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What changed in Essential Utilities, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Essential Utilities, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+414 added−366 removedSource: 10-K (2024-02-29) vs 10-K (2023-03-01)

Top changes in Essential Utilities, Inc.'s 2023 10-K

414 paragraphs added · 366 removed · 289 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

114 edited+40 added−28 removed97 unchanged
Biggest changeInformation concerning revenues, net income, identifiable assets and related financial information for the Regulated Water and Regulated Natural Gas segments and Other and eliminations for 2022, 2021, and 2020, is set forth in Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Note 18 – Segment Information in the Notes to Consolidated Financial Statements which is contained in Item 8 of this Annual Report.
Biggest changeInformation concerning revenues, net income, identifiable assets and related financial information for the Regulated Water and Regulated Natural Gas segments and Other and eliminations for 2023, 2022, and 2021, is set forth in Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Note 18 – Segment Information in the Notes to Consolidated Financial Statements which is contained in Item 8 of this Annual Report. 2 Table of Contents The following table summarizes our operating revenues, by utility customer class, for the Regulated Water and Regulated Natural Gas segments and Other and eliminations for the year ended December 31, 2023: Operating Revenues (000's) Operating Revenues (%) Residential water $ 641,351 31.2% Commercial water 180,731 8.8% Fire protection 41,257 2.0% Industrial water 33,949 1.7% Other water 51,527 2.5% Total water 948,815 46.2% Wastewater 187,394 9.0% Other utility 17,167 0.8% Regulated Water segment total 1,153,376 56.0% Residential gas 519,406 25.3% Commercial gas 111,272 5.5% Industrial gas 3,232 0.2% Gas transportation 184,598 9.0% Other utility 45,251 2.2% Regulated Natural Gas segment total 863,759 42.2% Other and eliminations 36,689 1.8% Consolidated $ 2,053,824 100.0% Customers Our water utility customer base is diversified among residential water, commercial water, fire protection, industrial water, other water, wastewater customers, and other utility customers (consisting of contracted services that are associated with the utility operations).
These agreements are intended to provide the regulators with assurance that problems covered by these agreements will be addressed, and the agreements generally provide protection from fines, penalties, and other actions while corrective measures are being implemented. We are working with state environmental officials in Pennsylvania, Texas, Virginia, and Illinois to implement or amend regulatory agreements as necessary.
These agreements are intended to provide the regulators with assurance that problems covered by these agreements will be addressed, and the agreements generally provide protection from fines, penalties, and other actions while corrective measures are being implemented. We are working with state environmental officials in Pennsylvania, Texas, and Illinois to implement or amend regulatory agreements as necessary.
The nation’s water systems range in size from large government-owned systems, such as the New York City water system, which serves approximately 8.8 million people, to small systems, where a few customers share a common well.
The nation’s water systems range in size from large government-owned systems, such as the New York City water system, which serves approximately 8.5 million people, to small systems, where a few customers share a common well.
(81% of which serve less than 3,300 customers), the water industry is the most fragmented of the major utility industries (telephone, natural gas, electric, water and wastewater). The majority of these community water systems are government-owned.
(approximately 81% of which serve less than 3,300 customers), the water industry is the most fragmented of the major utility industries (telephone, natural gas, electric, water and wastewater). The majority of these community water systems are government-owned.
For Peoples Natural Gas, the Company calculated the income tax benefits for qualifying capital expenditures made prior to March 16, 2020 (catch-up adjustment) and has recorded a regulatory liability for $160,655,000 for these income tax benefits.
For Peoples Natural Gas, the Company calculated the income tax benefits for qualifying capital expenditures made prior to March 16, 2020 (catch-up adjustment) and recorded a regulatory liability for $160,655,000 for these income tax benefits.
Furthermore, some utility commissions authorize the use of expense deferrals and amortization in order to provide for an impact on our operating income by an amount that approximates the requested amount in a rate request.
Furthermore, some utility commissions authorize the use of expense deferrals and amortization to provide for an impact on our operating income by an amount that approximates the requested amount in a rate request.
Security We maintain security measures at our facilities, and collaborate with federal, state and local authorities and industry trade associations regarding information on possible threats and security measures for water, wastewater, and natural gas utility operations.
Physical Security We maintain security measures at our facilities, and collaborate with federal, state and local authorities and industry trade associations regarding information on possible threats and physical security measures for water, wastewater, and natural gas utility operations.
The honors include the “Director’s Award” (achieved at seven systems) which recognizes plants that have: 1) completed a comprehensive self-assessment report, 2) created an action plan for continuous improvement, and 3) provided several evaluations of performance demonstrating operational excellence. Several of our systems have met these criteria annually and have received 5, 10, 15, and 20 year subscriber awards.
The honors include the “Director’s Award” (achieved at eight systems) which recognizes plants that have: 1) completed a comprehensive self-assessment report, 2) created an action plan for continuous improvement, and 3) provided several evaluations of performance demonstrating operational excellence. Several of our systems have met these criteria annually and have received 5-, 10-, 15-, and 20-year subscriber awards.
Lancaster Avenue Bryn Mawr, PA 19010-3489 Telephone: 610-527-8000 The references to our web site and the SEC’s web site are intended to be inactive textual references only, and the contents of those web sites are not incorporated by reference herein and should not be considered part of this or any other report that we file with or furnish to the SEC. ‎ 19 Table of Contents
Lancaster Avenue Bryn Mawr, PA 19010-3489 Telephone: 610-527-8000 The references to our web site and the SEC’s web site are intended to be inactive textual references only, and the contents of those web sites are not incorporated by reference herein and should not be considered part of this or any other report that we file with or furnish to the SEC. ‎ 18 Table of Contents
All of our active surface water treatment plants (within Pennsylvania, Ohio, Illinois, and Virginia) maintain good standing in the program which includes many awards of achievement.
All of our active surface water treatment plants (within Pennsylvania, Ohio, and Illinois) maintain good standing in the program which includes many awards of achievement.
Inflation Reduction Act - On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was enacted into law, which among other things, includes a provision to implement an annual waste emissions charge beginning with calendar year 2024 (to be paid in 2025) on applicable oil and gas facilities that exceed certain methane emission thresholds.
Inflation Reduction Act - On August 16, 2022, the Inflation Reduction Act of 2022 (IRA) was enacted into law, which among other things, includes a provision to implement an annual waste emissions charge beginning with calendar year 2024 (to be paid in 2025) on applicable oil and gas facilities that exceed certain methane emission thresholds.
In Ohio, Virginia, North Carolina, and Kentucky, we may bill our utility customers, in certain circumstances, in accordance with a rate filing that is pending before the respective regulatory commission, which would allow for interim rates. As of December 31, 2022, we have no billings under interim rate arrangements for rate case filings in progress.
In Ohio, Virginia, North Carolina, and Kentucky, we may bill our utility customers, in certain circumstances, in accordance with a rate filing that is pending before the respective regulatory commission, which would allow for interim rates. As of December 31, 2023, we have no billings under interim rate arrangements for rate case filings in progress.
We own and operate underground natural gas storage facilities with capacity of 10.5 billion cubic feet (Bcf). Total working capacity is 5.2 Bcf for use during the heating season with a maximum daily withdrawal rate of 115.5 million cubic feet (MMcf). Additionally, we have contracted for off-system storage from interstate pipelines.
We own and operate underground natural gas storage facilities with capacity of 10.5 billion cubic feet (Bcf). Total working capacity is 5.3 Bcf for use during the heating season with a maximum daily withdrawal rate of 115.5 million cubic feet (MMcf). Additionally, we have contracted for off-system storage from interstate pipelines.
These mechanisms allows us to recognize revenue based on a target amount established in the last rate case, and then record either a regulatory asset or liability based on the cumulative difference over time, which results in either a refund due to customers or a payment from customers. In Illinois, our operating subsidiary utilizes a revenue stability mechanism.
These mechanisms allow us to recognize revenue based on a target amount established in the last rate case, and then record either a regulatory asset or liability based on the cumulative difference over time, which results in either a refund due to customers or a payment from customers. In Illinois, our operating subsidiary utilizes a revenue stability mechanism.
In the states where we operate regulated water utilities, we believe there are approximately 4,000 wastewater facilities in operation, with the majority of the population being served by government-owned wastewater systems. Because of the fragmented nature of the water and wastewater utility industries, we believe there are many potential water and wastewater system acquisition candidates throughout the U.S.
In the states where we operate regulated water utilities, we believe there are approximately 4,000 wastewater facilities in operation, with the majority of the population being served by government-owned wastewater systems. 4 Table of Contents Because of the fragmented nature of the water and wastewater utility industries, we believe there are many potential water and wastewater system acquisition candidates throughout the U.S.
We purchase natural gas from intrastate, interstate and local sources, and transport natural gas supplies through various intrastate and interstate pipelines under contracts with remaining terms, including extensions, varying from one month to 15 years. We anticipate that these gas supply and transportation contracts will be renewed or replaced prior to their expiration.
We purchase natural gas from intrastate, interstate and local sources, and transport natural gas supplies through various intrastate and interstate pipelines under contracts with remaining terms, including extensions, varying from one month to 10 years. We anticipate that these gas supply and transportation contracts will be renewed or replaced prior to their expiration.
Revenue Surcharges – Eight states in which we operate water and wastewater utilities, and two states, Pennsylvania and Kentucky, in which we operate natural gas utilities permit us to add an infrastructure rehabilitation surcharge to their respective bills to offset the additional depreciation and capital costs associated with capital expenditures related to replacing and rehabilitating infrastructure systems.
Revenue Surcharges – Eight states in which we operate water and wastewater utilities, and both states, Pennsylvania and Kentucky, in which we operate natural gas utilities, permit us to add an infrastructure rehabilitation surcharge to their respective bills to offset the additional depreciation and capital costs associated with capital expenditures related to replacing and rehabilitating infrastructure systems.
Our water supplies are primarily self-supplied and processed at twenty-three surface water treatment plants located in five states, and numerous well stations located in the states in which we conduct business. Approximately 5.9% of our water supplies are provided through water purchased from other water suppliers.
Our water supplies are primarily self-supplied and processed at twenty-four surface water treatment plants located in five states, and numerous well stations located in the states in which we conduct business. Approximately 5.9% of our water supplies are provided through water purchased from other water suppliers.
In the event we amend or waive any portion of the Code of Ethical Business Conduct that applies to any of our directors, executive officers, or senior financial officers, we will post that information on our web site. Available Information We file annual, quarterly, current reports, proxy statements, and other information with the Securities and Exchange Commission (SEC).
In the event we amend or waive any portion of the Code of Ethical Business Conduct that applies to any of our directors, executive officers, or senior financial officers, we will post that information on our web site. 17 Table of Contents Available Information We file annual, quarterly, current reports, proxy statements, and other information with the Securities and Exchange Commission (SEC).
We maintain safety policies and procedures to comply with the Occupational Safety and Health Administration’s rules and regulations, but violations may occur from time to time, which may result in fines and penalties, which are not expected to have a material impact on our business, financial condition, or results of operations.
We maintain safety policies and procedures to comply with the Occupational Safety and Health Administration’s rules and regulations, but violations may occur from time to time, which 13 Table of Contents may result in fines and penalties, which are not expected to have a material impact on our business, financial condition, or results of operations.
These changes allow a tax deduction for qualifying utility asset improvement costs that were formerly capitalized for tax purposes. Consistent with the Company’s accounting for differences between book and tax expenditures for its Aqua Pennsylvania subsidiary, the Company is utilizing the flow-through method to account for this timing difference.
These changes result in a tax deduction for qualifying utility asset improvement costs that were formerly capitalized for tax purposes. Consistent with the Company’s accounting for differences between book and tax expenditures for its Aqua Pennsylvania subsidiary, the Company is utilizing the flow-through method to account for this timing difference.
These businesses represent our non-regulated water, wastewater, and natural gas operations, which are not quantitatively significant to be reportable and therefore are included as a component of “Other”.
These businesses represent its non-regulated water, wastewater, and natural gas operations, which are not quantitatively significant to be reportable and therefore are included as a component of “Other”.
Residential water and wastewater customers make up the largest component of our water utility customer base, with these customers representing approximately 68%, 69%, and 71%, of our water and wastewater revenues for 2022, 2021, and 2020, respectively. Substantially all of our water utility customers are metered, which allows us to measure and bill for our customers’ water consumption.
Residential water and wastewater customers make up the largest component of our water utility customer base, with these customers representing approximately 69%, 68%, and 69%, of our water and wastewater revenues for 2023, 2022, and 2021, respectively. Substantially all of our water utility customers are metered, which allows us to measure and bill for our customers’ water consumption.
The Regulated Water segment is comprised of eight operating segments for our water and wastewater regulated utility companies, aligned with the states where we provide these services.
The Regulated Water segment is comprised of eight operating segments for the Company’s water and wastewater regulated utility companies, aligned with the states where we provide these services.
Failure to comply with these laws and regulations may trigger a variety of administrative, civil, and criminal enforcement measures, including the assessment of monetary penalties, the imposition of remedial actions, and the issuance of orders enjoining future operations.
Failure to comply with these laws and regulations may trigger a variety of administrative, civil, and criminal enforcement measures, including the assessment of monetary penalties, the 11 Table of Contents imposition of remedial actions, and the issuance of orders enjoining future operations.
This will be achieved by extensive gas pipeline replacement, renewable energy purchasing, accelerated methane leak detection and repair, and various other currently planned initiatives that are highly feasible with proven technology. In 2021, we have achieved 6% emissions reduction from our 2019 baseline.
This will be achieved by extensive gas pipeline replacement, renewable energy purchasing, accelerated methane leak detection and repair, and various other currently planned initiatives that are highly feasible with proven technology. In 2022, we have achieved 25% emissions reduction from our 2019 baseline.
In addition, our subsidiaries in some states use a surcharge or credit on their bills to reflect changes in costs, such as changes in state tax rates, other taxes and purchased water costs, until such time as the new cost levels are incorporated into base rates.
In addition, our 7 Table of Contents subsidiaries in some states use a surcharge or credit on their bills to reflect changes in costs, such as changes in state tax rates, other taxes and purchased water costs, until such time as the new cost levels are incorporated into base rates.
In the states in which we operate, we are primarily subject to economic regulation by the following state utility commissions: State Utility Commission Pennsylvania Pennsylvania Public Utility Commission Ohio Public Utilities Commission of Ohio North Carolina North Carolina Utilities Commission Texas Public Utility Commission of Texas Illinois Illinois Commerce Commission New Jersey New Jersey Board of Public Utilities Kentucky Public Service Commission of Kentucky Virginia Virginia State Corporation Commission Indiana Indiana Utility Regulatory Commission West Virginia Public Service Commission of West Virginia Our water and wastewater operations are comprised of 47 rate divisions, and our natural gas operations are comprised of four rate divisions.
In the states in which we operate, we are primarily subject to economic regulation by the following state utility commissions: State Utility Commission Pennsylvania Pennsylvania Public Utility Commission Ohio Public Utilities Commission of Ohio North Carolina North Carolina Utilities Commission Texas Public Utility Commission of Texas Illinois Illinois Commerce Commission New Jersey New Jersey Board of Public Utilities Kentucky Public Service Commission of Kentucky Virginia Virginia State Corporation Commission Indiana Indiana Utility Regulatory Commission Our water and wastewater operations are comprised of 57 rate divisions, and our natural gas operations are comprised of three rate divisions.
The increase in our utility customer base has been due to customers added through acquisitions, partnerships with developers, and organic growth (excluding dispositions) as shown below: Year Utility Customer Growth Rate 2022 1.7% 2021 1.2% 2020 42.9% 2019 2.1% 2018 2.3% In 2022, 2021, and 2020, our customer count increased by 31,537, 21,246, and 772,099 customers, respectively, primarily due to the water and wastewater utility systems that we acquired, organic growth, and in 2020, due to the Peoples Gas Acquisition that resulted to the addition of approximately 750,000 natural gas utility customers.
The increase in our utility customer base has been due to customers added through acquisitions, partnerships with developers, and organic growth (excluding dispositions) as shown below: Year Utility Customer Growth Rate 2023 1.0% 2022 1.7% 2021 1.2% 2020 42.9% 2019 2.1% In 2023, 2022, 2021, 2020, and 2019, our customer count increased by 5,875, 31,537, 21,246, 772,099 and 21,108 customers, respectively, primarily due to the water and wastewater utility systems that we acquired, organic growth, and in 2020, due to the Peoples Gas Acquisition that resulted to the addition of approximately 750,000 natural gas utility customers.
In May 2021, the Pennsylvania Public Utility Commission approved a settlement petition that allows Peoples Natural Gas to continue to use flow-through accounting for the current tax repair benefit and allows for the catch-up adjustment be given to its customers.
In May 2021, the Pennsylvania Public Utility Commission approved a settlement petition that allows Peoples Natural Gas to continue to use flow-through 8 Table of Contents accounting for the current tax repair benefit and allows for the catch-up adjustment to be given to its customers.
One of our largest operating subsidiaries, Aqua Pennsylvania, Inc., (Aqua Pennsylvania) accounted for approximately 56% of operating revenues and approximately 73% of income for our Regulated Water segment in 2022. As of December 31, 2022, Aqua Pennsylvania provided water or wastewater services to approximately one-half of the total number of water and wastewater customers we serve.
One of our largest operating subsidiaries, Aqua Pennsylvania, Inc., or Aqua Pennsylvania, accounted for approximately 56% of operating revenues and approximately 68% of income for our Regulated Water segment in 2023. As of December 31, 2023, Aqua Pennsylvania provided water or wastewater services to approximately one-half of the total number of water and wastewater customers we serve.
In March 2020 and June 2022, the Company changed the method of tax accounting for certain qualifying infrastructure investments at its Peoples Natural Gas and Peoples Gas subsidiaries, respectively. In the fourth quarter of 2022, the Company made a similar change for its Aqua New Jersey subsidiary, beginning with the current tax year.
