Essential Utilities, Inc. Price & Performance (WTRG)

Good morning, everyone, and thank you for joining us for Essential Utilities' Essential quarter and full year twenty twenty four earnings call. This is Dan Schuller, Chief Financial Officer at Essential. I'm stepping in for Brian Dingerdisson, who welcomed twins this past weekend. If you did not receive a copy of the press release, you can find it by visiting the InvestorRelationssectionofourwebsite@aessential.co.

The slides we'll be referencing and the webcast of this event can also be found on our website. I did want to take a moment to introduce our new IR Director, as you may have seen his photo in the deck that is posted. Ed Vallejo with whom most of you are familiar from his time in the industry joined our team just last week. Ed hit the ground running and we fully engaged in our IR activities right away. Welcome, Ed. Let's move to the forward looking statement. 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 ks 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 any non GAAP to GAAP financial measures is posted in the Investor Relations section of the company's website. Begin the call today with Chris Franklin, our Chairman and CEO will provide an update on the company and then I'll provide an overview of our financial results before Chris closes the call with our guidance.

With that, I'll turn the call over to Chris Franklin, [indiscernible] Welcome aboard. Nice to have you with us and good morning everyone. Thanks for joining us. Hey listen, as I reflect on 2024, I have to tell you I'm really proud of the performance of the company. The team that leads it and all of those that did the work to make the year so successful.

Financially, 2024 is another year in a string of years that we have reported earnings per share in line with our 5% to 7% guidance.

In fact, on a GAAP basis, we delivered $2.17 per share The GAAP earnings of course include a gain on sale from the Pittsburgh Energy projects. When you think about repeatable earnings, I'm talking non GAAP now, [indiscernible] We would think about finishing the year at about $1.97 earnings per share. Dan is going to provide more detail on this in just a few moments. Now these outcomes would not be possible without the of our operating teams. They held operating expenses this year to only 2% growth year over year and completed our $1,300,000,000 capital plan right on target.

Our operating expense control is key to keeping rates affordable and our timely capital investments improve water quality, gas safety and service reliability while building rate base and of course earnings for shareholders. Over the course of the year, we responded to investors who wanted to get to know our operating team leaders a little bit better. In both water and natural gas And so Colleen Arnold Head of our Water business and MyQR, the Head of our Gas business spent time on the road with us in investor meetings throughout 2024 and that will continue into the future as I know you enjoyed the interaction with both Mike and Colleen. Now when we think about our accomplishments and our consistency, consider that the Board raised the dividend by 06/2024 and that's consistent with our thirty plus year track record of growing the dividend at a healthy rate.

In fact, sort of amazing to consider that we've grown the dividend, the proxy in just five short years We've paid a dividend now for eighty straight years Probably the accomplishments that we're most proud of in 2020 and natural gas rate cases in Pennsylvania, the state that contains 75% of our operations. Both cases were black box settlements but most of you could easily estimate the approximate equity layer and ROE that were granted in those cases. We believe these strong regulatory outcomes combined with the recent changes at the Office of the Consumer Advocate are reminders that Pennsylvania continues to be a constructive regulatory state. We also believe that our strong regulatory reputation of doing the right thing should continue to facilitate positive regulatory outcomes that are both good for customers and shareholders. In fact, since the recent change in leadership at the OCA, the agency has withdrawn its protest of the People's Rate Case. A really good sign that a more moderate approach to regulatory relations may be coming to that agency. One of the key accomplishments in the Peoples rate case was the establishment of weather normalization. This regulatory solution shareholders and customers In January of twenty twenty five, just last month, because of abnormally cold weather, the company will give back about $8,200,000 to customers but shareholders will also reap some benefit from this cold stretch.

Bottom line is that in that short time since October, when the weather normalization was first put in place, the smoothing of weather volatility and the associated revenue is working exactly as designed. Now while we're talking about regulatory accomplishments, I want to mention that in 2024, there was some reform of the fair market value statute that was passed by the PA Public Utility Commission.

As I think you already know, we were actively engaged in that solution with the PUC. We believe that this reform will bring greater certainty to the process and should also help keep rates at affordable levels. Already we're seeing increased activity for municipals that are interested in selling their utilities. All right. When we think about 2024, I have to mention the progress that we've made in PFAS mitigation.

