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$WTRG
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10-Q
Nov 5, 1:56 PM ET
Essential Utilities, Inc. 10-Q
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Contents
52
The Company’s effective tax rate was an expense of 4.5% and a benefit of 2.5% for the three and nine months ended September 30, 2025, respectively. The Company’s effective tax rate was an expense of 18.6% and 1.7% for the three and nine months ended September 30, 2024, respectively. The decrease in income tax expense in the third quarter of 2025 is primarily attributed to the net increase in tax benefit associated with the tax deduction for continued qualifying infrastructure investment, offset by decreases in both the state tax benefit and amortization of tax repairs surcredit in the Regulated Natural Gas segment based on a rate order received in September 2024. The increase in the income tax benefit for the first nine months of 2025 is primarily attributed to the release of $22,575 of income tax reserve regulatory liability in the Regulated Water segment based on the rate order received by Aqua Pennsylvania in February 2025, offset by the decreases in both the state tax benefit and amortization of tax repairs surcredit in the Regulated Natural Gas segment based on a rate order received in September 2024.
In determining its interim tax provision, the Company reflects its estimated impact from its permanent and flow-through tax differences. The Company uses the flow-through method to account for the repairs tax deduction for qualifying utility infrastructure at its regulated Pennsylvania and New Jersey subsidiaries.
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-looking Statements
General Information
Liquidity and Capital Resources
Results of Operations
Consolidated Results of Operations
Consolidated financial and operational highlights for the periods ended September 30, 2025 and 2024 are presented below.
Three months ended September 30, 2025 compared with three months ended September 30, 2024
Consolidated operating revenues increased by $41,716 or 9.6% as compared to the same period in 2024. Revenues from our Regulated Water, Regulated Natural Gas, and Other segments increased by $29,578, $11,719, and $419, respectively. A detailed discussion of the factors contributing to the changes in segment revenue is included below under the section, Segment Results of Operations.
Consolidated operations and maintenance expense increased by $8,720 or 6.0%, primarily due to:
Purchased gas increased by $3,411 or 17.9%. Purchased gas represents the cost of gas sold by the Company, which for the regulated natural gas business has a corresponding offset in revenue. The increase is the result of an increase in the average cost of gas of $4,496 and lower gas usage of $1,085 during the third quarter of 2025.
Allowance for funds used during construction (“AFUDC”) increased by $587 or 10.5% primarily due to the increase in the average balance of utility plant construction work in progress, to which AFUDC is applied.
Our effective income tax rate was an expense of 4.5% and 18.6% in the third quarter of 2025 and 2024, respectively. The decrease in income tax expense in the third quarter of 2025 is primarily attributed to the net increase in tax benefit associated with the tax deduction for continued qualifying infrastructure investment, offset by decreases in both the state tax benefit and amortization of tax repairs surcredit in the Regulated Natural Gas segment based on a rate order received in September 2024.
Nine months ended September 30, 2025 compared with nine months ended September 30, 2024
Consolidated operating revenues increased by $293,774 or 19.8% as compared to the same period in 2024. Revenues from our Regulated Water, Regulated Natural Gas, and Other segments increased by $80,335, $207,318, and $6,121, respectively. A detailed discussion of the factors contributing to the changes in segment revenue is included below under the section, Segment Results of Operations.
Consolidated operations and maintenance expense increased by $15,642 or 3.7%, primarily due to:
Purchased gas increased by $81,384 or 44.6%. Purchased gas represents the cost of gas sold by the Company, which for the regulated natural gas business has a corresponding offset in revenue. The increase is the result of an increase in the average cost of gas of $50,375 and higher gas usage of $31,395 during the first nine months of 2025, offset by a decrease of $386 from the sale of our interest in three non-utility local microgrid and distributed energy projects in January 2024.
Taxes other than income taxes decreased by $3,068 or 4.3% during the nine months ended September 30, 2025 as compared to the prior period largely due to a favorable adjustment on sales and use tax accruals of our Regulated Natural Gas segment as a result of the closure of a sales and use tax audit during the second quarter of 2025.
Interest expense, net of interest income, increased by $22,029 or 10.0%. Interest expense, net of interest income, increased by $7,494 in our Regulated Water segment and by $9,824 in our Regulated Natural Gas segment. Interest expense, net of interest income, in Other relates to our corporate operations, and this increased by $4,711 primarily due to increased borrowings from the Company’s revolving credit facility and commercial paper issuances during the first nine months of 2025 as compared to the prior period.
Allowance for funds used during construction (“AFUDC”) increased by $3,536 or 22.8% primarily due to the increase in the average balance of utility plant construction work in progress, to which AFUDC is applied, in our Regulated Water segment.