In March 2020 and June 2022, the Company changed the method of tax accounting for certain qualifying infrastructure investments at its Peoples Natural Gas and Peoples Gas subsidiaries, respectively. In the fourth quarter of 2022, the Company made a similar change for its Aqua New Jersey subsidiary.
The Pennsylvania rate order requires use of the flow-through method of income tax benefits which results in a reduction in current income tax expense through the recognition of income tax benefits resulting from the accounting method change.
The rate order requires the flow-through of income tax benefits which results in a reduction to current income tax expense through the recognition of income tax benefits resulting from the accounting method change.
We 12 Table of Contents integrate environmental, health, and safety requirements into planning, decision-making, construction, operating, and maintenance activities that we perform. Provision of water and wastewater services is subject to regulation under the federal Safe Drinking Water Act, the Clean Water Act, and related state laws, and under federal and state regulations issued under these laws.
We integrate environmental, health, and safety requirements into planning, decision-making, construction, operations, and maintenance activities that we perform. Provision of water and wastewater services is subject to regulation under the federal Safe Drinking Water Act, the Clean Water Act, and related state laws, and under federal and state regulations issued under these laws.
Dam Safety - Our subsidiaries own 30 dams, of which 14 are classified as high hazard dams that are subject to the requirements of the federal and state regulations related to dam safety, which undergo regular inspections and an annual engineering inspection.
Dam Safety - Our subsidiaries own 34 dams, of which 18 are classified as high hazard dams that are subject to the requirements of the federal and state regulations related to dam safety, which undergo regular inspections and an annual engineering inspection.
The Regulated Natural Gas segment is comprised of one operating segment representing natural gas utility companies, acquired in the Peoples Gas Acquisition, for which the Company provides natural gas distribution services. In addition to the Company’s two reportable segments, the Company includes three of its operating segments in “Other”.
The Regulated Natural Gas segment is comprised of one operating segment representing natural gas utility companies, for which the Company provides natural gas distribution services. In addition to the Company’s two reportable segments, the Company includes two of its operating segments in “Other”.
In June 2021, PHMSA issued an advisory bulletin to address a self-executing mandate as part of the 2016 Act. This Leak Detection and Reduction (LDAR) bulletin requires operators to update standard operating procedures to address leaks and gas releases which may be hazardous to public safety and the environment.
In June 2021, PHMSA issued an advisory bulletin to address a self-executing mandate as part of the 2016 Act. This Leak Detection and Reduction (LDAR) bulletin requires operators to update standard operating procedures to address leaks and gas releases which may be hazardous to public safety and the environment. In November 2021, PHMSA published the final gathering line rule.
Changes in regulatory requirements can be reflected in revised permit limits and conditions when permits are renewed, typically on a five year cycle, or when treatment capacity is expanded.
Changes in regulatory requirements can be reflected in revised permit limits and conditions when permits are renewed, typically on a five year cycle, or when treatment capacity is 5 Table of Contents expanded.
In the states where we operate regulated water utilities, we believe there are approximately 14,000 public or private water utility systems of widely-varying size, with the majority of the population being served by government-owned water systems. Although not as fragmented as the water industry, the wastewater industry in the U.S. also presents opportunities for consolidation. Based on the 2021 U.S.
In the states where we operate regulated water utilities, we believe there are over 14,000 community water systems of widely-varying size, with the majority of the population being served by government-owned water systems. Although not as fragmented as the water industry, the wastewater industry in the U.S. also presents opportunities for consolidation. Based on the 2021 U.S.
Implementation of the 2011 and 2016 Acts by PHMSA may result in other regulations or the reinterpretation of existing regulations that could impact compliance costs. In addition, we may be subject to the DOT’s enforcement actions and penalties if it fails to comply with pipeline regulations.
Implementation of the 2011, 2016 and 2020 Acts by PHMSA may result in other 14 Table of Contents regulations or the reinterpretation of existing regulations that could impact compliance costs. In addition, we may be subject to the DOT’s enforcement actions and penalties if the Company fails to comply with pipeline regulations.
We believe that the capital expenditures required to address outstanding environmental compliance issues in our water and wastewater systems have been budgeted in our capital program and represent approximately $118,984,000, or less than 5% of our expected total water and wastewater capital expenditures over the next five years (2023-2027).
We believe that the capital expenditures required to address outstanding environmental compliance issues in our water and wastewater systems have been budgeted in our capital program and represent approximately $187,000,000, or less than 5% of our expected total water and wastewater capital expenditures over the next five years (2024 -2028).
Census American Housing Survey, approximately 89% of the U.S. population obtains its water from public or private water utility systems, and 11% of the U.S. population obtains its water from individual wells. With approximately 50,000 public or private water systems in the U.S.
Census American Housing Survey, approximately 89% of the U.S. population obtain their water from public or private water utility systems, and 11% of the U.S. population obtain their water from individual wells. With approximately 50,000 community water systems in the U.S.
We are actively exploring opportunities to expand our utility operations through acquisitions or other growth ventures. During the five-year period ended December 31, 2022, we expanded our utility operations by completing 28 acquisitions of water or wastewater utilities or other similar assets.
We are actively exploring opportunities to expand our water and wastewater utility operations through acquisitions or other growth ventures. During the three-year period ended December 31, 2023, we expanded our utility operations by completing 12 acquisitions of water or wastewater utilities or other similar assets.
Overall, for the five year period of 2018 through 2022, our utility customer base, adjusted to exclude customers associated with utility system dispositions, increased at an annual compound rate of 13.5%.
Overall, for the five year period of 2019 through 2023, our utility customer base, adjusted to exclude customers associated with utility system dispositions, increased at an annual compound rate of 13.2%.
The total amount of off-system storage under contract is 35.6 Bcf with a maximum daily withdrawal rate of 598.6 MMcf. 7 Table of Contents On an ongoing basis, we enter into contracts to provide sufficient supplies and pipeline capacity to meet our customers’ natural gas requirements.
The total amount of off-system storage under contract is 34.9 Bcf with a maximum daily withdrawal rate of 588.9 MMcf. On an ongoing basis, we enter into contracts to provide sufficient supplies and pipeline capacity to meet our customers’ natural gas requirements.
Supplier Diversity We acknowledge that supplier diversity is critical for our communities as well as for our business. We are committed to increasing our work with qualified and certified diverse suppliers from the communities and neighborhoods where we live, work, and operate each day and suppliers that use reasonable efforts to minimize pollution and improve environmental protection and sustainability.
We are committed to increasing our work with qualified and certified diverse suppliers from the communities and neighborhoods where we live, work, and operate each day and suppliers that use reasonable efforts to minimize pollution and improve environmental protection and sustainability.
Beginning in 2021, we added a supplier diversity component (5% weighting) to our short-term incentive plan. We also have a Supplier Code of Conduct that defines the basic requirements for suppliers of goods and services and their responsibilities to the environment and their stakeholders.
From 2021 to 2023, we added a supplier diversity component (5% weighting) to our short-term incentive plan to focus on identifying and supporting diverse vendors. We also have a Supplier Code of Conduct that defines the basic requirements for suppliers of goods and services and their responsibilities to the environment and their stakeholders.
In the states where our water subsidiaries operate, it is possible that portions of our subsidiaries’ operations could be acquired by municipal governments by one or more of the following methods: eminent domain; the right of purchase given or reserved by a municipality or political subdivision when the original franchise was granted; and, the right of purchase given or reserved under the law of the state in which the subsidiary was incorporated or from which it received its permit.
In the states where our water subsidiaries operate, it is possible that portions of our subsidiaries’ operations could be acquired by municipal governments by one or more of the following methods: eminent domain; the right of purchase given to or reserved by a municipality or political subdivision when the original franchise was granted; and, the right of purchase given or reserved under the law of the state in which the subsidiary was incorporated or from which it received its permit. 10 Table of Contents The price to be paid upon such an acquisition by the municipal government is usually determined in accordance with applicable law under eminent domain.
Aqua Pennsylvania’s service territory is located in the suburban areas in counties north and west of the City of Philadelphia and in 27 other counties in Pennsylvania. Our other regulated water or wastewater utility subsidiaries provide similar services in seven additional states.
Aqua Pennsylvania’s service territory is located in the suburban areas in counties north and west of the City of Philadelphia and in 27 other counties in Pennsylvania. Our other regulated water or wastewater utility subsidiaries provide similar services in seven additional states. Our Peoples subsidiaries provide natural gas service to approximately 744,000 customers in western Pennsylvania and Kentucky.
Competition for these acquisitions generally comes from nearby utilities, either other regulated utilities or municipal-owned utilities, and sometimes from strategic or financial purchasers seeking to enter or expand in the water and wastewater industry.
Water and wastewater utilities may compete for the acquisition of other water and wastewater utilities or for acquiring new customers in new service territories. Competition for these acquisitions generally comes from nearby utilities, either other regulated utilities or municipal-owned utilities, and sometimes from strategic or financial purchasers seeking to enter or expand in the water and wastewater industry.
From time to time, Essential Utilities has acquired, and may acquire, systems that have environmental compliance issues. Environmental compliance issues also arise in the course of normal operations or as a result of regulatory changes. Essential Utilities attempts to align capital budgeting and expenditures to address these issues in due course.
Environmental compliance issues also arise in the course of normal operations or as a result of regulatory changes. Essential Utilities attempts to align capital budgeting and expenditures to address these issues in due course.
This action extends the LCRR requirement to submit a lead service line inventory and a lead service line replacement plan to the respective states or agencies by October 16, 2024. We are continuing to enhance our lead service line inventory and refine our lead service line replacement plans which we expect to complete by the deadline.
Under the LCRR and subsequent rulings, water utilities are required to submit a lead service line inventory and a lead service line replacement plan to the respective states or agencies by October 16, 2024. We are continuing to enhance our lead service line inventory and refine our lead service line replacement plans, which we expect to complete by the deadline.
These surcharges provided revenues of $26,902,294 in 2022, 33,771,486 in 2021, and $13,038,555 in 2020. 9 Table of Contents In the majority of our natural gas service territories, the public utility commissions have authorized bare steel and cast-iron replacement programs.
These surcharges provided revenues of $20,260,881 in 2023, $26,902,294 in 2022, and $33,771,486 in 2021. In the majority of our natural gas service territories, the public utility commissions have authorized bare steel and cast-iron replacement programs.
We cannot predict what effect, if any, such changes might have on our operations, but our Regulated Natural Gas segment could be required to incur additional capital expenditures and increased costs depending on future legislative and regulatory changes. Refer to further discussion below in the Environmental, Health and Safety Regulation and Compliance section.
We cannot predict what effect, if any, such changes might have on our operations, but our Regulated Natural Gas segment could be required to incur additional capital expenditures and increased costs depending on future legislative and regulatory changes.
Economic Regulation Most of our utility operations are subject to regulation by their respective state utility commissions, which have broad administrative power and authority to regulate billing rates, determine franchise areas and conditions of service, approve acquisitions, and authorize the issuance of securities.
Refer to further discussion below in the Environmental, Health and Safety Regulation and Compliance section. 6 Table of Contents Economic Regulation Most of our utility operations are subject to regulation by their respective state utility commissions, which have broad administrative power and authority to regulate billing rates, determine franchise areas and conditions of service, approve acquisitions, and authorize the issuance of securities.
During the five year period ended December 31, 2022, our utility customer base including customers associated with utility system acquisitions and dispositions increased from 982,849 at January 1, 2018 to 1,851,586 at December 31, 2022. 5 Table of Contents Acquisitions and Other Growth Ventures We believe that acquisitions will continue to be an important source of customer growth for us.
During the five year period ended December 31, 2023, our utility customer base including customers associated with utility system acquisitions and dispositions increased from 1,005,590 at January 1, 2019 to 1,857,461 at December 31, 2023. Acquisitions and Other Growth Ventures We believe that acquisitions will continue to be an important source of customer growth for us.
The Company’s growth in revenues over the past five years is primarily a result of the 2020 Peoples Gas Acquisition, increases in water and wastewater rates, increase in the cost of natural gas in 2021 and 2022, and customer growth. See Economic Regulation for a discussion of water, wastewater, and natural gas rates.
The Company’s growth in revenues over the past five years is primarily a result of its acquisition in 2020 of Peoples Natural Gas Company LLC and its affiliated companies, or the Peoples Gas Acquisition, increases in water and wastewater rates, increase in the cost of natural gas in 2021 and 2022, and customer growth.
(formerly known as Aqua America, Inc.) (referred to as Essential Utilities, Essential, the Company, we, us, or our), a Pennsylvania corporation, is the holding company for regulated utilities providing water, wastewater, or natural gas services to an estimated five million people in Pennsylvania, Ohio, Texas, Illinois, North Carolina, New Jersey, Indiana, Virginia, West Virginia, and Kentucky under the Aqua and Peoples brands.
Business The Company Essential Utilities, Inc., referred to as “Essential Utilities”, “Essential”, the “Company”, “we”, “us”, or “our”, a Pennsylvania corporation, is the holding company for regulated utilities providing water, wastewater, or natural gas services to an estimated 5.5 million people in Pennsylvania, Ohio, Texas, Illinois, North Carolina, New Jersey, Indiana, Virginia, and Kentucky under the Aqua and Peoples brands.
The profitability of our utility operations is influenced to a great extent by the timeliness and adequacy of rate allowances we are granted by the respective utility commissions or authorities in the various states in which we operate. 8 Table of Contents Rate Case Management Capability – We maintain a rate case management capability, the objective of which is to provide that the tariffs of our utility operations reflect, to the extent practicable, the timely recovery of increases in costs of operations, capital expenditures, interest expense, taxes, energy, materials, and compliance with environmental regulations as well as a return on equity.
Rate Case Management Capability – We maintain a rate case management capability, the objective of which is to provide that the tariffs of our utility operations reflect, to the extent practicable, the timely recovery of increases in costs of operations, capital expenditures, interest expense, taxes, energy, materials, and compliance with environmental regulations as well as a return on equity.
After a thorough review and inspection of our dams by professional outside engineering firms, we believe that all 14 dams are structurally sound and well-maintained, except as described below. These inspections provide recommendations for ongoing rehabilitation which we include in our capital improvement program. The Company has approximately $25,680,000 in capital improvements budgeted between 2023 and 2027 for dam improvements.
After a thorough review and inspection of our dams by professional outside engineering firms, we 12 Table of Contents believe that all 18 dams are structurally sound and well-maintained, except as described below. These inspections provide recommendations for ongoing rehabilitation which we include in our capital improvement program.
(2) Includes our natural gas operating subsidiaries in West Virginia and Kentucky. 3 Table of Contents The Company has identified twelve operating segments and has two reportable segments, the Regulated Water segment and the Regulated Natural Gas segment.
(2) Includes our natural gas operating subsidiaries in West Virginia (up through September 2023) and Kentucky. The Company has identified eleven operating segments and has two reportable segments, the Regulated Water segment and the Regulated Natural Gas segment.
We make available free of charge through our web site’s Investor Relations page all of our filings with the SEC, including our annual report on Form 10-K, quarterly reports on Form 10-Q, 18 Table of Contents current reports on Form 8-K, and other information.
We make available free of charge through our web site’s Investor Relations page all of our filings with the SEC, including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and other information. These reports and information are available as soon as reasonably practicable after such material is electronically filed with the SEC.
Since the Lead and Copper Rule in 1992, we have been working to prevent lead leaching from home plumbing sources by reducing water corrosivity and adding chemicals that can prevent leaching of lead in pipes and homes. We have a program to evaluate all changes in water sources and/or treatment prior to initiating a change in water supply.
Lead and Copper Rule –Since the Lead and Copper Rule (LCR) was issued in 1992, we have been working to prevent lead leaching from home plumbing sources by reducing water corrosivity and adding chemicals that can prevent leaching of lead in pipes and homes.
The level of expenditures will depend upon several factors, including age, location and operating pressures of the facilities. In particular, the cost of compliance with the DOT’s integrity management rules will depend on integrity testing and the repairs found to be necessary by such testing.
In particular, the cost of compliance with the DOT’s integrity management rules will depend on integrity testing and the repairs found to be necessary by such testing.
These groups welcome participation from all employees in order to learn from a cultural perspective and support each other through allyship. Diversifying the workforce continues to be a focus at all levels of the Company. Beginning in 2021, we added an employee diversity component (5% weighting) to our short term incentive plan.
These groups welcome participation from all employees in order to learn from a cultural perspective and support each other through allyship. From 2021 to 2023, we added an employee diversity component (5% weighting) to our short-term incentive plan. Our focus on attracting and retaining diverse talent has resulted in growth in the number of our diverse employees.
For example, while the EPA has announced the intention to propose drinking water regulations for two PFAS compounds (perfluorooctanoic acid, or PFOA, and perfluorooctane sulfonic acid, or PFOS) and issued non-enforceable lifetime and Interim Health Advisory Levels for PFOA, PFOS and two other PFAS compounds, the New Jersey Department of Environmental Protection has already established enforceable drinking water standards for three PFAS compounds (PFOA, PFOS, and perfluorononanoic acid, or PFNA) and the Pennsylvania Department of Environmental Protection also recently enacted enforceable drinking water standards for PFOA and PFOS in advance of the federal EPA proposed regulations.
For example, in advance of proposed federal EPA regulations, the New Jersey Department of Environmental Protection has already established enforceable drinking water standards for three per- and polyfluoroalkyl substances, or PFAS, including perfluorooctanoic acid, or PFOA; perfluorooctane sulfonic acid, or PFOS; and perfluorononanoic acid, or PFNA, and the Pennsylvania Department of Environmental Protection also recently enacted enforceable drinking water standards for PFOA and PFOS.