We spent about $27,000,000 in capital and completed the mitigation work in 13 plants.

This is toward our four year goal mitigate approximately 300 plants had an overall estimated capital spend of $450,000,000 The solution we're applying to most of our plants is a patent pending approach that we are also marketing to other utilities as a solution to their PFAS issues. Now it's too early to predict whether our solution will be additive to [indiscernible] but I'm proud of the team for engineering the solution and for the pace of our installations. One of our top priorities in the natural gas business will always be risk reduction. In fact, in 2024, we focused on several key risks. First, we installed 30,000 Intellus meters These are the meters made by Itron. We believe that these meters are literally a game changer for safety. The meters are lighter weight, slightly smaller and more accurate but most importantly, they prevent over pressurization. When you consider the catastrophic incidents that have occurred within the gas end still over the past decade If these meters had been installed, they hadn't been invented when those incidents happened, but had they been installed, many of these fires could have been prevented. Now we'll install at least 60,000 more of these meters in 2025 as we ramp up this new potentially life saving technology.

We think about risk in the gas business particularly, we also think about underground storage wells. That's why we reconditioned some of our older wells and abandoned some others. Overall, the work we did on underground storage wells in 2024 reduced our risk scores by 50% a significant accomplishment And as part of our capital plan in 2024, we replaced more than three seventy miles of water and natural gas made which is key to the continued reduction in our carbon footprint. Our expectation remains that we will spend nearly $7,800,000,000 in capital over the next five years So in preparation for that work, we continue to deepen our bench of talent by creating development opportunities for members of the team so we can continue the long term consistency of results that has been our reputation. [indiscernible] we had our challenges in 2024 as well In Pennsylvania alone, we were named receiver for 10 water and wastewater systems. These are systems that the former owners neglected and they were undercapitalized. We responded quickly when the Pennsylvania Public Utility Commission asked us to operate these systems We invested capital and made improvements But I got to tell you that receiverships are not the best solution.

We will be in all of our states with the environmental agencies to push the improved enforcement This deferral of investment and ultimate dilapidation did not occur overnight and we'll use this example to encourage environmental agencies to enforce earlier which could provide us an opportunity to rescue these systems before they reach a critical stage The other macro challenge that we face in the water industry is stock performance. No. We're no exception. And I'll say that we were pleased to be the strongest performing water stock in 2024 But still disappointed in not seeing our our successes reflected in our overall current valuation. Now moving to 2025, I already mentioned the successful Pennsylvania rate case. It did receive final approval on February 6. By unanimous vote of the Public Utility Commissioners in Pennsylvania. We look forward our theme this year is Leading Today shaping tomorrow. Which captures our dual focus, solving today's issues with urgency while building a foundation for tomorrow focus on sustainable business practices. Now to facilitate this work, a key theme in 2025 will be a focus on lean, practices across our footprint and throughout our corporate functions. Operational excellence has always been a cornerstone of our company.

And we're going to lean into that even further beginning this year. Some of the best performing utilities across the country have adopted lean practices and we believe that Essential will benefit from this approach in the coming years. The last issue I'll mention is probably the hottest topic in the utility industry right now. Low growth generated by data centers. This creates a challenge in See some investors see greater growth in the electric utility industry compared to the stability and more measured growth of water and natural gas. However, our company and investors are uniquely positioned to benefit from both growth and stability. Our investors have the stability and growth of the second largest investor owned water utility in The United States while also benefiting from the potential load growth from data center construction within our natural gas service territory. This is important. As of today, we are in discussions with data center developers that represent up to five gigawatts of needed power generation in the Pittsburgh region if the data centers are built. Well, all of that may not be built, and the exact financial implications for us it is exciting to see the state of Pennsylvania is engaged in these opportunities.

