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$WTRG
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10-Q
Aug 4, 10:46 AM ET
Essential Utilities, Inc. 10-Q
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Contents
57
The Company’s effective tax rate was an expense of 4.1% and a benefit of 4.3% for the three and six months ended June 30, 2025, respectively. The Company’s effective tax rate was an expense of 2.4% and a benefit of 2.6% for the three and six months ended June 30, 2024, respectively. The increase in income tax expense in the second quarter of 2025 is primarily attributed to the increase in earnings and 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 half 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 June 30, 2025 and 2024 are presented below.
Three months ended June 30, 2025 compared with three months ended June 30, 2024
Consolidated operating revenues increased by $80,501 or 18.5% as compared to the same period in 2024. Revenues from our Regulated Water, Regulated Natural Gas, and Other segments increased by $29,803, $49,133, and $1,565, 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 $5,998 or 4.2%, primarily due to:
Purchased gas increased by $23,007 or 68.2%. 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 $18,854 and higher gas usage of $4,153 during the second quarter of 2025.
Taxes other than income taxes decreased by $1,361 or 6.1% during the three months ended June 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.
Allowance for funds used during construction (“AFUDC”) increased by $1,798 or by 34.4% 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.
Our effective income tax rate was an expense of 4.1% and 2.4% in the second quarter of 2025 and 2024, respectively. The increase in the income tax expense in the second quarter of 2025 is primarily attributed to the increase in earnings and decreases in both in 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.
Six months ended June 30, 2025 compared with six months ended June 30, 2024
Consolidated operating revenues increased by $252,058 or 24.1% as compared to the same period in 2024. Revenues from our Regulated Water, Regulated Natural Gas, and Other segments increased by $50,758, $195,599, and $5,701, 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 $6,922 or 2.5%, primarily due to:
Purchased gas increased by $77,973 or 47.7%. 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 $45,879 and higher gas usage of $32,480 during the first half 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 3,506 or 7.4% during the six months ended June 30, 2025 as compared to the prior period largely due to a decrease in our Illinois subsidiary’s invested capital tax and lower sales and use tax and property taxes in our Regulated Natural Gas segment.
Interest expense, net of interest income, increased by $16,291 or 11.2%. Interest expense, net of interest income, increased by $4,355 in our Regulated Water segment and by $5,748 in our Regulated Natural Gas segment. Interest expense, net of interest income, in Other relates to our corporate operations, and this increased by $6,188 primarily due to increased borrowings from the Company’s revolving credit facility and commercial paper issuances during the first half of 2025 as compared to the prior period.
Allowance for funds used during construction (“AFUDC”) increased by $2,949 or by 29.8% 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 June 30, 2025 compared with three months ended June 30, 2024
Revenues from our Regulated Water segment increased by $29,803 or 9.9% for the second quarter of 2025 as compared to the same period in 2024, mainly due to the following:
an increase in water and wastewater rates of $30,573;
Operations and maintenance expense increased by $4,574 or 4.8% primarily due to the following:
Depreciation and amortization increased by $7,106 or 12.3% 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 $2,582 or 7.5% for the quarter 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 $1,660 or by 41.9% 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 15.1% and 14.2% in the second quarter of 2025 and 2024, respectively. The increase in income tax expense in the second quarter of 2025 is primarily attributed to an increase in earnings.
Six months ended June 30, 2025 compared with six months ended June 30, 2024
Revenues from our Regulated Water segment increased by $50,758 or 8.7% for the first six months of 2025 as compared to the same period in 2024, mainly due to the following:
an increase in water and wastewater rates of $52,909;
Operations and maintenance expense increased by $3,309 or 1.8% primarily due to the following:
Depreciation and amortization increased by $10,541 or 9.2% 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 $4,355 or 6.3% for the quarter 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 $2,704 or by 35.3% 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 6.0% and 18.9% in the first six 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
Our Regulated Natural Gas segment recognizes revenues by selling gas directly to customers at approved rates or by transporting gas through our pipelines at approved rates to customers that have purchased gas directly from other producers, brokers, or marketers. Natural gas sales to residential, commercial and industrial customers are seasonal, which results in higher demand for natural gas for heating purposes during the colder months. A weather normalization adjustment (“WNA”) mechanism is in place for our natural gas customers served in Kentucky, and, beginning in October 2024, for our natural gas customers in Pennsylvania. The WNA mechanism serves to minimize the effects of weather on the Company’s ability to collect revenues to cover operating expenses for its residential and small and medium commercial natural gas customers. The WNA mechanism adjust revenues earned for the variance between actual and normal weather and can have either positive (warmer than normal) or negative (colder than normal) effects on revenues.
Three months ended June 30, 2025 compared with three months ended June 30, 2024
Operating revenues from the Regulated Natural Gas segment increased by $49,133 or by 38.3% due to:
Operations and maintenance expense for the three months ended June 30, 2025 increased by $77 or 0.2% 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 $20,852 or 63.8% due to an increase in the average cost of gas of $18,988 and higher gas usage of $1,864 due to colder weather conditions during the second quarter of 2025. During the quarter ended June 30, 2025, we experienced 514 actual heating degree days (HDDs), which was colder by 53% than prior year’s 336 HDDs for Pittsburgh, Pennsylvania, which we use as a proxy for our western Pennsylvania service territory. HDDs are used in the natural gas industry to measure the relative coldness of weather and to estimate the demand for natural gas.
Depreciation and amortization increased by $5,667 or 17.4% 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 $2,612 or 51.2% 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 to 2025.
Our income tax benefit for our Regulated Natural Gas segment decreased by $1,226 in the second quarter of 2025 compared to second quarter of 2024. 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.
Six months ended June 30, 2025 compared with six months ended June 30, 2024
Operating revenues from the Regulated Natural Gas segment increased by $195,599 or by 43.2% due to:
Operations and maintenance expense for the six months ended June 30, 2025 increased by $9,835 or 10.3% primarily due to the following:
Depreciation and amortization increased by $11,595 or 17.8% 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 $4,078 or 33.1% 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 16.3% and 23.0% in the first half 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.