We align our development model to support our vision, mission, and competencies, with a balanced approach to developing our workforce that leads us to the development of a confident, committed, and high-performance culture.
We align our development model to support our vision, mission, and competencies, with a balanced approach to developing our workforce that leads us to the development of a confident, committed, and high-performance culture. Succession Planning – Essential has organizational workforce analysis and planning programs to ensure the Company has the talent it needs for the future.
As a regulated utility, required capital expenditures and operating costs, including taxes, have been traditionally recognized by state utility commissions as appropriate for inclusion in establishing rates.
We have proposed recovery of these estimated costs in the pending Peoples Natural Gas rate filing. As a regulated utility, required capital expenditures and operating costs, including taxes, have been traditionally recognized by state utility commissions as appropriate for inclusion in establishing rates.
Competition from renewable energy sources such as solar and wind is likely to increase as the political environment currently favors these energy sources through incentives or by placing restrictions on emissions from the burning of fossil fuels. 11 Table of Contents Water and wastewater utilities may compete for the acquisition of other water and wastewater utilities or for acquiring new customers in new service territories.
Competition from renewable energy sources such as solar and wind is likely to increase as the political environment currently favors these energy sources through incentives or by placing restrictions on emissions from the burning of fossil fuels.
Diversity, Equity and Inclusion - Diversity of backgrounds, ideas, thoughts, and experiences is essential to our culture and the way we do business. Creating an environment where our differences are valued and where every person feels a sense of belonging and engagement supports a thriving organization that cares about our customers and ensures our continued long-term success.
Creating an environment where our differences are valued and where every person feels a sense of belonging and engagement supports a thriving organization that cares about our customers and ensures our continued long-term success.
From time to time, discharge violations may occur which may result in fines. These 13 Table of Contents fines and penalties, if any, are not expected to have a material impact on our business, financial condition, or results of operations.
We are continuously modernizing wastewater treatment methods, ensuring our systems protect the surrounding environment and adhere to current standards. From time to time, discharge violations may occur which may result in fines. These fines and penalties, if any, are not expected to have a material impact on our business, financial condition, or results of operations.
The price to be paid upon such an acquisition by the municipal government is usually determined in accordance with applicable law under eminent domain. In other instances, the price may be negotiated, fixed by appraisers selected by the parties, or computed in accordance with a formula prescribed in the law of the state or in the particular franchise or charter.
In other instances, the price may be negotiated, fixed by appraisers selected by the parties, or computed in accordance with a formula prescribed in the law of the state or in the particular franchise or charter.
These reports and information are available as soon as reasonably practicable after such material is electronically filed with the SEC. In addition, you may request a copy of the foregoing filings, at no cost by writing or telephoning us at the following address or telephone number: Investor Relations Department Essential Utilities, Inc. 762 W.
In addition, you may request a copy of the foregoing filings, at no cost by writing or telephoning us at the following address or telephone number: Investor Relations Department Essential Utilities, Inc. 762 W.
This rule will require preventative and mitigative measures on gathering lines of certain diameters and operating pressures. 15 Table of Contents Compliance with PHMSA’s regulations, performance of the remediation activities by our natural gas distribution companies and intrastate pipelines and verification of records on maximum allowable operating pressure will continue to require increases in both capital expenditures and operating costs.
Compliance with PHMSA’s regulations, performance of the remediation activities by our natural gas distribution companies and intrastate pipelines and verification of records on maximum allowable operating pressure will continue to require increases in both capital expenditures and operating costs. The level of expenditures will depend upon several factors, including age, location and operating pressures of the facilities.
The Company continue s to invest in safety improvements, implement policies and procedures, develop technical training and guidelines for our employees, and leverage new tools and technology to improve our maps, records and infrastructure performance. The Company’s Safety Council leads our safety efforts and is supported by state and facility committees and leaders that operate at the local site level.
The Company continue s to invest in safety improvements, implement policies and procedures, develop technical training and guidelines for our employees, and leverage new tools and technology to improve our maps, records and infrastructure performance.
Hazards in the workplace are actively identified , and management tracks incidents so remedial actions can be taken to improve workplace safety. To encourage managers to promote a safe environment, related metrics are incorporated in management’s incentive compensation plans. The Company provide s access to a variety of innovative, flexible, and convenient employee health and wellness programs.
To encourage managers to promote a safe environment, related metrics are incorporated in management’s incentive compensation plans. The Company provide s free access to Health Advocate, which offers a variety of innovative, flexible, and convenient employee health and wellness programs.
Competition In general, we believe that Essential Utilities and its water, wastewater, and natural gas subsidiaries have valid authority, free from unduly burdensome restrictions, to enable us to carry on our business as presently conducted in the franchised or contracted areas we now serve.
Customer bills are adjusted in the December through April billing months, with rates adjusted for the difference between actual revenues and revenues calculated under this mechanism billed to the customers . 9 Table of Contents Competition In general, we believe that Essential Utilities and its water, wastewater, and natural gas subsidiaries have valid authority, free from unduly burdensome restrictions, to enable us to carry on our business as presently conducted in the franchised or contracted areas we now serve.
Employee Development and Training - The Company continues to invest in training and development programs for employees so that they may evolve and enhance their skills in their areas of expertise. We also offer tuition reimbursement to all regular, full-time employees. At Essential, we believe in an integrated talent development approach.
Employee Development and Training - The Company continues to invest in training and development programs for employees so that they may evolve and enhance their skills in their areas of expertise.
Communication and Engagement –We believe that our employees are critical to our business, and it is essential to have an environment of high engagement and inclusivity in which employees thrive. We value feedback from our employees, as it helps us gain a deeper understanding of areas where we are doing well and where we need improvement.
Communication and Engagement –We believe that our employees are critical to our business, and it is essential to have an environment of high engagement and inclusivity in which employees thrive.
Our Regulated Natural Gas gathering operations could be adversely affected should they be subject in the future to the application of state or federal regulation of rates and services. Our gathering operations could also be subject to additional safety and operational regulations relating to the design, construction, testing, operation, replacement, and maintenance of gathering facilities.
Our gathering operations could also be subject to additional safety and operational regulations relating to the design, construction, testing, operation, replacement, and maintenance of gathering facilities.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThe following are the types of forward-looking statements we make throughout this Annual Report, including in these Risk Factors, and a summary of the types of risks that could impact us and cause actual results to differ from those described in such forward-looking statements: opportunities for future acquisitions, both within and outside the water and wastewater industries, the success of pending acquisitions and the impact of future acquisitions; acquisition-related costs and synergies; the sale of water, wastewater, and gas subsidiaries; the impact of conservation awareness of customers and more efficient fixtures and appliances on water and natural gas usage per customer; the impact of our business on the environment, and our ability to meet our climate change goals; our authority to carry on our business without unduly burdensome restrictions; our capability to pursue timely rate increase requests; the capacity of our water supplies, water facilities, wastewater facilities, and natural gas supplies and storage facilities; the impact of decisions of governmental and regulatory bodies, including decisions to raise or lower rates and decisions regarding potential acquisitions; the impact of public health threats, such as the COVID-19 pandemic, or the measures implemented by the Company as a result of these threats; developments, trends and consolidation in the water, wastewater, and natural gas utility and infrastructure industries; the impact of changes in and compliance with governmental laws, regulations and policies, including those dealing with the environment, health and water quality, taxation, and public utility regulation; the development of new services and technologies by us or our competitors; the availability of qualified personnel; the condition of our assets; recovery of capital expenditures and expenses in rates; projected capital expenditures and related funding requirements; the availability and cost of capital financing; dividend payment projections; the impact of geographic diversity on our exposure to unusual weather; the continuation of investments in strategic ventures; our ability to obtain fair market value for condemned assets; the impact of fines and penalties; the impact of legal proceedings; general economic conditions, including inflation; the impairment of goodwill resulting in a charge to earnings; the impact of federal and/or state tax policies and the regulatory treatment of the effects of those policies; and the amount of income tax deductions for qualifying utility asset improvements and the Internal Revenue Service’s ultimate acceptance of the deduction methodology. 20 Table of Contents Because forward-looking statements involve risks and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements, including but not limited to: the success in the closing of, and the profitability of future acquisitions; changes in general economic, business, credit and financial market conditions; our ability to manage the expansion of our business; changes in environmental conditions, including the effects of climate change; our ability to integrate and otherwise realize all of the anticipated benefits of businesses, technologies or services which we may acquire; the decisions of governmental and regulatory bodies, including decisions on regulatory filings, including rate increase requests and decisions regarding potential acquisitions; our ability to file rate cases on a timely basis to minimize regulatory lag; the impact of inflation on our business and on our customers; abnormal weather conditions, including those that result in water use restrictions or reduced or elevated natural gas consumption; the seasonality of our business; our ability to treat and supply water or collect and treat wastewater; our ability to source sufficient natural gas to meet customer demand in a timely manner; the continuous and reliable operation of our information technology systems, including the impact of cyber security attacks or other cyber-related events, and risks associated with new systems implementation or integration; impacts from public health threats, such as the COVID-19 pandemic, including on consumption, usage, supply chain, and collections. changes in governmental laws, regulations and policies, including those dealing with taxation, the environment, health and water quality, and public utility regulation; the extent to which we are able to develop and market new and improved services; the effect of the loss of major customers; our ability to retain the services of key personnel and to hire qualified personnel as we expand; labor disputes; increasing difficulties in obtaining insurance and increased cost of insurance; cost overruns relating to improvements to, or the expansion of, our operations; inflation in the costs of goods and services; the effect of natural gas price volatility, including the potential impact of high commodity prices on usage or rate case outcomes; civil disturbance or terroristic threats or acts; changes to the rules or our assumptions underlying our determination of what qualifies for an income tax deduction for qualifying utility asset improvements; changes in, or unanticipated, capital requirements; changes in our credit rating or the market price of our common stock; changes in valuation of strategic ventures; changes in accounting pronouncements; litigation and claims; and restrictions on our subsidiaries’ ability to make dividends and other distributions. 21 Table of Contents Risks Related to Acquisitions One of the important elements of our growth strategy is the acquisition of regulated utility systems.
Biggest changeThe following are the types of forward-looking statements we make throughout this Annual Report, including in these Risk Factors, and a summary of the types of risks that could impact us and cause actual results to differ from those described in such forward-looking statements: opportunities for future acquisitions, both within and outside the water and wastewater industries, the success of pending acquisitions and the impact of future acquisitions; acquisition-related costs and synergies; the impact of decisions of governmental and regulatory bodies, including decisions to raise or lower rates and decisions regarding potential acquisitions; the sale of water, wastewater, and gas subsidiaries; the impact of conservation awareness of customers and more efficient fixtures and appliances on water and natural gas usage per customer; the impact of our business on the environment, and our ability to meet our environmental, social, and governance goals; our authority to carry on our business without unduly burdensome restrictions; our capability to pursue timely rate increase requests; the capacity of our water supplies, water facilities, wastewater facilities, and natural gas supplies and storage facilities; the impact of public health threats, or the measures implemented by the Company as a result of these threats; the impact of cybersecurity attacks or other cyber-related events; developments, trends and consolidation in the water, wastewater, and natural gas utility and infrastructure industries; the impact of changes in and compliance with governmental laws, regulations and policies, including those dealing with the environment, health and water quality, taxation, and public utility regulation; the development of new services and technologies by us or our competitors; the availability of qualified personnel; the condition of our assets; recovery of capital expenditures and expenses in rates; projected capital expenditures and related funding requirements; the availability and cost of capital financing, including impacts of increasing financing costs and interest rates; dividend payment projections; the impact of geographic diversity on our exposure to unusual weather; the continuation of investments in strategic ventures; our ability to obtain fair market value for condemned assets; the impact of fines and penalties; the impact of legal proceedings; general economic conditions, including inflation; the impairment of goodwill resulting in a non-cash charge to earnings; the impact of federal and/or state tax policies and the regulatory treatment of the effects of those policies; and the amount of income tax deductions for qualifying utility asset improvements and the Internal Revenue Service’s ultimate acceptance of the deduction methodology. 19 Table of Contents Because forward-looking statements involve risks and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements, including but not limited to: the success in the closing of, and the profitability of future acquisitions; changes in general economic, business, credit and financial market conditions; our ability to manage the expansion of our business; changes in environmental conditions, including the effects of climate change; our ability to integrate and otherwise realize all of the anticipated benefits of businesses, technologies or services which we may acquire; the decisions of governmental and regulatory bodies, including decisions on regulatory filings, including rate increase requests and decisions regarding potential acquisitions; our ability to file rate cases on a timely basis to minimize regulatory lag; the impact of inflation on our business and on our customers; abnormal weather conditions, including those that result in water use restrictions or reduced or elevated natural gas consumption; the seasonality of our business; our ability to treat and supply water or collect and treat wastewater; our ability to source sufficient natural gas to meet customer demand in a timely manner; the continuous and reliable operation of our information technology systems, including the impact of cybersecurity attacks or other cyber-related events, and risks associated with new systems implementation or integration; impacts from public health threats, including on consumption, usage, supply chain, and collections. changes in governmental laws, regulations and policies, including those dealing with taxation, the environment, health and water quality, and public utility regulation; the extent to which we are able to develop and market new and improved services; the effect of the loss of major customers; our ability to retain the services of key personnel and to hire qualified personnel as we expand; labor disputes; increasing difficulties in obtaining insurance and increased cost of insurance; cost overruns relating to improvements to, or the expansion of, our operations; inflation in the costs of goods and services; the effect of natural gas price volatility, including the potential impact of high commodity prices on usage or rate case outcomes; civil disturbance or terroristic threats or acts; changes to the rules or our assumptions underlying our determination of what qualifies for an income tax deduction for qualifying utility asset improvements; changes in, or unanticipated, capital requirements; changes in our credit rating or the market price of our common stock; changes in valuation of strategic ventures; changes in accounting pronouncements; litigation and claims; and restrictions on our subsidiaries’ ability to make dividends and other distributions. 20 Table of Contents Risks Related to Acquisitions One of the important elements of our growth strategy is the acquisition of regulated utility systems.
Acquisitions by us could also result in: dilutive issuances of our equity securities; incurrence of debt, contingent liabilities, and environmental liabilities; unanticipated capital expenditures; failure to maintain effective internal control over financial reporting; recording goodwill and other intangible assets for which we may never realize their full value and may result in an asset impairment that may negatively affect our results of operations; fluctuations in quarterly results; other acquisition related expenses; and exposure to unknown or unexpected risks and liabilities.
Acquisitions by us could also result in: dilutive issuances of our equity securities; incurrence of debt, contingent liabilities, and environmental liabilities; unanticipated capital expenditures; failure to maintain effective internal control over financial reporting; recording goodwill and other intangible assets for which we may never realize their full value and may result in an asset impairment that may negatively affect our results of operations; fluctuations in quarterly and/or annual results; other acquisition related expenses; and exposure to unknown or unexpected risks and liabilities.
In the states where our subsidiaries operate water or wastewater utility systems, it is possible that portions of our subsidiaries’ operations could be acquired by municipal governments by one or more of the following methods: eminent domain; the right of purchase given or reserved by a municipality or political subdivision when the original franchise was granted; and the right of purchase given or reserved under the law of the state in which the subsidiary was incorporated or from which it received its permit.
In the states where our subsidiaries operate water or wastewater utility systems, it is possible that portions of our subsidiaries’ operations could be acquired by municipal governments by one or more of the following methods: eminent domain; the right of purchase given to or reserved by a municipality or political subdivision when the original franchise was granted; and the right of purchase given or reserved under the law of the state in which the subsidiary was incorporated or from which it received its permit.
Climate change laws and regulations have been passed and are being proposed that require compliance with greenhouse gas emissions standards, as well as other climate change initiatives, which could impact our business, financial condition or results of operations. Climate change is receiving ever increasing attention worldwide.
Climate change laws and regulations have been passed and are being proposed that require compliance with greenhouse gas emissions standards, as well as other climate change initiatives and reporting, which could impact our business, financial condition or results of operations. Climate change is receiving ever increasing attention worldwide.
General economic turmoil may also lead to an investment market downturn, which may result in our pension and other post-retirement plans’ asset market values suffering a decline and significant volatility. A decline in our plans’ asset market values could increase our required cash contributions to the plans and expense in subsequent years.
General economic turmoil may also lead to an investment market downturn, which may result in our pension and other post-retirement plans’ asset market values suffering a decline and significant volatility. A decline in our plans’ asset market values could increase our required cash contributions to the plans and increased expense in subsequent years.
We are devoting our attention to various emerging contaminants, including the Per- and Polyfluoroalkyl Substances (PFAS) family of chemicals and other chemicals and substances that do not have any regulatory standard in drinking water.
We are devoting our attention to various emerging contaminants, including the Per- and Polyfluoroalkyl Substances (PFAS) family of chemicals and other chemicals and substances that do not have any federal regulatory standard in drinking water.
In addition, our information technology systems may be vulnerable to damage or interruption from the following types of cyber security attacks or other events: power loss, computer systems failures, and internet, telecommunications or data network failures; operator negligence or improper operation by, or supervision of, employees; physical and electronic loss of data; computer viruses, cyber security attacks, intentional security breaches, hacking, denial of service actions, misappropriation of data and similar events; difficulties in the implementation of upgrades or modification to our information technology systems; and hurricanes, fires, floods, earthquakes and other natural disasters.
In addition, our information technology systems may be vulnerable to damage or interruption from the following types of cybersecurity attacks or other events: power loss, computer systems failures, and internet, telecommunications or data network failures; operator negligence or improper operation by, or supervision of, employees; physical and electronic loss of data; computer viruses, cybersecurity attacks, intentional security breaches, hacking, denial of service actions, misappropriation of data and similar events; difficulties in the implementation of upgrades or modification to our information technology systems; and hurricanes, fires, floods, earthquakes and other natural disasters.