And we would welcome both the increased throughput and any capital improvements that would be associated with that growth because of the potential benefit to customers and to shareholders. So listen, we were really pleased to growth guidance in November with expected annual EPS growth of between 57% through 2027 off of the $1.97 non GAAP base we earned in 2024. This does not include any potential earnings associated with the pending acquisition of Delcora. Additionally, we'll spend between $1,400,000,000 and $1,500,000,000 in capital in 2025 and we'll invest nearly $8,000,000,000 in infrastructure improvements over the next five years. That will lead to eight plus percent annual rate base growth before accounting for any acquisitions.

All right, With that, let me pass it to Dan to get into the financials for 2024.

Thanks, Chris, and good morning again, everyone. This first slide, let's talk high level on full year 2024. And then we'll get into the details on the waterfalls. During the year, we had exceptional execution on two large rate cases.

Pennsylvania Gas and Pennsylvania Water. Which actually just concluded earlier this month and we reached a great outcome with the sale of our non core Pittsburgh area energy [indiscernible] which allowed us to reduce our financing needs in 2024. We continue to see the merits of our long term strategy of providing out investing in needed capital improvements managing our day to day O and M expenses and maintaining our disciplined regulatory practices to deliver long term shareholder value.

Operating revenues were up due to rates and surcharges and increased water volume. This was offset by the decline in natural gas commodity prices year over year which positively impacted our customers' bills and due to weather, which was warmer than normal for the gas business as compared to the prior year. Importantly, as a reminder, we now have the weather normalization mechanism that provides customers better certainty and alleviates the volatility associated with extreme weather. While we continue our focus on managing O and M expense, the full year O and M shows only a slight increase. Reflecting our long term focus on operating efficiently and the sale of our West Virginia and energy project assets. As Chris mentioned, on a GAAP basis, we achieved EPS of $2.17 for the year, which is up from 1.86 in 2023.

These results include the gain on sale plus the impact of warmer than normal weather in the first half of twenty twenty four for the gas business, and drier than normal weather in the Mid Atlantic and Ohio for the second half. If you adjust for these factors, you'd be squarely in the 2024 guidance range of $1.96 to $2 Next, let's walk through the full year waterfalls. On Slide 11, we have the revenue waterfall [indiscernible] Moving left to right, we have rate increases and surcharge of nearly $83,000,000 with about $51,000,000 of that coming from water and 32,000,000 gas increases in water volume of $11,600,000 and then other, which is mainly the weather normalization adjustment and the gas customer assistance program rider, offset by the loss of revenue from both the West Virginia utility assets and the energy projects of $8,400,000 plus acquisitions and organic growth in the Water business of 8,200,000.0 offset by lower gas consumption as well as the impact of the lower purchase gas costs of approximately $75,000,000 As a reminder, we experienced dry warm weather over the summer and into the fall in Pennsylvania, New Jersey and Ohio which led to increased water usage.

Let's talk about the natural gas business for a moment. Through June, each of the months of 2024 was warmer than normal this had a significant impact on our financial results. This is exactly why we asked for the weather normalization adjust Now we've already seen the benefit of weather norm both for the company in the fourth quarter and for customers in early twenty twenty five. Next, let's look at the O and M on Slide 12. Which is recoverable through a revenue surcharge, as well as employee related expenses increased water production costs so mainly purchased wastewater power and purchased water offset by lower chemicals, and expenses related to serving acquired water and wastewater systems. Those increases were offset by lower bad debt costs and lower expenses due mainly to the sale of the West Virginia utility assets and the energy project. So overall, a good story on O and M. Consistent with our long term efforts. Next, let's look at the EPS waterfall on Slide [indiscernible] Turning to the left side of the waterfall with GAAP earnings per share of $1.86 from last year, the next thing we see is the nearly $0.22 increase from regulatory recovery dollars 0.05 from other which includes the approximately $0.25 gain on sale of assets and related transaction activities plus weather normalization adjustment revenue offset by increased depreciation interest and taxes other than income, as well as lower income tax benefits.

