESG-related metrics.

The next question comes from the line of Gregg Orrill from UBS.

So do we know what the duration of the growth rate guidance is going to be that you're going to update us on?

At this point, we would presume it's 3-year guidance like we've provided in the past.

Okay. And then on the PFAS from -- rule from EPA, are we still looking for that this year?

December time frame, it sounds like, we expect an MCL to be established around that time. I think that's still on track.

We currently have no further questions coming through. I will now hand you back to your host.

Thank you all for attending. And as always, we stand ready to answer any questions, any follow-up questions you might have. Thanks again for joining us today.

Thank you for joining today's call. You may now disconnect your lines.