If we are unable to compete effectively or if customers further reduce their gas needs, we may lose existing customers, sell less gas to our customers and/or fail to acquire new customers, which could have a material adverse effect on our business, financial condition, and results of operations. 29 Table of Contents Drought conditions and government imposed water use restrictions may impact our ability to serve our current and future customers, and may impact our customers’ use of our water, which may harm our business, financial condition, and results of operations.
If we are unable to compete effectively or if customers further reduce their gas needs, we may lose existing customers, sell less gas to our customers and/or fail to acquire new customers, which could have a material adverse effect on our business, financial condition, and results of operations. 28 Table of Contents Drought conditions and government-imposed water use restrictions may impact our ability to serve our current and future customers, and may impact our customers’ use of our water, which may harm our business, financial condition, and results of operations.
Regulatory actions or changes in significant assumptions, including discount and growth rates, utility sector market performance and comparable transaction multiples, projected operating and capital cash flows, and fair value of debt, could also potentially result in future impairments which could be material. 22 Table of Contents We compete with governmental entities, other regulated utilities, and strategic and financial buyers, for acquisition opportunities.
Regulatory actions or changes in significant assumptions, including discount and growth rates, utility sector market performance and comparable transaction multiples, projected operating and capital cash flows, and fair value of debt, could also potentially result in future impairments which could be material. 21 Table of Contents We compete with governmental entities, other regulated utilities, and strategic and financial buyers, for acquisition opportunities.
Accordingly, we may experience delays in obtaining appropriate materials and services on a timely basis and in sufficient quantities from such alternative suppliers at a reasonable price, which could interrupt services to our customers and harm our business, financial condition, and results of operations. 33 Table of Contents We depend significantly on the services of the members of our management team, and the departure of any of those persons could cause our operating results to suffer.
Accordingly, we may experience delays in obtaining appropriate materials and services on a timely basis and in sufficient quantities from such alternative suppliers at a reasonable price, which could interrupt services to our customers and harm our business, financial condition, and results of operations. 32 Table of Contents We depend significantly on the services of the members of our management team, and the departure of any of those persons could cause our operating results to suffer.
Subject to regulatory approval, as described below, changes in the cost of purchased gas are flowed through to customers and may affect uncollectible amounts and cash flows and can therefore impact our financial condition and results of operations. 34 Table of Contents The state regulatory commissions approve the PGA changes on an interim basis, subject to refund and the outcome of a subsequent audit and prudence review.
Subject to regulatory approval, as described below, changes in the cost of purchased gas are flowed through to customers and may affect uncollectible amounts and cash flows and can therefore impact our financial condition and results of operations. 33 Table of Contents The state regulatory commissions approve the PGA changes on an interim basis, subject to refund and the outcome of a subsequent audit and prudence review.
Public health threats could, in the future, materially impact our business in numerous ways, including, but not limited to, those outlined below: reduced demand from our commercial customers and shifts in demand for our regulated utility services; delay the timeliness of our service to customers because of shutdowns and/or illness and travel restrictions among our employees or employees of other companies on whom we rely; negatively impact the financial condition of our customers and their ability to pay for our products and services, and our ability to disconnect service for non-payment may be limited, and state regulators may impose bill deferral programs; may limit or curtail significantly or entirely the ability of public utility commissions to approve or authorize applications and other requests we may make with respect to our regulated water and natural gas businesses; and delays in our supply chain and our ability to complete maintenance, repairs, and capital programs, which could result in disruptions and increased costs. 35 Table of Contents These and other impacts of the COVID-19 pandemic or other global or regional health pandemics, epidemics or similar public health threats could also have the effect of heightening many of the other risks described in “Risk Factors” in this Annual Report and the other reports we file from time to time with the SEC.
Public health threats could, in the future, materially impact our business in numerous ways, including, but not limited to, those outlined below: reduced demand from our commercial customers and shifts in demand for our regulated utility services; delay the timeliness of our service to customers because of shutdowns and/or illness and travel restrictions among our employees or employees of other companies on whom we rely; negatively impact the financial condition of our customers and their ability to pay for our products and services, and our ability to disconnect service for non-payment may be limited, and state regulators may impose bill deferral programs; may limit or curtail significantly or entirely the ability of public utility commissions to approve or authorize applications and other requests we may make with respect to our regulated water and natural gas businesses; and delays in our supply chain and our ability to complete maintenance, repairs, and capital programs, which could result in disruptions and increased costs. 34 Table of Contents These and other impacts of global or regional health pandemics, epidemics or similar public health threats could also have the effect of heightening many of the other risks described in “Risk Factors” in this Annual Report and the other reports we file from time to time with the SEC.
Any business interruption or other losses might not be covered by insurance policies or be recoverable in rates, and such losses may make it difficult for us to secure insurance in the future at acceptable rates. 28 Table of Contents Our facilities could be the target of a possible terrorist or other deliberate attack which could harm our business, financial condition and results of operations.
Any business interruption or other losses might not be covered by insurance policies or be recoverable in rates, and such losses may make it difficult for us to secure insurance in the future at acceptable rates. 27 Table of Contents Our facilities could be the target of a possible terrorist or other deliberate attack which could harm our business, financial condition and results of operations.
These risks are most acute during periods of substantial rainfall or flooding, which are the main causes of wastewater overflow and system failure. 32 Table of Contents Liabilities resulting from such damages and injuries could harm our business, financial condition, and results of operations. Work stoppages and other labor relations matters could harm our operating results.
These risks are most acute during periods of substantial rainfall or flooding, which are the main causes of wastewater overflow and system failure. Liabilities resulting from such damages and injuries could harm our business, financial condition, and results of operations. 31 Table of Contents Work stoppages and other labor relations matters could harm our operating results.
If the cost of borrowing increases, we might not be able to recover increases in our cost of capital through rates. The inability to recover higher borrowing costs through rates, or the regulatory lag associated with the time that it takes to begin recovery, may harm our business, financial condition, results of operations and cash flows.
If the cost of borrowing continues to increase, we might not be able to recover increases in our cost of capital through rates. The inability to recover higher borrowing costs through rates, or the regulatory lag associated with the time that it takes to begin recovery, may harm our business, financial condition, results of operations and cash flows.
However, the Company’s expectation is based upon numerous estimates and assumptions and is subject to numerous uncertainties. 36 Table of Contents Our business requires significant capital expenditures that are partially dependent on our ability to secure appropriate funding. Disruptions in the capital markets may limit our access to capital.
However, the Company’s expectation is based upon numerous estimates and assumptions and is subject to numerous uncertainties. 35 Table of Contents Our business requires significant capital expenditures that are partially dependent on our ability to secure appropriate funding. Disruptions in the capital markets may limit our access to capital.
If the request is denied completely or in part, we could be required to refund to customers some or all of the revenue billed to date, and write-off some or all of the deferred expenses. 27 Table of Contents Changes in our earnings may differ from changes in our rate base .
If the request is denied completely or in part, we could be required to refund to customers some or all of the revenue billed to date, and write-off some or all of the deferred expenses. 26 Table of Contents Changes in our earnings may differ from changes in our rate base .
Although these expenditures and costs may be recovered in the form of higher rates, there can be no assurance that the various state utility commissions that regulate our business would approve rate increases to enable us to 30 Table of Contents recover such expenditures and costs.
Although these expenditures and costs may be recovered in the form of higher rates, there can be no assurance that the various state utility commissions that regulate our business would approve rate increases to enable us to 29 Table of Contents recover such expenditures and costs.
Possible impacts associated with a cyber security attack or other events may include: remediation costs related to lost, stolen, or compromised data; repairs to data processing or physical systems; increased cyber security protection costs; adverse effects on our compliance with regulatory and environmental laws and regulation, including standards for drinking water; litigation; loss of revenue; and reputational damage.
Possible impacts associated with a cybersecurity attack or other events may include: remediation costs related to lost, stolen, or compromised data; repairs to data processing or physical systems; increased cybersecurity protection costs; adverse effects on our compliance with regulatory and environmental laws and regulation, including standards for drinking water; litigation; loss of revenue; and reputational damage.
Although we do not believe that our systems are at a materially greater risk of cyber security attacks than other similar organizations, our information technology systems may be vulnerable to damage or interruption from the types of cyber security attacks or other events listed above or other similar actions, and such incidents may go undetected for a period of time.
Although we do not believe that our systems are at a materially greater risk of cybersecurity attacks than other similar organizations, our information technology systems may be vulnerable to damage or interruption from the types of cybersecurity attacks or other events listed above or other similar actions, and such incidents may go undetected for a period of time.
Some possible reasons for a delay or disruption in the supply of important goods and services include: our suppliers may not provide materials that meet our specifications in sufficient quantities; our suppliers may provide us with water that does not meet applicable quality standards or is contaminated; our suppliers may provide us with natural gas not meeting quality standards or is of insufficient volume or pressure; our suppliers may face production or shipping delays due to the COVID-19 pandemic, natural disasters, strikes, lock-outs, political disputes, or other such actions; one or more suppliers could make strategic changes in the lines of products and services they offer; and some of our suppliers, such as small companies, may be more likely to experience financial and operational difficulties than larger, well-established companies, because of their limited financial and other resources.
Some possible reasons for a delay or disruption in the supply of important goods and services include: our suppliers may not provide materials that meet our specifications in sufficient quantities; our suppliers may provide us with water that does not meet applicable quality standards or is contaminated; our suppliers may provide us with natural gas not meeting quality standards or is of insufficient volume or pressure; our suppliers may face production or shipping delays due to public health threats, natural disasters, strikes, lock-outs, political disputes, or other such actions; one or more suppliers could make strategic changes in the lines of products and services they offer; and some of our suppliers, such as small companies, may be more likely to experience financial and operational difficulties than larger, well-established companies, because of their limited financial and other resources.
We have paid dividends consecutively for 78 years, and our Board of Directors recognizes the value that our common shareholders place on both our historical payment record and on our future anticipated dividend payments.
We have paid dividends consecutively for 79 years, and our Board of Directors recognizes the value that our common shareholders place on both our historical payment record and on our future anticipated dividend payments.
At this time, the existing GHG laws and regulations are not expected to materially 23 Table of Contents harm the Company’s operations or capital expenditures; however, the uncertainty of future climate change regulatory requirements still remains. We cannot predict the potential impact of future laws and regulations on our business, financial condition, or results of operations.
At this time, the existing GHG laws and regulations are not expected to materially harm the Company’s operations or capital expenditures; however, the uncertainty of future climate change regulatory requirements still remains. We cannot predict the potential impact of future laws and regulations on our business, financial condition, or results of operations.
We are increasingly dependent on the continuous and reliable operation of our information technology systems, including those of our third-party vendors, and a disruption of these systems, resulting from cyber security attacks, risks associated with new systems implementation or integration, or other events, could harm our business.
We are increasingly dependent on the continuous and reliable operation of our information technology systems, including those of our third-party vendors, and a disruption of these systems, resulting from cybersecurity attacks, risks associated with new systems implementation or integration, or other events, could harm our business.
Our water supplies, including water provided to our customers, are subject to possible contaminants, including those from: naturally occurring compounds or man-made substances; chemicals and other hazardous materials; lead and other materials; pharmaceuticals and personal care products; and possible deliberate or terrorist attacks. 24 Table of Contents Depending on the nature of the water contamination, we may have to interrupt the use of that water supply until we are able to substitute, where feasible, the flow of water from an uncontaminated water source, including if practicable, the purchase of water from other suppliers, or continue the water supply under restrictions on use for drinking or broader restrictions against all use except for basic sanitation and essential fire protection.
Our water supplies, including water provided to our customers, are subject to possible contaminants, including those from: naturally occurring compounds or man-made substances; chemicals and other hazardous materials; lead and other materials; manufactured sources, such as pharmaceuticals and personal care products; and possible deliberate or terrorist attacks. 23 Table of Contents Depending on the nature of the water contamination, we may have to interrupt the use of that water supply until we are able to substitute, where feasible, the flow of water from an uncontaminated water source, including if practicable, the purchase of water from other suppliers, or continue the water supply under restrictions on use for drinking or broader restrictions against all use except for basic sanitation and essential fire protection.
Additionally, following the Peoples Gas Acquisition, the discovery of presently unknown environmental conditions, including former manufactured gas plant sites, and claims under environmental laws and regulations may result in expenditures and liabilities, which could be material, and could materially harm our business, financial condition and results of operations.
Additionally, the discovery of presently unknown environmental conditions, including former manufactured gas plant sites, and claims under environmental laws and regulations may result in expenditures and liabilities, which could be material, and could materially harm our business, financial condition and results of operations.
Such cyber security attacks or other events may result in: the loss or compromise of customer, financial, employee, or operational data; disruption of billing, collections or normal field service activities; disruption of electronic monitoring and control of operational systems; delays in financial reporting and other normal management functions; and disruption in normal system operations.
Such cybersecurity attacks or other events may result in: the loss or compromise of customer, financial, employee, or operational data; disruption of billing, collections or normal field service activities; disruption of electronic monitoring and control of operational systems; delays in financial reporting and other normal management functions; and disruption in normal system operations.
We maintain insurance to help defray costs associated with cyber security attacks or other events, but we cannot provide assurance that such insurance will provide coverage for any particular type of incident or event or that such insurance will be adequate, and losses incurred may make it difficult for us to secure insurance in the future at acceptable rates. 31 Table of Contents We have a cyber security controls framework in place.
We maintain insurance to help defray costs associated with cybersecurity attacks or other events, but we cannot provide assurance that such insurance will provide coverage for any particular type of incident or event or that such insurance will be adequate, and losses incurred may make it difficult for us to secure insurance in the future at acceptable rates. 30 Table of Contents We have a cybersecurity controls framework in place.
Peoples’ revenues are seasonal and temperature sensitive and vary from year-to-year, depending on weather conditions, with a substantial portion of Peoples’ revenue occurring in the first and fourth quarters of the year due to colder temperatures and increased heating needs. In 2022, this amounted to 74%, for the first and fourth quarters.
Peoples’ revenues are seasonal and temperature sensitive and vary from year-to-year, depending on weather conditions, with a substantial portion of Peoples’ revenue occurring in the first and fourth quarters of the year due to colder temperatures and increased heating needs. In 2023, this amounted to 73%, for the first and fourth quarters.
The ultimate impact of public health threats, such as the COVID-19 pandemic, on our business depends on factors beyond our knowledge or control, including the duration and severity of the outbreak as well as third-party actions taken to contain its spread and mitigate its public health effects.
The ultimate impact of public health threats on our business depends on factors beyond our knowledge or control, including the duration and severity of the outbreak as well as third-party actions taken to contain its spread and mitigate its public health effects.
Inflation 26 Table of Contents levels in excess of historical levels could also lead to regulatory lag and thus impact our earned returns and financial results. Moreover, inflation and rising interest rates have recently become areas of increasing economic concern.
Inflation levels in excess of historical levels could also lead to regulatory lag and thus impact our earned returns and financial results. 25 Table of Contents Moreover, in recent years, inflation and rising interest rates have become areas of increasing economic concern.
An impairment in the carrying value of our goodwill could negatively impact our consolidated results of operations and net worth. We have significant amounts of goodwill resulting from the acquisition of utility systems and businesses. As of December 31, 2022, the net carrying value of goodwill amounted to $2,340,792,000 or 15% of our total assets.
An impairment in the carrying value of our goodwill could negatively impact our consolidated results of operations and net worth. We have significant amounts of goodwill resulting from the acquisition of utility systems and businesses. As of December 31, 2023, the net carrying value of goodwill amounted to $2,340,738,000 or 13.9% of our total assets.
Approximately 51% of our Regulated Water and Regulated Natural Gas segments’ workforce are unionized under 20 labor contracts with labor unions, which expire between at various times up until 2027. In light of rising costs for healthcare and retirement benefits, contract negotiations in the future may be difficult.
Approximately 50% of our Regulated Water and Regulated Natural Gas segments’ workforce is unionized under 22 labor contracts with labor unions, which expire between at various times up until 2028. In light of rising costs for healthcare and retirement benefits, contract negotiations in the future may be difficult.
We have a program to evaluate all changes in water sources prior to initiating a change in water supply. We also focus on identifying and removing lead service lines and encouraging customers to replace the customer-owned portion of the service line if it is lead as they are identified during our main replacement program or during other maintenance activities.
We also focus on identifying and removing lead service lines and encouraging customers to replace the customer-owned portion of the service line if it is lead as they are identified during our main replacement program or during other maintenance activities.
Even during periods of moderate inflation, the effects of inflation can have a negative impact on our operating results. The ability to control operating expenses is an important factor that will influence future results. The rates we charge our customers are subject to regulation.
Even during periods of moderate inflation, the effects of inflation can have a negative impact on our operating results. The ability to control operating expenses is an important factor that will influence future results. Inflation could adversely impact our ability to control costs, including operating expenses and capital costs.
Risk Related to Public Health Threats Global or regional health pandemics, epidemics or similar public health threats, including the COVID-19 pandemic, could negatively impact our business, outlook, financial condition, results of operations and liquidity.
Risk Related to Public Health Threats Global or regional health pandemics, epidemics or similar public health threats could negatively impact our business, outlook, financial condition, results of operations and liquidity. Public health threats, such as the COVID-19 pandemic, and the measures implemented to contain its spread, have widespread impacts on the global economy, our employees, customers, and third-party business partners.
Another potential risk related to climate change could be more frequent and more severe weather events, which could increase our costs to repair damaged facilities and restore service to our customers.
Competition from renewable energy sources may reduce the demand for natural gas, which could impact our future earnings and cash flows. Another potential risk related to climate change could be more frequent and more severe weather events, which could increase our costs to repair damaged facilities and restore service to our customers.