Then we see the $0.03 gain from water volume and nearly $0.015 gained from water growth which were then offset slightly by higher expenses and lower gas volumes. That gets us to the $2.17 of GAAP EPS for 2024. We thought it was important to clarify that the $2.17 includes $0.25 of gain on sale of assets [indiscernible] which includes the energy project, and a true up for post acquisition activities on the previously closed West Virginia gas utility assets And then if we normalize the weather impact of $5 of EPS for the year, we get to $1.97 of adjusted earnings per share. Which is a non GAAP measure, And that $1.97 is our weather normalized results without the asset sale impact. That $1.97 is nicely in the original $1.96 to $2 guidance range of [indiscernible] and above the current full year 2024 consensus of $1.95 dollars Notably, the $0.05 weather impact incorporates both the positive impact of the dry summer and fall on our water segment sales and the larger unfavorable weather impact you may recall from the first half on our Gas segment. As you may be aware, we're currently experiencing drought conditions in the Mid Atlantic that we've not seen in about twenty years.

Given our water supplies and the resiliency of our systems, this is not having much of an effect on us now, but we'll keep you posted as the year progresses. Next, let's move to the slide on rate activity. This slide highlights our regulatory activity during the the past year and into 2025. We continue to manage our regulatory activity to maintain safe and reliable service, earn a fair return on capital that we invest, and minimize regulatory lag, while always considering affordability for our customers. As you can see on the slide, 2024 was significant year for regulatory activity. We completed rate cases or surcharges in many of the water states to raise annualized revenue by nearly $54,000,000 This included the late twenty twenty four settlement in Illinois, And as we previously discussed, in September, we completed the first rate case since the merger at Peoples Gas which included a $93,000,000 revenue increase and the weather norm adjustment we mentioned. In total, we had annualized rate or surcharge increases of about $148,000,000 in '20 which I believe is the most significant year on record. Earlier this month, the PAPUC voted five zero to approve the settlement previously announced for the Aqua Pennsylvania rate case.

Increasing revenues by $73,000,000 on an annualized basis. In total, so far in 2025, we've received rate cases or surcharges to increase annualized revenues by $86,500,000 Additionally, we have pending rate cases or surcharges totaling approximately six with the majority of that being an ongoing rate case in our Kentucky gas And later in 2025, we expect to file rate cases in [indiscernible] North Carolina, Ohio and Virginia And as a reminder, we expect to file a Peoples rate case early next year. And with that, I'll turn it back to Chris. Thanks, Dan. Let's touch briefly on our acquisition program. I want to point out the recently closed Greenville Wastewater acquisition in Pennsylvania. This is the first municipal acquisition we closed since the PAPUC C Motion was published. Pretty important milestone for us. As of this call, we have six signed asset purchase agreements in three states in which we already have existing operations. These acquisitions will add over 210,000 customer equivalents and total approximately $344,000,000 in purchase [indiscernible] I should note that nearly 70,000,000 of that rate base are deals other than Del Cora.

Now we continue to see a strong and healthy pipeline of opportunities for additional growth. We currently have activities and engaged the discussions with municipalities that have over 400,000 Essential water and wastewater customers. At our board meeting just this past week, we spoke about several potential transactions where we have submitted bids and we we don't know that we'll get all those deals, we are seeing in levels of activity. Lastly, and in closing, we were pleased to share our new multiyear financial guidance and growth guidance back in November this guidance provides a clear line of sight to the opportunities in front of the company.

In 2025, we expect earnings per share to be between $2.07 and $2.11 Importantly, now that we have a weather normalization mechanism in place, the volatility of earnings associated with unusual weather should be dramatically reduced. And for the three year period, through 2027, we're guiding to a compounded annual growth of EPS at a rate of 5% to 7% and this does not include Delcora and is based off of the $1.97 non GAAP 2024 EPS that Dan referenced. As we look to the next five years through 2029, we plan to make regulated infrastructure investments of about 7,800,000,000.0 and notably does not include unsigned acquisitions or associated follow on capital from those acquisitions. We expect our 2025 capital expenditures on infrastructure to be approximately $1,400,000,000 to $1,500,000,000 and through 2029, we anticipate that the regulated water segment rate base will grow at a compounded annual growth rate of approximately 6%. This projection only includes the acquisitions listed on the previous [indiscernible] which are scheduled to close in 2025 and in 2026 and again excludes Delcora This projection does include the crucial work that we are doing to remediate PFAS across the systems we currently own and operate. Now for our regulated natural gas segment, we expect the rate base growth at compound annual growth rate of approximately 11% through 2029.