Segment Results of Operations
Regulated Water Segment
Our Regulated Water segment is comprised of eight operating segments representing its water and wastewater regulated utility companies which are organized by the states where the Company provides water and wastewater services. The Regulated Water segment is aggregated into one reportable segment.
Three months ended September 30, 2025 compared with three months ended September 30, 2024
Revenues from our Regulated Water segment increased by $29,578 or 8.8% for the third quarter of 2025 as compared to the same period in 2024, mainly due to the following:
an increase in water and wastewater rates of $27,926;
Operations and maintenance expense increased by $9,312 or 9.7% primarily due to the following:
Depreciation and amortization increased by $7,318 or 12.6% primarily due to continued capital investment to expand and improve our utility facilities, the implementation of new depreciation rates in connection with recently completed rate cases, and our acquisitions of new utility systems.
Interest expense, net of interest income, increased by $3,139 or 8.9% for the quarter primarily due to higher push down debt borrowings and operating company debt issuances for the Regulated Water segment.
Nine months ended September 30, 2025 compared with nine months ended September 30, 2024
Revenues from our Regulated Water segment increased by $80,335 or 8.8% for the first nine months of 2025 as compared to the same period in 2024, mainly due to the following:
an increase in water and wastewater rates of $80,835;
Operations and maintenance expense increased by $12,621 or 4.5% primarily due to the following:
Depreciation and amortization increased by $17,859 or 10.3% primarily due to continued capital investment to expand and improve our utility facilities, a change in depreciation rates, and our acquisitions of new utility systems.
Interest expense, net of interest income, increased by $7,494 or 7.2% primarily due to higher push down debt borrowings and operating company debt issuances for the Regulated Water segment.
Allowance for funds used during construction (“AFUDC”) increased by $2,904 or 24.2% primarily due to the increase in the average balance of utility plant construction work in progress, to which AFUDC is applied.
Our effective income tax rate for our Regulated Water Segment was an expense of 9.0% and 17.1% in the first nine months of 2025 and 2024, respectively. The decrease in the effective tax rate is largely attributed to the release of $22,575 of income tax reserve regulatory liability based on the rate order received by Aqua Pennsylvania in February 2025.
Regulated Natural Gas Segment
Three months ended September 30, 2025 compared with three months ended September 30, 2024
Operating revenues from the Regulated Natural Gas segment increased by $11,719 or by 12.1% due to:
Operations and maintenance expense for the three months ended September 30, 2025 decreased by $1,549 or 3.2% primarily due to the following:
Our Regulated Natural Gas segment is affected by the cost of natural gas, which is passed through to customers using a purchased gas adjustment clause and includes commodity price, transportation and storage costs. These costs are reflected in the condensed consolidated statement of operations and comprehensive income as purchased gas expenses. Fluctuations in the cost of purchased gas impact operating revenues on a dollar-for-dollar basis. Purchased gas increased by $2,362 or 13.4% largely due to an increase in the average cost of gas of $3,989, offset by lower gas usage of $1,627 resulting from a slight shift in customer usage pattern during the third quarter of 2025.
Depreciation and amortization increased by $7,093 or 20.7% primarily due to continued capital investment, and the implementation of new depreciation rates following a recently completed rate case.
Our effective income tax rate for our Regulated Natural Gas segment was a benefit of 18.3% and an expense of 0.7% in the third quarter of 2025 and 2024, respectively. The increase in the income tax benefit is primarily attributed to the net increase in the tax benefit associated with the deduction for continued qualifying infrastructure investment, offset by decreases in both the state tax benefit and the amortization of the tax repairs surcredit based on a rate order received in September 2024.
Nine months ended September 30, 2025 compared with nine months ended September 30, 2024
Operating revenues from the Regulated Natural Gas segment increased by $207,318 or by 37.7% due to:
Operations and maintenance expense for the nine months ended September 30, 2025 increased by $8,286 or 5.7% primarily due to the following:
Depreciation and amortization increased by $18,688 or 18.8% primarily due to continued capital investment, and the implementation of new depreciation rates following a recently completed rate case.
Taxes other than income taxes decreased by $3,936 or 22.0% largely due to a favorable adjustment on sales and use tax accruals as a result of the closure of a sales and use tax audit during the second quarter of 2025.
Our effective income tax rate for our Regulated Natural Gas segment was a benefit of 23.4% and 27.9% in the first nine months of 2025 and 2024, respectively. The decrease in the income tax benefit is primarily attributed to decreases in both the state tax benefit and the amortization of the tax repair surcredit based on a rate order received in September 2024.