Accordingly, we have commenced legal action, and anticipate filing additional legal actions, aimed at recovering the costs associated with the treatment in our systems of emerging contaminants from polluting entities. 25 Table of Contents We may incur costs to defend our position and/or incur reputational damage even if we are not liable for consequences arising out of human exposure to contamination and/or hazardous substances in our water supplies, other environmental damage, or our customer’s business interruption.
We may incur costs to defend our position and/or incur reputational damage even if we are not liable for consequences arising out of human exposure to contamination and/or hazardous substances in our water supplies, other environmental damage, or our customer’s business interruption.
In December 2012, Aqua Pennsylvania changed its tax method of accounting to permit the expensing of qualifying utility asset improvement costs that were previously being capitalized and depreciated for tax purposes.
Some of our subsidiaries use a tax method of accounting that permits the expensing of qualifying utility asset improvement costs that were previously being capitalized and depreciated for tax purposes.
We maintain an ongoing facility planning process, and this planning or the enactment of new standards may result in the need for additional capital expenditures or raise our operating costs. Because of the uncertainty of weather volatility related to climate change, we cannot predict its potential impact on our business, financial condition, or results of operations.
We maintain an ongoing facility planning process, and this planning or the enactment of new standards may result in the need for additional capital expenditures or raise our operating costs, including the cost of insurance.
The events in Flint, Michigan, which commenced in 2014, and other communities have brought attention to the issue of lead in drinking water from home plumbing. We have been working to prevent lead leaching from home plumbing sources by reducing water corrosivity and adding chemicals that can prevent leaching of lead in pipes and homes.
We have been working to prevent lead leaching from home plumbing sources by reducing water corrosivity and adding chemicals that can prevent leaching of lead in pipes and homes. We have a program to evaluate all changes in water sources prior to initiating a change in water supply.
We comply with governmental agency guidance that recommends the standard of protection from these contaminants, and we monitor proposed standards and other governmental agency guidance regarding these contaminants.
We comply with governmental agency guidance that recommends the standard of protection from these contaminants, and we monitor proposed standards and other governmental agency guidance regarding these contaminants. On March 14, 2023, the U.S. Environmental Protection Agency (EPA) announced the proposed National Primary Drinking Water Regulation (NPDWR) for the treatment of six PFAS compounds.
Any of the foregoing may also impair our ability to raise additional capital through the sale of our equity securities. Item 1B Unresolved Staff Comments None 37 Table of Contents
Any of the foregoing may also impair our ability to raise additional capital through the sale of our equity securities. 36 Table of Contents Item 1B Unresolved Staff Comments None Item 1C Cybersecur ity Risk Management and Strategy In connection with our enterprise risk management process, we identify, prioritize and monitor key risks that may affect the Company, including risks from cyber threats.
Removed
They could also provide a cost advantage to alternative energy sources and impact the competitive position of natural gas. We produce an environmental, social, and governance report, which provides an overview of our energy usage and GHG emissions.
Added
Because of the uncertainty of weather volatility related to climate change, we cannot predict its potential impact on our business, financial condition, or results of operations.
Removed
Additionally, commencing in 2020, we initiated a company-wide program to address these contaminants uniformly across our regulated water utilities by selecting standards adopted or proposed by New Jersey, which are the most stringent standards adopted in any state in which we do business.
Added
For example, in August 2022, the Inflation Reduction Act was signed into law, which includes a methane charge that is expected to be applicable to the reported annual methane emissions of certain oil and gas facilities, 22 Table of Contents that exceed certain methane emission thresholds, starting in calendar year 2024.
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As a result, we are planning a capital program in the range of tens of millions of dollars over several years to install mitigation technology at our water treatment facilities where the source water is found to exceed the standard we have determined to follow.
Added
A number of states have also adopted energy strategies or plans with goals that include the reduction of greenhouse gas emissions. For example, Pennsylvania has a methane reduction framework for the natural gas industry, which has resulted in permitting changes with the stated goal of reducing methane emissions from well sites, compressor stations, and pipelines.
Removed
There is no guarantee that the various state regulators would approve the costs associated with our treatment of the emerging contaminants without the establishment of treatment standards by the appropriate governmental entities, or for standards set by other governmental entities.
Added
The NPDWR proposed maximum contaminant levels (MCLs) in drinking water. It is expected that the EPA will finalize the regulation in 2024. The Company will be provided a three-year window to comply with the NPDWR, and the Safe Drinking Water Act allows for an additional potential for a two-year extension at the state level, or the Compliance Period.
Removed
In the future, we expect Federal regulations establishing national limits on PFAS chemicals. If these limits are more stringent than our standards, we would expect to comply with the Federal regulations and file for recovery of any incremental capital or operating expenses in our routine regulatory proceedings.
Added
We expect that the regulation, once finalized, will result in changes to or addition of certain treatment processes that will require increased capital expenditures and operating expenses.
Removed
Subsequently, the Company’s Ohio and North Carolina regulated subsidiaries similarly changed their tax method of accounting, in March 2020 Peoples Natural Gas changed its tax method of accounting, and in 2022 Peoples Gas Company and Aqua New Jersey changed their tax methods of accounting.
Added
The Company performed its initial analysis of the NPDWR and estimates an investment of at least $450,000,000 of capital expenditures to install additional treatment facilities over the Compliance Period in order to comply with the proposed NPDWR. This figure could increase as plans for construction execution are refined or if additional sites require treatment in the future.
Removed
Public health threats, such as the COVID-19 pandemic, and the measures implemented to contain its spread, continue to have widespread impacts on the global economy, our employees, customers, and third-party business partners.
Added
Additionally, the Company estimates annual operating expenses of approximately five percent of the installed capital expenditures, in today’s dollars, related to testing, 24 Table of Contents treatment, and disposal. These are preliminary estimates and actual capital expenditures and expenses may differ based upon a variety of factors, including supply chain issues and site-by-site requirements.
Removed
The Company has incurred significant additional indebtedness to finance the Peoples Gas Acquisition and to fund the debt refinancing of the Company’s outstanding existing debt (the Company Debt Refinancing). Additionally, in connection with the Peoples Gas Acquisition, the Company assumed approximately $1,106,000,000 of Peoples’ indebtedness. As of December 31, 2022, we had $6,617,395,000 of long-term debt outstanding.
Added
Although inflation had been low previously, it rose significantly in the second half of 2021 and through 2022 and 2023. In addition, global and industry-wide supply chain disruptions have resulted in shortages in labor, materials and services.
Added
Such shortages have resulted in inflationary cost increases for labor, materials and services and could continue to cause costs to increase, as well as a scarcity of certain products and raw materials.
Added
Inflation, higher interest rates and supply chain pressures resulted in an increase in certain operating and capital spending requirements in 2022 and 2023, which we expect will continue into 2024. To the extent inflation remains elevated, we may experience further cost increases for our operations, as well as increased labor costs.
Added
We cannot predict any future trends in the rate of inflation and interest rates, and a significant increase in inflation, to the extent we are unable to recover higher costs through rate cases, could negatively impact our business, financial condition and results of operation. The rates we charge our customers are subject to regulation.
Added
As of December 31, 2023, our aggregate long-term and short-term debt balance was $7,098,131,000.
Added
Our cybersecurity program is aligned to the National Institute of Standards and Technology (NIST) Cybersecurity Framework. We have enterprise-wide security policies, standards and controls that incorporate best practices in security engineering, technology architecture and data protection, which support regulatory compliance.
Added
Our program includes encryption, data masking technology, data loss prevention technology, authentication technology, entitlement management, access control, anti-malware software and transmission of data over private networks, among other procedures designed to protect against unauthorized access to information.
Added
We also implemented specialized programs, such as enterprise-wide communications, presentations, phishing simulations and focused training for specific roles, as well as a general cybersecurity training program required for all employees. We also engage third parties to perform regular reviews of our security framework controls to promote objectivity.
Added
Our processes to identify, assess and manage material risks of cyber threats include risks associated with third party service providers, including cloud-based platforms. We believe that these processes provide us with a comprehensive assessment of potential cyber threats.
Added
We maintain cybersecurity protection measures with respect to our information technology, including our customer data, and, in some cases, the monitoring and operation of our treatment, storage, pumping, and pipeline infrastructure.
Added
We rely on our information technology systems in connection with the operation of our business, especially with respect to customer service and billing, accounting and, in some cases, the monitoring and operation of our treatment, storage, pumping, and pipeline infrastructure.
Added
In addition, we rely on our systems to track our utility assets and to manage maintenance and construction projects, materials and supplies, and our human resource functions.
Added
To date, risks from cybersecurity threats have not materially affected the Company, and we do not believe they are reasonably likely to materially affect the Company, including its business strategy, financial condition or results of operations. Refer to Item 1A – Risk Factors for additional information.
Added
Governance Role of Management - Our cybersecurity program is overseen by a cross-functional committee of senior business leaders and led by our Chief Information Officer and Information Security Director. This management committee meets bimonthly and is charged with overseeing our cybersecurity strategy, ensuring that cyber risk is managed, and that the program is aligned to business goals and objectives.
Added
Both our Chief Information Officer and Information Security Director have formal education in information technology; have combined, extensive experience working in the Company’s information and technology function; and receive periodic training and education on cybersecurity-related topics.
Added
Role of the Board of Directors - The Board of Directors has a Risk and Investment Policy Committee (“RP Committee”) whose primary purpose is to assist the Board of Directors in fulfilling its oversight responsibilities. The RP Committee oversees a number of the Company’s risk management practices, including cybersecurity risks.
Added
Our Chief Information Officer and Information Security Director provides updates on cybersecurity risks, threats, key developments in policies and practices, and related risk exposures to the RP Committee at least quarterly, and more often as needed. When covered during an RP Committee meeting, the Chairperson of the RP Committee reports on its discussions to the full Board of Directors.
Added
Additionally, management provides an update to the full Board of Directors at least once a year, and more often as needed. The Board of Directors annually reviews and approves the capital and operating budgets, ultimately reviewing and approving the amount spent on cybersecurity measures. 37 Table of Contents

Item 2. Properties

Properties — owned and leased real estate

2 edited+0 added−0 removed7 unchanged
Biggest changeThe following table indicates our net property, plant and equipment, in thousands of dollars, as of December 31, 2022 in the principal states where we operate: Net Property, Plant and Equipment Pennsylvania $ 7,991,598 71.8% Ohio 629,446 5.7% Illinois 612,888 5.5% North Carolina 507,503 4.6% Texas 575,454 5.2% Other (1) 814,057 7.2% Consolidated $ 11,130,946 100.0% (1) Consists primarily of our operating subsidiaries in the following states: New Jersey, Indiana, Virginia, West Virginia, and Kentucky.
Biggest changeThe following table indicates our net property, plant and equipment, in thousands of dollars, as of December 31, 2023 in the principal states where we operate: Net Property, Plant and Equipment Pennsylvania $ 8,621,092 71.3% Ohio 709,169 5.9% Illinois 649,669 5.4% North Carolina 548,807 4.5% Texas 676,130 5.5% Other (1) 892,205 7.4% Consolidated $ 12,097,072 100.0% (1) Consists primarily of our operating subsidiaries in the following states: New Jersey, Indiana, Virginia, and Kentucky.
For some properties that we acquired through the exercise of the power of eminent domain and other properties we purchased, we hold title for water supply purposes only. We own, operate and maintain approximately 14,350 miles of transmission and distribution mains, 23 surface water treatment plants, many well treatment stations, and 203 wastewater treatment plants.
For some properties that we acquired through the exercise of the power of eminent domain and other properties we purchased, we hold title for water supply purposes only. We own, operate and maintain approximately 14,450 miles of transmission and distribution mains, 24 surface water treatment plants, many well treatment stations, and 203 wastewater treatment plants.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+4 added−0 removed1 unchanged
Biggest changeAlthough the results of legal proceedings cannot be predicted with certainty, there are no pending legal proceedings to which we or any of our subsidiaries is a party or to which any of our properties is the subject that we believe are material or are expected to materially harm our business, operating results, reputation, or financial condition.
Biggest changeAlthough the results of legal proceedings cannot be predicted with certainty, except for the matter described below, there are no other pending legal proceedings to which we or any of our subsidiaries is a party or to which any of our properties is the subject that we believe are material or are expected to materially harm our business, operating results, reputation, or financial condition.
Added
PFAS Litigation Several of the Company’s subsidiaries are parties to several lawsuits against manufacturers of certain PFAS compounds for damages, contribution and reimbursement of costs incurred and continuing to be incurred to address the presence of such PFAS compounds in public water supply systems owned and operated by these utility subsidiaries and throughout its service area.
Added
One such suit, to which the Company is a party, is a multi-district litigation, or MDL, lawsuit which 38 Table of Contents commenced on December 7, 2018, in the United States District Court for the District of South Carolina.
Added
In August 2023, a potential class action settlement involving defendants The Chemours Company, Corteva, Inc., and DuPont de Nemours, Inc. to resolve claims brought in the MDL against them by public water systems, including the Company, and a similar class action settlement with defendant 3M Company received preliminary approval from the MDL court.
Added
The Company is monitoring and evaluating the ongoing litigation and settlement activity with the PFAS manufacturers for potential impacts to the various claims that the Company has asserted.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

6 edited+0 added−2 removed1 unchanged
Biggest changeThe following table shows the cash dividends per share for the periods indicated: First Quarter Second Quarter Third Quarter Fourth Quarter Year 2022 Dividend paid per common share $ 0.2682 $ 0.2682 $ 0.2870 $ 0.2870 $ 1.1104 Dividend declared per common share 0.2682 0.2682 0.2870 0.5740 * 1.3974 2021 Dividend paid per common share $ 0.2507 $ 0.2507 $ 0.2682 $ 0.2682 $ 1.0378 Dividend declared per common share 0.2507 0.2507 0.2682 0.2682 1.0378 * includes dividends declared in December 2022 that are payable to shareholders on March 1, 2023 We have paid dividends consecutively for 78 years.
Biggest changeThe following table shows the cash dividends per share for the periods indicated: First Quarter Second Quarter Third Quarter Fourth Quarter Year 2023 Dividend paid per common share $ 0.2870 $ 0.2870 $ 0.3071 $ 0.3071 $ 1.1882 Dividend declared per common share 0.2870 - 0.3071 0.6142 * 1.2083 2022 Dividend paid per common share $ 0.2682 $ 0.2682 $ 0.2870 $ 0.2870 $ 1.1104 Dividend declared per common share 0.2682 0.2682 0.2870 0.5740 * 1.3974 * includes dividends declared in December that are payable to shareholders on March 1 of the subsequent year We have paid dividends consecutively for 79 years.
On August 2, 2022, our Board of Directors authorized an increase of 7.0% in the September 1, 2022 quarterly dividend over the dividend Essential Utilities paid in the previous quarter. As a result of this authorization, beginning with the dividend payment in September 2022, the annualized dividend rate increased to $1.1480 per share.
On August 1, 2023, our Board of Directors authorized an increase of 7.0% in the September 1, 2023 quarterly dividend over the dividend Essential Utilities paid in the previous quarter. As a result of this authorization, beginning with the dividend payment in September 2023, the annualized dividend rate increased to $1.2284 per share.
We presently intend to pay quarterly cash dividends in the future, on March 1, June 1, September 1, and December 1, subject to our earnings and financial condition, restrictions set forth in our debt instruments, regulatory requirements and such other factors as our Board of Directors may deem relevant. In 2022, our dividends paid represented 62.0% of net income.
We presently intend to pay quarterly cash dividends in the future, on March 1, June 1, September 1, and December 1, subject to our earnings and financial condition, restrictions set forth in our debt instruments, regulatory requirements and such other factors as our Board of Directors may deem relevant. In 2023, our dividends paid represented 63.6% of net income.
Item 5. Market for the Registrant's Common Stock, Related Stockholder Matters and Purchases of Equity Securities Our common stock is traded on the New York Stock Exchange under the ticker symbol WTRG. As of February 17, 2023, there were approximately 20,212 holders of record of our common stock.
Item 5. Market for the Registrant's Common Stock, Related Stockholder Matters and Purchases of Equity Securities Our common stock is traded on the New York Stock Exchange under the ticker symbol WTRG. As of February 23, 2024, there were approximately 19,173 holders of record of our common stock.
This is the 32nd dividend increase in the past 31 years and the 24th consecutive year that we have increased our dividend in excess of five percent.
This is the 33rd dividend increase in the past 32 years and the 25th consecutive year that we have increased our dividend in excess of five percent.
During the fourth quarter of 2022, the Company did not repurchase any of its equity securities under any repurchase plan or program.
During the fourth quarter of 2023, the Company did not repurchase any of its equity securities under any repurchase plan or program. Item 6. [RESERVED] 39 Table of Contents (In thousands of dollars, except per share amounts) 3210
Removed
The following table summarizes the Company’s purchases of its common stock under its equity incentive plans for the quarter ending December 31, 2022: Issuer Purchases of Equity Securities Period Total Number of Shares Purchased (1) Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet Be Purchased Under the Plan or Programs October 1-31, 2022 118 $ 42.70 - - November 1-30, 2022 - $ - - - December 1-31, 2022 2,720 $ 48.35 - - Total 2,838 $ 48.12 - - (1) These amounts consist of 2,838 shares acquired from employees associated with the withholding of shares to pay certain withholding taxes upon the vesting of stock-based compensation under the plan.
Removed
This feature of our equity compensation plan is available to all employees who receive stock-based compensation under the plan. We purchased these shares at their fair market value, as determined by reference to closing price of our common stock on the day prior to award vesting. 39 Table of Contents

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

119 edited+56 added−39 removed125 unchanged
Biggest changeOperating expenses - Operations and maintenance expenses increased in 2022, as compared to 2021, by $63,069 or 11.5%, primarily due to: increase in employee related costs of $17,129 driven by an increase in labor rates, other compensation, including a one-time compensation payment for non-officer level employees, and benefits to employees; increase in production costs for water and wastewater operations of $6,339, primarily due to higher chemical prices and an increase in wholesale water costs; additional operating costs associated with acquired and pending acquisitions of water and wastewater utility systems and higher customer base of $6,872; increase in customer assistance surcharge costs of $12,778 in our Regulated Natural Gas segment, which has an equivalent offsetting amount in revenues.