We plan to continue replacing aging natural gas pipes well past the next decade. On a combined basis, water and gas, we project rate based growth at a compounded annual growth rate of over 8% through 2029. This growth will be driven by our ongoing investments in infrastructure, and our commitment to operational excellence. I'd expect that when we look back on these five years, we will have done even more given the acquisition pipeline that is not factored into our rate based growth projections. We believe that the rate base and earnings growth we've described could be accomplished while we keep customer rates at affordable levels. We anticipate that our water customer base will grow at an average annual growth rate of between 23% over the long term largely because of the continued consolidation opportunity in water and wastewater. And the strong organic customer growth especially in Texas, and North Carolina.

To support our growth, and meet our credit metrics, we plan to raise equity via our multi year ATM program through 2027. Specifically, in 2025, we expect to issue approximately $315,000,000 in equity through the ATM and that's after raising about $36,000,000 previously that we guided to in 2024. We believe that $315,000,000 will satisfy our capital needs fund our growth initiatives and maintain a strong balance sheet for our credit profile.

Now, that concludes our formal remarks for the day. And we look forward to answering any of your questions. Operator, you'll please open the line for any questions.

Your first question comes from Julien Dumoulin Smith. From Jefferies. Your line is now open. [indiscernible] Good morning, team. This is Park on for Julian. First off, congrats on closing your first fair market value acquisition in Pennsylvania. With M and A long term equity plan? Is it still closely tied to wrapping up Del Cora or there are some new factors now driving it?

Yes, it's a good question, Paul. I mean, as what we indicated on this call is very consistent with what we said on the last call, which the last call we had said $350,000,000 between 2024 and 2020 we raised about $36,000,000 in 2024. So that leaves us with that $315,000,000 that Chris mentioned. So at this point, we No, Cora is not expected to close this year. And as we've told you, taken it out of our five year plan. We certainly are committed to it and we believe it will close. But When we think about the program that we have, we have said that the [indiscernible] would likely last us something like three years.

If we have an accelerated acquisition program, and Del Cora comes into that, then we could exhaust that $1,000,000,000 program inside of that three years that we mentioned.

It wasn't set in stone when we said it initially. So there's some flexibility there depending on how the acquisition program develops. And as you know, if that acquisition program accelerates, that will be a good problem to have. Got it. Appreciate the color. I will jump back to the queue. Thanks, Mark. Take care. Thanks. Your next question comes from Ryan Connors from Northcoast Research. Your line is now open.

Hey, good morning, gentlemen and good morning. Yes, thanks and welcome back to the water space there at Good to see that. I wanted to ask on update, Chris, you kind of gave a little bit of color on the OCA.

Consumer advocate situation in Pennsylvania. I wonder if you can expand on that just in terms of the what kind of timeline are we looking at to a permanent nomination? I know we've got it sort of an acting or an interim person there. Do they have the same powers legally that the permanent person does or are there other things that they can and cannot do in terms of on East Whiteland, for example, I know that's a kind of a pending matter out there. So just kind of looking for some color on when we get a permanent nomination your view and what happens in the meantime We're in kind of limbo here.

Yes, good question, Ryan, and really important question for the utility space in Pennsylvania. John McCloskey, who was a terrific consumer advocate was never confirmed by the Senate. She sat in that seat for many, many years. Not being confirmed. So yes, the the power of the consumer advocate even on an acting basis is still very strong and I think largely the same power as the as a fully approved So listen, the acting consumer advocate, Daryl, terrific guy, there twenty five years. We've worked with him for many, many years. So [indiscernible] The timeline is sort of undetermined. Think the Attorney General has a lot of things to set up in this space of Attorney General. And then to look at this sort of niche regulatory aspect of his role. I think got to take his time and that's what he's indicated. And make up his mind. I know he's doing interviews over the next couple of weeks and we'll see what he comes up with in terms of his ultimate pick for a consumer advocate, but obviously we're watching very, very closely. Yes. And then as a follow on to that, I mean, you talked about this sort of potential reacceleration of fair market value transactions in Pennsylvania now that the C motion is complete and the consumer advocate change at least to the interim has been made.

