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$WTRG
·
10-Q
Essential Utilities, Inc. · May 7, 3:41 PM ET
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Essential Utilities, Inc. 10-Q
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The Company’s effective tax rate was an expense of 2.8% and a benefit of 7.8% for the three months ended March 31, 2026 and 2025, respectively. The change in the effective tax rate for the three months ended March 31, 2026 over the first three months of 2025 is primarily attributed to last year’s 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 not recurring in the current year.
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
Three months ended March 31, 2026 compared with three months ended March 31, 2025
Consolidated operating revenues increased by $78,133 or 10.0% as compared to the same period in 2025. Revenues from our Regulated Water and Regulated Natural Gas segments increased by $22,127 and $58,615, respectively, while our Other segment decreased by $2,609. 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 $37,971 or 27.6%, primarily due to:
Purchased gas increased by $53,974 or 29.2%. 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 $67,160 and lower gas usage of $13,186 during the first quarter of 2026.
Our effective income tax rate was an expense of 2.8% in the first quarter of 2026, compared to a benefit of 7.8% in the first quarter of 2025. The increase in the income tax expense is primarily attributed to last year’s 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 not recurring in the current year.
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 March 31, 2026 compared with three months ended March 31, 2025
Revenues from our Regulated Water segment increased by $22,127 or 7.4% for the first quarter of 2026 as compared to the same period in 2025, mainly due to the following:
an increase in water and wastewater rates of $16,550;
Operations and maintenance expense increased by $13,704 or 15.3% primarily due to the following:
Interest expense, net of interest income, increased by $3,318 or 9.1% for the quarter primarily due to higher push down debt borrowings and operating company debt issuances for the Regulated Water segment.
Regulated Natural Gas Segment
Three months ended March 31, 2026 compared with three months ended March 31, 2025
Operating revenues from the Regulated Natural Gas segment increased by $58,615 or by 12.5% due to:
Operations and maintenance expense for the three months ended March 31, 2026 increased by $558 or 1.0% 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 $56,343 or 31.8% largely due to an increase in the average cost of gas of $63,293, offset by lower gas usage of $6,950 resulting from a slight shift in customer usage pattern during the first quarter of 2026.
Depreciation and amortization increased by $2,241 or 5.8% 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 15.3% and 12.0% in the first quarter of 2026 and 2025, respectively. The increase in the income tax benefit is primarily attributed to the increase in tax benefits associated with the repairs tax deduction related to continued qualifying infrastructure investment.
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