Biggest changeOperating expenses - Operations and maintenance expenses decreased in 2023, as compared to 2022, by $38,131 or 6.2%, primarily due to: decrease in customer assistance surcharge costs of $18,710 in our Regulated Natural Gas segment, which has an equivalent offsetting amount in revenues; decrease in employee related costs of $5,381, primarily due to lower post-retirement benefit costs, higher capitalization in 2023 due to greater capital expenditures, and a one-time compensation payment for non-officer level employees in 2022; decrease in charitable contributions to the Essential Foundation and other organizations of $15,360; 47 Table of Contents (In thousands of dollars, except per share amounts) decrease in bad debt expense of $4,422; decrease in outside services, maintenance expenses, and other operating expenses of $7,707, primarily due to lower water main break activity and higher capitalization as a result of greater capital expenditures during the period in our Regulated Water segment; insurance recovery of $2,448 associated with clean-up and additional expenses incurred during Hurricane Ida; an asset impairment charge recognized in the first quarter of 2022 of $1,801 to write down a portion of the right of use asset of our Regulated Natural Gas segment’s office space to fair value; offset by an increase in production costs for water and wastewater operations of $12,208, primarily due to higher chemical prices and an increase in wholesale purchased water costs; additional operating costs associated with acquired and pending acquisitions of water and wastewater utility systems and higher customer base of $5,767; increase in insurance expense of $1,741 due to higher reserve for claims and insurance premiums in 2023; increase in legal expenses of $2,427; lower operation and maintenance expense of $837 as a result of the sale and cessation of our regulated natural gas operations in West Virginia in October 2023; and lower operating expenses driven by various cost-saving measures.
Refer to Note 1 – Summary of Significant Accounting Policies – Impairment of Long-Lived Assets in this Annual Report for additional information regarding the review of long-lived assets for impairment. We test the goodwill attributable for each of our reporting units for impairment at least annually, or more often, if circumstances indicate a possible impairment may exist.
Refer to Note 1 – Summary of Significant Accounting Policies – Impairment of Long-Lived Assets in this Annual Report for additional information regarding the review of long-lived assets for impairment. We test the goodwill attributable to each of our reporting units for impairment at least annually, or more often, if circumstances indicate a possible impairment may exist.
Alternatively, based on our assessment of the qualitative factors previously noted, or at our discretion, we may perform a quantitative goodwill impairment test by determining the fair value of a reporting unit by weighting the results from the income approach and the market approach.
Based on our assessment of the qualitative factors previously noted, or at our discretion, we may perform a quantitative goodwill impairment test by determining the fair value of a reporting unit by weighting the results from the income approach and the market approach.
For Peoples Natural Gas, the Company calculated the income tax benefits for qualifying capital expenditures made prior to March 16, 2020 (catch-up adjustment) and has recorded a regulatory liability for $160,655 for these income tax benefits.
For Peoples Natural Gas, the Company calculated the income tax benefits for qualifying capital expenditures made prior to March 16, 2020 (catch-up adjustment) and recorded a regulatory liability for $160,655 for these income tax benefits.
Portions of these refund amounts are payable annually through 2031 and amounts not paid by the contract expiration dates become non-refundable. Asset Retirement Obligations – We recognize asset retirement obligations associated with retirements of production, storage wells and other pipeline components at fair value, as incurred, or when sufficient information becomes available to determine a reasonable estimate of the fair value of the retirement activities to be performed.
Portions of these refund amounts are payable annually through 2033 and amounts not paid by the contract expiration dates become non-refundable. Asset Retirement Obligations – We recognize asset retirement obligations associated with retirements of production, storage wells and other pipeline components at fair value, as incurred, or when sufficient information becomes available to determine a reasonable estimate of the fair value of the retirement activities to be performed.
However, to the extent the final tax outcome of these matters is different than our estimates recorded, we would then need to adjust our tax reserves which could result in additional income tax expense or benefits in the period that this information is known. 62 Table of Contents IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS We describe the impact of recent accounting pronouncements in Note 1 – Summary of Significant Accounting Policies in this Annual Report.
However, to the extent the final tax outcome of these matters is different than our estimates recorded, we would then need to adjust our tax reserves which could result in additional income tax expense or benefits in the period that this information is known. 63 Table of Contents IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS We describe the impact of recent accounting pronouncements in Note 1 – Summary of Significant Accounting Policies in this Annual Report.
Our loan and debt agreements require us to comply with certain financial covenants, which among other things, subject to specific exceptions, limit the Company’s ratio of consolidated total indebtedness to consolidated total capitalization, and require a minimum level of earnings coverage over interest expense. During 2022, we were in compliance with our debt covenants under our credit facilities.
Our loan and debt agreements require us to comply with certain financial covenants, which among other things, subject to specific exceptions, limit the Company’s ratio of consolidated total indebtedness to consolidated total capitalization, and require a minimum level of earnings coverage over interest expense. During 2023, we were in compliance with our debt covenants under our credit facilities.
For discussion of our results of operations and cash flows for 2021 compared with 2020, refer to Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for our fiscal year ended December 31, 2021 , filed with the SEC on March 1, 2022.
For discussion of our results of operations and cash flows for 2022 compared with 2021, refer to Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for our fiscal year ended December 31, 2022 , filed with the SEC on March 1, 2023.
As of December 31, 2022, the pipeline of potential water and wastewater municipal acquisitions the company is actively pursuing represents approximately 400,000 total customers or equivalent dwelling units. The Company remains on track to, on average, annually increase customers between 2% and 3% through acquisitions and organic customer growth.
As of December 31, 2023, the pipeline of potential water and wastewater municipal acquisitions the company is actively pursuing represents approximately 400,000 total customers or equivalent dwelling units. The Company remains on track to, on average, annually increase customers between 2% and 3% through acquisitions and organic customer growth.
Our water and wastewater operations are composed of 47 rate divisions, and our natural gas operations are comprised of four rate divisions. Each of our utility rate divisions require a separate rate filing for the evaluation of the cost of service and recovery of investments in connection with the establishment of tariff rates for that rate division.
Our water and wastewater operations are composed of 57 rate divisions, and our natural gas operations are comprised of four rate divisions. Each of our utility rate divisions require a separate rate filing for the evaluation of the cost of service and recovery of investments in connection with the establishment of tariff rates for that rate division.
During the year ended December 31, 2022, our operating revenues for our Regulated Water segment were derived principally from the following states: approximately 56% in Pennsylvania, 11% in Ohio, 9% in Illinois, 8% in Texas, and 7% in North Carolina.
During the year ended December 31, 2023, our operating revenues for our Regulated Water segment were derived principally from the following states: approximately 56% in Pennsylvania, 11% in Ohio, 8% in Illinois, 9% in Texas, and 7% in North Carolina.
Performance Measures Considered by Management We consider the following financial measures (and the period to period changes in these financial measures) to be the fundamental basis by which we evaluate our operating results: earnings per share; water and wastewater operating revenues; gas operating revenues, net of purchased gas costs; earnings before interest, taxes, and depreciation (EBITD); earnings before income taxes; net income; and the dividend rate on common stock.
Performance Measures Considered by Management We consider the following financial measures (and the period to period changes in these financial measures) to be the fundamental basis by which we evaluate our operating results: earnings per share; water and wastewater operating revenues; gas operating revenues, net of purchased gas costs; operations and maintenance expenses; earnings before interest, taxes, and depreciation (EBITD); earnings before income taxes; net income; and the dividend rate on common stock.
The Company Essential Utilities, Inc., (Essential Utilities, the Company, we, us, or our), a Pennsylvania corporation, is the holding company for regulated utilities providing water, wastewater, or natural gas services to an estimated five million people in Pennsylvania, Ohio, Texas, Illinois, North Carolina, New Jersey, Indiana, Virginia, West Virginia, and Kentucky under the Aqua and Peoples brands.
The Company Essential Utilities, Inc., (Essential Utilities, the Company, we, us, or our), a Pennsylvania corporation, is the holding company for regulated utilities providing water, wastewater, or natural gas services to an estimated 5.5 million people in Pennsylvania, Ohio, Texas, Illinois, North Carolina, New Jersey, Indiana, Virginia, and Kentucky under the Aqua and Peoples brands.
As a result, we remeasured our qualified pension plan assets and liabilities using a discount rate of 5.58%, and the remeasurement did not have a material impact to our consolidated financial statements.
As a result, we remeasured our qualified pension plan assets and liabilities using a discount rate of 5.20%, and the remeasurement did not have a material impact to our consolidated financial statements.
Future utility construction in the period 2024 through 2025, including recurring programs, such as the ongoing replacement or rehabilitation of utility meters and mains, water treatment plant upgrades, storage facility renovations, pipes, service lines, and additional transmission mains to meet customer demands, excluding the costs of new mains financed by advances and contributions in aid of construction, is estimated to require aggregate expenditures of approximately $2,115,000.
Future utility construction in the period 2025 through 2026, including recurring programs, such as the ongoing replacement or rehabilitation of utility meters and mains, water treatment plant upgrades, storage facility renovations, pipes, service lines, and additional transmission mains to meet customer demands, excluding the costs of new mains financed by advances and contributions in aid of construction, is estimated to require aggregate expenditures of approximately $2,769,000.
Acquisitions As part of the Company’s growth-through-acquisition strategy, as of December 31, 2022, the Company has entered into purchase agreements to acquire the water or wastewater utility system assets of seven municipalities and a private company for a total combined purchase price in cash of approximately $380,000.
Acquisitions As part of the Company’s growth-through-acquisition strategy, as of December 31, 2023, the Company has entered into purchase agreements to acquire the water or wastewater utility system assets of five municipalities and a private company for a total combined purchase price in cash of approximately $380,000.
Our planned 2023 capital program in Pennsylvania for our water and natural gas utilities is estimated to be approximately $761,000, a portion of which is expected to be eligible as a deduction for qualifying utility asset improvements for Federal income tax purposes.
Our planned 2024 capital program in Pennsylvania for our water and natural gas utilities is estimated to be approximately $915,000, a portion of which is expected to be eligible as a deduction for qualifying utility asset improvements for Federal income tax purposes.
When testing goodwill for impairment, we may assess qualitative factors, including macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, and entity specific events, for some or all of our reporting units to determine whether it’s more likely than not that the fair value of a reporting unit is less than its carrying amount.
When testing goodwill for impairment, we may assess qualitative factors, including macroeconomic conditions, industry and market considerations, changes to regulatory environment, recent regulatory and legislative proceedings, cost factors, overall financial performance, and entity specific events, for some or all of our reporting units to determine whether it’s more likely than not that the fair value of a reporting unit is less than its carrying amount.
Segment Results of Operations Comparison for 2022 and 2021 We have identified twelve operating segments, and we have two reportable segments based on the following: Eight segments are composed of our water and wastewater regulated utility operations in the eight states where we provide these services.
Segment Results of Operations Comparison for 2023 and 2022 We have identified eleven operating segments, and we have two reportable segments based on the following: Eight segments are composed of our water and wastewater regulated utility operations in the eight states where we provide these services.
The Company’s provision for income taxes represents an income tax benefit due to the effects of tax deductions recognized for certain qualifying infrastructure investments. The decrease in the effective tax rate is primarily attributed to the increase in our income tax benefit associated with the tax deduction for qualifying infrastructure investments.
The Company’s provision for income taxes represents an income tax benefit due to the effects of tax deductions recognized for certain qualifying infrastructure investments. The decrease in the effective tax rate is primarily attributed to the increase in our income tax benefit associated with the tax deduction for qualifying infrastructure investments in our Regulated Natural Gas segment.
During this three year period, we received $36,563 of customer advances and contributions in aid of construction to finance new utility mains and related facilities that are not included in the capital expenditures presented in the above table.
During this three year period, we received $50,960 of customer advances and contributions in aid of construction to finance new utility mains and related facilities that are not included in the capital expenditures presented in the above table.
Allowance for funds used during construction (AFUDC) was $23,665 in 2022 and $20,792 in 2021, and varies as a result of changes in the average balance of utility plant construction work in progress, to which AFUDC is applied, changes in the AFUDC rate which is based predominantly on short-term interest rates, changes in the balance of short term-debt, and changes in the amount of AFUDC related to equity.
Allowance for funds used during construction (AFUDC) was $16,967 in 2023 and $23,665 in 2022, and varies as a result of changes in the average balance of utility plant construction work in progress, to which AFUDC is applied, changes in the AFUDC rate which is based predominantly on short-term interest rates, changes in the balance of short term-debt, and changes in the amount of AFUDC related to equity.
This credit facility was established in December 2022, replacing a similar facility that was expiring in December 2023, and was used to repay all indebtedness and fees under our prior unsecured revolving credit facility, and for other general corporate purposes. In addition, we have short-term lines of credit of $435,500 of which $207,000 was available as of December 31, 2022.
This credit facility was established in December 2022, replacing a similar facility, and was used to repay all indebtedness and fees under our prior unsecured revolving credit facility, and for other general corporate purposes. In addition, we have short-term lines of credit of $435,500 of which $275,377 was available as of December 31, 2023.
Expected obligations are not included in the above table because the amounts and timing are dependent upon several variables, which cannot be accurately estimated. Uncertain tax positions – We have uncertain tax positions of $18,217.
Expected obligations are not included in the above table because the amounts and timing are dependent upon several variables, which cannot be accurately estimated. Uncertain tax positions – We have uncertain tax positions of $7,898.
During the past three years, we have sold 1,132,080 original issue shares of common stock for net proceeds of $49,940 through the dividend reinvestment portion of the Plan, and we used the proceeds to invest in our operating subsidiaries, to repay short-term debt, and for general corporate purposes.
During the past three years, we have sold 1,173,589 original issue shares of common stock for net proceeds of $49,423 through the dividend reinvestment portion of the Plan, and we used the proceeds to invest in our operating subsidiaries, to repay short-term debt, and for general corporate purposes.
The number of customers increased at an annual compound rate of 2.2% over the past three years due to acquisitions and organic growth, adjusted to exclude customers associated with utility system dispositions. Acquisitions in our Regulated Water segment have provided additional water and wastewater revenues of $16,145 in 2022, $6,750 in 2021, and $10,951 in 2020.
The number of customers increased at an annual compound rate of 2.1% over the past three years due to acquisitions and organic growth, adjusted to exclude customers associated with utility system dispositions. Acquisitions in our Regulated Water segment have provided additional water and wastewater revenues of $9,646 in 2023, $16,145 in 2022, and $6,750 in 2021.
During 2022, we completed three acquisitions of water and wastewater systems, which along with the organic growth in our existing systems, represents 31,537 new customers. During 2021 we completed two acquisitions of water and wastewater systems, which along with the organic growth in our existing systems, represents 21,364 new customers.
During 2021 we completed two acquisitions of water and wastewater systems, which along with the organic growth in our existing systems, represents 21,364 new customers.
Our planned 2023 capital program, excluding the costs of new mains financed by advances and contributions in aid of construction is estimated to be approximately $1,123,000 in infrastructure improvements for the communities we serve. The 2023 capital program is expected to include approximately $747,000 for infrastructure rehabilitation surcharge qualified projects.
Our planned 2024 capital program, excluding the costs of new mains financed by advances and contributions in aid of construction is estimated to be approximately $1,365,000 in infrastructure improvements for the communities we serve. The 2024 capital program is expected to include approximately $935,000 for infrastructure rehabilitation surcharge qualified projects.
These segments are included as a component of “Other,” in addition to corporate costs that have not been allocated to the Regulated Water and Regulated Natural Gas segments, because they would not be recoverable as a cost of utility service, and intersegment eliminations. Corporate costs include general and administrative expenses, and interest expense.
These segments are included as a component of “Other,” in addition to corporate costs that have not been allocated to the Regulated Water and Regulated Natural Gas segments, because they would not be recoverable as a cost of utility service, and intersegment eliminations.
If we were to assume changes in certain of our key assumptions used to determine the fair value of our Regulated Gas reporting unit, the following would be the effect on headroom: Sensitivity Analysis (1) Percentage points (ppts) decrease in Regulated Gas Reporting Unit Headroom Increase in discount rate by 100 basis points 6 ppts Decrease in Market Multiples by 1x 7 ppts Reduction in terminal value EBITDA (2) by 10% 8 ppts (1) Each assumption used in the sensitivity analysis is independent of the other assumptions (2) Defined as earnings before interest, taxes, depreciation and amortization Accounting for Post-Retirement Benefits ─ We maintain a qualified and a non-qualified defined benefit pension plan and plans that provide for post-retirement benefits other than pensions.
If we were to assume changes in certain of our key assumptions used to determine the fair value of our Regulated Natural Gas reporting unit, the following would be the impact on the amount of headroom over the carrying value: Sensitivity Analysis (1) Percentage decrease in headroom of Regulated Natural Gas Reporting Unit Increase in discount rate by 100 basis points 40% Decrease in Market Multiples by 1x 46% Reduction in terminal value EBITDA (2) by 10% 49% (1) Each assumption used in the sensitivity analysis is independent of the other assumptions (2) Defined as earnings before interest, taxes, depreciation and amortization Accounting for Post-Retirement Benefits ─ We maintain a qualified and a non-qualified defined benefit pension plan and plans that provide for post-retirement benefits other than pensions.