I mean is that something where if you're a buyer or even a seller are people [indiscernible] person is or do you think that could kind of open up right away? Well, listen, I hate to read signal. So I think probably if you're you're a seller, you may say, okay, let's see what what the first one through is. Now Greenville is through already and so that was [indiscernible] I felt like that was handled well. So listen, I think these transactions have greater certainty since the C motion was passed I think they have even not stopped uncertainty with the change at the OCA. Listen, there's plenty of opportunity to between utilities and the various advocates to argue over issues, But I think what we need to guard against is an overly litigious atmosphere. And I think that's what we had. I think we're moving away from that fortunately into something where compromise is more part of the solution. And I think that's that's where the consumers are best served.

Yes. And then one more if I could just sneak in. The data center comments you made, very exciting there and I wonder if you could just explain kind of the fundamental nature of those deals. We've done a little bit of reading on that and my understanding was it was more I guess, with these so called behind the meter deals, which are with more more upstream from an LDC. So can you just kind of give us some general characterization of what those look like for a company like Peoples?

Yes. And Ryan, I think you probably went think about this, like we would net that's could take many shapes and forms. And so it's hard to know. But listen, I think if we just got the throughput, increased use of natural gas, to help to our customers, right, it keeps rates down. So that's great. If there was an opportunity for us to do something where we would build some extension of lines, a a capital project that could facilitate obvious step builds rate base And then finally, if we were to look at opportunities like we did at the airport, and some hospitals out there to build some kind of on-site generation, that would be in the nonregulator, unregulated space. So it could be a lot of different forms and I think What we look at here and I think about [indiscernible] developers, if you will, are talking to multiple cities at the same time. So it's hard to know know if there's a lot of double counting going out there. Right. We think, just given the volume of the interest, in Pennsylvania, Western Pennsylvania Essential we are, that it's a really interesting opportunity potentially for us. And sort of undefined at this point. [indiscernible] Your next question comes from Deepresh Chopra from Evercore ISI.

Your line is now open. Open. Hey, good morning, Chris and Dan. Congrats to Brian and then also congrats on getting Ed on board to the team. Double congratulations.

Okay. Thank you. Absolutely.

Just one question from me. On this PFAS stuff, actually two part questions. First, are you seeing any with all the noise coming from DC, Any change in your strategy Any any kind of change in your capital plans on this investment? I believe you said you $450,000,000 is is in the plan Just wondering if any of that is at risk so that's part one of the question. Part two, Chris, I think you mentioned some the bad technology that might be earnings accretive Let me just a little bit more color on that. How what are you thinking there? Drop this out, Chris.

Let me hit P Phosphorus. Because I just came back from Washington, spoke on a panel as it Colleen Arnold. Our segment President for Water, on this issue of PFAS. And I think what regulators this was largely PUC commissioners from all over the country And what they really wanted to know is how we were seeing, what we were hearing from the federal government on PFAS. And so listen, the way we think about it today is, it's a health MCL, right? And so at four parts per trillion, we don't see a rollback. We're not hearing about a rollback in that MCL. Might there be some easing of the time to comply? Maybe we haven't actually even seen that yet. So I think I've mentioned on the call before, but just let me remind you that we met with the Chief Environmental Regulator and the chief economic regulator of the PUC in each state where we're putting these units in And what they've told us is [indiscernible] And so number one, we don't anticipate any slowdown in our installation. Number two, we don't expect any challenges in the recovery of or on those investments.

But I'll remind you, we continue to focus on the lawsuits. We still think we're going to get about a little over $100,000,000 for the to offset some of our capital costs and we're very aggressive In fact, we received a number of compliments from public utility commissioners in Washington this week for our aggressive nature on getting state and federal funds to offset the cost of these of the PFAS mitigation And really proud of the patent pending solution we're putting out there. What Colleen's team continues to do is drive down the per unit cost of these So while we're still guiding to about $450,000,000 spend, the hope is [indiscernible] the proceeds from the lawsuits the proceeds from any loan funds or grants and the driving down of the overall cost that we can come in less than that.