Also, unanticipated changes in circumstances and/or revisions to the assessed probability of the outcomes of legal matters could result in expenses being incurred in future periods as well as an increase in actual cash required to resolve the legal matter. 58 Table of Contents (In thousands of dollars, except per share amounts) Capitalization The following table summarizes our capitalization as of December 31, 2022 and 2021: December 31, 2022 2021 Long-term debt (1) 55.2% 53.4% Essential Utilities stockholders' equity 44.8% 46.6% 100.0% 100.0% (1) Includes current portion, as well as our borrowings under a variable rate revolving credit agreement of $490,000 at December 31, 2022, and $300,000 at December 31, 2021.
Also, unanticipated changes in circumstances and/or revisions to the assessed probability of the outcomes of legal matters could result in expenses being incurred in future periods as well as an increase in actual cash required to resolve the legal matter. 59 Table of Contents (In thousands of dollars, except per share amounts) Capitalization The following table summarizes our capitalization as of December 31, 2023 and 2022: December 31, 2023 2022 Long-term debt (1) 54.1% 55.2% Essential Utilities stockholders' equity 45.9% 44.8% 100.0% 100.0% (1) Includes current portion, as well as our borrowings under a variable rate revolving credit agreement of $720,000 at December 31, 2023, and $490,000 at December 31, 2022.
We anticipate that approximately one-half of these expenditures will require external financing. We expect to refinance $221,345 of long-term debt during this period as it becomes due with funds from new issues of long-term debt, issuances of equity, internally-generated funds, and our revolving credit facilities.
We anticipate that more than one half of these expenditures will require external financing. We expect to refinance $168,875 of long-term debt during this period as it becomes due with funds from new issues of long-term debt, issuances of equity, internally-generated funds, and our revolving credit facilities.
In addition, during this period, we have made repayments of debt, which includes the net effect of borrowings and repayments under our long-term revolving credit facility of $1,965,289 and have refunded $21,068 of customers’ advances for construction.
In addition, during this period, we have made repayments of debt, which includes the net effect of borrowings and repayments under our long-term revolving credit facility of $1,441,098 and have refunded $21,202 of customers’ advances for construction.
Amounts reported may differ from actual due to future refinancing of debt. (2) Represents minimum lease payments for long-term operating leases of land, office facilities, office equipment, and vehicles. (3) Represents our commitment to purchase minimum quantities of water as stipulated in agreements with other water purveyors.
Amounts reported may differ from actual due to future refinancing of debt. (2) Represents minimum lease payments for long-term operating leases of land, office facilities, office equipment, and vehicles. 58 Table of Contents (In thousands of dollars, except per share amounts) (3) Represents our commitment to purchase minimum quantities of water as stipulated in agreements with other water purveyors.
Our overall 2023 capital program along with $199,356 of debt repayments and $365,432 of other contractual cash obligations, as reported in the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Contractual Obligations ”, has been, or is expected to be, financed through internally-generated funds, our revolving credit facilities, and the issuance of long-term debt and equity.
Our overall 2024 capital program along with $67,415 of debt repayments and $322,176 of other contractual cash obligations, as reported in the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Contractual Obligations ”, has been, or is expected to be, financed through internally-generated funds, our revolving credit facilities, and the issuance of long-term debt and equity.
Water and wastewater rate increases, including infrastructure rehabilitation surcharges, implemented during the past three years have provided additional operating revenues of $63,367 in 2022, $27,421 in 2021, and $32,660 in 2020.
Water and wastewater rate increases, including infrastructure rehabilitation surcharges, implemented during the past three years have provided additional operating revenues of $57,924 in 2023, $63,367 in 2022, and $27,421 in 2021.
As of September 30, 2022, settlement accounting was triggered by the amount of lump-sum payments by our qualified pension plan to retirees and other separated employees exceeding the threshold of service and interest cost for the period.
In 2023, settlement accounting was triggered by the amount of lump-sum payments by our qualified pension plan to retirees and other separated employees exceeding the threshold of service and interest cost for the period.
Management believes this measure provides a meaningful basis for evaluating our natural gas utility operations since purchased gas expenses are included in operating revenues and passed through to customers. 45 Table of Contents (In thousands of dollars, except per share amounts) Our operating expense ratio is one measure that we use to evaluate our operating efficiency and management effectiveness of our regulated operations.
Management believes this measure provides a meaningful basis for evaluating our natural gas utility operations since purchased gas expenses are included in operating revenues and passed through to customers. Our operating expense ratio is one measure that we use to evaluate our operating efficiency and management effectiveness of our regulated operations.
For larger acquisitions, such as the Peoples Gas Acquisition, we have incurred significant transaction expenses, which increase operations and maintenance expenses in periods prior to and in the period of the closing of the acquisition. In addition, we operate market-based subsidiary companies consisting of our non-regulated natural gas operations, Aqua Resources, and Aqua Infrastructure.
For larger acquisitions, we may incur significant transaction expenses, which increase operations and maintenance expenses in periods prior to and in the period of the closing of the acquisition. In addition, we operate market-based subsidiary companies consisting of our non-regulated natural gas operations and Aqua Resources.
Gain on sale of other assets totaled $991 in 2022 and $976 in 2021, and consists of the sales of property, plant and equipment.
Gain on sale of other assets totaled $65 in 2023 and $991 in 2022, and consists of the sales of property, plant and equipment.
Consequently, a higher proportion of annual Regulated Water segment operating revenues are realized in the second and third quarters. In general, during this period, an extended period of hot and dry weather increases water consumption, while above-average rainfall and cool weather decreases water consumption.
Consequently, a higher proportion of annual Regulated Water segment operating revenues are realized in the second and third quarters. In general, during this period, an extended period of hot and dry weather increases water consumption, while above-average 45 Table of Contents (In thousands of dollars, except per share amounts) rainfall and cool weather decreases water consumption.
Depreciation and amortization expense increased by $23,225 or 7.8%, in 2022 over 2021, principally due to continued capital expenditures to expand and improve our utility facilities, upgrade our information systems, our acquisitions of new utility systems, and additional rate case filings.
Depreciation and amortization expense increased by $22,518 or 7.0%, in 2023 over 2022, principally due to continued capital expenditures to expand and improve our utility facilities, upgrade our information systems, our acquisitions of new utility systems, and additional rate case filings.
The weighted average cost of fixed and variable rate long-term debt was 3.94% at December 31, 2022 and 3.49% at December 31, 2021.
The weighted average cost of fixed and variable rate long-term debt was 4.14% at December 31, 2023 and 3.94% at December 31, 2022.
Other totaled $494 in 2022, and $(2,848) in 2021, and largely consists of the non-service cost component of our net benefit cost for pension benefits and unrealized gains and losses on investments associated with our non-qualified pension plan.
Other (income) expense totaled $(2,613) in 2023 and $494 in 2022, and largely consists of the non-service cost component of our net benefit cost for post-retirement benefits and unrealized gains and losses on investments associated with our non-qualified pension plan.
Our operating subsidiaries received rate increases representing estimated annualized revenues of $81,610 in 2022 resulting from seven base rate decisions, $3,390 in 2021 resulting from six base rate decisions, and $4,480 in 2020 resulting from five base rate decisions.
Our operating subsidiaries received rate increases representing estimated annualized revenues of $28,426 in 2023 resulting from seven base rate decisions, $81,610 in 2022 resulting from seven base rate decisions, and $3,390 in 2021 resulting from six base rate decisions.
Annualized revenues in aggregate from all of the rate increases realized in the year of grant were $51,163 in 2022, $2,995 in 2021, and $1,594 in 2020.
Annualized revenues in aggregate from all of the rate increases realized in the year of grant were $10,109 in 2023, $51,163 in 2022, and $2,995 in 2021.
At other times of the year, warnings and restrictions generally have less of an effect on water consumption. Drought warnings and watches result in the public being asked to voluntarily reduce water consumption. The geographic diversity of our utility customer base reduces the effect of our exposure to extreme or unusual weather conditions in any one area of the country.
Drought warnings and watches result in the public being asked to voluntarily reduce water consumption. The geographic diversity of our utility customer base reduces the effect of our exposure to extreme or unusual weather conditions in any one area of the country.
These valuation approaches consider a number of factors that include, but are not limited to, prospective financial information, growth rates, terminal value, discount rates, and comparable multiples from publicly traded companies in our industry and require us to make certain assumptions and estimates regarding industry economic factors and future profitability of our business.
These valuation approaches consider a number of factors that include, but are not limited to, prospective financial information (which includes projected operating income, expected future capital expenditures, and projected regulatory rate base, among others), growth rates, terminal value, discount rates, and comparable multiples from publicly traded companies in our industry and require us to make certain assumptions and estimates regarding industry economic factors and future profitability of our business.
Our post-retirement benefits expense under these plans is determined using the discount rate as of the beginning of the year, which was 2.91% for our pension plan and 2.96% for our other-postretirement benefit plan for 2022.
Our post-retirement benefits expense under these plans is determined using the discount rate as of the beginning of the year, which was 5.51% for our pension plan and 5.45% for our other-postretirement benefit plan for 2023.
We believe EBITD is a relevant and useful indicator of operating performance, as we measure it for management purposes because it provides a better understanding of our results of operations by highlighting our operations and the underlying profitability of our core businesses.
We believe EBITD is a relevant and useful indicator of operating performance, as we measure it for 44 Table of Contents (In thousands of dollars, except per share amounts) management purposes because it provides a better understanding of our results of operations by highlighting our operations and the underlying profitability of our core businesses.
Aqua Resources offers, through a third-party, water and sewer service line protection solutions and repair services to households. Other non-regulated subsidiaries of Peoples provide utility service line protection services to households and operate gas marketing and production businesses.
Lastly, the Company’s market-based activities are conducted through Aqua Resources, Inc. and certain other non-regulated subsidiaries of Peoples. Aqua Resources offers, through a third-party, water and sewer service line protection solutions and repair services to households. Other non-regulated subsidiaries of Peoples provide utility service line protection services to households and operate gas marketing and production businesses.
Our targeted allocations are driven by our investment strategy to earn a reasonable rate of return 61 Table of Contents (In thousands of dollars, except per share amounts) while maintaining risk at acceptable levels through the diversification of investments across and within various asset categories.
Our targeted allocations are driven by our investment strategy to earn a reasonable rate of return while maintaining risk at acceptable levels through the diversification of investments across and within various asset categories.
After reviewing the hypothetical portfolio of bonds, we selected a discount rate of 5.51% for our pension plan, and 5.45% for our other post-retirement benefit plans as of December 31, 2022, which represent a 260 and 249 basis-point increase as compared to the discount rates selected at December 31, 2021, respectively.
After reviewing the hypothetical portfolio of bonds, we selected a discount rate of 5.17% for our pension plan, and 5.09% for our other post-retirement benefit plans as of December 31, 2023, which represent a 34 and 36 basis-point decrease as compared to the discount rates selected at December 31, 2022, respectively.
Sources of Capital Since net operating cash flow plus advances and contributions in aid of construction have not been sufficient to fully fund our cash requirements including capital expenditures and our growth through acquisitions program, which included financings for a portion of the Peoples Gas Acquisition, we issued $5,542,246 of long-term debt, and obtained other short-term borrowings during the past three years.
Sources of Capital Since net operating cash flow plus advances and contributions in aid of construction have not been sufficient to fully fund our cash requirements including capital expenditures and our growth through acquisitions program, we issued $2,786,632 of long-term debt, and obtained other short-term borrowings during the past three years.
At December 31, 2022, we have a $1,000,000 unsecured long-term revolving credit facility that expires in December 2027, of which $19,041 was designated for letter of credit usage, $490,959 was available for borrowing, and $490,000 of borrowings were outstanding at December 31, 2022.
At December 31, 2023, we have a $1,000,000 unsecured long-term revolving credit facility that expires in December 2027, of which $16,838 was designated for letter of credit usage, $263,162 was available for borrowing, and $720,000 of borrowings were outstanding at December 31, 2023.
Recovery of the effects of inflation through higher customer rates is dependent upon receiving adequate and timely rate increases. However, rate increases are not retroactive and often lag increases in costs caused by inflation.
Recovery of the effects of increased cost of providing services and infrastructure improvements through higher customer rates is dependent upon receiving adequate and timely rate increases. However, rate increases are not retroactive and often lag increases in costs.
Net income - Years ended December 31, 2022 2021 2020 Operating income $ 661,187 $ 602,709 $ 434,686 Net income 465,237 431,612 284,849 Diluted net income per share 1.77 1.67 1.12 The changes in diluted net income per share in 2022 over the previous year were due to the aforementioned changes.
Net income - Years ended December 31, 2023 2022 2021 Operating income $ 692,097 $ 661,187 $ 602,709 Net income 498,226 465,237 431,612 Diluted net income per share 1.86 1.77 1.67 The changes in diluted net income per share in 2023 over the previous year were due to the aforementioned changes.
Other expense, net - Interest expense was $238,116 in 2022 and $207,709 in 2021. Interest expense increased in 2022 primarily due to an increase in average borrowings , and an increase in average interest r ates. The weighted average cost of fixed rate long-term debt was 3.78% at December 31, 2022 and 3.61% at December 31, 2021.
Other expense, net - Interest expense, net was $279,961 in 2023 and $234,441 in 2022. Interest expense increased in 2023 primarily due to an increase in average borrowings , and an increase in average interest r ates. The weighted average cost of fixed rate long-term debt was 3.86% at December 31, 2023 and 3.78% at December 31, 2022.
The increase in 2022 is primarily due to an increase in the average balance of utility plant construction work in progress, to which AFUDC is applied. The amount of AFUDC related to equity was $17,618 in 2022 and $16,282 in 2021.
The decrease in 2023 is primarily due to a decrease in the average balance of utility plant construction work in progress, to which AFUDC is applied. The amount of AFUDC related to equity was $11,726 in 2023 and $17,618 in 2022.
In accordance with funding rules and our funding policy, during 2023 our pension contribution is expected to be $20,343.
In accordance with funding rules and our funding policy, during 2024 our pension contribution is expected to be $9,393.
Our Regulated Water segment also includes operating revenues of $11,477 in 2022 and $13,358 in 2021, and $8,781 in 2020, associated with revenues earned primarily from fees received from telecommunication operators that have put 50 Table of Contents (In thousands of dollars, except per share amounts) cellular antennas on our water towers, fees earned from municipalities for our operation of their water or wastewater treatment services or to perform billing services, and fees earned from developers for accessing our water mains.
Our Regulated Water segment also includes operating revenues of $14,863 in 2023, $11,477 in 2022 and $13,358 in 2021, associated with revenues earned primarily from fees received from telecommunication operators that have put cellular antennas on our water towers, fees earned from municipalities for our operation of their water or wastewater treatment services or to perform billing services, and fees earned from developers for accessing our water mains. 50 Table of Contents (In thousands of dollars, except per share amounts) Operating expenses - Operations and maintenance expense for the year ended December 31, 2023 was $368,843 compared to $370,850 in the prior period.
The timing and duration of the warnings and restrictions can have an impact on our water revenues and net income. In general, water consumption in the summer months is affected by drought warnings and restrictions to a higher degree because discretionary and recreational use of water is highest during the summer months, particularly in our northern service territories.
In general, water consumption in the summer months is affected by drought warnings and restrictions to a higher degree because discretionary and recreational use of water is highest during the summer months, particularly in our northern service territories. At other times of the year, warnings and restrictions generally have less of an effect on water consumption.
For utility plant in service, we would recognize an impairment loss for any amount disallowed by the respective utility commission. Our long-lived assets, which consist primarily of utility plant in service , operating lease right-of-use assets and intangible assets, are reviewed for impairment when changes in circumstances or events occur.
Our long-lived assets, which consist primarily of utility plant in service , operating lease right-of-use assets and intangible assets, are reviewed for impairment when changes in circumstances or events occur.
The purchase price for these pending acquisitions is subject to certain adjustments at closing, and the pending acquisitions are subject to regulatory approvals, including the final determination of the fair value of the rate base acquired.
The purchase price for these pending acquisitions is subject to certain adjustments at closing, and the pending acquisitions are subject to regulatory approvals, including the final determination of the fair value of the rate base acquired. Closings for these acquisitions are expected to occur in 2024 or 2025, which is subject to the timing of the various regulatory approval processes.
Revenues from our Regulated Water segment increased by $102,769, Regulated Natural Gas segment by $283,460 and other revenues by $23,659. A detailed discussion of the factors contributing to the changes in segment net revenue is included below under the section, Segment Results of Operations.
Revenues from our Regulated Water segment increased by $70,404, Regulated Natural Gas segment revenues decreased by $279,603 and Other business segment revenues decreased by $25,009. A detailed discussion of the factors contributing to the changes in segment net revenue is included below under the section, Segment Results of Operations.
These changes allow a tax deduction for qualifying utility asset improvement costs that were formerly capitalized for tax purposes. The Company is utilizing the flow-through method to account for these timing differences.
In December 2022, the Company made a similar change for its Aqua New Jersey subsidiary. These changes resulted in a tax deduction for qualifying utility asset improvement costs that were formerly capitalized for tax purposes. The Company is utilizing the flow-through method to account for these timing differences.
The expected return on plan assets is based on a targeted allocation of 50% to 70% return seeking assets and 30% to 50% liability hedging assets. Our post-retirement benefits expense increases as the expected return on plan assets decreases. We believe that our actual long-term asset allocations on average will approximate our targeted allocations.
Our post-retirement benefits expense increases as the expected return on plan assets decreases. We believe that our actual long-term asset allocations on average will approximate our targeted allocations.
Even during periods of moderate inflation, the effects of inflation can have a negative impact on our operating results. Our natural gas distribution operations are also affected by the cost of natural gas.
Even during periods of moderate inflation, the effects of inflation can have a negative impact on our operating results.
On occasion, drought warnings and water use restrictions are issued by governmental authorities for portions of our service territories in response to extended periods of dry weather conditions, regardless of our ability to meet unrestricted 46 Table of Contents (In thousands of dollars, except per share amounts) customer water demands.