At this point, we're comfortable with those estimations.

You want to take Yes. I guess I'd just add that This patent pending approach we have, it's really a modular approach that we can implement in small systems, These are cost effective both to install and then to meet as you think about changing the media in the future, So initially what we're doing here is we're rolling these out in a across all of our small systems. So basically accounts for all of those systems that we have in North Carolina. They're kind of in the right right size from our systems in Virginia and Pennsylvania as well. Then as Chris noted on the call, we're talking to other utilities about these. If they something they're interested in. We certainly like to have those discussions. Do think it these systems could be helpful in a lot of applications and and so that could become a revenue generator for us. Happy to have conversations about the technology that we've developed that Pelin and their team have Awesome. Okay. That's all I had. Thank you.

Yes. Thank you.

Your next question comes from Travis Miller from Morningstar. Your line is now You nearly answered my PFAS question. So I'll ask this in just clarification wise. That $450,000,000 does that include so would you deduct then in terms of your cash outlay the 100,000,000 lawsuits and any grants or is it $4.50 plus $100,000,000 of lawsuits and other grants in terms of total cost.

Does that make sense?

Yes, no, that does make sense. We've thought of the $450,000,000 as being net of the proceeds that we received from the lawsuits and low income loans and grants that we're getting and really interesting grants because if it's a loan, we obviously still get the rate base, it's just that a portion is supported by lower cost debt. So think of that as net net investment that we'll make Of course, Yes, we're doing everything we can to help moderate the impact for our customers. So if we can get more in terms of lower cost financing or grants, we'll do that in order to help our customer Obviously, I would think about this too, as we continue to test our systems, we find new wells that need to be treated. And so it's a little bit of a moving target over period of years. We were trying to drive costs down and get loans and grants. At the same time, the number of systems tends to trend up And so, that's why we're pretty confident in guiding to that four fifty.

Okay. So that's a true kind of rate base, incremental rate base type of That's how we'll think about it. We'll continue to guide each year as we adjust. Yes, that's our best projection of that at this time, Travis.

Okay. Yes, that makes sense. And then I think in the past, you've talked about some maybe some more creative ways rather than just traditional base rate cases to get that number into rates, get the return on, return off. Any updates there in terms of riders or something else? That might be more creative than just [indiscernible] general rate case for that treatment, PFAS specific?

We have looked having conversations with our regulators around deferred accounting related to these these types of systems. I could give you an example, like in North Carolina, where we have a three year forward looking rate case, In this first one, we've had discussions around deferred accounting. We filed this next rate case this spring for the next three years, we'll have PFAS investments in each of those three years. So really trying to cover as much of this in rates on a on an ongoing basis as we can. Okay, great. Makes sense. And then one other, since you brought up the data center, Tavi appreciate the other details you gave there. Just Another clarification or follow on, from that. So would you potentially anticipate Doing an on-site pipe I hate to say co located, but Great word of the year, but something along those lines like a water and gas type facility that would ultimately serve power. Is that the way I'm interpreting your earlier comments. I would We've got a little history of building CHPs. [indiscernible] [indiscernible] with entities that do that work. So I would say the the possibilities are open.

And we just at this point, we need to see what those developers are specifically looking for. And then as you know from covering across the country, looking for lowest rates. So I think the solution would be how can we get them the lowest cost power.

It's certainly a region like that we serve in less Pennsylvania. We've got access to gas from the Marcellus and the Utica. That natural gas does tend to be priced lower than what you see on NYMEX. I call it a dollar or a decatherm on an ongoing basis. It would just be like going to the electric utility. They want to come to one place for the solution. That's how we would think about it as we did with CHPs. We would come up with a solution that works for them.

Okay, sure.

That makes sense. That's all I had. Appreciate it.

You got it.

Thanks, Travis.

Take care.

We have reached end of our Q and A session. I'd now like to hand back over to Chris Franklin for final remarks.

Thanks for joining us, Dave, folks. We, as always, available for questions afterwards. Please feel free to reach out to Brian, Ed and the rest of the team.

Thanks so much.

Thank you for attending today's call. You may now disconnect.