On occasion, drought warnings and water use restrictions are issued by governmental authorities for portions of our service territories in response to extended periods of dry weather conditions, regardless of our ability to meet unrestricted customer water demands. The timing and duration of the warnings and restrictions can have an impact on our water revenues and net income.
Other expense, net – Interest expense, net, increased by $3,582 or 3.3% primarily due to the increase in average borrowings and higher interest rate on our revolving line of credit in 2022. AFUDC increased by $1,692 or 8.8% due to the increase in the average balance of utility plant construction work in progress, to which AFUDC is applied.
Other expense, net – Interest expense, net, increased by $5,134 or 5.9% for 2023 compared to 2022 due to additional borrowings and a higher interest rate on our revolving line of credit in 2023. AFUDC decreased by $534 or 19.7% due to the decrease in the average balance of utility plant construction work in progress, to which AFUDC is applied.
In 2022, the fair values of our investments associated with our non-qualified plan declined and we recognized a loss of $895 in 2022 compared to a gain of $(607) in 2021. Income tax benefit - Our effective income tax rate was (3.2)% in 2022, and (2.3)% in 2021.
In 2023, the fair values of our investments associated with our non-qualified plan increased, and we recognized a gain of $582 in 2023 compared to a loss of $895 in 2022.
We are able to generally pass the cost of gas to our customers without markup under purchase gas cost adjustment mechanisms; therefore, increases in the cost of gas are offset by a corresponding increase in revenues. However, higher gas costs may adversely impact our accounts receivable collections, resulting in higher bad debt expense.
Our natural gas distribution operations are also affected by the cost of natural gas. We are able to generally pass the cost of gas to our customers without markup under purchase gas cost adjustment mechanisms; therefore, increases in the cost of gas are offset by a corresponding increase in revenues.
For 2022, we used a 5.4% expected return on plan assets assumption, and are currently reviewing this assumption for 2023 and expect it may remain unchanged in 2023. Funding requirements for qualified defined benefit pension plans are determined by government regulations and not by accounting pronouncements.
For 2023, we used a 6.8% expected return on plan assets assumption and are currently reviewing this assumption for 2024. 62 Table of Contents (In thousands of dollars, except per share amounts) Funding requirements for qualified defined benefit pension plans are determined by government regulations and not by accounting pronouncements.
For Peoples Gas, the Company calculated the catch-up adjustment for periods prior to the 2021 tax year and recognized a regulatory liability of $13,808 for these income tax benefits. The Company will maintain this regulatory liability on its consolidated balance sheet until the accounting treatment is determined in its next base rate case.
For Peoples Gas, the Company calculated the catch-up adjustment for periods prior to the 2021 tax year and recognized a regulatory liability of $13,808 for these income tax benefits.
Failure to comply with our debt covenants could result in an event of default, which could result in us being required to repay or refinance our borrowings before their due date, possibly limiting our future borrowings, and increasing our borrowing costs. 56 Table of Contents (In thousands of dollars, except per share amounts) In April 2021, the Company filed a universal shelf registration statement through a filing with the SEC to allow for the potential future offer and sale by the Company, from time to time, in one or more public offerings, of an indeterminate amount of our common stock, preferred stock, debt securities, and other securities specified therein at indeterminate prices.
In April 2021, the Company filed a universal shelf registration statement through a filing with the SEC to allow for the potential future offer and sale by the Company, from time to time, in one or more public offerings, of an indeterminate amount of our common stock, preferred stock, debt securities, and other securities specified therein at indeterminate prices.
Regulated Water Segment The following tables present the selected operating results and customers served for our Regulated Water segment, for and as of the year ended December 31,: 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 Sendout (in millions of gallons) Pennsylvania 42,666 42,198 41,683 468 515 Ohio 14,604 13,971 14,020 633 (49) Illinois 8,784 8,764 8,651 20 113 Texas 8,606 7,212 7,393 1,394 (181) North Carolina 5,934 5,984 5,780 (50) 204 Other states 6,272 6,191 6,299 81 (108) Subtotal 86,866 84,320 83,826 2,546 494 Elimination (141) (154) (65) 13 (89) Total sendout by state 86,725 84,166 83,761 2,559 405 Utility customers: Residential water 850,673 842,200 832,902 8,473 9,298 Commercial water 43,119 42,864 42,535 255 329 Industrial water 1,286 1,331 1,338 (45) (7) Other water 18,446 17,932 18,561 514 (629) Wastewater 181,721 162,478 151,965 19,243 10,513 Total water and wastewater utility customers 1,095,245 1,066,805 1,047,301 28,440 19,504 Operating revenues: Residential water $ 607,473 $ 561,996 $ 567,485 $ 45,477 $ (5,489) Commercial water 168,460 151,071 143,479 17,389 7,592 Industrial water 32,581 30,230 29,764 2,351 466 Other water 94,359 89,472 67,712 4,887 21,760 Wastewater 165,312 132,316 121,117 32,996 11,199 Customer rate credits - - (4,080) - 4,080 Other utility 14,787 15,118 13,063 (331) 2,055 Total operating revenues $ 1,082,972 $ 980,203 $ 938,540 $ 102,769 $ 41,663 Operating expenses: Operations and maintenance expense $ 370,850 $ 332,598 $ 309,608 $ 38,252 $ 22,990 Depreciation and amortization $ 201,392 $ 182,074 $ 171,152 $ 19,318 $ 10,922 Taxes other than income taxes $ 64,472 $ 63,264 $ 60,505 $ 1,208 $ 2,759 Other expense, net $ 84,396 $ 81,931 $ 91,001 $ 2,465 $ (9,070) Provision for income tax $ 47,510 $ 26,633 $ 22,481 $ 20,877 $ 4,152 Segment net income $ 314,352 $ 293,703 $ 283,793 $ 20,649 $ 9,910 Operating revenues - The growth in our Regulated Water segment’s revenues over the past three years is primarily a result of increases in our water and wastewater rates and our customer base.
Corporate costs include general and administrative expenses, and interest expense. 49 Table of Contents (In thousands of dollars, except per share amounts) Regulated Water Segment The following tables present the selected operating results and customers served for our Regulated Water segment, for and as of the year ended December 31: 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 Sendout (in millions of gallons) Pennsylvania 42,525 42,666 42,198 (141) 468 Ohio 13,560 14,604 13,971 (1,044) 633 Illinois 8,421 8,784 8,764 (363) 20 Texas 8,703 8,606 7,212 97 1,394 North Carolina 5,824 5,934 5,984 (110) (50) Other states 6,526 6,272 6,191 254 81 Subtotal 85,559 86,866 84,320 (1,307) 2,546 Elimination (122) (141) (154) 19 13 Total sendout by state 85,437 86,725 84,166 (1,288) 2,559 Utility customers: Residential water 859,331 850,673 842,200 8,658 8,473 Commercial water 43,853 43,119 42,864 734 255 Industrial water 1,283 1,286 1,331 (3) (45) Other water 19,123 18,446 17,932 677 514 Wastewater 190,119 181,721 162,478 8,398 19,243 Total water and wastewater utility customers 1,113,709 1,095,245 1,066,805 18,464 28,440 Operating revenues: Residential water $ 641,351 $ 607,473 $ 561,996 $ 33,878 $ 45,477 Commercial water 180,731 168,460 151,071 12,271 17,389 Industrial water 33,949 32,581 30,230 1,368 2,351 Other water 92,784 94,359 89,472 (1,575) 4,887 Wastewater 187,462 165,312 132,316 22,150 32,996 Other utility 17,099 14,787 15,118 2,312 (331) Total operating revenues $ 1,153,376 $ 1,082,972 $ 980,203 $ 70,404 $ 102,769 Operating expenses: Operations and maintenance expense $ 368,843 $ 370,850 $ 332,598 $ (2,007) $ 38,252 Depreciation and amortization $ 217,593 $ 201,392 $ 182,074 $ 16,201 $ 19,318 Taxes other than income taxes $ 62,759 $ 64,472 $ 63,264 $ (1,713) $ 1,208 Other expense, net $ 105,674 $ 84,396 $ 81,931 $ 21,278 $ 2,465 Provision for income taxes $ 57,546 $ 47,510 $ 26,633 $ 10,036 $ 20,877 Segment net income $ 340,961 $ 314,352 $ 293,703 $ 26,609 $ 20,649 Operating revenues - The growth in our Regulated Water segment’s revenues over the past three years is primarily a result of increases in our water and wastewater rates and our customer base.
The change in the effective tax rate is primarily due to a decrease in the amortization of certain regulatory liabilities associated with deferred taxes. 51 Table of Contents (In thousands of dollars, except per share amounts) Regulated Natural Gas Segment The following tables present the selected operating results and customers served for our Regulated Natural Gas segment for and as of the year ended December 31,: 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 Gas utility customers: Residential gas 695,198 692,174 690,642 3,024 1,532 Commercial gas 59,684 59,595 59,424 89 171 Industrial gas 1,459 1,475 1,436 (16) 39 Total gas utility customers 756,341 753,244 751,502 3,097 1,742 Delivered volumes (thousand cubic feet) Residential gas 61,093,372 56,542,038 33,675,963 4,551,334 22,866,075 Commercial gas 37,240,382 33,403,899 20,082,555 3,836,483 13,321,344 Industrial gas 49,017,036 49,726,237 37,936,661 (709,201) 11,789,576 Total delivered volumes 147,350,790 139,672,174 91,695,179 7,678,616 47,976,995 Heating Degree Days (b) 5,648 5,139 3,013 509 2,126 Average Heating Degree Days (c) 5,438 5,466 2,973 (28) 2,493 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 Operating revenues: Residential gas $ 720,490 $ 530,338 $ 314,274 $ 190,152 $ 216,064 Commercial gas 149,653 99,596 50,239 50,057 49,357 Industrial gas 5,636 3,427 6,923 2,209 (3,496) Gas transportation 205,825 198,195 133,685 7,630 64,510 Customer rate credits - (5,000) (18,924) 5,000 13,924 Other utility 61,758 33,346 20,367 28,412 12,979 Total operating revenues $ 1,143,362 $ 859,902 $ 506,564 $ 283,460 $ 353,338 Operating expenses: Operations and maintenance expense $ 239,506 $ 226,194 $ 198,383 $ 13,312 $ 27,811 Purchased gas $ 551,009 $ 313,390 $ 154,103 $ 237,619 $ 159,287 Depreciation and amortization $ 118,955 $ 113,238 $ 84,201 $ 5,717 $ 29,037 Taxes other than income taxes $ 22,642 $ 20,801 $ 13,307 $ 1,841 $ 7,494 Other expense, net $ 87,916 $ 78,099 $ 25,252 $ 9,817 $ 52,847 Income tax benefit $ (61,942) $ (40,013) $ (25,133) $ (21,929) $ (14,880) Segment net income $ 185,276 $ 148,193 $ 56,451 $ 37,083 $ 91,742 (a) Includes operating results since the completion of the Peoples Gas Acquisition on March 16, 2020.
The change in the effective tax rate is primarily due to a decrease in the amortization of certain regulatory liabilities associated with deferred taxes. 51 Table of Contents (In thousands of dollars, except per share amounts) Regulated Natural Gas Segment The following tables present the selected operating results and customers served for our Regulated Natural Gas segment for and as of the year ended December 31: 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 Gas utility customers: Residential gas 683,811 695,198 692,174 (11,387) 3,024 Commercial gas 59,384 59,684 59,595 (300) 89 Industrial gas 551 1,459 1,475 (908) (16) Total gas utility customers 743,746 756,341 753,244 (12,595) 3,097 Delivered volumes (thousand cubic feet) Residential gas 51,698,440 61,093,372 56,542,038 (9,394,932) 4,551,334 Commercial gas 33,151,308 37,240,382 33,403,899 (4,089,074) 3,836,483 Industrial gas 48,323,846 49,017,036 49,726,237 (693,190) (709,201) Total delivered volumes 133,173,594 147,350,790 139,672,174 (14,177,196) 7,678,616 Heating Degree Days (a) 4,558 5,648 5,139 (1,090) 509 Average Heating Degree Days (b) 5,427 5,438 5,466 (11) (28) 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 Operating revenues: Residential gas $ 519,406 $ 720,490 $ 530,338 $ (201,084) $ 190,152 Commercial gas 111,272 149,653 99,596 (38,381) 50,057 Industrial gas 3,232 5,636 3,427 (2,404) 2,209 Gas transportation 184,598 205,825 198,195 (21,227) 7,630 Customer rate credits - - (5,000) - 5,000 Other utility 45,251 61,758 33,346 (16,507) 28,412 Total operating revenues $ 863,759 $ 1,143,362 $ 859,902 $ (279,603) $ 283,460 Operating expenses: Operations and maintenance expense $ 209,073 $ 239,506 $ 226,194 $ (30,433) $ 13,312 Purchased gas $ 327,548 $ 551,009 $ 313,390 $ (223,461) $ 237,619 Depreciation and amortization $ 125,263 $ 118,955 $ 113,238 $ 6,308 $ 5,717 Taxes other than income taxes $ 23,846 $ 22,642 $ 20,801 $ 1,204 $ 1,841 Other expense, net $ 90,819 $ 87,916 $ 78,099 $ 2,903 $ 9,817 Income tax benefit $ (113,353) $ (61,942) $ (40,013) $ (51,411) $ (21,929) Segment net income $ 200,563 $ 185,276 $ 148,193 $ 15,287 $ 37,083 (a) Unit of measure reflecting temperature-sensitive natural gas consumption, calculated by subtracting the average of a day’s high and low temperatures from 65 degrees Fahrenheit; measured at Pittsburgh, PA.
Expenses associated with filing rate cases are deferred and amortized over periods that generally range from one to three years. 48 Table of Contents (In thousands of dollars, except per share amounts) Taxes other than income taxes totaled $90,024 in 2022 and $86,641 in 2021, and has increased by $3,383 or 3.9% in 2022 as compared to 2021 principally due to increase in pumping fees of $2,120.
Expenses associated with filing rate cases are deferred and amortized over periods that generally range from one to three years. Taxes other than income taxes totaled $90,208 in 2023 and $90,024 in 2022, and has increased by $184 or 0.2% in 2023 as compared to 2022.
Our other revenues consist of market-based revenues at Aqua Resources, Aqua Infrastructure, and our non-regulated natural gas operations amounting to $61,698 in 2022, $38,435 in 2021, and $17,776 in 2020. The increase in other revenues is primarily due to higher revenues from our non-regulated natural gas operations driven by higher gas prices.
Our Other business segment revenues consist of market-based revenues at Aqua Resources and our non-regulated natural gas operations amounting to $36,689 in 2023, $61,698 in 2022, and $38,435 in 2021.
The shares issued under the Plan are either original issue shares or shares purchased by the Company’s transfer agent in the open-market.
As of the December 2023 dividend payment, holders of 4.3% of the common shares outstanding participated in the dividend reinvestment portion of the Plan. The shares issued under the Plan are either original issue shares or shares purchased by the Company’s transfer agent in the open-market.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeAs of December 31, 2022, the debt maturities by period, in thousands of dollars, and the weighted average interest rate for long-term debt are as follows: 2023 2024 2025 2026 2027 Thereafter Total Fair Value Long-term debt: Fixed rate $ 199,356 71,785 149,560 21,605 239,907 5,445,182 $ 6,127,395 $ 5,038,131 Variable rate 490,000 490,000 490,000 Total $ 199,356 $ 71,785 $ 149,560 $ 21,605 $ 729,907 $ 5,445,182 $ 6,617,395 $ 5,528,131 Weighted average interest rate 4.08% 4.23% 4.98% 7.37% 5.29% 3.55% 3.94% From time to time, we make investments in marketable equity securities.
Biggest changeAs of December 31, 2023, the debt maturities by period, in thousands of dollars, and the weighted average interest rate for long-term debt are as follows: 2024 2025 2026 2027 2028 Thereafter Total Fair Value Long-term debt: Fixed rate $ 67,415 $ 147,319 $ 21,556 $ 237,728 $ 7,032 $ 5,736,958 $ 6,218,008 $ 5,260,722 Variable rate - - - 720,000 - - 720,000 720,000 Total $ 67,415 $ 147,319 $ 21,556 $ 957,728 $ 7,032 $ 5,736,958 $ 6,938,008 $ 5,980,722 Weighted average interest rate 3.95% 4.76% 7.37% 5.83% 4.32% 3.82% 4.14% From time to time, we make investments in marketable equity securities.
We also manage gas commodity price risk and supply risk by injecting natural gas into storage during the summer months and withdrawing the natural gas during the winter heating season. ‎ 63 Table of Contents
We also manage gas commodity price risk and supply risk by injecting natural gas into storage during the summer months and withdrawing the natural gas during the winter heating season. ‎ 64 Table of Contents
As a result, we are exposed to the risk of changes in equity prices for the marketable equity securities. As of December 31, 2022, we have assets of, in thousands of dollars, $24,962 to fund our deferred compensation and non-qualified pension plan liabilities.
As a result, we are exposed to the risk of changes in equity prices for the marketable equity securities. As of December 31, 2023, we have assets of, in thousands of dollars, $26,442 to fund our deferred compensation and non-qualified pension plan liabilities.
Volatile equity market conditions arising from the COVID-19 pandemic and global uncertainties associated with the current conflict in Ukraine and sanctions imposed in response to this conflict, may result in our pension and other post-retirement plans’ assets market values suffering a decline, which could increase our required cash contributions to the plans and expense in subsequent years.
Volatile equity market conditions arising from public health threats and global conflicts and sanctions imposed in response thereto, may result in our pension and other post-retirement plans’ assets market values suffering a decline, which could increase our required cash contributions to the plans and expense in subsequent years.

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